-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GPm9mfXHNJiD3/Fc8zN1WiDWJhdtyaa0LaiQmKmVF8NjwMQKKavR8hI7nKGzUj9x msI5opZpTFtyniFdC1JivA== 0000822671-95-000018.txt : 19950501 0000822671-95-000018.hdr.sgml : 19950501 ACCESSION NUMBER: 0000822671-95-000018 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19950428 EFFECTIVENESS DATE: 19950428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CAPITAL MANAGER TRUST /MA/ CENTRAL INDEX KEY: 0000822671 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-17486 FILM NUMBER: 95532868 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 485BPOS 1 As filed with the Securities and Exchange Commission on April 27 , 1995 Registration No. 33-17486 811-5346 - -------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM N-1A ---- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / ---- ---- Pre-Effective Amendment No. / / ---- ---- Post-Effective Amendment No. 10 / X / and ---- ---- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X / ACT OF 1940 ---- ---- Amendment No. 11 / X / (Check appropriate box or boxes) ---- --------------- PUTNAM CAPITAL MANAGER TRUST (Exact name of registrant as specified in charter) One Post Office Square, Boston, Massachusetts 02109 (Address of principal executive offices) Registrant's Telephone Number, including Area Code (617) 292-1000 -------------- It is proposed that this filing will become effective (check appropriate box) ---- / / immediately upon filing pursuant to paragraph (b) - ---- ---- / X / on May 1, 1995 pursuant to paragraph (b) - ---- ---- / / 60 days after filing pursuant to paragraph (a)(1) - ---- ---- / / on (date) pursuant to paragraph (a)(1) - ---- ---- / / 75 days after filing pursuant to paragraph (a)(2) - ---- ---- / / on (date) pursuant to paragraph (a)(2) of rule 485. - ---- If appropriate, check the following box: ---- / / this post-effective amendment designates a new - ---- effective date for a previously filed post-effective amendment. ----------- JOHN R. VERANI, Vice President PUTNAM CAPITAL MANAGER TRUST One Post Office Square Boston, Massachusetts 02109 (Name and address of agent for service) --------------- Copy to: JOHN W. GERSTMAYR, Esquire ROPES & GRAY One International Place Boston, Massachusetts 02110 ------------------- The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended December 31, 1994 was filed on February 24 , 1995. PUTNAM CAPITAL MANAGER TRUST CROSS REFERENCE SHEET (as required by Rule 481(a)) Part A N-1A Item No. Location 1. Cover Page.................. Cover Page 2. Synopsis.................... Omitted 3. Condensed Financial Information................. Financial highlights; How performance is shown 4. General Description of Registrant.................. The Trust; Investment objectives and policies of the Funds; Common investment policies and techniques; Organization and history 5. Management of the Fund...... How the Trust is managed; Organization and history; About Putnam Investments, Inc. 5A. Management's Discussion (Contained in the Annual of Fund Performance......... Report of the Registrant) 6. Capital Stock and Other Securities.................. Cover Page; Sales and redemptions; How the Trust values its shares; How distributions are made; tax information; Organization and history 7. Purchase of Securities Being Offered............... The Trust; Sales and redemptions; How the Trust values its shares; Organization and history 8. Redemption or Repurchase.... Cover Page; Sales and redemptions; How the Trust values its shares; Organization and history 9. Pending Legal Proceedings... Not Applicable Part B N-1A Item No. Location 10. Cover Page.................. Cover Page 11. Table of Contents........... Cover Page 12. General Information and History..................... Organization and history (Part A) 13. Investment Objectives and Policies.................... Investment Objectives and Policies of the Funds; Investment Restrictions of the Trust; Portfolio Turnover 14. Management of the Registrant.................. Management of the Trust 15. Control Persons and Principal Holders of Securities.................. Management of the Trust 16. Investment Advisory and Other Services.............. Management of the Trust; Custodian; Independent Accountants and Financial Statements 17. Brokerage Allocation........ Management of the Trust 18. Capital Stock and Other Securities.................. Management of the Trust; Determination of Net Asset Value; Suspension of Redemptions; Shareholder Liability 19. Purchase, Redemption and Pricing of Securities Being Offered................ Sales and Redemptions (Part A); Management of the Trust; Determination of Net Asset Value; Suspension of Redemptions 20. Tax Status.................. How distributions are made; tax information (Part A); Taxes 21. Underwriter................. Management of the Trust 22. Calculation of Performance Data........................ How performance is shown (Part A); Investment Performance of the Trust (Standard Performance Measures) 23. Financial Statements Independent Accountants and Financial Statements Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. PUTNAM CAPITAL MANAGER TRUST PROSPECTUS - MAY 1, 1995 Putnam Capital Manager Trust (the "Trust") offers shares of beneficial interest in separate investment portfolios (collectively , the "Funds") for purchase by separate accounts of various insurance companies. The Funds, which have different investment objectives and policies, offered by this Prospectus are: PCM Asia Pacific Growth Fund, PCM Diversified Income Fund, PCM Global Asset Allocation Fund, PCM Global Growth Fund, PCM Growth and Income Fund, PCM High Yield Fund, PCM Money Market Fund, PCM New Opportunities Fund, PCM U.S. Government and High Quality Bond Fund, PCM Utilities Growth and Income Fund and PCM Voyager Fund. An investment in PCM Money Market Fund is neither insured nor guaranteed by the U.S. government. There can be no assurance that PCM Money Market Fund will be able to maintain a stable net asset value of $1.00 per share. PCM High Yield Fund invests primarily in, and PCM Diversified Income Fund may invest significantly in, lower-rated bonds, commonly known as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and non-payment of interest. Investors should carefully assess the risks associated with an investment in either Fund. This Prospectus explains concisely information about the Trust and should be read in conjunction with the Prospectus for the separate account of the variable annuity or variable life insurance product that accompanies this Prospectus. Please read it carefully and keep it for future reference. Investors can find more detailed information about the Trust in the May 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Putnam Investor Services at 1-800-521-0538. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS INSURANCE COMPANIES. What you need to know ABOUT THE TRUST 2 Financial highlights 2 The Trust 4 Investment objectives and policies of the Funds 4 Common investment policies and techniques 16 How performance is shown 20 How the Trust is managed 21 Organization and history 23 ABOUT YOUR INVESTMENT 24 Sales and redemptions 24 How the Trust values its shares 24 How distributions are made; tax information 25 Financial information 25 ABOUT PUTNAM INVESTMENTS, INC. 25 APPENDIX 26 About the Trust FINANCIAL HIGHLIGHTS The tables on the following pages present per share financial information for the life of each Fund. This information has been audited and reported on by the Trust's independent accountants. The Report of Independent Accountants and financial statements included in the Trust's Annual Report to shareholders for the 1994 fiscal year are incorporated by reference into this Prospectus. The Trust's Annual Report, which contains additional unaudited performance information, will be made available without charge upon request. Financial information for PCM Asia Pacific Growth Fund is not included because the Fund had no operations during the periods presented below.
Financial Highlights Investment Operations Less Net Distributions From: Realized and Net Unrealized Total from Net Net Realized Year (Period) Net Asset Value, Investment Gain (Loss) on Investment Investment Gain on Ended Beginning of Period Income Investments Operations Income Investments PCM Voyager Fund December 31, 1994 $22.41 $.07 $.14 $.21 $(.05) $(.37) December 31, 1993 19.21 .04 3.50 3.54 (.07) (.27) December 31, 1992 17.94 .07 1.72 1.79 (.08) (.44) December 31, 1991(a) 12.58 .11 5.61 5.72 (.12) (.24) December 31, 1990 13.00 .18 (.45) (.27) (.06) (.09) December 31, 1989 10.30 .12 3.20 3.32 (.16) (.46) December 31, 1988*(a) 10.00 .13 .17 .30 - - PCM Global Growth Fund December 31, 1994 $13.68 $.13 $(.26) $(.13) $(.05) $(.02) December 31, 1993 10.48 .08 3.28 3.36 (.16) - December 31, 1992 10.61 .10 (.14) (.04) (.09) - December 31, 1991 9.32 .11 1.28 1.39 (.10) - December 31, 1990** 10.00 .11 (.79) (.68) - - PCM Growth and Income Fund December 31, 1994 $17.38 $.50 $(0.48) $.02 $(.38) $(.58) December 31, 1993 15.93 .38 1.83 2.21 (.39) (.37) December 31, 1992 15.33 .39 1.04 1.43 (.42) (.41) December 31, 1991 13.51 .43 2.09 2.52 (.53) (.17) December 31, 1990 13.41 .55 (.29) .26 (.05) (.11) December 31, 1989 12.00 .45 2.04 2.49 (.60) (.48) December 31, 1988*(a) 10.00 .42 1.58 2.00 - - PCM Global Asset Allocation Fund December 31, 1994 $14.29 $.35 $(.71) $(.36) $(.29) $(.43) December 31, 1993 12.92 .30 1.87 2.17 (.55) (.25) December 31, 1992 12.77 .35 .41 .76 (.42) (.19) December 31, 1991 11.28 .45 1.64 2.09 (.54) (.06) December 31, 1990 11.26 .54 (.52) .02 - - December 31, 1989 10.68 .56 1.10 1.66 (.88) (.15) December 31, 1988*(a) 10.00 .53 .15 .68 - - PCM High Yield Fund December 31, 1994 $12.53 $1.05 $(1.17) $(.12) $(.79) $(.14) December 31, 1993 11.17 .73 1.37 2.10 (.74) - December 31, 1992 10.12 1.26 .59 1.85 (.80) - December 31, 1991 7.91 .85 2.47 3.32 (1.11) - December 31, 1990 9.15 1.30 (2.20) (.90) (.34) - December 31, 1989 10.76 1.12 (1.37) (.25) (1.36) - December 31, 1988*(a) 10.00 1.04(b) (.28) .76 - - PCM U.S. Government and High Quality Bond Fund December 31, 1994 $13.53 $.81 $(1.24) $(.43) $(.66) $(.22) December 31, 1993 12.85 .63 .78 1.41 (.61) (.12) December 31, 1992 12.57 .60 .28 .88 (.54) (.06) December 31, 1991 11.36 .56 1.31 1.87 (.66) - December 31, 1990 10.82 .71 .08 .79 (.22) (.03) December 31, 1989 10.28 .62 .78 1.40 (.79) (.07) December 31, 1988*(a) 10.00 .66 (.38) .28 - - PCM Money Market Fund December 31, 1994 $1.00 $.0377 $ - $.0377 $(.0377) $ - December 31, 1993 1.00 .0276 - .0276 (.0276) - December 31, 1992 1.00 .0352 - .0352 (.0352) - December 31, 1991 1.00 .0575 .0001 .0576 (.0575) (.0001) December 31, 1990 1.00 .0770 - .0770 (.0770) - December 31, 1989 1.00 .0859 - .0859 (.0859) - December 31, 1988* 1.00 .0575 - .0575 (.0575) - PCM Utilities Growth and Income Fund December 31, 1994 $12.00 $.60 $(1.44) $(.84) $(.35) $(.12) December 31, 1993 10.71 .30 1.13 1.43 (.12) (.02) December 31, 1992*** 10.00 .15(b) .56 .71 - - PCM Diversified Income Fund December 31, 1994 $10.23 $.61 $(1.04) $(.43) $(.06) $- December 31, 1993**** 10.00 .06 .17 .23 - - PCM New Opportunities Fund December 31, 1994***** $10.00 $- $.82 $.82 $- $-
Ratio of Less Total Net Net Distributions Net Asset Investment Assets, Ratio of Investment In Excess of From: Value, Return at End of Expenses to Income to Realized GainPaid-in Total End of Net Asset Period (in Average Net Average Net Portfolio on InvestmentsCapitalDistributions Period Value(%)(c)thousands) Assets(%) Assets(%) Turnover(%) $- $- $(.42) $22.20 1.04 $1,026,972 .71 .40 62.44 - - (.34) 22.41 18.70 675,198 .66 .33 55.85 - - (.52) 19.21 10.36 317,225 .75 .56 48.17 - - (.36) 17.94 46.09 156,741 .81 .78 55.04 - - (.15) 12.58 (2.03) 48,414 .88 1.58 93.65 - - (.62) 13.00 32.38 39,998 .82 1.93 91.82 - - - 10.30 2.98(d) 7,981 1.35(d) 1.44(d) 103.99(d) $- $- $(.07) $13.48 (0.96) $669,821 .77 1.21 41.55 - - (.16) 13.68 32.40 352,786 .75 1.38 47.00 - - (.09) 10.48 (0.36) 86,854 .85 1.82 59.68 - - (.10) 10.61 15.01 40,183 .99 2.01 48.67 - - - 9.32 (6.80)(d) 13,203 .99(d) 2.35(d) 18.07(d) $- $- $(.96) $16.44 0.35 $1,907,380 .62 3.64 46.43 - - (.76) 17.38 14.27 1,407,382 .64 3.49 62.63 - - (.83) 15.93 9.75 641,508 .69 3.79 39.58 - - (.70) 15.33 19.05 325,861 .72 4.37 37.94 - - (.16) 13.51 1.96 155,942 .75 5.02 49.39 - - (1.08) 13.41 21.30 100,335 .74 5.73 73.40 - - - 12.00 19.89(d) 26,205 .92(d) 4.08(d) 37.94(d) $(.02) $- $(.74) $13.19 (2.50) $414,223 .76 3.19 150.21 - - (.80) 14.29 17.48 297,307 .72 3.28 192.48 - - (.61) 12.92 6.29 134,667 .79 3.84 141.87 - - (.60) 12.77 19.02 82,071 .87 4.55 77.31 - - - 11.28 0.18 51,792 .88 5.31 52.97 - (.05) (1.08) 11.26 16.08 40,200 .88 6.16 95.97 - - - 10.68 6.76(d) 26,202 1.17(d) 5.55(d) 183.11(d) $(.02) $- $(.95) $11.46 (.94) $327,119 .74 9.79 62.09 - - (.74) 12.53 19.57 291,737 .67 9.88 85.59 - - (.80) 11.17 18.98 118,804 .71 11.53 84.24 - - (1.11) 10.12 44.83 42,823 .92 12.64 104.62 - - (.34) 7.91 (9.98) 18,915 .93 13.81 86.05 - - (1.36) 9.15 (2.65) 27,511 .84 12.59 65.44 - - - 10.76 7.56(d) 19,506 .94(b)(d) 10.99(b)(d) 64.25(d) $- $- $(.88) $12.22 (3.23) $640,458 .67 6.24 118.34 - - (.73) 13.53 11.28 735,386 .64 6.16 94.01 - - (.60) 12.85 7.49 435,906 .70 6.98 45.82 - - (.66) 12.57 17.28 229,306 .74 7.57 59.29 - - (.25) 11.36 7.51 98,549 .76 8.24 32.70 - - (.86) 10.82 14.06 61,765 .76 8.32 27.81 - - - 10.28 2.78(d) 28,406 .87(d) 7.04(d) 41.41(d) $- $- $(.0377) $1.00 3.82 $244,064 .55 3.90 - - - (.0276) 1.00 2.79 129,329 .42 2.77 - - - (.0352) 1.00 3.57 105,694 .48 3.49 - - - (.0576) 1.00 5.92 78,568 .50 5.74 - - - (.0770) 1.00 7.98 77,892 .53 7.67 - - - (.0859) 1.00 8.88 24,975 .63 8.62 - - - (.0575) 1.00 5.84(d) 14,001 .71(d) 6.70(d) - $(.01) $- $(.48) $10.68 (7.02) $384,169 .68 5.23 84.88 - - (.14) 12.00 13.42 443,281 .69 5.02 50.79 - - - 10.71 7.10(d) 83,522 .64(b)(d) 3.43(b)(d) 19.29(d) $ - $- $(.06) $9.74 (4.23) $215,935 .80 7.60 165.17 - - - 10.23 2.30(d) 80,449 .28(d) 1.45(d) 40.83(d) $- $- $- $10.82 8.20(d) $68,592 .47(d)(b) .03(d)(b) 32.77(d) (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Reflects an expense limitation in effect during the period. As a result of expense limitations, expenses of PCM High Yield Fund for the period ended December 31, 1988 reflect a reduction of less than $.01 per share, expenses of PCM Utilities Growth and Income Fund for the period ended December 31, 1992 reflect a reduction of less than $.01 per share and expenses of PCM New Opportunities Fund for the period ended December 31, 1994 reflect a reduction of less than $0.02 per share. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Not annualized. * For the period February 1, 1988 (commencement of operations) to December 31, 1988. ** For the period May 1, 1990 (commencement of operations) to December 31, 1990. *** For the period May 4, 1992 (commencement of operations) to December 31, 1992. **** For the period September 15, 1993 (commencement of operations) to December 31, 1993. ***** For the period May 2, 1994 (commencement of operations) to December 31, 1994.
THE TRUST The Trust is designed to serve as a funding vehicle for insurance separate accounts associated with variable annuity contracts and variable life insurance policies. The Trust presently serves as the funding vehicle for variable annuity contracts and variable life insurance policies offered by separate accounts of various insurance companies. You should consult the prospectus issued by the relevant insurance company for more information about a separate account. Shares of the Trust are offered to these separate accounts through Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the principal underwriter for the Trust. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund of the Trust has a different investment objective or objectives which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. For more information about the investment strategies employed by the Funds, see "Common investment policies and techniques." The investment objectives and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees of the Trust without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective or objectives of a Fund without shareholder approval. There is no assurance that any Fund will achieve its objective or objectives. Additional portfolios may be created from time to time with different investment objectives and policies for use as funding vehicles for insurance company separate accounts or for other insurance products. In addition, the Trustees may, subject to any necessary regulatory approvals, eliminate any Fund or divide any Fund into two or more classes of shares with such special or relative rights and privileges as the Trustees may determine. Glossary The following terms are frequently used in this Prospectus. Many of these terms are explained in greater detail under "Common investment policies and techniques." "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager "S&P" -- Standard & Poor's Corporation "Moody's" -- Moody's Investors Service, Inc. "U.S. Government Securities" --debt securities issued or guaranteed by the U.S. government, by various of its agencies, or by various instrumentalities established or sponsored by the U.S. government. Certain U.S. Government Securities, including U.S. Treasury bills, notes and bonds, mortgage participation certificates guaranteed by Ginnie Mae, and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Fannie Mae bonds. "CMOs" -- collateralized mortgage obligations "Ginnie Mae" -- Government National Mortgage Association "Fannie Mae" -- Federal National Mortgage Association "Freddie Mac"-- Federal Home Loan Mortgage Corporation PCM ASIA PACIFIC GROWTH FUND PCM Asia Pacific Growth Fund's investment objective is to seek capital appreciation. In seeking capital appreciation, the Fund will invest primarily in securities of companies located in Asia and in the Pacific Basin. The Fund's investments will normally include common stocks, preferred stocks, securities convertible into common stocks or preferred stocks, and warrants to purchase common stocks or preferred stocks. The Fund may also invest to a lesser extent in debt securities and other types of investments if Putnam Management believes they would help achieve the Fund's objective. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may invest in securities of issuers located in any country in Asia or the Pacific Basin where Putnam Management believes there is potential for above-average capital appreciation. Such countries may include, for example, Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the People's Republic of China, the Philippines, Singapore, Taiwan and Thailand. It is anticipated that under normal market conditions the Fund will invest at least 85% of its assets in securities of companies located in Asia and in the Pacific Basin which Putnam Management believes have potential for capital appreciation. The Fund will consider an issuer of securities to be located in Asia or in the Pacific Basin if it is organized under the laws of a country in Asia or the Pacific Basin and has a principal office in a country in Asia or the Pacific Basin, if it derives 50% or more of its total revenues from business in Asia or the Pacific Basin, or if its equity securities are traded principally on a securities exchange in Asia or the Pacific Basin. It is anticipated that under normal market conditions the Fund will invest at least 65% of its assets in securities of issuers meeting at least one of the first two criteria described in the preceding sentence. The Fund will not limit its investments to any particular type of company. The Fund may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but whose securities are thought to be undervalued. It may invest in small and relatively less well-known companies. These companies may present greater opportunities for capital appreciation, but may also involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. Debt securities in which the Fund may invest will generally be rated at the time of purchase at least Baa by Moody's or BBB by S&P, or, if unrated , determined by Putnam Management to be of comparable quality. The Fund will not invest in debt securities rated less than Baa by Moody's or BBB by S&P (sometimes referred to as "junk bonds") , or, if unrated, determined by Putnam Management to be of comparable quality if, as a result more than 5% of the Fund's assets would be invested in such securities. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Debt securities rated Baa or BBB or lower have speculative characteristics and adverse economic conditions may lead to a weakened capacity to pay interest and repay principal. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments." The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may also engage in foreign currency exchange transactions and in transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Asia Pacific Growth Fund will generally be managed in a style similar to that of Putnam Asia Pacific Growth Fund. PCM DIVERSIFIED INCOME FUND PCM Diversified Income Fund seeks high current income consistent with capital preservation. The Fund pursues its investment objective by allocating its investments among the following three sectors of the fixed income securities markets: * a U.S. Government Sector, consisting primarily of debt obligations of the U.S. government, its agencies and instrumentalities; * a High Yield Sector, consisting of high-yielding, lower-rated, higher risk U.S. and foreign fixed income securities (sometimes referred to as "junk bonds") ; and * an International Sector, consisting of obligations of foreign governments, their agencies and instrumentalities, and other fixed income securities denominated in foreign currencies. Putnam Management believes that diversifying the Fund's investments among these sectors, as opposed to investing in any one sector, will better enable the Fund to preserve capital while pursuing its objective of high current income. Historically, the markets for U.S. Government Securities, high yielding corporate fixed income securities, and debt securities of foreign issuers have tended to behave independently and have at times moved in opposite directions. For example, U.S. Government Securities have generally been affected negatively by inflationary concerns resulting from increased economic activity. High-yield corporate fixed income securities, on the other hand, have generally benefitted from increased economic activity due to improvement in the credit quality of corporate issuers. The reverse has generally been true during periods of economic decline. Similarly, U.S. Government Securities have often been negatively affected by a decline in the value of the dollar against foreign currencies, while the bonds of foreign issuers held by U.S. investors have generally benefitted from such decline. Putnam Management believes that, when financial markets exhibit such a lack of correlation, a pooling of investments among these markets may produce greater preservation of capital over the long term than would be obtained by investing exclusively in any one of the markets. Putnam Management will determine the amount of assets to be allocated to each of the three market sectors in which the Fund will invest based on its assessment of the returns that can be achieved from a portfolio which is invested in all three sectors. In making this determination, Putnam Management will rely in part on quantitative analytical techniques that measure relative risks and opportunities of each market sector based on current and historical market data for each sector, as well as on its own assessment of economic and market conditions. Putnam Management will continuously review this allocation of assets and make such adjustments as it deems appropriate, although there are no fixed limits on allocations among sectors, including investments in the High Yield Sector. Because of the importance of sector diversification to the Fund's investment policies, Putnam Management expects that a substantial portion of the Fund's assets will normally be invested in each of the three market sectors. The Fund's assets allocated to each of these market sectors will be managed in accordance with particular investment policies, which are summarized below. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies , the Fund may invest without limit in securities primarily traded in U.S. markets . See "Common investment policies and techniques " below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions, transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. PCM Diversified Income Fund will generally be managed in a style similar to that of Putnam Diversified Income Trust . U.S. Government Sector The Fund will invest assets allocated to the U.S. Government Sector primarily in U.S. Government Securities. In purchasing securities for the U.S. Government Sector, Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and may adjust the average maturity of the investments held in the portfolio from time to time, depending on its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. Under normal market conditions, the Fund will invest at least 20% of its net assets in U.S. Government Securities and at least 65% of the assets allocated to the U.S. Government Sector will be invested in U.S. Government Securities. The Fund may invest assets allocated to the U.S. Government Sector in a variety of debt securities, including asset-backed and mortgage-backed securities, such as CMOs , including certain stripped mortgage-backed securities, that are issued by private U.S. issuers. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage-backed and asset-backed securities." With respect to assets allocated to the U.S. Government Sector, the Fund will only invest in privately issued debt securities that are rated at the time of purchase at least A by Moody's or S&P, or in unrated securities that Putnam Management determines are of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Risk factors. U.S. Government Securities are considered among the safest of fixed income investments . Because of this added safety, the yields available from U.S. Government Securities are generally lower than the yields available from corporate debt securities , but their values, like those of other debt securities, will fluctuate with changes in interest rates. Changes in the value of portfolio securities will not affect investment income from those securities, but will affect the Fund's net asset value. A decrease in interest rates will generally result in an increase in the value of fixed income securities. Conversely, during periods of rising interest rates, the values of such securities will generally decline. The magnitude of these fluctuations will generally be greater for securities with longer maturities. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. High Yield Sector The Fund will invest assets allocated to the High Yield Sector primarily in high yielding, lower-rated, higher risk U.S. and foreign corporate fixed income securities, including debt securities, convertible securities and preferred stocks. As discussed below, however, the Fund may invest all or any part of the High Yield Sector portfolio in higher-rated and unrated fixed income securities. The Fund will not necessarily invest in the highest yielding securities available if in Putnam Management's opinion the differences in yield are not sufficient to justify the higher risks involved. The High Yield Sector may invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P or in any unrated security which Putnam Management determines is at least of comparable quality, although up to 5% of the net assets of the Fund may be invested in securities rated below such quality, or in unrated securities which Putnam Management determines are of comparable quality. Securities rated below Caa by Moody's or CCC by S&P are of poor standing and may be in default. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The rating services' descriptions of these rating categories, including the speculative characteristics of the lower categories, are included in the Appendix to this Prospectus. The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - ------ ------------- -------- "AAA" 27.41% -- "AA" 18.12% -- "A" 21.35% 1.73% "BBB" 9.52% 1.12% "BB" 5.30% 0.02% "B" 6.11% 0.52% "CCC" 0.89% -- ------ ----- Not Rated -- 1.52% Total 88.70% 4.91% ====== ===== For a description of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may invest assets allocated to the High Yield Sector in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. The Fund may also invest assets allocated to the High Yield Sector in lower-rated securities of foreign corporate and governmental issuers denominated either in U.S. dollars or in foreign currencies. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments ." International Sector The Fund will invest the assets allocated to the International Sector in debt obligations and other fixed income securities denominated in non-U.S. currencies. These securities include: * debt obligations issued or guaranteed by foreign, national, provincial, state, or other governments with taxing authority, or by their agencies or instrumentalities; * debt obligations of supranational entities (described below); and * debt obligations and other fixed income securities of foreign and U.S. corporate issuers. When investing in the International Sector, the Fund will purchase only debt securities of issuers whose long-term debt obligations are rated A or better at the time of purchase by Moody's or S&P or that are unrated securities determined by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The Fund may, however, make investments in international debt securities rated below A with respect to assets allocated to the High Yield Sector. In the past, yields available from securities denominated in foreign currencies have often been higher than those of securities denominated in U.S. dollars. Although the Fund has the flexibility to invest in any country where Putnam Management sees potential for high income, it presently expects to invest primarily in securities of issuers in industrialized Western European countries (including Scandinavian countries) and in Canada, Japan, Australia, and New Zealand. Putnam Management will consider expected changes in foreign currency exchange rates in determining the anticipated returns of securities denominated in foreign currencies. The obligations of foreign governmental entities, including supranational issuers, have various kinds of government support. Obligations of foreign governmental entities include obligations issued or guaranteed by national, provincial, state or other governments with taxing power or by their agencies. These obligations may or may not be supported by the full faith and credit of a foreign government. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Steel and Coal Community, the Asian Development Bank, and the Inter-American Development Bank. The governmental members or "stockholders" usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowing. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves, and net income. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." PCM GLOBAL ASSET ALLOCATION FUND The investment objective of PCM Global Asset Allocation Fund is to seek a high level of long-term total return consistent with preservation of capital. By seeking total return, the Fund seeks to increase the value of the shareholder's investment through both capital appreciation and investment income. "Total return" includes interest and dividend income, net of expenses, and realized and unrealized capital gains and losses on securities. The Fund invests in a wide variety of equity and fixed income securities both of U.S. and foreign issuers. The Fund's portfolio may include securities in the following four investment categories, which in the judgment of Putnam Management represent large, well differentiated classes of securities with distinctive investment characteristics: U.S. Equities International Equities U.S. Fixed Income International Fixed Income The amount of Fund assets assigned to each investment category will be reevaluated by Putnam Management at least quarterly based on Putnam Management's assessment of the relative market opportunities and risks of each investment category taking into account various economic and market factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The portion of the Fund's assets invested in each investment category will be managed as a separate investment portfolio in accordance with that category's particular investment objectives and policies, independently of the Fund's overall objective. The following is a description of the investment objectives and policies of each investment category: U.S. Equities. The objective of the U.S. Equities category is to seek both capital growth and, to a lesser extent, current income through equity securities . This category's portfolio will include equity securities selected primarily to provide one or more of the following factors: growth in value, capital protection and dependable income. Investments will be made in companies large or small (including relatively less well-known companies) whose earnings are believed to be in a relatively strong growth trend or whose securities are thought to be undervalued. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. International Equities. The objective of the International Equities category is to seek capital appreciation. This category's portfolio will be invested in securities principally traded in foreign securities markets. These securities will primarily be common stocks or securities convertible into common stocks. Investments will be made in companies large or small (including relatively less well-known companies) whose earnings are believed to be in a relatively strong growth trend or whose securities are thought to be undervalued. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." U.S. Fixed Income. The objective of the U.S. Fixed Income category is to seek high current income through a portfolio of fixed income securities which in the judgment of Putnam Management does not involve undue risk to principal or income. The U.S. Fixed Income category may invest in any fixed income securities Putnam Management considers appropriate, including U.S. Government Securities , debt securities, mortgage-backed and asset-backed securities, convertible securities and preferred stocks of non-governmental issuers. The U.S. Fixed Income category expects normally to invest primarily in investment grade securities (rated Baa or higher by Moody's or BBB or higher by S&P at the time of purchase). For a more detailed description of security ratings, see the Appendix to this Prospectus. The U.S. Fixed Income category will not invest in securities rated lower than Caa as determined by Moody's and CCC as determined by S&P at the time of purchase. Securities in those rating categories may be in default and are considered to be of poor standing. This category may also invest in unrated securities judged by Putnam Management to be of comparable quality to those ratings listed above. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. While the credit risks presented by differing types of fixed income securities vary, the values of all fixed income securities change as interest rates fluctuate . For a description of the risks associated with investments in mortgage-backed and asset-backed securities, see "Common investment policies and techniques -- Mortgage-backed and asset- backed securities." For a description of the risks of investing in fixed income securities, including lower-rated fixed income securities (commonly known as "junk bonds") , see "Common investment policies and techniques -- Lower-rated and other fixed income securities." International Fixed Income. The investment objective of the International Fixed Income category is to seek high current income by investing principally in debt securities denominated in foreign currencies which are issued by foreign governments and governmental or supranational agencies. This category may also invest in other privately issued debt securities, convertible securities and preferred stocks principally traded in foreign securities markets. This category will invest only in securities which, at the time of purchase, are rated at least A or higher by Moody's or S&P or in unrated securities judged by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." General. Putnam Management will adjust the percentage of the Fund's assets in each investment category from time to time based upon its market outlook and its analysis of longer-term trends. The Fund may from time to time invest in all or any one of the investment categories as Putnam Management may consider appropriate in response to changing market conditions. PCM GLOBAL GROWTH FUND PCM Global Growth Fund seeks capital appreciation. It is designed for investors seeking potential above-average capital growth through a globally diversified portfolio of common stocks. Dividend and interest income is only an incidental consideration. In seeking capital appreciation, the Fund follows a global investment strategy of investing primarily in common stocks traded in securities markets located in a number of foreign countries and in the United States. The Fund may at times invest up to 100% of its assets in securities principally traded in securities markets outside the United States, and will under normal market conditions invest at least 65% of its assets in at least three different countries, one of which may be the United States. The Fund may hold a portion of its assets in cash and money market instruments. The Fund will not limit its investments to any particular type of company. It may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but which are thought to be undervalued by the market. It may invest in small and relatively less well-known companies. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. Putnam Management believes that the securities markets of many nations move relatively independently of one another, because business cycles and other economic or political events that influence one country's securities markets may have little effect on securities markets in other countries. By investing in a globally diversified portfolio, Putnam Management attempts to reduce the risks associated with investing in the economy of only one country. The countries which Putnam Management believes offer attractive opportunities for investment may change from time to time. Foreign investments can involve risks, however, that may not be present in domestic securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. PCM Global Growth Fund will generally be managed in a style similar to that of Putnam Global Growth Fund. PCM GROWTH AND INCOME FUND PCM Growth and Income Fund seeks capital growth and current income as its investment objectives. The Fund invests primarily in common stocks that offer potential for capital growth, current income, or both. The Fund may also purchase corporate bonds, notes and debentures, preferred stocks or convertible securities (both debt securities and preferred stocks) or U.S. government securities, if Putnam Management determines that their purchase would help further the Fund's investment objectives. The types of securities held by the Fund may vary from time to time in light of the Fund's investment objectives, changes in interest rates and economic and other factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest up to 20% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may invest in both higher-rated and lower-rated fixed-income securities. The risks associated with fixed income securities, including lower-rated fixed income securities (commonly known as "junk bonds") , are discussed below under "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Growth and Income Fund will generally be managed in a style similar to that of The Putnam Fund for Growth and Income. PCM HIGH YIELD FUND The primary investment objective of PCM High Yield Fund is to seek high current income. Capital growth is a secondary objective when consistent with high current income. The Fund seeks high current income by investing primarily in high-yielding, lower-rated, fixed-income securities (commonly known as "junk bonds") constituting a portfolio which Putnam Management believes does not involve undue risk to income or principal. Normally, at least 80% of the Fund's assets will be invested in debt securities, convertible securities or preferred stocks that are consistent with its primary investment objective of high current income. The Fund's remaining assets may be held in cash or money market instruments, or invested in common stocks and other equity securities. The Fund may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also invest in premium securities, engage in foreign currency exchange transactions , enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund seeks its secondary objective of capital growth, when consistent with its primary objective of high current income, by investing in securities which may be expected to appreciate in value as a result of declines in long-term interest rates or to favorable developments affecting the business or prospects of the issuer which may improve the issuer's financial condition and credit rating. Putnam Management believes that such opportunities for capital appreciation often exist in the securities of smaller capitalization companies which have the potential for significant growth. The Fund may generally invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P, or in any unrated security which Putnam Management determines is of comparable quality. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The Fund may invest up to 15% of its assets in securities rated below Caa by Moody's or CCC by S&P, including securities in the lowest rating category of each rating agency, or in unrated securities Putnam Management determines are of comparable quality. Such securities may be in default and are generally regarded by rating agencies as having extremely poor prospects of ever attaining any real investment standing. For a discussion of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - ------ ------------- -------- "AAA " -- -- "AA " -- -- "A" -- -- "BBB" 0.52% -- "BB" 20.19% -- "B" 58.18% 7.50% "CCC" 9.32% -- CC 0.17% -- C -- -- D 0.31% 0.15% -- -- ---- Total 88.69% 7.65% ====== ===== The Fund may invest in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. PCM High Yield Fund will generally be managed in a style similar to that of Putnam High Yield Advantage Fund. PCM MONEY MARKET FUND PCM Money Market Fund seeks as high a rate of current income as Putnam Management believes is consistent with preservation of capital and maintenance of liquidity. It is designed for investors seeking current income with stability of principal. The Fund invests in a portfolio of high-quality money market instruments. Examples of these instruments include: * bank certificates of deposit (CDs) : negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. * bankers' acceptances: negotiable drafts or bills of exchange, which have been "accepted" by a bank, meaning, in effect, that the bank has unconditionally agreed to pay the face value of the instrument on maturity. * prime commercial paper: high-grade, short-term obligations issued by banks, corporations and other issuers. * corporate obligations: high-grade, short-term corporate obligations other than prime commercial paper. * municipal obligations: high-grade, short-term municipal obligations. * U.S. Government Securities : marketable securities issued or guaranteed as to principal and interest by the U.S. government or by its agencies or instrumentalities. * repurchase agreements: with respect to U.S. Treasury or U.S. government agency obligations. The Fund will invest only in high-quality securities that Putnam Management believes present minimal credit risk. High-quality securities are securities rated at the time of acquisition in one of the two highest categories by at least two nationally recognized rating services (or, if only one rating service has rated the security, by that service) or if the security is unrated, judged to be of equivalent quality by Putnam Management. The Fund will maintain a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days. The Fund may invest in variable or floating rate securities which bear interest at rates subject to periodic adjustment or which provide for periodic recovery of principal on demand. Under certain conditions, these securities may be deemed to have remaining maturities equal to the time remaining until the next interest adjustment date or the date on which principal can be recovered on demand. The Fund follows investment and valuation policies designed to maintain a stable net asset value of $1.00 per share. There is no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. The Fund may invest in bank certificates of deposit and bankers' acceptances issued by banks having deposits in excess of $2 billion (or the foreign currency equivalent) at the close of the last calendar year. Should the Trustees decide to reduce this minimum deposit requirement, shareholders will be notified and this Prospectus supplemented. Considerations of liquidity and preservation of capital mean that the Fund may not necessarily invest in money market instruments paying the highest available yield at a particular time. Consistent with its investment objective, the Fund will attempt to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. The Fund will also invest to take advantage of what Putnam Management believes to be temporary disparities in yields of different segments of the high-grade money market or among particular instruments within the same segment of the market. These policies, as well as the relatively short maturity of obligations purchased by the Fund, may result in frequent changes in the Fund's portfolio. The Fund does not usually pay brokerage commissions in connection with the purchase or sale of portfolio securities. See "Management of the Fund -- Portfolio Transactions -- Brokerage and research services" in the Statement of Additional Information for a discussion of underwriters' commissions and dealers' spreads involved in the purchase and sale of portfolio securities. The portfolio of the Fund will be affected by general changes in interest rates resulting in increases or decreases in the value of the obligations held by the Fund. The value of the securities in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. Withdrawals by shareholders could require the sale of portfolio investments at a time when such a sale might not otherwise be desirable. The Fund may invest without limit in the banking industry when, in the opinion of Putnam Management, the yield, marketability and availability of investments meeting the Fund's quality standards in that industry justify any additional risks associated with the concentration of the Fund's assets in that industry . The Fund, however, will invest more than 25% of its assets in the personal credit institution or business credit institution industries only when, to Putnam Management's knowledge, the yields then available on securities issued by companies in such industries and otherwise suitable for investment by the Fund exceed the yields then available on securities issued by companies in the banking industry and otherwise suitable for investment by the Fund. The Fund may invest without limit in U.S. dollar-denominated commercial paper of foreign issuers and in bank certificates of deposits and bankers' acceptances payable in U.S. dollars and issued by foreign banks (including U.S. branches of foreign banks) or by foreign branches of U.S. banks. These investments subject the Fund to investment risks different from those associated with domestic investments. For a discussion of the risks associated with foreign investments, See "Common investment policies and techniques -- Foreign investments." The Fund may also lend its portfolio securities. For a discussion of this strategy and the risks associated with it, see "Common investment policies and techniques" below. PCM Money Market Fund will generally be managed in a style similar to that of Putnam Money Market Fund. PCM NEW OPPORTUNITIES FUND PCM New Opportunities Fund seeks long-term capital appreciation. The Fund seeks its investment objective by investing principally in common stocks of companies in sectors of the economy which Putnam Management believes possess above-average long-term growth potential. The Fund will generally invest in companies which Putnam Management identifies as offering the best prospects for long-term growth within a particular sector. Current dividend income is only an incidental consideration. The Fund invests primarily in common stocks, but may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective of capital appreciation. The Fund may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The sectors of the economy which offer above-average growth potential will change over time. At present, Putnam Management has identified the following sectors of the economy as having an above-average growth potential over the next three to five years: Personal Communications - cellular telephone, paging, personal communication networks; Media/Entertainment - cable television system operators, cable television network programmers, film entertainment providers, theme park operators, casino operators; Medical Technology/Cost-Containment - home and outpatient care, medical device companies, biotechnology, health care information services; Environmental Services - solid waste disposal, hazardous waste disposal, remediation services, environmental testing; Applied/Advanced Technology - database software, application software, networking software, computer systems integrators, information services companies; Personal Financial Services - specialty insurance companies, credit card issuers, and other consumer-oriented financial services companies; and Value-oriented Consuming - retailers, restaurants, hotel chains and travel companies able to provide quality products or services at lower prices or offering greater perceived value than competitors. In addition, the Fund may also invest a portion of its assets in securities of companies that, although not in any of the sectors described above, are expected to experience above-average growth. The sectors described above represent Putnam Management's current judgment of the sectors of the economy which offer the most attractive growth opportunities. The Fund will not necessarily be invested in each of the seven market sectors at all times. Such sectors are likely to change over time and may include a variety of industries. Subject to the Fund's investment restrictions, the Fund may invest up to one-half of its assets in any one particular sector. The Fund will invest in securities which Putnam Management believes offer above-average long-term growth opportunities. As a result of the Fund's long-term investment strategy, it is possible that the Fund's total return over certain periods may be less than that of other equity investment vehicles. The Fund seeks to invest in companies that offer above-average growth prospects in their particular sector of the economy, without regard to the company's size. Companies in the Fund's portfolio will range from small, rapidly growing companies to larger, well-established firms. The securities of small to medium-sized companies often trade less frequently and in more limited volume, and may be subject to more abrupt or erratic price movements, than securities of larger, more established companies. Such companies may have limited product lines, markets, or financial resources, or may depend on a limited management group. The Fund will normally emphasize investments in particular economic sectors. Although the Fund will not invest more than 25% of its assets in any one industry, the Fund's emphasis on particular sectors of the economy may make the value of the Fund's shares more susceptible to any single economic, political or regulatory development than the shares of an investment company which is more widely diversified. As a result, the value of the Fund's shares may fluctuate more than the value of shares of such an investment company. PCM New Opportunities Fund will generally be managed in a style similar to that of Putnam New Opportunities Fund. PCM U.S. GOVERNMENT AND HIGH QUALITY BOND FUND PCM U.S. Government and High Quality Bond Fund seeks current income consistent with preservation of capital. The Fund invests primarily in U.S. Government Securities and in other debt obligations rated at least A by Moody's or S&P at the time of investment, or, if not rated, determined by Putnam Management to be of comparable quality. For a more detailed description of security ratings, see the Appendix to this Prospectus. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Putnam Management will allocate the Fund's assets between U.S. Government Securities and other high quality bonds, depending on its assessment of market conditions and the relative investment returns available from such securities. The Fund will not, however, make any investment, if, as a result, less than 25% of the value of its assets would be invested in U.S. Government Securities. The Fund may also invest up to 10% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also invest in premium securities, engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these strategies and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and other high quality bonds and may adjust the average maturity of the Fund's portfolio from time to time, depending on its assessment of relative yields on securities of different maturities and expectations of future changes in interest rates. Thus, at certain times the average maturity of the portfolio may be relatively short (less than one year to five years, for example) and at other times may be relatively long (more than 10 years, for example). A portion of the securities held by the Fund may consist of high quality mortgage-backed and asset-backed securities. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage- backed and asset-backed securities." U.S. Government Securities and other high quality bonds do not involve the degree of credit risk associated with investments in lower quality fixed income securities, although, as a result, the yields available from U.S. Government Securities and other high quality bonds are generally lower than the yields available from many other fixed income securities. Like other fixed income securities, however, the values of U.S. Government Securities and other high quality bonds change as interest rates fluctuate. Fluctuations in the value of the Fund's securities will not affect interest income on securities already held by the Fund, but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations generally will be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may invest in short-term investments yielding lower current income rather than investing in higher yielding longer-term securities. PCM UTILITIES GROWTH AND INCOME FUND The investment objective of PCM Utilities Growth and Income Fund is to seek capital growth and current income. The Fund concentrates its investments in securities issued by companies in the public utilities industries. The Fund will seek its objective by investing under normal circumstances at least 65% of its total assets in equity and debt securities of companies in the public utilities industries. Equity securities in which the Fund may invest include common stocks, preferred stocks, securities convertible into common stocks or preferred stocks, and warrants to purchase common or preferred stocks. Debt securities in which the Fund may invest will be rated at the time of investment at least Baa by Moody's or BBB by S&P or will be of comparable quality as determined by Putnam Management. The Fund may invest in debt and equity securities of issuers in other industries if Putnam Management believes they will help achieve the Fund's objective. Companies in the public utilities industries include companies engaged in the manufacture, production, generation, transmission, sale or distribution of electric or gas energy or other types of energy and companies engaged in telecommunications, including telephone, telegraph, satellite, microwave and other communications media (but not companies engaged in public broadcasting or cable television). Putnam Management deems a particular company to be in the public utilities industries if at the time of investment Putnam Management determines that at least 50% of the company's assets, revenues or profits are derived from one or more of those industries. The portion of the Fund's assets invested in equity securities and in debt securities will vary from time to time in light of the Fund's investment objective, changes in interest rates, and economic and other factors. Although the Fund expects that in the near term it will invest substantial portions of its assets in both equity securities and in debt securities, the Fund may invest all of its assets in either equity or debt securities. The Fund may hold a portion of its assets in cash and money market instruments. The Fund may invest up to 25% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. Since the Fund's investments are concentrated in the public utilities industries, the value of its shares can be expected to change in light of factors affecting those industries, and may fluctuate more widely than the value of shares of a portfolio that invests in a broader range of industries. Many utility companies, especially electric, gas and other energy-related utility companies, have historically been subject to risks of increase in fuel and other operating costs, changes in interest rates on borrowings for capital improvement programs, changes in applicable laws and regulations, changes in technology which may render existing plants, equipment or products obsolete, the effects of energy conservation and operating constraints, and increased costs and delays associated with compliance with environmental regulations. In particular, regulatory changes with respect to nuclear and conventionally- fueled power generating facilities could increase costs or impair the ability of utility companies to operate such facilities or obtain adequate return on invested capital. Generally, prices charged by utilities are regulated in the United States and in foreign countries with the intention of protecting the public while ensuring that utility companies earn a return sufficient to allow them to attract capital in order to grow and continue to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future. In recent years, regulatory changes in the United States have increasingly allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within the utilities industries. This trend toward deregulation and the emergence of new entrants have caused non-regulated providers of utility services to become a significant part of the utilities industries. Putnam Management believes that the emergence of competition and deregulation will result in certain utility companies being able to earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased competition and may be less profitable. Although Putnam Management seeks to take advantage of favorable investment opportunities that may arise from these structural changes, there can be no assurance that the Fund will benefit from any such changes. Investments in securities rated BBB or Baa have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than would be the case with investments in securities with higher credit ratings. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security would serve the Fund's investment objective. The Fund is "non-diversified . " This means that it may invest its assets in a limited number of issuers. Under the Internal Revenue Code, the Fund generally may not invest more than 25% of its assets in obligations of any one issuer other than U.S. Government Securities and, with respect to 50% of its total assets, the Fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. Government Securities). Thus the Fund may invest up to 25% of its total assets in the securities of each of any two issuers. Because of the limited number of issuers in the public utilities industries, the Fund is more likely to invest a higher percentage of its assets in the securities of a single issuer than an investment company which invests in a broad range of industries. This practice involves an increased risk of loss to the Fund if the issuer is unable to make interest or principal payments or if the market value of such securities were to decline. PCM Utilities Growth and Income Fund will generally be managed in a style similar to that of Putnam Utilities Growth and Income Fund. Because that fund is "diversified," however, its portfolio may be invested in securities of a greater number of issuers than that of the Fund. PCM VOYAGER FUND PCM Voyager Fund seeks capital appreciation. It is designed for investors willing to assume above-average risk in return for above-average capital growth potential. The Fund invests primarily in common stocks which Putnam Management believes have potential for capital appreciation that is significantly greater than that of market averages. The Fund does not choose investments for dividend and interest income. It may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective. The Fund may also hold a portion of its assets in cash and money market instruments and may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund generally invests a significant portion of its assets in the securities of smaller and newer issuers. These small- to medium-sized companies have a proprietary product or profitable market niche and the potential to grow very rapidly. Such companies may present greater opportunities for capital appreciation because of high potential earnings growth, but may also involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume . As a result, these securities may fluctuate in value more than securities of larger, more established companies. The Fund will also invest a portion of its assets in larger companies where opportunities for above-average capital appreciation appear favorable. In seeking its objective, the Fund may borrow money to invest in additional portfolio securities. This technique, known as "leverage," increases the Fund's market exposure and risk. When the Fund has borrowed money for leverage and its investments increase or decrease in value, the Fund's net asset value will increase or decrease more than if it had not borrowed money for this purpose. The interest that the Fund must pay on borrowed money will reduce its net investment income, and may also either offset any potential capital gains or increase any losses. The Fund will not always borrow money for investment. The extent to which the Fund will borrow money, and the amount it may borrow, depend on market conditions and interest rates. Successful use of leverage depends on Putnam Management's ability to predict market movements correctly. PCM Voyager Fund will generally be managed in a style similar to Putnam Voyager Fund. GENERAL As indicated above, certain of the Funds are generally managed in styles similar to other open-end investment companies which are managed by Putnam Management and whose shares are generally offered to the public. These other Putnam funds may, however, employ different investment practices and may invest in securities different from those in which their counterpart Funds invest, and consequently will not have identical portfolios or experience identical investment results. COMMON INVESTMENT POLICIES AND TECHNIQUES Defensive strategies At times, Putnam Management may judge that conditions in the securities markets make pursuing a Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. At such times, Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of a Fund's assets. In implementing these "defensive" strategies, a Fund may invest without limit in cash or cash equivalents, money-market instruments, short-term bank obligations, high-rated fixed income securities or preferred stocks or invest in any other securities Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, a Fund will use such alternative strategies. Portfolio turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." As a result of a Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of each Fund (other than PCM Asia Pacific Growth Fund, which commenced operations after May 1, 1995) are shown in "Financial highlights." While it is impossible to predict a Fund's portfolio turnover rate, Putnam Management, based on its experience, believes that such rate will not exceed 125% for PCM Asia Pacific Growth Fund. Investments in premium securities To the extent described above, certain of the Funds may invest in securities bearing coupon rates higher than prevailing market rates. Such "premium" securities are typically purchased at prices greater than the principal amounts payable on maturity. A Fund does not amortize the premium paid for such securities in calculating its net investment income. As a result, the purchase of such securities provides a Fund a higher level of investment income distributable to shareholders on a current basis than if the Fund had purchased securities bearing current market rates of interest. Because the value of premium securities tends to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date), the purchase of such securities will increase a Fund's risk of capital loss if such securities are held to maturity (or first call date). During a period of declining interest rates, many of a Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of a Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of a Fund during such periods would initially receive higher distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in a Fund, investors may find it useful to compare a Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." Foreign investments Each Fund may invest to the extent described above in securities principally traded in foreign markets. Each Fund may also purchase Eurodollar certificates of deposit without limitation. Since foreign securities are normally denominated and traded in foreign currencies, the values of a Fund's assets may be affected favorably or unfavorably by currency exchange rates and exchange control regulations. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of a Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of a Fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit a Fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities. The risks described above are typically increased to the extent that a Fund invests in securities traded in lesser-developed and developing nations, which are sometimes referred to as "emerging markets." A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the Statement of Additional Information. Foreign currency exchange transactions To the extent described above, certain of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. Putnam Management may engage in currency exchange transactions in connection with the purchase and sale of portfolio securities ("transaction hedging"), and to protect the value of specific portfolio positions ("position hedging"). A Fund may engage in transaction hedging to protect against a change in currency exchange rates between the date on which a Fund contracts to purchase or sell the security and the settlement date, or to "lock in" the value of a dividend or interest payment in a particular currency. For that purpose, a Fund may purchase or sell a currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, a 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 as a hedge against changes in foreign currency exchange rates between the trade and settlement dates on particular transactions and not for speculation. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. For transaction hedging purposes, a Fund may also purchase and sell call and put options on foreign currency futures contracts and on currencies. A Fund may engage in position hedging to protect against a decline in 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 a currency in which securities the Fund intends to buy are denominated, when the Fund holds cash reserves and short-term investments). For position hedging purposes, a Fund may purchase or sell foreign currency futures contracts, foreign currency forward contracts, and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, a Fund may also purchase or sell foreign currency on a spot basis. A 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 a Fund. Cross hedging transactions by a 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. For a discussion of the risks associated with options and futures strategies in connection with a Fund's foreign currency exchange transactions, see "Risks related to options and futures strategies." Options and futures Futures and options on futures. Each Fund that may invest in futures and options, as described above, may, to the extent consistent with their investment objectives and policies, buy and sell index futures contracts ("index futures") for hedging purposes. An "index future" is a contract to buy or sell units of a particular bond or stock index at an agreed price on a specified future date. Depending on the change in value of the index between the time when a Fund enters into and terminates an index futures transaction, the Fund realizes a gain or loss. A Fund may also, to the extent consistent with its investment objectives and policies, buy and sell call and put options on index futures or on stock or bond indices in addition to or as an alternative to buying or selling index futures or, to the extent permitted by applicable law, to earn additional income. In addition, if a Fund's investment policies permit it to invest in foreign securities, such Fund may invest in futures and options on foreign securities, to the extent permitted by applicable law, as a substitute for direct investment in foreign securities. To the extent described above, each Fund may also buy and sell futures contracts and related options with respect to U.S. Government Securities and options directly on U.S. Government Securities. Putnam Management believes that, under certain market conditions, price movements in U.S. Government Securities futures and related options may correlate closely with securities in which the Funds may invest and may, as a result, provide hedging opportunities for the Funds. U.S. Government Securities futures and related options would be used in a way similar to a Fund's use of index futures and options. A Fund will only buy or sell U.S. Government Securities futures and related options when, in the opinion of Putnam Management, price movements in such futures and options are expected to correlate closely with price movements in the securities which are the subject of the hedge. Options. As described above, certain of the Funds may, to the extent consistent with their investment objectives and policies, seek to increase current return by writing covered call and put options on securities such Funds own or in which they may invest. A Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. When a Fund writes a call option, it gives up the opportunity to profit from any increase in the price of a security above the exercise price of the option; when it writes a put option, the Fund takes the risk that it will be required to purchase a security from the option holder at a price above the current market price of the security. Each Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Each Fund may also, to the extent consistent with its investment objectives and policies, buy and sell put and call options for hedging purposes and from time to time buy and sell combinations of put and call options on the same underlying security to earn additional income. The aggregate value of the securities underlying the options may not exceed 25% of the relevant Fund's assets. Risks related to options and futures strategies The use of futures and options involves certain special risks. Futures and options transactions involve costs and may result in losses. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of futures and options and movements in the prices of the underlying bond or stock index, securities or currencies or of the securities or currencies that are the subject of a hedge. The successful use of the strategies described above further depends on Putnam Management's ability to forecast market movements correctly. Other risks arise from a Fund's potential inability to close out its futures or options positions, and there can be no assurance that a liquid secondary market will exist for any future or option at any particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit a Fund's ability to engage in futures and options transactions. A more detailed explanation of futures and options transactions, including the risks associated with them, is included in the Statement of Additional Information. Lower-rated and other fixed income securities As described above, certain of the Funds may invest in lower-rated fixed income securities (commonly known as "junk bonds"). Differing yields on fixed income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower categories of recognized rating agencies (Baa or MIG-4 or lower by Moody's and BBB or SP-3 or lower by S&P) or from unrated securities of comparable quality. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are set forth in the Appendix to this Prospectus. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' investment 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. Although Putnam Management considers security ratings when making investment decisions, it performs its own investment analysis and does not rely principally on the ratings assigned by the rating services. Putnam Management's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. It also considers relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earning prospects. Because of the greater number of investment considerations involved in investing in lower-rated securities, the achievement of a Fund's objectives depends more on Putnam Management's analytical abilities than would be the case if it were investing primarily in securities in the higher rating categories. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Like those of other fixed income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. The magnitude of these fluctuations is generally greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect a Fund's net asset value. Investors should carefully consider their ability to assume the risks of investing in a mutual fund which invests in lower-rated securities before allocating a portion of their insurance investment to a Fund that invests in such securities. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payments of interest and principal would likely make the values of securities held by a 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, a Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security. Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. When the Fund invests in securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in securities in the higher rating categories. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. 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. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Both zero-coupon bonds and payment- in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Certain investment - grade securities in which a Fund may invest share some of the risk factors discussed above with respect to lower-rated securities. Mortgage-backed and asset-backed securities As described above, certain of the Funds may invest in asset-backed and mortgage-backed securities, such as CMOs, including stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent participations in, or are secured by, mortgage loans. 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 assets. A Fund may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in these securities. Conversely, 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 less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. Mortgage-backed securities include securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae or Freddie Mac ; securities issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; or securities issued by private issuers that represent an interest in or are collateralized by mortgage loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgages, the underlying assets may include motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed and asset-backed securities have yield and maturity characteristics corresponding to the underlying assets. Thus, 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 and asset-backed securities include both interest and a partial payment of principal. In addition to scheduled loan amortization, payments of principal may result from voluntary prepayment, refinancing or foreclosure of the underlying mortgage loans or other assets. Such prepayments significantly shorten the effective maturities of the securities, especially during periods of declining interest rates. Due to their prepayment aspect, 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. This is caused by the need to reinvest prepayments of principal generally and the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a comparable risk of decline in market value during periods of rising interest rates. At times, some of the mortgage-backed and asset-backed securities in which a Fund may invest will have higher than market interest rates, and will therefore be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause a Fund to suffer a loss equal to any unamortized premium. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in the interest or principal on the underlying collateral or in a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs that is first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMOs held by the Fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Securities loans, repurchase agreements and forward commitments Each Fund may lend portfolio securities amounting to not more than 25% of its assets to broker-dealers and may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. Each Fund (other than PCM Money Market Fund) may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to a Fund if the other party should default on its obligation and the Fund is delayed or prevented from recovering the collateral or completing the transaction. HOW PERFORMANCE IS SHOWN Each Fund's investment performance may from time to time be included in advertisements about that Fund. For Funds other than PCM Money Market Fund, "yield" is calculated by dividing a Fund's annualized net investment income per share during a recent 30-day period by the net asset value per share on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from a Fund's net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. A Fund's current dividend rate is based on its net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "Common investment policies and techniques -- Investments in premium securities." For PCM Money Market Fund, "yield" represents an annualization of the change in value of an investment (excluding any capital changes) in the Fund for a specific seven-day period; "effective yield" compounds that yield for a year and is, for that reason, greater than the Fund's yield. "Total return" for the one-, five- and ten-year periods ( or for the life of a Fund, if shorter ) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in such Fund . Total return may also be presented for other periods. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective or objectives and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable with respect to these insurance products. Insurance related charges and expenses are not reflected in the Funds' performance information and would reduce an investor's return under the insurance product. For performance information through the Funds' most recent fiscal year, see "Investment Performance of the Trust" in the Statement of Additional Information. HOW THE TRUST IS MANAGED The Trustees of the Trust are responsible for generally overseeing the conduct of the Trust's business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Trust and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Trust's other affairs and business. David K. Thomas, Senior Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM Asia Pacific Growth Fund's portfolio since its inception. Mr. Thomas has been employed by Putnam Management since January, 1987. Michael Martino, Managing Director of Putnam Management, D. William Kohli and Jennifer E. Leichter, each a Senior Vice President of Putnam Management , and Neil J. Powers and Mark J. Siegel, each a Vice President of Putnam Management, each of whom is a Vice President of the Trust , have had primary responsibility for the day - to - day management of PCM Diversified Income Fund's portfolio since 1993 for Ms. Leichter, and 1994 for Messrs. Martino, Kohli, Powers and Siegel . Ms. Leichter and Mr. Powers have been employed by Putnam Management since 1987 and 1986, respectively. Mr. Martino has been employed by Putnam Management since January, 1994. Prior to January, 1994, Mr . Martino was employed by Back Bay Advisors in the positions of Executive Vice President and Chief Investment Officer from 1992 to 1994, Senior Vice President and Senior Portfolio Manager from 1990 to 1992 . Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Siegel has been employed by Putnam Management since June, 1993. Prior to June, 1993, Mr. Siegel was Vice President of Salomon Brothers International Ltd . William J. Landes, Managing Director of Putnam Management , David L. King, John K. Storkerson, D. William Kohli and Richard M. Frucci, each a Senior Vice President of Putnam Management , and Christopher A. Ray and David J. Santos, each a Vice President of the Trust , have had primary responsibility for the day - to - day management of PCM Global Asset Allocation Fund's portfolio since 1993 for Messrs. Landes, King, Storkerson and Ray, 1994 for Mr. Kohli, and 1995 for Messrs. Frucci and Santos . Messrs. Landes, King , Storkerson , Frucci and Santos have been employed by Putnam Management since 1985, 1983 , 1979, 1984 and 1986, respectively. Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Ray has been employed by Putnam Management since December, 1992. Prior to December, 1992, Mr. Ray was Vice President and Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to March, 1992, Mr. Ray was Vice President of Putnam Management. John K. Storkerson, Senior Vice President of Putnam Management and Vice President of the Trust, and Gerald S. Zukowski, Senior Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Global Growth Fund's portfolio since 1992 and 1993, respectively. Messrs. Storkerson and Zukowski have been employed by Putnam Management since 1979 and 1989, respectively. David L. King, Senior Vice President of Putnam Management and Vice President of the Trust, and Anthony I. Kreisel, Managing Director of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Growth and Income Fund's portfolio since 1993. Messrs. King and Kreisel have been employed by Putnam Management since 1983 and 1986, respectively. Rosemary H. Thomsen, Senior Vice President of Putnam Management and Vice President of the Trust, has had primarily responsibility for the day-to-day management of PCM High Yield Fund's portfolio since 1988. Ms. Thomsen has been employed by Putnam Management since 1986. Lindsey M. Callen, Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM Money Market Fund's portfolio since 1992. Ms. Callen has been employed by Putnam Management since 1984. Daniel L. Miller, Managing Director of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM New Opportunities Fund's portfolio since 1994. Mr. Miller has been employed by Putnam Management since 1983. Kenneth J. Taubes, Senior Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM U.S. Government and High Quality Bond Fund's portfolio since 1993. Mr. Taubes has been employed by Putnam Management since 1991. Prior to 1991, Mr. Taubes was Senior Vice President of the Finance Division of U.S. Trust Company. Sheldon N. Simon, Senior Vice President of Putnam Management and Vice President of the Trust and Christopher A. Ray, Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Utilities Growth and Income Fund's portfolio since 1992 and 1995 . Mr. Simon has been employed by Putnam Management since 1984. Mr. Ray has been employed by Putnam Management since December, 1992. Prior to December, 1992, Mr. Ray was Vice President and Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to March, 1992, Mr. Ray was Vice President of Putnam Management . Roland W. Gillis, Robert R. Beck and Charles H. Swanberg, each a Senior Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Voyager Fund's portfolio since 1995, 1995 and 1994 , respectively. Mr. Gillis has been employed by Putnam Management since March, 1995. Prior to March, 1995, Mr. Gillis was Vice President of Keystone Custodian Funds, Inc. Messrs. Beck and Swanberg have been employed by Putnam Management since 1989 and 1984 , respectively. The Trust, on behalf of the Funds, pays all expenses not assumed by Putnam Management, including Trustees' fees and auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees. General expenses of the Trust will be allocated among and charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Expense limitation. In order to limit PCM Asia Pacific Growth Fund's expenses during its start-up period, Putnam Management has agreed to limit its compensation ( and, to the extent necessary, bear other expenses of the Fund ) through April 30, 1996, to the extent that expenses of the Fund (exclusive of brokerage, interest, taxes, and deferred organizational and extraordinary expenses) would exceed an annual rate of 1.20% of the Fund's average net assets. For the purpose of determining any such limitation on Putnam Management's compensation, expenses of the Fund will not reflect the application of commissions or cash management credits that may reduce designated Fund expenses. With Trustee approval, this expense limitation may be terminated earlier, in which event shareholders would be notified and this Prospectus would be revised. Total expenses, including management fees, for the fiscal year ended December 31, 1994, based on each Fund's average net assets, were: Total Management Expenses Fees PCM Asia Pacific Growth Fund* 1.20% 0.79% (reflecting expense limitation) PCM Diversified Income Fund 0.80% 0.67% PCM Global Asset Allocation Fund 0.76% 0.66% PCM Global Growth Fund 0.77% 0.60% PCM Growth and Income Fund 0.62% 0.57% PCM High Yield Fund 0.74% 0.66% PCM Money Market Fund 0.55% 0.42% PCM New Opportunities Fund** 0.47% 0.45% (commenced operations on May 1, 1994) PCM U.S. Government and High Quality Bond Fund*** 0.67% 0.60% PCM Utilities Growth and Income Fund 0.68%0.60% PCM Voyager Fund 0.71% 0.63% On June 2, 1994, the shareholders of six of the funds approved new management fees payable to Putnam Management. If the new rates had been in effect for the entire year , management fees would have been the following: PCM Diversified Income Fund, 0.70%; PCM Global Asset Allocation Fund, 0.70%; PCM Growth and Income Fund, 0.55%; PCM High Yield Fund. 0.70%; PCM Money Market Fund, 0.45%; and PCM Voyager Fund, 0.66%. * PCM Asia Pacific Growth Fund did not commence operations until after May 1, 1995. These are Putnam Management's estimates for the Fund's first fiscal year, reflecting the expense limitation currently in effect. In the absence of the expense limitation, estimated management fees and total expenses for the first fiscal year would be 0.80% and 1.21%. ** The total expenses and management fees shown above for PCM New Opportunities Fund reflect an expense limitation in effect for the period and are not annualized. In the absence of the expense limitation in effect for the period, annualized total expenses and management fees would have been 1.00% and 0.70%, respectively. *** On January 6, 1995, the Trustees approved a proposal to change the fees payable to Putnam Management under the Management Contract for PCM U.S. Government and High Quality Bond Fund. The proposed change is subject to shareholder approval and will be submitted to shareholders at a meeting scheduled for July 13, 1995. If the proposed change is approved by shareholders, management fees for PCM U.S. Government and High Quality Bond Fund would thereafter be paid at the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any excess thereafter. The proposed change would result in an increase in the fees payable by the Fund based on its net assets as of December 31, 1994. Putnam Management places all orders for purchases and sales of the securities of each Fund. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider, if permitted by law, sales of shares of the other Putnam funds as a factor in the selection of broker-dealers. ORGANIZATION AND HISTORY Putnam Capital Manager Trust is a Massachusetts business trust organized on September 24, 1987. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into eleven series of shares, each representing a separate investment portfolio which is being offered through separate accounts of various insurance companies. Each portfolio is managed as a diversified investment company, except for PCM Utilities Growth and Income Fund, which is managed as a non-diversified investment company. Until April 30, 1991, PCM Global Growth Fund was known as PCM International Equities Fund. Until September 1, 1993, PCM Global Asset Allocation Fund was known as PCM Multi-Strategy Fund. Shares vote by individual portfolio on all matters except (i) when required by the Investment Company Act of 1940, shares of all portfolios shall be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of one or more portfolios, only the shareholders of such portfolio or portfolios shall be entitled to vote. Each share has one vote, with fractional shares voting proportionately. Shares of each of the portfolios are freely transferable, are entitled to dividends as declared by the Trustees, and, if the portfolio were liquidated, would receive the net assets of the portfolio. The Trust may suspend the sale of shares of any portfolio at any time and may refuse any order to purchase shares. Although the Trust 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. Shares of the Funds may only be purchased by an insurance company's separate account. For matters requiring shareholder approval, you may be able to instruct the insurance company's separate account how to vote the Fund shares attributable to your contract or policy. See the Voting Rights section of your insurance product prospectus. The Funds' Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President, Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Funds' Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds. About Your Investment SALES AND REDEMPTIONS The Trust has an underwriting agreement relating to the Funds with Putnam Mutual Funds , One Post Office Square, Boston, Massachusetts 02109. Putnam Mutual Funds presently offers shares of each Fund of the Trust continuously to separate accounts of various insurers. The underwriting agreement presently provides that Putnam Mutual Funds accepts orders for shares at net asset value and no sales commission or load is charged. Putnam Mutual Funds may, at its expense, provide promotional incentives to dealers that sell variable insurance products. Shares are sold or redeemed at the net asset value per share next determined after receipt of an order, except that, in the case of PCM Money Market Fund, purchases will not be effected until the next determination of net asset value after federal funds have been made available to the Trust. Orders for purchases or sales of shares of a Fund must be received by Putnam Mutual Funds before the close of regular trading on the New York Stock Exchange in order to receive that day's net asset value. No fee is charged to a separate account when it redeems Fund shares. Please check with your insurance company for Funds available under your variable annuity contract or variable life insurance policy. Certain Funds may not be available in your state due to various insurance regulations. Inclusion of a Fund in this Prospectus that is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. Each Fund currently does not foresee any disadvantages to policyowners arising out of the fact that each Fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw their investments in one or more Funds and shares of another Fund may be substituted. This might force a Fund to sell portfolio securities at disadvantageous prices. In addition, the Trustees may refuse to sell shares of any Fund to any separate account or may suspend or terminate the offering of shares of any Fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the Fund. Under unusual circumstances, the Trust may suspend repurchases or postpone payment for up to seven days or longer, as permitted by federal securities law. EXCHANGE PRIVILEGE A shareholder may exchange shares of any Fund in the Trust for shares of any other Fund in the Trust on the basis of their respective net asset values. Exchanges may not be made into portfolios of the Trust not offered by your variable annuity contract or variable life policy. HOW THE TRUST VALUES ITS SHARES The Trust calculates the net asset value of a share of each Fund by dividing the total value of the assets of the Fund, less liabilities, by the number of shares of the Fund outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open. Except for securities held by PCM Money Market Fund, Fund securities for which market quotations are readily available are stated at market value. Short-term investments that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. The Trust values the portfolio investments of PCM Money Market Fund at amortized cost pursuant to Securities and Exchange Commission Rule 2a-7. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION PCM Money Market Fund will declare a dividend of its net investment income daily and distribute such dividend monthly. Each month's distributions will be paid on the first business day of the next month. Since the net income of PCM Money Market Fund is declared as a dividend each time it is determined, the net asset value per share of the Fund remains at $1.00 immediately after each determination and dividend declaration. Each of the other Funds will distribute any net investment income and net realized capital gains at least annually. Both types of distributions will be made in shares of such Funds unless an election is made on behalf of a separate account to receive some or all of the distributions in cash. Distributions are reinvested without a sales charge, using the net asset value determined on the ex-dividend date, except that with respect to PCM Money Market Fund, distributions are reinvested using the net asset value determined on the day following the distribution payment date. Each Fund intends to qualify each year as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income and gains it distributes to the separate accounts. For information concerning federal income tax consequences for the holders of variable annuity contracts and variable life insurance policies, contract holders should consult the prospectus of the applicable separate account. Internal Revenue Service regulations applicable to portfolios that serve as the funding vehicles for variable annuity and variable life insurance separate accounts generally require that those portfolios invest no more than 55% of the value of their assets in one investment, 70% in two investments, 80% in three investments and 90% in four investments. Each of the Funds intends to comply with these requirements. FINANCIAL INFORMATION It is expected that owners of the variable annuity contracts and variable life insurance policies who have contract or policy values allocated to the Funds will receive an unaudited semi- annual financial statement and an audited annual financial statement for such Funds. These reports show the investments owned by each Fund and provide other relevant information about the Fund. About Putnam Investments, Inc. Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly- owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. APPENDIX SECURITIES RATINGS The following rating services describe rated securities as follows: Moody's Investors Service, Inc. Bonds Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking, or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever earning any real investment standing. Standard & Poor's Corporation Bonds AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D--Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. RATINGS OF COMMERCIAL PAPER Moody's. Moody's Investors Service, Inc. evaluates the salient features that affect a commercial paper issuer's financial and competitive position. Its appraisal includes, but is not limited to, the review of such factors as: quality of management, industry strengths and risks, vulnerability to business cycles, competitive position, liquidity measurements, debt structure, operating trends and access to capital markets. Differing degrees of weight are applied to these factors as deemed appropriate for individual situations. Commercial paper issuers rated "Prime-1" are judged to be of the best quality. Their short-term debt obligations carry the smallest degree of investment risk. Margins of support for current indebtedness are large or stable with cash flow and asset protection well assured. Current liquidity provides ample coverage of near-term liabilities and unused alternative financing arrangements are generally available. While protection elements may change over the intermediate or long-term, such changes are most unlikely to impair the fundamentally strong position of short-term obligations. Issuers in the commercial paper market rated "Prime-2" are of high quality. Protection for short-term note holders is issued with liquidity and value of current assets as well as cash generation in sound relationship to current indebtedness. They are rated lower than the best commercial paper issuers because margins of protection may not be as large or because fluctuations of protective elements over the near or intermediate term may be of greater amplitude. Temporary increases in relative short and overall debt load may occur. Alternate means of financing remain assured. Commercial paper issuers rated "Prime-3" possess favorable investment attributes for short-term commitment. Liquidity considerations and cash generation provide satisfactory support for short-term debt repayment. While near-term investors are well protected, elements may be present which suggest improvement or deterioration in support at some time in the future. Alternative financing strategies have been outlined. Issuers rated in all three Prime categories are judged to be investment grade. Standard & Poor's. Standard & Poor's Corporation describes its highest ("A") rating for commercial paper as follows, with the number 1, 2, and 3 being used to denote relative strength within the "A" classification. Liquidity ratios are adequate to meet cash requirements. Long-term senior debt rating should be "A" or better; in some instances "BBB" credits may be allowed if other factors outweigh the "BBB." The issuer should have access to at least two additional channels of borrowing. Basic earnings and cash flow should have an upward trend, with allowances made for unusual circumstances. Typically, the issuer's industry should be well-established and the issuer should have a strong position within its industry. The reliability and quality of management should be unquestioned. Notes MIG 1/VMIG 1 -- This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2 -- Denotes high quality. Margins of protection are ample though not as large as in the preceding group. MIG 3/VMIG 3 -- Denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG 4/VMIG 4 -- Denotes adequate quality. Protection commonly regarded as required of an investment security is present and, although not distinctly or predominantly speculative, there is specific risk. SG -- Denotes speculative quality. Debt instruments in this category lack margins of protection. Standard & Poor's Corporation SP-1 -- Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2 -- Satisfactory capacity to pay principal and interest. SP-3 -- Speculative capacity to pay principal and interest. PUTNAM CAPITAL MANAGER TRUST PROSPECTUS - MAY 1, 1995 Putnam Capital Manager Trust (the "Trust") offers shares of beneficial interest in separate investment portfolios (collectively , the "Funds") for purchase by separate accounts of various insurance companies. The Funds, which have different investment objectives and policies, offered by this Prospectus are: PCM Diversified Income Fund, PCM Global Asset Allocation Fund, PCM Global Growth Fund and PCM U.S. Government and High Quality Bond Fund . PCM Diversified Income Fund may invest significantly in lower-rated bonds, commonly known as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and non-payment of interest. Investors should carefully assess the risks associated with an investment in the Fund. This Prospectus explains concisely information about the Trust and should be read in conjunction with the Prospectus for the separate account of the variable annuity or variable life insurance product that accompanies this Prospectus. Please read it carefully and keep it for future reference. Investors can find more detailed information about the Trust in the May 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Putnam Investor Services at 1-800-521-0538. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS INSURANCE COMPANIES. What you need to know ABOUT THE TRUST 2 Financial highlights ...................................2 TheTrust .............................................. 4 Investment objectives and policies of the Funds ........4 Common investment policies and techniques .............12 How performance is shown ..............................17 How the Trust is managed ..............................18 Organization and history ..............................19 ABOUT YOUR INVESTMENT 20 Sales and redemptions .................................20 How the Trust values its shares .......................21 How distributions are made; tax information ...........21 Financial information .................................21 ABOUT PUTNAM INVESTMENTS, INC. ........................22 APPENDIX..............................................23 About the Trust FINANCIAL HIGHLIGHTS The tables on the following pages present per share financial information for the life of each Fund. This information has been audited and reported on by the Trust's independent accountants. The Report of Independent Accountants and financial statements included in the Trust's Annual Report to shareholders for the 1994 fiscal year are incorporated by reference into this Prospectus. The Trust's Annual Report, which contains additional unaudited performance information, is available without charge upon request. Financial Highlights* (For a share outstanding throughout the period) (The tables appear on pages 3a - 3d)
Financial Highlights Investment Operations Less Net Distributions Realized and From From Net Unrealized Total from Net Net Realized Year (Period) Net Asset Value Investment Gain (Loss) on Investment Investment Gain on Ended Beginning of Period Income Investments Operations Income Investments PCM Diversified Income Fund December 31, 1994 $10.23 $.61 $(1.04) $(.43) $(.06) $- December 31, 1993*** 10.00 .06 .17 .23 - - PCM Global Growth Fund December 31, 1994 $13.68 $.13 $(.26) $(.13) $(.05) $(.02) December 31, 1993 10.48 .08 3.28 3.36 (.16) - December 31, 1992 10.61 .10 (.14) (.04) (.09) - December 31, 1991 9.32 .11 1.28 1.39 (.10) - December 31, 1990** 10.00 .11 (.79) (.68) - - PCM Global Asset Allocation Fund December 31, 1994 $14.29 $.35 $(.71) $(.36) $(.29) $(.43) December 31, 1993 12.92 .30 1.87 2.17 (.55) (.25) December 31, 1992 12.77 .35 .41 .76 (.42) (.19) December 31, 1991 11.28 .45 1.64 2.09 (.54) (.06) December 31, 1990 11.26 .54 (.52) .02 - - December 31, 1989 10.68 .56 1.10 1.66 (.88) (.15) December 31, 1988*(a) 10.00 .53 .15 .68 - - PCM U.S. Government and High Quality Bond Fund December 31, 1994 $13.53 $.81 $(1.24) $(.43) $(.66) $(.22) December 31, 1993 12.85 .63 .78 1.41 (.61) (.12) December 31, 1992 12.57 .60 .28 .88 (.54) (.06) December 31, 1991 11.36 .56 1.31 1.87 (.66) - December 31, 1990 10.82 .71 .08 .79 (.22) (.03) December 31, 1989 10.28 .62 .78 1.40 (.79) (.07) December 31, 1988*(a) 10.00 .66 (.38) .28 - - /TABLE
Ratio of Less Total Net Net Distributions Net Asset Investment Assets, Ratio of Investment In Excess of From: Value, Return at End of Expenses to Income to Realized GainPaid-in Total End of Net Asset Period (in Average Net Average Net Portfolio on InvestmentsCapitalDistributions Period Value(%)(b)thousands) Assets(%) Assets(%) Turnover(%) $ - $- $(.06) $9.74 (4.23) $215,935 .80 7.60 165.17 - - - 10.23 2.30(c) 80,449 .28(c) 1.45(c) 40.83(c) $- $- $(.07) $13.48 (0.96) $669,821 .77 1.21 41.55 - - (.16) 13.68 32.40 352,786 .75 1.38 47.00 - - (.09) 10.48 (.36) 86,854 .85 1.82 59.68 - - (.10) 10.61 15.01 40,183 .99 2.01 48.67 - - - 9.32 (6.80)(c) 13,203 .99(c) 2.35(c) 18.07(c) $(.02) $- $(.74) $13.19 (2.50) $414,223 .76 3.19 150.21 - - (.80) 14.29 17.48 297,307 .72 3.28 192.48 - - (.61) 12.92 6.29 134,667 .79 3.84 141.87 - - (.60) 12.77 19.02 82,071 .87 4.55 77.31 - - - 11.28 0.18 51,792 .88 5.31 52.97 - (.05) (1.08) 11.26 16.08 40,200 .88 6.16 95.97 - - - 10.68 6.76(c) 26,202 1.17(c) 5.55(c) 183.11(c) $- $- $(.88) $12.22 (3.23) $640,458 .67 6.24 118.34 - - (.73) 13.53 11.28 735,386 .64 6.16 94.01 - - (.60) 12.85 7.49 435,906 .70 6.98 45.82 - - (.66) 12.57 17.28 229,306 .74 7.57 59.29 - - (.25) 11.36 7.51 98,549 .76 8.24 32.70 - - (.86) 10.82 14.06 61,765 .76 8.32 27.81 - - - 10.28 2.78(c) 28,406 .87(c) 7.04(c) 41.41(c) (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized. * For the period February 1, 1988 (commencement of operations) to December 31, 1988. ** For the period May 1, 1990 (commencement of operations) to December 31, 1990. *** For the period September 15, 1993 (commencement of operations) to December 31, 1993.
THE TRUST The Trust is designed to serve as a funding vehicle for insurance separate accounts associated with variable annuity contracts and variable life insurance policies. The Trust presently serves as the funding vehicle for variable annuity contracts and variable life insurance policies offered by separate accounts of various insurance companies. You should consult the prospectus issued by the relevant insurance company for more information about a separate account. Shares of the Trust are offered to these separate accounts through Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the principal underwriter for the Trust. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund of the Trust has a different investment objective or objectives which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. For more information about the investment strategies employed by the Funds, see "Common investment policies and techniques." The investment objectives and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees of the Trust without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective or objectives of a Fund without shareholder approval. There is no assurance that any Fund will achieve its objective or objectives. Additional portfolios may be created from time to time with different investment objectives and policies for use as funding vehicles for insurance company separate accounts or for other insurance products. In addition, the Trustees may, subject to any necessary regulatory approvals, eliminate any Fund or divide any Fund into two or more classes of shares with such special or relative rights and privileges as the Trustees may determine. Glossary The following terms are frequently used in this Prospectus. Many of these terms are explained in greater detail under "Common investment policies and techniques." "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager "S&P" -- Standard & Poor's Corporation "Moody's" -- Moody's Investors Service, Inc. "U.S. Government Securities" -- debt securities issued or guaranteed by the U.S. government, by various of its agencies, or by various instrumentalities established or sponsored by the U.S. government. Certain U.S. Government Securities, including U.S. Treasury bills, notes and bonds, mortgage participation certificates guaranteed by Ginnie Mae, and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government Securities issued or guaranteed by federal agencies or government- sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Fannie Mae bonds. "CMOs" -- collateralized mortgage obligations "Ginnie Mae" -- Government National Mortgage Association "Fannie Mae" -- Federal National Mortgage Association "Freddie Mac"-- Federal Home Loan Mortgage Corporation PCM DIVERSIFIED INCOME FUND PCM Diversified Income Fund seeks high current income consistent with capital preservation. The Fund pursues its investment objective by allocating its investments among the following three sectors of the fixed income securities markets: * a U.S. Government Sector, consisting primarily of debt obligations of the U.S. government, its agencies and instrumentalities; * a High Yield Sector, consisting of high-yielding, lower-rated, higher risk U.S. and foreign fixed income securities (sometimes referred to as "junk bonds") ; and * an International Sector, consisting of obligations of foreign governments, their agencies and instrumentalities, and other fixed income securities denominated in foreign currencies. Putnam Management believes that diversifying the Fund's investments among these sectors, as opposed to investing in any one sector, will better enable the Fund to preserve capital while pursuing its objective of high current income. Historically, the markets for U.S. Government Securities, high yielding corporate fixed income securities, and debt securities of foreign issuers have tended to behave independently and have at times moved in opposite directions. For example, U.S. Government Securities have generally been affected negatively by inflationary concerns resulting from increased economic activity. High-yield corporate fixed income securities, on the other hand, have generally benefitted from increased economic activity due to improvement in the credit quality of corporate issuers. The reverse has generally been true during periods of economic decline. Similarly, U.S. Government Securities have often been negatively affected by a decline in the value of the dollar against foreign currencies, while the bonds of foreign issuers held by U.S. investors have generally benefitted from such decline. Putnam Management believes that, when financial markets exhibit such a lack of correlation, a pooling of investments among these markets may produce greater preservation of capital over the long term than would be obtained by investing exclusively in any one of the markets. Putnam Management will determine the amount of assets to be allocated to each of the three market sectors in which the Fund will invest based on its assessment of the returns that can be achieved from a portfolio which is invested in all three sectors. In making this determination, Putnam Management will rely in part on quantitative analytical techniques that measure relative risks and opportunities of each market sector based on current and historical market data for each sector, as well as on its own assessment of economic and market conditions. Putnam Management will continuously review this allocation of assets and make such adjustments as it deems appropriate, although there are no fixed limits on allocations among sectors, including investments in the High Yield Sector. Because of the importance of sector diversification to the Fund's investment policies, Putnam Management expects that a substantial portion of the Fund's assets will normally be invested in each of the three market sectors. The Fund's assets allocated to each of these market sectors will be managed in accordance with particular investment policies, which are summarized below. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies , the Fund may invest without limit in securities primarily traded in U.S. markets . See "Common investment policies and techniques " below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions, transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. PCM Diversified Income Fund will generally be managed in a style similar to that of Putnam Diversified Income Trust . U.S. Government Sector The Fund will invest assets allocated to the U.S. Government Sector primarily in U.S. Government Securities. In purchasing securities for the U.S. Government Sector, Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and may adjust the average maturity of the investments held in the portfolio from time to time, depending on its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. Under normal market conditions, the Fund will invest at least 20% of its net assets in U.S. Government Securities and at least 65% of the assets allocated to the U.S. Government Sector will be invested in U.S. Government Securities. The Fund may invest assets allocated to the U.S. Government Sector in a variety of debt securities, including asset-backed and mortgage-backed securities, such as CMOs , including certain stripped mortgage-backed securities, that are issued by private U.S. issuers. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage-backed and asset-backed securities." With respect to assets allocated to the U.S. Government Sector, the Fund will only invest in privately issued debt securities that are rated at the time of purchase at least A by Moody's or S&P, or in unrated securities that Putnam Management determines are of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Risk factors. U.S. Government Securities are considered among the safest of fixed income investments . Because of this added safety, the yields available from U.S. Government Securities are generally lower than the yields available from corporate debt securities , but their values, like those of other debt securities, will fluctuate with changes in interest rates. Changes in the value of portfolio securities will not affect investment income from those securities, but will affect the Fund's net asset value. A decrease in interest rates will generally result in an increase in the value of fixed income securities. Conversely, during periods of rising interest rates, the values of such securities will generally decline. The magnitude of these fluctuations will generally be greater for securities with longer maturities. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. High Yield Sector The Fund will invest assets allocated to the High Yield Sector primarily in high yielding, lower-rated, higher risk U.S. and foreign corporate fixed income securities, including debt securities, convertible securities and preferred stocks. As discussed below, however, the Fund may invest all or any part of the High Yield Sector portfolio in higher-rated and unrated fixed income securities. The Fund will not necessarily invest in the highest yielding securities available if in Putnam Management's opinion the differences in yield are not sufficient to justify the higher risks involved. The High Yield Sector may invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P or in any unrated security which Putnam Management determines is at least of comparable quality, although up to 5% of the net assets of the Fund may be invested in securities rated below such quality, or in unrated securities which Putnam Management determines are of comparable quality. Securities rated below Caa by Moody's or CCC by S&P are of poor standing and may be in default. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The rating services' descriptions of these rating categories, including the speculative characteristics of the lower categories, are included in the Appendix to this Prospectus. The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - ------ ------------- -------- "AAA" 27.41% -- "AA" 18.12% -- "A" 21.35% 1.73% "BBB" 9.52% 1.12% "BB" 5.30% 0.02% "B" 6.11% 0.52% "CCC" 0.89% -- ------ ----- Not Rated -- 1.52% Total 88.70% 4.91% ====== ===== For a description of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may invest assets allocated to the High Yield Sector in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. The Fund may also invest assets allocated to the High Yield Sector in lower-rated securities of foreign corporate and governmental issuers denominated either in U.S. dollars or in foreign currencies. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments ." International Sector The Fund will invest the assets allocated to the International Sector in debt obligations and other fixed income securities denominated in non-U.S. currencies. These securities include: * debt obligations issued or guaranteed by foreign, national, provincial, state, or other governments with taxing authority, or by their agencies or instrumentalities; * debt obligations of supranational entities (described below); and * debt obligations and other fixed income securities of foreign and U.S. corporate issuers. When investing in the International Sector, the Fund will purchase only debt securities of issuers whose long-term debt obligations are rated A or better at the time of purchase by Moody's or S&P or that are unrated securities determined by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The Fund may, however, make investments in international debt securities rated below A with respect to assets allocated to the High Yield Sector. In the past, yields available from securities denominated in foreign currencies have often been higher than those of securities denominated in U.S. dollars. Although the Fund has the flexibility to invest in any country where Putnam Management sees potential for high income, it presently expects to invest primarily in securities of issuers in industrialized Western European countries (including Scandinavian countries) and in Canada, Japan, Australia, and New Zealand. Putnam Management will consider expected changes in foreign currency exchange rates in determining the anticipated returns of securities denominated in foreign currencies. The obligations of foreign governmental entities, including supranational issuers, have various kinds of government support. Obligations of foreign governmental entities include obligations issued or guaranteed by national, provincial, state or other governments with taxing power or by their agencies. These obligations may or may not be supported by the full faith and credit of a foreign government. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Steel and Coal Community, the Asian Development Bank, and the Inter-American Development Bank. The governmental members or "stockholders" usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowing. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves, and net income. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." PCM GLOBAL ASSET ALLOCATION FUND The investment objective of PCM Global Asset Allocation Fund is to seek a high level of long-term total return consistent with preservation of capital. By seeking total return, the Fund seeks to increase the value of the shareholder's investment through both capital appreciation and investment income. "Total return" includes interest and dividend income, net of expenses, and realized and unrealized capital gains and losses on securities. The Fund invests in a wide variety of equity and fixed income securities both of U.S. and foreign issuers. The Fund's portfolio may include securities in the following four investment categories, which in the judgment of Putnam Management represent large, well differentiated classes of securities with distinctive investment characteristics: U.S. Equities International Equities U.S. Fixed Income International Fixed Income The amount of Fund assets assigned to each investment category will be reevaluated by Putnam Management at least quarterly based on Putnam Management's assessment of the relative market opportunities and risks of each investment category taking into account various economic and market factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions) and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The portion of the Fund's assets invested in each investment category will be managed as a separate investment portfolio in accordance with that category's particular investment objectives and policies, independently of the Fund's overall objective. The following is a description of the investment objectives and policies of each investment category: U.S. Equities. The objective of the U.S. Equities category is to seek both capital growth and, to a lesser extent, current income through equity securities . This category's portfolio will include equity securities selected primarily to provide one or more of the following factors: growth in value, capital protection and dependable income. Investments will be made in companies large or small (including relatively less well-known companies) whose earnings are believed to be in a relatively strong growth trend or whose securities are thought to be undervalued. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. International Equities. The objective of the International Equities category is to seek capital appreciation. This category's portfolio will be invested in securities principally traded in foreign securities markets. These securities will primarily be common stocks or securities convertible into common stocks. Investments will be made in companies large or small (including relatively less well-known companies) whose earnings are believed to be in a relatively strong growth trend or whose securities are thought to be undervalued. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." U.S. Fixed Income. The objective of the U.S. Fixed Income category is to seek high current income through a portfolio of fixed income securities which in the judgment of Putnam Management does not involve undue risk to principal or income. The U.S. Fixed Income category may invest in any fixed income securities Putnam Management considers appropriate, including U.S. Government Securities , debt securities, mortgage-backed and asset-backed securities, convertible securities and preferred stocks of non-governmental issuers. The U.S. Fixed Income category expects normally to invest primarily in investment grade securities (rated Baa or higher by Moody's or BBB or higher by S&P at the time of purchase). For a more detailed description of security ratings, see the Appendix to this Prospectus. The U.S. Fixed Income category will not invest in securities rated lower than Caa as determined by Moody's and CCC as determined by S&P at the time of purchase. Securities in those rating categories may be in default and are considered to be of poor standing. This category may also invest in unrated securities judged by Putnam Management to be of comparable quality to those ratings listed above. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. While the credit risks presented by differing types of fixed income securities vary, the values of all fixed income securities change as interest rates fluctuate . For a description of the risks associated with investments in mortgage-backed and asset-backed securities, see "Common investment policies and techniques -- Mortgage-backed and asset- backed securities." For a description of the risks of investing in fixed income securities, including lower-rated fixed income securities (commonly known as "junk bonds") , see "Common investment policies and techniques -- Lower-rated and other fixed income securities." International Fixed Income. The investment objective of the International Fixed Income category is to seek high current income by investing principally in debt securities denominated in foreign currencies which are issued by foreign governments and governmental or supranational agencies. This category may also invest in other privately issued debt securities, convertible securities and preferred stocks principally traded in foreign securities markets. This category will invest only in securities which, at the time of purchase, are rated at least A or higher by Moody's or S&P or in unrated securities judged by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." General. Putnam Management will adjust the percentage of the Fund's assets in each investment category from time to time based upon its market outlook and its analysis of longer-term trends. The Fund may from time to time invest in all or any one of the investment categories as Putnam Management may consider appropriate in response to changing market conditions. PCM GLOBAL GROWTH FUND PCM Global Growth Fund seeks capital appreciation. It is designed for investors seeking potential above-average capital growth through a globally diversified portfolio of common stocks. Dividend and interest income is only an incidental consideration. In seeking capital appreciation, the Fund follows a global investment strategy of investing primarily in common stocks traded in securities markets located in a number of foreign countries and in the United States. The Fund may at times invest up to 100% of its assets in securities principally traded in securities markets outside the United States, and will under normal market conditions invest at least 65% of its assets in at least three different countries, one of which may be the United States. The Fund may hold a portion of its assets in cash and money market instruments. The Fund will not limit its investments to any particular type of company. It may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but which are thought to be undervalued by the market. It may invest in small and relatively less well-known companies. These companies may present greater opportunity for capital appreciation, but also may involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. Putnam Management believes that the securities markets of many nations move relatively independently of one another, because business cycles and other economic or political events that influence one country's securities markets may have little effect on securities markets in other countries. By investing in a globally diversified portfolio, Putnam Management attempts to reduce the risks associated with investing in the economy of only one country. The countries which Putnam Management believes offer attractive opportunities for investment may change from time to time. Foreign investments can involve risks, however, that may not be present in domestic securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. In addition, when pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. PCM Global Growth Fund will generally be managed in a style similar to that of Putnam Global Growth Fund. PCM U.S. GOVERNMENT AND HIGH QUALITY BOND FUND PCM U.S. Government and High Quality Bond Fund seeks current income consistent with preservation of capital. The Fund invests primarily in U.S. Government Securities and in other debt obligations rated at least A by Moody's or S&P at the time of investment, or, if not rated, determined by Putnam Management to be of comparable quality. For a more detailed description of security ratings, see the Appendix to this Prospectus. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Putnam Management will allocate the Fund's assets between U.S. Government Securities and in other high quality bonds, depending on its assessment of market conditions and the relative investment returns available from such securities. The Fund will not, however, make any investment, if, as a result, less than 25% of the value of its assets would be invested in U.S. Government Securities. The Fund may also invest up to 10% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also invest in premium securities, engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these strategies and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and other high quality bonds and may adjust the average maturity of the Fund's portfolio from time to time, depending on its assessment of relative yields on securities of different maturities and expectations of future changes in interest rates. Thus, at certain times the average maturity of the portfolio may be relatively short (less than one year to five years, for example) and at other times may be relatively long (more than 10 years, for example). A portion of the securities held by the Fund may consist of high quality mortgage-backed and asset-backed securities. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage- backed and asset-backed securities." U.S. Government Securities and other high quality bonds do not involve the degree of credit risk associated with investments in lower quality fixed income securities, although, as a result, the yields available from U.S. Government Securities and other high quality bonds are generally lower than the yields available from many other fixed income securities. Like other fixed income securities, however, the values of U.S. Government Securities and other high quality bonds change as interest rates fluctuate. Fluctuations in the value of the Fund's securities will not affect interest income on securities already held by the Fund, but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations generally will be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may invest in short-term investments yielding lower current income rather than investing in higher yielding longer-term securities. GENERAL As indicated above, certain of the Funds are generally managed in styles similar to other open-end investment companies which are managed by Putnam Management and whose shares are generally offered to the public. These other Putnam funds may, however, employ different investment practices and may invest in securities different from those in which their counterpart Funds invest, and consequently will not have identical portfolios or experience identical investment results. COMMON INVESTMENT POLICIES AND TECHNIQUES Defensive strategies At times, Putnam Management may judge that conditions in the securities markets make pursuing a Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. At such times, Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of a Fund's assets. In implementing these "defensive" strategies, a Fund may invest without limit in cash or cash equivalents, money-market instruments, short-term bank obligations, high-rated fixed income securities or preferred stocks or invest in any other securities Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, a Fund will use such alternative strategies. Portfolio turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." As a result of a Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of each Fund are shown in "Financial highlights." Investments in premium securities The Funds may invest in securities bearing coupon rates higher than prevailing market rates. Such "premium" securities are typically purchased at prices greater than the principal amounts payable on maturity. A Fund does not amortize the premium paid for such securities in calculating its net investment income. As a result, the purchase of such securities provides a Fund a higher level of investment income distributable to shareholders on a current basis than if the Fund had purchased securities bearing current market rates of interest. Because the value of premium securities tends to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date), the purchase of such securities will increase a Fund's risk of capital loss if such securities are held to maturity (or first call date). During a period of declining interest rates, many of a Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of a Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of a Fund during such periods would initially receive higher distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in a Fund, investors may find it useful to compare a Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." Foreign investments Each Fund may invest to the extent described above in securities principally traded in foreign markets. Each Fund may also purchase Eurodollar certificates of deposit without limitation. Since foreign securities are normally denominated and traded in foreign currencies, the values of a Fund's assets may be affected favorably or unfavorably by currency exchange rates and exchange control regulations. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of a Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of a Fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit a Fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities. The risks described above are typically increased to the extent that a Fund invests in securities traded in lesser-developed and developing nations, which are sometimes referred to as "emerging markets." A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the Statement of Additional Information. Foreign currency exchange transactions To the extent described above, certain of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. Putnam Management may engage in currency exchange transactions in connection with the purchase and sale of portfolio securities ("transaction hedging"), and to protect the value of specific portfolio positions ("position hedging"). A Fund may engage in transaction hedging to protect against a change in currency exchange rates between the date on which a Fund contracts to purchase or sell the security and the settlement date, or to "lock in" the value of a dividend or interest payment in a particular currency. For that purpose, a Fund may purchase or sell a currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, a 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 as a hedge against changes in foreign currency exchange rates between the trade and settlement dates on particular transactions and not for speculation. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. For transaction hedging purposes, a Fund may also purchase and sell call and put options on foreign currency futures contracts and on currencies. A Fund may engage in position hedging to protect against a decline in 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 a currency in which securities the Fund intends to buy are denominated, when the Fund holds cash reserves and short-term investments). For position hedging purposes, a Fund may purchase or sell foreign currency futures contracts, foreign currency forward contracts, and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, a Fund may also purchase or sell foreign currency on a spot basis. A 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 a Fund. Cross hedging transactions by a 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. For a discussion of the risks associated with options and futures strategies in connection with a Fund's foreign currency exchange transactions, see "Risks related to options and futures strategies." Options and futures Futures and options on futures. Each Fund that may invest in futures and options, as described above, may, to the extent consistent with their investment objectives and policies, buy and sell index futures contracts ("index futures") for hedging purposes. An "index future" is a contract to buy or sell units of a particular bond or stock index at an agreed price on a specified future date. Depending on the change in value of the index between the time when a Fund enters into and terminates an index future transaction, the Fund realizes a gain or loss. A Fund may also, to the extent consistent with its investment objectives and policies, buy and sell call and put options on index futures or on stock or bond indices in addition to or as an alternative to buying or selling index futures or, to the extent permitted by applicable law, to earn additional income. In addition, if a Fund's investment policies permit it to invest in foreign securities, such Fund may invest in futures and options on foreign securities, to the extent permitted by applicable law, as a substitute for direct investment in foreign securities. To the extent described above, each Fund may also buy and sell futures contracts and related options with respect to U.S. Government Securities and options directly on U.S. Government Securities. Putnam Management believes that, under certain market conditions, price movements in U.S. Government Securities futures and related options may correlate closely with securities in which the Funds may invest and may, as a result, provide hedging opportunities for the Funds. U.S. Government Securities futures and related options would be used in a way similar to a Fund's use of index futures and options. A Fund will only buy or sell U.S. Government Securities futures and related options when, in the opinion of Putnam Management, price movements in such futures and options are expected to correlate closely with price movements in the securities which are the subject of the hedge. Options. As described above, certain of the Funds may, to the extent consistent with their investment objectives and policies, seek to increase current return by writing covered call and put options on securities such Funds own or in which they may invest. A Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. When a Fund writes a call option, it gives up the opportunity to profit from any increase in the price of a security above the exercise price of the option; when it writes a put option, the Fund takes the risk that it will be required to purchase a security from the option holder at a price above the current market price of the security. Each Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Each Fund may also, to the extent consistent with its investment objectives and policies, buy and sell put and call options for hedging purposes and from time to time buy and sell combinations of put and call options on the same underlying security to earn additional income. The aggregate value of the securities underlying the options may not exceed 25% of the relevant Fund's assets. Risks related to options and futures strategies . The use of futures and options involves certain special risks. Futures and options transactions involve costs and may result in losses. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of futures and options and movements in the prices of the underlying bond or stock index, securities or currencies or of the securities or currencies that are the subject of a hedge. The successful use of the strategies described above further depends on Putnam Management's ability to forecast market movements correctly. Other risks arise from a Fund's potential inability to close out its futures or options positions, and there can be no assurance that a liquid secondary market will exist for any future or option at any particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit a Fund's ability to engage in futures and options transactions. A more detailed explanation of futures and options transactions, including the risks associated with them, is included in the Statement of Additional Information. Lower-rated and other fixed income securities As described above, certain of the Funds may invest in lower-rated fixed income securities (commonly known as "junk bonds"). Differing yields on fixed income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower categories of recognized rating agencies (Baa or lower by Moody's and BBB or lower by S&P) or from unrated securities of comparable quality. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are set forth in the Appendix to this Prospectus. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' investment 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. Although Putnam Management considers security ratings when making investment decisions, it performs its own investment analysis and does not rely principally on the ratings assigned by the rating services. Putnam Management's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. It also considers relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earning prospects. Because of the greater number of investment considerations involved in investing in lower-rated securities, the achievement of a Fund's objectives depends more on Putnam Management's analytical abilities than would be the case if it were investing primarily in securities in the higher rating categories. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Like those of other fixed income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. The magnitude of these fluctuations is generally greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect a Fund's net asset value. Investors should carefully consider their ability to assume the risks of investing in a mutual fund which invests in lower-rated securities before allocating a portion of their insurance investment to a Fund that invests in such securities. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payments of interest and principal would likely make the values of securities held by a 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, a Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security. Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. When the Fund invests in securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in securities in the higher rating categories. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. 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. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Both zero-coupon bonds and payment- in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Certain investment - grade securities in which a Fund may invest share some of the risk factors discussed above with respect to lower-rated securities. Mortgage-backed and asset-backed securities As described above, certain of the Funds may invest in asset-backed and mortgage-backed securities, such as CMOs, including stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent participations in, or are secured by, mortgage loans. 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 assets. A Fund may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in these securities. Conversely, 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 less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. Mortgage-backed securities include securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae or Freddie Mac ; securities issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; or securities issued by private issuers that represent an interest in or are collateralized by mortgage loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgages, the underlying assets may include motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed and asset-backed securities have yield and maturity characteristics corresponding to the underlying assets. Thus, 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 and asset- backed securities include both interest and a partial payment of principal. In addition to scheduled loan amortization, payments of principal may result from voluntary prepayment, refinancing or foreclosure of the underlying mortgage loans or other assets. Such prepayments significantly shorten the effective maturities of the securities, especially during periods of declining interest rates. Due to their prepayment aspect, 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. This is caused by the need to reinvest prepayments of principal generally and the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a comparable risk of decline in market value during periods of rising interest rates. At times, some of the mortgage-backed and asset-backed securities in which a Fund may invest will have higher than market interest rates, and will therefore be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause a Fund to suffer a loss equal to any unamortized premium. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in the interest or principal on the underlying collateral or in a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs that is first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMOs held by the Fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Securities loans, repurchase agreements and forward commitments Each Fund may lend portfolio securities amounting to not more than 25% of its assets to broker-dealers and may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. Each Fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to a Fund if the other party should default on its obligation and the Fund is delayed or prevented from recovering the collateral or completing the transaction. HOW PERFORMANCE IS SHOWN Each Fund's investment performance may from time to time be included in advertisements about that Fund. For Funds , "yield" is calculated by dividing a Fund's annualized net investment income per share during a recent 30-day period by the net asset value per share on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from a Fund's net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. A Fund's current dividend rate is based on its net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "Common investment policies and techniques -- Investments in premium securities." "Total return" for the one-, five- and ten-year periods ( or for the life of a Fund, if shorter ) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in such Fund . Total return may also be presented for other periods. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective or objectives and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable with respect to these insurance products. Insurance related charges and expenses are not reflected in the Funds' performance information and would reduce an investor's return under the insurance product. For performance information through the Funds' most recent fiscal year, see "Investment Performance of the Trust" in the Statement of Additional Information. HOW THE TRUST IS MANAGED The Trustees of the Trust are responsible for generally overseeing the conduct of the Trust's business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Trust and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Trust's other affairs and business. Michael Martino, Managing Director of Putnam Management, D. William Kohli and Jennifer E. Leichter, each a Senior Vice President of Putnam Management , and Neil J. Powers and Mark J. Siegel, each a Vice President of Putnam Management, each of whom is a Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Diversified Income Fund's portfolio since 1993 for Ms. Leichter, and 1994 for Messrs. Martino, Kohli, Powers and Siegel . Ms. Leichter and Mr. Powers have been employed by Putnam Management since 1987 and 1986, respectively. Mr. Martino has been employed by Putnam Management since January, 1994. Prior to January, 1994, Mr . Martino was employed by Back Bay Advisors in the positions of Executive Vice President and Chief Investment Officer from 1992 to 1994, and Senior Vice President and Senior Portfolio Manager from 1990 to 1992 . Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Siegel has been employed by Putnam Management since June, 1993. Prior to June, 1993, Mr. Siegel was Vice President of Salomon Brothers International Ltd . William J. Landes, Managing Director of Putnam Management , David L. King, John K. Storkerson, D. William Kohli and Richard M. Frucci, each a Senior Vice President of Putnam Management , and Christopher A. Ray and David J. Santos, each a Vice President of the Trust , have had primary responsibility for the day - to - day management of PCM Global Asset Allocation Fund's portfolio since 1993 for Messrs. Landes, King, Storkerson and Ray, 1994 for Mr. Kohli, and 1995 for Messrs. Frucci and Santos . Messrs. Landes, King , Storkerson , Frucci and Santos have been employed by Putnam Management since 1985, 1983 , 1979, 1984 and 1986, respectively. Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Ray has been employed by Putnam Management since December, 1992. Prior to December, 1992, Mr. Ray was Vice President and Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to March, 1992, Mr. Ray was Vice President of Putnam Management. John K. Storkerson, Senior Vice President of Putnam Management and Vice President of the Trust, and Gerald S. Zukowski, Senior Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Global Growth Fund's portfolio since 1992 and 1993, respectively. Messrs. Storkerson and Zukowski have been employed by Putnam Management since 1979 and 1989, respectively. Kenneth J. Taubes, Senior Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM U.S. Government and High Quality Bond Fund's portfolio since 1993. Mr. Taubes has been employed by Putnam Management since 1991. Prior to 1991, Mr. Taubes was Senior Vice President of the Finance Division of U.S. Trust Company. The Trust, on behalf of the Funds, pays all expenses not assumed by Putnam Management, including Trustees' fees and auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees. General expenses of the Trust will be allocated among and charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Total expenses, including management fees, for the fiscal year ended December 31, 1994, based on each Fund's average net assets, were: Total Management Expenses Fees ---------- ----------- PCM Diversified Income Fund 0.80% 0.67% PCM Global Asset Allocation Fund 0.76% 0.66% PCM Global Growth Fund 0.77% 0.60% PCM U.S. Government and High Quality Bond Fund* 0.67% 0.60% On June 2, 1994, the shareholders of two of the funds approved new management fees payable to Putnam Management. If the new rates had been in effect for the entire year , management fees would have been the following: PCM Diversified Income Fund, 0.70%; and PCM Global Asset Allocation Fund, 0.70%; * On January 6, 1995, the Trustees approved a proposal to change the fees payable to Putnam Management under the Management Contract for PCM U.S. Government and High Quality Bond Fund. The proposed change is subject to shareholder approval and will be submitted to shareholders at a meeting scheduled for July 13, 1995. If the proposed change is approved by shareholders, management fees for PCM U.S. Government and High Quality Bond Fund would thereafter be paid at the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any excess thereafter. The proposed change would result in an increase in the fees payable by the Fund based on its net assets as of December 31, 1994. Putnam Management places all orders for purchases and sales of the securities of each Fund. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider, if permitted by law, sales of shares of the other Putnam funds as a factor in the selection of broker-dealers. ORGANIZATION AND HISTORY Putnam Capital Manager Trust is a Massachusetts business trust organized on September 24, 1987. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into eleven series of shares, each representing a separate investment portfolio which is being offered through separate accounts of various insurance companies. Each portfolio is managed as a diversified investment company . Until April 30, 1991, PCM Global Growth Fund was known as PCM International Equities Fund. Until September 1, 1993, PCM Global Asset Allocation Fund was known as PCM Multi-Strategy Fund. Shares vote by individual portfolio on all matters except (i) when required by the Investment Company Act of 1940, shares of all portfolios shall be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of one or more portfolios, only the shareholders of such portfolio or portfolios shall be entitled to vote. Each share has one vote, with fractional shares voting proportionately. Shares of each of the portfolios are freely transferable, are entitled to dividends as declared by the Trustees, and, if the portfolio were liquidated, would receive the net assets of the portfolio. The Trust may suspend the sale of shares of any portfolio at any time and may refuse any order to purchase shares. Although the Trust 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. Shares of the Funds may only be purchased by an insurance company's separate account. For matters requiring shareholder approval, you may be able to instruct the insurance company's separate account how to vote the Fund shares attributable to your contract or policy. See the Voting Rights section of your insurance product prospectus. The Funds' Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President, Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Funds' Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds. About your investment SALES AND REDEMPTIONS The Trust has an underwriting agreement relating to the Funds with Putnam Mutual Funds , One Post Office Square, Boston, Massachusetts 02109. Putnam Mutual Funds presently offers shares of each Fund of the Trust continuously to separate accounts of various insurers. The underwriting agreement presently provides that Putnam Mutual Funds accepts orders for shares at net asset value and no sales commission or load is charged. Putnam Mutual Funds may, at its expense, provide promotional incentives to dealers that sell variable insurance products. Shares are sold or redeemed at the net asset value per share next determined after receipt of an order . Orders for purchases or sales of shares of a Fund must be received by Putnam Mutual Funds before the close of regular trading on the New York Stock Exchange in order to receive that day's net asset value. No fee is charged to a separate account when it redeems Fund shares. Please check with your insurance company for Funds available under your variable annuity contract or variable life insurance policy. Certain Funds may not be available in your state due to various insurance regulations. Inclusion of a Fund in this Prospectus that is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. Each Fund currently does not foresee any disadvantages to policyowners arising out of the fact that each Fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw their investments in one or more Funds and shares of another Fund may be substituted. This might force a Fund to sell portfolio securities at disadvantageous prices. In addition, the Trustees may refuse to sell shares of any Fund to any separate account or may suspend or terminate the offering of shares of any Fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the Fund. Under unusual circumstances, the Trust may suspend repurchases or postpone payment for up to seven days or longer, as permitted by federal securities law. EXCHANGE PRIVILEGE A shareholder may exchange shares of any Fund in the Trust for shares of any other Fund in the Trust on the basis of their respective net asset values. Exchanges may not be made into portfolios of the Trust not offered by your variable annuity contract or variable life policy. HOW THE TRUST VALUES ITS SHARES The Trust calculates the net asset value of a share of each Fund by dividing the total value of the assets of the Fund, less liabilities, by the number of shares of the Fund outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open. Fund securities for which market quotations are readily available are stated at market value. Short-term investments that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION Each of the Funds will distribute any net investment income and net realized capital gains at least annually. Both types of distributions will be made in shares of such Funds unless an election is made on behalf of a separate account to receive some or all of the distributions in cash. Distributions are reinvested without a sales charge, using the net asset value determined on the ex-dividend date . Each Fund intends to qualify each year as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income and gains it distributes to the separate accounts. For information concerning federal income tax consequences for the holders of variable annuity contracts and variable life insurance policies, contract holders should consult the prospectus of the applicable separate account. Internal Revenue Service regulations applicable to portfolios that serve as the funding vehicles for variable annuity and variable life insurance separate accounts generally require that those portfolios invest no more than 55% of the value of their assets in one investment, 70% in two investments, 80% in three investments and 90% in four investments. Each of the Funds intends to comply with these requirements. FINANCIAL INFORMATION It is expected that owners of the variable annuity contracts and variable life insurance policies who have contract or policy values allocated to the Funds will receive an unaudited semi- annual financial statement and an audited annual financial statement for such Funds. These reports show the investments owned by each Fund and provide other relevant information about the Fund. About Putnam Investments, Inc. Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly- owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. APPENDIX SECURITIES RATINGS The following rating services describe rated securities as follows: Moody's Investors Service, Inc. Bonds Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking, or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever earning any real investment standing. Standard & Poor's Corporation Bonds AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D--Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. PUTNAM CAPITAL MANAGER TRUST PROSPECTUS - MAY 1, 1995 Putnam Capital Manager Trust (the "Trust") offers shares of beneficial interest in separate investment portfolios (collectively, the "Funds") for purchase by separate accounts of various insurance companies. The Funds, which have different investment objectives and policies, offered by this Prospectus are: PCM Growth and Income Fund, PCM Money Market Fund, PCM U.S. Government and High Quality Bond Fund and PCM Voyager Fund. An investment in PCM Money Market Fund is neither insured nor guaranteed by the U.S. government. There can be no assurance that PCM Money Market Fund will be able to maintain a stable net asset value of $1.00 per share. This Prospectus explains concisely information about the Trust and should be read in conjunction with the Prospectus for the separate account of the variable annuity or variable life insurance product that accompanies this Prospectus. Please read it carefully and keep it for future reference. Investors can find more detailed information about the Trust in the May 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Putnam Investor Services at 1-800-521-0538. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS INSURANCE COMPANIES. What you need to know ABOUT THE TRUST Financial highlights 2 The Trust 6 Investment objectives and policies of the Funds 6 Common investment policies and techniques 13 How performance is shown 22 How the Trust is managed 23 Organization and history 25 ABOUT YOUR INVESTMENT Sales and redemptions 27 How the Trust values its shares 28 How distributions are made; tax information 28 Financial information 29 ABOUT PUTNAM INVESTMENTS, INC. 29 APPENDIX 30 About the Trust FINANCIAL HIGHLIGHTS The tables on the following pages present per share financial information for the life of each Fund. This information has been audited and reported on by the Trust's independent accountants. The Report of Independent Accountants and financial statements included in the Trust's Annual Report to shareholders for the 1994 fiscal year are incorporated by reference into this Prospectus. The Trust's Annual Report, which contains additional unaudited performance information, is available without charge upon request.
Financial highlights (For a share outstanding throughout the period) Investment Operations Net Less Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (Period) Net Asset Value, Investment Gain (Loss) on Investment Investment Gain on Ended Beginning of Period Income Investments Operations Income Investments PCM Voyager Fund December 31, 1994 $22.41 $.07 $.14 $.21 $(.05) $(.37) December 31, 1993 19.21 .04 3.50 3.54 (.07) (.27) December 31, 1992 17.94 .07 1.72 1.79 (.08) (.44) December 31, 1991 (a) 12.58 .11 5.61 5.72 (.12) (.24) December 31, 1990 13.00 .18 (.45) (.27) (.06) (.09) December 31, 1989 10.30 .12 3.20 3.32 (.16) (.46) December 31, 1988*(a) 10.00 .13 .17 .30 - - PCM Growth and Income Fund December 31, 1994 $17.38 $.50 $(0.48) $.02 $(.38) $(.58) December 31, 1993 15.93 .38 1.83 2.21 (.39) (.37) December 31, 1992 15.33 .39 1.04 1.43 (.42) (.41) December 31, 1991 13.51 .43 2.09 2.52 (.53) (.17) December 31, 1990 13.41 .55 (.29) .26 (.05) (.11) December 31, 1989 12.00 .45 2.04 2.49 (.60) (.48) December 31, 1988*(a) 10.00 .42 1.58 2.00 - - PCM U.S. Government and High Quality Bond Fund December 31, 1994 $13.53 $.81 $(1.24) $(.43) $(.66) $(.22) December 31, 1993 12.85 .63 .78 1.41 (.61) (.12) December 31, 1992 12.57 .60 .28 .88 (.54) (.06) December 31, 1991 11.36 .56 1.31 1.87 (.66) - December 31, 1990 10.82 .71 .08 .79 (.22) (.03) December 31, 1989 10.28 .62 .78 1.40 (.79) (.07) December 31, 1988*(a) 10.00 .66 (.38) .28 - - PCM Money Market Fund December 31, 1994 $1.00 $.0377 $ - $.0377 $(.0377) $ - December 31, 1993 1.00 .0276 - .0276 (.0276) - December 31, 1992 1.00 .0352 - .0352 (.0352) - December 31, 1991 1.00 .0575 .0001 .0576 (.0575) (.0001) December 31, 1990 1.00 .0770 - .0770 (.0770) - December 31, 1989 1.00 .0859 - .0859 (.0859) - December 31, 1988* 1.00 .0575 - .0575 (.0575) -
Ratio of Less Total Net Distributions Investment Ratio of Investment From: Net Asset Return at Net Assets, Expenses to Income to Paid-in Total Value, End Net Asset End of Period Average Net Average Net Portfolio Capital Distributions of Period Value (%)(b) (in thousands) Assets (%) Assets (%) Turnover (%) $ - $(.42) $22.20 1.04 $1,026,972 .71 .40 62.44 - (.34) 22.41 18.70 675,198 .66 .33 55.85 - (.52) 19.21 10.36 317,225 .75 .56 48.17 - (.36) 17.94 46.09 156,741 .81 .78 55.04 - (.15) 12.58 (2.03) 48,414 .88 1.58 93.65 - (.62) 13.00 32.38 39,998 .82 1.93 91.82 - - 10.30 2.98(c) 7,981 1.35(c) 1.44(c) 103.99(c) $ - $(.96) $16.44 0.35 $1,907,380 .62 3.64 46.43 - (.76) 17.38 14.27 1,407,382 .64 3.49 62.63 - (.83) 15.93 9.75 641,508 .69 3.79 39.58 - (.70) 15.33 19.05 325,861 .72 4.37 37.94 - (.16) 13.51 1.96 155,942 .75 5.02 49.39 - (1.08) 13.41 21.30 100,335 .74 5.73 73.40 - - 12.00 19.89(c) 26,205 .92(c) 4.08(c) 37.94(c) $ - $(.88) $12.22 (3.23) $640,458 .67 6.24 118.34 - (.73) 13.53 11.28 735,386 .64 6.16 94.01 - (.60) 12.85 7.49 435,906 .70 6.98 45.82 - (.66) 12.57 17.28 229,306 .74 7.57 59.29 - (.25) 11.36 7.51 98,549 .76 8.24 32.70 - (.86) 10.82 14.06 61,765 .76 8.32 27.81 - - 10.28 2.78(c) 28,406 .87(c) 7.04(c) 41.41(c) $ - $(.0377) $1.00 3.82 $244,064 .55 3.90 - - (.0276) 1.00 2.79 129,329 .42 2.77 - - (.0352) 1.00 3.57 105,694 .48 3.49 - - (.0576) 1.00 5.92 78,568 .50 5.74 - - (.0770) 1.00 7.98 77,892 .53 7.67 - - (.0859) 1.00 8.88 24,975 .63 8.62 - - (.0575) 1.00 5.84(c) 14,001 .71(c) 6.70(c) - * For the period February 1, 1988 (commencement of operations) to December 31, 1988. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized.
THE TRUST The Trust is designed to serve as a funding vehicle for insurance separate accounts associated with variable annuity contracts and variable life insurance policies. The Trust presently serves as the funding vehicle for variable annuity contracts and variable life insurance policies offered by separate accounts of various insurance companies. You should consult the prospectus issued by the relevant insurance company for more information about a separate account. Shares of the Trust are offered to these separate accounts through Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the principal underwriter for the Trust. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund of the Trust has a different investment objective or objectives which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. For more information about the investment strategies employed by the Funds, see "Common investment policies and techniques." The investment objectives and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees of the Trust without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective or objectives of a Fund without shareholder approval. There is no assurance that any Fund will achieve its objective or objectives. Additional portfolios may be created from time to time with different investment objectives and policies for use as funding vehicles for insurance company separate accounts or for other insurance products. In addition, the Trustees may, subject to any necessary regulatory approvals, eliminate any Fund or divide any Fund into two or more classes of shares with such special or relative rights and privileges as the Trustees may determine. Glossary The following terms are frequently used in this Prospectus. Many of these terms are explained in greater detail under "Common investment policies and techniques." "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager "S&P" -- Standard & Poor's Corporation "Moody's" -- Moody's Investors Service, Inc. "U.S. Government Securities" -- debt securities issued or guaranteed by the U.S. government, by various of its agencies, or by various instrumentalities established or sponsored by the U.S. government. Certain U.S. Government Securities, including U.S. Treasury bills, notes and bonds, mortgage participation certificates guaranteed by Ginnie Mae , and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Fannie Mae bonds. "CMOs" -- collateralized mortgage obligations "Ginnie Mae" -- Government National Mortgage Association "Fannie Mae" -- Federal National Mortgage Association "Freddie Mac" -- Federal Home Loan Mortgage Corporation PCM GROWTH AND INCOME FUND PCM Growth and Income Fund seeks capital growth and current income as its investment objectives. The Fund invests primarily in common stocks that offer potential for capital growth, current income, or both. The Fund may also purchase corporate bonds, notes and debentures, preferred stocks or convertible securities (both debt securities and preferred stocks) or U.S. government securities, if Putnam Management determines that their purchase would help further the Fund's investment objectives. The types of securities held by the Fund may vary from time to time in light of the Fund's investment objectives, changes in interest rates and economic and other factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest up to 20% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may invest in both higher-rated and lower-rated fixed-income securities. The risks associated with fixed income securities, including lower-rated fixed - income securities (commonly known as "junk bonds") , are discussed below under "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Growth and Income Fund will generally be managed in a style similar to that of The Putnam Fund for Growth and Income. PCM MONEY MARKET FUND PCM Money Market Fund seeks as high a rate of current income as Putnam Management believes is consistent with preservation of capital and maintenance of liquidity. It is designed for investors seeking current income with stability of principal. The Fund invests in a portfolio of high-quality money market instruments. Examples of these instruments include: * bank certificates of deposit (CDs) : negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. * bankers' acceptances: negotiable drafts or bills of exchange, which have been "accepted" by a bank, meaning, in effect, that the bank has unconditionally agreed to pay the face value of the instrument on maturity. * prime commercial paper: high-grade, short-term obligations issued by banks, corporations and other issuers. * corporate obligations: high-grade, short-term corporate obligations other than prime commercial paper. * municipal obligations: high-grade, short-term municipal obligations. * U.S. Government Securities : marketable securities issued or guaranteed as to principal and interest by the U.S. government or by its agencies or instrumentalities. * repurchase agreements: with respect to U.S. Treasury or U.S. government agency obligations. The Fund will invest only in high-quality securities that Putnam Management believes present minimal credit risk. High-quality securities are securities rated at the time of acquisition in one of the two highest categories by at least two nationally recognized rating services (or, if only one rating service has rated the security, by that service) or if the security is unrated, judged to be of equivalent quality by Putnam Management. The Fund will maintain a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days. The Fund may invest in variable or floating rate securities which bear interest at rates subject to periodic adjustment or which provide for periodic recovery of principal on demand. Under certain conditions, these securities may be deemed to have remaining maturities equal to the time remaining until the next interest adjustment date or the date on which principal can be recovered on demand. The Fund follows investment and valuation policies designed to maintain a stable net asset value of $1.00 per share. There is no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. The Fund may invest in bank certificates of deposit and bankers' acceptances issued by banks having deposits in excess of $2 billion (or the foreign currency equivalent) at the close of the last calendar year. Should the Trustees decide to reduce this minimum deposit requirement, shareholders will be notified and this Prospectus supplemented. Considerations of liquidity and preservation of capital mean that the Fund may not necessarily invest in money market instruments paying the highest available yield at a particular time. Consistent with its investment objective, the Fund will attempt to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. The Fund will also invest to take advantage of what Putnam Management believes to be temporary disparities in yields of different segments of the high-grade money market or among particular instruments within the same segment of the market. These policies, as well as the relatively short maturity of obligations purchased by the Fund, may result in frequent changes in the Fund's portfolio. The Fund does not usually pay brokerage commissions in connection with the purchase or sale of portfolio securities. See "Management of the Fund -- Portfolio Transactions -- Brokerage and research services" in the Statement of Additional Information for a discussion of underwriters' commissions and dealers' spreads involved in the purchase and sale of portfolio securities. The portfolio of the Fund will be affected by general changes in interest rates resulting in increases or decreases in the value of the obligations held by the Fund. The value of the securities in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. Withdrawals by shareholders could require the sale of portfolio investments at a time when such a sale might not otherwise be desirable. The Fund may invest without limit in the banking industry when, in the opinion of Putnam Management, the yield, marketability and availability of investments meeting the Fund's quality standards in that industry justify any additional risks associated with the concentration of the Fund's assets in that industry . The Fund, however, will invest more than 25% of its assets in the personal credit institution or business credit institution industries only when, to Putnam Management's knowledge, the yields then available on securities issued by companies in such industries and otherwise suitable for investment by the Fund exceed the yields then available on securities issued by companies in the banking industry and otherwise suitable for investment by the Fund. The Fund may invest without limit in U.S. dollar-denominated commercial paper of foreign issuers and in bank certificates of deposits and bankers' acceptances payable in U.S. dollars and issued by foreign banks (including U.S. branches of foreign banks) or by foreign branches of U.S. banks. These investments subject the Fund to investment risks different from those associated with domestic investments. For a discussion of the risks associated with foreign investments, See "Common investment policies and techniques -- Foreign investments." The Fund may also lend its portfolio securities. For a discussion of this strategy and the risks associated with it, see "Common investment policies and techniques" below. PCM Money Market Fund will generally be managed in a style similar to that of Putnam Money Market Fund. PCM U.S. GOVERNMENT AND HIGH QUALITY BOND FUND PCM U.S. Government and High Quality Bond Fund seeks current income consistent with preservation of capital. The Fund invests primarily in U.S. Government Securities and in other debt obligations rated at least A by Moody's or S&P at the time of investment, or, if not rated, determined by Putnam Management to be of comparable quality. For a more detailed description of security ratings, see the Appendix to this Prospectus. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Putnam Management will allocate the Fund's assets between U.S. Government Securities and other high quality bonds, depending on its assessment of market conditions and the relative investment returns available from such securities. The Fund will not, however, make any investment, if, as a result, less than 25% of the value of its assets would be invested in U.S. Government Securities. The Fund may also invest up to 10% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also invest in premium securities, engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these strategies and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and other high quality bonds and may adjust the average maturity of the Fund's portfolio from time to time, depending on its assessment of relative yields on securities of different maturities and expectations of future changes in interest rates. Thus, at certain times the average maturity of the portfolio may be relatively short (less than one year to five years, for example) and at other times may be relatively long (more than 10 years, for example). A portion of the securities held by the Fund may consist of high quality mortgage-backed and asset-backed securities. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage- backed and asset-backed securities." U.S. Government Securities and other high quality bonds do not involve the degree of credit risk associated with investments in lower quality fixed income securities, although, as a result, the yields available from U.S. Government Securities and other high quality bonds are generally lower than the yields available from many other fixed income securities. Like other fixed income securities, however, the values of U.S. Government Securities and other high quality bonds change as interest rates fluctuate. Fluctuations in the value of the Fund's securities will not affect interest income on securities already held by the Fund, but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations generally will be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may invest in short-term investments yielding lower current income rather than investing in higher yielding longer-term securities. PCM VOYAGER FUND PCM Voyager Fund seeks capital appreciation as its investment objective . It is designed for investors willing to assume above-average risk in return for above-average capital growth potential. The Fund invests primarily in common stocks which Putnam Management believes have potential for capital appreciation that is significantly greater than that of the market averages. The Fund does not choose investments for dividend and interest income. It may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective. The Fund may also hold a portion of its assets in cash and money market instruments and may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund generally invests a significant portion of its assets in the securities of smaller and newer issuers. These small- to medium-sized companies have a proprietary product or profitable market niche and the potential to grow very rapidly. Such companies may present greater opportunities for capital appreciation because of high potential earnings growth, but may also involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume . As a result, these securities may fluctuate in value more than securities of larger, more established companies. The Fund will also invest a portion of its assets in larger companies where opportunities for above-average capital appreciation appear favorable. In seeking its objective, the Fund may borrow money to invest in additional portfolio securities. This technique, known as "leverage," increases the Fund's market exposure and risk. When the Fund has borrowed money for leverage and its investments increase or decrease in value, the Fund's net asset value will increase or decrease more than if it had not borrowed money for this purpose. The interest that the Fund must pay on borrowed money will reduce its net investment income, and may also either offset any potential capital gains or increase any losses. The Fund will not always borrow money for investment. The extent to which the Fund will borrow money, and the amount it may borrow, depend on market conditions and interest rates. Successful use of leverage depends on Putnam Management's ability to predict market movements correctly. PCM Voyager Fund will generally be managed in a style similar to that of Putnam Voyager Fund. GENERAL As indicated above, certain of the Funds are generally managed in styles similar to other open-end investment companies which are managed by Putnam Management and whose shares are generally offered to the public. These other Putnam funds may, however, employ different investment practices and may invest in securities different from those in which their counterpart Funds invest, and consequently will not have identical portfolios or experience identical investment results. COMMON INVESTMENT POLICIES AND TECHNIQUES Defensive strategies At times, Putnam Management may judge that conditions in the securities markets make pursuing a Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. At such times, Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of a Fund's assets. In implementing these "defensive" strategies, a Fund may invest without limit in cash or cash equivalents, money-market instruments, short-term bank obligations, high-rated fixed income securities or preferred stocks or invest in any other securities Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, a Fund will use such alternative strategies. Portfolio turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." As a result of a Fund's investment policies, under certain market conditions , the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of each Fund are shown in "Financial highlights." Investments in premium securities To the extent described above, certain of the Funds may invest in securities bearing coupon rates higher than prevailing market rates. Such "premium" securities are typically purchased at prices greater than the principal amounts payable on maturity. A Fund does not amortize the premium paid for such securities in calculating its net investment income. As a result, the purchase of such securities provides a Fund a higher level of investment income distributable to shareholders on a current basis than if the Fund had purchased securities bearing current market rates of interest. Because the value of premium securities tends to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date), the purchase of such securities will increase a Fund's risk of capital loss if such securities are held to maturity (or first call date). During a period of declining interest rates, many of a Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of a Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of a Fund during such periods would initially receive higher distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in a Fund, investors may find it useful to compare a Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." Foreign investments Each Fund may invest to the extent described above in securities principally traded in foreign markets. Each Fund may also purchase Eurodollar certificates of deposit without limitation. Since foreign securities are normally denominated and traded in foreign currencies, the values of a Fund's assets may be affected favorably or unfavorably by currency exchange rates and exchange control regulations. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of a Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of a Fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit a Fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities. The risks described above are typically increased to the extent that a Fund invests in securities traded in lesser-developed and developing nations, which are sometimes referred to as "emerging markets." A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the Statement of Additional Information. Foreign currency exchange transactions To the extent described above, certain of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. Putnam Management may engage in currency exchange transactions in connection with the purchase and sale of portfolio securities ("transaction hedging"), and to protect the value of specific portfolio positions ("position hedging"). A Fund may engage in transaction hedging to protect against a change in currency exchange rates between the date on which a Fund contracts to purchase or sell the security and the settlement date, or to "lock in" the value of a dividend or interest payment in a particular currency. For that purpose, a Fund may purchase or sell a currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, a 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 as a hedge against changes in foreign currency exchange rates between the trade and settlement dates on particular transactions and not for speculation. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. For transaction hedging purposes, a Fund may also purchase and sell call and put options on foreign currency futures contracts and on currencies. A Fund may engage in position hedging to protect against a decline in 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 a currency in which securities the Fund intends to buy are denominated, when the Fund holds cash reserves and short-term investments). For position hedging purposes, a Fund may purchase or sell foreign currency futures contracts, foreign currency forward contracts, and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, a Fund may also purchase or sell foreign currency on a spot basis. A 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 a Fund. Cross hedging transactions by a 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. For a discussion of the risks associated with options and futures strategies in connection with a Fund's foreign currency exchange transactions, see "Risks related to options and futures strategies." Options and futures Futures and options on futures. Each Fund that may invest in futures and options, as described above, may, to the extent consistent with their investment objectives and policies, buy and sell index futures contracts ("index futures") for hedging purposes. An "index future" is a contract to buy or sell units of a particular bond or stock index at an agreed price on a specified future date. Depending on the change in value of the index between the time when a Fund enters into and terminates an index futures transaction, the Fund realizes a gain or loss. A Fund may also, to the extent consistent with its investment objectives and policies, buy and sell call and put options on index futures or on stock or bond indices in addition to or as an alternative to buying or selling index futures or, to the extent permitted by applicable law, to earn additional income. In addition, if a Fund's investment policies permit it to invest in foreign securities, such Fund may invest in futures and options on foreign securities, to the extent permitted by applicable law, as a substitute for direct investment in foreign securities. To the extent described above, each Fund may also buy and sell futures contracts and related options with respect to U.S. Government Securities and options directly on U.S. Government Securities. Putnam Management believes that, under certain market conditions, price movements in U.S. Government Securities futures and related options may correlate closely with securities in which the Funds may invest and may, as a result, provide hedging opportunities for the Funds. U.S. Government Securities futures and related options would be used in a way similar to a Fund's use of index futures and options. A Fund will only buy or sell U.S. Government Securities futures and related options when, in the opinion of Putnam Management, price movements in such futures and options are expected to correlate closely with price movements in the securities which are the subject of the hedge. Options. As described above, certain of the Funds may, to the extent consistent with their investment objectives and policies, seek to increase its current return by writing covered call and put options on securities such Funds own or in which they may invest. A Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. When a Fund writes a call option, it gives up the opportunity to profit from any increase in the price of a security above the exercise price of the option; when it writes a put option, the Fund takes the risk that it will be required to purchase a security from the option holder at a price above the current market price of the security. Each Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Each Fund may also, to the extent consistent with its investment objectives and policies, buy and sell put and call options for hedging purposes and from time to time buy and sell combinations of put and call options on the same underlying security to earn additional income. The aggregate value of the securities underlying the options may not exceed 25% of the relevant Fund's assets. Risks related to options and futures strategies The use of futures and options involves certain special risks. Futures and options transactions involve costs and may result in losses. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of futures and options and movements in the prices of the underlying bond or stock index, securities or currencies or of the securities or currencies that are the subject of a hedge. The successful use of the strategies described above further depends on Putnam Management's ability to forecast market movements correctly. Other risks arise from a Fund's potential inability to close out its futures or options positions, and there can be no assurance that a liquid secondary market will exist for any future or option at any particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit a Fund's ability to engage in futures and options transactions. A more detailed explanation of futures and options transactions, including the risks associated with them, is included in the Statement of Additional Information. Lower-rated and other fixed income securities As described above, certain of the Funds may invest in lower-rated fixed income securities (commonly known as "junk bonds"). Differing yields on fixed income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower categories of recognized rating agencies (Baa or MIG-4 or lower by Moody's and BBB or SP-3 or lower by S&P) or from unrated securities of comparable quality. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are set forth in the Appendix to this Prospectus. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' investment 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. Although Putnam Management considers security ratings when making investment decisions, it performs its own investment analysis and does not rely principally on the ratings assigned by the rating services. Putnam Management's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. It also considers relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earning prospects. Because of the greater number of investment considerations involved in investing in lower-rated securities, the achievement of a Fund's objectives depends more on Putnam Management's analytical abilities than would be the case if it were investing primarily in securities in the higher rating categories. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Like those of other fixed income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. The magnitude of these fluctuations is generally greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect a Fund's net asset value. Investors should carefully consider their ability to assume the risks of investing in a mutual fund which invests in lower-rated securities before allocating a portion of their insurance investment to a Fund that invests in such securities. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payments of interest and principal would likely make the values of securities held by a Fund more volatile and could limit the Fund's ability to sell its securities at prices approximating the values the Fund had placed on such securities. In the absence of a liquid trading market for securities held by it, the Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security. Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. When the Fund invests in securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in securities in the higher rating categories. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. 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. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Both zero-coupon bonds and payment- in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Certain investment - grade securities in which a Fund may invest share some of the risk factors discussed above with respect to lower-rated securities. Mortgage-backed and asset-backed securities As described above, certain of the Funds may invest in asset-backed and mortgage-backed securities, such as CMOs, including stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent participations in, or are secured by, mortgage loans. 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 assets. A Fund which purchases mortgage-backed securities may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Fund's yield to maturity to the extent it invests in IOs. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. Conversely, 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 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. Mortgage-backed securities include securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae or Freddie Mac ; securities issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; or securities issued by private issuers that represent an interest in or are collateralized by mortgage loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgages, the underlying assets may include motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed and asset-backed securities have yield and maturity characteristics corresponding to the underlying assets. Thus, 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 and asset-backed securities include both interest and a partial payment of principal. In addition to scheduled loan amortization, payments of principal may result from voluntary prepayment, refinancing or foreclosure of the underlying mortgage loans or other assets. Such prepayments significantly shorten the effective maturities of the securities, especially during periods of declining interest rates. Due to their prepayment aspect, 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. This is caused by the need to reinvest prepayments of principal generally and the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a comparable risk of decline in market value during periods of rising interest rates. At times, some of the mortgage-backed and asset-backed securities in which the Fund may invest will have higher than market interest rates, and will therefore be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause the Fund to suffer a loss equal to any unamortized premium. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in the interest or principal on the underlying collateral or in a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs that is first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMOs held by the Fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Securities loans, repurchase agreements and forward commitments Each Fund may lend portfolio securities amounting to not more than 25% of its assets to broker-dealers and may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. Each Fund (other than PCM Money Market Fund) may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to a Fund if the other party should default on its obligation and the Fund is delayed or prevented from recovering the collateral or completing the transaction. HOW PERFORMANCE IS SHOWN Each Fund's investment performance may from time to time be included in advertisements about that Fund. For Funds other than PCM Money Market Fund, "yield" is calculated by dividing a Fund's annualized net investment income per share during a recent 30-day period by the net asset value per share on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from a Fund's net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. A Fund's current dividend rate is based on its net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "Common investment policies and techniques -- Investments in premium securities." For PCM Money Market Fund, "yield" represents an annualization of the change in value of an investment (excluding any capital changes) in the Fund for a specific seven-day period; "effective yield" compounds that yield for a year and is, for that reason, greater than the Fund's yield. "Total return" for the one-, five- and ten-year periods ( or for the life of a Fund, if shorter ) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in such Fund . Total return may also be presented for other periods. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective or objectives and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable with respect to these insurance products. Insurance related charges and expenses are not reflected in the Funds' performance information and would reduce an investor's return under the insurance product. For performance information through the Fund's most recent fiscal year, see "Investment Performance of the Trust" in the Statement of Additional Information. HOW THE TRUST IS MANAGED The Trustees of the Trust are responsible for generally overseeing the conduct of the Trust's business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Trust and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Trust's other affairs and business. David L. King, Senior Vice President of Putnam Management and Vice President of the Trust, and Anthony I. Kreisel, Managing Director of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Growth and Income Fund's portfolio since 1993. Messrs. King and Kreisel have been employed by Putnam Management since 1983 and 1986, respectively. Lindsey M. Callen, Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM Money Market Fund's portfolio since 1992. Ms. Callen has been employed by Putnam Management since 1984. Kenneth J. Taubes, Senior Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM U.S. Government and High Quality Bond Fund's portfolio since 1993. Mr. Taubes has been employed by Putnam Management since 1991. Prior to 1991, Mr. Taubes was Senior Vice President of the Finance Division of U.S. Trust Company. Roland W. Gillis, Robert R. Beck and Charles H. Swanberg, each a Senior Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Voyager Fund's portfolio since 1995, 1995 and 1994 , respectively. Mr. Gillis has been employed by Putnam Management since March, 1995. Prior to March, 1995, Mr. Gillis was Vice President of Keystone Custodian Funds, Inc. Messrs. Beck and Swanberg have been employed by Putnam Management since 1989 and 1984 , respectively. The Trust, on behalf of the Funds, pays all expenses not assumed by Putnam Management, including Trustees' fees and auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees. General expenses of the Trust will be allocated among and charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Total expenses, including management fees, for the fiscal year ended December 31, 1994, based on each Fund's average net assets, were: Total Management Expenses Fees PCM Growth and Income Fund 0.62% 0.57% PCM Money Market Fund 0.55% 0.42% PCM U.S. Government and High Quality Bond Fund* 0.67% 0.60% PCM Voyager Fund 0.71% 0.63% On June 2, 1994, the shareholders of three of the funds approved new management fees payable to Putnam Management. If the new rates had been in effect for the entire year , management fees would have been the following: PCM Growth and Income Fund, 0.55%; PCM Money Market Fund, 0.45%; and PCM Voyager Fund, 0.66% . * On January 6, 1995, the Trustees approved a proposal to change the fees payable to Putnam Management under the Management Contract for PCM U.S. Government and High Quality Bond Fund. The proposed changes are subject to shareholder approval and will be submitted to shareholders at a meeting scheduled for July 13, 1995. If the proposed change is approved by shareholders, management fees for PCM U.S. Government and High Quality Bond Fund would thereafter be paid at the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any excess thereafter. The proposed change would result in an increase in the fees payable by the Fund based on its net assets as of December 31, 1994. Putnam Management places all orders for purchases and sales of the securities of each Fund. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider, if permitted by law, sales of shares of the other Putnam funds as a factor in the selection of broker-dealers. Putnam Management may from time to time make payments out of its own assets and revenues to insurance companies whose separate accounts invest in the Trust for assistance with administrative matters relating to their investments in the Trust. ORGANIZATION AND HISTORY Putnam Capital Manager Trust is a Massachusetts business trust organized on September 24, 1987. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into eleven series of shares, each representing a separate investment portfolio which is being offered through separate accounts of various insurance companies. Each portfolio offered by this Prospectus is managed as a diversified investment company . Shares vote by individual portfolio on all matters except (i) when required by the Investment Company Act of 1940, shares of all portfolios shall be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of one or more portfolios, only the shareholders of such portfolio or portfolios shall be entitled to vote. Each share has one vote, with fractional shares voting proportionately. Shares of each of the portfolios are freely transferable, are entitled to dividends as declared by the Trustees, and, if the portfolio were liquidated, would receive the net assets of the portfolio. The Trust may suspend the sale of shares of any portfolio at any time and may refuse any order to purchase shares. Although the Trust 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. Shares of the Funds may only be purchased by an insurance company's separate account. For matters requiring shareholder approval, you may be able to instruct the insurance company's separate account how to vote the Fund shares attributable to your contract or policy. See the Voting Rights section of your insurance product prospectus. The Funds' Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President, Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor or Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bridle Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Funds' Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds. About your investment SALES AND REDEMPTIONS The Trust has an underwriting agreement relating to the Funds with Putnam Mutual Funds , One Post Office Square, Boston, Massachusetts 02109. Putnam Mutual Funds presently offers shares of each Fund of the Trust continuously to separate accounts of various insurers. The underwriting agreement presently provides that Putnam Mutual Funds accepts orders for shares at net asset value and no sales commission or load is charged. Putnam Mutual Funds may, at its expense, provide promotional incentives to dealers that sell variable insurance products. Shares are sold or redeemed at the net asset value per share next determined after receipt of an order, except that, in the case of PCM Money Market Fund, purchases will not be effected until the next determination of net asset value after federal funds have been made available to the Trust. Orders for purchases or sales of shares of a Fund must be received by your insurance company before the close of regular trading on the New York Stock Exchange and transmitted promptly the next day in order to receive that day's net asset value. No fee is charged to a separate account when it redeems Fund shares. Please check with your insurance company for Funds available under your variable annuity contract or variable life insurance policy. Certain Funds may not be available in your state due to various insurance regulations. Inclusion of a Fund in this Prospectus that is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. Each Fund currently does not foresee any disadvantages to policyowners arising out of the fact that each Fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw their investments in one or more Funds and shares of another Fund may be substituted. This might force a Fund to sell portfolio securities at disadvantageous prices. In addition, the Board of Trustees may refuse to sell shares of any Fund to any separate account or may suspend or terminate the offering of shares of any Fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the Fund. Under unusual circumstances, the Trust may suspend repurchases or postpone payment for up to seven days or longer, as permitted by federal securities law. EXCHANGE PRIVILEGE A shareholder may exchange shares of any Fund for shares of any other Fund on the basis of their respective net asset values. Exchanges may not be made into portfolios of the Trust not offered by your variable annuity contract or variable life policy. HOW THE TRUST VALUES ITS SHARES The Trust calculates the net asset value of a share of each Fund by dividing the total value of the assets of the Fund, less liabilities, by the number of shares of the Fund outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open. Except for securities held by PCM Money Market Fund, Fund securities for which market quotations are readily available are stated at market value. Short-term investments that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. The Trust values the portfolio investments of PCM Money Market Fund at amortized cost pursuant to Securities and Exchange Commission Rule 2a-7. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION PCM Money Market Fund will declare a dividend of its net investment income daily and distribute such dividend monthly. Each month's distributions will be paid on the first business day of the next month. Since the net income of PCM Money Market Fund is declared as a dividend each time it is determined, the net asset value per share of the Fund remains at $1.00 immediately after each determination and dividend declaration. Each of the other Funds will distribute any net investment income and net realized capital gains at least annually. Both types of distributions will be made in shares of such Funds unless an election is made on behalf of a separate account to receive some or all of the distributions in cash. Distributions are reinvested without a sales charge, using the net asset value determined on the ex-dividend date, except that with respect to PCM Money Market Fund, distributions are reinvested using the net asset value determined on the day following the distribution payment date. Each Fund intends to qualify each year as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income and gains it distributes to the separate accounts. For information concerning federal income tax consequences for the holders of variable annuity contracts and variable life insurance policies, contract holders should consult the prospectus of the applicable separate account. Internal Revenue Service regulations applicable to portfolios that serve as the funding vehicles for variable annuity and variable life insurance separate accounts generally require that those portfolios invest no more than 55% of the value of their assets in one investment, 70% in two investments, 80% in three investments and 90% in four investments. Each of the Funds intends to comply with these requirements. FINANCIAL INFORMATION It is expected that owners of the variable annuity contracts and variable life insurance policies who have contract or policy values allocated to the Funds will receive an unaudited semi- annual financial statement and an audited annual financial statement for such Funds. These reports show the investments owned by each Fund and provide other relevant information about the Fund. About Putnam Investments, Inc. Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds , and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. APPENDIX SECURITIES RATINGS The following rating services describe rated securities as follows: Moody's Investors Service, Inc. Bonds Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking, or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever earning any real investment standing. Standard & Poor's Corporation Bonds AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D--Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. RATINGS OF COMMERCIAL PAPER Moody's. Moody's Investors Service, Inc. evaluates the salient features that affect a commercial paper issuer's financial and competitive position. Its appraisal includes, but is not limited to, the review of such factors as: quality of management, industry strengths and risks, vulnerability to business cycles, competitive position, liquidity measurements, debt structure, operating trends and access to capital markets. Differing degrees of weight are applied to these factors as deemed appropriate for individual situations. Commercial paper issuers rated "Prime-1" are judged to be of the best quality. Their short-term debt obligations carry the smallest degree of investment risk. Margins of support for current indebtedness are large or stable with cash flow and asset protection well assured. Current liquidity provides ample coverage of near-term liabilities and unused alternative financing arrangements are generally available. While protection elements may change over the intermediate or long-term, such changes are most unlikely to impair the fundamentally strong position of short-term obligations. Issuers in the commercial paper market rated "Prime-2" are of high quality. Protection for short-term note holders is issued with liquidity and value of current assets as well as cash generation in sound relationship to current indebtedness. They are rated lower than the best commercial paper issuers because margins of protection may not be as large or because fluctuations of protective elements over the near or intermediate term may be of greater amplitude. Temporary increases in relative short and overall debt load may occur. Alternate means of financing remain assured. Commercial paper issuers rated "Prime-3" possess favorable investment attributes for short-term commitment. Liquidity considerations and cash generation provide satisfactory support for short-term debt repayment. While near-term investors are well protected, elements may be present which suggest improvement or deterioration in support at some time in the future. Alternative financing strategies have been outlined. Issuers rated in all three Prime categories are judged to be investment grade. Standard & Poor's. Standard & Poor's Corporation describes its highest ("A") rating for commercial paper as follows, with the number 1, 2, and 3 being used to denote relative strength within the "A" classification. Liquidity ratios are adequate to meet cash requirements. Long-term senior debt rating should be "A" or better; in some instances "BBB" credits may be allowed if other factors outweigh the "BBB." The issuer should have access to at least two additional channels of borrowing. Basic earnings and cash flow should have an upward trend, with allowances made for unusual circumstances. Typically, the issuer's industry should be well-established and the issuer should have a strong position within its industry. The reliability and quality of management should be unquestioned. Notes MIG 1/VMIG 1 -- This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2 -- Denotes high quality. Margins of protection are ample though not as large as in the preceding group. MIG 3/VMIG 3 -- Denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG 4/VMIG 4 -- Denotes adequate quality. Protection commonly regarded as required of an investment security is present and, although not distinctly or predominantly speculative, there is specific risk. SG -- Denotes speculative quality. Debt instruments in this category lack margins of protection. Standard & Poor's Corporation SP-1 -- Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2 -- Satisfactory capacity to pay principal and interest. SP-3 -- Speculative capacity to pay principal and interest. Putnam Capital Manager Trust PCM Diversified Income Fund PCM Growth and Income Fund PCM High Yield Fund PCM New Opportunities Fund PUTNAM CAPITAL MANAGER TRUST PROSPECTUS - May 1, 1995 Putnam Capital Manager Trust (the "Trust") offers shares of beneficial interest in separate investment portfolios (collectively the "Funds") for purchase by separate accounts of various insurance companies. The Funds, which have different investment objectives and policies, offered by this Prospectus are: PCM Diversified Income Fund, PCM Growth and Income Fund, PCM High Yield Fund, and PCM New Opportunities Fund . PCM High Yield Fund invests primarily in, and PCM Diversified Income Fund may invest significantly in, lower-rated bonds, commonly known as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and non-payment of interest. Investors should carefully assess the risks associated with an investment in either Fund. This Prospectus explains concisely information about the Trust and should be read in conjunction with the Prospectus for the separate account of the variable annuity or variable life insurance product that accompanies this Prospectus. Please read it carefully and keep it for future reference. Investors can find more detailed information about the Trust in the May 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Putnam Investor Services at 1-800-521-0538. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS INSURANCE COMPANIES. What you need to know ABOUT THE TRUST Financial highlights 2 The Trust 7 Investment objectives and policies of the Funds 7 Common investment policies and techniques 17 How performance is shown 24 How the Trust is managed 25 Organization and history 27 ABOUT YOUR INVESTMENT Sales and redemptions 28 How the Trust values its shares 29 How distributions are made; tax information 30 Financial information 30 ABOUT PUTNAM INVESTMENTS, INC. 30 APPENDIX 31 About the Trust FINANCIAL HIGHLIGHTS The tables on the following pages present per share financial information for the life of each Fund. This information has been audited and reported on by the Trust's independent accountants. The Report of Independent Accountants and financial statements included in the Trust's Annual Report to shareholders for the 1994 fiscal year are incorporated by reference into this Prospectus. The Trust's Annual Report, which contains additional unaudited performance information, is available without charge upon request.
Financial Highlights PCM Growth and Income Fund (For a share outstanding throughout the period) Investment Operations Less Net Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (period) Net Asset Value Investment Gain (Loss) on Investment Investment Gain on ended Beginning of Period Income Investments Operations Income Investments December 31, 1994 $17.38 $.50 $(0.48) $.02 $(.38) $(.58) December 31, 1993 15.93 .38 1.83 2.21 (.39) (.37) December 31, 1992 15.33 .39 1.04 1.43 (.42) (.41) December 31, 1991 13.51 .43 2.09 2.52 (.53) (.17) December 31, 1990 13.41 .55 (.29) .26 (.05) (.11) December 31, 1989 12.00 .45 2.04 2.49 (.60) (.48) December 31, 1988*(a) 10.00 .42 1.58 2.00 - -
Ratio of Total Net Net Net Asset Investment Assets, Ratio of Investment Value, Return at End of Expenses to Income to Total End of Net Asset Period (in Average NetAverage Net Portfolio DistributionsPeriod Value(%)(b) thousands) Assets(%) Assets(%) Turnover(%) $(.96) $16.44 0.35 $1,907,380 .62 3.6446.43 (.76) 17.38 14.27 1,407,382 .64 3.4962.63 (.83) 15.93 9.75641,508 .69 3.7939.58 (.70) 15.33 19.05325,861 .72 4.3737.94 (.16) 13.51 1.96155,942 .75 5.0249.39 (1.08) 13.41 21.30100,335 .74 5.7373.40 - 12.00 19.89(c) 26,205 .92(c) 4.08(c) 37.94(c) * For the period February 1, 1988 (commencement of operations) to December 31, 1988. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized. /TABLE
Financial Highlights PCM High Yield Fund (For a share outstanding throughout the period) Investment Operations Net Less Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (period) Net Asset Value Investment Gain (Loss) on Investment Investment Gain on ended Beginning of Period Income Investments Operations Income Investments December 31, 1994 $12.53 $1.05 $(1.17) $(.12) $(.79) $(.14) December 31, 1993 11.17 .73 1.37 2.10 (.74) - December 31, 1992 10.12 1.26 .59 1.85 (.80) - December 31, 1991 7.91 .85 2.47 3.32 (1.11) - December 31, 1990 9.15 1.30 (2.20) (.90) (.34) - December 31, 1989 10.76 1.12 (1.37) (.25) (1.36) - December 31, 1988*(a) 10.00 1.04(b) (.28) .76 - -
Ratio of Less Total Net Net Distributions From: Net Asset Investment Assets, Ratio of Investment In Excess of Value, Return at End of Expenses to Income to Realized Gain Total End of Net Asset Period (in Average Net Average Net Portfolio on InvestmentsDistributions Period Value(%)(c)thousands) Assets(%) Assets(%) Turnover(%) $(.02) $(.95) $11.46 (.94) $327,119 .74 9.79 62.09 - (.74) 12.53 19.57 291,737 .67 9.88 85.59 - (.80) 11.17 18.98 118,804 .71 11.53 84.24 - (1.11) 10.12 44.83 42,823 .92 12.64 104.62 - (.34) 7.91 (9.98) 18,915 .93 13.81 86.05 - (1.36) 9.15 (2.65) 27,511 .84 12.59 65.44 - - 10.76 7.56(d) 19,506 .94(b)(d) 10.99(b)(d) 64.25(d) * For the period February 1, 1988 (commencement of operations) to December 31, 1988. (a)Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Reflects an expense limitation in effect during the period. As a result of expense limitation, expenses of PCM High Yield Fund for the period ended December 31, 1988 reflect a reduction of less than $.01 per share. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Not annualized. /TABLE
Financial Highlights PCM Diversified Income Fund (For a share outstanding throughout the period) Investment Operations Net Less Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (period) Net Asset Value Investment Gain (Loss) on Investment Investment Gain on ended Beginning of Period Income Investments Operations Income Investments December 31, 1994 $10.23 $.61 $(1.04) $(.43) $(.06) $- December 31, 1993* 10.00 .06 .17 .23 - -
Ratio of Total Net Net Net Asset Investment Assets, Ratio of Investment Value, Return at End of Expenses to Income to Total End of Net Asset Period (in Average NetAverage Net Portfolio DistributionsPeriod Value(%)(a) thousands) Assets(%) Assets(%) Turnover(%) $(.06) $9.74 (4.23) $215,935 .80 7.60 165.17 - 10.23 2.30(b) 80,449 .28(b) 1.45(b) 40.83(b) * For the period September 15, 1993 (commencement of operations) to December 31, 1993. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Not annualized. /TABLE
Financial Highlights PCM New Opportunities Fund (For a share outstanding throughout the period) Investment Operations Net Less Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (period) Net Asset Value Investment Gain (Loss) on Investment Investment Gain on ended Beginning of Period Income Investments Operations Income Investments December 31, 1994* $10.00 $- $.82 $.82 $- $-
Ratio of Total Net Net Net Asset Investment Assets, Ratio of Investment Value, Return at End of Expenses to Income to Total End of Net Asset Period (in Average NetAverage Net Portfolio DistributionsPeriod Value(%)(a) thousands) Assets(%) Assets(%) Turnover(%) $- $10.82 8.20(b) $68,592 .47(b)(c) .03(b)(c) 32.77(b) * For the period May 2, 1994 (commencement of operations) to December 31, 1994. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Not annualized. (c) Reflects an expense limitation in effect during the period. As a result of expense limitation, expenses PCM New Opportunities Fund for the period ended December 31, 1994 reflect a reduction of less than $0.02 per share.
THE TRUST The Trust is designed to serve as a funding vehicle for insurance separate accounts associated with variable annuity contracts and variable life insurance policies. The Trust presently serves as the funding vehicle for variable annuity contracts and variable life insurance policies offered by separate accounts of various insurance companies. You should consult the prospectus issued by the relevant insurance company for more information about a separate account. Shares of the Trust are offered to these separate accounts through Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the principal underwriter for the Trust. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund of the Trust has a different investment objective or objectives which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. For more information about the investment strategies employed by the Funds, see "Common investment policies and techniques." The investment objectives and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees of the Trust without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective or objectives of a Fund without shareholder approval. There is no assurance that any Fund will achieve its objective or objectives. Additional portfolios may be created from time to time with different investment objectives and policies for use as funding vehicles for insurance company separate accounts or for other insurance products. In addition, the Trustees may, subject to any necessary regulatory approvals, eliminate any Fund or divide any Fund into two or more classes of shares with such special or relative rights and privileges as the Trustees may determine. Glossary The following terms are frequently used in this Prospectus. Many of these terms are explained in greater detail under "Common investment policies and techniques." "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager "S&P" -- Standard & Poor's Corporation "Moody's" -- Moody's Investors Service, Inc. "U.S. Government Securities" -- debt securities issued or guaranteed by the U.S. government, by various of its agencies, or by various instrumentalities established or sponsored by the U.S. government. Certain U.S. Government Securities, including U.S. Treasury bills, notes and bonds, mortgage participation certificates guaranteed by Ginnie Mae, and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government Securities issued or guaranteed by federal agencies or government- sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Fannie Mae bonds. "CMOs" -- collateralized mortgage obligations "Ginnie Mae" -- Government National Mortgage Association "Fannie Mae" -- Federal National Mortgage Association "Freddie Mac" -- Federal Home Loan Mortgage Corporation PCM DIVERSIFIED INCOME FUND PCM Diversified Income Fund seeks high current income consistent with capital preservation. The Fund pursues its investment objective by allocating its investments among the following three sectors of the fixed income securities markets: * a U.S. Government Sector, consisting primarily of debt obligations of the U.S. government, its agencies and instrumentalities; * a High Yield Sector, consisting of high-yielding, lower-rated, higher risk U.S. and foreign fixed income securities (sometimes referred to as "junk bonds") ; and * an International Sector, consisting of obligations of foreign governments, their agencies and instrumentalities, and other fixed income securities denominated in foreign currencies. Putnam Management believes that diversifying the Fund's investments among these sectors, as opposed to investing in any one sector, will better enable the Fund to preserve capital while pursuing its objective of high current income. Historically, the markets for U.S. Government Securities, high yielding corporate fixed income securities, and debt securities of foreign issuers have tended to behave independently and have at times moved in opposite directions. For example, U.S. Government Securities have generally been affected negatively by inflationary concerns resulting from increased economic activity. High-yield corporate fixed income securities, on the other hand, have generally benefitted from increased economic activity due to improvement in the credit quality of corporate issuers. The reverse has generally been true during periods of economic decline. Similarly, U.S. Government Securities have often been negatively affected by a decline in the value of the dollar against foreign currencies, while the bonds of foreign issuers held by U.S. investors have generally benefitted from such decline. Putnam Management believes that, when financial markets exhibit such a lack of correlation, a pooling of investments among these markets may produce greater preservation of capital over the long term than would be obtained by investing exclusively in any one of the markets. Putnam Management will determine the amount of assets to be allocated to each of the three market sectors in which the Fund will invest based on its assessment of the returns that can be achieved from a portfolio which is invested in all three sectors. In making this determination, Putnam Management will rely in part on quantitative analytical techniques that measure relative risks and opportunities of each market sector based on current and historical market data for each sector, as well as on its own assessment of economic and market conditions. Putnam Management will continuously review this allocation of assets and make such adjustments as it deems appropriate, although there are no fixed limits on allocations among sectors, including investments in the High Yield Sector. Because of the importance of sector diversification to the Fund's investment policies, Putnam Management expects that a substantial portion of the Fund's assets will normally be invested in each of the three market sectors. The Fund's assets allocated to each of these market sectors will be managed in accordance with particular investment policies, which are summarized below. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies , the Fund may invest without limit in securities primarily traded in U.S. markets . See "Common investment policies and techniques " below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions, transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. PCM Diversified Income Fund will generally be managed in a style similar to that of Putnam Diversified Income Trust . U.S. Government Sector The Fund will invest assets allocated to the U.S. Government Sector primarily in U.S. Government Securities. In purchasing securities for the U.S. Government Sector, Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and may adjust the average maturity of the investments held in the portfolio from time to time, depending on its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. Under normal market conditions, the Fund will invest at least 20% of its net assets in U.S. Government Securities and at least 65% of the assets allocated to the U.S. Government Sector will be invested in U.S. Government Securities. The Fund may invest assets allocated to the U.S. Government Sector in a variety of debt securities, including asset-backed and mortgage-backed securities, such as CMOs , including certain stripped mortgage-backed securities, that are issued by private U.S. issuers. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage-backed and asset-backed securities." With respect to assets allocated to the U.S. Government Sector, the Fund will only invest in privately issued debt securities that are rated at the time of purchase at least A by Moody's or S&P or in unrated securities that Putnam Management determines are of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Risk factors. U.S. Government Securities are considered among the safest of fixed income investments . Because of this added safety, the yields available from U.S. Government Securities are generally lower than the yields available from corporate debt securities , but their values, like those of other debt securities, will fluctuate with changes in interest rates. Changes in the value of portfolio securities will not affect investment income from those securities, but will affect the Fund's net asset value. A decrease in interest rates will generally result in an increase in the value of fixed income securities. Conversely, during periods of rising interest rates, the values of such securities will generally decline. The magnitude of these fluctuations will generally be greater for securities with longer maturities. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. High Yield Sector The Fund will invest assets allocated to the High Yield Sector primarily in high yielding, lower-rated, higher risk U.S. and foreign corporate fixed - income securities, including debt securities, convertible securities and preferred stocks. As discussed below, however, the Fund may invest all or any part of the High Yield Sector portfolio in higher-rated and unrated fixed - income securities. The Fund will not necessarily invest in the highest yielding securities available if in Putnam Management's opinion the differences in yield are not sufficient to justify the higher risks involved. The High Yield Sector may invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P or in any unrated security which Putnam Management determines is at least of comparable quality, although up to 5% of the net assets of the Fund may be invested in securities rated below such quality, or in unrated securities which Putnam Management determines are of comparable quality. Securities rated below Caa by Moody's or CCC by S&P are of poor standing and may be in default. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The rating services' descriptions of these rating categories, including the speculative characteristics of the lower categories, are included in the Appendix to this Prospectus. The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - --------------------------- -- ----------- -------- - -----------------"AAA"27.41% -- -------------------------------------------------------------- - --- "AA" 18.12 -- - ----------------------------------------------------------------- "A" 21.35 1.73% - ----------------------------------------------------------------- "BBB" 9.52 1.12 - ----------------------------------------------------------------- "BB" 5.30 0.02 - ----------------------------------------------------------------- "B" 6.11 0.52 - ----------------------------------------------------------------- "CCC" 0.89 -- - ----------------------------------------------------------------- Not Rated -- 1.52 - ----------------------------------------------------------------- Total 88.70% 4.91% - ----------------------------------------------------------------- For a description of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may invest assets allocated to the High Yield Sector in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. The Fund may also invest assets allocated to the High Yield Sector in lower-rated securities of foreign corporate and governmental issuers denominated either in U.S. dollars or in foreign currencies. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments ." International Sector The Fund will invest the assets allocated to the International Sector in debt obligations and other fixed income securities denominated in non-U.S. currencies. These securities include: * debt obligations issued or guaranteed by foreign, national, provincial, state, or other governments with taxing authority, or by their agencies or instrumentalities; * debt obligations of supranational entities (described below); and * debt obligations and other fixed income securities of foreign and U.S. corporate issuers. When investing in the International Sector, the Fund will purchase only debt securities of issuers whose long-term debt obligations are rated A or better at the time of purchase by Moody's or S&P or that are unrated securities determined by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The Fund may, however, make investments in international debt securities rated below A with respect to assets allocated to the High Yield Sector. In the past, yields available from securities denominated in foreign currencies have often been higher than those of securities denominated in U.S. dollars. Although the Fund has the flexibility to invest in any country where Putnam Management sees potential for high income, it presently expects to invest primarily in securities of issuers in industrialized Western European countries (including Scandinavian countries) and in Canada, Japan, Australia, and New Zealand. Putnam Management will consider expected changes in foreign currency exchange rates in determining the anticipated returns of securities denominated in foreign currencies. The obligations of foreign governmental entities, including supranational issuers, have various kinds of government support. Obligations of foreign governmental entities include obligations issued or guaranteed by national, provincial, state or other governments with taxing power or by their agencies. These obligations may or may not be supported by the full faith and credit of a foreign government. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Steel and Coal Community, the Asian Development Bank, and the Inter-American Development Bank. The governmental members or "stockholders" usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowing. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves, and net income. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." PCM GROWTH AND INCOME FUND PCM Growth and Income Fund seeks capital growth and current income as its investment objectives. The Fund invests primarily in common stocks that offer potential for capital growth, current income, or both. The Fund may also purchase corporate bonds, notes and debentures, preferred stocks or convertible securities (both debt securities and preferred stocks) or U.S. government securities, if Putnam Management determines that their purchase would help further the Fund's investment objectives. The types of securities held by the Fund may vary from time to time in light of the Fund's investment objectives, changes in interest rates and economic and other factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest up to 20% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may invest in both higher-rated and lower-rated fixed-income securities. The risks associated with fixed income securities, including lower-rated fixed income securities (commonly known as "junk bonds") , are discussed below under "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Growth and Income Fund will generally be managed in a style similar to that of The Putnam Fund for Growth and Income. PCM HIGH YIELD FUND The primary investment objective of PCM High Yield Fund is to seek high current income. Capital growth is a secondary objective when consistent with high current income. The Fund seeks high current income by investing primarily in high-yielding, lower-rated, fixed-income securities (commonly known as "junk bonds") constituting a portfolio which Putnam Management believes does not involve undue risk to income or principal. Normally, at least 80% of the Fund's assets will be invested in debt securities, convertible securities or preferred stocks that are consistent with its primary investment objective of high current income. The Fund's remaining assets may be held in cash or money market instruments, or invested in common stocks and other equity securities. The Fund may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also invest in premium securities, engage in foreign currency exchange transactions , enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund seeks its secondary objective of capital growth, when consistent with its primary objective of high current income, by investing in securities which may be expected to appreciate in value as a result of declines in long-term interest rates or to favorable developments affecting the business or prospects of the issuer which may improve the issuer's financial condition and credit rating. Putnam Management believes that such opportunities for capital appreciation often exist in the securities of smaller capitalization companies which have the potential for significant growth. The Fund may generally invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P, or in any unrated security which Putnam Management determines is of comparable quality. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The Fund may invest up to 15% of its assets in securities rated below Caa by Moody's or CCC by S&P, including securities in the lowest rating category of each rating agency, or in unrated securities Putnam Management determines are of comparable quality. Such securities may be in default and are generally regarded by rating agencies as having extremely poor prospects of ever attaining any real investment standing. For a discussion of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - --------------------------- -- --------- ---------- - ----------------- "AAA" -- -- - ----------------------------------------------------------------- "AA" -- -- - ----------------------------------------------------------------- "A" -- -- - ----------------------------------------------------------------- "BBB" 0.52% -- - ----------------------------------------------------------------- "BB" 20.19% -- - ----------------------------------------------------------------- "B" 58.18% 7.50% - ----------------------------------------------------------------- "CCC" 9.32% -- - ----------------------------------------------------------------- "CC" 0.17% -- - ----------------------------------------------------------------- "C" -- -- - ----------------------------------------------------------------- "D" 0.31% 0.15% - ----------------------------------------------------------------- Total 88.69% 7.65% - ----------------------------------------------------------------- The Fund may invest in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. PCM High Yield Fund will generally be managed in a style similar to that of Putnam High Yield Advantage Fund. PCM NEW OPPORTUNITIES FUND PCM New Opportunities Fund seeks long-term capital appreciation. The Fund seeks its investment objective by investing principally in common stocks of companies in sectors of the economy which Putnam Management believes possess above-average long-term growth potential. The Fund will generally invest in companies which Putnam Management identifies as offering the best prospects for long-term growth within a particular sector. Current dividend income is only an incidental consideration. The Fund invests primarily in common stocks, but may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective of capital appreciation. The Fund may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The sectors of the economy which offer above-average growth potential will change over time. At present, Putnam Management has identified the following sectors of the economy as having an above-average growth potential over the next three to five years: Personal Communications - cellular telephone, paging, personal communication networks; Media/Entertainment - cable television system operators, cable television network programmers, film entertainment providers, theme park operators, casino operators; Medical Technology/Cost-Containment - home and outpatient care, medical device companies, biotechnology, health care information services; Environmental Services - solid waste disposal, hazardous waste disposal, remediation services, environmental testing; Applied/Advanced Technology - database software, application software, networking software, computer systems integrators, information services companies; Personal Financial Services - specialty insurance companies, credit card issuers, and other consumer-oriented financial services companies; and Value-oriented Consuming - retailers, restaurants, hotel chains and travel companies able to provide quality products or services at lower prices or offering greater perceived value than competitors. In addition, the Fund may also invest a portion of its assets in securities of companies that, although not in any of the sectors described above, are expected to experience above-average growth. The sectors described above represent Putnam Management's current judgment of the sectors of the economy which offer the most attractive growth opportunities. The Fund will not necessarily be invested in each of the seven market sectors at all times. Such sectors are likely to change over time and may include a variety of industries. Subject to the Fund's investment restrictions, the Fund may invest up to one-half of its assets in any one particular sector. The Fund will invest in securities which Putnam Management believes offer above-average long-term growth opportunities. As a result of the Fund's long-term investment strategy, it is possible that the Fund's total return over certain periods may be less than that of other equity investment vehicles. The Fund seeks to invest in companies that offer above-average growth prospects in their particular sector of the economy, without regard to the company's size. Companies in the Fund's portfolio will range from small, rapidly growing companies to larger, well-established firms. The securities of small to medium-sized companies often trade less frequently and in more limited volume, and may be subject to more abrupt or erratic price movements, than securities of larger, more established companies. Such companies may have limited product lines, markets, or financial resources, or may depend on a limited management group. The Fund will normally emphasize investments in particular economic sectors. Although the Fund will not invest more than 25% of its assets in any one industry, the Fund's emphasis on particular sectors of the economy may make the value of the Fund's shares more susceptible to any single economic, political or regulatory development than the shares of an investment company which is more widely diversified. As a result, the value of the Fund's shares may fluctuate more than the value of shares of such an investment company. PCM New Opportunities Fund will generally be managed in a style similar to that of Putnam New Opportunities Fund. GENERAL The Funds are generally managed in styles similar to other open-end investment companies which are managed by Putnam Management and whose shares are generally offered to the public. These other Putnam funds may, however, employ different investment practices and may invest in securities different from those in which their counterpart Funds invest, and consequently will not have identical portfolios or experience identical investment results. COMMON INVESTMENT POLICIES AND TECHNIQUES Defensive strategies At times, Putnam Management may judge that conditions in the securities markets make pursuing a Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. At such times, Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of a Fund's assets. In implementing these "defensive" strategies, a Fund may invest without limit in cash or cash equivalents, money-market instruments, short-term bank obligations, high-rated fixed income securities or preferred stocks or invest in any other securities Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, a Fund will use such alternative strategies. Portfolio turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of each Fund are shown in "Financial highlights." Investments in premium securities The Funds may invest in securities bearing coupon rates higher than prevailing market rates. Such "premium" securities are typically purchased at prices greater than the principal amounts payable on maturity. A Fund does not amortize the premium paid for such securities in calculating its net investment income. As a result, the purchase of such securities provides a Fund a higher level of investment income distributable to shareholders on a current basis than if the Fund had purchased securities bearing current market rates of interest. Because the value of premium securities tends to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date), the purchase of such securities will increase a Fund's risk of capital loss if such securities are held to maturity (or first call date). During a period of declining interest rates, many of a Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of a Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of a Fund during such periods would initially receive higher distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in a Fund, investors may find it useful to compare a Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." Foreign investments Each Fund may invest to the extent described above in securities principally traded in foreign markets. Each Fund may also purchase Eurodollar certificates of deposit without limitation. Since foreign securities are normally denominated and traded in foreign currencies, the values of a Fund's assets may be affected favorably or unfavorably by currency exchange rates and exchange control regulations. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of a Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of a Fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit a Fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities. The risks described above are typically increased to the extent that a Fund invests in securities traded in lesser-developed and developing nations, which are sometimes referred to as "emerging markets." A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the Statement of Additional Information. Foreign currency exchange transactions To the extent described above, certain of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. Putnam Management may engage in currency exchange transactions in connection with the purchase and sale of portfolio securities ("transaction hedging"), and to protect the value of specific portfolio positions ("position hedging"). A Fund may engage in transaction hedging to protect against a change in currency exchange rates between the date on which a Fund contracts to purchase or sell the security and the settlement date, or to "lock in" the value of a dividend or interest payment in a particular currency. For that purpose, a Fund may purchase or sell a currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, a 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 as a hedge against changes in foreign currency exchange rates between the trade and settlement dates on particular transactions and not for speculation. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. For transaction hedging purposes, a Fund may also purchase and sell call and put options on foreign currency futures contracts and on currencies. A Fund may engage in position hedging to protect against a decline in 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 a currency in which securities the Fund intends to buy are denominated, when the Fund holds cash reserves and short-term investments). For position hedging purposes, a Fund may purchase or sell foreign currency futures contracts, foreign currency forward contracts, and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, a Fund may also purchase or sell foreign currency on a spot basis. A 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 a Fund. Cross hedging transactions by a 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. For a discussion of the risks associated with options and futures strategies in connection with a Fund's foreign currency exchange transactions, see "Risks related to options and futures strategies." Options and futures Futures and options on futures. Each Fund that may invest in futures and options, as described above, may, to the extent consistent with their investment objectives and policies, buy and sell index futures contracts ("index futures") for hedging purposes. An "index future" is a contract to buy or sell units of a particular bond or stock index at an agreed price on a specified future date. Depending on the change in value of the index between the time when a Fund enters into and terminates an index futures transaction, the Fund realizes a gain or loss. A Fund may also, to the extent consistent with its investment objectives and policies, buy and sell call and put options on index futures or on stock or bond indices in addition to or as an alternative to buying or selling index futures or, to the extent permitted by applicable law, to earn additional income. In addition, if a Fund's investment policies permit it to invest in foreign securities, such Fund may invest in futures and options on foreign securities, to the extent permitted by applicable law, as a substitute for direct investment in foreign securities. To the extent described above, each Fund may also buy and sell futures contracts and related options with respect to U.S. Government Securities and options directly on U.S. Government Securities. Putnam Management believes that, under certain market conditions, price movements in U.S. Government Securities futures and related options may correlate closely with securities in which the Funds may invest and may, as a result, provide hedging opportunities for the Funds. U.S. Government Securities futures and related options would be used in a way similar to a Fund's use of index futures and options. A Fund will only buy or sell U.S. Government Securities futures and related options when, in the opinion of Putnam Management, price movements in such futures and options are expected to correlate closely with price movements in the securities which are the subject of the hedge. Options. As described above, certain of the Funds may, to the extent consistent with their investment objectives and policies, seek to increase its current return by writing covered call and put options on securities such Funds own or in which they may invest. A Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. When a Fund writes a call option, it gives up the opportunity to profit from any increase in the price of a security above the exercise price of the option; when it writes a put option, the Fund takes the risk that it will be required to purchase a security from the option holder at a price above the current market price of the security. Each Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Each Fund may also, to the extent consistent with its investment objectives and policies, buy and sell put and call options for hedging purposes and from time to time buy and sell combinations of put and call options on the same underlying security to earn additional income. The aggregate value of the securities underlying the options may not exceed 25% of the relevant Fund's assets. Risks related to options and futures strategies The use of futures and options involves certain special risks. Futures and options transactions involve costs and may result in losses. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of futures and options and movements in the prices of the underlying bond or stock index, securities or currencies or of the securities or currencies that are the subject of a hedge. The successful use of the strategies described above further depends on Putnam Management's ability to forecast market movements correctly. Other risks arise from a Fund's potential inability to close out its futures or options positions, and there can be no assurance that a liquid secondary market will exist for any future or option at any particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit a Fund's ability to engage in futures and options transactions. A more detailed explanation of futures and options transactions, including the risks associated with them, is included in the Statement of Additional Information. Lower-rated and other fixed income securities As described above, certain of the Funds may invest in lower-rated fixed income securities (commonly known as "junk bonds"). Differing yields on fixed income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower categories of recognized rating agencies (Baa or lower by Moody's and BBB or lower by S&P) or from unrated securities of comparable quality. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are set forth in the Appendix to this Prospectus. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' investment 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. Although Putnam Management considers security ratings when making investment decisions, it performs its own investment analysis and does not rely principally on the ratings assigned by the rating services. Putnam Management's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. It also considers relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earning prospects. Because of the greater number of investment considerations involved in investing in lower-rated securities, the achievement of a Fund's objectives depends more on Putnam Management's analytical abilities than would be the case if it were investing primarily in securities in the higher rating categories. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Like those of other fixed income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. The magnitude of these fluctuations is generally greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect a Fund's net asset value. Investors should carefully consider their ability to assume the risks of investing in a mutual fund which invests in lower-rated securities before allocating a portion of their insurance investment to a Fund that invests in such securities. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payments of interest and principal would likely make the values of securities held by a 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, a Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security. Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. When the Fund invests in securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in securities in the higher rating categories. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. 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. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Both zero-coupon bonds and payment- in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Certain investment - grade securities in which a Fund may invest share some of the risk factors discussed above with respect to lower-rated securities. Mortgage-backed and asset-backed securities As described above, certain of the Funds may invest in asset-backed and mortgage-backed securities, such as CMOs, including stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent participations in, or are secured by, mortgage loans. 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 assets. A Fund which purchases mortgage-backed securities may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in these securities. Conversely, 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 less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. Mortgage-backed securities include securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae or Freddie Mac ; securities issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; or securities issued by private issuers that represent an interest in or are collateralized by mortgage loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgages, the underlying assets may include motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed and asset-backed securities have yield and maturity characteristics corresponding to the underlying assets. Thus, 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 and asset-backed securities include both interest and a partial payment of principal. In addition to scheduled loan amortization, payments of principal may result from voluntary prepayment, refinancing or foreclosure of the underlying mortgage loans or other assets. Such prepayments significantly shorten the effective maturities of the securities, especially during periods of declining interest rates. Due to their prepayment aspect, 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. This is caused by the need to reinvest prepayments of principal generally and the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a comparable risk of decline in market value during periods of rising interest rates. At times, some of the mortgage-backed and asset-backed securities in which a Fund may invest will have higher than market interest rates, and will therefore be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause a Fund to suffer a loss equal to any unamortized premium. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in the interest or principal on the underlying collateral or in a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs that is first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMOs held by the Fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Securities loans, repurchase agreements and forward commitments Each Fund may lend portfolio securities amounting to not more than 25% of its assets to broker-dealers and may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. Each Fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to a Fund if the other party should default on its obligation and the Fund is delayed or prevented from recovering the collateral or completing the transaction. HOW PERFORMANCE IS SHOWN Each Fund's investment performance may from time to time be included in advertisements about that Fund. "Yield " is calculated by dividing a Fund's annualized net investment income per share during a recent 30-day period by the net asset value per share on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from a Fund's net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to- maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. A Fund's current dividend rate is based on its net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "Common investment policies and techniques -- Investments in premium securities." "Total return" for the one-, five- and ten-year periods ( or for the life of a Fund, if shorter ) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in such Fund . Total return may also be presented for other periods. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective or objectives and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable with respect to these insurance products. Insurance related charges and expenses are not reflected in the Funds' performance information and would reduce an investor's return under the insurance product. For performance information through the Funds' most recent fiscal year, see "Investment Performance of the Trust" in the Statement of Additional Information. HOW THE TRUST IS MANAGED The Trustees of the Trust are responsible for generally overseeing the conduct of the Trust's business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Trust and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Trust's other affairs and business. Michael Martino, Managing Director of Putnam Management, D. William Kohli and Jennifer E. Leichter, each a Senior Vice President of Putnam Management , and Neil J. Powers and Mark J. Siegel, each a Vice President of Putnam Management, each of whom is a Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Diversified Income Fund's portfolio since 1993 for Ms. Leichter, and 1994 for Messrs. Martino, Kohli, Powers and Siegel . Ms. Leichter and Mr. Powers have been employed by Putnam Management since 1987 and 1986, respectively. Mr. Martino has been employed by Putnam Management since January, 1994. Prior to January, 1994, Mr . Martino was employed by Back Bay Advisors in the positions of Executive Vice President and Chief Investment Officer from 1992 to 1994, and Senior Vice President and Senior Portfolio Manager from 1990 to 1992 . Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Siegel has been employed by Putnam Management since June, 1993. Prior to June, 1993, Mr. Siegel was Vice President of Salomon Brothers International Ltd . David L. King, Senior Vice President of Putnam Management and Vice President of the Trust, and Anthony I. Kreisel, Managing Director of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Growth and Income Fund's portfolio since 1993. Messrs. King and Kreisel have been employed by Putnam Management since 1983 and 1986, respectively. Rosemary H. Thomsen, Senior Vice President of Putnam Management and Vice President of the Trust, has had primarily responsibility for the day-to-day management of PCM High Yield Fund's portfolio since 1988. Ms. Thomsen has been employed by Putnam Management since 1986. Daniel L. Miller, Managing Director of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM New Opportunities Fund's portfolio since 1994. Mr. Miller has been employed by Putnam Management since 1983. The Trust, on behalf of the Funds, pays all expenses not assumed by Putnam Management, including Trustees' fees and auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees. General expenses of the Trust will be allocated among and charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Total expenses, including management fees, for the fiscal year ended December 31, 1994, based on each Fund's average net assets, were: Total Management Expenses Fees PCM Diversified Income Fund 0.80% 0.67% PCM Growth and Income Fund 0.62% 0.57% PCM High Yield Fund 0.74% 0.66% PCM New Opportunities Fund* 0.47%0.45% (commenced operations on May 1, 1994) * The total expenses and management fees shown above for PCM New Opportunities Fund reflect an expense limitation in effect for the period and are not annualized. In the absence of the expense limitation in effect for the period, annualized total expenses and management fees would have been 1.00% and 0.70%, respectively. On June 2, 1994, the shareholders of three of the funds approved new management fees payable to Putnam Management . If the new rates had been in effect for the entire year, management fees would have been the following : PCM Diversified Income Fund, 0.70%; PCM Growth and Income Fund, 0.55%; and PCM High Yield Fund, 0.70%. Putnam Management places all orders for purchases and sales of the securities of each Fund. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider, if permitted by law, sales of shares of the other Putnam funds as a factor in the selection of broker-dealers. ORGANIZATION AND HISTORY Putnam Capital Manager Trust is a Massachusetts business trust organized on September 24, 1987. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into eleven series of shares, each representing a separate investment portfolio which is being offered through separate accounts of various insurance companies. Each portfolio offered by this Prospectus is managed as a diversified investment company . Shares vote by individual portfolio on all matters except (i) when required by the Investment Company Act of 1940, shares of all portfolios shall be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of one or more portfolios, only the shareholders of such portfolio or portfolios shall be entitled to vote. Each share has one vote, with fractional shares voting proportionately. Shares of each of the portfolios are freely transferable, are entitled to dividends as declared by the Trustees, and, if the portfolio were liquidated, would receive the net assets of the portfolio. The Trust may suspend the sale of shares of any portfolio at any time and may refuse any order to purchase shares. Although the Trust 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. Shares of the Funds may only be purchased by an insurance company's separate account. For matters requiring shareholder approval, you may be able to instruct the insurance company's separate account how to vote the Fund shares attributable to your contract or policy. See the Voting Rights section of your insurance product prospectus. The Funds' Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President, Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Funds' Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds. About your investment SALES AND REDEMPTIONS The Trust has an underwriting agreement relating to the Funds with Putnam Mutual Funds , One Post Office Square, Boston, Massachusetts 02109. Putnam Mutual Funds presently offers shares of each Fund of the Trust continuously to separate accounts of various insurers. The underwriting agreement presently provides that Putnam Mutual Funds accepts orders for shares at net asset value and no sales commission or load is charged. Putnam Mutual Funds may, at its expense, provide promotional incentives to dealers that sell variable insurance products. Shares of the Funds offered by this Prospectus are sold or redeemed at the net asset value per share next determined after receipt of an order . Orders for purchases or sales of shares of a Fund must be received by your insurance company before the close of regular trading on the New York Stock Exchange and transmitted promptly the next day in order to receive that day's net asset value. No fee is charged to a separate account when it redeems Fund shares. Please check with your insurance company for Funds available under your variable annuity contract or variable life insurance policy. Certain Funds may not be available in your state due to various insurance regulations. Inclusion of a Fund in this Prospectus that is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. Each Fund currently does not foresee any disadvantages to policyowners arising out of the fact that each Fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw their investments in one or more Funds and shares of another Fund may be substituted. This might force a Fund to sell portfolio securities at disadvantageous prices. In addition, the Trustees may refuse to sell shares of any Fund to any separate account or may suspend or terminate the offering of shares of any Fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the Fund. Under unusual circumstances, the Trust may suspend repurchases or postpone payment for up to seven days or longer, as permitted by federal securities law. EXCHANGE PRIVILEGE A shareholder may exchange shares of any Fund in the Trust for shares of any other Fund in the Trust on the basis of their respective net asset values. Exchanges may not be made into portfolios of the Trust not offered by your variable annuity contract or variable life policy. HOW THE TRUST VALUES ITS SHARES The Trust calculates the net asset value of a share of each Fund by dividing the total value of the assets of the Fund, less liabilities, by the number of shares of the Fund outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open. Fund securities for which market quotations are readily available are stated at market value. Short-term investments that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION Each of the Funds offered by this Prospectus will distribute any net investment income and net realized capital gains at least annually. Both types of distributions will be made in shares of such Funds unless an election is made on behalf of a separate account to receive some or all of the distributions in cash. Distributions are reinvested without a sales charge, using the net asset value determined on the ex-dividend date . Each Fund intends to qualify each year as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income and gains it distributes to the separate accounts. For information concerning federal income tax consequences for the holders of variable annuity contracts and variable life insurance policies, contract holders should consult the prospectus of the applicable separate account. Internal Revenue Service regulations applicable to portfolios that serve as the funding vehicles for variable annuity and variable life insurance separate accounts generally require that those portfolios invest no more than 55% of the value of their assets in one investment, 70% in two investments, 80% in three investments and 90% in four investments. Each of the Funds intends to comply with these requirements. FINANCIAL INFORMATION It is expected that owners of the variable annuity contracts and variable life insurance policies who have contract or policy values allocated to the Funds will receive an unaudited semi- annual financial statement and an audited annual financial statement for such Funds. These reports show the investments owned by each Fund and provide other relevant information about the Fund. About Putnam Investments, Inc. Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds , and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. Appendix SECURITIES RATINGS The following rating services describe rated securities as follows: Moody's Investors Service, Inc. Bonds Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking, or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever earning any real investment standing. Standard & Poor's Corporation Bonds AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D--Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. Notes Putnam Capital Manager Trust Prospectus - MAY 1, 1995 Putnam Capital Manager Trust (the "Trust") offers shares of beneficial interest in separate investment portfolios (collectively , the "Funds") for purchase by separate accounts of various insurance companies. The Funds, which have different investment objectives and policies offered by this Prospectus are: PCM Asia Pacific Growth Fund, PCM Diversified Income Fund, PCM Growth and Income Fund, PCM New Opportunities Fund, PCM Utilities Growth and Income Fund and PCM Voyager Fund. PCM Diversified Income Fund may invest significantly in lower-rated bonds, commonly known as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and non-payment of interest. Investors should carefully assess the risks associated with an investment in the Fund. This Prospectus explains concisely information about the Trust and should be read in conjunction with the prospectus for the separate account of the variable annuity or variable life insurance product that accompanies this Prospectus. Please read it carefully and keep it for future reference. Investors can find more detailed information about the Trust in the May 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Putnam Investor Services at 1-800-521-0538. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS INSURANCE COMPANIES. What you need to know ABOUT THE TRUST 2 Financial highlights 2 The Trust 4 Investment objectives and policies of the Funds 4 Common investment policies and techniques 14 How performance is shown 20 How the Trust is managed 21 Organization and history 23 ABOUT YOUR INVESTMENT 24 Sales and redemptions 25 How the Trust values its shares 25 How distributions are made; tax information 25 Financial information 25 ABOUT PUTNAM INVESTMENTS, INC. 25 APPENDIX 26 About the Trust FINANCIAL HIGHLIGHTS The tables on the following pages present per share financial information for the life of each Fund. This information has been audited and reported on by the Trust's independent accountants. The Report of Independent Accountants and financial statements included in the Trust's Annual Report to shareholders for the 1994 fiscal year are incorporated by reference into this Prospectus. The Trust's Annual Report, which contains additional unaudited performance information, is available without charge upon request. Financial information for PCM Asia Pacific Growth Fund is not included because the Fund had no operations during the periods presented below.
Financial Highlights (For a share outstanding throughout the period) Investment Operations Net Less Realized and Distributions From: Net Unrealized Total from Net Net Realized Year (period)Net Asset Value Investment Gain (Loss) on Investment Investment Gain on ended Beginning of Period Income Investments Operations Income Investments PCM Voyager Fund December 31, 1994 $22.41 $.07 $ .14 $.21 $(.05) $(.37) December 31, 1993 19.21 .04 3.50 3.54 (.07) (.27) December 31, 1992 17.94 .07 1.72 1.79 (.08) (.44) December 31, 1991(a) 12.58 .11 5.61 5.72 (.12) (.24) December 31, 1990 13.00 .18 (.45) (.27) (.06) (.09) December 31, 1989 10.30 .12 3.20 3.32 (.16) (.46) December 31, 1988*(a) 10.00 .13 .17 .30 - - PCM Growth and Income Fund December 31, 1994 $17.38 $.50 $(0.48) $.02 $(.38) $(.58) December 31, 1993 15.93 .38 1.83 2.21 (.39) (.37) December 31, 1992 15.33 .39 1.04 1.43 (.42) (.41) December 31, 1991 13.51 .43 2.09 2.52 (.53) (.17) December 31, 1990 13.41 .55 (.29) .26 (.05) (.11) December 31, 1989 12.00 .45 2.04 2.49 (.60) (.48) December 31, 1988*(a) 10.00 .42 1.58 2.00 - - PCM Utilities Growth and Income Fund December 31, 1994 $12.00 $.60 $(1.44) $(.84) $(.35) $(.12) December 31, 1993 10.71 .30 1.13 1.43 (.12) (.02) December 31, 1992** 10.00 .15(b) .56 .71 - - PCM Diversified Income Fund December 31, 1994 $10.23 $.61 $(1.04) $(.43) $(.06) $- December 31, 1993*** 10.00 .06 .17 .23 - - PCM New Opportunities Fund December 31, 1994**** $10.00 $- $ .82 $.82 $- $- /TABLE
Ratio of Less Total Net Net Distributions From: Net Asset Investment Assets, Ratio of Investment In Excess of Value, Return at End of Expenses to Income to Realized Gain Total End of Net Asset Period (in Average Net Average Net Portfolio on Investments DistributionsPeriod Value(%)(c) thousands) Assets(%) Assets(%) Turnover(%) $- $(.42) $22.20 1.04 $1,026,972 .71 .40 62.44 - (.34) 22.41 18.70 675,198 .66 .33 55.85 - (.52) 19.21 10.36 317,225 .75 .56 48.17 - (.36) 17.94 46.09 156,741 .81 .78 55.04 - (.15) 12.58 (2.03) 48,414 .88 1.58 93.65 - (.62) 13.00 32.38 39,998 .82 1.93 91.82 - - 10.30 2.98(d) 7,981 1.35(d) 1.44(d) 103.99(d) $- $(.96) $16.44 0.35 $1,907,380 .62 3.64 46.43 - (.76) 17.38 14.27 1,407,382 .64 3.49 62.63 - (.83) 15.93 9.75 641,508 .69 3.79 39.58 - (.70) 15.33 19.05 325,861 .72 4.37 37.94 - (.16) 13.51 1.96 155,942 .75 5.02 49.39 - (1.08) 13.41 21.30 100,335 .74 5.73 73.40 - - 12.00 19.89(d) 26,205 .92(d) 4.08(d) 37.94(d) $(.01) $(.48) $10.68 (7.02) $384,169 .68 5.23 84.88 - (.14) 12.00 13.42 443,281 .69 5.02 50.79 - - 10.71 7.10(d) 83,522 .64(b)(d) 3.43(b)(d) 19.29(d) $- $(.06) $9.74 (4.23) $215,935 .80 7.60 165.17 - - 10.23 2.30(d) 80,449 .28(d) 1.45(d) 40.83(d) $- $- $10.82 8.20(d) $68,592 .47(b)(d) .03(b)(d) 32.77(d) * For the period February 1, 1988 (commencement of operations) to December 31, 1988. ** For the period May 4, 1992 (commencement of operations) to December 31, 1992. *** For the period September 15, 1993 (commencement of operations) to December 31, 1993. **** For the period May 2, 1994 (commencement of operations) to December 31, 1994 (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Reflects an expense limitation in effect during the period. As a result of expense limitations, expenses of PCM Utilities Growth and Income Fund for the period ended December 31, 1992 reflect a reduction of less than $.01 per share and expenses of PCM New Opportunities Fund for the period ended December 31, 1994 reflect a reduction of less than $0.02 per share. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Not annualized.
THE TRUST The Trust is designed to serve as a funding vehicle for insurance separate accounts associated with variable annuity contracts and variable life insurance policies. The Trust presently serves as the funding vehicle for variable annuity contracts and variable life insurance policies offered by separate accounts of various insurance companies. You should consult the prospectus issued by the relevant insurance company for more information about a separate account. Shares of the Trust are offered to these separate accounts through Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the principal underwriter for the Trust. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund of the Trust has a different investment objective or objectives which it pursues through separate investment policies as described below. The differences in objectives and policies among the Funds can be expected to affect the return of each Fund and the degree of market and financial risk to which each Fund is subject. For more information about the investment strategies employed by the Funds, see "Common investment policies and techniques." The investment objectives and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees of the Trust without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective or objectives of a Fund without shareholder approval. There is no assurance that any Fund will achieve its objective or objectives. Additional portfolios may be created from time to time with different investment objectives and policies for use as funding vehicles for insurance company separate accounts or for other insurance products. In addition, the Trustees may, subject to any necessary regulatory approvals, eliminate any Fund or divide any Fund into two or more classes of shares with such special or relative rights and privileges as the Trustees may determine. Glossary The following terms are frequently used in this Prospectus. Many of these terms are explained in greater detail under "Common investment policies and techniques." "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager "S&P" -- Standard & Poor's Corporation "Moody's" -- Moody's Investors Service, Inc. "U.S. Government Securities" -- debt securities issued or guaranteed by the U.S. government, by various of its agencies, or by various instrumentalities established or sponsored by the U.S. government. Certain U.S. Government Securities, including U.S. Treasury bills, notes and bonds, mortgage participation certificates guaranteed by Ginnie Mae, and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government Securities issued or guaranteed by federal agencies or government- sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of the instrumentality, such as Fannie Mae bonds. "CMOs" -- collateralized mortgage obligations "Ginnie Mae" -- Government National Mortgage Association "Fannie Mae" -- Federal National Mortgage Association "Freddie Mac" -- Federal Home Loan Mortgage Corporation PCM ASIA PACIFIC GROWTH FUND PCM Asia Pacific Growth Fund's investment objective is to seek capital appreciation. In seeking capital appreciation, the Fund will invest primarily in securities of companies located in Asia and in the Pacific Basin. The Fund's investments will normally include common stocks, preferred stocks, securities convertible into common stocks or preferred stocks, and warrants to purchase common stocks or preferred stocks. The Fund may also invest to a lesser extent in debt securities and other types of investments if Putnam Management believes they would help achieve the Fund's objective. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may invest in securities of issuers located in any country in Asia or the Pacific Basin where Putnam Management believes there is potential for above-average capital appreciation. Such countries may include, for example, Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the People's Republic of China, the Philippines, Singapore, Taiwan and Thailand. It is anticipated that under normal market conditions the Fund will invest at least 85% of its assets in securities of companies located in Asia and in the Pacific Basin which Putnam Management believes have potential for capital appreciation. The Fund will consider an issuer of securities to be located in Asia or in the Pacific Basin if it is organized under the laws of a country in Asia or the Pacific Basin and has a principal office in a country in Asia or the Pacific Basin, if it derives 50% or more of its total revenues from business in Asia or the Pacific Basin, or if its equity securities are traded principally on a securities exchange in Asia or the Pacific Basin. It is anticipated that under normal market conditions the Fund will invest at least 65% of its assets in securities of issuers meeting at least one of the first two criteria described in the preceding sentence. The Fund will not limit its investments to any particular type of company. The Fund may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but whose securities are thought to be undervalued. It may invest in small and relatively less well-known companies. These companies may present greater opportunities for capital appreciation, but may also involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume. As a result, these securities may fluctuate in value more than securities of larger, more established companies. Debt securities in which the Fund may invest will generally be rated at the time of purchase at least Baa by Moody's or BBB by S&P, or, if unrated , determined by Putnam Management to be of comparable quality. The Fund will not invest in debt securities rated less than Baa by Moody's or BBB by S&P (sometimes referred to as "junk bonds") , or, if unrated, determined by Putnam Management to be of comparable quality if, as a result , more than 5% of the Fund's assets would be invested in such securities. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Debt securities rated Baa or BBB or lower have speculative characteristics and adverse economic conditions may lead to a weakened capacity to pay interest and repay principal. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments." The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies, the Fund may invest without limit in securities primarily traded in U.S. markets. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may also engage in foreign currency exchange transactions and in transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Asia Pacific Growth Fund will generally be managed in a style similar to that of Putnam Asia Pacific Growth Fund. PCM DIVERSIFIED INCOME FUND PCM Diversified Income Fund seeks high current income consistent with capital preservation. The Fund pursues its investment objective by allocating its investments among the following three sectors of the fixed income securities markets: * a U.S. Government Sector, consisting primarily of debt obligations of the U.S. government, its agencies and instrumentalities; * a High Yield Sector, consisting of high-yielding, lower-rated, higher risk U.S. and foreign fixed income securities (sometimes referred to as "junk bonds") ; and * an International Sector, consisting of obligations of foreign governments, their agencies and instrumentalities, and other fixed income securities denominated in foreign currencies. Putnam Management believes that diversifying the Fund's investments among these sectors, as opposed to investing in any one sector, will better enable the Fund to preserve capital while pursuing its objective of high current income. Historically, the markets for U.S. Government Securities, high yielding corporate fixed income securities, and debt securities of foreign issuers have tended to behave independently and have at times moved in opposite directions. For example, U.S. Government Securities have generally been affected negatively by inflationary concerns resulting from increased economic activity. High-yield corporate fixed income securities, on the other hand, have generally benefitted from increased economic activity due to improvement in the credit quality of corporate issuers. The reverse has generally been true during periods of economic decline. Similarly, U.S. Government Securities have often been negatively affected by a decline in the value of the dollar against foreign currencies, while the bonds of foreign issuers held by U.S. investors have generally benefitted from such decline. Putnam Management believes that, when financial markets exhibit such a lack of correlation, a pooling of investments among these markets may produce greater preservation of capital over the long term than would be obtained by investing exclusively in any one of the markets. Putnam Management will determine the amount of assets to be allocated to each of the three market sectors in which the Fund will invest based on its assessment of the returns that can be achieved from a portfolio which is invested in all three sectors. In making this determination, Putnam Management will rely in part on quantitative analytical techniques that measure relative risks and opportunities of each market sector based on current and historical market data for each sector, as well as on its own assessment of economic and market conditions. Putnam Management will continuously review this allocation of assets and make such adjustments as it deems appropriate, although there are no fixed limits on allocations among sectors, including investments in the High Yield Sector. Because of the importance of sector diversification to the Fund's investment policies, Putnam Management expects that a substantial portion of the Fund's assets will normally be invested in each of the three market sectors. The Fund's assets allocated to each of these market sectors will be managed in accordance with particular investment policies, which are summarized below. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. When pursuing such defensive strategies , the Fund may invest without limit in securities primarily traded in U.S. markets . See "Common investment policies and techniques " below for a discussion of these strategies. The Fund may invest in premium securities, engage in foreign currency exchange transactions, transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund also may hold a portion of its assets in cash and money market instruments. PCM Diversified Income Fund will generally be managed in a style similar to that of Putnam Diversified Income Trust . U.S. Government Sector The Fund will invest assets allocated to the U.S. Government Sector primarily in U.S. Government Securities. In purchasing securities for the U.S. Government Sector, Putnam Management may take full advantage of the entire range of maturities of U.S. Government Securities and may adjust the average maturity of the investments held in the portfolio from time to time, depending on its assessment of relative yields of securities of different maturities and its expectations of future changes in interest rates. Under normal market conditions, the Fund will invest at least 20% of its net assets in U.S. Government Securities and at least 65% of the assets allocated to the U.S. Government Sector will be invested in U.S. Government Securities. The Fund may invest assets allocated to the U.S. Government Sector in a variety of debt securities, including asset-backed and mortgage-backed securities, such as CMOs , including certain stripped mortgage-backed securities, that are issued by private U.S. issuers. For a description of these securities, and the risks associated with them, see "Common investment policies and techniques -- Mortgage-backed and asset-backed securities." With respect to assets allocated to the U.S. Government Sector, the Fund will only invest in privately issued debt securities that are rated at the time of purchase at least A by Moody's or S&P, or in unrated securities that Putnam Management determines are of comparable quality. The rating services' descriptions of these rating categories are included in the Appendix to this Prospectus. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. Risk factors. U.S. Government Securities are considered among the safest of fixed income investments . Because of this added safety, the yields available from U.S. Government Securities are generally lower than the yields available from corporate debt securities , but their values, like those of other debt securities, will fluctuate with changes in interest rates. Changes in the value of portfolio securities will not affect investment income from those securities, but will affect the Fund's net asset value. A decrease in interest rates will generally result in an increase in the value of fixed income securities. Conversely, during periods of rising interest rates, the values of such securities will generally decline. The magnitude of these fluctuations will generally be greater for securities with longer maturities. Whereas certain U.S. Government Securities in which the Fund may invest are supported by the full faith and credit of the United States, other fixed income securities in which the Fund may invest are subject to varying degrees of risk of default depending upon, among other factors, the creditworthiness of the issuer and the ability of the borrower to meet its obligations. High Yield Sector The Fund will invest assets allocated to the High Yield Sector primarily in high yielding, lower-rated, higher - risk U.S. and foreign fixed - income securities, including debt securities, convertible securities and preferred stocks. As discussed below, however, the Fund may invest all or any part of the High Yield Sector portfolio in higher-rated and unrated fixed - income securities. The Fund will not necessarily invest in the highest yielding securities available if in Putnam Management's opinion the differences in yield are not sufficient to justify the higher risks involved. The High Yield Sector may invest in any security which is rated, at the time of purchase, at least Caa as determined by Moody's or CCC as determined by S&P or in any unrated security which Putnam Management determines is at least of comparable quality, although up to 5% of the net assets of the Fund may be invested in securities rated below such quality, or in unrated securities which Putnam Management determines are of comparable quality. Securities rated below Caa by Moody's or CCC by S&P are of poor standing and may be in default. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The rating services' descriptions of these rating categories, including the speculative characteristics of the lower categories, are included in the Appendix to this Prospectus. The table below shows the percentages of the Fund's assets invested during fiscal 1994 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality. Rated securities, Unrated securities of as a percentage of comparable quality, as a Rating Fund's assets percentage of Fund's assets - --------------------------- -- ----------- -------- - -----------------"AAA" 27.41% --% -------------------------------------------------------------- - ---"AA" 18.12% --% - ----------------------------------------------------------------- "A" 21.35% 1.73% - ----------------------------------------------------------------- "BBB" 9.52% 1.12% - ----------------------------------------------------------------- "BB" 5.30% 0.02% - ----------------------------------------------------------------- "B" 6.11% 0.52% - ----------------------------------------------------------------- "CCC" 0.89% -- - ----------------------------------------------------------------- Not Rated -- 1.52% - ----------------------------------------------------------------- Total 88.70% 4.91% - ----------------------------------------------------------------- For a description of the risks associated with investments in fixed income securities, including lower-rated fixed income securities, see "Common investment policies and techniques -- Lower-rated and other fixed income securities." The Fund may invest assets allocated to the High Yield Sector in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to the more general investment considerations applicable to fixed income investments, participations and assignments involve the risk that the institution's insolvency could delay or prevent the flow of payments on the underlying loan to the Fund. The Fund may have limited rights to enforce the terms of the underlying loan, and the liquidity of loan participations and assignments may be limited. The Fund may also invest assets allocated to the High Yield Sector in lower-rated securities of foreign corporate and governmental issuers denominated either in U.S. dollars or in foreign currencies. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments ." International Sector The Fund will invest the assets allocated to the International Sector in debt obligations and other fixed income securities denominated in non-U.S. currencies. These securities include: * debt obligations issued or guaranteed by foreign, national, provincial, state, or other governments with taxing authority, or by their agencies or instrumentalities; * debt obligations of supranational entities (described below); and * debt obligations and other fixed income securities of foreign and U.S. corporate issuers. When investing in the International Sector, the Fund will purchase only debt securities of issuers whose long-term debt obligations are rated A or better at the time of purchase by Moody's or S&P or that are unrated securities determined by Putnam Management to be of comparable quality. The Fund will not necessarily dispose of a security if its rating is reduced below its rating at the time of purchase , although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting the Fund's investment objective. The Fund may, however, make investments in international debt securities rated below A with respect to assets allocated to the High Yield Sector. In the past, yields available from securities denominated in foreign currencies have often been higher than those of securities denominated in U.S. dollars. Although the Fund has the flexibility to invest in any country where Putnam Management sees potential for high income, it presently expects to invest primarily in securities of issuers in industrialized Western European countries (including Scandinavian countries) and in Canada, Japan, Australia, and New Zealand. Putnam Management will consider expected changes in foreign currency exchange rates in determining the anticipated returns of securities denominated in foreign currencies. The obligations of foreign governmental entities, including supranational issuers, have various kinds of government support. Obligations of foreign governmental entities include obligations issued or guaranteed by national, provincial, state or other governments with taxing power or by their agencies. These obligations may or may not be supported by the full faith and credit of a foreign government. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Steel and Coal Community, the Asian Development Bank, and the Inter-American Development Bank. The governmental members or "stockholders" usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowing. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves, and net income. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." PCM GROWTH AND INCOME FUND PCM Growth and Income Fund seeks capital growth and current income as its investment objectives. The Fund invests primarily in common stocks that offer potential for capital growth, current income, or both. The Fund may also purchase corporate bonds, notes and debentures, preferred stocks or convertible securities (both debt securities and preferred stocks) or U.S. government securities, if Putnam Management determines that their purchase would help further the Fund's investment objectives. The types of securities held by the Fund may vary from time to time in light of the Fund's investment objectives, changes in interest rates and economic and other factors. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund may invest up to 20% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also hold a portion of its assets in cash or money market instruments. The Fund may invest in both higher-rated and lower-rated fixed-income securities. The risks associated with fixed income securities, including lower-rated fixed income securities (commonly known as "junk bonds") , are discussed below under "Common investment policies and techniques -- Lower- rated and other fixed income securities." The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. PCM Growth and Income Fund will generally be managed in a style similar to that of The Putnam Fund for Growth and Income. PCM NEW OPPORTUNITIES FUND PCM New Opportunities Fund seeks long-term capital appreciation. The Fund seeks its investment objective by investing principally in common stocks of companies in sectors of the economy which Putnam Management believes possess above-average long-term growth potential. The Fund will generally invest in companies which Putnam Management identifies as offering the best prospects for long-term growth within a particular sector. Current dividend income is only an incidental consideration. The Fund invests primarily in common stocks, but may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective of capital appreciation. The Fund may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investing, see "Common investment policies and techniques -- Foreign investments." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may hold a portion of its assets in cash and money market instruments. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The sectors of the economy which offer above-average growth potential will change over time. At present, Putnam Management has identified the following sectors of the economy as having an above-average growth potential over the next three to five years: Personal Communications - cellular telephone, paging, personal communication networks; Media/Entertainment - cable television system operators, cable television network programmers, film entertainment providers, theme park operators, casino operators; Medical Technology/Cost-Containment - home and outpatient care, medical device companies, biotechnology, health care information services; Environmental Services - solid waste disposal, hazardous waste disposal, remediation services, environmental testing; Applied/Advanced Technology - database software, application software, networking software, computer systems integrators, information services companies; Personal Financial Services - specialty insurance companies, credit card issuers, and other consumer-oriented financial services companies; and Value-oriented Consuming - retailers, restaurants, hotel chains and travel companies able to provide quality products or services at lower prices or offering greater perceived value than competitors. In addition, the Fund may also invest a portion of its assets in securities of companies that, although not in any of the sectors described above, are expected to experience above-average growth. The sectors described above represent Putnam Management's current judgment of the sectors of the economy which offer the most attractive growth opportunities. The Fund will not necessarily be invested in each of the seven market sectors at all times. Such sectors are likely to change over time and may include a variety of industries. Subject to the Fund's investment restrictions, the Fund may invest up to one-half of its assets in any one particular sector. The Fund will invest in securities which Putnam Management believes offer above-average long-term growth opportunities. As a result of the Fund's long-term investment strategy, it is possible that the Fund's total return over certain periods may be less than that of other equity investment vehicles. The Fund seeks to invest in companies that offer above-average growth prospects in their particular sector of the economy, without regard to the company's size. Companies in the Fund's portfolio will range from small, rapidly growing companies to larger, well-established firms. The securities of small to medium-sized companies often trade less frequently and in more limited volume, and may be subject to more abrupt or erratic price movements, than securities of larger, more established companies. Such companies may have limited product lines, markets, or financial resources, or may depend on a limited management group. The Fund will normally emphasize investments in particular economic sectors. Although the Fund will not invest more than 25% of its assets in any one industry, the Fund's emphasis on particular sectors of the economy may make the value of the Fund's shares more susceptible to any single economic, political or regulatory development than the shares of an investment company which is more widely diversified. As a result, the value of the Fund's shares may fluctuate more than the value of shares of such an investment company. PCM New Opportunities Fund will generally be managed in a style similar to that of Putnam New Opportunities Fund. PCM UTILITIES GROWTH AND INCOME FUND The investment objective of PCM Utilities Growth and Income Fund is to seek capital growth and current income. The Fund concentrates its investments in securities issued by companies in the public utilities industries. The Fund will seek its objective by investing under normal circumstances at least 65% of its total assets in equity and debt securities of companies in the public utilities industries. Equity securities in which the Fund may invest include common stocks, preferred stocks, securities convertible into common stocks or preferred stocks, and warrants to purchase common or preferred stocks. Debt securities in which the Fund may invest will be rated at the time of investment at least Baa by Moody's or BBB by S&P or will be of comparable quality as determined by Putnam Management. The Fund may invest in debt and equity securities of issuers in other industries if Putnam Management believes they will help achieve the Fund's objective. Companies in the public utilities industries include companies engaged in the manufacture, production, generation, transmission, sale or distribution of electric or gas energy or other types of energy and companies engaged in telecommunications, including telephone, telegraph, satellite, microwave and other communications media (but not companies engaged in public broadcasting or cable television). Putnam Management deems a particular company to be in the public utilities industries if at the time of investment Putnam Management determines that at least 50% of the company's assets, revenues or profits are derived from one or more of those industries. The portion of the Fund's assets invested in equity securities and in debt securities will vary from time to time in light of the Fund's investment objective, changes in interest rates, and economic and other factors. Although the Fund expects that in the near term it will invest substantial portions of its assets in both equity securities and in debt securities, the Fund may invest all of its assets in either equity or debt securities. The Fund may also hold a portion of its assets in cash and money market instruments. The Fund may invest up to 25% of its assets in securities principally traded in foreign markets. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. Since the Fund's investments are concentrated in the public utilities industries, the value of its shares can be expected to change in light of factors affecting those industries, and may fluctuate more widely than the value of shares of a portfolio that invests in a broader range of industries. Many utility companies, especially electric, gas and other energy-related utility companies, have historically been subject to risks of increase in fuel and other operating costs, changes in interest rates on borrowings for capital improvement programs, changes in applicable laws and regulations, changes in technology which may render existing plants, equipment or products obsolete, the effects of energy conservation and operating constraints, and increased costs and delays associated with compliance with environmental regulations. In particular, regulatory changes with respect to nuclear and conventionally- fueled power generating facilities could increase costs or impair the ability of utility companies to operate such facilities or obtain adequate return on invested capital. Generally, prices charged by utilities are regulated in the United States and in foreign countries with the intention of protecting the public while ensuring that utility companies earn a return sufficient to allow them to attract capital in order to grow and continue to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future. In recent years, regulatory changes in the United States have increasingly allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within the utilities industries. This trend toward deregulation and the emergence of new entrants have caused non-regulated providers of utility services to become a significant part of the utilities industries. Putnam Management believes that the emergence of competition and deregulation will result in certain utility companies being able to earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased competition and may be less profitable. Although Putnam Management seeks to take advantage of favorable investment opportunities that may arise from these structural changes, there can be no assurance that the Fund will benefit from any such changes. Investments in securities rated BBB or Baa have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than would be the case with investments in securities with higher credit ratings. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security would serve the Fund's investment objective. The Fund is "non-diversified . " This means that it may invest its assets in a limited number of issuers. Under the Internal Revenue Code, the Fund generally may not invest more than 25% of its assets in obligations of any one issuer other than U.S. Government Securities and, with respect to 50% of its total assets, the Fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. Government Securities). Thus the Fund may invest up to 25% of its total assets in the securities of each of any two issuers. Because of the limited number of issuers in the public utilities industries, the Fund is more likely to invest a higher percentage of its assets in the securities of a single issuer than an investment company which invests in a broad range of industries. This practice involves an increased risk of loss to the Fund if the issuer is unable to make interest or principal payments or if the market value of such securities were to decline. PCM Utilities Growth and Income Fund will generally be managed in a style similar to that of Putnam Utilities Growth and Income Fund. Because that fund is "diversified," however, its portfolio may be invested in securities of a greater number of issuers than that of the Fund. PCM VOYAGER FUND PCM Voyager Fund seeks capital appreciation as its investment objective . It is designed for investors willing to assume above-average risk in return for above-average capital growth potential. The Fund invests primarily in common stocks which Putnam Management believes have potential for capital appreciation that is significantly greater than that of the market averages. The Fund does not choose investments for dividend and interest income. It may also purchase convertible bonds, convertible preferred stocks, warrants, preferred stocks and debt securities if Putnam Management believes they would help achieve the Fund's objective. The Fund may also hold a portion of its assets in cash and money market instruments and may invest up to 20% of its assets in foreign securities. For a discussion of the risks associated with foreign investments, see "Common investment policies and techniques -- Foreign investments ." The Fund may also engage in foreign currency exchange transactions and transactions in futures and options, enter into repurchase agreements, loan its portfolio securities and purchase securities for future delivery. See "Common investment policies and techniques" below for a discussion of these securities and types of transactions and the risks associated with them. The Fund may engage in defensive strategies when Putnam Management judges that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interest of the Fund's shareholders. See "Common investment policies and techniques" below for a discussion of these strategies. The Fund generally invests a significant portion of its assets in the securities of smaller and newer issuers. These small- to medium-sized companies have a proprietary product or profitable market niche and the potential to grow very rapidly. Such companies may present greater opportunities for capital appreciation because of high potential earnings growth, but may also involve greater risk. They may have limited product lines, markets or financial resources, or may depend on a limited management group. Their securities may trade less frequently and in limited volume . As a result, these securities may fluctuate in value more than securities of larger, more established companies. The Fund will also invest a portion of its assets in larger companies where opportunities for above-average capital appreciation appear favorable. In seeking its objective, the Fund may borrow money to invest in additional portfolio securities. This technique, known as "leverage," increases the Fund's market exposure and risk. When the Fund has borrowed money for leverage and its investments increase or decrease in value, the Fund's net asset value will increase or decrease more than if it had not borrowed money for this purpose. The interest that the Fund must pay on borrowed money will reduce its net investment income, and may also either offset any potential capital gains or increase any losses. The Fund will not always borrow money for investment. The extent to which the Fund will borrow money, and the amount it may borrow, depend on market conditions and interest rates. Successful use of leverage depends on Putnam Management's ability to predict market movements correctly. PCM Voyager Fund will generally be managed in a style similar to that of Putnam Voyager Fund. GENERAL The Funds are generally managed in styles similar to other open-end investment companies which are managed by Putnam Management and whose shares are generally offered to the public. These other Putnam funds may, however, employ different investment practices and may invest in securities different from those in which their counterpart Funds invest, and consequently will not have identical portfolios or experience identical investment results. COMMON INVESTMENT POLICIES AND TECHNIQUES Defensive strategies At times, Putnam Management may judge that conditions in the securities markets make pursuing a Fund's basic investment strategy inconsistent with the best interests of the Fund's shareholders. At such times, Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of a Fund's assets. In implementing these "defensive" strategies, a Fund may invest without limit in cash or cash equivalents, money-market instruments, short-term bank obligations, high-rated fixed income securities or preferred stocks or invest in any other securities Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, a Fund will use such alternative strategies. Portfolio turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." As a result of a Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of each Fund (other than PCM Asia Pacific Growth Fund, which commenced operations after May 1, 1995) are shown in "Financial highlights." While it is impossible to predict a Fund's portfolio turnover rate, Putnam Management, based on its experience, believes that such rate will not exceed 125% for PCM Asia Pacific Growth Fund. Investments in premium securities The Funds may invest in securities bearing coupon rates higher than prevailing market rates. Such "premium" securities are typically purchased at prices greater than the principal amounts payable on maturity. A Fund does not amortize the premium paid for such securities in calculating its net investment income. As a result, the purchase of such securities provides a Fund a higher level of investment income distributable to shareholders on a current basis than if the Fund had purchased securities bearing current market rates of interest. Because the value of premium securities tends to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date), the purchase of such securities will increase a Fund's risk of capital loss if such securities are held to maturity (or first call date). During a period of declining interest rates, many of a Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of a Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of a Fund during such periods would initially receive higher distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in a Fund, investors may find it useful to compare a Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." Foreign investments Each Fund may invest to the extent described above in securities principally traded in foreign markets. Each Fund may also purchase Eurodollar certificates of deposit without limitation. Since foreign securities are normally denominated and traded in foreign currencies, the values of a Fund's assets may be affected favorably or unfavorably by currency exchange rates and exchange control regulations. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of a Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of a Fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit a Fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities. The risks described above are typically increased to the extent that a Fund invests in securities traded in lesser-developed and developing nations, which are sometimes referred to as "emerging markets." A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the Statement of Additional Information. Foreign currency exchange transactions To the extent described above, certain of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. Putnam Management may engage in currency exchange transactions in connection with the purchase and sale of portfolio securities ("transaction hedging"), and to protect the value of specific portfolio positions ("position hedging"). A Fund may engage in transaction hedging to protect against a change in currency exchange rates between the date on which a Fund contracts to purchase or sell the security and the settlement date, or to "lock in" the value of a dividend or interest payment in a particular currency. For that purpose, a Fund may purchase or sell a currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, a 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 as a hedge against changes in foreign currency exchange rates between the trade and settlement dates on particular transactions and not for speculation. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. For transaction hedging purposes, a Fund may also purchase and sell call and put options on foreign currency futures contracts and on currencies. A Fund may engage in position hedging to protect against a decline in 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 a currency in which securities the Fund intends to buy are denominated, when the Fund holds cash reserves and short-term investments). For position hedging purposes, a Fund may purchase or sell foreign currency futures contracts, foreign currency forward contracts, and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, a Fund may also purchase or sell foreign currency on a spot basis. A 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 a Fund. Cross hedging transactions by a 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. For a discussion of the risks associated with options and futures strategies in connection with a Fund's foreign currency exchange transactions, see "Risks related to options and futures strategies." Options and futures Futures and options on futures. Each Fund that may invest in futures and options, as described above, may, to the extent consistent with their investment objectives and policies, buy and sell index futures contracts ("index futures") for hedging purposes. An "index future" is a contract to buy or sell units of a particular bond or stock index at an agreed price on a specified future date. Depending on the change in value of the index between the time when a Fund enters into and terminates an index futures transaction, the Fund realizes a gain or loss. A Fund may also, to the extent consistent with its investment objectives and policies, buy and sell call and put options on index futures or on stock or bond indices in addition to or as an alternative to buying or selling index futures or, to the extent permitted by applicable law, to earn additional income. In addition, if a Fund's investment policies permit it to invest in foreign securities, such Fund may invest in futures and options on foreign securities, to the extent permitted by applicable law, as a substitute for direct investment in foreign securities. To the extent described above, each Fund may also buy and sell futures contracts and related options with respect to U.S. Government Securities and options directly on U.S. Government Securities. Putnam Management believes that, under certain market conditions, price movements in U.S. Government Securities futures and related options may correlate closely with securities in which the Funds may invest and may, as a result, provide hedging opportunities for the Funds. U.S. Government Securities futures and related options would be used in a way similar to a Fund's use of index futures and options. A Fund will only buy or sell U.S. Government Securities futures and related options when, in the opinion of Putnam Management, price movements in such futures and options are expected to correlate closely with price movements in the securities which are the subject of the hedge. Options. As described above, certain of the Funds may, to the extent consistent with their investment objectives and policies, seek to increase current return by writing covered call and put options on securities such Funds own or in which they may invest. A Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. When a Fund writes a call option, it gives up the opportunity to profit from any increase in the price of a security above the exercise price of the option; when it writes a put option, the Fund takes the risk that it will be required to purchase a security from the option holder at a price above the current market price of the security. Each Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Each Fund may also, to the extent consistent with its investment objectives and policies, buy and sell put and call options for hedging purposes and from time to time buy and sell combinations of put and call options on the same underlying security to earn additional income. The aggregate value of the securities underlying the options may not exceed 25% of the relevant Fund's assets. Risks related to options and futures strategies The use of futures and options involves certain special risks. Futures and options transactions involve costs and may result in losses. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of futures and options and movements in the prices of the underlying bond or stock index, securities or currencies or of the securities or currencies that are the subject of a hedge. The successful use of the strategies described above further depends on Putnam Management's ability to forecast market movements correctly. Other risks arise from a Fund's potential inability to close out its futures or options positions, and there can be no assurance that a liquid secondary market will exist for any future or option at any particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit a Fund's ability to engage in futures and options transactions. A more detailed explanation of futures and options transactions, including the risks associated with them, is included in the Statement of Additional Information. Lower-rated and other fixed income securities As described above, certain of the Funds may invest in lower-rated fixed income securities (commonly known as "junk bonds"). Differing yields on fixed income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower categories of recognized rating agencies (Baa or lower by Moody's and BBB or lower by S&P) or from unrated securities of comparable quality. Securities in the rating categories below Baa as determined by Moody's and BBB as determined by S&P are considered to be of poor standing and predominantly speculative. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are set forth in the Appendix to this Prospectus. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' investment 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. Although Putnam Management considers security ratings when making investment decisions, it performs its own investment analysis and does not rely principally on the ratings assigned by the rating services. Putnam Management's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest rates. It also considers relative values based on anticipated cash flow, interest or dividend coverage, asset coverage and earning prospects. Because of the greater number of investment considerations involved in investing in lower-rated securities, the achievement of a Fund's objectives depends more on Putnam Management's analytical abilities than would be the case if it were investing primarily in securities in the higher rating categories. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Like those of other fixed-income securities, the values of such lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. The magnitude of these fluctuations is generally greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed-income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect cash income derived from such securities, but will affect a Fund's net asset value. Investors should carefully consider their ability to assume the risks of investing in a mutual fund which invests in lower-rated securities before allocating a portion of their insurance investment to a Fund that invests in such securities. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payments of interest and principal would likely make the values of securities held by a 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, a Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security. Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. When the Fund invests in securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in securities in the higher rating categories. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. 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. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Both zero-coupon bonds and payment- in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Certain investment - grade securities in which a Fund may invest share some of the risk factors discussed above with respect to lower-rated securities. Mortgage-backed and asset-backed securities As described above, certain of the Funds may invest in asset-backed and mortgage-backed securities, such as CMOs, including stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent participations in, or are secured by, mortgage loans. 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 assets. A Fund which purchases mortgage-backed securities may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. Conversely, 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 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. Mortgage-backed securities include securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae or Freddie Mac ; securities issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; or securities issued by private issuers that represent an interest in or are collateralized by mortgage loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgages, the underlying assets may include motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed and asset-backed securities have yield and maturity characteristics corresponding to the underlying assets. Thus, 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 and asset-backed securities include both interest and a partial payment of principal. In addition to scheduled loan amortization, payments of principal may result from voluntary prepayment, refinancing or foreclosure of the underlying mortgage loans or other assets. Such prepayments significantly shorten the effective maturities of the securities, especially during periods of declining interest rates. Due to their prepayment aspect, 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. This is caused by the need to reinvest prepayments of principal generally and the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a comparable risk of decline in market value during periods of rising interest rates. At times, some of the mortgage-backed and asset-backed securities in which the Fund may invest will have higher than market interest rates, and will therefore be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause a Fund to suffer a loss equal to any unamortized premium. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in the interest or principal on the underlying collateral or in a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs that is first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMOs held by the Fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Securities loans, repurchase agreements and forward commitments Each Fund may lend portfolio securities amounting to not more than 25% of its assets to broker-dealers and may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. Each Fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to the Fund if the other party should default on its obligation and a Fund is delayed or prevented from recovering the collateral or completing the transaction. HOW PERFORMANCE IS SHOWN Each Fund's investment performance may from time to time be included in advertisements about that Fund "Yield " is calculated by dividing a Fund's annualized net investment income per share during a recent 30-day period by the net asset value per share on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from a Fund's net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. A Fund's current dividend rate is based on its net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "Common investment policies and techniques -- Investments in premium securities." "Total return" for the one-, five- and ten-year periods ( or for the life of a Fund, if shorter ) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in such Fund . Total return may also be presented for other periods. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective or objectives and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limit had not been in effect. Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable with respect to these insurance products. Insurance related charges and expenses are not reflected in the Funds' performance information and would reduce an investor's return under the insurance product. For performance information through the Funds' most recent fiscal year, see "Investment Performance of the Trust" in the Statement of Additional Information. HOW THE TRUST IS MANAGED The Trustees of the Trust are responsible for generally overseeing the conduct of the Trust's business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Trust and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Trust's other affairs and business. David K. Thomas, Senior Vice President of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM Asia Pacific Growth Fund's portfolio since its inception. Mr. Thomas has been employed by Putnam Management since January, 1987. Michael Martino, Managing Director of Putnam Management, D. William Kohli and Jennifer E. Leichter, each a Senior Vice President of Putnam Management , and Neil J. Powers and Mark J. Siegel, each a Vice President of Putnam Management, each of whom is a Vice President of the Trust , have had primary responsibility for the day - to - day management of PCM Diversified Income Fund's portfolio since 1993 for Ms. Leichter, and 1994 for Messrs. Martino, Kohli, Powers and Siegel . Ms. Leichter and Mr. Powers have been employed by Putnam Management since 1987 and 1986, respectively. Mr. Martino has been employed by Putnam Management since January, 1994. Prior to January, 1994, Mr . Martino was employed by Back Bay Advisors in the positions of Executive Vice President and Chief Investment Officer from 1992 to 1994, and Senior Vice President and Senior Portfolio Manager from 1990 to 1992 . Mr. Kohli has been employed by Putnam Management since September, 1994. Prior to September, 1994, Mr. Kohli was Executive Vice President , and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Mr. Siegel has been employed by Putnam Management since June, 1993. Prior to June, 1993, Mr. Siegel was Vice President of Salomon Brothers International Ltd . David L. King, Senior Vice President of Putnam Management and Vice President of the Trust, and Anthony I. Kreisel, Managing Director of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Growth and Income Fund's portfolio since 1993. Messrs. King and Kreisel have been employed by Putnam Management since 1983 and 1986, respectively. Daniel L. Miller, Managing Director of Putnam Management and Vice President of the Trust, has had primary responsibility for the day-to-day management of PCM New Opportunities Fund's portfolio since 1994. Mr. Miller has been employed by Putnam Management since 1983. Sheldon N. Simon, Senior Vice President of Putnam Management and Vice President of the Trust and Christopher A. Ray, Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Utilities Growth and Income Fund's portfolio since 1992 and 1995 . Mr. Simon has been employed by Putnam Management since 1984. Mr. Ray has been employed by Putnam Management since December, 1992. Prior to December, 1992, Mr. Ray was Vice President and Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to March, 1992, Mr. Ray was Vice President of Putnam Management . Roland W. Gillis, Robert R. Beck and Charles H. Swanberg, each a Senior Vice President of Putnam Management and Vice President of the Trust, have had primary responsibility for the day-to-day management of PCM Voyager Fund's portfolio since 1995, 1995 and 1994 , respectively. Mr. Gillis has been employed by Putnam Management since March, 1995. Prior to March, 1995, Mr. Gillis was Vice President of Keystone Custodian Funds, Inc. Messrs. Beck and Swanberg have been employed by Putnam Management since 1989 and 1984 , respectively. The Trust, on behalf of the Funds, pays all expenses not assumed by Putnam Management, including Trustees' fees and auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees. General expenses of the Trust will be allocated among and charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Expense limitation. In order to limit PCM Asia Pacific Growth Fund's expenses during its start-up period, Putnam Management has agreed to limit its compensation ( and, to the extent necessary, bear other expenses of the Fund ) through April 30, 1996, to the extent that expenses of the Fund (exclusive of brokerage, interest, taxes, and deferred organizational and extraordinary expenses) would exceed an annual rate of 1.20% of the Fund's average net assets. For the purpose of determining any such limitation on Putnam Management's compensation, expenses of the Fund will not reflect the application of commissions or cash management credits that may reduce designated Fund expenses. With Trustee approval, this expense limitation may be terminated earlier, in which event shareholders would be notified and this Prospectus would be revised. Total expenses, including management fees, for the fiscal year ended December 31, 1994, based on each Fund's average net assets, were: Total Management Expenses Fees PCM Asia Pacific Growth Fund* 1.20% 0.79% (reflecting expense limitation) PCM Diversified Income Fund 0.80% 0.67% PCM Growth and Income Fund 0.62% 0.57% PCM New Opportunities Fund** 0.47% 0.45% (commenced operations on May 1, 1994) PCM Utilities Growth and Income Fund 0.68% 0.60% PCM Voyager Fund 0.71% 0.63% On June 2, 1994, the shareholders of three of the funds approved new management fees payable to Putnam Management. If the new rates had been in effect for the entire year , management fees would have been the following: PCM Diversified Income Fund, 0.70%; PCM Growth and Income Fund, 0.55%; and PCM Voyager Fund, 0.66%. * PCM Asia Pacific Growth Fund did not commence operations until after May 1, 1995. These are Putnam Management's estimates for the Fund's first fiscal year, reflecting the expense limitation currently in effect. In the absence of the expense limitation, estimated management fees and total expenses for the first fiscal year would be 0.80% and 1.21%. ** The total expenses and management fees shown above for PCM New Opportunities Fund reflect an expense limitation in effect for the period and are not annualized. In the absence of the expense limitation in effect for the period, annualized total expenses and management fees would have been 1.00% and 0.70%, respectively. Putnam Management places all orders for purchases and sales of the securities of each Fund. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider, if permitted by law, sales of shares of the other Putnam funds as a factor in the selection of broker-dealers. ORGANIZATION AND HISTORY Putnam Capital Manager Trust is a Massachusetts business trust organized on September 24, 1987. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into eleven series of shares, each representing a separate investment portfolio which is being offered through separate accounts of various insurance companies. Each portfolio is managed as a diversified investment company, except for PCM Utilities Growth and Income Fund, which is managed as a non-diversified investment company. Shares vote by individual portfolio on all matters except (i) when required by the Investment Company Act of 1940, shares of all portfolios shall be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of one or more portfolios, only the shareholders of such portfolio or portfolios shall be entitled to vote. Each share has one vote, with fractional shares voting proportionately. Shares of each of the portfolios are freely transferable, are entitled to dividends as declared by the Trustees, and, if the portfolio were liquidated, would receive the net assets of the portfolio. The Trust may suspend the sale of shares of any portfolio at any time and may refuse any order to purchase shares. Although the Trust 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. Shares of the Funds may only be purchased by an insurance company's separate account. For matters requiring shareholder approval, you may be able to instruct the insurance company's separate account how to vote the Fund shares attributable to your contract or policy. See the Voting Rights section of your insurance product prospectus. The Funds' Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President, Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Funds' Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds. About Your Investment SALES AND REDEMPTIONS The Trust has an underwriting agreement relating to the Funds with Putnam Mutual Funds , One Post Office Square, Boston, Massachusetts 02109. Putnam Mutual Funds presently offers shares of each Fund of the Trust continuously to separate accounts of various insurers. The underwriting agreement presently provides that Putnam Mutual Funds accepts orders for shares at net asset value and no sales commission or load is charged. Putnam Mutual Funds may, at its expense, provide promotional incentives to dealers that sell variable insurance products. Shares are sold or redeemed at the net asset value per share next determined after receipt of an order . Orders for purchases or sales of shares of a Fund must be received by your insurance company before the close of regular trading on the New York Stock Exchange and transmitted promptly the next day in order to receive that day's net asset value. No fee is charged to a separate account when it redeems Fund shares. Please check with your insurance company for Funds available under your variable annuity contract or variable life insurance policy. Certain Funds may not be available in your state due to various insurance regulations. Inclusion of a Fund in this Prospectus that is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. Each Fund currently does not foresee any disadvantages to policyowners arising out of the fact that each Fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw their investments in one or more Funds and shares of another Fund may be substituted. This might force a Fund to sell portfolio securities at disadvantageous prices. In addition, the Trustees may refuse to sell shares of any Fund to any separate account or may suspend or terminate the offering of shares of any Fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the Fund. Under unusual circumstances, the Trust may suspend repurchases or postpone payment for up to seven days or longer, as permitted by federal securities law. EXCHANGE PRIVILEGE A shareholder may exchange shares of any Fund in the Trust for shares of any other Fund in the Trust on the basis of their respective net asset values. Exchanges may not be made into portfolios of the Trust not offered by your variable annuity contract or variable life policy. HOW THE TRUST VALUES ITS SHARES The Trust calculates the net asset value of a share of each Fund by dividing the total value of the assets of the Fund, less liabilities, by the number of shares of the Fund outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open. Fund securities for which market quotations are readily available are stated at market value. Short-term investments that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION Each Fund will distribute any net investment income and net realized capital gains at least annually. Both types of distributions will be made in shares of such Funds unless an election is made on behalf of a separate account to receive some or all of the distributions in cash. Distributions are reinvested without a sales charge, using the net asset value determined on the ex-dividend date . Each Fund intends to qualify each year as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income and gains it distributes to the separate accounts. For information concerning federal income tax consequences for the holders of variable annuity contracts and variable life insurance policies, contract holders should consult the prospectus of the applicable separate account. Internal Revenue Service regulations applicable to portfolios that serve as the funding vehicles for variable annuity and variable life insurance separate accounts generally require that those portfolios invest no more than 55% of the value of their assets in one investment, 70% in two investments, 80% in three investments and 90% in four investments. Each of the Funds intends to comply with these requirements. FINANCIAL INFORMATION It is expected that owners of the variable annuity contracts and variable life insurance policies who have contract or policy values allocated to the Funds will receive an unaudited semi- annual financial statement and an audited annual financial statement for such Funds. These reports show the investments owned by each Fund and provide other relevant information about the Fund. About Putnam Investments, Inc. Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds , and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. Appendix SECURITIES RATINGS The following rating services describe rated securities as follows: Moody's Investors Service, Inc. Bonds Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking, or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever earning any real investment standing. Standard & Poor's Corporation Bonds AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D--Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Investment Manager Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 Marketing Services Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 Investor Servicing Agent Putnam Investor Services Mailing address: P.O. Box 41203 Providence, RI 02940-1203 Custodian Putnam Fiduciary Trust Company One Post Office Square Boston, MA 02109 Legal Counsel Ropes & Gray One International Place Boston, MA 02110 Independent Accountants Price Waterhouse LLP 160 Federal Street Boston, MA 02110 PUTNAM CAPITAL MANAGER TRUST FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION May 1, 1995 This Statement of Additional Information is not a Prospectus and is only authorized for distribution when accompanied or preceded by the Prospectus of the Trust dated May 1, 1995, as revised from time to time. This Statement contains information which may be useful to investors but which is not included in the Prospectus . If the Trust has more than one form of current Prospectus, each reference to the Prospectus in this Statement shall include all the Trust's Prospectuses, unless otherwise noted. The Statement should be read together with the applicable Prospectus. Investors may obtain a free copy of the applicable Prospectus from Putnam Investor Services, Mailing address: P.O. Box 41203, Providence, RI 02940- 1203. The Report of the Trust's independent accountants and the audited financial statements of the Trust are incorporated by reference into this Statement . Table of Contents DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . B- 2 INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS. . . . . . . B- 2 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .B- 22 INVESTMENT RESTRICTIONS OF THE TRUST . . . . . . . . . . . .B- 24 MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . .B- 28 INVESTMENT PERFORMANCE OF THE TRUST. . . . . . . . . . . . .B- 54 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . .B- 56 SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . .B- 59 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . .B- 59 CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . .B- 59 INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . .B- 60 PUTNAM CAPITAL MANAGER TRUST STATEMENT OF ADDITIONAL INFORMATION DEFINITIONS The "Trust" -- Putnam Capital Manager Trust. "Putnam Management" -- Putnam Investment Management, Inc., the Trust's investment manager. "Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the Trust's principal underwriter. "Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company, Company" the Trust's custodian. "Putnam Investor Services" -- Putnam Investor Services, a division of Putnam Fiduciary Trust Company, the Trust's investor servicing agent. INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS The Trust consists of eleven separate investment portfolios (the "Funds") with separate investment objectives and policies: PCM Asia Pacific Growth Fund, PCM Diversified Income Fund, PCM Global Asset Allocation Fund, PCM Global Growth Fund, PCM Growth and Income Fund, PCM High Yield Fund, PCM Money Market Fund, PCM New Opportunities Fund, PCM U.S. Government and High Quality Bond Fund, PCM Utilities Growth and Income Fund, and PCM Voyager Fund. The investment objectives and policies of the Funds are described in the Prospectus offering such Funds. This Statement contains, among other things, the investment restrictions of the Funds. It also contains information concerning certain investment practices in which some or all of the Funds may engage. The Prospectus indicates which practices are applicable to each Fund which it offers. Except as described below under "Investment Restrictions of the Trust," the investment policies described in the Prospectus and in this Statement are not fundamental, and the Trustees may change such policies without shareholder approval. As a matter of policy, the Trustees would not materially change the Funds' investment objectives without shareholder approval. Lower-rated Securities Each Fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds") to the extent described in the Prospectus. The lower ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by a Fund more volatile and could limit a Fund's ability to sell its securities at prices approximating the values a Fund had placed on such securities. In the absence of a liquid trading market for securities held by it, a Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's Investors Service, Inc. or Standard & Poor's Corporation (or by any other nationally recognized securities rating organization) does not reflect an assessment of the volatility of the security's market value or the liquidity of an investment in the security. See the Prospectus for a description of security ratings. Like those of other fixed-income securities, the values of lower- rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of a Fund's assets. Conversely, during periods of rising interest rates, the value of a Fund's assets will generally decline. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed-income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect a Fund's net asset value. A Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether its retention will assist in meeting a Fund's investment objective. At times, a substantial portion of a Fund's assets may be invested in securities as to which the Fund, by itself or together with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Although Putnam Management generally considers such securities to be liquid because of the availability of an institutional market for such securities, it is possible that, under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value. In order to enforce its rights in the event of a default under such securities, a Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. In addition, each Fund's intention to qualify as a "regulated investment company" under the Internal Revenue Code may limit the extent to which a Fund may exercise its rights by taking possession of such assets. Certain securities held by a Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by a 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. A Fund may at times invest without limit in so-called "zero- coupon" bonds and "payment-in-kind" bonds identified in the Prospectus, unless otherwise specified in the Prospectus. Zero- coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. The value of zero-coupon bonds and payment-in- kind bonds is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently in cash. Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, a Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its dividend requirements. Investments in Premium Securities Unless otherwise specified in the Prospectus or elsewhere in this Statement of Additional Information, if a Fund may invest in premium securities, it may do so without limit. Securities Loans Each Fund may make secured loans of its portfolio securities, on either a short-term or long-term basis, amounting to not more than 25% of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral consisting of cash or short-term debt obligations at least equal at all times to the value of the securities on loan, "marked-to-market" daily. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so to enable the Fund to exercise voting rights on any matters materially affecting the investment. The Fund may also call such loans in order to sell the securities. Forward Commitments Each Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if the Fund holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. In the case of to-be- announced ("TBA") purchase commitments, the unit price and the estimated principal amount are established when the Fund enters into a contract, with the actual principal amount being within a specified range of the estimate. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although a 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, a Fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. A Fund may realize short-term profits or losses upon the sale of forward commitments. A Fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at current market value of the underlying securities. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, that Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If a Fund delivers securities under the commitment, that Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. Repurchase Agreements Each Fund may enter into repurchase agreements up to the limit specified in the Prospectus. A repurchase agreement is a contract under which a Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Trust's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers approved by the Trustees and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by a Fund which are collateralized by the securities subject to repurchase. Putnam Management will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund may transfer uninvested cash balances into a joint account, along with cash of other Putnam funds and certain other accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. Options on Securities Writing covered options. Each Fund may write covered call options and covered put options on optionable securities held in its portfolio, when in the opinion of Putnam Management such transactions are consistent with a Fund's investment objectives and policies. Call options written by a 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. Each Fund may write only covered options, which means that, so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. Each Fund may write combinations of covered puts and calls on the same underlying security. A Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value. A Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund. If a 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. A Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such protection is provided during the life of the put option since the Fund, as holder of the option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs. Purchasing call options. A Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. Risk Factors in Options Transactions The successful use of a Fund's options strategies depends on the ability of Putnam Management to forecast correctly interest rate and market movements. For example, if the Fund were to write a call option based on Putnam Management's expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the Fund were to write a put option based on Putnam Management's expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price. When a 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 a 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, a 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 normal market 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, a 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 a Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, the Options Clearing Corporation may prohibit indefinitely the exercise of put options. The Fund, as holder of such a put option, could lose its entire investment if the prohibition remained in effect until the put option's expiration. Special risks are presented by internationally-traded options. Because of time differences between the United States and the various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States. Over-the-counter ("OTC") options purchased by a Fund and assets held to cover OTC options written by the Fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on the Fund's ability to invest in illiquid securities. Futures Contracts and Related Options Subject to applicable law, a Fund may invest without limit in the types of futures contracts and related options identified in the Prospectus unless otherwise specified in the Prospectus. A financial futures contract sale creates an obligation by the seller to deliver the type of financial instrument called for in the contract in a specified delivery month for a stated price. A financial futures contract purchase creates an obligation by the purchaser to take delivery of the type of financial instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken, respectively, at settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading by the Commodities Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market. Although futures contracts (other than index futures) by their terms call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. In general, 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the CFTC is treated as short-term gain or loss, and 60% is treated as long-term gain or loss. Unlike when a Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a contract, the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds to finance the transactions. Rather, the initial margin is similar to a performance bond or good faith deposit which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs. Subsequent payments, called "variation margin" or "maintenance margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." For example, when a 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. A Fund may elect to close some or all of its futures positions at any time prior to their delivery date in order to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs. Options on futures contracts. A Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. Options on futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option. The Fund may use options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, a Fund may purchase put options or write call options on futures contracts rather than sell futures contracts. Similarly, a Fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the Fund expects to purchase. Such options generally operate in the same manner as options purchased or written directly on the underlying investments. As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected. A Fund will be required to deposit initial margin and variation margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above in connection with the discussion of futures contracts. Risks of transactions in futures contracts and related options. Successful use of futures contracts by a Fund is subject to Putnam Management's ability to predict movements in interest rates and other factors affecting securities markets. For example, if a Fund has hedged against the possibility of decline in the values of its investments and the values of its investments increase instead, the Fund will lose part or all of the benefit of the increase through payments of daily variation margin. The Fund may have to sell investments at a time when it may be disadvantageous to do so in order to meet margin requirements. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to a 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 a Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution by exchanges of special procedures which may interfere with the timely execution of customer orders. To reduce or eliminate a hedge position held by a Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange for such contracts or options (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Index futures contracts. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. A Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective. A Fund may also purchase and sell options on index futures contracts. For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 assigns relative weightings to the common stocks included in the Index, and the value fluctuates with changes in the market values of those common stocks. In the case of the S&P 500, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 at a specified future date at a contract price of $150 and the S&P 500 is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 is at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2). There are several risks in connection with the use by a Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. Putnam Management will, however, attempt to reduce this risk by buying or selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the securities sought to be hedged. Successful use of index futures by a Fund for hedging purposes is also subject to Putnam Management's ability to predict movements in the market. It is possible that, where a Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurred, the Fund would lose money on the futures and also experience a decline in value in its portfolio securities. It is also possible that, if a Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased value of those securities it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the portion of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than the securities market does. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by Putnam Management may still not result in a successful hedging transaction over a short time period. Options on stock index futures. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. Options on Indices As an alternative to purchasing call and put options on index futures, a Fund may purchase call and put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. Index Warrants A 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 purchase price paid for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of a Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. Foreign Securities Under its current policy, which may be changed without shareholder approval, each Fund may invest up to the limit of its total assets specified in the Prospectus in securities principally traded in markets outside the United States. Eurodollar certificates of deposit are excluded for purposes of this limitation. Foreign investments can be affected favorably or unfavorably by changes in currency exchange rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets, and imposition of withholding taxes on dividend or interest payments. To hedge against possible variations in foreign exchange rates, a Fund may purchase and sell forward foreign currency contracts. These represent agreements to purchase or sell specified currencies at specified dates and prices. A Fund will only purchase and sell forward foreign currency contracts in amounts Putnam Management deems appropriate to hedge existing or anticipated portfolio positions and will not use such forward contracts for speculative purposes. Foreign securities, like other assets of the Trust, will be held by the Trust's custodian or by a subcustodian. Foreign Currency Transactions Unless otherwise specified in the Prospectus, a Fund may engage without limit in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates. In addition, a Fund may write covered call and put options on foreign currencies for the purpose of increasing its current return. Generally, a Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables, generally arising in connection with the purchase or sale of portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging, the Fund will attempt to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is earned, and the date on which such payments are made or received. A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts. A 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 a Fund. Cross hedging transactions by a 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. For transaction hedging purposes, a Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on a currency gives the Fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase the currency at the exercise price until the expiration of the option. When it engages in position hedging, a Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currencies and on foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis. The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of securities market movements between the dates the currency exchange transactions are entered into and the dates they mature. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. A Fund may seek to increase its current return or to offset some of the costs of hedging against fluctuations in current exchange rates by writing covered call options and covered put options on foreign currencies. The Fund receives a premium from writing a call or put option, which increases the Fund's current return if the option expires unexercised or is closed out at a net profit. The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. Currency forward and futures contracts. A forward foreign currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward foreign exchange contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit. At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts. Positions in the foreign currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although a Fund intends to purchase or sell foreign currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. Foreign currency options. In general, options on foreign currencies operate similarly to options on securities and are subject to many similar risks. Foreign currency options are traded primarily in the over-the-counter market, although options on foreign currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Community's European Monetary System. A Fund will only purchase or write foreign currency options when Putnam Management believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. Options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. The value of any currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency options) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign currency options, since exchange rates may not be free to fluctuate in response to other market forces. The value of a foreign currency option reflects an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of foreign currency options, investors may be disadvantaged by having to deal in an odd-lot market for the underlying foreign currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of foreign currencies. There is no systematic reporting of last sale information for foreign currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets. Settlement procedures. Settlement procedures relating to a Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments. For example, settlement of transactions involving foreign securities or foreign currency may occur within a foreign country, and the Fund may be required to accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may be required to pay any fees, taxes or charges associated with such delivery. Such investments may also involve the risk that an entity involved in the settlement may not meet its obligations. Foreign currency conversion. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the "spread") between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Restricted Securities The SEC Staff currently takes the view that any 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. It is the present intention of the Trustees that, if the Trustees decide to delegate such determinations to Putnam Management or another person, they would do so pursuant to written procedures, consistent with the Staff's position. Should the Staff modify its position in the future, the Trustees would consider what action would be appropriate in light of the Staff's position at that time. TAXES Taxation of the Trust. Each Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so qualify and to qualify for the special tax treatment accorded regulated investment companies and their shareholders, each Fund must, among other things: (a) Derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale of stock, securities and foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stocks or securities and certain options, futures contracts, forward contracts and foreign currencies) held for less than three months; (c) distribute with respect to each taxable year at least 90% of of its taxable net investment income (exclusive of net capital gains) and 90% of its net tax-exempt income; and (d) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses. If a Fund qualifies as a regulated investment company that is accorded special tax treatment, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends (including capital gain dividends). If a Fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. If a Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the undistributed amounts. A fund is exempt from this distribution requirement and excise tax if at all times during the calendar year each shareholder in a fund was "a segregated asset account of a life insurance company held in connection with variable contracts." Hedging transactions. If a Fund engages in transactions, including hedging transactions, in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of the Fund's distributions. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund. Under the 30% of gross income test described above (see "Taxation of the Trust"), a Fund will be restricted in selling assets held or considered under Code rules to have been held for less than three months, and in engaging in certain hedging transactions (including hedging transactions in options and futures) that in some circumstances could cause certain Fund assets to be treated as held for less than three months. Securities issued or purchased at a discount. The Fund's investment in securities that are treated for tax purposes as issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. Capital loss carryover. The amount and expiration date of any capital loss carryovers available to a Fund are shown in Note 1 (Federal income taxes) to the financial statements incorporated by reference into this Statement. With respect to investment income and gains received by a Fund from sources outside the United States, such income and gains may be subject to foreign taxes which are withheld at the source. The effective rate of foreign taxes to which a Fund will be subject depends on the specific countries in which its assets will be invested and the extent of the assets invested in each such country and therefore cannot be determined in advance. Investment by a Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." This discussion of federal income tax treatment of the Trust and its shareholders is based on the law as of the date of this Statement of Additional Information. INVESTMENT RESTRICTIONS OF THE TRUST As fundamental investment restrictions, which may not be changed as to any Fund without a vote of a majority of the outstanding voting securities of that Fund, the Trust may not and will not take any of the following actions with respect to that Fund: (1) (All Funds except PCM Voyager Fund) Borrow money in excess of 10% of the value (taken at the lower of cost or current value) of the Fund's total assets (not including the amount borrowed) at the time the borrowing is made, and then only from banks as a temporary measure to facilitate the meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. Such borrowings will be repaid before any additional investments are purchased. (PCM Voyager Fund) Borrow more than 50% of the value of its total assets (excluding borrowings and stock index futures contracts and call options on stock index futures contracts and stock indices) less liabilities other than borrowings and stock index futures contracts and call options on stock index futures contracts and stock indices. (2) Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of 15% of the Fund's total assets (taken at current value) and then only to secure borrowings permitted by restriction 1 above. (The deposit of underlying securities and other assets in escrow and other collateral arrangements in connection with the writing of put or call options and collateral arrangements with respect to margin for futures contracts and related options are not considered to be pledges or other encumbrances.) (3) Purchase securities on margin, except such short-term credits as may be necessary for the clearance of purchases and sales of securities, and except that it may make margin payments in connection with transactions in futures contracts and related options. (4) Make short sales of securities or maintain a short position for the account of the Fund unless at all times when a short position is open the Fund owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. (5) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under certain federal securities laws. (6) (All Funds except PCM Asia Pacific Growth Fund, PCM Diversified Income Fund, PCM New Opportunities Fund and PCM Utilities Growth and Income Fund) Purchase or sell real estate, although it may purchase securities which are secured by or represent interests in real estate. (PCM Diversified Income Fund) 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 representing interests in real estate. (PCM Asia Pacific Growth Fund, PCM New Opportunities Fund and PCM Utilities Growth and Income Fund) 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 representing interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. (7) Purchase or sell commodities or commodity contracts, except that it may purchase or sell futures contracts, options on futures, forward contracts and options on foreign currencies. (8) Make loans, except by purchase of debt obligations in which the Fund may invest consistent with its investment policies, by entering into repurchase agreements with respect to not more than 25% of its total assets (taken at current value), or through the lending of its portfolio securities with respect to not more than 25% of its assets. (9) Invest in securities of any issuer if, to the knowledge of the Trust, officers and Trustees of the Trust and officers and directors of Putnam Management who beneficially own more than 0.5% of the securities of that issuer together beneficially own more than 5%. (10) (All Funds except PCM Asia Pacific Growth Fund, PCM New Opportunities Fund and PCM Utilities Growth and Income Fund) Invest in securities of any issuer if, immediately after such investment, more than 5% of the total assets of the Fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to U.S. government securities, or, with respect to 25% of the Fund's total assets, securities of any foreign government, its agencies or instrumentalities, securities of supranational entities, and securities backed by the credit of a governmental entity. (11) Acquire more than 10% of the voting securities of any issuer. (12) Invest more than 25% of the value of its total assets in any one industry, except that PCM Money Market Fund may invest more than 25% of its assets in securities of banks and bank holding companies as a group when in the opinion of Putnam Management yield differentials make such investments desirable, and suitable investments are available, and except that PCM Utilities Growth and Income Fund may invest more than 25% of its assets in any of the public utilities industries. (U.S. Government Securities and securities of any foreign government, its agencies or instrumentalities, securities of supranational entities, and securities backed by the credit of a governmental entity are not considered to represent an industry). (13) (All Funds except PCM Asia Pacific Growth Fund, PCM Money Market Fund, PCM New Opportunities Fund and PCM Utilities Growth and Income Fund) Purchase securities the disposition of which is restricted under federal securities laws, if, as a result, such investments would exceed 15% of the value of the Fund's net assets, excluding restricted securities that have been determined by the Trustees of the Trust (or the person designated by them to make such determinations) to be readily marketable. (PCM Money Market Fund) Purchase securities the disposition of which is restricted under federal securities laws, if, as a result, such investments would exceed 10% of the value of the Fund's net assets. (14) (All Funds except PCM Utilities Growth and Income Fund) Buy or sell oil, gas or other mineral leases, rights or royalty contracts. (PCM Utilities Growth and Income Fund) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, although it may purchase securities of issuers which deal in, represent interests in, or are secured by interests in such leases, rights, or contracts, and it may acquire or dispose of such leases, rights, or contacts acquired through the exercise of its rights as a holder of debt obligations secured thereby. (15) Make investments for the purpose of gaining control of a company's management. (16) Issue any class of securities which is senior to the Fund's shares of beneficial interest. It is contrary to each of PCM Asia Pacific Growth Fund's, PCM New Opportunities Fund's and PCM Utilities Growth and Income Fund's present policy, which may be changed without shareholder approval, to purchase securities restricted as to resale (excluding securities determined by the Trustees or Putnam Management to be readily marketable), if as a result such investments would exceed 15% of the Fund's net assets. It is contrary to the present policy of each of the Funds, which may be changed without shareholder approval, to invest in securities of other registered open-end investment companies except as they may be acquired as part of a merger or consolidation or acquisition of assets. --------------------- In addition, each Fund has agreed that, so long as shares of beneficial interest in the Fund are registered for offer and sale in the State of California and such undertaking is required as a condition to such registration, except as noted below, any Fund investing in foreign securities will at all times invest in securities of issuers located in a minimum of five different foreign countries. However, this minimum is reduced to four different foreign countries when the Fund's foreign investments comprise less than 80% of its net assets, to three different foreign countries when the Fund's foreign investments comprise less than 60% of its net assets, to two different foreign countries when the Fund's foreign investments comprise less than 40% of its net assets, and is eliminated when the Fund's foreign investments comprise less than 20% of its net assets. In addition, no Fund may invest more than 20% of its net assets in securities of issuers located in any one foreign country, except that, to the extent consistent with its investment policies, a Fund may invest up to 35% of its net assets in securities of issuers located in any one of the following countries: Australia, Canada, France, Germany, Japan or the United Kingdom. Also, subject to such more restrictive investment restrictions and policies as a Fund may adopt from time to time, the borrowing limits for any Fund are (1) 10% of net asset value when borrowing for any general purpose, and (2) 25% of net asset value when borrowing as a temporary measure to facilitate redemptions. For this purpose, a Fund's net asset value shall be the market value of all investments owned less outstanding liabilities of the portfolio at the time that any new or additional borrowing is undertaken. All percentage limitations on investments will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of a Fund or the Trust means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a Fund or the Trust, as the case may be, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. MANAGEMENT OF THE TRUST Trustees *+George Putnam, Chairman and President. Chairman and Director of Putnam Investment Management, Inc. and Putnam Mutual Funds Corp. Director, The Boston Company, Inc., Boston Safe Deposit and Trust Company, Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc. +William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX, M/A-COM, Inc., and Sun Company, Inc. Jameson A. Baxter, Trustee. President, Baxter Associates, Inc. (consultants to management). Director of Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of the Board of Trustees, Mount Holyoke College. +Hans H. Estin, Trustee. Vice Chairman, North American Management Corp. (a registered investment adviser). Director of The Boston Company, Inc. and Boston Safe Deposit and Trust Company. Elizabeth T. Kennan, Trustee. President of Mount Holyoke College. Director, the Kentucky Home Life Insurance Companies, NYNEX Corporation, Northeast Utilities and Talbots and Trustee of the University of Notre Dame. *Lawrence J. Lasser, Trustee and Vice President. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director of Marsh & McLennan Companies, Inc. Vice President of the Putnam funds. John A. Hill, Trustee. Chairman and Managing Director, First Reserve Corporation (a registered investment adviser). Director, Lantana Corporation, Maverick Tube Corporation, Snyder Oil Corporation and various First Reserve Funds. +Robert E. Patterson, Trustee. Executive Vice President, Cabot Partners Limited Partnership (a registered investment adviser). * Donald S. Perkins, Trustee. Chairman of the Board and Director, Kmart Corporation. Director of various corporations, including American Telephone & Telegraph Company, AON Corp., Cummins Engine Company, Inc., Illinois Power Company, Inland Steel Industries, Inc. , LaSalle Street Fund, Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc. *#George Putnam, III, Trustee. President, New Generation Research, Inc. (publisher of bankruptcy information). Director, World Environment Center. Eli Shapiro, Trustee. Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of Nomura Dividend Fund, Inc. (a privately held registered investment company managed by Putnam Management) and former Trustee of the Putnam funds (1984-1990). *A.J.C. Smith, Trustee. Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc. W. Nicholas Thorndike, Trustee. Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate Inc., Courier Corporation and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. Officers Charles E. Porter, Executive Vice President. Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Executive Vice President of the Putnam funds. Patricia C. Flaherty, Senior Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Gordon H. Silver, Vice President. Senior Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director, Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. William N. Shiebler, Vice President. Director and Senior Managing Director of Putnam Investments, Inc. President, Chief Operating Officer and Director of Putnam Mutual Funds Corp. Vice President of the Putnam funds. John R. Verani, Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. Paul M. O'Neil, Vice President. Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. John D. Hughes, Vice President and Treasurer. Vice President and Treasurer of the Putnam funds. Beverly Marcus, Clerk and Assistant Treasurer. Clerk and Assistant Treasurer of the Putnam funds. Katherine Howard, Assistant Treasurer. Assistant Treasurer of the Putnam funds. Gary N. Coburn, Vice President. Senior Managing Director of Putnam Investment Management, Inc. Director, Putnam Investments, Inc. Vice President of certain of the Putnam funds. Peter Carman, Vice President. Senior Managing Director of Putnam Investment Management, Inc. Director, Putnam Investments, Inc. Vice President of certain of the Putnam funds. Brett C. Browchuk, Vice President. Managing Director of Putnam Investment Management, Inc. Anthony I. Kreisel, Vice President. Managing Director of Putnam Investment Management, Inc. Vice President, Putnam Fiduciary Trust Company. Vice President of certain of the Putnam funds. William J. Landes, Vice President. Managing Director of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Michael Martino , Vice President. Managing Director of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Daniel L. Miller , Vice President. Managing Director of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Mark Turner, Vice President. Managing Director of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Matthew A. Weatherbie, Vice President. Managing Director of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Robert R. Beck , Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Richard M. Frucci , Vice President. Senior Vice President of Putnam Investment Management, Inc. Roland W. Gillis , Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. David L. King , Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. D. William Kohli , Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Jennifer Evans Leichter, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Sheldon N. Simon, Vice President. Senior Vice President of Putnam Investment Management, Inc. John K. Storkerson, Vice President. Senior Vice President of The Putnam Advisory Company, Inc. Vice President of certain of the Putnam funds. Charles H. Swanberg, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Kenneth J. Taubes, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. David K. Thomas, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Rosemary H. Thomsen, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Gerald S. Zukowski, Vice President. Senior Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Lindsey M. Callen, Vice President. Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Neil J. Powers, Vice President. Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. Christopher A. Ray, Vice President. Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. David J. Santos , Vice President. Vice President of Putnam Investment Management , Inc . Vice President of certain of the Putnam funds . Mark J. Siegel , Vice President. Vice President of Putnam Investment Management, Inc. Vice President of certain of the Putnam funds. *Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the Trust, Putnam Management or Putnam Mutual Funds. +Members of the Executive Committee of the Trustees. The Executive Committee meets between regular meetings of the Trustees as may be required to review investment matters and other affairs of the Trust and may exercise all of the powers of the Trustees. #George Putnam, III is the son of George Putnam. Except as stated below, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. Prior to January, 1992, Ms. Baxter was Vice President and Principal, Regency Group, Inc. and Consultant, The First Boston Corporation. Prior to May, 1991, Dr. Pounds was Senior Advisor to the Rockefeller Family and Associates, Chairman of Rockefeller Trust Company and Director of Rockefeller Group, Inc. During the past five years Dr. Shapiro has provided economic and financial consulting services to various clients . Prior to November, 1990, Mr. Shiebler was President and Chief Operating Officer of the Intercapital Division of Dean Witter Reynolds, Inc., Vice President of the Dean Witter Funds and Director of Dean Witter Trust Company. Prior to August 1, 1993, Mr. Carman was Chief Investment Officer, Chairman of the U.S. Equity Investment Policy Committee and a Director of Sanford C. Bernstein & Company , Inc. Prior to January, 1994, Mr. Martino was employed by Bay Bank Advisors in the positions of Executive Vice President and Chief Investment Officer from 1992 to 1994, and Senior Vice President and Senior Portfolio Manager from 1990 to 1992. Prior to March, 1995, Mr. Gillis was Vice President at Keystone Custodian Funds, Inc. Prior to September, 1994, Mr. Kohli was Executive Vice President and Co-Director of Global Bond Management and, prior to October, 1993, Senior Portfolio Manager, at Franklin Advisors/Templeton Investment Counsel. Prior to June, 1991, Mr. Taubes was Senior Vice President of the Finance Division of U.S. Trust Company. Prior to January, 1993, Mr. Ray was Vice President and Portfolio Manager at Scudder, Stevens & Clark, Inc., and from February, 1986 to March, 1992, Mr. Ray was a Vice President of Putnam Management. The Trust pays each Trustee a fee for his or her services. Each Trustee also receives fees for serving as Trustee of other Putnam funds. The Trustees periodically review their fees to assure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Trustees meet monthly over a two-day period, except in August. The Compensation Committee, which consists solely of Trustees not affiliated with Putnam Management and is responsible for recommending Trustee compensation, estimates that Committee and Trustee meeting time together with the appropriate preparation requires the equivalent of at least three business days per Trustee meeting. The fees paid to each Trustee by the Trust and by all of the Putnam funds are shown below:
Retirement Year first benefits Total elected as a Aggregate accrued as compensation Trustee of the compensation part of Trust's from all Trustees Putnam Funds from the Trust* expenses Putnam funds** - ------------------------------------------------------------------------------------------ Jameson A. Baxter 1994 $14,034 $0 $135,850 Hans H. Estin 1972 13,817 0 141,850 John A. Hill 1985 13,823 0 143,850 Elizabeth T. Kennan 1992 13,600 0 141,850 Lawrence J. Lasser 1992 13,817 0 141,850 Robert E. Patterson 1984 14,034 0 144,850 Donald S. Perkins 1982 13,617 0 139,850 William F. Pounds 1971 13,825 0 143,850 George Putnam 1957 13,817 0 141,850 George Putnam, III 1984 13,817 0 141,850 Eli Shapiro*** 1995 N/A 0 N/A A.J.C. Smith 1986 13,422 0 137,850 W. Nicholas Thorndike 1992 14,034 0 144,850 - ------------------------------------------------------------------------------------------ * Reflects amounts paid by the Trust for its fiscal year ended December 31, 1994. Includes an annual retainer and an attendance fee for each meeting attended. ** Reflects total payments received from all Putnam funds in the most recent calendar year. As of December 31, 1994, there were 86 funds in the Putnam family. *** Elected Trustee in April 1995. For the calendar year ended December 31, 1994, Dr. Shapiro received $38,577 in retirement benefits from the Putnam funds in respect of his prior service as a Trustee from 1984 to 1990, which benefits terminated at the end of 1994.
The Trust's Trustees have approved Retirement Guidelines for Trustees of the Putnam funds. These guidelines provide generally that a Trustee who retires after reaching age 72 and who has at least 10 years of continuous service will be eligible to receive a retirement benefit from each Putnam fund for which he or she served as a Trustee. The amount and form of such benefit is subject to determination annually by the Trustees and, unless otherwise determined by the Trustees, will be an annual cash benefit payable for life equal to one half of the Trustee retainer fees paid by the Fund at the time of retirement. Several retired Trustees are currently receiving benefits pursuant to the Guidelines and it is anticipated that the current Trustees of the Trust will receive similar benefits upon their retirement. A Trustee who retired in the most recent calendar year and was eligible to receive benefits under these Guidelines would have received an annual benefit of $60,425, based upon the aggregate retainer fees paid by the Putnam funds for such year. The Trustees of the Trust reserve the right to amend or terminate such Guidelines and the related payments at any time, and may modify or waive the foregoing eligibility requirements when deemed appropriate. For additional information concerning the Trust's Trustees, see "Management of the Trust" in this Statement of Additional Information. The Agreement and Declaration of Trust of the Trust provides that the Trust 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 Trust, except if it is determined in the manner specified in such Agreement and Declaration of Trust that such Trustees and officers have not acted in good faith in the reasonable belief that their actions were in the best interests of the Trust or that such indemnification would relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers. Trustees and officers of the Trust who are also officers of Putnam Management or its affiliates or stockholders of Marsh & McLennan Companies, Inc. will benefit from the advisory fees, transfer agency fees and custodian fees and fees paid or allowed by the Trust. At March 31, 1995 the officers and Trustees as a group owned no shares of the Trust or any Fund. As of this date, less than 1% of the value of the accumulation units with respect to any Fund was attributable to the officers and Trustees of the Trust, as a group, owning variable annuity contracts or variable life insurance policies issued by the insurers listed in the following tables. All of the shares of each of the Funds are owned by the insurance company separate accounts listed below and by Putnam Management pursuant to its initial capital contribution to each Fund during the organization of the Trust and the subsequent organization of PCM Global Growth Fund, PCM Utilities Growth and Income Fund, PCM Diversified Income Fund, PCM New Opportunities Fund and PCM Asia Pacific Growth Fund.
Percentage of Issuer and name of shares owned of record Separate Account Fund as of March 31,1995 Hartford Life Insurance Company (a) Putnam Capital Manager Trust Separate Account PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund 59.00 PCM Global Asset Allocation Fund 64.37 PCM Global Growth Fund 58.28 PCM Growth and Income Fund 69.75 PCM High Yield Fund 60.93 PCM Money Market Fund 76.14 PCM New Opportunities Fund 57.77 PCM U.S. Government and High Quality Bond Fund 80.49 PCM Utilities Growth and Income Fund 64.01 PCM Voyager Fund 66.24 (b) Separate Account VL I PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund -- PCM Global Asset Allocation Fund .51 PCM Global Growth Fund .41 PCM Growth and Income Fund .16 PCM High Yield Fund .14 PCM Money Market Fund .13 PCM New Opportunities Fund -- PCM U.S. Government and High Quality Bond Fund .05 PCM Utilities Growth and Income Fund .23 PCM Voyager Fund .44 (b) Putnam Capital Manager Trust Variable Life Separate Account Five PCM Asia Pacific Growth Fund * PCM Diversified Income Fund * PCM Global Asset Allocation Fund * PCM Global Growth Fund * PCM Growth and Income Fund * PCM High Yield Fund * PCM Money Market Fund .02 PCM New Opportunities Fund * PCM U.S. Government and High Quality Bond Fund * PCM Utilities Growth and Income Fund * PCM Voyager Fund * Percentage of Issuer and name of shares owned of record Separate Account Fund as of March 31, 1995 (2) Hartford Life and Accident Insurance Company Putnam Capital Manager Trust Separate Account One PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund .16 PCM Global Asset Allocation Fund .29 PCM Global Growth Fund .28 PCM Growth and Income Fund .25 PCM High Yield Fund .19 PCM Money Market Fund .10 PCM New Opportunities Fund .13 PCM U.S. Government and High Quality Bond Fund .19 PCM Utilities Growth and Income Fund .25 PCM Voyager Fund .27 (3) ITT Hartford Life and Annuity Insurance Company (a) Putnam Capital Manager Trust Separate Account Two PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund 38.91 PCM Global Asset Allocation Fund 34.82 PCM Global Growth Fund 41.02 PCM Growth and Income Fund 29.60 PCM High Yield Fund 38.72 PCM Money Market Fund 23.59 PCM New Opportunities Fund 42.05 PCM U.S. Government and High Quality Bond Fund 19.26 PCM Utilities Growth and Income Fund 35.00 PCM Voyager Fund 32.19 (b) Putnam Capital Manager Trust Variable Life Separate Account Five PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund -- PCM Global Asset Allocation Fund -- PCM Global Growth Fund -- PCM Growth and Income Fund -- PCM High Yield Fund -- PCM Money Market Fund .02 PCM New Opportunities Fund -- PCM U.S. Government and High Quality Bond Fund -- PCM Utilities Growth and Income Fund -- PCM Voyager Fund -- Percentage of Issuer and name of shares owned of record Separate Account Fund as of March 31, 1995 (4) Northwestern National Life Insurance Company (a) Select Life PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund * PCM Growth and Income Fund * PCM New Opportunities Fund -- PCM Utilities Growth and Income Fund .05 PCM Voyager Fund .02 (b) Select Life II Variable Account PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund .07 PCM Growth and Income Fund .02 PCM New Opportunities Fund -- PCM Utilities Growth and Income Fund .04 PCM Voyager Fund .14 (c) Select Life III Variable Account PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund .06 PCM Growth and Income Fund .02 PCM New Opportunities Fund -- PCM Utilities Growth and Income Fund .05 PCM Voyager Fund .14 (d) NWNL Select Annuity II PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund .06 PCM Growth and Income Fund .02 PCM New Opportunities Fund -- PCM Utilities Growth and Income Fund .05 PCM Voyager Fund .14 (e) NWNL Select Annuity III PCM Asia Pacific Growth Fund -- PCM Diversified Income Fund 1.65 PCM Growth and Income Fund .14 PCM New Opportunities Fund -- PCM Utilities Growth and Income Fund .30 PCM Voyager Fund .43 (5) American Enterprise Percentage of shares Life Insurance Fund owned of record as Company of March 31, 1995 Putnam Capital Manager Trust American Enterprise PCM Diversified Income Fund .01 Variable Annuity Account PCM Growth and Income Fund * PCM High Yield Fund .01 PCM New Opportunities Fund .02 (6) Investors Life Insurance Percentage of shares Company of North owned of record as America of March 31, 1995 Putnam Capital PCM Growth and Income Fund -- Manager Trust CIGNA Separate PCM Money Market Fund -- Account I PCM U.S. Government and High Quality Bond Fund -- PCM Voyager Fund -- *Less than 1/10th of 1%. The address for the separate accounts listed in (1) through (3) above is: P.O. Box 2099, Hartford, CT 06140-2999. The address for the separate account listed in (4) above is: 20 Washington Avenue South, Minneapolis, MN 55401. The address for the separate account listed in (5) above is: 80 S. Eighth Street, Minneapolis, MN 55440 . The address for the separate account listed in (6) above is: Austin Centre, 701 Brazos Street, Austin, TX 78701.
Each of the insurance companies issuing the separate accounts listed above have agreed to vote their shares in proportion to and in the manner instructed by contract and policy owners. By virtue of the foregoing, each of these insurance companies, or any of them together, may be deemed to be a controlling person of each of the Funds. Putnam Management Putnam Management is one of America's oldest and largest money management firms. Putnam Management's staff of experienced portfolio managers and research analysts selects securities and constantly supervises the Fund's portfolio. By pooling an investor's money with that of other investors, a greater variety of securities can be purchased than would be the case if such investor's money were invested individually; the resulting diversification helps reduce investment risk. Putnam Management has been managing mutual funds since 1937. Today, the firm serves as the investment manager for the funds in the Putnam family, with over $72 billion in assets in over 4.3 million shareholder accounts at March 31, 1995 . An affiliate, The Putnam Advisory Company, Inc., manages domestic and foreign institutional accounts and mutual funds, including the accounts of many Fortune 500 companies. At March 31, 1995, Putnam Management and its affiliates managed over $101 billion in assets , including over $16 billion in tax-exempt securities and over $36 billion in retirement plan assets. The Management Contract Under a Management Contract between the Trust and Putnam Management dated October 2, 1987, as supplemented March 2, 1990, and as further supplemented February 27, 1992, July 9, 1993, April 5, 1994, June 2, 1994, and April 7 , 1995, subject to such policies as the Trustees may determine, Putnam Management, at its expense, furnishes continuously an investment program for the Funds and makes investment decisions on their behalf. Subject to the control of the Trustees, Putnam Management also manages, supervises and conducts the other affairs and business of the Trust, furnishes office space and equipment, provides bookkeeping and clerical services (including determination of the net asset values of the Funds, but excluding shareholder accounting services) and places all orders for the purchase and sale of the Trust's portfolio securities. Putnam Management may place the Trust's portfolio transactions with broker-dealers which furnish Putnam Management, without cost to it, certain research, statistical and quotation services of value to Putnam Management and its affiliates in advising the Trust and other clients. In so doing, Putnam Management may cause a Fund to pay greater brokerage commissions than it might otherwise pay. The compensation payable to Putnam Management under the Management Contract for its investment management services to the Funds is paid quarterly at the following annual rates of each Fund's average net assets, as determined at the close of each business day during the quarter: Fund Rate PCM Asia Pacific Growth Fund 0.80% of the first $500 million of average net assets, 0.70% of the next $500 million, 0.65% of the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion, and 0.53% of any excess thereafter PCM Diversified Income Fund, PCM Global 0.70% of the first Asset Allocation Fund, PCM High Yield $500 million of Fund, PCM New Opportunities Fund average net assets, and PCM Voyager Fund 0.60% of the next $500 million, 0.55% of the next $500 million, and 0.50% of any amount over $1.5 billion PCM Growth and Income Fund 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, and 0.45% of any amount over $1.5 billion PCM Global Growth Fund , 0.60% of average net PCM U.S. Government and assets High Quality Bond Fund and PCM Utilities Growth and Income Fund PCM Money Market Fund 0.45% of the first $500 million of average net assets, 0.35% of the next $500 million, 0.30% of the next $500 million, and 0.25% of any amount over $1.5 billion On January 6, 1995, the Trustees approved a proposal to change the fees payable to Putnam Management under the Management Contract for PCM U.S. Government and High Quality Bond Fund. The proposed change is subject to shareholder approval and will be submitted to shareholders at a meeting scheduled for July 13, 1995. If approved at that meeting, management fees for the Fund would thereafter be paid at the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any excess thereafter. The proposed change would result in an increase in fees paid by the Fund to Putnam Management based upon the net assets of the Fund at December 31, 1994. The Trust pays affiliates of Putnam Management additional amounts for investor servicing and custody services. In addition to the fee paid to Putnam Management, the Trust reimburses Putnam Management for the compensation and related expenses of certain officers of the Fund and certain persons who assist them in carrying out the responsibilities of those offices. During fiscal 1994, the Trust reimbursed Putnam Management $123,814 in this regard. The Trust may also pay or reimburse Putnam Management for all or a part of the compensation and related expenses of one or more other officers of the Trust and their assistants. Currently the Trust is reimbursing Putnam Management for the compensation and related expenses of the Senior Vice President and the Clerk of the Trust. The aggregate amount of all such payments and reimbursements is determined annually by the Trustees. Putnam Management pays all other salaries of officers of the Trust. The Trust pays all expenses not assumed by Putnam Management including, without limitation, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays any cost of typesetting for its prospectuses and any cost of printing and mailing prospectuses sent to its shareholders. Putnam Mutual Funds pays the cost of printing and distributing all other prospectuses. The Management Contract provides that Putnam Management shall not be subject to any liability to the Trust or to any shareholder of the Trust for any act or omission in the course of or connected with rendering services to the Trust 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 as to the Trust or as to any Fund without penalty by vote of the Trustees or the shareholders of one or more Funds affected, or by Putnam Management, on 30 days' written notice. It may be amended with respect to a Fund only by a vote of the shareholders of that 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 as to any Fund only so long as such continuance is approved at least annually by vote of either the Trustees or the shareholders of that Fund, and, in either case, by a majority of the Trustees who are not "interested persons" of Putnam Management or any Fund. In each of the foregoing cases, the vote of the shareholders of any Fund is the affirmative vote of a "majority of the outstanding voting securities" of such Fund as defined in the Investment Company Act of 1940. The continuation of the Contract as to all Funds was unanimously approved by the Trustees, including those Trustees who are not "interested persons," on January 6, 1995. Recent Management Fees. For its 1992, 1993 and 1994 fiscal years, pursuant to the Management Contract, the following Funds incurred fees to Putnam Management as follows: PCM Voyager Fund, $1,305,227, $2,770,454 and $5,347,055, respectively; PCM U.S. Government and High Quality Bond Fund, $1,930,120, $3,574,490 and $4,062,088, respectively; PCM High Yield Fund, $525,369, $1,208,791 and $2,098,314, respectively; PCM Growth and Income Fund, $2,766,719, $5,982,583 and $9,644,524, respectively; PCM Money Market Fund, $337,547, $370,812 and $960,766, respectively; PCM Global Asset Allocation Fund, $638,660, $1,167,001 and $2,501,952, respectively; and PCM Global Growth Fund, $367,414, $1,000,268 and $3,316,215, respectively. For its 1992 fiscal period, and 1993 and 1994 fiscal years, pursuant to the Management Contract, PCM Utilities Growth and Income Fund incurred fees of $124,486, $1,496,570 and $2,450,006, respectively, to Putnam Management, reflecting a reduction of $11,522 in fiscal 1992 due to an expense limitation then in effect. For its 1993 fiscal period and 1994 fiscal year, pursuant to the Management Contract, PCM Diversified Income Fund incurred fees of $56,026 and $1,219,268, respectively, to Putnam Management. For its 1994 fiscal period, pursuant to the Management Contract, PCM New Opportunities Fund incurred fees of $119,511 to Putnam Management , reflecting a reduction of $49,240 due to an expense limitation then in effect . Portfolio Transactions Investment decisions. Investment decisions for each of the Funds and for the other investment advisory clients of Putnam Management and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in Putnam Management's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. Brokerage and research services. Transactions on U.S. stock exchanges, commodities markets and futures markets and other agency transactions involve the payment by the Trust of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Trust usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid includes a disclosed, fixed commission or discount retained by the underwriter or dealer. It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive "brokerage and research services" (as defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers and from third parties with which these broker-dealers have arrangements which execute portfolio transactions for the clients of such advisers. Consistent with this practice, Putnam Management receives brokerage and research services and other similar services from many broker-dealers with which Putnam Management places the Funds' portfolio transactions and from third parties with which those broker-dealers have arrangements. These services include such matters as general economic and market reviews, industry and company reviews, evaluations of investments, recommendations as to the purchase and sale of investments, newspapers, magazines, pricing services, quotation services, news services and personal computers utilized by Putnam Management's managers and analysts. Where the services referred to above are not used exclusively by Putnam Management for research services, Putnam Management, based upon its own allocations of expected use, bears that portion of the cost of these services which directly relates to their non- research use. Some of these services are of value to Putnam Management and its affiliates in advising various of their clients (including the Trust), although not all of these services are necessarily useful and of value in managing the Trust. The management fee paid by the Trust is not reduced because Putnam Management and its affiliates receive these services even though Putnam Management might otherwise be required to purchase some of these services for cash. Putnam Management places all orders for the purchase and sale of portfolio investments for each Fund and buys and sells investments for each Fund through a substantial number of brokers and dealers. In so doing, Putnam Management uses its best efforts to obtain for each Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, Putnam Management, having in mind each Fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the broker-dealer in other transactions. As permitted by Section 28(e) of the Securities and Exchange Act of 1934, as amended ("the 1934 Act"), and by the Management Contract, Putnam Management may cause a Fund to pay a broker- dealer which provides "brokerage and research services" (as defined in the 1934 Act) to Putnam Management an amount of disclosed commission for effecting a securities transaction on stock exchanges and other agency transactions for the Fund on an agency basis in excess of the commission which another broker- dealer would have charged for effecting that transaction. Putnam Management's authority to cause a Fund to pay any such greater commissions is subject to such policies as the Trustees may adopt from time to time. Putnam Management does not currently intend to cause the Trust to make such payments. It is the position of the staff of the Securities and Exchange Commission that Section 28(e) does not apply to the payment of such greater commissions in "principal" transactions, and accordingly Putnam Management will use its best efforts to obtain the most favorable price and execution available with respect to such transactions, as described above. The Management Contract provides that commissions, fees, brokerage or similar payments received by Putnam Management or an affiliate in connection with the purchase and sale of portfolio investments of a Fund, less any direct expenses approved by the Trustees, shall be recaptured by the Fund through a reduction of the fee payable under the Management Contract. Putnam Management seeks to recapture for each Fund soliciting dealer fees on the tender of the Fund's portfolio securities in tender or exchange offers. Any such fees which may be recaptured are likely to be minor in amount. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, Putnam Management may consider sales of shares of the Trust (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers to execute portfolio transactions for the Funds. During fiscal 1994: (a) PCM Diversified Income Fund incurred brokerage commissions aggregating $3,004 on agency transactions and incurred underwriting commissions aggregating $68,716 on underwritten transactions. (b) PCM Global Asset Allocation Fund incurred brokerage commissions aggregating $818,846 on agency transactions and incurred underwriting commissions aggregating $57,482 on underwritten transactions. (c) PCM Global Growth Fund incurred brokerage commissions aggregating $1,992,940 on agency transactions and incurred underwriting commissions aggregating $312,738 on underwritten transactions. (d) PCM Growth and Income Fund incurred brokerage commissions aggregating $2,736,406 on agency transactions and incurred underwriting commissions aggregating $1,262,331 on underwritten transactions. (e) PCM High Yield Fund incurred brokerage commissions aggregating $4,461 on agency transactions and incurred underwriting commissions aggregating $235,582 on underwritten transactions. (f) PCM Money Market Fund did not incur any brokerage commissions on agency transactions or underwriting commissions. (g) PCM New Opportunities Fund incurred brokerage commissions aggregating $68,123 on agency transactions and incurred underwriting commissions aggregating $87,951 on underwritten transactions. (h) PCM U.S. Government and High Quality Bond Fund incurred brokerage commissions aggregating $17,014 on agency transactions and incurred underwriting commissions aggregating $23,750 on underwritten transactions. (i) PCM Utilities Growth and Income Fund incurred brokerage commissions aggregating $1,069,430 on agency transactions and incurred underwriting commissions aggregating $469,262 on underwritten transactions. (j) PCM Voyager Fund incurred brokerage commissions aggregating $1,295,494 on agency transactions and incurred underwriting commissions aggregating $952,522 on underwritten transactions. In fiscal 1994, Putnam Management, on behalf of the Trust, placed agency and underwritten transactions having an approximate aggregate dollar value of $2,412,829,181 (39.42% of the Trust's aggregate agency and underwritten transactions, on which approximately $4,522,282 commissions were paid) with brokers and dealers to recognize research, statistical and quotation services Putnam Management considered to be particularly useful to it and its affiliates. However, many of such transactions were placed with such brokers and dealers without regard to the furnishing of such services. Principal Underwriter Putnam Mutual Funds is the principal underwriter of shares of the Trust, which are continuously offered, and shares of the other continuously offered Putnam funds. Putnam Mutual Funds is not obligated to sell any specific amount of shares of the Trust and will purchase shares for resale only against orders for shares. Investor Servicing Agent and Custodian Putnam Investor Services, a division of Putnam Fiduciary Trust Company ("PFTC"), is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust as an expense of all its shareholders. The fee paid to PFTC is determined by the Trustees taking into account the number of shareholder accounts and transactions. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. Over 10,000 tests of 38 separate shareholders service components demonstrated that Putnam Investor Services exceeded the industry standard in all categories. The Trust paid $2,139,408 in fees to PFTC for its investor servicing and custody services during fiscal 1994. The Trust made no payments to PFTC for out-of-pocket expenses related to the investor servicing agent's function for the year. For a description of the custodial services provided by PFTC, see "Custodian" below. Putnam Fiduciary Trust Company is also investor servicing agent for the other Putnam funds and receives fees from each of those funds for its services. INVESTMENT PERFORMANCE OF THE TRUST Standard Performance Measures Yield and total return data for the Funds may from time to time be presented in the Prospectus, this Statement and advertisements. The data is calculated as follows. Total return for the life of the Funds is determined by calculating the actual dollar amount of investment return on a $1,000 investment in a Fund at the beginning of the period, and then calculating the annual compounded rate of return which would produce that amount. Total return for a period of one year is equal to the actual return of a Fund during that period. A Fund's yield is presented for a specified thirty-day period (the "base period"). Yield is based on the amount determined by (i) calculating the aggregate amount of dividends and interest earned by the Fund during the base period less expenses accrued for that period, and (ii) dividing that amount by the product of (A) the average daily number of shares of the Fund outstanding during the base period and entitled to receive dividends and (B) the per share net asset value of the Fund on the last day of the base period. The result is annualized on a compounding basis to determine the Fund's yield. For this calculation, interest earned on debt obligations held by the Fund is generally calculated using the yield to maturity (or first expected call date) of such obligations based on their market values (or, in the case of receivables-backed securities such as GNMAs, based on cost). Dividends on equity securities are accrued daily at their stated dividend rates. PCM Money Market Fund's yield is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share of the Fund over the seven-day period for which yield is presented (the "base period"), and multiplying the net change by 365/7 (or approximately 52 weeks). The Fund's effective yield represents a compounding of the Fund's yield by adding 1 to the number representing the percentage change in value of the investment during the base period, raising that sum to a power equal to 365/7, and subtracting 1 from the result. At times, Putnam Management may reduce its compensation or assume expenses of a Fund in order to reduce that Fund's expenses. The annual per share amount of any such reduction or assumption of expenses is shown in the table entitled "Financial highlights" in the Prospectus. Any such waiver or assumption of expenses would increase that Fund's yield and total return during the period of the waiver or assumption. All data is based on past performance and does not predict future results. PCM Diversified Income Fund's yield for the thirty-day period ended December 31, 1994 was 7.54%. The Fund's total return for the one-year period ended December 31, 1994 and for the life of the Fund through December 31, 1994 was -4.23% and -1.57%, respectively. PCM Global Asset Allocation Fund's yield for the thirty-day period ended December 31, 1994 was 3.04% The Fund's average annual total return for the one- and five-year periods ended December 31, 1994 and for the life of the Fund through December 31, 1994 was -2.50%, +7.74% and +8.86% , respectively. PCM Global Growth Fund's average annual total return for the one- year period ended December 31, 1994 and for the life of the Fund through December 31, 1994 was -0.96% and +7.47% , respectively. PCM Growth and Income Fund's yield for the thirty-day period ended December 31, 1994 was 3.77%. The Fund's average annual total return for the one- and five-year periods ended December 31, 1994 and for the life of the Fund through December 31, 1994 was +0.35%, +8.84% and +12.25% , respectively. PCM High Yield Fund's yield for the thirty-day period ended December 31, 1994 was 10.74%. The Fund's average annual total return for the one- and five-year periods ended December 31, 1994 and for the life of the Fund through December 31, 1994 was - 0.94%, +12.94% and +9.93% , respectively. PCM Money Market Fund's yield and effective yield for the seven- day period ended December 31, 1994 were 5.05% and 5.18%, respectively. PCM New Opportunities Fund's total return for the life of the Fund through December 31, 1994 was +8.20%. PCM U.S. Government and High Quality Bond Fund's yield for the thirty-day period ended December 31, 1994 was 7.41%. The Fund's average annual total return for the one- and five-year periods ended December 31, 1994 and the life of the Fund through December 31, 1994 was -3.23%, +7.85% and +8.08% , respectively. PCM Utilities Growth and Income Fund's yield for the thirty-day period ended December 31, 1994 was 4.92%. The Fund's total return for the one-year period ended December 31, 1994 and for the life of the Fund through December 31, 1994 was -7.02% and +4.67 , respectively. PCM Voyager Fund's average annual total return for the one- and five-year periods ended December 31, 1994 and the life of the Fund through December 31, 1994 was +1.04%, +13.63% and +14.70% , respectively. Investment operations of all Funds commenced February 1, 1988 (except PCM Global Growth Fund which commenced operations on May 1, 1990, PCM Utilities Growth and Income Fund which commenced operations on May 4, 1992, PCM Diversified Income Fund which commenced operations on September 15, 1993, PCM New Opportunities Fund which commenced operations on May 2, 1994, and PCM Asia Pacific Growth Fund which commenced operations after May 1 , 1995). The foregoing performance information reflects an expense limitation applicable to PCM High Yield Fund for the fiscal 1988 period, PCM Utilities Growth and Income Fund for the fiscal 1992 period and PCM New Opportunities Fund for the fiscal 1994 period . Performance information presented for the Funds should not be compared directly with performance information of other insurance products without taking into account insurance-related charges and expenses payable under their variable annuity contracts. These charges and expenses are not reflected in the Funds' performance and would reduce an investor's return under the annuity contract. DETERMINATION OF NET ASSET VALUE The Trust values the shares of each Fund daily on each day the New York Stock Exchange (the "Exchange") is open. Currently, the New York Stock Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The Trust determines net asset value as of the close of regular trading on the Exchange, currently 4:00 p.m. However, equity options held by a Fund are priced as of the close of trading at 4:10 p.m., and futures on U.S. government securities and index options held by a Fund are priced as of their close of trading at 4:15 p.m. PCM Money Market Fund. The valuation of the Fund's portfolio instruments at amortized cost is permitted in accordance with Securities and Exchange Commission Rule 2a-7 and certain procedures adopted by the Trustees. The amortized cost of an instrument is determined by valuing it at cost originally and thereafter amortizing any discount or premium from its face value at a constant rate until maturity, regardless of the effect of fluctuating interest rates on the market value of the instrument. Although the amortized cost method provides certainty in valuation, it may result at times in determinations of value that are higher or lower than the price the Fund would receive if the instruments were sold. Consequently, changes in the market value of portfolio instruments during periods of rising or falling interest rates will not normally be reflected either in the computation of net asset value of the Fund's portfolio or in the daily computation of net income. Under the procedures adopted by the Trustees, the Fund must maintain a dollar-weighted average portfolio maturity of 397 days or less, purchase only instruments having remaining maturities of 90 days or less and invest in securities determined by the Trustees to be of high quality with minimal credit risks. The Trustees have also established procedures designed to stabilize, to the extent reasonably possible, the Fund's price per share as computed for the purpose of distribution, redemption and repurchase at $1.00. These procedures include review of the Fund's portfolio holdings by the Trustees, at such intervals as they may deem appropriate, to determine whether the Fund's net asset value calculated by using readily available market quotations deviates from $1.00 per share, and, if so, whether such deviation may result in material dilution or is otherwise unfair to existing shareholders. In the event the Trustees determine that such a deviation exists, they will take such corrective action as they regard as necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redemption of shares in kind; or establishing a net asset value per share by using readily available market quotations. Since the net income of the Fund is declared as a dividend each time it is determined, the net asset value per share of the Fund remains at $1.00 per share immediately after such determination and dividend declaration. Any increase in the value of a shareholder's investment in the Fund representing the reinvestment of dividend income is reflected by an increase in the number of shares of the Fund in the shareholder's account on the first day of the next month (or, if that day is not a business day, on the next business day). It is expected that the Fund's net income will 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 the Fund determined at any time is a negative amount, the Fund will 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 (either at the regular monthly dividend payment date, or, in the case of a shareholder who is withdrawing all or substantially all of the shares in an account, at the time of withdrawal), such negative amount exceeds a shareholder's accrued dividends, the Fund will 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 excess. Each shareholder is deemed to have agreed to such contribution in these circumstances by his or her investment in the Fund. Other Funds. Each of the other Funds determines net asset value as follows: Securities for which market quotations are readily available are valued at prices which, in the opinion of the Trustees or Putnam Management, most nearly represent the market values of such securities. Currently, such prices are determined using the last reported sale price or, if no sales are reported (as in the case of some securities traded over-the-counter) the last reported bid price, except that certain U.S. government securities are stated at the mean between the reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value . All other securities and assets are valued at their fair value following procedures approved by the Trustees. Liabilities are deducted from the total, and the resulting amount is divided by the number of shares outstanding. Reliable market quotations are not considered to be readily available for long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are stated at fair value on the basis of valuations furnished by pricing services approved by the Trustees, which determine valuations for normal, institutional- size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. If any securities held by a Fund are restricted as to resale, Putnam Management determines their fair value following procedures approved by the Trustees. The Trustees periodically review such valuations and procedures. The fair value of such securities is generally determined as the amount which the Fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the Fund in connection with such disposition). In addition, specific factors are also generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class, the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer. Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. The values of these securities used in determining the net asset value of the Trust's shares are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the Funds' net asset values. If events materially affecting the values of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Trustees. SUSPENSION OF REDEMPTIONS The Trust may not suspend the right of redemption and/or postpone payment for more than seven days unless the New York Stock Exchange is closed for other than customary weekends or holidays, or except, if permitted by the rules of the Securities and Exchange Commission, during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Trust 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 the protection of investors. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any shareholder held personally liable for the obligations of that Fund. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. CUSTODIAN Putnam Fiduciary Trust Company ("PFTC") is the custodian of the Trust's assets. In carrying out its duties under its custodian contract, PFTC may employ one or more subcustodians whose responsibilities will include safeguarding and controlling the Trust's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Trust's investments. PFTC and any subcustodians employed by it have a lien on the securities of each Fund (to the extent permitted by the Trust's investment restrictions) to secure charges and any advances made by such subcustodians at the end of any day for the purpose of paying for securities purchased by the Trust for the benefit of that Fund. The Trust expects that such advances will exist only in unusual circumstances. Neither PFTC nor any subcustodian determines the investment policies of any Fund or decides which securities a Fund will buy or sell. PFTC pays the fees and other charges of any subcustodians employed by it. The Trust may from time to time pay custodial expenses in full or in part through the placement by Putnam Management of the Trust's portfolio transactions with the subcustodians or with a third- party broker having an agreement with the subcustodians. The Trust pays PFTC an annual fee based on each Fund's assets, securities transactions and securities holdings and reimburses PFTC for certain out-of-pocket expenses incurred by it or any subcustodian employed by it in performing custodial services. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Price Waterhouse LLP are the Trust's independent accountants, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The Report of Independent Accountants and financial statements included in the Trust's Annual Report for the fiscal year ended December 31, 1994, filed on February 24, 1995 , are incorporated by reference into this Statement of Additional Information. The financial highlights in the Prospectus and the financial statements incorporated by reference into the Prospectus and the Statement of Additional Information have been so included and incorporated in reliance upon the report of the independent accountants, given on their authority as experts in auditing and accounting. PUTNAM CAPITAL MANAGER TRUST FORM N-lA PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Index to Financial Statements and Supporting Schedules: (1) Financial Statements: Statements of assets and liabilities -- December 31, 1994 (a) . Statement of operations -- year ended Decemebr 31, 1994 (a) . Statement of changes in net assets -- years ended December 31, 1994 and December 31, 1993 (a). Financial highlights (a)(b) . Notes to financial statements (a) . (2) Supporting Schedules: Schedule I - Portfolios of investments owned - - December 31, 1994 (a). Schedules II through IX omitted because the required matter is not present. - ------------------------- (a) Incorporated by reference into Parts A and B. (b) Included in Part A. (b) Exhibits: 1. Agreement and Declaration of Trust dated September 24, 1987 -- Exhibit 1. 2. By-Laws, as amended through June 7, 1991 -- Exhibit 2. 3. Not applicable. 4a. Not applicable 4b. Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights -- Exhibit 3. 4c. Portions of By-Laws Relating to Shareholders' Rights -- Exhibit 4. 5. Form of Management Contract, dated October 2, 1987, as supplemented March 2, 1990, as further supplemented February 27, 1992, July 9, 1993, April 5, 1994, June 2, 1994, April 7, 1995 and July 13 , 1995 -- Exhibit 5 . 6a. Distributor's Contract dated May 6, 1994 -- Exhibit 6 . 6b. Copy of Specimen Dealer Sales Contract -- Exhibit 7. 6c. Copy of Specimen Financial Institution Sales Contract -- Exhibit 8. 7. Not applicable . 8. Copy of Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991, as amended July 13, 1992 -- Exhibit 9. 9. Investor Servicing Agreement, dated June 3, 1991 with Putnam Fiduciary Trust Company -- Exhibit 10 . 10. Opinion of Ropes & Gray, including consent -- Exhibit 11. 11. Not applicable. 12. Not applicable . 13. Investment Letters from The Putnam Management Company, Inc. to the Registrant -- Exhibit 12. 14. Putnam Basic Plan Document and related Plan Agreements -- Exhibit 13 . 15. Not applicable. 16. Schedules for performance computations -- Exhibit 14 . 17a. Financial Data Schedule -- PCM Diversified Income Fund -- Exhibit 15. 17b. Financial Data Schedule -- PCM Global Asset Allocation Fund -- Exhibit 16. 17c. Financial Data Schedule -- PCM Global Growth Fund -- Exhibit 17. 17d. Financial Data Schedule -- PCM Growth and Income Fund -- Exhibit 18. 17e. Financial Data Schedule -- PCM High Yield Fund -- Exhibit 19. 17f. Financial Data Schedule -- PCM Money Market Fund -- Exhibit 20. 17g. Financial Data Schedule -- PCM New Opportunities Fund -- Exhibit 21. 17h. Financial Data Schedule -- PCM U.S. Government and High Quality Bond Fund -- Exhibit 22. 17i. Financial Data Schedule -- PCM Utilities Growth and Income Fund -- Exhibit 23. 17j. Financial Data Schedule -- PCM Voyager Fund -- Exhibit 24. Item 25. Persons Controlled by or under Common Control with Registrant None. Item 26. Number of Holders of Securities As of February 28 , 1995 there were 12 shareholders of the Registrant's shares of beneficial interest. Item 27. Indemnification The information required by this item is incorporated by reference from the Registrant's Initial Registration Statement on Form N-1A. TABLE OF CONTENTS MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22 MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36 HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38 DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49 INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49 SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-55 SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-55 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-55 STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-56 COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-57 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-62 THE PUTNAM FUNDS STATEMENT OF ADDITIONAL INFORMATION PART II The following information applies generally to your Fund and to the other Putnam funds. In certain cases the discussion applies to some but not all of the funds or their shareholders, and you should refer to your Prospectus to determine whether the matter is applicable to you or your Fund. You will also be referred to Part I for certain information applicable to your particular Fund. Shareholders who purchase shares at net asset value through employer-sponsored defined contribution plans should also consult their employer for information about the extent to which the matters described below apply to them. MISCELLANEOUS INVESTMENT PRACTICES YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN THE PROSPECTUS. SHORT-TERM TRADING In seeking the Fund's objective, Putnam Management will buy or sell portfolio securities whenever Putnam Management believes it appropriate to do so. In deciding whether to sell a portfolio security, Putnam Management does not consider how long the Fund has owned the security. From time to time the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities -- excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when Putnam Management considers a change in the Fund's portfolio. LOWER-RATED SECURITIES The Fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds"), to the extent described in the Prospectus. The lower ratings of certain securities held by the Fund reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by the Fund more volatile and could limit the Fund's ability to sell its securities at prices approximating the values the Fund had placed on such securities. In the absence of a liquid trading market for securities held by it, the Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's Investors Service, Inc. or Standard & Poor's Corporation (or by any other nationally recognized securities rating organization) does not reflect an assessment of the volatility of the security's market value or the liquidity of an investment in the security. See the Prospectus or Part I of this Statement for a description of security ratings. Like those of other fixed-income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of the Fund's assets. Conversely, during periods of rising interest rates, the value of the Fund's assets will generally decline. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed-income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect cash income derived from such securities, but will affect the Fund's net asset value. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether its retention will assist in meeting the Fund's investment objective. At times, a substantial portion of the Fund's assets may be invested in securities as to which the Fund, by itself or together with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Although Putnam Management generally considers such securities to be liquid because of the availability of an institutional market for such securities, it is possible that, under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the Fund's net asset value. In order to enforce its rights in the event of a default under such securities, the Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. In the case of tax-exempt funds, any income derived from the Fund's ownership or operation of such assets would not be tax-exempt. In addition, the Fund's intention to qualify as a "regulated investment company" under the Internal Revenue Code may limit the extent to which the Fund may exercise its rights by taking possession of such assets. Certain securities held by the Fund may permit the issuer at its option to "call", or redeem, its securities. If an issuer were to redeem securities held by the Fund during a time of declining interest rates, the Fund may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed. If the Fund's Prospectus describes so-called "zero-coupon" bonds and "payment-in-kind" bonds as possible investments, the Fund may invest without limit in such bonds unless otherwise specified in the Prospectus. Zero-coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. Because zero-coupon bonds do not pay current interest, their value is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently. Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Fund could be required at times to liquidate investments in order to satisfy its dividend requirements. The amount of information about the financial condition of an issuer of tax exempt securities may not be as extensive as that which is made available by corporations whose securities are publicly traded. Therefore, to the extent the Fund invests in tax exempt securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's investment analysis than would be the case if the Fund were investing in securities in the higher rating categories. INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES Unless otherwise specified in the Prospectus or elsewhere in this Statement of Additional Information, if the Fund may invest in inverse floating obligations, premium securities, or interest- only or principal-only classes of mortgage-backed securities, it may do so without limit. The Fund, however, currently does not intend to invest more than 15% of its assets in inverse floating obligations under normal market conditions. SECURITIES LOANS The Fund may make secured loans of its portfolio securities, on either a short-term or long-term basis, amounting to not more than 25% of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral consisting of cash or short-term debt obligations at least equal at all times to the value of the securities on loan, "marked-to-market" daily. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so to enable the Fund to exercise voting rights on any matters materially affecting the investment. The Fund may also call such loans in order to sell the securities. FORWARD COMMITMENTS The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if the Fund holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. In the case of to-be- announced ("TBA") purchase commitments, the unit price and the estimated principal amount are established when the Fund enters into a contract, with the actual principal amount being within a specified range of the estimate. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. The Fund may realize short-term profits or losses upon the sale of forward commitments. The Fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at current market value of the underlying securities. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the Fund delivers securities under the commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements up to the limit specified in the Prospectus. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. Putnam Management will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund may transfer uninvested cash balances into a joint account, along with cash of other Putnam funds and certain other accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. OPTIONS ON SECURITIES WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on optionable securities held in its portfolio, when in the opinion of Putnam Management such transactions are consistent with the Fund's investment objectives and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price. The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security. The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value. The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction, in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund. If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin", or collateral, for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations. PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such protection is provided during the life of the put option since the Fund, as holder of the option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs. PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. RISK FACTORS IN OPTIONS TRANSACTIONS The successful use of the Fund's options strategies depends on the ability of Putnam Management to forecast correctly interest rate and market movements. For example, if the Fund were to write a call option based on Putnam Management's expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the Fund were to write a put option based on Putnam Management's expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price. When the Fund purchases an option, it runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction before the option's expiration. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying security, since the Fund will not realize a loss if the security's price does not change. The effective use of options also depends on the Fund's ability to terminate option positions at times when Putnam Management deems it desirable to do so. There is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price. If a secondary market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt its normal operations. A market may at times find it necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, the Fund as a holder of an option would be able to realize profits or limit losses only by exercising the option, and the Fund, as option writer, would remain obligated under the option until expiration or exercise. Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit indefinitely the exercise of put options. The Fund, as holder of such a put option, could lose its entire investment if the prohibition remained in effect until the put option's expiration. Special risks are presented by internationally-traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States. Over-the-counter ("OTC") options purchased by the Fund and assets held to cover OTC options written by the Fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on the Fund's ability to invest in illiquid securities. FUTURES CONTRACTS AND RELATED OPTIONS Subject to applicable law, and unless otherwise specified in the Prospectus, the Fund may invest without limit in the types of futures contracts and related options identified in the Prospectus. A financial futures contract sale creates an obligation by the seller to deliver the type of financial instrument called for in the contract in a specified delivery month for a stated price. A financial futures contract purchase creates an obligation by the purchaser to take delivery of the type of financial instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken, respectively, at settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market. Although futures contracts (other than index futures) by their terms call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, he realizes a loss. In general 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the CFTC is treated as short-term gain or loss, and 60% is treated as long-term gain or loss. Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a contract, the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. Government Securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds to finance the transactions. Rather, initial margin is similar to a performance bond or good faith deposit which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs. Subsequent payments, called "variation margin" or "maintenance margin", to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." For example, when the Fund has purchased a futures contract on a security and the price of the underlying security has risen, that position will have increased in value and the Fund will receive from the broker a variation margin payment based on that increase in value. Conversely, when the Fund has purchased a security futures contract and the price of the underlying security has declined, the position would be less valuable and the Fund would be required to make a variation margin payment to the broker. The Fund may elect to close some or all of its futures positions at any time prior to their expiration in order to reduce or eliminate a hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs. OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. Options on future contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option. The Fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, the Fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, the Fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the Fund expects to purchase. Such options generally operate in the same manner as options purchased or written directly on the underlying investments. As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected. The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above in connection with the discussion of futures contracts. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to Putnam Management's ability to predict movements in the direction of interest rates and other factors affecting securities markets. For example, if the Fund has hedged against the possibility of decline in the values of its investments and the values of its investments increase instead, the Fund will lose part or all of the benefit of the increase through payments of daily maintenance margin. The Fund may have to sell investments at a time when it may be disadvantageous to do so in order to meet margin requirements. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution by exchanges of special procedures which may interfere with the timely execution of customer orders. To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange for such contracts or options (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the Fund invests in tax-exempt securities issued by a governmental entity, the Fund may purchase and sell futures contracts and related options on U.S. Treasury securities when, in the opinion of Putnam Management, price movements in Treasury security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. U.S. Treasury security futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of U.S. Treasury security called for in the contract at a specified date and price. Options on U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a U.S. Treasury security futures contract at the specified option exercise price at any time during the period of the option. Successful use of U.S. Treasury security futures contracts by the Fund is subject to Putnam Management's ability to predict movements in the direction of interest rates and other factors affecting markets for debt securities. For example, if the Fund has sold U.S. Treasury security futures contracts in order to hedge against the possibility of an increase in interest rates which would adversely affect tax-exempt securities held in its portfolio, and the prices of the Fund's tax-exempt securities increase instead as a result of a decline in interest rates, the Fund will lose part or all of the benefit of the increased value of its securities which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily maintenance margin requirements at a time when it may be disadvantageous to do so. There is also a risk that price movements in U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities. For example, if the Fund has hedged against a decline in the values of tax-exempt securities held by it by selling Treasury security futures and the values of Treasury securities subsequently increase while the values of its tax-exempt securities decrease, the Fund would incur losses on both the Treasury security futures contracts written by it and the tax-exempt securities held in its portfolio. Putnam Management will seek to reduce this risk by monitoring movements in markets for U.S. Treasury security futures and options and for tax-exempt securities closely. The Fund will only purchase or sell Treasury security futures or related options when, in the opinion of Putnam Management, price movements in Treasury security futures and related options will correlate closely with price movements in tax-exempt securities in which the Fund invests. INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective. The Fund may also purchase and sell options on index futures contracts. For example, the Standard & Poor's Composite 500 Stock Price Index ("S&P 500") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 assigns relative weightings to the common stocks included in the Index, and the value fluctuates with changes in the market values of those common stocks. In the case of the S&P 500, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the Fund enters into a futures contract to buy 500 units of the S&P 500 at a specified future date at a contract price of $150 and the S&P 500 is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 is at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2). There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. Putnam Management will, however, attempt to reduce this risk by buying or selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the securities sought to be hedged. Successful use of index futures by the Fund for hedging purposes is also subject to Putnam Management's ability to predict movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurred, the Fund would lose money on the futures and also experience a decline in value in its portfolio securities. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased value of those securities it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the portion of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than the securities market does. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by Putnam Management may still not result in a successful hedging transaction over a short time period. OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. OPTIONS ON INDICES As an alternative to purchasing call and put options on index futures, the Fund may purchase and sell call and put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. INDEX WARRANTS The Fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying index, or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. The Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. FOREIGN SECURITIES Under its current policy, which may be changed without shareholder approval, the Fund may invest up to the limit of its total assets specified in its Prospectus in securities principally traded in markets outside the United States. Eurodollar certificates of deposit are excluded for purposes of this limitation. Foreign investments can be affected favorably or unfavorably by changes in currency exchange rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. To hedge against possible variations in foreign exchange rates, the Fund may purchase and sell forward foreign currency contracts. These represent agreements to purchase or sell specified currencies at specified dates and prices. The Fund will only purchase and sell forward foreign currency contracts in amounts Putnam Management deems appropriate to hedge existing or anticipated portfolio positions and will not use such forward contracts for speculative purposes. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a subcustodian. FOREIGN CURRENCY TRANSACTIONS Unless otherwise specified in the Prospectus, the Fund may engage without limit in currency exchange transactions, as well as foreign currency forward and futures contracts, to protect against uncertainty in the level of future currency exchange rates. In addition, the Fund may write covered call and put options on foreign currencies for the purpose of increasing its current return. Generally, the Fund may engage in both "transaction hedging" and "position hedging". When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables, generally arising in connection with the purchase or sale of portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund will attempt to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is earned, and the date on which such payments are made or received. The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts. For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until the expiration of the option. A put option on a currency gives the Fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase the currency at the exercise price until the expiration of the option. When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and on foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis. The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. The Fund may seek to increase its current return or to offset some of the costs of hedging against fluctuations in current exchange rates by writing covered call options and covered put options on foreign currencies. The Fund receives a premium from writing a call or put option, which increases the Fund's current return if the option expires unexercised or is closed out at a net profit. The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Fund's currency hedging transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are then denominated. Putnam Management will engage in such "cross hedging" activities when it believes that such transactions provide significant hedging opportunities for the Fund. Cross hedging transactions by the Fund involve the risk of imperfect correlation between changes in the values of the currencies to which such transactions relate and changes in the value of the currency or other asset or liability which is the subject of the hedge. CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward foreign exchange contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit. At the maturity of a forward or futures contract, the Fund either may accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts. Positions in the foreign currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell foreign currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. FOREIGN CURRENCY OPTIONS. In general, options on foreign currencies operate similarly to options on securities and are subject to many similar risks. Foreign currency options are traded primarily in the over-the-counter market, although options on foreign currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Community's European Monetary System. The Fund will only purchase or write foreign currency options when Putnam Management believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. Options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. The value of any currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency options) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign currency options, since exchange rates may not be free to fluctuate in response to other market forces. The value of a foreign currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying foreign currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of foreign currencies. There is no systematic reporting of last sale information for foreign currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets. SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments. For example, settlement of transactions involving foreign securities or foreign currency may occur within a foreign country, and the Fund may be required to accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may be required to pay any fees, taxes or charges associated with such delivery. Such investments may also involve the risk that an entity involved in the settlement may not meet its obligations. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the "spread") between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. RESTRICTED SECURITIES The SEC Staff currently takes the view that any designation by the Trustees of the authority to determine that a restricted security is readily marketable (as described in the investment restrictions of the Funds) must be pursuant to written procedures established by the Trustees. It is the present intention of the Funds' Trustees that, if the Trustees decide to delegate such determinations to Putnam Management or another person, they would do so pursuant to written procedures, consistent with the Staff's position. Should the Staff modify its position in the future, the Trustees would consider what action would be appropriate in light of the Staff's position at that time. TAXES TAXATION OF THE FUND. The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order so to qualify and to qualify for the special tax treatment accorded regulated investment companies and their shareholders, the Fund must, among other things: (a) Derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale of stock, securities and foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stock or securities and certain options, futures contracts, forward contracts and foreign currencies) held for less than three months; (c) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, its net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (d) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items, U.S. Government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses. If the Fund qualifies as a regulated investment company that is accorded special tax treatment, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends (including capital gain dividends). If the Fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the undistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax. EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the Fund properly designates as exempt- interest dividends are treated by shareholders as interest excludable from their gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures, and options contracts on financial futures, tax-exempt bond indices, and other assets. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of a Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users. A Fund which is qualified to pay exempt-interest dividends will inform investors within 60 days of the Fund's fiscal year-end of the percentage of its income distributions designated as tax-exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of the Fund's income that was tax-exempt during the period covered by the distribution. HEDGING TRANSACTIONS. If the Fund engages in transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund. Under the 30% of gross income test described above (see "Taxation of the Fund"), the Fund will be restricted in selling assets held or considered under Code rules to have been held for less than three months, and in engaging in certain hedging transactions (including hedging transactions in options and futures) that in some circumstances could cause certain Fund assets to be treated as held for less than three months. Certain of the Fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Fund's book income exceeds its taxable income, the distribution (if any) of such excess will be treated as a dividend to the extent of the Fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), and thereafter as a return of capital or as gain from the sale or exchange of a capital asset, as the case may be. If the Fund's book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment. RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to you in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of your tax basis in your shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces your tax basis in your shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by you of your shares. SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any capital loss carryovers available to the Fund are shown in Note 1 (Federal income taxes) to the financial statements included in Part I of this Statement or incorporated by reference into this Statement. FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. If more than 50% of the Fund's assets at year end consists of the debt and equity securities of foreign corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the Fund to foreign countries. In such a case, shareholders will include in gross income from foreign sources their pro rata shares of such taxes. A shareholder's ability to claim a foreign tax credit or deduction in respect of foreign taxes paid by the Fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not get a full credit or deduction for the amount of such taxes. Shareholders who do not itemize on their federal income tax returns may claim a credit (but no deduction) for such foreign taxes. Investment by the Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months, and otherwise as short-term capital gain or loss. However, if a shareholder sells shares at a loss within six months of purchase, any loss will be disallowed for Federal income tax purposes to the extent of any exempt- interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other Fund shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of an investment on their particular tax situation. BACKUP WITHHOLDING. The Fund generally is required to withhold and remit to the U.S. Treasury 31% of the taxable dividends and other distributions paid to any individual shareholder who fails to furnish the Fund with a correct taxpayer identification number (TIN), who has underreported dividends or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. Shareholders who fail to furnish their currect TIN are subject to a penalty of $50 for each such failure unless the failure is due to reasonable cause and not wilful neglect. An individual's taxpayer identification number is his or her social security number. MANAGEMENT OF THE FUND TRUSTEES *+GEORGE PUTNAM, Chairman and President. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, The Boston Company, Inc., Boston Safe Deposit and Trust Company, Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc. +WILLIAM F. POUNDS, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX, M/A-COM, Inc., and Sun Company, Inc. JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc. (consultants to management). Director of Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of the Board of Trustees, Mount Holyoke College. +HANS H. ESTIN, Trustee. Vice Chairman, North American Management Corp. (a registered investment adviser). Director of The Boston Company, Inc. and Boston Safe Deposit and Trust Company. ELIZABETH T. KENNAN, Trustee. President of Mount Holyoke College. Director, the Kentucky Home Life Insurance Companies, NYNEX Corporation, Northeast Utilities and Talbots and Trustee of the University of Notre Dame. *LAWRENCE J. LASSER, Trustee and Vice President. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director of Marsh & McLennan Companies, Inc. Vice President of the Putnam funds. JOHN A. HILL, Trustee. Chairman and Managing Director, First Reserve Corporation (a registered investment adviser). Director, Lantana Corporation, Maverick Tube Corporation, Snyder Oil Corporation and various First Reserve Funds. +ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot Partners Limited Partnership (a registered investment adviser). *DONALD S. PERKINS, Trustee. Chairman of the Board and Director, Kmart Corporation. Director of various corporations, including American Telephone & Telegraph Company, AON Corp., Cummins Engine Company, Inc., Illinois Power Company, Inland Steel Industries, Inc., LaSalle Street Fund, Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc. *#GEORGE PUTNAM, III, Trustee. President, New Generation Research, Inc. (publisher of bankruptcy information). Director, World Environment Center. ELI SHAPIRO, Trustee. Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of Nomura Dividend Fund, Inc. (a privately held registered investment company managed by Putnam Management) and former Trustee of the Putnam funds (1984-1990). *A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc. W. NICHOLAS THORNDIKE, Trustee. Director of various corporations and charitable organizations, including Courier Corporation and Providence Journal Co. Also, Trustee and President of Massachusetts General Hospital and Trustee of Bradley Real Estate Trust and Eastern Utilities Associates. OFFICERS CHARLES E. PORTER, Executive Vice President. Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Executive Vice President of the Putnam funds. PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. WILLIAM N. SHIEBLER, Vice President. Director and Senior Managing Director of Putnam Investments, Inc. President, Chief Operating Officer and Director of Putnam Mutual Funds. Vice President of the Putnam funds. GORDON H. SILVER, Vice President. Senior Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director, Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. JOHN R. VERANI, Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. PAUL M. O'NEIL, Vice President. Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. JOHN D. HUGHES, Vice President and Treasurer. Vice President and Treasurer of the Putnam funds. KATHERINE HOWARD, Assistant Vice President. Assistant Vice President of the Putnam funds. BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and Assistant Treasurer of the Putnam funds. *Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the Fund, Putnam Management or Putnam Mutual Funds. +Members of the Executive Committee of the Trustees. The Executive Committee meets between regular meetings of the Trustees as may be required to review investment matters and other affairs of the Fund and may exercise all of the powers of the Trustees. #George Putnam, III is the son of George Putnam. ----------------- Certain other officers of Putnam Management are officers of your Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS STATEMENT. The mailing address of each of the officers and Trustees is One Post Office Square, Boston, Massachusetts 02109. Except as stated below, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. Prior to January, 1992, Ms. Baxter was Vice President and Principal, Regency Group, Inc. and Consultant, The First Boston Corporation. Prior to May, 1991, Dr. Pounds was Senior Advisor to the Rockefeller Family and Associates, Chairman of Rockefeller Trust Company and Director of Rockefeller Group, Inc. During the past five years Dr. Shapiro has provided economic and financial consulting services to various clients. Prior to November, 1990, Mr. Shiebler was President and Chief Operating Officer of the Intercapital Division of Dean Witter Reynolds, Inc., Vice President of the Dean Witter Funds and Director of Dean Witter Trust Company. Each Trustee of the Fund receives an annual fee and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings and for special services rendered in that connection. All of the Trustees are Trustees of all the Putnam funds and each receives fees for his or her services. FOR DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. The Agreement and Declaration of Trust of the Fund provides that the Fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Fund, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Fund or that such indemnification would relieve any officer or Trustee of any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Fund, at its expense, provides liability insurance for the benefit of its Trustees and officers. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., a holding company which is in turn wholly owned by Marsh & McLennan Companies, Inc., a publicly owned holding company whose principal operating subsidiaries are international insurance and reinsurance brokers, investment managers and management consultants. Trustees and officers of the Fund who are also officers of Putnam Management or its affiliates or who are stockholders of Marsh & McLennan Companies, Inc. will benefit from the advisory fees, sales commissions, distribution fees (if any), custodian fees and transfer agency fees paid or allowed by the Fund. PUTNAM MANAGEMENT Putnam Management is one of America's oldest and largest money management firms. Putnam Management's staff of experienced portfolio managers and research analysts selects securities and constantly supervises the Fund's portfolio. By pooling an investor's money with that of other investors, a greater variety of securities can be purchased than would be the case individually; the resulting diversification helps reduce investment risk. Putnam Management has been managing mutual funds since 1937. Today, the firm serves as the investment manager for the funds in the Putnam Family, with over $67 billion in assets in over 4.1 million shareholder accounts at December 31, 1994. An affiliate, The Putnam Advisory Company, Inc., manages domestic and foreign institutional accounts and mutual funds, including the accounts of many Fortune 500 companies. Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to institutional clients under its banking and fiduciary powers. At December 31, 1994, Putnam Management and its affiliates managed over $95 billion in assets, including over $15 billion in tax exempt securities and over $36 billion in retirement plan assets. THE MANAGEMENT CONTRACT Under a Management Contract between the Fund and Putnam Management, subject to such policies as the Trustees may determine, Putnam Management, at its expense, furnishes continuously an investment program for the Fund and makes investment decisions on behalf of the Fund. Subject to the control of the Trustees, Putnam Management also manages, supervises and conducts the other affairs and business of the Fund, furnishes office space and equipment, provides bookkeeping and clerical services (including determination of the Fund's net asset value, but excluding shareholder accounting services) and places all orders for the purchase and sale of the Fund's portfolio securities. Putnam Management may place Fund portfolio transactions with broker-dealers which furnish Putnam Management, without cost to it, certain research, statistical and quotation services of value to Putnam Management and its affiliates in advising the Fund and other clients. In so doing, Putnam Management may cause the Fund to pay greater brokerage commissions than it might otherwise pay. FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management's compensation under the Management Contract may be reduced in any year if the Fund's expenses exceed the limits on investment company expenses imposed by any statute or regulatory authority of any jurisdiction in which shares of the Fund are qualified for offer or sale. The term "expenses" is defined in the statutes or regulations of such jurisdictions, and generally, excludes brokerage commissions, taxes, interest, extraordinary expenses and, if the Fund has a Distribution Plan, payments made under such Plan. The only such limitation as of the date of this Statement (applicable to any Fund registered for sale in California) was 2.5% of the first $30 million of average net assets, 2% of the next $70 million and 1.5% of any excess over $100 million. Under the Management Contract, Putnam Management may reduce its compensation to the extent that the Fund's expenses exceed such lower expense limitation as Putnam Management may, by notice to the Fund, declare to be effective. The expenses subject to this limitation are exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expenses and, if the Fund has a Distribution Plan, payments required under such Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS STATEMENT. In addition to the fee paid to Putnam Management, the Fund reimburses Putnam Management for the compensation and related expenses of certain officers of the Fund and their assistants who provide certain administrative services for the Fund and the other funds in the Putnam Family, each of which bears an allocated share of the foregoing costs. The aggregate amount of all such payments and reimbursements is determined annually by the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays all other salaries of officers of the Fund. The Fund pays all expenses not assumed by Putnam Management including, without limitation, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Fund pays the cost of typesetting for its Prospectuses and the cost of printing and mailing any Prospectuses sent to its shareholders. Putnam Mutual Funds pays the cost of printing and distributing all other Prospectuses. The Management Contract provides that Putnam Management shall not be subject to any liability to the Fund or to any shareholder of the Fund for any act or omission in the course of or connected with rendering services to the Fund in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties on the part of Putnam Management. The Management Contract may be terminated without penalty by vote of the Trustees or the shareholders of the Fund, or by Putnam Management, on 30 days' written notice. It may be amended only by a vote of the shareholders of the Fund. The Management Contract also terminates without payment of any penalty in the event of its assignment. The Management Contract provides that it will continue in effect only so long as such continuance is approved at least annually by vote of either the Trustees or the shareholders, and, in either case, by a majority of the Trustees who are not "interested persons" of Putnam Management or the Fund. In each of the foregoing cases, the vote of the shareholders is the affirmative vote of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940. PORTFOLIO TRANSACTIONS INVESTMENT DECISIONS. Investment decisions for the Fund and for the other investment advisory clients of Putnam Management and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in Putnam Management's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges, commodities markets and futures markets and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. It is anticipated that most purchases and sales of securities by funds investing primarily in tax-exempt securities and certain other fixed-income securities will be with the issuer or with underwriters of or dealers in those securities, acting as principal. Accordingly, those funds would not ordinarily pay significant brokerage commissions with respect to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE FUND. It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive brokerage and research services (as defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute portfolio transactions for the clients of such advisers and from third parties with which such broker-dealers have arrangements. Consistent with this practice, Putnam Management receives brokerage and research services and other similar services from many broker-dealers with which Putnam Management places the Fund's portfolio transactions and from third parties with which these broker-dealers have arrangements. These services include such matters as general economic and market reviews, industry and company reviews, evaluations of investments, recommendations as to the purchase and sale of investments, newspapers, magazines, pricing services, quotation services, news services and personal computers utilized by Putnam Management's managers and analysts. Where the services referred to above are not used exclusively by Putnam Management for research purposes, Putnam Management, based upon its own allocations of expected use, bears that portion of the cost of these services which directly relates to their non-research use. Some of these services are of value to Putnam Management and its affiliates in advising various of their clients (including the Fund), although not all of these services are necessarily useful and of value in managing the Fund. The management fee paid by the Fund is not reduced because Putnam Management and its affiliates receive these services even though Putnam Management might otherwise be required to purchase some of these services for cash. Putnam Management places all orders for the purchase and sale of portfolio investments for the Fund and buys and sells investments for the Fund through a substantial number of brokers and dealers. In so doing, Putnam Management uses its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, Putnam Management, having in mind the Fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the broker-dealer in other transactions. As permitted by Section 28(e) of the 1934 Act, and by the Management Contract, Putnam Management may cause the Fund to pay a broker-dealer which provides "brokerage and research services" (as defined in the 1934 Act) to Putnam Management an amount of disclosed commission for effecting securities transactions on stock exchanges and other transactions for the Fund on an agency basis in excess of the commission which another broker-dealer would have charged for effecting that transaction. Putnam Management's authority to cause the Fund to pay any such greater commissions is also subject to such policies as the Trustees may adopt from time to time. Putnam Management does not currently intend to cause the Fund to make such payments. It is the position of the staff of the Securities and Exchange Commission that Section 28(e) does not apply to the payment of such greater commissions in "principal" transactions. Accordingly Putnam Management will use its best effort to obtain the most favorable price and execution available with respect to such transactions, as described above. The Management Contract provides that commissions, fees, brokerage or similar payments received by Putnam Management or an affiliate in connection with the purchase and sale of portfolio investments of the Fund, less any direct expenses approved by the Trustees, shall be recaptured by the Fund through a reduction of the fee payable by the Fund under the Management Contract. Putnam Management seeks to recapture for the Fund soliciting dealer fees on the tender of the Fund's portfolio securities in tender or exchange offers. Any such fees which may be recaptured are likely to be minor in amount. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, Putnam Management may consider sales of shares of the Fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. PRINCIPAL UNDERWRITER Putnam Mutual Funds is the principal underwriter of shares of the Fund and the other continuously offered Putnam funds. Putnam Mutual Funds is not obligated to sell any specific amount of shares of the Fund and will purchase shares for resale only against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS. INVESTOR SERVICING AGENT AND CUSTODIAN Putnam Investor Services, a division of Putnam Fiduciary Trust Company ("PFTC"), is the Fund's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Fund as an expense of all its shareholders. The fee paid to Putnam Investor Services is determined by the Trustees taking into account the number of shareholder accounts and transactions. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. Over 10,000 tests of 38 separate shareholders service components demonstrated that Putnam Investor Services exceeded the industry standard in all categories. PFTC is the custodian of the Fund's assets. In carrying out its duties under its custodian contract, PFTC may employ one or more subcustodians whose responsibilities will include safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Fund's investments. PFTC and any subcustodians employed by it have a lien on the securities of the Fund (to the extent permitted by the Fund's investment restrictions) to secure charges and any advances made by such subcustodians at the end of any day for the purpose of paying for securities purchased by the Fund. The Fund expects that such advances will exist only in unusual circumstances. Neither PFTC nor any subcustodian determines the investment policies of the Fund or decides which securities the Fund will buy or sell. PFTC pays the fees and other charges of any subcustodians employed by it. The Fund may from time to time pay custodial expenses in full or in part through the placement by Putnam Management of the Fund's portfolio transactions with the subcustodians or with a third- party broker having an agreement with the subcustodians. The Fund pays PFTC an annual fee based on the Fund's assets, securities transactions and securities holdings and reimburses PFTC for certain out-of-pocket expenses incurred by it or any subcustodian employed by it in performing custodial services. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY PFTC. DETERMINATION OF NET ASSET VALUE The Fund determines the net asset value per share of each class of shares once each day the New York Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The Fund determines net asset value as of the close of regular trading on the Exchange, currently 4:00 p.m. However, equity options held by the Fund are priced as of the close of trading at 4:10 p.m., and futures contracts on U.S. Government securities and index options held by the Fund are priced as of their close of trading at 4:15 p.m. Securities for which market quotations are readily available are valued at prices which, in the opinion of the Trustees or Putnam Management, most nearly represent the market values of such securities. Currently, such prices are determined using the last reported sale price or, if no sales are reported (as in the case of some securities traded over-the-counter), the last reported bid price, except that certain U.S. Government securities are stated at the mean between the last reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. Liabilities are deducted from the total, and the resulting amount is divided by the number of shares of the class outstanding. Reliable market quotations are not considered to be readily available for long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are stated at fair value on the basis of valuations furnished by pricing services approved by the Trustees, which determine valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. If any securities held by the Fund are restricted as to resale, Putnam Management determines their fair value following procedures approved by the Trustees. The fair value of such securities is generally determined as the amount which the Fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the Fund in connection with such disposition). In addition, specific factors are also generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class, the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer. Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. The values of these securities used in determining the net asset value of the Fund's shares are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. Government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Trustees. Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the Investment Company Act of 1940. HOW TO BUY SHARES General The Prospectus contains a general description of how investors may buy shares of the Fund and states whether the Fund offers more than one class of shares. This Statement contains additional information which may be of interest to investors. Class A shares and Class M shares are sold with a sales charge payable at the time of purchase (except for Class A shares and Class M shares of money market funds). As used in this Statement and unless the context requires otherwise, the term "Class A shares" includes shares of Funds that offer only one class of shares. The Prospectus contains a table of applicable sales charges. For information about how to purchase Class A shares of a Putnam fund at net asset value through an employer's defined contribution plan, please consult your employer. Certain purchases of Class A shares and Class M shares may be exempt from a sales charge or, in the case of Class A shares, may be subject to a contingent deferred sales charge ("CDSC"). See "General-- Sales without sales charges or contingent deferred sales charges", "Additional Information About Class A and Class M Shares", and "Contingent Deferred Sales Charges--Class A shares". Class B shares and Class C shares are sold subject to a CDSC payable upon redemption within a specified period after purchase. The Prospectus contains a table of applicable CDSCs. Class Y shares, which are available only to employer-sponsored defined contribution plans initially investing at least $250 million in a combination of Putnam funds and other investments managed by Putnam Management or its affiliates, are not subject to sales charges or a CDSC. Certain purchase programs described below are not available to defined contribution plans. Consult your employer for information on how to purchase shares through your plan. The Fund is currently making a continuous offering of its shares. The Fund receives the entire net asset value of shares sold. The Fund will accept unconditional orders for shares to be executed at the public offering price based on the net asset value per share next determined after the order is placed. In the case of Class A shares and Class M shares, the public offering price is the net asset value plus the applicable sales charge, if any. No sales charge is included in the public offering price of other classes of shares. In the case of orders for purchase of shares placed through dealers, the public offering price will be based on the net asset value determined on the day the order is placed, but only if the dealer receives the order before the close of regular trading on the Exchange. If the dealer receives the order after the close of the Exchange, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam Investor Services, they will be invested at the public offering price based on the net asset value next determined after receipt. Payment for shares of the Fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Initial and subsequent purchases must satisfy the minimums stated in the Prospectus, except that (i) individual investments under certain employee benefit plans or Tax Qualified Retirement Plans may be lower, (ii) persons who are already shareholders may make additional purchases of $50 or more by sending funds directly to Putnam Investor Services (see "Your Investing Account" below), and (iii) for investors participating in systematic investment plans and military allotment plans, the initial and subsequent purchases must be $25 or more. Information about these plans is available from investment dealers or from Putnam Mutual Funds. As a convenience to investors, shares may be purchased through a systematic investment plan. Preauthorized monthly bank drafts for a fixed amount (at least $25) are used to purchase Fund shares at the applicable public offering price next determined after Putnam Mutual Funds receives the proceeds from the draft (normally the 20th of each month, or the next business day thereafter). Further information and application forms are available from investment dealers or from Putnam Mutual Funds. Except for Putnam funds that declare a distribution daily, distributions to be reinvested are reinvested without a sales charge in shares of the same class as of the ex-dividend date using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Dividends for Putnam money market funds are credited to a shareholder's account on the payment date. Distributions for Putnam Tax-Free Income Trust and Putnam Corporate Asset Trust are reinvested without a sales charge as of the last day of the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Distributions for all other Putnam funds that declare a distribution daily are reinvested without a sales charge as of the next day following the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. PAYMENT IN SECURITIES. In addition to cash, the Fund may accept securities as payment for Fund shares at the applicable net asset value. Generally, the Fund will only consider accepting securities to increase its holdings in a portfolio security, or if Putnam Management determines that the offered securities are a suitable investment for the Fund and in a sufficient amount for efficient management. While no minimum has been established, it is expected that the Fund would not accept securities with a value of less than $100,000 per issue as payment for shares. The Fund may reject in whole or in part any or all offers to pay for purchases of Fund shares with securities, may require partial payment in cash for such purchases to provide funds for applicable sales charges, and may discontinue accepting securities as payment for Fund shares at any time without notice. The Fund will value accepted securities in the manner described in the section "Determination of Net Asset Value" for valuing shares of the Fund. The Fund will only accept securities which are delivered in proper form. The Fund will not accept options or restricted securities as payment for shares. The acceptance of securities by certain Funds in exchange for Fund shares are subject to additional requirements. In the case of Putnam American Government Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds: Balanced Portfolio, Putnam Asset Allocation Funds: Conservative Portfolio, Putnam Asset Allocation Funds: Growth Portfolio, Putnam Capital Appreciation Fund, Putnam Corporate Asset Trust, Putnam Diversified Equity Trust, Putnam Equity Income Fund, Putnam Europe Growth Fund, The Putnam Fund for Growth & Income, Putnam Global Governmental Income Trust, Putnam Growth and Income Fund II, Putnam High Yield Advantage Fund, Putnam Intermediate Tax Exempt Fund, Putnam Investment-Grade Bond Fund, Putnam Municipal Income Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund and Putnam Tax Exempt Income Fund, transactions involving the issuance of Fund shares for securities or assets other than cash will be limited to a bona- fide re-organization or statutory merger and to other acquisitions of portfolio securities that meet all the following conditions: (a) such securities meet the investment objectives and policies of the Fund; (b) such securities are acquired for investment and not for resale; (c) such securities are liquid securities which are not restricted as to transfer either by law or liquidity of market; and (d) such securities have a value which is readily ascertainable, as evidenced by a listing on the American Stock Exchange, the New York Stock Exchange or NASDAQ. In addition, Putnam Global Governmental Income Trust may accept only investment grade bonds with prices regularly stated in publications generally accepted by investors, such as the London Financial Times and the Association of International Bond Dealers manual, or securities listed on the New York or American Stock Exchanges or with NASDAQ, and Putnam Diversified Income Trust may accept only bonds with prices regularly stated in publications generally accepted by investors. For federal income tax purposes, a purchase of Fund shares with securities will be treated as a sale or exchange of such securities on which the investor will realize a taxable gain or loss. The processing of a purchase of Fund shares with securities involves certain delays while the Fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Putnam Mutual Funds. Investors should not send securities to the Fund except when authorized to do so and in accordance with specific instructions received from Putnam Mutual Funds. SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES. The Fund may sell shares without a sales charge or CDSC to: (i) current and retired Trustees of the Fund; officers of the Fund; directors and current and retired U.S. full-time employees of Putnam Management, Putnam Mutual Funds, their parent corporations and certain corporate affiliates; family members of and employee benefit plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest; (ii) employee benefit plans, for the repurchase of shares in connection with repayment of plan loans made to plan participants (if the sum loaned was obtained by redeeming shares of a Putnam fund sold with a sales charge) (not offered by tax-exempt funds); (iii) clients of administrators of tax-qualified employee benefit plans which have entered into agreements with Putnam Mutual Funds (not offered by tax-exempt funds); (iv) registered representatives and other employees of broker-dealers having sales agreements with Putnam Mutual Funds; employees of financial institutions having sales agreements with Putnam Mutual Funds or otherwise having an arrangement with any such broker-dealer or financial institution with respect to sales of Fund shares; and their spouses and children under age 21 (Putnam Mutual Funds is regarded as the dealer of record for all such accounts); (v) investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by such closed-end fund; (vi) a trust department of any financial institution purchasing shares of the Fund in its capacity as trustee of any trust, if the value of the shares of the Fund and other Putnam funds purchased or held by all such trusts exceeds $1 million in the aggregate; and (vii) "wrap accounts" maintained for clients of broker- dealers, financial institutions or financial planners who have entered into agreements with Putnam Mutual Funds with respect to such accounts. In addition, the Fund may issue its shares at net asset value in connection with the acquisition of substantially all of the securities owned by other investment companies or personal holding companies. PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense, pay concessions in addition to the payments disclosed in the Prospectus to dealers which satisfy certain criteria established from time to time by Putnam Mutual Funds relating to increasing net sales of shares of the Putnam funds over prior periods, and certain other factors. ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES The underwriter's commission is the sales charge shown in the Prospectus less any applicable dealer discount. Putnam Mutual Funds will give dealers ten days' notice of any changes in the dealer discount. Putnam Mutual Funds retains the entire sales charge on any retail sales made by it. Putnam Mutual Funds offers several plans by which an investor may obtain reduced sales charges on purchases of Class A shares and Class M shares. The variations in sales charges reflect the varying efforts required to sell shares to separate categories of purchasers. These plans may be altered or discontinued at any time. COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the sales charge reductions or eliminations shown in the Prospectus by combining into a single transaction the purchase of Class A shares or Class M shares with other purchases of any class of shares: (i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940 (which includes corporations which are corporate affiliates of each other); (ii) an individual, his or her spouse and their children under twenty-one, purchasing for his, her or their own account; (iii) a trustee or other fiduciary purchasing for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Internal Revenue Code); (iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Internal Revenue Code (not including 403(b) plans); and (v) employee benefit plans of a single employer or of affiliated employers, other than 403(b) plans. A combined purchase currently may also include shares of any class of other continuously offered Putnam funds (other than money market funds) purchased at the same time through a single investment dealer, if the dealer places the order for such shares directly with Putnam Mutual Funds. CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchaser of Class A shares or Class M shares may qualify for a cumulative quantity discount by combining a current purchase (or combined purchases as described above) with certain other shares of any class of Putnam funds already owned. The applicable sales charge is based on the total of: (i) the investor's current purchase; and (ii) the maximum public offering price (at the close of business on the previous day) of: (a) all shares held by the investor in all of the Putnam funds (except money market funds); and (b) any shares of money market funds acquired by exchange from other Putnam funds; and (iii) the maximum public offering price of all shares described in paragraph (ii) owned by another shareholder eligible to participate with the investor in a "combined purchase" (see above). To qualify for the combined purchase privilege or to obtain the cumulative quantity discount on a purchase through an investment dealer, when each purchase is made the investor or dealer must provide Putnam Mutual Funds with sufficient information to verify that the purchase qualifies for the privilege or discount. The shareholder must furnish this information to Putnam Investor Services when making direct cash investments. STATEMENT OF INTENTION. Investors may also obtain the reduced sales charges for Class A shares or Class M shares shown in the Prospectus for investments of a particular amount by means of a written Statement of Intention, which expresses the investor's intention to invest that amount (including certain "credits," as described below) within a period of 13 months in shares of any class of the Fund or any other continuously offered Putnam fund (excluding money market funds). Each purchase of Class A shares or Class M shares under a Statement of Intention will be made at the public offering price applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Statement. A Statement of Intention may include purchases of shares made not more than 90 days prior to the date that an investor signs a Statement; however, the 13-month period during which the Statement is in effect will begin on the date of the earliest purchase to be included. An investor may receive a credit toward the amount indicated in the Statement equal to the maximum public offering price as of the close of business on the previous day of all shares he or she owns on the date of the Statement which are eligible for purchase under a Statement (plus any shares of money market funds acquired by exchange of such eligible shares). Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the "combined purchase privilege" (see above) may purchase shares under a single Statement of Intention. The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount, and must be invested immediately. Class A shares or Class M shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased. When the full amount indicated has been purchased, the escrow will be released. If an investor desires to redeem escrowed shares before the full amount has been purchased, the shares will be released from escrow only if the investor pays the sales charge that, without regard to the Statement of Intention, would apply to the total investment made to date. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period, upon recovery from the investor's dealer of its portion of the sales charge adjustment. Once received from the dealer, which may take a period of time or may never occur, the sales charge adjustment will be used to purchase additional shares at the then current offering price applicable to the actual amount of the aggregate purchases. These additional shares will not be considered as part of the total investment for the purpose of determining the applicable sales charge pursuant to the Statement of Intention. No sales charge adjustment will be made unless and until the investor's dealer returns any excess commissions previously received. To the extent that an investor purchases less than the dollar amount indicated on the Statement of Intention within the 13- month period, the sales charge will be adjusted upward for the entire amount purchased at the end of the 13-month period. This adjustment will be made by redeeming shares from the account to cover the additional sales charge, the proceeds of which will be paid to the investor's dealer and Putnam Mutual Funds in accordance with the Prospectus. If the account exceeds an amount that would otherwise qualify for a reduced sales charge, that reduced sales charge will be applied. Statements of Intention are not available for certain employee benefit plans. Statement of Intention forms may be obtained from Putnam Mutual Funds or from investment dealers. Interested investors should read the Statement of Intention carefully. REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES. Members of qualified groups may purchase Class A shares of the Fund at a group sales charge rate of 4.5% of the public offering price (4.71% of the net amount invested). The dealer discount on such sales is 3.75% of the offering price. To receive the group rate, group members must purchase Class A shares through a single investment dealer designated by the group. The designated dealer must transmit each member's initial purchase to Putnam Mutual Funds, together with payment and completed application forms. After the initial purchase, a member may send funds for the purchase of Class A shares directly to Putnam Investor Services. Purchases of Class A shares are made at the public offering price based on the net asset value next determined after Putnam Mutual Funds or Putnam Investor Services receives payment for the shares. The minimum investment requirements described above apply to purchases by any group member. Only Class A shares are included in calculating the purchased amount. Qualified groups include the employees of a corporation or a sole proprietorship, members and employees of a partnership or association, or other organized groups of persons (the members of which may include other qualified groups) provided that: (i) the group has at least 25 members of which at least 10 members participate in the initial purchase; (ii) the group has been in existence for at least six months; (iii) the group has some purpose in addition to the purchase of investment company shares at a reduced sales charge; (iv) the group's sole organizational nexus or connection is not that the members are credit card holders of a company, policy holders of an insurance company, customers of a bank or broker-dealer, clients of an investment adviser or security holders of a company; (v) the group agrees to provide its designated investment dealer access to the group's membership by means of written communication or direct presentation to the membership at a meeting on not less frequently than an annual basis; (vi) the group or its investment dealer will provide annual certification in form satisfactory to Putnam Investor Services that the group then has at least 25 members and that at least ten members participated in group purchases during the immediately preceding 12 calendar months; and (vii) the group or its investment dealer will provide periodic certification in form satisfactory to Putnam Investor Services as to the eligibility of the purchasing members of the group. Members of a qualified group include: (i) any group which meets the requirements stated above and which is a constituent member of a qualified group; (ii) any individual purchasing for his or her own account who is carried on the records of the group or on the records of any constituent member of the group as being a good standing employee, partner, member or person of like status of the group or constituent member; or (iii) any fiduciary purchasing shares for the account of a member of a qualified group or a member's beneficiary. For example, a qualified group could consist of a trade association which would have as its members individuals, sole proprietors, partnerships and corporations. The members of the group would then consist of the individuals, the sole proprietors and their employees, the members of the partnerships and their employees, and the corporations and their employees, as well as the trustees of employee benefit trusts acquiring Class A shares for the benefit of any of the foregoing. A member of a qualified group may, depending upon the value of Class A shares of the Fund owned or proposed to be purchased by the member, be entitled to purchase Class A shares of the Fund at non-group sales charge rates shown in the Prospectus which may be lower than the group sales charge rate, if the member qualifies as a person entitled to reduced non-group sales charges. Such a group member will be entitled to purchase at the lower rate if, at the time of purchase, the member or his or her investment dealer furnishes sufficient information for Putnam Mutual Funds or Putnam Investor Services to verify that the purchase qualifies for the lower rate. Interested groups should contact their investment dealer or Putnam Mutual Funds. The Fund reserves the right to revise the terms of or to suspend or discontinue group sales at any time. EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term "employee benefit plan" means any plan or arrangement, whether or not tax-qualified, which provides for the purchase of Class A shares. The term "affiliated employer" means employers who are affiliated with each other within the meaning of Section 2(a)(3)(C) of the Investment Company Act of 1940. The term "individual account plan" means any employee benefit plan whereby (i) Class A shares are purchased through payroll deductions or otherwise by a fiduciary or other person for the account of participants who are employees (or their spouses) of an employer, or of affiliated employers, and (ii) a separate Investing Account is maintained in the name of such fiduciary or other person for the account of each participant in the plan. The table of sales charges in the Prospectus applies to sales to employee benefit plans, except that the Fund may sell Class A shares at net asset value to employee benefit plans, including individual account plans, of employers or of affiliated employers which have at least 750 employees to whom such plan is made available, in connection with a payroll deduction system of plan funding (or other system acceptable to Putnam Investor Services) by which contributions or account information for plan participation are transmitted to Putnam Investor Services by methods acceptable to Putnam Investor Services. The Fund may also sell Class A shares at net asset value to employee benefit plans of employers or of affiliated employers which have at least 750 employees, if such plans are qualified under Section 401 of the Internal Revenue Code. Additional information about employee benefit plans and individual account plans is available from investment dealers or from Putnam Mutual Funds. CONTINGENT DEFERRED SALES CHARGES CLASS A SHARES. Class A shares purchased at net asset value by shareholders investing $1 million or more, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, are subject to a CDSC of 1.00% or 0.50%, respectively, if redeemed within the first or second year after purchase. The Class A CDSC is imposed on the lower of the cost and the current net asset value of the shares redeemed. The CDSC does not apply to shares sold without a sales charge through participant-directed qualified retirement plans and shares purchased by certain investors investing $1 million or more that have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission described in the next paragraph. Except as stated below, Putnam Mutual Funds pays investment dealers of record commissions on sales of Class A shares of $1 million or more based on an investor's cumulative purchases of such shares, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, during the one-year period beginning with the date of the initial purchase at net asset value and each subsequent one- year period beginning with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter. On sales at net asset value to a participant-directed qualified retirement plan initially investing less than $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates (including a plan sponsored by an employer with more than 750 employees), Putnam Mutual Funds pays commissions on cumulative purchases during the life of the account at the rate of 1.00% of the amount under $3 million and 0.50% thereafter. On sales at net asset value to all other participant-directed qualified retirement plans, Putnam Mutual Funds pays commissions on the initial investment and on subsequent net quarterly sales (gross sales minus gross redemptions during the quarter) at the rate of 0.15%. Money market fund shares are excluded from all commission calculations, except for determining the amount initially invested by a participant-directed qualified retirement plan. Commissions on sales at net asset value to such plans are subject to Putnam Mutual Funds' right to reclaim such commissions if the shares are redeemed within two years. Different CDSC and commission rates may apply to shares purchased before April 1, 1994. CLASS B AND CLASS C SHARES. Investors who set up an Automatic Cash Withdrawal Plan (ACWP) for a Class B and Class C share account (see "Plans Available To Shareholders -- Automatic Cash Withdrawal Plan") may withdraw through the ACWP up to 12% of the net asset value of the account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed next until the 12% limit is reached. The 12% figure is calculated on a pro rata basis at the time of the first payment made pursuant to a ACWP and recalculated thereafter on a pro rata basis at the time of each ACWP payment. Therefore, shareholders who have chosen a ACWP based on a percentage of the net asset value of their account of up to 12% will be able to receive ACWP payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from a fund that pays income distributions monthly) for their periodic ACWP payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly payments). However, if at the time of the next payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This ACWP privilege may be revised or terminated at any time. ALL SHARES. No CDSC is imposed on shares of any class subject to a CDSC ("CDSC Shares") to the extent that the CDSC Shares redeemed (i) are no longer subject to the holding period therefor, (ii) resulted from reinvestment of distributions on CDSC Shares, or (iii) were exchanged for shares of another Putnam fund, provided that the shares acquired in such exchange or subsequent exchanges (including shares of a Putnam money market fund) will continue to remain subject to the CDSC, if applicable, until the applicable holding period expires. In determining whether the CDSC applies to each redemption of CDSC Shares, CDSC Shares not subject to a CDSC are redeemed first. The Fund will waive any CDSC on redemptions, in the case of individual or Uniform Transfers to Minors Act accounts, in case of death or disability or for the purpose of paying benefits pursuant to tax-qualified retirement plans. Such payments currently include, without limitation, (1) distributions from an IRA due to death or disability, (2) a return of excess contributions to an IRA or 401(k) plan, and (3) distributions from retirement plans qualified under section 401(a) or section 403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986, as amended (the "Code"), due to death, disability, retirement or separation from service. The Fund will also waive any CDSC in the case of the death of one joint tenant. These waivers may be changed at any time. Additional waivers may apply to IRA accounts opened prior to February 1, 1994. DISTRIBUTION PLAN If the Fund or a class of shares of the Fund has adopted a Distribution Plan, the Prospectus describes the principal features of the Plan. This Statement contains additional information which may be of interest to investors. Continuance of a Plan is subject to annual approval by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect interest in the Plan or related arrangements (the "Qualified Trustees"), cast in person at a meeting called for that purpose. All material amendments to a Plan must be likewise approved by the Trustees and the Qualified Trustees. No Plan may be amended in order to increase materially the costs which the Fund may bear for distribution pursuant to such Plan without also being approved by a majority of the outstanding voting securities of the Fund or the relevant class of the Fund, as the case may be. A Plan terminates automatically in the event of its assignment and may be terminated without penalty, at any time, by a vote of a majority of the Qualified Trustees or by a vote of a majority of the outstanding voting securities of the Fund or the relevant class of the Fund, as the case may be. If Plan payments are made to reimburse Putnam Mutual Funds for payments to dealers based on the average net asset value of Fund shares attributable to shareholders for whom the dealers are designated as the dealer of record, "average net asset value" attributable to a shareholder account means the product of (i) the Fund's average daily share balance of the account and (ii) the Fund's average daily net asset value per share (or the average daily net asset value per share of the class, if applicable). For administrative reasons, Putnam Mutual Funds may enter into agreements with certain dealers providing for the calculation of "average net asset value" on the basis of assets of the accounts of the dealer's customers on an established day in each quarter. Financial institutions receiving payments from Putnam Mutual Funds as described above may be required to comply with various state and federal regulatory requirements, including among others those regulating the activities of securities brokers or dealers. INVESTOR SERVICES SHAREHOLDER INFORMATION Each time shareholders buy or sell shares, they will receive a statement confirming the transaction and listing their current share balance. (Under certain investment plans, a statement may only be sent quarterly.) Shareholders will receive a statement confirming reinvestment of distributions in additional Fund shares (or in shares of other Putnam funds for Dividends Plus accounts) promptly following the quarter in which the reinvestment occurs. To help shareholders take full advantage of their Putnam investment, they will receive a Welcome Kit and a periodic publication covering many topics of interest to investors. The Fund also sends annual and semiannual reports that keep shareholders informed about its portfolio and performance, and year-end tax information to simplify their recordkeeping. Easy-to-read, free booklets on special subjects such as the Exchange Privilege and IRAs are available from Putnam Investor Services. Shareholders may call Putnam Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m. and 7:00 p.m. Boston time for more information, including account balances. YOUR INVESTING ACCOUNT The following information provides more detail concerning the operation of a Putnam Investing Account. For further information or assistance, investors should consult Putnam Investor Services. Shareholders who purchase shares through a defined contribution plan should note that not all of the services or features described below may be available to them, and they should contact their employer for details. A shareholder may reinvest a recent cash distribution without a front-end sales charge or without the reinvested shares being subject to a CDSC, as the case may be, by delivering to Putnam Investor Services the uncashed distribution check, endorsed to the order of the Fund. Putnam Investor Services must receive the properly endorsed check within 30 days after the date of the check. Upon written notice to shareholders, the Fund may permit shareholders who receive cash distributions to reinvest amounts representing returns of capital without a sales charge or without being subject to the CDSC. The Investing Account also provides a way to accumulate shares of the Fund. In most cases, after an initial investment of $500, a shareholder may send checks to Putnam Investor Services for $50 or more, made payable to the Fund, to purchase additional shares at the applicable public offering price next determined after Putnam Investor Services receives the check. For Putnam Corporate Asset Trust, the minimum initial investment is $25,000 and the minimum subsequent investment is $5,000. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Putnam Investor Services acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, shares will be purchased through the investment dealer designated by the shareholder. Shareholders may change investment dealers at any time by written notice to Putnam Investor Services, provided the new dealer has a sales agreement with Putnam Mutual Funds. Shares credited to an account are transferable upon written instructions in good order to Putnam Investor Services and may be sold to the Fund as described under "How to buy shares, sell shares and exchange shares" in the Prospectus. Money market funds and certain other funds will not issue share certificates. A shareholder may send any certificates which have been previously issued to Putnam Investor Services for safekeeping at no charge to the shareholder. Putnam Mutual Funds, at its expense, may provide certain additional reports and administrative material to qualifying institutional investors with fiduciary responsibilities to assist these investors in discharging their responsibilities. Institutions seeking further information about this service should contact Putnam Mutual Funds, which may modify or terminate this service at any time. Putnam Investor Services may make special services available to shareholders with investments exceeding $1,000,000. Contact Putnam Investor Services for details. The Fund pays Putnam Investor Services' fees for maintaining Investing Accounts. REINSTATEMENT PRIVILEGE An investor who has redeemed shares to the Fund may reinvest (within 1 year) the proceeds of such sale in shares of the same class of the Fund, or may be able to reinvest (within 1 year) the proceeds in shares of the same class of one of the other continuously offered Putnam funds (through the Exchange Privilege described in the Prospectus), including, in the case of shares subject to a CDSC, the amount of CDSC charged on the redemption. Any such reinvestment would be at the net asset value of the shares of the fund(s) the investor selects, next determined after Putnam Mutual Funds receives a Reinstatement Authorization. The time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions and, in the case of Class B shares, the eight-year period for conversion to Class A shares. Shareholders will receive from Putnam Mutual Funds the amount of any CDSC paid at the time of redemption as part of the reinstated investment, which may be treated as capital gains to the shareholder for tax purposes. Exercise of the Reinstatement Privilege does not alter the federal income tax treatment of any capital gains realized on a sale of Fund shares, but to the extent that any shares are sold at a loss and the proceeds are reinvested in shares of the Fund, some or all of the loss may be disallowed as a deduction. Consult your tax adviser. Investors who desire to exercise this Privilege should contact their investment dealer or Putnam Investor Services. EXCHANGE PRIVILEGE Except as otherwise set forth in this section, by calling Putnam Investor Services, investors may exchange shares valued up to $500,000 between accounts with identical registrations, provided that no certificates are outstanding for such shares and no address change has been made within the preceding 15 days. During periods of unusual market changes and shareholder activity, shareholders may experience delays in contacting Putnam Investor Services by telephone to exercise the Telephone Exchange Privilege. Putnam Investor Services also makes exchanges promptly after receiving a properly completed Exchange Authorization Form and, if issued, share certificates. If the shareholder is a corporation, partnership, agent, or surviving joint owner, Putnam Investor Services will require additional documentation of a customary nature. Because an exchange of shares involves the redemption of Fund shares and reinvestment of the proceeds in shares of another Putnam fund, completion of an exchange may be delayed under unusual circumstances if the Fund were to suspend redemptions or postpone payment for the Fund shares being exchanged, in accordance with federal securities laws. Exchange Authorization Forms and prospectuses of the other Putnam funds are available from Putnam Mutual Funds or investment dealers having sales contracts with Putnam Mutual Funds. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain Putnam funds are not available to residents of all states. The Fund reserves the right to change or suspend the Exchange Privilege at any time. Shareholders would be notified of any change or suspension. Additional information is available from Putnam Investor Services. Shares of the Fund must be held at least 15 days by the shareholder requesting an exchange. There is no holding period if the shareholder acquired the shares to be exchanged through reinvestment of distributions, transfer from another shareholder, prior exchange or certain employer-sponsored defined contribution plans. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder requesting the exchange. Shareholders of other Putnam funds may also exchange their shares at net asset value for shares of the Fund, as set forth in the current prospectus of each fund. For federal income tax purposes, an exchange is a sale on which the investor generally will realize a capital gain or loss depending on whether the net asset value at the time of the exchange is more or less than the investor's basis. The Exchange Privilege may be revised or terminated at any time. Shareholders would be notified of any such change or suspension. DIVIDENDS PLUS Shareholders may invest the Fund's distributions of net investment income or distributions combining net investment income and short-term capital gains in shares of the same class of another continuously offered Putnam fund (the "receiving fund") using the net asset value per share of the receiving fund determined on the date the Fund's distribution is payable. No sales charge or CDSC will apply to the purchased shares unless the Fund is a money market fund. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objective(s) and policies carefully before investing their distributions in the receiving fund. Shares of certain Putnam funds are not available to residents of all states. The minimum account size requirement for the receiving fund will not apply if the current value of your account in this Fund is more than $5,000. Shareholders of other Putnam funds (except for money market funds, whose shareholders must pay a sales charge or become subject to a CDSC) may also use their distributions to purchase shares of the Fund at net asset value. For federal tax purposes, distributions from the Fund which are reinvested in another fund are treated as paid by the Fund to the shareholder and invested by the shareholder in the receiving fund and thus, to the extent comprised of taxable income and deemed paid to a taxable shareholder, are taxable. The Dividends PLUS program may be revised or terminated at any time. PLANS AVAILABLE TO SHAREHOLDERS The Plans described below are fully voluntary and may be terminated at any time without the imposition by the Fund or Putnam Investor Services of any penalty. All Plans provide for automatic reinvestment of all distributions in additional shares of the Fund at net asset value. The Fund, Putnam Mutual Funds or Putnam Investor Services may modify or cease offering these Plans at any time. AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys shares of the Fund valued at $10,000 or more at the current public offering price may open a Withdrawal Plan and have a designated sum of money ($50 or more) paid monthly, quarterly, semi-annually or annually to the investor or another person. (Payments from the Fund can be combined with payments from other Putnam funds into a single check through a Designated Payment Plan.) Shares are deposited in a Plan account, and all distributions are reinvested in additional shares of the Fund at net asset value (except where the Plan is utilized in connection with a charitable remainder trust). Shares in a Plan account are then redeemed at net asset value to make each withdrawal payment. Payment will be made to any person the investor designates; however, if shares are registered in the name of a trustee or other fiduciary, payment will be made only to the fiduciary, except in the case of a profit-sharing or pension plan where payment will be made to a designee. As withdrawal payments may include a return of principal, they cannot be considered a guaranteed annuity or actual yield of income to the investor. The redemption of shares in connection with a Withdrawal Plan generally will result in a gain or loss for tax purposes. Some or all of the losses realized upon redemption may be disallowed pursuant to the so-called wash sale rules if shares of the same fund from which shares were redeemed are purchased (including through the reinvestment of fund distributions) within a period beginning 30 days before, and ending 30 days after, such redemption. In such a case, the basis of the replacement shares will be increased to reflect the disallowed loss. Continued withdrawals in excess of income will reduce and possibly exhaust invested principal, especially in the event of a market decline. The maintenance of a Withdrawal Plan concurrently with purchases of additional shares of the Fund would be disadvantageous to the investor because of the sales charge payable on such purchases. For this reason, the minimum investment accepted while a Withdrawal Plan is in effect is $1,000, and an investor may not maintain a Plan for the accumulation of shares of the Fund (other than through reinvestment of distributions) and a Withdrawal Plan at the same time. The cost of administering these Plans for the benefit of those shareholders participating in them is borne by the Fund as an expense of all shareholders. The Fund, Putnam Mutual Funds or Putnam Investor Services may terminate or change the terms of the Withdrawal Plan at any time. A Withdrawal Plan will be terminated if communications mailed to the shareholder are returned as undeliverable. Investors should consider carefully with their own financial advisers whether the Plan and the specified amounts to be withdrawn are appropriate in their circumstances. The Fund and Putnam Investor Services make no recommendations or representations in this regard. TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.) Investors may purchase shares of the Fund through the following Tax Qualified Retirement Plans, available to qualified individuals or organizations: Standard and variable profit-sharing (including 401(k)) and money purchase pension plans; and Individual Retirement Account Plans (IRAs). Each of these Plans has been qualified as a prototype plan by the Internal Revenue Service. Putnam Investor Services will furnish services under each plan at a specified annual cost. Putnam Fiduciary Trust Company serves as trustee under each of these Plans. Forms and further information on these Plans are available from investment dealers or from Putnam Mutual Funds. In addition, specialized professional plan administration services are available on an optional basis; contact Putnam Defined Contribution Plan Services at 1-800-225-2465, extension 8600. A 403(b) Retirement Plan is available for employees of public school systems and organizations which meet the requirements of Section 501(c)(3) of the Internal Revenue Code. Forms and further information on the 403(b) Plan are also available from investment dealers or from Putnam Mutual Funds. Shares of the Fund may also be used in simplified employee pension (SEP) plans. For further information on the Putnam prototype SEP plan, contact an investment dealer or Putnam Mutual Funds. Consultation with a competent financial and tax adviser regarding these Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974, or otherwise, is recommended. SIGNATURE GUARANTEES Redemption requests for shares having a net asset value of $100,000 or more must be signed by the registered owners or their legal representatives and must be guaranteed by a bank, broker/dealer, municipal securities dealer or broker, government securities dealer or broker, credit union, national securities exchange, registered securities association, clearing agency, savings association or trust company, provided such institution is acceptable under and conforms with Putnam Fiduciary Trust Company's signature guarantee procedures. A copy of such procedures is available upon request. If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, you must provide a signature guarantee. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details. SUSPENSION OF REDEMPTIONS The Fund may not suspend shareholders' right of redemption, or postpone payment for more than seven days, unless the New York Stock Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the Securities and Exchange Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for protection of investors. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The likelihood of such circumstances is remote. STANDARD PERFORMANCE MEASURES Yield and total return data for the Fund may from time to time be presented in Part I of this Statement and in advertisements. In the case of funds with more than one class of shares, all performance information is calculated separately for each class. The data is calculated as follows. Total return for one-, five- and ten-year periods (or for such shorter periods as the Fund has been in operation or shares of the relevant class have been outstanding) is determined by calculating the actual dollar amount of investment return on a $1,000 investment in the Fund made at the beginning of the period, at the maximum public offering price for Class A shares and Class M shares and net asset value for other classes of shares, and then calculating the annual compounded rate of return which would produce that amount. Total return for a period of one year is equal to the actual return of the Fund during that period. Total return calculations assume deduction of the Fund's maximum sales charge or CDSC, if applicable, and reinvestment of all Fund distributions at net asset value on their respective reinvestment dates. The Fund's yield is presented for a specified thirty-day period (the "base period"). Yield is based on the amount determined by (i) calculating the aggregate amount of dividends and interest earned by the Fund during the base period less expenses accrued for that period, and (ii) dividing that amount by the product of (A) the average daily number of shares of the Fund outstanding during the base period and entitled to receive dividends and (B) the per share maximum public offering price for Class A shares or Class M shares, as appropriate and net asset value for other classes of shares on the last day of the base period. The result is annualized on a compounding basis to determine the yield. For this calculation, interest earned on debt obligations held by the Fund is generally calculated using the yield to maturity (or first expected call date) of such obligations based on their market values (or, in the case of receivables-backed securities such as GNMA's, based on cost). Dividends on equity securities are accrued daily at their stated dividend rates. If the Fund is a money market fund, yield is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share over the seven-day period for which yield is presented (the "base period"), and multiplying the net change by 365/7 (or approximately 52 weeks). Effective yield represents a compounding of the yield by adding 1 to the number representing the percentage change in value of the investment during the base period, raising that sum to a power equal to 365/7, and subtracting 1 from the result. If the Fund is a tax-exempt fund, the tax-equivalent yield during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting the tax-exempt yield by a factor designed to show the approximate yield that a taxable investment would have to earn to produce an after-tax yield equal, for that shareholder, to the tax-exempt yield. The tax-equivalent yield will differ for shareholders in other tax brackets. At times, Putnam Management may reduce its compensation or assume expenses of the Fund in order to reduce the Fund's expenses. The per share amount of any such fee reduction or assumption of expenses during the Fund's past ten fiscal years (or for the life of the Fund, if shorter) is reflected in the table in the section entitled "Financial history" in the Prospectus. Any such fee reduction or assumption of expenses would increase the Fund's yield and total return during the period of the fee reduction or assumption of expenses. All data are based on past performance and do not predict future results. COMPARISON OF PORTFOLIO PERFORMANCE Independent statistical agencies measure the Fund's investment performance and publish comparative information showing how the Fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the Fund may distribute these comparisons to its shareholders or to potential investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION. LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, reflecting generally changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, for example year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds with similar objectives. The performance factor is a weighted-average assessment of the Fund's 3-year, 5-year, and 10-year total return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's Corporation and Moody's Investor Service, Inc. CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Independent publications may also evaluate the Fund's performance. Certain of those publications are listed below, at the request of Putnam Mutual Funds, which bears full responsibility for their use and the descriptions appearing below. From time to time the Fund may distribute evaluations by or excerpts from these publications to its shareholders or to potential investors. The following illustrates the types of information provided by these publications. BUSINESS WEEK publishes mutual fund rankings in its Investment Figures of the Week column. The rankings are based on 4-week and 52-week total return reflecting changes in net asset value and the reinvestment of all distributions. They do not reflect deduction of any sales charges. Funds are not categorized; they compete in a large universe of over 2000 funds. The source for rankings is data generated by Morningstar, Inc. INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily basis. The rankings are depicted as the top 25 funds in a given category. The categories are based loosely on the type of fund, e.g., growth funds, balanced funds, U.S. government funds, GNMA funds, growth and income funds, corporate bond funds, etc. Performance periods for sector equity funds can vary from 4 weeks to 39 weeks; performance periods for other fund groups vary from 1 year to 3 years. Total return performance reflects changes in net asset value and reinvestment of dividends and capital gains. The rankings are based strictly on total return. They do not reflect deduction of any sales charges. Performance grades are conferred from A+ to E. An A+ rating means that the fund has performed within the top 5% of a general universe of over 2000 funds; an A rating denotes the top 10%; an A- is given to the top 15%, etc. BARRON'S periodically publishes mutual fund rankings. The rankings are based on total return performance provided by Lipper Analytical Services. The Lipper total return data reflects changes in net asset value and reinvestment of distributions, but does not reflect deduction of any sales charges. The performance periods vary from short-term intervals (current quarter or year-to-date, for example) to long-term periods (five-year or ten-year performance, for example). Barron's classifies the funds using the Lipper mutual fund categories, such as Capital Appreciation Funds, Growth Funds, U.S. Government Funds, Equity Income Funds, Global Funds, etc. Occasionally, Barron's modifies the Lipper information by ranking the funds in asset classes. "Large funds" may be those with assets in excess of $25 million; "small funds" may be those with less than $25 million in assets. THE WALL STREET JOURNAL publishes its Mutual Fund Scorecard on a daily basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper Analytical Services category. Lipper provides the rankings based on its total return data reflecting changes in net asset value and reinvestment of distributions and not reflecting any sales charges. The Scorecard portrays 4-week, year-to-date, one-year and 5-year performance; however, the ranking is based on the one-year results. The rankings for any given category appear approximately once per month. FORTUNE magazine periodically publishes mutual fund rankings that have been compiled for the magazine by Morningstar, Inc. Funds are placed in stock or bond fund categories (for example, aggressive growth stock funds, growth stock funds, small company stock funds, junk bond funds, Treasury bond funds, etc.), with the top-10 stock funds and the top-5 bond funds appearing in the rankings. The rankings are based on 3-year annualized total return reflecting changes in net asset value and reinvestment of distributions and not reflecting sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. MONEY magazine periodically publishes mutual fund rankings on a database of funds tracked for performance by Lipper Analytical Services. The funds are placed in 23 stock or bond fund categories and analyzed for five-year risk adjusted return. Total return reflects changes in net asset value and reinvestment of all dividends and capital gains distributions and does not reflect deduction of any sales charges. Grades are conferred (from A to E): the top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a fund must be at least one year old, accept a minimum investment of $25,000 or less and have had assets of at least $25 million as of a given date. FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual Funds, a survey of approximately 1000 mutual funds. Funds are categorized as to type, e.g., balanced funds, corporate bond funds, global bond funds, growth and income funds, U.S. government bond funds, etc. To compete, funds must be over one year old, have over $1 million in assets, require a maximum of $10,000 initial investment, and should be available in at least 10 states in the United States. The funds receive a composite past performance rating, which weighs the intermediate- and long-term past performance of each fund versus its category, as well as taking into account its risk, reward to risk, and fees. An A+ rated fund is one of the best, while a D-rated fund is one of the worst. The source for Financial World rating is Schabacker investment management in Rockville, MD. FORBES magazine periodically publishes mutual fund ratings based on performance over at least two bull and bear market cycles. The funds are categorized by type, including stock and balanced funds, taxable bond funds, municipal bond funds, etc. Data sources include Lipper Analytical Services and CDA Investment Technologies. The ratings are based strictly on performance at net asset value over the given cycles. Funds performing in the top 5% receive an A+ rating; the top 15% receive an A rating; and so on until the bottom 5% receive an F rating. Each fund exhibits two ratings, one for performance in "up" markets and another for performance in "down" markets. KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times), periodically publishes rankings of mutual funds based on one-, three- and five-year total return performance reflecting changes in net asset value and reinvestment of dividends and capital gains and not reflecting deduction of any sales charges. Funds are ranked by tenths: a rank of 1 means that a fund was among the highest 10% in total return for the period; a rank of 10 denotes the bottom 10%. Funds compete in categories of similar funds--aggressive growth funds, growth and income funds, sector funds, corporate bond funds, global governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's also provides a risk-adjusted grade in both rising and falling markets. Funds are graded against others with the same objective. The average weekly total return over two years is calculated. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co., a Boston research firm. Over 2000 funds are tracked and divided into 10 equity, taxable bond and tax-free bond categories. Funds compete within the 10 groups and three broad categories. The OPI is a number from 0-100 that measures the relative performance of funds at least three years old over the last 1, 3, 5 and 10 years and the last six bear markets. Total return reflects changes in net asset value and the reinvestment of any dividends and capital gains distributions and does not reflect deduction of any sales charges. Results for the longer periods receive the most weight. THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by Gordon K. Williamson. The author's list of funds is divided into 12 equity and bond fund categories, and the 100 funds are determined by applying four criteria. First, equity funds whose current management teams have been in place for less than five years are eliminated. (The standard for bond funds is three years.) Second, the author excludes any fund that ranks in the bottom 20 percent of its category's risk level. Risk is determined by analyzing how many months over the past three years the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a fund must have demonstrated strong results for current three-year and five-year performance. Fourth, the fund must either possess, in Mr. Williamson's judgment, "excellent" risk-adjusted return or "superior" return with low levels of risk. Each of the 100 funds is ranked in five categories: total return, risk/volatility, management, current income and expenses. The rankings follow a five-point system: zero designates "poor"; one point means "fair"; two points denote "good"; three points qualify as a "very good"; four points rank as "superior"; and five points mean "excellent." In addition, Putnam Mutual Funds may distribute to shareholders or prospective investors illustrations of the benefits of reinvesting tax-exempt or tax-deferred distributions over specified time periods, which may include comparisons to fully taxable distributions. These illustrations use hypothetical rates of tax-advantaged and taxable returns and are not intended to indicate the past or future performance of any fund. DEFINITIONS "Putnam Management" -- Putnam Investment Management, Inc., the Fund's investment manager. "Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the Fund's principal underwriter. "Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company, Company" the Fund's custodian. "Putnam Investor Services" -- Putnam Investor Services, a division of Putnam Fiduciary Trust Company, the Fund's investor servicing agent. Item 30. Location of Accounts and Records Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, Beverly Marcus; Registrant's investment adviser, Putnam Investment Management, Inc.; Registrant's principal underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing agent, Putnam Investor Services, a division of PFTC. The address of the Clerk, investment adviser, principal underwriter, custodian and transfer and dividend disbursing agent is One Post Office Square, Boston, Massachusetts 02109. Item 31. Management Services None. Item 32. Undertakings The Registrant undertakes to furnish to each person to whom a prospectus of the Registrant is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A (File No. 33-17486) (the "Registration Statement") of our report dated February 15, 1995, relating to the financial statements and financial highlights appearing in the December 31, 1994 Annual Report of Putnam Capital Manager Trust, which financial statements and financial highlights are also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Independent Accountants and Financial Statements" in such Statement of Additional Information and under the heading "Financial highlights" in such Prospectuses. PRICE WATERHOUSE LLP Boston, Massachusetts April 26, 1995 NOTICE A copy of the Agreement and Declaration of Trust of Putnam Capital Manager Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by the Trustees of the Registrant as trustees 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. POWER OF ATTORNEY We, the undersigned Officers and Trustees of Putnam Capital Manager Trust, hereby severally constitute and appoint George Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W. Gerstmayr, and each of them singly, our true and lawful attorneys, with full power to them and each of them, to sign for us, and in our names and in the capacities indicated below, the Registration Statement on Form N-1A of Putnam Capital Manager Trust and any and all amendments (including post-effective amendments) to said Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto our said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS our hands and common seal on the date set forth below. Signature Title Date /s/ George Putnam - --------------------- Principal Executive April 6, 1995 George Putnam Officer; President and Chairman of the Trustees /s/ John D. Hughes - --------------------- Principal Financial April 6, 1995 John D. Hughes Officer; Treasurer /s/ Paul G. Bucuvalas - --------------------- Principal Accounting Paul G. Bucuvalas Officer; Assistant April 6, 1995 Treasurer /s/ Jameson A. Baxter - --------------------- Trustee April 6, 1995 Jameson A. Baxter /s/ Hans H. Estin - --------------------- Trustee April 6, 1995 Hans H. Estin /s/ John A. Hill - --------------------- Trustee April 6, 1995 John A. Hill /s/ Elizabeth T. Kennan - --------------------- Trustee April 6, 1995 Elizabeth T. Kennan /s/ Lawrence J. Lasser - --------------------- Trustee April 6, 1995 Lawrence J. Lasser /s/ Robert E. Patterson - --------------------- Trustee April 6, 1995 Robert E. Patterson /s/ Donald S. Perkins - --------------------- Trustee April 6, 1995 Donald S. Perkins /s/ George Putnam, III - --------------------- Trustee April 6, 1995 George Putnam, III /s/ A.J.C. Smith - --------------------- Trustee April 6, 1995 A.J.C. Smith /s/ W. Nicholas Thorndike - --------------------- Trustee April 6, 1995 W. Nicholas Thorndike /s/ William F. Pounds - --------------------- Trustee April 6, 1995 William F. Pounds POWER OF ATTORNEY I, the undersigned Trustee of Putnam Capital Manager Trust, hereby severally constitute and appoint George Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W. Gerstmayr, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacity indicated below, the Registration Statement on Form N-1A of Putnam Capital Manager Trust and any and all amendments (including post-effective amendments) to said Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand and seal on the date set forth below. Signature Title Date /s/ Eli Shapiro - --------------------- Trustee April 19, 1995 Eli Shapiro SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and The Commonwealth of Massachusetts, on the 27th day of April , 1995. PUTNAM CAPITAL MANAGER TRUST ---------------------------------------- By: Gordon H. Silver, Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment has been signed below by the following persons in the capacities and on the dates indicated: Signature Title George Putnam President and Chairman of the Board; Principal Executive Officer; Trustee William F. Pounds Vice Chairman; Trustee John D. Hughes Vice President; Treasurer and Principal Financial Officer Paul G. Bucuvalas Assistant Treasurer and Principal Accounting Officer Jameson Adkins Baxter Trustee Hans H. Estin Trustee John A. Hill Trustee Elizabeth T. Kennan Trustee Signature Title Lawrence J. Lasser Trustee Robert E. Patterson Trustee Donald S. Perkins Trustee George Putnam, III Trustee Eli Shapiro Trustee A.J.C. Smith Trustee W. Nicholas Thorndike Trustee By: Gordon H. Silver, as Attorney-in-Fact April 27 , 1995 EX-99.B1 2 CHARTER PUTNAM CAPITAL MANAGER TRUST AGREEMENT AND DECLARATION OF TRUST AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 24th day of September, 1987, by the Trustees hereunder, and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. WITNESSETH that WHEREAS, this Trust has been formed to carry on the business of an investment company; and WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts voluntary association with transferable shares in accordance with the provisions hereinafter set forth. NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets, which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of Shares in this Trust as hereinafter set forth. ARTICLE I Name and Definitions NAME Section 1. This Trust shall be known as "Putnam Capital Manager Trust" and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. DEFINITIONS Section 2. Whenever used herein, unless otherwise required by the context or specifically provided: (a) The "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time; (b) "Trustees" refers to the Trustees of the Trust named herein or elected in accordance with Article IV; (c) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of Shares is authorized by the Trustees, the equal proportionate transferable units into which each series of Shares shall be divided from time to time; (d) "Shareholder" means a record owner of Shares; (e) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time; (f) The terms "Affiliated Person", "Assignment", "Commission", "Interested Person", "Principal Underwriter" and "Majority Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) shall have the meanings given them in the 1940 Act; (g) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time; and (h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to time. ARTICLE II Purpose of Trust The purpose of the Trust is to provide investors a managed investment primarily in securities, debt instruments and other instruments and rights of a financial character. ARTICLE III Shares DIVISION OF BENEFICIAL INTEREST Section 1. The Shares of the Trust shall be issued in one or more series as the Trustees may, without shareholder approval, authorize. Each series shall be preferred over all other series in respect of the assets allocated to that series. The beneficial interest in each series shall at all times be divided into Shares, without par value, each of which shall represent an equal proportionate interest in the series with each other Share of the same series, none having priority or preference over another. The number of Shares authorized shall be unlimited. The Trustees may from time to time divide or combine the Shares of any series into a greater or lesser number without thereby changing the proportionate beneficial interests in the series. OWNERSHIP OF SHARES Section 2. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each series and as to the number of Shares of each series held from time to time by each Shareholder. INVESTMENT IN THE TRUST Section 3. The Trustees shall accept investments in the Trust from such persons and on such terms and for such consideration, which may consist of cash or tangible or intangible property or a combination thereof, as they or the Bylaws from time to time authorize. All consideration received by the Trust for the issue or sale of Shares of each series, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of Shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust and are herein referred to as "assets of" such series. NO PREEMPTIVE RIGHTS Section 4. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY Section 5. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. ARTICLE IV The Trustees ELECTION Section 1. A Trustee may be elected either by the Trustees or by the Shareholders. There shall be not less than three Trustees. The number of Trustees shall be fixed by the Trustees. Each Trustee elected by the Trustees or the Shareholders shall serve until he or she retires, resigns, is removed or dies or until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor. At any meeting called for the purpose, a Trustee may be removed by vote of two-thirds of the outstanding shares. The initial Trustees, each of whom shall serve until the first meeting of Shareholders at which Trustees are elected and until his successor is elected and qualified, or until he sooner dies, resigns or is removed shall be George Putnam, Richard M. Cutler and Alla O'Brien and such other persons as the Trustee or Trustees then in office shall, prior to any sale of Shares pursuant to public offering, appoint. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE Section 2. The death, declination, resignation, retirement, removal or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. POWERS Section 3. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such Bylaws do not reserve that right to the Shareholders; they may fill vacancies in or add to their number, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including an executive committee which may, when the Trustees are not in session, exercise some or all of the power and authority of the Trustees as the Trustees may determine; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a Shareholder servicing agent, or both, provide for the distribution of Shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of Shareholders with respect to various matters, and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian or underwriter. Without limiting the foregoing, the Trustees shall have power and authority: (a) To invest and reinvest cash, and to hold cash uninvested; (b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust; (c) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (d) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities; (e) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depositary or a nominee or nominees or otherwise; (f) To allocate assets, liabilities and expenses of the Trust to a particular series of Shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of Shares shall be payable solely out of the assets of that series; (g) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust; (h) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (i) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including but not limited to claims for taxes; (j) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (k) To borrow funds; (l) To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all such obligations; (m) To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters, or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as Shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter, or independent contractor,including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; and (n) To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust. The Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by trustees. Except as otherwise provided herein or from time to time in the Bylaws, any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting, or by written consents of a majority of the Trustees then in office. PAYMENT OF EXPENSES BY TRUST Section 4. The Trustees are authorized to pay or to cause to be paid out of the assets of the Trust all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or manager, principal underwriter, auditor, counsel, custodian, transfer agent, Shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred or arising in connection with a particular series of Shares shall be payable solely out of the assets of that series. OWNERSHIP OF ASSETS OF THE TRUST Section 5. Title to all of the assets of each series of Shares and of the Trust shall at all times be considered as vested in the Trustees. ADVISORY, MANAGEMENT AND DISTRIBUTION Section 6. Subject to a favorable Majority Shareholder Vote, the Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or management services with any corporation, trust, association or other organization (the "Manager"), every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments. The Trustees may also, at any time and from time to time, contract with the Manager or any other corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the Shares, every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine. The fact that: (i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter or distributor or agent of or for any corporation, trust, association, or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, Shareholder servicing or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, Shareholder servicing or other agency contract may have been or may hereafter be made also has an advisory or management contract, or transfer, Shareholder servicing or other agency contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its Shareholders. ARTICLE V Shareholders' Voting Powers and Meetings VOTING POWERS Section 1. The Shareholders shall have power to vote only (i) for the election of Trustees as provided in Article IV, Section 1, (ii) for the removal of Trustees as provided in Article IV, Section 1, (iii) with respect to any Manager as provided in Article IV, Section 6, (iv) with respect to any termination of this Trust to the extent and as provided in Article IX, Section 4, (v) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article IX, Section 7, (vi) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders, and (vii) with respect to such additional matters relating to the Trust as may be required by this Declaration of Trust, the Bylaws or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of Shareholders, all Shares of the Trust then entitled to vote shall be voted by individual series, except (1) when required by the 1940 Act, Shares shall be voted in the aggregate and not by individual series; and (2) when the Trustees have determined that the matter affects only the interests of one or more series, then only Shareholders of such series shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or Bylaws to be taken by Shareholders. VOTING POWER AND MEETINGS Section 2. Meetings of Shareholders of any or all series may be called by the Trustees from time to time for the purpose of taking action upon any matter requiring the vote or authority of the Shareholders of such series as herein provided or upon any other matter deemed by the Trustees to be necessary or desirable. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by mailing such notice at least seven days before such meeting, postage prepaid, stating the time, place and purpose of the meeting, to each Shareholder entitled to vote at such meeting at the Shareholder's address as it appears on the records of the Trust. If the Trustees shall fail to call or give notice of any meeting of Shareholders for a period of 30 days after written application by Shareholders holding at least 10% of the then outstanding Shares of each series entitled to vote at such meeting or of all series if all series are entitled to vote at such meeting requesting a meeting to be called for a purpose requiring action by the Shareholders as provided herein or in the Bylaws, then Shareholders holding at least 10% of the then outstanding Shares of each series entitled to vote at such meeting or of all series if all series are entitled to vote at such meeting may call and give notice of such meeting, and thereupon the meeting shall be held in the manner provided for herein in case of call thereof by the Trustees. Notice of a meeting need not be given to any Shareholder if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Shareholder who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. QUORUM AND REQUIRED VOTE Section 3. Thirty percent of Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of this Declaration of Trust permits or requires that holders of any series shall vote as a series, then thirty percent of the aggregate number of Shares of that series entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series. Any lesser number shall be sufficient for adjournments. Any adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the Bylaws, a majority of the Shares voted shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series shall vote as a series, then a majority of the Shares of that series voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that series is concerned. ACTION BY WRITTEN CONSENT Section 4. Any action taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust or the Bylaws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. ADDITIONAL PROVISIONS Section 5. The Bylaws may include further provisions of Shareholders' votes and meetings and related matters. ARTICLE VI Distributions, Redemptions and Repurchases DISTRIBUTIONS Section 1. The Trustees may each year, or more frequently if they so determine, distribute to the Shareholders of each series out of the assets of such series such amounts as the Trustees may determine. Any such distribution to the Shareholders of a particular series shall be made to said Shareholders pro rata in proportion to the number of Shares of such series held by each of them. Such distributions shall be made in cash or Shares or a combination thereof as determined by the Trustees. Any such distribution paid in Shares will be paid at the net asset value thereof as determined in accordance with the Bylaws. Notwithstanding the provisions of the foregoing paragraph, with respect to any money market series seeking to maintain a constant net asset value per share, the Trustees shall each year, or more frequently if they so determine in their sole discretion, distribute to the Shareholders of such series an amount approximately equal to the Net Income of such series, and may from time to time distribute such additional amounts as they may authorize to the Shareholders of such series. Such Net Income shall consist of: (i) all interest income (including both original issue and market discount earned on discount paper accrued ratably to the date of maturity) accrued on portfolio investments of such series, (ii) plus or minus realized or unrealized gains and losses on portfolio investments determined by valuing the portfolio investments of such series in a manner consistent with the requirements of the actual and accrued expenses and liabilities of such series determined in accordance with good accounting practices. Such Net Income shall be determined by the Trustees or as they may authorize on each business day at the times and in the manner provided in the Bylaws, and all such Net Income, which is a positive amount, since the last determination of Net Income, shall be declared as a dividend on Shares of such series. Determinations of Net Income of any such money market series made by the Trustees, or as they may authorize, in good faith, shall be binding on all parties concerned. If, for any reason, the Net Income of such series determined at any time is a negative amount, each Shareholder's pro rata share of such negative amount shall constitute a liability of such Shareholder to the Trust which shall be paid at such times and in such manner as the Trustees may from time to time determine out of the accrued dividend account of such Shareholder, by reducing the number of Shares of such series in the account of such Shareholder or otherwise. As a result of such determinations and declarations as a dividend of the Net Income of such series, the net asset value per Share of such series is intended to remain at a constant amount immediately after each such determination and declaration; subject, however, to the power of the Trustees as provided in Section I of Article III to divide or combine the Shares of such series into a greater or lesser number. Notwithstanding the provisions of the foregoing paragraph for calculation and distribution of Net Income, the Trustees may, from time to time and for so long as they may deem appropriate, for purposes of calculating and distributing income of any such money market series to the Shareholders of such series divide Shares of such series into as many classes as they deem appropriate and pay distributions of differing amounts to each class of Shares (provided all Shares of the same class receive equal distributions), provided, that the division of Shares of any such money market series into classes and the payment of differing distributions to such classes shall be made in a manner consistent with the requirements of the 1940 Act, the rules and regulations thereunder and exemptions therefrom, and provided further, that except as otherwise specifically authorized by the Trustees pursuant to this paragraph, the Trustees shall continue to calculate and distribute Net Income of such series in the manner provided in the preceding paragraph. REDEMPTIONS AND REPURCHASES Section 2. The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon the presentation of any certificate for the Shares to be purchased, a proper instrument of transfer and a request directed to the Trust or a person designated by the Trust that the Trust purchase such Shares, or in accordance with such other procedures for redemption as the Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof, as next determined in accordance with the Bylaws. Payment for said Shares shall be made by the Trust to the Shareholder within seven days after the date on which the request is made. The obligation set forth in this Section 2 is subject to the provision that in the event that any time the New York Stock Exchange is closed for other than customary weekends or holidays, or, if permitted by rules of the Commission, during periods when trading on the Exchange is restricted or during any emergency which makes it impractical for the Trust to dispose of its investments or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for the protection of investors, such obligation may be suspended or postponed by the Trustees. The Trust may also purchase or repurchase Shares at a price not exceeding the net asset value of such Shares in effect when the purchase or repurchase or any contract to purchase or repurchase is made. REDEMPTIONS AT THE OPTION OF THE TRUST Section 3. The Trust shall have the right at its option and at any time to redeem Shares of any Shareholder at the net asset value thereof as determined in accordance with the Bylaws: (i) if at such time such Shareholder owns fewer Shares than, or Shares having an aggregate net asset value of less than, an amount determined from time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a particular series of Shares equal to or in excess of a percentage of the outstanding Shares of that series determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust representing a percentage equal to or in excess of such percentage of the aggregate number of outstanding Shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Trustees. ARTICLE VII Compensation and Limitation of Liability of Trustees COMPENSATION Section 1. The Trustees as such shall be entitled to reasonable compensation from the Trust; they may fix the amount of their compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for the same by the Trust. LIMITATION OF LIABILITY Section 2. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, manager or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein contained shall protect any Trustee against any liability to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. ARTICLE VIII Indemnification TRUSTEES, OFFICERS, ETC. Section 1. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding (a) not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or (b) to be liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), shall be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided, however, that either (a) such Covered Person shall have provided appropriate security for such undertaking, (b) the Trust shall be insured against losses arising from any such advance payments or (c) either a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in officeact on the matter), or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial type inquiry) that there is reason to believe that such Covered Person will be found entitled to indemnification under this Article. COMPROMISE PAYMENT Section 2. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that his or her action was in the best interests of the Trust or (b) is liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, indemnification shall be provided if (a) approved as in the best interests of the Trust, after notice that it involves such indemnification, by at least a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office 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 Covered Person acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (as opposed to a full trial type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust and that such indemnification would not protect such Covered Person against any liability to the Trust to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. INDEMNIFICATION NOT EXCLUSIVE Section 3. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which such Covered Person may be entitled. As used in this Article VIII, the term "Covered Person" shall include such person's heirs, executors and administrators and a "disinterested Trustee" is a Trustee who is not an "interested person" of the Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been exempted from being an "interested person" by any rule, regulation or order of the Commission) and against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees or officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person. SHAREHOLDERS Section 4. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability, but only out of the assets of the particular series of Shares of which he or she is or was a Shareholder. ARTICLE IX Miscellaneous TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE Section 1. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series of Shares for payment under such credit, contract or claim, and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers shall give notice that this Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustee or Trustees or as officer or officers and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustee or Trustees or officer or officers or Shareholder or Shareholders individually. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY Section 2. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office ofTrustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEE Section 3. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. DURATION AND TERMINATION OF TRUST Section 4. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of Shareholders holding at least 66-2/3% of the Shares entitled to vote or by the Trustees by written notice to the Shareholders. Any series of Shares may be terminated at any time by vote of Shareholders holding at least 66-2/3% of the Shares of such series entitled to vote or by the Trustees by written notice to the Shareholders of such series. Upon termination of the Trust or of any one or more series of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Trust or of the particular series as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the series involved, ratably according to the number of Shares of such series held by the several Shareholders of such series on the date of termination. FILING OF COPIES, REFERENCES, HEADINGS Section 5. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of The Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder, and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument and all expressions like "herein", "hereof" and "hereunder" shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts each of which shall be deemed an original. APPLICABLE LAW Section 6. This Declaration of Trust is made in The Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. AMENDMENTS Section 7. This Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the then Trustees when authorized to do so by vote of Shareholders holding a majority of the Shares entitled to vote, except that an amendment which shall affect the holders of one or more series of Shares but not the holders of all outstanding series shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of each series affected and no vote of Shareholders of a series not affected shall be required. Amendments having the purpose of changing the name of the Trust or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by Shareholder vote. IN WITNESS WHEREOF, each of the undersigned has hereunto set his/her hand and seal in the City of Boston, Massachusetts for himself/herself and his/her assigns, as of the day and year first above written. /s/George Putnam ------------------------- George Putnam /s/Richard M. Cutler ------------------------- Richard M. Cutler /s/Alla O'Brien ----------------------------- Alla O'Brien THE COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. Boston, September 24, 1987 Then personally appeared the above named George Putnam, Richard M. Cutler, and Alla O'Brien and acknowledged the foregoing instrument to be their free act and deed, before me, /s/Anne Wahlberg ----------------------------- Notary Public My Commission Expires: EX-99.B2 3 BYLAWS BYLAWS OF PUTNAM CAPITAL MANAGER TRUST ARTICLE 1 AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE 1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of the Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be located in Boston, Massachusetts. ARTICLE 2 MEETINGS OF TRUSTEES 2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. 2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time and at any place designated in the call of the meeting when called by the Chairman of the Trustees, the President or the Treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the Clerk or an Assistant Clerk or by the officer or the Trustees calling the meeting. 2.3 NOTICE OF SPECIAL MEETINGS. It shall be sufficient notice to a Trustee of a special meeting to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty- four hours before the meeting. Notice of a special meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 2.5 NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance with the provisions of the Declaration of Trust any action is taken by the Trustees by a written consent of less than all of the Trustees, then prompt notice of any such action shall be furnished to each Trustee who did not execute such written consent, provided that the effectiveness of such action shall not be impaired by any delay or failure to furnish such notice. ARTICLE 3 OFFICERS 3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a Chairman of the Trustees, a President, a Treasurer, a Clerk and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust may also have such agents as the Trustees from time to time may in their discretion appoint. The Chairman of the Trustees and the President shall be a Trustee and may but need not be a shareholder; and any other officer may but need not be a Trustee or a shareholder. Any two or more offices may be held by the same person. A Trustee may but need not be a shareholder. 3.2 ELECTION. The Chairman of the Trustees, the President, the Treasurer and the Clerk shall be elected by the Trustees upon the occurrence of any vacancy in any such office. Other officers, if any, may be elected or appointed by the Trustees at any time. Vacancies in any such other office may be filled at any time. 3.3 TENURE. The Chairman of the Trustees, the President, the Treasurer and the Clerk shall hold office in each case until he or she dies, resigns, is removed or becomes disqualified. Each other officer shall hold office and each agent shall retain authority at the pleasure of the Trustees. 3.4 POWERS. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to the office occupied by him or her as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate. 3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the Chairman of the Trustees or, if there is none or in the absence of the Chairman of the Trustees, the President shall preside at all meetings of the shareholders and of the Trustees. Unless the Trustees otherwise provide, the President shall be the chief executive officer. 3.6 TREASURER. Unless the Trustees shall provide otherwise, the Treasurer shall be the chief financial and accounting officer of the Trust, and shall, subject to the provisions of the Declaration of Trust and to any arrangement made by the Trustees with a custodian, investment adviser or manager, or transfer, shareholder servicing or similar agent, be in charge of the valuable papers, books of account and accounting records of the Trust, and shall have such other duties and powers as may be designated from time to time by the Trustees or by the President. 3.7 CLERK. The Clerk shall record all proceedings of the shareholders and the Trustees in books to be kept therefor, which books or a copy thereof shall be kept at the principal office of the Trust. In the absence of the Clerk from any meeting of the shareholders or Trustees, an Assistant Clerk, or if there be none or if he or she is absent, a temporary Clerk chosen at such meeting shall record the proceedings thereof in the aforesaid books. 3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any time by written instrument signed by him or her and delivered to the Chairman of the Trustees, the President or the Clerk or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The Trustees may remove any officer elected by them with or without cause. Except to the extent expressly provided in a written agreement with the Trust, no Trustee or officer resigning and no officer removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. ARTICLE 4 COMMITTEES 4.1 QUORUM; VOTING. A majority of the members of any Committee of the Trustees shall constitute a quorum for the transaction of business, and any action of such a Committee may be taken at a meeting by a vote of a majority of the members present (a quorum being present) or evidenced by one or more writings signed by such a majority. Members of a Committee may participate in a meeting of such Committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. ARTICLE 5 REPORTS 5.1 GENERAL. The Trustees and officers shall render reports at the time and in the manner required by the Declaration of Trust or any applicable law. Officers and Committees shall render such additional reports as they may deem desirable or as may from time to time be required by the Trustees. ARTICLE 6 FISCAL YEAR 6.1 GENERAL. Except as from time to time otherwise provided by the Trustees, the initial fiscal year of the Trust shall end on such date as is determined in advance or in arrears by the Treasurer, and subsequent fiscal years shall end on such date in subsequent years. ARTICLE 7 SEAL 7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die with the word "Massachusetts", together with the name of the Trust and the year of its organization cut or engraved thereon but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE 8 EXECUTION OF PAPERS 8.1 GENERAL. Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, contracts, notes and other obligations made by the Trustees shall be signed by the President, the Vice Chairman, a Vice President or the Treasurer and need not bear the seal of the Trust. ARTICLE 9 ISSUANCE OF SHARES AND SHARE CERTIFICATES 9.1 SALE OF SHARES. Except as otherwise determined by the Trustees, the Trust will issue and sell for cash or securities from time to time, full and fractional shares of its shares of beneficial interest, such shares to be issued and sold at a price of not less than the par value per share, if any, and not less than the net asset value per share as from time to time determined in accordance with the Declaration of Trust and these Bylaws and, in the case of fractional shares, at a proportionate reduction in such price. In the case of shares sold for securities, such securities shall be valued in accordance with the provisions for determining the value of the assets of the Trust as stated in the Declaration of Trust and these Bylaws. The officers of the Trust are severally authorized to take all such actions as may be necessary or desirable to carry out this Section 9.1. 9.2 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or may keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. The Trustees may at any time authorize the issuance of share certificates. In that event, each shareholder shall be entitled to a certificate stating the number of shares owned by him, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent or by a registrar. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall cease to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he were such officer at the time of its issue. 9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust, with the approval of any two officers of the Trust, is authorized to issue and countersign replacement certificates for the shares of the Trust which have been lost, stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss or non-receipt and of an indemnity agreement executed by the registered holder or his legal representative and supported by an open penalty surety bond, said agreement and said bond in all cases to be in form and content satisfactory to and approved by the President or the Treasurer, or (ii) receipt of such other documents as may be approved by the Trustees. 9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares transferred as collateral security shall be entitled to a new certificate if the instrument of transfer substantially describes the debt or duty that is intended to be secured thereby. Such new certificate shall express on its face that it is held as collateral security, and the name of the pledgor shall be stated thereon, who alone shall be liable as a shareholder and entitled to vote thereon. 9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. ARTICLE 10 PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS 10.1 CERTAIN DEFINITIONS. When used herein the following words shall have the following meanings: "Distributor" shall mean any one or more corporations, firms or associations which have distributor's or principal underwriter's contracts in effect with the Trust providing that redeemable shares issued by the Trust shall be offered and sold by such Distributor. "Manager" shall mean any corporation, firm or association which may at the time have an advisory or management contract with the Trust. 10.2 LIMITATIONS ON DEALINGS WITH OFFICERS OR TRUSTEES. The Trust will not lend any of its assets to the Distributor or Manager or to any officer or director of the Distributor or Manager or any officer or Trustee of the Trust, and shall not permit any officer or Trustee or any officer or director of the Distributor or Manager to deal for or on behalf of the Trust with himself or herself as principal or agent, or with any partnership, association or corporation in which he or she has a financial interest; provided that the foregoing provisions shall not prevent (a) officers and Trustees of the Trust or officers and directors of the Distributor or Manager from buying, holding or selling shares in the Trust or from being partners, officers or directors of or otherwise financially interested in the Distributor or the Manager; (b) purchases or sales of securities or other property if such transaction is permitted by or is exempt or exempted from the provisions of the Investment Company Act of 1940 or any Rule or Regulation thereunder and if such transaction does not involve any commission or profit to any security dealer who is, or one or more of whose partners, shareholders, officers or directors is, an officer or Trustee of the Trust or an officer or director of the Distributor or Manager; (c) employment of legal counsel, registrar, transfer agent, shareholder servicing agent, dividend disbursing agent or custodian who is, or has a partner, shareholder, officer or director who is, an officer or Trustee of the Trust or an officer or director of the Distributor or Manager; (d) sharing statistical, research, legal and management expenses and office hire and expenses with any other investment company in which an officer or Trustee of the Trust or an officer or director of the Distributor or Manager is an officer or director or otherwise financially interested. 10.3 SECURITIES AND CASH OF THE TRUST TO BE HELD BY CUSTODIAN SUBJECT TO CERTAIN TERMS AND CONDITIONS. (a) All securities and cash owned by the Trust shall be held by or deposited with one or more banks or trust companies having (according to its last published report) not less than $1,000,000 aggregate capital, surplus and undivided profits (any such bank or trust company being hereby designated as "Custodian"), provided such a Custodian can be found ready and willing to act; subject to such rules, regulations and orders, if any, as the Securities and Exchange Commission may adopt, the Trust may, or may permit any Custodian to, deposit all or any part of the securities owned by the Trust in a system for the central handling of securities pursuant to which all securities of any particular class or series of any issue deposited within the system may be transferred or pledged by bookkeeeping entry, without physical delivery. The Custodian may appoint, subject to the approval of the Trustees, one or more subcustodians. (b) The Trust shall enter into a written contract with each Custodian regarding the powers, duties and compensation of such Custodian with respect to the cash and securities of the Trust held by such Custodian. Said contract and all amendments thereto shall be approved by the Trustees. (c) The Trust shall upon the resignation or inability to serve of any Custodian or upon change of any Custodian: (i) in case of such resignation or inability to serve, use its best efforts to obtain a successor Custodian; (ii) require that the cash and securities owned by the Trust be delivered directly to the successor Custodian; and (iii) in the event that no successor Custodian can be found, submit to the shareholders, before permitting delivery of the cash and securities owned by the Trust otherwise than to a successor Custodian, the question whether the Trust shall be liquidated or shall function without a Custodian. 10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each shareholder of record at least semi-annually a statement of the condition of the Trust and of the results of its operations, containing all information required by applicable laws or regulations. 10.5 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset value per share of the Trust (or, if the Trust has more than one series of shares, of each series of the Trust) shall mean: (i) the value of all the assets of such series; (ii) less total liabilities of such series; (iii) divided by the number of shares of such series outstanding, in each case at the time of each determination. Except as otherwise determined by the Trustees, the net asset value per share of the Trust (or of each series) shall be determined no less frequently than once daily, Monday through Friday, on days on which the New York Stock Exchange is open for trading, at such time or times that the Trustees set at least annually. In valuing the portfolio investments of the Trust (or of any series) for determination of net asset value per share of such series, securities for which market quotations are readily available shall be valued at prices which, in the opinion of the Trustees or the person designated by the Trustees to make the determination, most nearly represent the market value of such securities, and other securities and assets shall be valued at their fair value as determined by or pursuant to the direction of the Trustees, which in the case of debt obligations, commercial paper and repurchase agreements may, but need not, be on the basis of yields for securities of comparable maturity, quality and type, or on the basis of amortized cost. Expenses and liabilities of the Trust shall be accrued each day. Liabilities may include such reserves for taxes, estimated accrued expenses and contingencies as the Trustees or their designates may in their sole discretion deem fair and reasonable under the circumstances. No accruals shall be made in respect of taxes on unrealized appreciation of securities owned unless the Trustees shall otherwise determine. ARTICLE 11 SHAREHOLDERS 11.1 MEETINGS. A meeting of the shareholders shall be called by the Clerk whenever ordered by the Trustees, the Chairman of the Trustees or requested in writing by the holder or holders of at least one-tenth of the outstanding shares entitled to vote at such meeting. If the Clerk, when so ordered or requested, refuses or neglects for more than two days to call such meeting, the Trustees, Chairman of the Trustees or the shareholders so requesting may, in the name of the Clerk, call the meeting by giving notice thereof in the manner required when notice is given by the Clerk. 11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record may apply to the Trustees for assistance in communicating with other shareholders for the purpose of calling a meeting in order to vote upon the question of removal of a Trustee. When ten or more shareholders of record who have been such for at least six months preceding the date of application and who hold in the aggregate shares having a net asset value of at least $25,000 so apply, the Trustees shall within five business days either: (i) afford to such applicants access to a list of names and addresses of all shareholders as recorded on the books of the Trust; or (ii) inform such applicants of the approximate number of shareholders of record and the approximate cost of mailing material to them, and, within a reasonable time thereafter, mail, at the applicants' expense, materials submitted by the applicants, to all such shareholders of record. The Trustees shall not be obligated to mail materials which they believe to be misleading or in violation of applicable law. 11.3 RECORD DATES. For the purpose of determining the shareholders of any series of shares of the Trust who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to receive payment of any dividend or of any other distribution, the Trustees may from time to time fix a time, which shall be not more than 90 days before the date of any meeting of shareholders or more than 60 days before the date of payment of any dividend or of any other distribution, as the record date for determining the shareholders of such series having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any such purposes close the register or transfer books for all or part of such period. 11.4 PROXIES. The placing of a shareholder's name on a proxy pursuant to telephone or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. ARTICLE 12 AMENDMENTS TO THE BYLAWS 12.1 GENERAL. These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. EX-99.B3 4 VOTING TRST (PORTIONS OF AGREEMENT AND DECLARTION OF TRUST OF PUTNAM CAPITAL MANAGER TRUST RELATING TO SHAREHOLDERS' RIGHTS) ARTICLE I NAME AND DEFINITIONS (c) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of Shares is authorized by the Trustees, the equal proportionate transferable units into which each series of Shares shall be divided from time to time; (d) "Shareholder" means a record owner of Shares; ARTICLE III SHARES DIVISION OF BENEFICIAL INTEREST Section 1. The Shares of the Trust shall be issued in one or more series as the Trustees may, without shareholder approval, authorize. Each series shall be preferred over all other series in respect of the assets allocated to that series. The beneficial interest in each series shall at all times be divided into Shares, without par value, each of which shall represent an equal proportionate interest in the series with each other Share of the same series, none having priority or preference over another. The number of Shares authorized shall be unlimited. The Trustees may from time to time divide or combine the Shares of any series into a greater or lesser number without thereby changing the proportionate beneficial interests in the series. OWNERSHIP OF SHARES Section 2. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each series and as to the number of Shares of each series held from time to time by each Shareholder. NO PREEMPTIVE RIGHTS Section 4. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY Section 5. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS VOTING POWERS Section 1. The Shareholders shall have power to vote only (i) for the election of Trustees as provided in Article IV, Section 1, (ii) for the removal of Trustees as provided in Article IV, Section 1, (iii) with respect to any Manager as provided in Article IV, Section 6, (iv) with respect to any termination of this Trust to the extent and as provided in Article IX, Section 4, (v) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article IX, Section 7, (vi) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders, and (vii) with respect to such additional matters relating to the Trust as may be required by this Declaration of Trust, the Bylaws or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of Shareholders, all Shares of the Trust then entitled to vote shall be voted by individual series, except (1) when required by the 1940 Act, Shares shall be voted in the aggregate and not by individual series; and (2) when the Trustees have determined that the matter affects only the interests of one or more series, then only Shareholders of such series shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or Bylaws to be taken by Shareholders. VOTING POWER AND MEETINGS Section 2. Meetings of Shareholders of any or all series may be called by the Trustees from time to time for the purpose of taking action upon any matter requiring the vote or authority of the Shareholders of such series as herein provided or upon any other matter deemed by the Trustees to be necessary or desirable. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by mailing such notice at least seven days before such meeting, postage prepaid, stating the time, place and purpose of the meeting, to each Shareholder entitled to vote at such meeting at the Shareholder's address as it appears on the records of the Trust. If the Trustees shall fail to call or give notice of any meeting of Shareholders for a period of 30 days after written application by Shareholders holding at least 10% of the then outstanding Shares of each series entitled to vote at such meeting or of all series if all series are entitled to vote at such meeting requesting a meeting to be called for a purpose requiring action by the Shareholders as provided herein or in the Bylaws, then Shareholders holding at least 10% of the then outstanding Shares of each series entitled to vote at such meeting or of all series if all series are entitled to vote at such meeting may call and give notice of such meeting, and thereupon the meeting shall be held in the manner provided for herein in case of call thereof by the Trustees. Notice of a meeting need not be given to any Shareholder if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Shareholder who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. QUORUM AND REQUIRED VOTE Section 3. Thirty percent of Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of this Declaration of Trust permits or requires that holders of any series shall vote as a series, then thirty percent of the aggregate number of Shares of that series entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series. Any lesser number shall be sufficient for adjournments. Any adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the Bylaws, a majority of the Shares voted shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series shall vote as a series, then a majority of the Shares of that series voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that series is concerned. ACTION BY WRITTEN CONSENT Section 4. Any action taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust or the Bylaws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. ADDITIONAL PROVISIONS Section 5. The Bylaws may include further provisions of Shareholders' votes and meetings and related matters. ARTICLE VI DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES DISTRIBUTIONS Section 1. The Trustees may each year, or more frequently if they so determine, distribute to the Shareholders of each series out of the assets of such series such amounts as the Trustees may determine. Any such distribution to the Shareholders of a particular series shall be made to said Shareholders pro rata in proportion to the number of Shares of such series held by each of them. Such distributions shall be made in cash or Shares or a combination thereof as determined by the Trustees. Any such distribution paid in Shares will be paid at the net asset value thereof as determined in accordance with the Bylaws. Notwithstanding the provisions of the foregoing paragraph, with respect to any money market series seeking to maintain a constant net asset value per share, the Trustees shall each year, or more frequently if they so determine in their sole discretion, distribute to the Shareholders of such series an amount approximately equal to the Net Income of such series, and may from time to time distribute such additional amounts as they may authorize to the Shareholders of such series. Such Net Income shall consist of: (i) all interest income (including both original issue and market discount earned on discount paper accrued ratably to the date of maturity) accrued on portfolio investments of such series, (ii) plus or minus realized or unrealized gains and losses on portfolio investments determined by valuing the portfolio investments of such series in a manner consistent with the requirements of the actual and accrued expenses and liabilities of such series determined in accordance with good accounting practices. Such Net Income shall be determined by the Trustees or as they may authorize on each business day at the times and in the manner provided in the Bylaws, and all such Net Income, which is a positive amount, since the last determination of Net Income, shall be declared as a dividend on Shares of such series. Determinations of Net Income of any such money market series made by the Trustees, or as they may authorize, in good faith, shall be binding on all parties concerned. If, for any reason, the Net Income of such series determined at any time is a negative amount, each Shareholder's pro rata share of such negative amount shall constitute a liability of such Shareholder to the Trust which shall be paid at such times and in such manner as the Trustees may from time to time determine out of the accrued dividend account of such Shareholder, by reducing the number of Shares of such series in the account of such Shareholder or otherwise. As a result of such determinations and declarations as a dividend of the Net Income of such series, the net asset value per Share of such series is intended to remain at a constant amount immediately after each such determination and declaration; subject, however, to the power of the Trustees as provided in Section I of Article III to divide or combine the Shares of such series into a greater or lesser number. Notwithstanding the provisions of the foregoing paragraph for calculation and distribution of Net Income, the Trustees may, from time to time and for so long as they may deem appropriate, for purposes of calculating and distributing income of any such money market series to the Shareholders of such series divide Shares of such series into as many classes as they deem appropriate and pay distributions of differing amounts to each class of Shares (provided all Shares of the same class receive equal distributions), provided, that the division of Shares of any such money market series into classes and the payment of differing distributions to such classes shall be made in a manner consistent with the requirements of the 1940 Act, the rules and regulations thereunder and exemptions therefrom, and provided further, that except as otherwise specifically authorized by the Trustees pursuant to this paragraph, the Trustees shall continue to calculate and distribute Net Income of such series in the manner provided in the preceding paragraph. REDEMPTIONS AND REPURCHASES Section 2. The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon the presentation of any certificate for the Shares to be purchased, a proper instrument of transfer and a request directed to the Trust or a person designated by the Trust that the Trust purchase such Shares, or in accordance with such other procedures for redemption as the Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof, as next determined in accordance with the Bylaws. Payment for said Shares shall be made by the Trust to the Shareholder within seven days after the date on which the request is made. The obligation set forth in this Section 2 is subject to the provision that in the event that any time the New York Stock Exchange is closed for other than customary weekends or holidays, or, if permitted by rules of the Commission, during periods when trading on the Exchange is restricted or during any emergency which makes it impractical for the Trust to dispose of its investments or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for the protection of investors, such obligation may be suspended or postponed by the Trustees. The Trust may also purchase or repurchase Shares at a price not exceeding the net asset value of such Shares in effect when the purchase or repurchase or any contract to purchase or repurchase is made. REDEMPTIONS AT THE OPTION OF THE TRUST Section 3. The Trust shall have the right at its option and at any time to redeem Shares of any Shareholder at the net asset value thereof as determined in accordance with the Bylaws: (i) if at such time such Shareholder owns fewer Shares than, or Shares having an aggregate net asset value of less than, an amount determined from time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a particular series of Shares equal to or in excess of a percentage of the outstanding Shares of that series determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust representing a percentage equal to or in excess of such percentage of the aggregate number of outstanding Shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Trustees. ARTICLE VIII INDEMNIFICATION SHAREHOLDERS Section 4. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability, but only out of the assets of the particular series of Shares of which he or she is or was a Shareholder. ARTICLE IX MISCELLANEOUS TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE Section 1. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series of Shares for payment under such credit, contract or claim, and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers shall give notice that this Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustee or Trustees or as officer or officers and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustee or Trustees or officer or officers or Shareholder or Shareholders individually. EX-99.B4 5 HOLDERS RTS (PORTIONS OF BYLAWS OF PUTNAM CAPITAL MANAGER TRUST RELATING TO SHAREHOLDERS' RIGHTS) ARTICLE 9 Issuance of Shares and Share Certificates 9.1 Sale of Shares. Except as otherwise determined by the Trustees, the Trust will issue and sell for cash or securities from time to time, full and fractional shares of its shares of beneficial interest, such shares to be issued and sold at a price of not less than the par value per share, if any, and not less than the net asset value per share as from time to time determined in accordance with the Declaration of Trust and these Bylaws and, in the case of fractional shares, at a proportionate reduction in such price. In the case of shares sold for securities, such securities shall be valued in accordance with the provisions for determining the value of the assets of the Trust as stated in the Declaration of Trust and these Bylaws. The officers of the Trust are severally authorized to take all such actions as may be necessary or desirable to carry out this Section 9.1. 9.2 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or may keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. The Trustees may at any time authorize the issuance of share certificates. In that event, each shareholder shall be entitled to a certificate stating the number of shares of each class owned by him, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent or by a registrar. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall cease to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he were such officer at the time of its issue. 9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust, with the approval of any two officers of the Trust, is authorized to issue and countersign replacement certificates for the shares of the Trust which have been lost, stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss or non-receipt and of an indemnity agreement executed by the registered holder or his legal representative and supported by an open penalty surety bond, said agreement and said bond in all cases to be in form and content satisfactory to and approved by the President or the Treasurer, or (ii) receipt of such other documents as may be approved by the Trustees. 9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares transferred as collateral security shall be entitled to a new certificate if the instrument of transfer substantially describes the debt or duty that is intended to be secured thereby. Such new certificate shall express on its face that it is held as collateral security, and the name of the pledgor shall be stated thereon, who alone shall be liable as a shareholder and entitled to vote thereon. 9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. ARTICLE 10 10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each shareholder of record at least semi-annually a statement of the condition of the Trust and of the results of its operations, containing all information required by applicable laws or regulations. ARTICLE 11 SHAREHOLDERS 11.1 MEETINGS. A meeting of the shareholders shall be called by the Clerk whenever ordered by the Trustees, the Chairman of the Trustees or requested in writing by the holder or holders of at least one-tenth of the outstanding shares entitled to vote at such meeting. If the Clerk, when so ordered or requested, refuses or neglects for more than two days to call such meeting, the Trustees, Chairman of the Trustees or the shareholders so requesting may, in the name of the Clerk, call the meeting by giving notice thereof in the manner required when notice is given by the Clerk. 11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record may apply to the Trustees for assistance in communicating with other shareholders for the purpose of calling a meeting in order to vote upon the question of removal of a Trustee. When ten or more shareholders of record who have been such for at least six months preceding the date of application and who hold in the aggregate shares having a net asset value of at least $25,000 so apply, the Trustees shall within five business days either: (i) afford to such applicants access to a list of names and addresses of all shareholders as recorded on the books of the Trust; or (ii) inform such applicants of the approximate number of shareholders of record and the approximate cost of mailing material to them, and, within a reasonable time thereafter, mail, at the applicants' expense, materials submitted by the applicants, to all such shareholders of record. The Trustees shall not be obligated to mail materials which they believe to be misleading or in violation of applicable law. 11.3 RECORD DATES. For the purpose of determining the shareholders of any class or series of shares of the Trust who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to receive payment of any dividend or of any other distribution, the Trustees may from time to time fix a time, which shall be not more than 90 days before the date of any meeting of shareholders or more than 60 days before the date of payment of any dividend or of any other distribution, as the record date for determining the shareholders of such class or series having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any such purposes close the register or transfer books for all or part of such period. 11.4 PROXIES. The placing of a shareholder's name on a proxy pursuant to telephone or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. EX-99.B5 6 ADVSR CONTR PUTNAM CAPITA L MANAGER TRUST FORM OF MANAGEMENT CO NTRACT Management Contract dated as of October 2, 1987, as supplemented March 2, 1990, as further supplemented February 27, 1992, as further supplemented July 9, 1993, as further supplemented April 5, 1994, as further supplemented June 2, 1994, as further supplemented April 7, 1995, and as further supplemented July 13, 1995, between Putnam Capital Manager Trust, a Massachusetts business trust (the "Fund"), and PUTNAM INVESTMENT MANAGEMENT, INC., a Massachusetts corporation (the "Manager"). WITNESSETH: That in consideration of the mutual covenants herein contained, it is agreed as follows: 1. SERVICES TO BE RENDERED BY MANAGER TO FUND. (a) The Manager, at its expense, will furnish continuously an investment program for the Fund, will determine what investments shall be purchased, held, sold or exchanged by the Fund and what portion, if any, of the assets of the Fund shall be held uninvested and shall, on behalf of the Fund, make changes in the Fund's investments. Subject always to the control of the Trustees of the Fund and except for the functions carried out by the officers and personnel referred to in Section 1(d), the Manager will also manage, supervise and conduct the other affairs and business of the Fund and matters incidental thereto. In the performance of its duties, the Manager will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of the Fund and its stated investment objectives, policies and restrictions, and will use its best efforts to safeguard and promote the welfare of the Fund and to comply with other policies which the Trustees may from time to time determine and shall exercise the same care and diligence expected of the Trustees. (b) The Manager, at its expense, except as such expense is paid by the Fund as provided in Section 1(d), will furnish (1) all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties faithfully; (2) suitable office space for the Fund; and (3) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the affairs of the Fund, including determination of the Fund's net asset value, but excluding shareholder accounting services. Except as otherwise provided in Section 1(d), the Manager will pay the compensation, if any, of the officers of the Fund. (c) The Manager, at its expense, shall place all orders for the purchase and sale of portfolio investments for the Fund's account with brokers or dealers selected by the Manager. In the selection of such brokers or dealers and the placing of such orders, the Manager shall use its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain for the Fund the most favorable price and execution available, the Manager, bearing in mind the Fund's best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker or dealer involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such policies as the Trustees of the Fund may determine, the Manager shall not be deemed to have acted unlawfully or to have breached any duty created by this Contract or otherwise solely by reason of its having caused the Fund to pay a broker or dealer that provides brokerage and research services to the Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Manager's overall responsibilities with respect to the Fund and to other clients of the Manager as to which the Manager exercises investment discretion. The Manager agrees that in connection with purchases or sales of portfolio investments for the Fund's account, neither the Manager nor any officer, director, employee or agent of the Manager shall act as a principal or receive any commission other than as provided in Section 3. (d) The Fund will pay or reimburse the Manager for (i) the compensation of the Vice Chairman of the Fund and of persons assisting him in these offices, as determined from time to time by the Trustees of the Fund, (ii) the compensation in whole or in part of such other officers of the Fund and persons assisting them as may be determined from time to time by the Trustees of the Fund, and (iii) the cost of suitable office space, utilities, support services and equipment of the Vice Chairman and persons assisting him and, as determined from time to time by the Trustees of the Fund, all or a part of such cost attributable to the other officers and persons assisting them whose compensation is paid in whole or in part by the Fund. The Fund will pay the fees, if any, of the Trustees of the Fund. (e) The Manager shall pay all expenses incurred in connection with the organization of the Fund and the initial public offering and sale of its shares of beneficial interest, provided that upon the issuance and sale of such shares to the public pursuant to the offering, and only in such event, the Fund shall become liable for, and to the extent requested reimburse the Manager for, registration fees payable to the Securities and Exchange Commission and for an additional amount not exceeding $125,000 as its agreed share of such expenses. (f) The Manager shall not be obligated to pay any expenses of or for the Fund not expressly assumed by the Manager pursuant to this Section 1 other than as provided in Section 3. 2. OTHER AGREEMENTS, ETC. It is understood that any of the shareholders, Trustees, officers and employees of the Fund may be a shareholder, director, officer or employee of, or be otherwise interested in, the Manager, and in any person controlled by or under common control with the Manager, and that the Manager and any person controlled by or under common control with the Manager may have an interest in the Fund. It is also understood that the Manager and any person controlled by or under common control with the Manager have and may have advisory, management, service or other contracts with other organizations and persons, and may have other interests and business. 3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER. The Fund will pay to the Manager as compensation for the Manager's services rendered, for the facilities furnished and for the expenses borne by the Manager pursuant to paragraphs (a), (b), (c) and (e) of Section 1, a fee, computed and paid quarterly at the following annual rates applicable to the average net asset value of each Series of the Fund (a "Series") of: PCM Asia Pacific Growth Fund: (a) 0.80% of the first $500 million of average net assets; (b) 0.70% of the next $500 million; (c) 0.65% of the next $500 million; (d) 0.60% of the next $5 billion; (e) 0.575% of the next $5 billion; (f) 0.555% of the next $5 billion; (g) 0.54% of the next $5 billion; and (h) 0.53% of any excess thereafter. PCM New Opportunities Fund, PCM Diversified Income Fund, PCM Global Asset Allocation Fund, PCM High Yield Fund and PCM Voyager Fund: (a) 0.70% of the first $500 million of average net assets; (b) 0.60% of the next $500 million; (c) 0.55% of the next $500 million; and (d) 0.50% of any excess over $1.5 billion of such average net asset value. PCM Growth and Income Fund: (a) 0.65% of the first $500 million of average net assets; (b) 0.55% of the next $500 million; (c) 0.50% of the next $500 million; and (d) 0.45% of any excess over $1.5 billion of such average net asset value. PCM U.S. Government and High Quality Bond Fund: (a) 0.65% of the first $500 million of average net assets; (b) 0.55% of the next $500 million; (c) 0.50% of the next $500 million; (d) 0.45% of the next $5 billion; (e) 0.425% of the next $5 billion; (f) 0.405% of the next $5 billion; (g) 0.39% of the next $5 billion; and (h) 0.38% of any excess thereafter. PCM Money Market Fund: (a) 0.45% of the first $500 million of average net assets; (b) 0.35% of the next $500 million; (c) 0.30% of the next $500 million; and (d) 0.25% of any excess over $1.5 billion of such average net asset value. PCM Global Growth Fund and PCM Utilities Growth & Income Fund: 0.60%. Such fees computed with respect to the net asset value of each Series shall be paid from the assets of such Series. Such average net asset value of each Series of the Fund shall be determined by taking an average of all of the determinations of such net asset value during such quarter at the close of business on each business day during such quarter while this Contract is in effect. Such fee shall be payable for each month within 30 days after the end of such quarter. The fees payable by the Fund to the Manager pursuant to this Section 3 with respect to any Series of the Fund shall be reduced by any commissions, fees, brokerage or similar payments received by the Manager or any affiliated person of the Manager in connection with the purchase and sale of portfolio investments of such Series, less any direct expenses approved by the Trustees incurred by the Manager or any affiliated person of the Manager in connection with obtaining such payments. In the event that expenses of any Series of the Fund for any fiscal year should exceed the expense limitation on investment company expenses imposed by any statute or regulatory authority of any jurisdiction in which shares of that Series are qualified for offer or sale, the compensation due the Manager for such fiscal year shall be reduced by the amount of such excess by a reduction or refund thereof. In the event that the expenses of any Series of the Fund exceed any expense limitation which the Manager may, by written notice to the Fund, voluntarily declare to be effective subject to such terms and conditions as the Manager may prescribe in such notice, the compensation due the Manager shall be reduced, and, if necessary, the Manager shall assume expenses of the Series to the extent required by the terms and conditions of such expense limitation. If the Manager shall serve for less than the whole of a month, 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 as to any Series of the Fund unless such amendment be approved at a meeting by the affirmative vote of a majority of the outstanding shares of the Series, and by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Manager. 5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This Contract shall become effective upon its execution, and shall remain in full force and effect as to each Series continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows: (a) Either party hereto may at any time terminate this Contract as to any Series or as to the Fund by not more than sixty days' nor less than thirty days' written notice delivered or mailed by registered mail, postage prepaid, to the other party, or (b) If (i) the Trustees of the Fund or the shareholders by the affirmative vote of a majority of the outstanding shares of the Series, and (ii) a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Manager, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate as to such Series at the close of business on January 31, 1989 in the case of PCM Global Growth Fund, January 31, 1994 in the case of PCM Utilities Growth and Income Fund, January 31, 1995 in the case of PCM Diversified Income Fund, January 31, 1996 in the case of PCM Global Asset Allocation Fund, PCM Growth and Income Fund, PCM High Yield Fund, PCM Money Market Fund, PCM New Opportunities Fund and PCM Voyager Fund, and the second anniversary of its execution with respect to any other Series, or the expiration of one year from the effective date of the last such continuance, whichever is later; provided, however, that if the continuance of this Contract is submitted to the shareholders of a Series for their approval and such shareholders fail to approve such continuance of this Contract as provided herein, the Manager may continue to serve hereunder in a manner consistent with the Investment Company Act of 1940 and the Rules and Regulations thereunder. Action by the Fund under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of one or more Series affected. Termination of this Contract pursuant to this Section 5 will be without the payment of any penalty. 6. CERTAIN DEFINITIONS For the purposes of this Contract, the "affirmative vote of a majority of the outstanding shares" means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Fund or the Series, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Fund or the Series, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Fund, or the Series, as the case may be, entitled to vote at such meeting, whichever is less. For the purposes of this Contract, the terms "affiliated person", "control", "interested person" and "assignment" shall have their respective meanings defined in the Investment Company Act of 1940 and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act; the term "specifically approve at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940 and the Rules and Regulations thereunder; and the term "brokerage and research services" shall have the meaning given in the Securities Exchange Act of 1934 and the Rules and Regulations thereunder. 7. NON-LIABILITY OF MANAGER In the absence of willful misfeasance, bad faith or gross negligence on the part of the Manager, or reckless disregard of its obligations and duties hereunder, the Manager shall not be subject to any liability to the Fund or to any shareholder of the Fund, for any act or omission in the course of, or connected with, rendering services hereunder. 8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Fund. IN WITNESS WHEREOF, PUTNAM CAPITAL MANAGER TRUST and PUTNAM INVESTMENT MANAGEMENT, INC. have each caused this instrument to be signed in duplicate in its behalf by its President or a Vice President thereunto duly authorized, all as of the day and year first above written. PUTNAM CAPITAL MANAGER TRUST By: _______________________________ PUTNAM INVESTMENT MANAGEMENT, INC. By: _______________________________ EX-99.B6 7 DISTR CONTR PUTNAM CAPITAL MANAGER TRUST DISTRIBUTOR'S CONTRACT Distributor's Contract dated May 6, 1994, by and between PUTNAM CAPITAL MANAGER TRUST, a Massachusetts business trust (the "Trust"), and PUTNAM MUTUAL FUNDS CORP., a Massachusetts corporation ("Putnam"). WHEREAS, the Trust and Putnam are desirous of entering into this agreement to provide for the distribution by Putnam of shares of the various portfolio series of the Trust (each a "Fund"); NOW, THEREFORE, in consideration of the mutual agreements contained in the Terms and Conditions of Distributor's Contract attached to and forming a part of this Contract (the "Terms and Conditions"), the Trust hereby appoints Putnam as a distributor of shares of the Trust, and Putnam hereby accepts such appointment, all as set forth in the Terms and Conditions. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the relevant Fund. IN WITNESS WHEREOF, PUTNAM CAPITAL MANAGER TRUST and PUTNAM MUTUAL FUNDS CORP. have each caused this Distributor's Contract to be signed in duplicate in its behalf, all as of the day and year first above written. PUTNAM CAPITAL MANAGER TRUST /s/ Charles E. Porter By: ----------------------------- Executive Vice President PUTNAM MUTUAL FUNDS CORP. /s/ William N. Shiebler By: ----------------------------- President TERMS AND CONDITIONS OF DISTRIBUTOR'S CONTRACT 1. RESERVATION OF RIGHT NOT TO SELL. The Trust reserves the right to refuse at any time or times to sell hereunder any shares of beneficial interest ("shares") of a Fund for any reason deemed adequate by it. 2. PAYMENTS TO PUTNAM. In connection with the distribution of shares of a Fund, Putnam will be entitled to receive: (a) payments pursuant to any Distribution Plan and Agreement from time to time in effect between the Trust and Putnam with respect to such Fund or any particular class of shares of such Fund, (b) any contingent deferred sales charges applicable to the redemption of shares of such Fund or of any particular class of shares of such Fund, determined in the manner set forth in the then current Prospectus and Statement of Additional Information of such Fund and (c) subject to the provisions of Section 3 below, any front-end sales charges applicable to the sale of shares of such Fund or of any particular class of shares of such Fund, less any applicable dealer discount. 3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will have the right, as principal, to sell shares of a Fund to investment dealers against orders therefor (a) at the public offering price (calculated as described below) less a discount determined by Putnam, which discount shall not exceed the amount of the sales charge referred to below, or (b) at net asset value. Upon receipt of an order to purchase shares from an investment dealer with whom Putnam has a Sales Contract, Putnam will promptly purchase shares from the relevant Fund to fill such order. The public offering price of a class of shares of a Fund shall be the net asset value of such shares then in effect, plus any applicable front-end sales charge determined in the manner set forth in the then current Prospectus and Statement of Additional Information of the Fund or as permitted by the Investment Company Act of 1940, as amended, and the Rules and Regulations of the Securities and Exchange Commission promulgated thereunder. In no event shall the public offering price exceed 1000/915ths of such net asset value, and in no event shall any applicable sales charge exceed 8 1/2% of the public offering price. The net asset value of the shares shall be determined in the manner provided in the Agreement and Declaration of Trust of the Trust as then amended and when determined shall be applicable to transactions as provided for in the then current Prospectus and Statement of Additional Information of the relevant Fund. Putnam will also have the right, as principal, to purchase shares from a Fund at their net asset value and to sell such shares to the public against orders therefor at the public offering price or at net asset value. Putnam will also have the right, as principal, to sell shares at their net asset value and not subject to a contingent deferred sales charge to such persons as may be approved by the Trustees of the Trust, all such sales to comply with the provisions of the Investment Company Act of 1940, as amended, and the Rules and Regulations of the Securities and Exchange Commission promulgated thereunder. Putnam will also have the right, as agent for the Trust, to sell shares at the public offering price or at net asset value to such persons and upon such conditions as the Trustees of the Trust may from time to time determine. On every sale the Trust shall receive the applicable net asset value of the shares. Putnam will reimburse the Trust for any increased issue tax paid on account of sales charges. Upon receipt of registration instructions in proper form and payment for shares, Putnam will transmit such instructions to the Trust or its agent for registration of the shares purchased. 4. SALES OF SHARES BY THE TRUST. The Trust reserves the right to issue shares at any time directly to its shareholders as a stock dividend or stock split and to sell shares to its shareholders or to other persons approved by Putnam at not less than net asset value. 5. REPURCHASE OF SHARES. Putnam will act as agent for the Trust in connection with the repurchase of shares by the Trust upon the terms and conditions set forth in the then current Prospectus and Statement of Additional Information of the relevant Fund. 6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its best efforts to place shares sold by it on an investment basis. Putnam does not agree to sell any specific number of shares. Shares will be sold by Putnam only against orders therefor. Putnam will not purchase shares from anyone other than the Trust or a Fund except in accordance with Section 5, and will not take "long" or "short" positions in shares contrary to the Agreement and Declaration of Trust of the Trust. 7. RULES OF NASD, ETC. Putnam will conform to the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and the sale of securities laws of any jurisdiction in which it sells, directly or indirectly, any shares. Putnam also agrees to furnish to the Trust sufficient copies of any agreements or plans it intends to use in connection with any sales of shares in adequate time for the Trust to file and clear them with the proper authorities before they are put in use, and not to use them until so filed and cleared. 8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an independent contractor and neither Putnam nor any of its officers or employees as such is or shall be an employee of the Trust. Putnam is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. Putnam assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder. Putnam will maintain at its own expense insurance against public liability in such an amount as the Trustees of the Trust may from time to time reasonably request. 9. EXPENSES. Putnam will pay all expenses of qualifying shares for sale under the so-called "Blue Sky" laws of any state (except expenses of any action by the Trust relating to its Agreement and Declaration of Trust or other matters in which the Trust has a direct concern), and expenses of preparing, printing and distributing advertising and sales literature (apart from expenses of registering shares under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and the preparation and printing of Prospectuses and Statements of Additional Information and reports as required by said Acts and the direct expenses of the issue of shares, except that Putnam will pay the cost of the preparation and printing of Prospectuses and Statements of Additional Information and shareholders' reports used by it and by others in the sale of shares to the extent such cost is not paid by others). 10. INDEMNIFICATION OF TRUST. Putnam agrees to indemnify and hold harmless the Trust and each person who has been, is, or may hereafter be a Trustee of the Trust against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of Putnam or any agent or employee of Putnam or any other person for whose acts Putnam is responsible or is alleged to be responsible unless such misrepresentation or omission was made in reliance upon written information furnished by the Trust. Putnam also agrees likewise to indemnify and hold harmless the Trust and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of Putnam's (or an affiliate of Putnam's) failure to exercise reasonable care and diligence with respect to its services rendered in connection with investment, reinvestment, automatic withdrawal and other plans for shares. The term "expenses" includes amounts paid in satisfaction of judgments or in settlements which are made with Putnam's consent. The foregoing rights of indemnification shall be in addition to any other rights to which the Trust or a Trustee may be entitled as a matter of law. 11. 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. This Contract may be amended only if such amendment be approved either by action of the Trustees of the Trust or at a meeting of the shareholders of the relevant Fund by the affirmative vote of a majority of the outstanding shares of such Fund, and by a majority of the Trustees of the Trust who are not interested persons of the Trust or of Putnam by vote cast in person at a meeting called for the purpose of voting on such approval. 12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This Contract shall take effect upon the date first above written and shall remain in full force and effect continuously (unless terminated automatically as set forth in Section 11) until terminated with respect to a particular Fund: (a) Either by the Trust or Putnam by not more than sixty (60) days' nor less than ten (10) days' written notice delivered or mailed by registered mail, postage prepaid, to the other party; or (b) If the continuance of this Contract after January 31, 1995 is not specifically approved at least annually by the Trustees of the Trust or the shareholders of the relevant Fund by the affirmative vote of a majority of the outstanding shares of such Fund, and by a majority of the Trustees of the Trust who are not interested persons of the Trust or of Putnam by vote cast in person at a meeting called for the purpose of voting on such approval. Action by the Trust under (a) above may be taken either (i) by vote of its Trustees or (ii) by the affirmative vote of a majority of the outstanding shares of the relevant Fund. The requirement under (b) above that continuance of this Contract be "specifically approved at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940, as amended, and the Rules and Regulations thereunder. Termination of this Contract pursuant to this Section 12 shall be without the payment of any penalty. 13. 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 "interested person" and "assignment" shall have the meanings defined in the Investment Company Act of 1940, as amended, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. EX-99.B6 8 DISTR CONTR DEALER SALES CONTRACT Between: PUTNAM MUTUAL FUNDS CORP. and General Distributor of The Putnam Family of Mutual Funds P.O. Box 2701 Boston, MA 02208 As general distributor of The Putnam Family of Mutual Funds (the "Funds"), we agree to sell you shares of beneficial interest issued by the Funds (the "Shares"), subject to any limitations imposed by any of the Funds and to confirmation by us in each instance of such sales. By your acceptance hereof, you agree to all of the following terms and conditions: 1. OFFERING PRICE AND FEES The public offering price at which you may offer the Shares is the net asset value thereof, as computed from time to time, plus any applicable sales charge described in the then-current Prospectus of the applicable Fund. As compensation for each sale of Shares made by you, you will be allowed the dealer discount, if any, on such Shares described in the then-current Prospectus of the Fund whose Shares are sold. We reserve the right to revise the dealer discount referred to herein upon ten days' written notice to you. We will furnish you upon request with the public offering prices for the Shares, and you agree to quote such prices in connection with any Shares offered by you for sale. Your attention is specifically called to the fact that each sale is always made subject to confirmation by us at the public offering price next computed after receipt of the order. There is no sales charge or dealer discount to dealers on the reinvestment of dividends and distributions. In addition to the dealer discount, if any, allowed pursuant to the foregoing provisions of this Section 1, we may, at our expense, provide additional promotional incentives or payments to dealers. If non-cash concessions are provided, each dealer earning such a concession may elect to receive an amount in cash equivalent to the cost of providing such concessions. Notice of the availability of concessions will be given to you by us. All dealer discounts, promotional incentives, payments and concessions will be made by us in accordance with National Association of Securities Dealers, Inc. ("NASD") guidelines and rules. 2. MANNER OF OFFERING, SELLING AND PURCHASING SHARES We have delivered to you a copy of each Fund's current Prospectus and will provide you with such number of copies of each Fund's Prospectus, Statement of Additional Information and shareholder reports and of supplementary sales materials prepared by us, as you may reasonably request. You will offer and sell the Shares only in accordance with the terms and conditions of the current Prospectus and Statement of Additional Information of the applicable Fund. Neither you nor any other person is authorized to give any information or to make any representations other than those contained in such Prospectuses, Statements of Additional Information and shareholder reports or in such supplementary sales materials. You agree that you will not use any other offering materials for the Funds without our written consent. You hereby agree (i) to exercise your best efforts to find purchasers for the Shares of the Funds, (ii) to furnish to each person to whom any sale is made a copy of the then-current Prospectus of the applicable fund, (iii) to transmit to us promptly upon receipt any and all orders received by you, and (iv) to pay to us the offering price, less any dealer discount to which you are entitled, within five (5) business days of our confirmation of your order, or such shorter time as may be required by law. If such payment is not received within said time period, we reserve the right, without prior notice, to cancel the sale, or at our option to return the Shares to the issuer for redemption or repurchase. In the latter case, we shall have the right to hold you responsible for any loss resulting to us. Should payment be made by check on your local bank, liquidation of Shares may be delayed pending clearance of your check. You agree to issue confirmations promptly for all accepted purchase orders for accounts held in street name. You shall make all sales subject to our confirmation. All orders are subject to acceptance or rejection by us in our sole discretion, and by the Funds in their sole discretion. The procedure stated herein relating to the pricing and handling of orders shall be subject to instructions which we may forward to you from time to time. 3. COMPLIANCE WITH LAW You hereby represent that you are registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and are licensed and qualified as a broker-dealer or otherwise authorized to offer and sell the Shares under the laws of each jurisdiction in which the Shares will be offered and sold by you. You further confirm that you are a member in good standing of the NASD and agree to maintain such membership in good standing or, in the alternative, you are a foreign dealer not eligible for membership in the NASD. You agree that in selling Shares you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act of 1933, as amended, the applicable rules and regulations of the NASD, and the applicable rules and regulations of any jurisdiction in which you sell, directly or indirectly, any Shares. You agree not to offer for sale or sell the Shares in any jurisdiction in which the Shares are not qualified for sale or in which you are not qualified as a broker-dealer. 4. RELATIONSHIP WITH DEALERS In offering and selling Shares under this Contract, you shall be acting as principal and nothing herein shall be construed to constitute you or any of your agents, employees or representatives as our agent or employee, or as an agent or employee of the Funds. As general distributor of the Funds, we shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the distribution of the Shares. We shall not be under any obligation to you, except for obligations expressly assumed by us in this Contract. 5. TERMINATION Either party hereto may terminate this Contract, without cause, upon ten days' written notice to the other party. We may terminate this Contract for cause upon the violation by you of any of the provisions hereof, such termination to become effective on the date such notice of termination is mailed to you. This Contract shall terminate automatically if either Party ceases to be a member of the NASD. 6. ASSIGNABILITY This Contract is not assignable or transferable, except that we may assign or transfer this Contract to any successor which becomes general distributor of the Funds. 7. GOVERNING LAW This Contract and the rights and obligations of the parties hereunder shall be governed by and construed under the laws of The Commonwealth of Massachusetts. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Contract as of the date set forth below. Dealer ---------------------------- By: ---------------------------- Authorized Signature, Title ---------------------------- ---------------------------- Address Dated ---------------------------- Please return the signed Putnam copy to Putnam Mutual Funds Corp., P.O. Box 2701, Boston, MA 02208 EX-99.B6 9 DISTR CONTR FINANCIAL INSTITUTION SALES CONTRACT Between: and PUTNAM MUTUAL FUNDS CORP. General Distributor of The Putnam Family of Mutual Funds P. O. Box 2701 Boston, MA 02208 As general distributor of The Putnam Family of Mutual Funds (the "Funds"), we agree that you will make available to your customers, under an agency relationship with your customers, shares of beneficial interest issued by the Funds (the "Shares"), subject to any limitations imposed by any of the Funds and to confirmation by us of each transaction. By your acceptance hereof, you agree to all of the following terms and conditions: 1. OFFERING PRICES AND FEES The public offering price at which you may make the Shares available to your customers is the net asset value thereof, as computed from time to time, plus any applicable sales charge described in the then-current Prospectus of the applicable Fund. In the case of purchases by you, as agent for your customers, of Shares sold with a sales charge, you shall receive an agency commission consisting of a portion of the public offering price, determined on the same basis as the "dealer discount" described in the then-current Prospectus of the Fund, and such other compensation to dealers as may be described therein, which shall be payable to you at the same time and on the same basis as the same is paid to such dealers, consistent with applicable law, rules and regulations. In determining the amount of any agency commission payable to you hereunder, we reserve the right to exclude any purchases for any accounts which we reasonably determine are not made in accordance with the terms of the applicable Fund Prospectus and the provisions of this Contract. We reserve the right to revise the agency commission referred to herein upon ten days' written notice to you. We will furnish you upon request with the public offering prices for the Shares, and you agree to quote such prices in connection with any Shares made available by you as agent for your customers. Your attention is specifically called to the fact that each purchase of Shares by your customers is always made subject to confirmation by us at the public offering price next computed after receipt of the order. There is no sales charge or agency commission to you on the reinvestment of dividends and distributions. 2. MANNER OF MAKING SHARES AVAILABLE FOR PURCHASE We will, upon request, deliver to you a copy of each Fund's then- current Prospectus and will provide you with such number of copies of each Fund's then-current Prospectus, Statement of Additional Information and shareholder reports and of supplementary sales materials prepared by us, as you may reasonably request. It shall be your obligation to ensure that all such information and materials are distributed to your customers who own Shares, in accordance with securities and/or banking law and regulations and any other applicable regulations. Neither you nor any other person is authorized to give any information or to make any representations other than those contained in such Prospectuses, Statements of Additional Information and shareholder reports or in such supplementary sales materials. You shall not furnish or cause to be furnished to any person, display or publish any information or materials relating to any Fund (including, without limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar material), except such information and materials as may be furnished to you by us or the Fund, and such other information and materials as may be approved in writing by us. You hereby agree: (i) to not purchase any Shares as agent for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then- current Prospectus of the applicable Fund unless such customer has acknowledged receipt of the Prospectus of such Fund. You hereby represent that you understand your obligation to deliver a prospectus to customers who purchase Shares pursuant to federal securities laws and you have taken all necessary steps to comply with such prospectus delivery requirements; (ii) to transmit to us promptly upon receipt any and all orders received by you, it being understood that no conditional orders will be accepted; (iii) to obtain from each customer for whom you act as agent for the purchase of Shares any taxpayer identification number certification and backup withholding information required under the Internal Revenue Code of 1986, as amended from time to time (the "Code"), and the regulations promulgated thereunder, or other sections of the Code which may become applicable, and to provide us or our designee with timely written notice of any failure to obtain such taxpayer identification number certification or information in order to enable the implementation of any required backup withholding in accordance with the Code and the regulations thereunder; and (iv) to pay to us the offering price, less any agency commission to which you are entitled, within five (5) business days of our confirmation of your customer's order, or such shorter time as may be required by law. You may, subject to our approval, remit the total public offering price to us, and we will return to you your agency commission. If such payment is not received within said time period, we reserve the right, without prior notice, to cancel the sale, or at our option to return the Shares to the issuer for redemption or repurchase. In the latter case, we shall have the right to hold you responsible for any loss resulting to us. Should payment be made by local bank check, liquidation of Shares may be delayed pending clearance of your check. Unless otherwise mutually agreed in writing or except as provided below, each transaction placed by you shall be promptly confirmed by us in writing to you, and shall be confirmed to the customer promptly upon receipt by us of instructions from you as to such customer. In the case of a purchase order by customer's application, each transaction shall be promptly confirmed in writing directly to the customer and a copy of each confirmation shall be sent simultaneously to you. We reserve the right, at our discretion and without notice, to suspend the sale of Shares or withdraw entirely the sale of Shares of any or all of the Funds. All orders are subject to acceptance or rejection by us in our sole discretion, and by the Funds in their sole discretion. The procedure stated herein relating to the pricing and handling of orders shall be subject to instructions which we may forward to you from time to time. 3. COMPLIANCE WITH LAW You hereby represent that you are either (1) a "bank" as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and at the time of each transaction in shares of the Funds, are not required to register as a broker- dealer under the Exchange Act or regulations thereunder; or (2) registered as a broker-dealer under the Exchange Act, a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and affiliated with a bank. (a) If you are a bank, not required to register as a broker-dealer under the Exchange Act: You further represent and warrant to us that with respect to any sales in the United States, you will use your best efforts to ensure that any purchase of Shares by your customers constitutes a suitable investment for such customers. You shall not effect any transaction in, or induce any purchase or sale of, any Shares by means of any manipulative, deceptive or other fraudulent device or contrivance, and shall otherwise deal equitably and fairly with your customers with respect to transactions in Shares of a Fund. (b) If you are a NASD member broker-dealer affiliated with a bank and registered under the Exchange Act: You further represent and warrant to us that with respect to any sales in the United States, you agree to abide by all of the applicable laws, rules and regulations including applicable provisions of the Securities Act of 1933, as amended, and the applicable rules and regulations of the NASD, including, without limitation, its Rules of Fair Practice, and the applicable rules and regulations of any jurisdiction in which you make Shares available for sale to your customers. You agree not to make available for sale to your customers the Shares in any jurisdiction in which the Shares are not qualified for sale or in which you are not qualified as a broker-dealer. We shall have no obligation or responsibility as to your right to make Shares of any Funds available to your customers in any jurisdiction. You agree to notify us immediately in the event of (i) your expulsion or suspension from the NASD or your becoming subject to any enforcement action by the Securities and Exchange Commission, NASD, or any other self-regulatory organization, or (ii) your violation of any applicable federal or state law, rule or regulation including, but not limited to, those of the SEC, NASD or other self-regulatory organization, arising out of or in connection with this Agreement, or which may otherwise affect in any material way your ability to act in accordance with the terms of this Contract. You shall not make Shares of any Fund available to your customers, including your fiduciary customers, except in compliance with all federal and state laws and rules and regulations of regulatory agencies or authorities applicable to you, or any of your affiliates engaging in such activity, which may affect your business practices. You confirm that you are not in violation of any banking law or regulations as to which you are subject. 4. RELATIONSHIP WITH CUSTOMER With respect to any and all transactions in the Shares of any Fund pursuant to this Contract, it is understood and agreed in each case that: (a) you shall be acting solely as agent for the account of your customer; (b) each transaction shall be initiated solely upon the order of your customer; (c) we shall execute transactions only upon receiving instructions from you acting as agent for your customer or upon receiving instructions directly from your customer; (d) as between you and your customer, your customer will have full beneficial ownership of all Shares; (e) each transaction shall be for the account of your customer and not for your account; and (f) unless otherwise agreed in writing we will serve as a clearing broker for you on a fully disclosed basis, and you shall serve as the introducing agent for your customers' accounts. Subject to the foregoing, however, and except for Shares sold subject to a contingent deferred sales charge, you may maintain record ownership of such customers' Shares in an account registered in your name or the name of your nominee, for the benefit of such customers. With respect to Shares sold subject to a contingent deferred sales charge, you agree not to hold shares of such Funds in an account registered in your name or in the name of your nominee for the benefit of certain of your customers. You understand that such Shares must be held in a separate account for each shareholder of such Funds. Each transaction shall be without recourse to you provided that you act in accordance with the terms of this Agreement. You represent and warrant to us that you will have full right, power and authority to effect transactions (including, without limitation, any purchases and redemptions) in Shares on behalf of all customer accounts provided by you. 5. RELATIONSHIP WITH FINANCIAL INSTITUTION Neither this Contract nor the performance of the services of the respective parties hereunder shall be considered to constitute an exclusive arrangement, or to create a partnership, association or joint venture between you and us. In making available Shares of the Funds under this Contract, nothing herein shall be construed to constitute you or any of your agents, employees or representatives as our agent or employee, or as an agent or employee of the Funds, and you shall not make any representations to the contrary. As general distributor of the Funds, we shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the distribution of the Shares. We shall not be under any obligation to you, except for obligations expressly assumed by us in this Contract. 6. TERMINATION Either party hereto may terminate this Contract, without cause, upon ten days' written notice to the other party. We may terminate this Contract for cause upon the violation by you of any of the provisions hereof, such termination to become effective on the date such notice of termination is mailed to you. If you are registered as a broker-dealer and affiliated with a bank, this Contract shall terminate automatically if either Party ceases to be a member of the NASD. 7. ASSIGNABILITY This Contract is not assignable or transferable, except that we may assign or transfer this Contract to any successor which becomes general distributor of the Funds. 8. MISCELLANEOUS (a) All communications mailed to us should be sent to the above address. Any notice to you shall be duly given if mailed or delivered to you at the address specified by you below. (b) This Contract constitutes the entire agreement and understanding between the parties and supercedes any and all prior agreements between the parties. (c) This Contract and the rights and obligations of the parties hereunder shall be governed by and construed under the laws of The Commonwealth of Massachusetts. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Contract as of the date set forth below. Financial Institution: --------------------------- By: ---------------------------- Authorized Signature, Title ---------------------------- ---------------------------- Address Dated: ---------------------------- Please return the signed Putnam copy of this sales Contract to Putnam Mutual Funds Corp., P. O. Box 2701, Boston, MA 02208. EX-99.B8 10 CUST CONTR CUSTODIAN AGREEMENT AGREEMENT made as of the 3rd day of May, 1991, as amended July 13, 1992, between each of the Putnam Funds listed in Schedule A, each of such Funds acting on its own behalf separately from all the other Funds and not jointly or jointly and severally with any of the other Funds (each of the Funds being hereinafter referred to as the "Fund"), and Putnam Fiduciary Trust Company (the "Custodian"). WHEREAS, the Custodian represents to the Fund that it is eligible to serve as a custodian for a management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and WHEREAS, the Fund wishes to appoint the Custodian as the Fund's custodian. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF CUSTODIAN. The Fund hereby employs and appoints the Custodian as custodian of its assets for the term and subject to the provisions of this Agreement. At the direction of the Custodian, the Fund agrees to deliver to the Sub-Custodians appointed pursuant to Section 2 below (the "Sub- Custodians") securities, funds and other property owned by it. The Custodian shall have no responsibility or liability for or on account of securities, funds or other property not so delivered to the Sub-Custodians. Upon request, the Fund shall deliver to the Custodian or to such Sub-Custodians as the Custodian may direct such proxies, powers of attorney or other instruments as may be reasonably necessary or desirable in connection with the performance by the Custodian or any Sub-Custodian of their respective obligations under this Agreement or any applicable Sub-Custodian Agreement. 2. APPOINTMENT OF SUB-CUSTODIANS. The Custodian may at any time and from time to time appoint, at its own cost and expense, as a Sub-Custodian for the Fund any bank or trust company which meets the requirements of the 1940 Act and the rules and regulations thereunder to act as a custodian, provided that the Fund shall have approved in writing any such bank or trust company and the Custodian gives prompt written notice to the Fund of any such appointment. The agreement between the Custodian and any Sub-Custodian shall be substantially in the form of the Sub- Custodian agreement attached hereto as Exhibit 1 (the "Sub- Custodian Agreement") unless otherwise approved by the Fund, provided, however, that the agreement between the Custodian and any Sub-Custodian appointed primarily for the purpose of holding foreign securities of the Fund shall be substantially in the form of the Sub-Custodian Agreement attached hereto as Exhibit 1(A) (the "Foreign Sub-Custodian Agreement"; the "Sub-Custodian Agreement" and the "Foreign Sub-Custodian Agreement" are herein referred to collectively and each individually as the "Sub- Custodian Agreement"). All Sub-Custodians shall be subject to the instructions of the Custodian and not the Fund. The Custodian may, at any time in its discretion, remove any bank or trust company which has been appointed as a Sub-Custodian but shall in such case promptly notify the Fund in writing of any such action. Securities, funds and other property of the Fund delivered pursuant to this Agreement shall be held exclusively by Sub-Custodians appointed pursuant to the provisions of this Section 2. The Sub-Custodians which the Fund has approved to date are set forth in Schedule B hereto. Schedule B shall be amended from time to time as Sub-Custodians are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule B, in order that there shall be sufficient time for the Custodian to put the appropriate arrangements in place with such Sub-Custodian pursuant to such Sub-Custodian Agreement. With respect to the securities, funds or other property held by a Sub-Custodian, the Custodian shall be liable to the Fund if and only to the extent that such Sub-Custodian is liable to the Custodian. The Custodian shall nevertheless be liable to the Fund for its own negligence in transmitting any instructions received by it from the Fund and for its own negligence in connection with the delivery of any securities, funds or other property of the Fund to any such Sub-Custodian. In the event that any Sub-Custodian appointed pursuant to the provisions of this Section 2 fails to perform any of its obligations under the terms and conditions of the applicable Sub- Custodian Agreement, the Custodian shall use its best efforts to cause such Sub-Custodian to perform such obligations. In the event that the Custodian is unable to cause such Sub-Custodian to perform fully its obligations thereunder, the Custodian shall forthwith terminate such Sub-Custodian and, if necessary or desirable, appoint another Sub-Custodian in accordance with the provisions of this Section 2. The Custodian may with the approval of the Fund commence any legal or equitable action which it believes is necessary or appropriate in connection with the failure by a Sub-Custodian to perform its obligations under the applicable Sub-Custodian Agreement. Provided the Custodian shall not have been negligent with respect to any such matter, such action shall be at the expense of the Fund. The Custodian shall keep the Fund fully informed regarding such action and the Fund may at any time upon notice to the Custodian elect to take responsibility for prosecuting such action. In such event the Fund shall have the right to enforce and shall be subrogated to the Custodian's rights against any such Sub-Custodian for loss or damage caused the Fund by such Sub-Custodian. At the written request of the Fund, the Custodian will terminate any Sub-Custodian appointed pursuant to the provisions of this Section 2 in accordance with the termination provisions of the applicable Sub-Custodian Agreement. The Custodian will not amend any Sub-Custodian Agreement in any material manner except upon the prior written approval of the Fund and shall in any case give prompt written notice to the Fund of any amendment to the Sub-Custodian Agreement. 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY SUB-CUSTODIANS. 3.1 HOLDING SECURITIES - The Custodian shall cause one or more Sub-Custodians to hold and, by book-entry or otherwise, identify as belonging to the Fund all non-cash property delivered to such Sub-Custodian. 3.2 DELIVERY OF SECURITIES - The Custodian shall cause Sub- Custodians holding securities of the Fund to release and deliver securities owned by the Fund held by the Sub-Custodian or in a Securities System account of the Sub-Custodian only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 3.2.1 Upon sale of such securities for the account of the Fund and receipt of payment therefor; PROVIDED, HOWEVER, that a Sub-Custodian may release and deliver securities prior to the receipt of payment therefor if (i) in the Sub-Custodian's judgment, (A) release and delivery prior to payment is required by the terms of the instrument evidencing the security or (B) release and delivery prior to payment is the prevailing method of settling securities transactions between institutional investors in the applicable market and (ii) release and delivery prior to payment is in accordance with generally accepted trade practice and with any applicable governmental regulations and the rules of Securities Systems or other securities depositories and clearing agencies in the applicable market. The Custodian agrees, upon request, to advise the Fund of all pending transactions in which release and delivery will be made prior to the receipt of payment therefor; 3.2.2 Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3.2.3 In the case of a sale effected through a Securities System, in accordance with the provisions of Section 3.12 hereof; 3.2.4 To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; provided that, in any such case, the cash or other consideration is thereafter to be delivered to the Sub-Custodian; 3.2.5 To the issuer thereof or its agent, when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Sub-Custodian; 3.2.6 To the issuer thereof, or its agent for transfer into the name of the Fund or into the name of any nominee or nominees of the Sub-Custodian or into the name or nominee name of any agent appointed pursuant to Section 3.11 or any other name permitted pursuant to Section 3.3; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Sub- Custodian; 3.2.7 Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Sub- Custodian's own negligence or willful misconduct; 3.2.8 For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Sub-Custodian; 3.2.9 In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Sub- Custodian; 3.2.10 For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities; except that in connection with any loan of securities held in a Securities System for which collateral is to credited to the Sub-Custodian's account in another Securities System, the Sub-Custodian will not be held liable or responsible for delivery of the securities prior to the receipt of such collateral. 3.2.11 For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 3.2.12 Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the shareholders of the Fund in connection with distributions in kind, as may be described from time to time in the Fund's Declaration of Trust and currently effective registration statement, if any, in satisfaction of requests by Fund shareholders for repurchase or redemption; 3.2.13 For delivery to another Sub-Custodian of the Fund; and 3.2.14 For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or an Assistant Clerk, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper corporate purposes, and naming the person or persons to whom delivery of such securities shall be made. 3.3 REGISTRATION OF SECURITIES. Securities of the Fund held by the Sub-Custodians hereunder (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Sub-Custodians or any 17f-5 Sub-Custodian or Foreign Depository (as each of those terms is defined in the Foreign Sub-Custodian Agreement, which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 3.12. Notwithstanding the foregoing, a Sub-Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository may hold securities of the Fund in a nominee name which is used for its other clients provided that such name is not used by the Sub- Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository for its own securities and that securities of the Fund are, by book-entry or otherwise, at all times identified as belonging to the Fund and distinguished from other securities held for other clients using the same nominee name. In addition, and notwithstanding the foregoing, a Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign Depository may hold securities of the Fund in its own name if such registration is the prevailing method in the applicable market by which custodians register securities of institutional clients and provided that securities of the Fund are, by book-entry or otherwise, at all times identified as belonging to the Fund and distinguished from other securities held for other clients or for the Sub-Custodian or agent thereof or 17f-5 Sub- Custodian or Foreign Depository. All securities accepted by a Sub-Custodian under the terms of a Sub-Custodian Agreement shall be in good delivery form. 3.4 BANK ACCOUNTS. The Custodian shall cause one or more Sub-Custodians to open and maintain a separate bank account or accounts in the name of the Fund or the Custodian, subject only to draft or order by the Sub-Custodian acting pursuant to the terms of a Sub-Custodian Contract or by the Custodian acting pursuant to this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Sub-Custodian for the Fund may be deposited by it to its credit as sub-custodian or to the Custodian's credit as custodian in the Banking Department of the Sub-Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Trustees of the Fund. Such funds shall be deposited by the Sub-Custodian or the Custodian in its capacity as sub-custodian or custodian, respectively, and shall be withdrawable by the Sub-Custodian or the Custodian only in that capacity. The Sub-Custodian shall be liable for actual losses incurred by the Fund attributable to any failure on the part of the Sub-Custodian to report accurate cash availability information with respect to the Fund's or the Custodian's bank accounts maintained by the Sub-Custodian or any of its agents. 3.5 PAYMENTS FOR SHARES. The Custodian shall cause one or more Sub-Custodians to deposit into the Fund's account amounts received from the Transfer Agent of the Fund for shares of the Fund issued by the Fund and sold by its distributor. The Custodian will provide timely notification to the Fund of any receipt by the Sub-Custodian from the Transfer Agent of payments for shares of the Fund. 3.6 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund and the Custodian, the Custodian shall cause one or more Sub-Custodians, upon the receipt of Proper Instructions, to make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian with respect to amounts received by the Sub-Custodians for the purchase of shares of the Fund. 3.7 COLLECTION OF INCOME. The Custodian shall cause one or more Sub-Custodians to collect on a timely basis all income and other payments with respect to registered securities held hereunder, including securities held in a Securities System, to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Sub-Custodian or agent thereof and shall credit such income, as collected, to the Fund's account. Without limiting the generality of the foregoing, the Custodian shall cause the Sub-Custodian to detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held under the applicable Sub-Custodian Agreement. Arranging for the collection of income due the Fund on securities loaned pursuant to the provisions of Section 3.2.10 shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Sub- Custodian of the income to which the Fund is properly entitled. 3.8 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall cause one or more Sub-Custodians to pay out monies of the Fund in the following cases only: 3.8.1 Upon the purchase of securities for the account of the Fund but only (a) against the delivery of such securities to the Sub- Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Sub-Custodian as its agent for this purpose) or any 17f-5 Sub-Custodian or any Foreign Depository registered in the name of the Fund or in the name of a nominee of the Sub-Custodian referred to in Section 3.3 hereof or in proper form for transfer; PROVIDED, HOWEVER, that the Sub-Custodian may cause monies of the Fund to be paid out prior to delivery of such securities if (i) in the Sub-Custodian's judgment, (A) payment prior to delivery is required by the terms of the instrument evidencing the security or (B) payment prior to delivery is the prevailing method of settling securities transactions between institutional investors in the applicable market and (ii) payment prior to delivery is in accordance with generally accepted trade practice and with any applicable governmental regulations and the rules of Securities Systems or other securities depositories and clearing agencies in the applicable market; the Custodian agrees, upon request, to advise the Fund of all pending transactions in which payment will be made prior to the receipt of securities in accordance with the provision to the foregoing sentence; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 3.13 hereof; or (c)(i) in the case of a repurchase agreement entered into between the Fund and the Sub-Custodian, another bank, or a broker-dealer against delivery of the securities either in certificate form or through an entry crediting the Sub- Custodian's account at the Federal Reserve Bank with such securities or (ii) in the case of a repurchase agreement entered into between the Fund and the Sub-Custodian, against delivery of a receipt evidencing purchase by the Fund of Securities owned by the Sub-Custodian along with written evidence of the agreement by the Sub- Custodian to repurchase such securities from the Fund; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign, which transfer may be effected prior to receipt of a confirmation of the deposit from the applicable bank or a financial intermediary; 3.8.2 In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 3.2 hereof; 3.8.3 For the redemption or repurchase of Shares issued by the Fund as set forth in Section 3.10 hereof; 3.8.4 For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, including the Custodian's fee; and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 3.8.5 For the payment of any dividends or other distributions declared to shareholders of the Fund; 3.8.6 For transfer to another Sub-Custodian of the Fund; 3.8.7 For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or an Assistant Clerk, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payments is to be made. 3.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except as otherwise provided in this Agreement, in any and every case where payment for purchase of securities for the account of the Fund is made by a Sub-Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall cause the Sub-Custodian to be absolutely liable to the Fund in the event any loss results to the Fund from the payment by the Sub-Custodian in advance of delivery of such securities. 3.10 PAYMENTS FOR REPURCHASE OR REDEMPTIONS OF SHARES OF THE FUND. From such funds as may be available, the Custodian shall, upon receipt Proper Instructions, cause one or more Sub- Custodians to make funds available for payment to a shareholder who has delivered to the Transfer Agent a request for redemption or repurchase of shares of the Fund. In connection with the redemption or repurchase of shares of the Fund, the Custodian is authorized, upon receipt of Proper Instructions, to cause one or more Sub-Custodian, to wire funds to or through a commercial bank designated by the redeeming shareholder. In connection with the redemption or repurchase of Shares of the Fund, the Custodian, upon receipt of Proper Instructions, shall cause one or more Sub- Custodians to honor checks drawn on the Sub-Custodian by a shareholder when presented to the Sub-Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time among the Fund, the Custodian and the Sub- Custodian. 3.11 APPOINTMENT OF AGENTS. The Custodian may permit any Sub-Custodian at any time or times in its discretion to appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Section 3 as the Sub- Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian or any Sub-Custodian of its responsibilities or liabilities hereunder and provided that any such agent shall have been approved by vote of the Trustees of the Fund. The Custodian may also permit any Sub-Custodian to which foreign securities of the Fund have been delivered to direct such securities to be held by 17f-5 Sub-Custodians and to use the facilities of Foreign Depositories, as those terms are defined in the Foreign Sub- Custodian Agreement, in accordance with the terms of the Foreign Sub-Custodian Agreement. The agents which the Fund and the Custodian have approved to date are set forth in Schedule B hereto. Schedule B shall be amended from time to time as agents are changed, added or deleted. The Fund shall be responsible for informing the Custodian, and the Custodian shall be responsible for informing the appropriate Sub-Custodian, sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule B, in order that there shall be sufficient time for the Sub-Custodian to complete the appropriate contractual and technical arrangements with such agent. Any Sub-Custodian Agreement shall provide that the engagement by the Sub-Custodian of one or more agents shall not relieve the Sub-Custodian of its responsibilities or liabilities thereunder. 3.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may permit any Sub-Custodian to deposit and/or maintain securities owned by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable rules and regulations (including Rule 17f-4 of the 1940 Act) and subject to the following provisions: 3.12.1 The Sub-Custodian may, either directly or through one or more agents, keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Sub-Custodian in the Securities System which shall not include any assets of the Sub-Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3.12.2 The records of the Sub-Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3.12.3 The Sub-Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Sub-Custodian to reflect such payment and transfer for the account of the Fund. The Sub-Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Sub-Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Sub-Custodian or such an agent and be provided to the Fund at its request. The Sub-Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day; 3.12.4 The Sub-Custodian shall provide the Fund with any report obtained by the Sub- Custodian on the Securities System's accounting system, internal accounting controls and procedures for safeguarding securities deposited in the Securities System; 3.12.5 The Sub-Custodian shall utilize only such Securities Systems as are approved by the Board of Trustees of the Fund, and included on a list maintained by the Custodian; 3.12.6 Anything to the contrary in this Agreement notwithstanding, the Sub-Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Sub-Custodian or any of its agents or of any of its or their employees or from failure of the Sub-Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Sub- Custodian with respect to any claim against the Securities System or any other person which the Sub-Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 3.12A DEPOSITARY RECEIPTS. Only upon receipt of Proper Instructions, the Sub-Custodian shall instruct a 17f-5 Sub- Custodian or an agent of the Sub-Custodian appointed pursuant to the applicable Foreign Sub-Custodian Agreement (an "Agent") to surrender securities to the depositary used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such securities against a written receipt therefor adequately describing such securities and written evidence satisfactory to the 17f-5 Sub-Custodian or Agent that the depositary has acknowledged receipt of instructions to issue with respect to such securities ADRs in the name of the Sub-Custodian, or a nominee of the Sub-Custodian, for delivery to the Sub-Custodian. Only upon receipt of Proper Instructions, the Sub-Custodian shall surrender ADRs to the issuer thereof against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the Sub-Custodian that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the securities underlying such ADRs to a 17f-5 Sub-Custodian or an Agent. 3.12BFOREIGN EXCHANGE TRANSACTIONS AND FUTURES CONTRACTS. Only upon receipt of Proper Instructions, the Sub- Custodian shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund or shall enter into futures contracts or options on futures contracts. Such transactions may be undertaken by the Sub-Custodian with such banking institutions, including the Sub-Custodian and 17f-5 Sub- Custodian(s) appointed pursuant to the applicable Foreign Sub- Custodian Agreement, as principals, as approved and authorized by the Fund. Foreign exchange contracts, futures contracts and options, other than those executed with the Sub-Custodian, shall for all purposes of this Agreement be deemed to be portfolio securities of the Fund. 3.12COPTION TRANSACTIONS. Only upon receipt of Proper Instructions, the Sub-Custodian shall enter into option transactions in accordance with the provisions of any agreement among the Fund, the Custodian and/or the Sub-Custodian and a broker-dealer. 3.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall cause one or more Sub-Custodians as may be appropriate to execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by the Sub-Custodian and in connection with transfers of securities. 3.14 PROXIES. The Custodian shall, with respect to the securities held by the Sub-Custodians, cause to be promptly executed by the registered holder of such securities, if the securities are registered other than in the name of the Fund or a nominee of the fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. 3.15 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian shall cause the Sub-Custodians to transmit promptly to the Custodian, and the Custodian shall transmit promptly to the Fund, all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Sub-Custodian from issuers of the securities being held for the account of the Fund. With respect to tender or exchange offers, the Custodian shall cause the Sub-Custodian to transmit promptly to the Fund, all written information received by the Sub-Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian of the action the Fund desires such Sub-Custodian to take, provided, however, neither the Custodian nor the Sub- Custodian shall be liable to the Fund for the failure to take any such action unless such instructions are received by the Custodian at least four business days prior to the date on which the Sub-Custodian is to take such action or, in the case of foreign securities, such longer period as shall have been agreed upon in writing by the Custodian and the Sub-Custodian. 3.16 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Agreement means a writing signed or initialed by one or more person or persons who are authorized by the Trustees of the Fund and the Custodian. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian or Sub-Custodian, as the case may be, reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. All oral instructions shall be confirmed in writing. Proper Instructions also include communications effected directly between electro-mechanical or electronic devices provided that the Trustees have approved such procedures. Notwithstanding the foregoing, no Trustee, officer, employee or agent of the Fund shall be permitted access to any securities or similar investments of the Fund deposited with any Sub-Custodian or any agent of any Sub-Custodian for any reason except in accordance with the provisions of Rule 17f-2 under the 1940 Act. 3.17 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its discretion, and may permit one or more Sub- Custodians in their discretion, without express authority from the Fund to: 3.17.1 make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, or in the case of a Sub- Custodian, under the applicable Sub- Custodian Agreement, provided that all such payments shall be accounted for to the Fund; 3.17.2 surrender securities in temporary form for securities in definitive form; 3.17.3 endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 3.17.4 in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Trustees of the Fund. 3.18 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. 3.19 INVESTMENT LIMITATIONS. In performing its duties generally, and more particularly in connection with the purchase, sale and exchange of securities made by or for the Fund, the Custodian may assume, unless and until notified in writing to the contrary, that Proper Instructions received by it are not in conflict with or in any way contrary to any provisions of the Fund's Declaration of Trust or By-Laws (or comparable documents) or votes or proceedings of the shareholders or Trustees of the Fund. The Custodian shall in no event be liable to the Fund and shall be indemnified by the Fund for any violation of any investment limitations to which the Fund is subject or other limitations with respect to the Fund's powers to expend funds, encumber securities, borrow or take similar actions affecting its portfolio. 4. PERFORMANCE STANDARDS. The Custodian shall use its best efforts to perform its duties hereunder in accordance with the standards set forth in Schedule C hereto. Schedule C may be amended from time to time as agreed to by the Custodian and the Trustees of the Fund. 5. RECORDS. The Custodian shall create and maintain all records relating to the Custodian's activities and obligations under this Agreement and cause all Sub-Custodians to create and maintain all records relating to the Sub-Custodian's activities and obligations under the appropriate Sub-Custodian Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and 31a-2 thereunder, applicable federal and state tax laws, and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian or during the regular business hours of the Sub-Custodian, as the case may be, be open for inspection by duly authorized officers, employees or agents of the Custodian and Fund and employees and agents of the Securities and Exchange Commission. At the Fund's request, the Custodian shall supply the Fund and cause one or more Sub-Custodians to supply the Custodian with a tabulation of securities owned by the Fund and held under this Agreement. When requested to do so by the Fund and for such compensation as shall be agreed upon, the Custodian shall include and cause one or more Sub-Custodians to include certificate numbers in such tabulations. 6. OPINION AND REPORTS OF FUND'S INDEPENDENT ACCOUNTANTS. The Custodian shall take all reasonable actions, as the Fund may from time to time request, to furnish such information with respect to its activities hereunder as the Fund's independent public accountants may request in connection with the accountant's verification of the Fund's securities and similar investments as required by Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration statement and amendments thereto, the Fund's reports to the Securities and Exchange Commission, and with respect to any other requirements of such Commission. The Custodian shall also direct any Sub-Custodian to take all reasonable actions, as the Fund may from time to time request, to furnish such information with respect to its activities under the applicable Sub-Custodian Agreement as the Fund's independent public accountant may request in connection with the accountant's verification of the Fund's securities and similar investments as required by Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration statement and amendments thereto, the Fund's reports to the Securities and Exchange Commission, and with respect to any other requirements of such Commission. 7. REPORTS OF CUSTODIAN'S AND SUB-CUSTODIANS' INDEPENDENT ACCOUNTANTS. The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by its independent public accountant on its accounting system, internal accounting controls and procedures for safeguarding securities, including securities deposited and/or maintained in Securities Systems, relating to services provided by the Custodian under this Agreement. The Custodian shall also cause one or more of the Sub-Custodians to provide the Fund, at such time as the Fund may reasonably require, with reports by independent public accountants on their accounting systems, internal accounting controls and procedures for safeguarding securities, including securities deposited and/or maintained in Securities Systems, relating to services provided by those Sub-Custodians under their respective Sub-Custody Agreements. Such reports, which shall be of sufficient scope and in sufficient detail as may reasonably be required by the Fund, shall provide reasonable assurance that any material inadequacies would be disclosed by such examinations, and, if there is no such inadequacies, shall so state. 8. COMPENSATION. The Custodian shall be entitled to reasonable compensation for its services and expenses as custodian, as agreed upon from time to time between the Fund and the Custodian. Such expenses shall not include, however, the fees paid by the Custodian to any Sub-Custodian. 9. RESPONSIBILITY OF CUSTODIAN. The Custodian shall exercise reasonable care and diligence in carrying out the provisions of this Agreement and shall not be liable to the Fund for any action taken or omitted by it in good faith without negligence. So long as and to the extent that it is in the exercise of reasonable care, neither the Custodian nor any Sub-Custodian shall be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and, if in writing, reasonably believed by it to be signed by the proper party or parties. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian or a Sub-Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Fund. It is also understood that the Custodian shall not be liable for any loss resulting from a Sovereign Risk. A "Sovereign Risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other similar act or event beyond the Custodian's control. If the Fund requires the Custodian which in turn may require a Sub-Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian or the Sub-Custodian result in the Custodian or its nominee or a Sub-Custodian or its nominee being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian or the Custodian requiring any Sub-Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. The Fund agrees to indemnify and hold harmless the Custodian and its nominee from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee or any Sub- Custodian or its nominee in connection with the performance of this Agreement, or any Sub-Custodian Agreement except, as to the Custodian, such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, and as to a Sub-Custodian, such as may arise from such Sub- Custodian's or its nominee's own negligent action, negligent failure to act or willful misconduct. The negligent action, negligent failure to act or willful misconduct of the Custodian shall not diminish the Fund's obligation to indemnify the Custodian in the amount, but only in the amount, of any indemnity required to be paid to a Sub-Custodian under its Sub-Custodian Agreement. The Custodian may assign this indemnity from the Fund directly to, and for the benefit of, any Sub-Custodian. The Custodian is authorized, and may authorize any Sub-Custodian, to charge any account of the Fund for such items and such fees. To secure any such authorized charges and any advances of cash or securities made by the Custodian or any Sub-Custodian to or for the benefit of the Fund for any purpose which results in the Fund incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Fund (except a Fund specified in Schedule D to this Agreement) hereby grants to the Custodian a security interest in and pledges to the Custodian securities up to a maximum of 10% of the value of the Fund's net assets for the purpose of securing payment of any such advances and hereby authorizes the Custodian on behalf of the Fund to grant to any Sub-Custodian a security interest in and pledge of securities held for the Fund (including those which may be held in a Securities System) up to a maximum of 10% of the value of the net assets held by such Sub-Custodian. The specific securities subject to such security interest may be designated in writing from time to time by the Fund or its investment adviser. In the absence of any designation of securities subject to such security interest, the Custodian or the Sub-Custodian, as the case may be, may designate securities held by it. Should the Fund fail to repay promptly any authorized charges or advances of cash or securities, the Custodian or the Sub-Custodian shall be entitled to use such available cash and to dispose of pledged securities and property as is necessary to repay any such authorized charges or advances and to exercise its rights as a secured party under the U.C.C. The Fund agrees that a Sub- Custodian shall have the right to proceed directly against the Fund and not solely as subrogee to the Custodian with respect to any indemnity hereunder assigned to a Sub-Custodian, and in that regard, the Fund agrees that it shall not assert against any Sub- Custodian proceeding against it any defense or right of set-off the Fund may have against the Custodian arising out of the negligent action, negligent failure to act or willful misconduct of the Custodian, and hereby waives all rights it may have to object to the right of a Sub-Custodian to maintain an action against it. 10. SUCCESSOR CUSTODIAN. If a successor custodian shall be appointed by the Trustees of the Fund, the Custodian shall, upon termination, cause to be delivered to such successor custodian, duly endorsed and in the form for transfer, all securities, funds and other properties then held by the Sub-Custodians and all instruments held by the Sub-Custodians relative thereto and cause the transfer to an account of the successor custodian all of the Fund's securities held in any Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Trustees of the Fund, cause to be delivered at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which meets the requirements of the 1940 Act and the rules and regulations thereunder, such securities, funds and other properties. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. In the event that such securities, funds and other properties remain in the possession of the Custodian or any Sub- Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Sub-Custodians retain possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect. 11. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided either party may at any time immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the other party or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought. Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian and through the Custodian any Sub-Custodian for its costs, expenses and disbursements. 12. INTERPRETATION. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof. In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree in writing on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. 13. GOVERNING LAW. This instrument is executed and delivered in The Commonwealth of Massachusetts and shall be governed by and construed according to the internal laws of said Commonwealth, without regard to principles of conflicts of law. 14. NOTICES. Notices and other writings delivered or mailed postage prepaid to the Fund addressed to the Fund attention: John Hughes, or to such other person or address as the Fund may have designated to the Custodian in writing, or to the Custodian at One Post Office Square, Boston, Massachusetts 02109 attention: George Crane, or to such other address as the Custodian may have designated to the Fund in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee. 15. BINDING OBLIGATION. This Agreement shall be binding on and shall inure to the benefit of the Fund and the Custodian and their respective successors and assigns, provided that neither party hereto may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party. 16. DECLARATION OF TRUST. A copy of the Declaration of Trust of each of the Funds is on file with the Secretary of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of each of the Funds as Trustees and not individually and that the obligations of this instrument are not binding on any of the Trustees or officers or shareholders individually, but are binding only on the assets and property of each Fund with respect to its obligations hereunder. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf as of the day and year first above written. THE PUTNAM FUNDS LISTED IN SCHEDULE A By ---------------------------- Vice President and Treasurer PUTNAM FIDUCIARY TRUST COMPANY By ---------------------------- President Putnam Investments, Inc. ("Putnam"), the sole owner of the Custodian, agrees that Putnam shall be the primary obligor with respect to compensation due the Sub-Custodians pursuant to the Sub-Custodian Agreements in connection with the Sub-Custodians' performance of their responsibilities thereunder and agrees to take all actions necessary and appropriate to assure that the Sub-Custodians shall be compensated in the amounts and on the schedules agreed to by the Custodian and the Sub-Custodians pursuant to those Agreements. PUTNAM INVESTMENTS, INC. By ------------------------------ EXHIBIT 1 MASTER SUB-CUSTODIAN AGREEMENT AGREEMENT made this day of , 199 , between Putnam Fiduciary Trust Company, a Massachusetts-chartered trust company (the "Custodian"), and , a (the "Sub-Custodian"). WHEREAS, the Sub-Custodian represents to the Custodian that it is eligible to serve as a custodian for a management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and WHEREAS, the Custodian has entered into a Custodian Agreement between it and each of the Putnam Funds listed in Schedule A, each of such Funds acting on its own behalf separately from all the other Funds and not jointly or jointly and severally with any of the other Funds (each of the Funds being hereinafter referred to as the "Fund"), and WHEREAS, the Custodian and the Fund desire to utilize sub- custodians for the purpose of holding cash and securities of the Fund, and WHEREAS, the Custodian wishes to appoint the Sub-Custodian as the Fund's Sub-Custodian, NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF CUSTODIAN. The Custodian hereby employs and appoints the Sub-Custodian as a Sub-Custodian for the Fund for the term and subject to the provisions of this Agreement. Upon request, the Custodian shall deliver to the Sub-Custodian such proxies, powers of attorney or other instruments as may be reasonably necessary or desirable in connection with the performance by the Sub-Custodian of its obligations under this Agreement on behalf of the Fund. 2. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY IT. The Custodian may from time to time deposit securities or cash owned by the Fund with the Sub-Custodian. The Sub-Custodian shall have no responsibility or liability for or on account of securities, funds or other property of the Fund not so delivered to it. The Sub-Custodian shall hold and dispose of the securities hereafter held by or deposited with the Sub-Custodian as follows: 2.1 HOLDING SECURITIES. The Sub-Custodian shall hold and physically segregate for the account of the Fund all non-cash property, including all securities owned by the Funds, other than securities which are maintained pursuant to Section 2.13 in a Securities System. All such securities are to be held or disposed of for, and subject at all times to the instructions of, the Custodian pursuant to the terms of this Agreement. The Sub- Custodian shall maintain adequate records identifying the securities as being held by it as Sub-Custodian of the Fund. 2.2 DELIVERY OF SECURITIES. The Sub-Custodian shall release and deliver securities of the Fund held by it hereunder (or in a Securities System account of the Sub-Custodian) only upon receipt of Proper Instructions (as defined in Section 2.17), which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.13 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Sub-Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Sub-Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.12; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Sub-Custodian; 7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that, in any such case, the Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Sub-Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Sub-Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Sub-Custodian; 10) For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Sub-Custodian, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities; 11) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 12) Upon receipt of instructions from the transfer agent for the Fund (the "Transfer Agent"), for delivery to such Transfer Agent or to the shareholders of the Fund in connection with distributions in kind, as may be described from time to time in the Fund's Declaration of Trust and currently effective registration statement, if any, in satisfaction of requests by shareholders for repurchase or redemption; 13) For delivery to another Sub-Custodian of the Fund; and 14) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or an Assistant Clerk, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper corporate purposes, and naming the person or persons to whom delivery of such securities is to be made. 2.3 REGISTRATION OF SECURITIES. Securities of the Fund held by the Sub-Custodian hereunder (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Sub- Custodian, which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.12. Notwithstanding the foregoing, a Sub- Custodian or agent thereof may hold securities of the Fund in a nominee name which is used for its other clients provided such name is not used by the Sub-Custodian or agent for its own securities and that securities of the Fund are physically segregated at all times from other securities held for other clients using the same nominee name. All securities accepted by the Sub-Custodian under the terms of this Agreement shall be in "street name" or other good delivery form. 2.4 BANK ACCOUNTS. The Sub-Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Sub-Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received for the account of the Funds, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Sub- Custodian for the Fund shall be deposited by it to its credit as Sub-Custodian of the Fund in the Banking Department of the Sub- Custodian or other banks. Such funds shall be deposited by the Sub-Custodian in its capacity as Sub-Custodian and shall be withdrawable by the Sub-Custodian only in that capacity. The Sub-Custodian shall be liable for losses incurred by the Fund attributable to any failure on the part of the Sub-Custodian to report accurate cash availability information with respect to the Fund's bank accounts maintained by the Sub-Custodian or any of its agents, provided that such liability shall be determined solely on a cost-of-funds basis. 2.5 PAYMENTS FOR SHARES. The Sub-Custodian shall receive from any distributor of the Fund's shares or from the Transfer Agent of the Fund and deposit into the Fund's account such payments as are received for shares of the Fund issued or sold from time to time by the Fund. The Sub-Custodian will provide timely notification to the Custodian, and the Transfer Agent of any receipt by it of payments for shares of the Fund. 2.6 INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Custodian and the Sub-Custodian, the Sub-Custodian shall, upon the receipt of Proper Instructions, 1) invest in such instruments as may be set forth in such instructions on the same day as received all federal funds received after a time agreed upon between the Sub-Custodian and the Custodian; and 2) make federal funds available to the Fund as of specified times agreed upon from time to time by the Custodian and the Sub-Custodian in the amount of checks, when cleared within the Federal Reserve System, received in payment for shares of the Fund which are deposited into the Fund's account or accounts. 2.7 COLLECTION OF INCOME. The Sub-Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held hereunder and shall credit such income, as collected, to the Fund's account. Without limiting the generality of the foregoing, the Sub- Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Arranging for the collection of income due the Fund on securities loaned pursuant to the provisions of Section 2.2(10) shall be the responsibility of the Custodian. The Sub- Custodian will have no duty or responsibility in connection therewith, other than to provide the Custodian with such information or data as may be necessary to assist the Custodian in arranging for the timely delivery to the Sub-Custodian of the income to which the Fund is properly entitled. 2.8 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Sub-Custodian shall cause monies of a Fund to be paid out in the following cases only: 1) Upon the purchase of securities for the account of the Fund but only (a) against the delivery of such securities to the Sub-Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act, as amended, to act as a custodian and has been designated by the Sub-Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.13 hereof; or (c) in the case of repurchase agreements entered into between the Fund and the Sub-Custodian, or another bank, (i) against delivery of the securities either in certificate form or through an entry crediting the Sub- Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Sub-Custodian along with written evidence of the agreement by the Sub-Custodian to repurchase such securities from the Fund; 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of shares issued by the Fund as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, custodian and Sub-Custodian, transfer agent and legal fees, including the Custodian's fee; and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared pursuant to the governing documents of the Fund; 6) For transfer to another Sub-Custodian of the Fund; and 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or an Assistant Clerk, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any and every case where payment for purchase of securities for the account of a Fund is made by the Sub-Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Custodian to so pay in advance, the Sub-Custodian shall be absolutely liable to the Fund and the Custodian in the event any loss results to the Fund or the Custodian from the failure of the Sub-Custodian to make such payment against delivery of such securities, except that in the case of repurchase agreements entered into by the Fund with a bank which is a member of the Federal Reserve System, the Sub-Custodian may transfer funds to the account of such bank prior to the receipt of written evidence that the securities subject to such a repurchase agreement have been transferred by book-entry into a segregated non-proprietary account of the Sub-Custodian maintained with any Federal Reserve Bank or of the safe-keeping receipt, provided that such securities have in fact been so transferred by book-entry. 2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and By-Laws and any applicable votes of the Trustees of the Fund pursuant thereto, the Sub-Custodian shall, upon receipt of instructions from the Custodian, make funds available for payment to shareholders of the Fund who have delivered to the Transfer Agent a request for redemption or repurchase of their shares. In connection with the redemption or repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper Instructions, is authorized to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of shares of the Fund, the Sub- Custodian, upon receipt of Proper Instructions, shall honor checks drawn on the Sub-Custodian by a shareholder, when presented to the Sub-Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time among the Fund, the Custodian and the Sub-Custodian. 2.11 VARIANCES. The Sub-Custodian may accept securities or cash delivered in settlement of trades notwithstanding variances between the amount of securities or cash so delivered and the amount specified in the instructions furnished to it by the Custodian, provided that the variance in any particular transaction does not exceed (i) $25 in the case of transactions of $1,000,000 or less, and (ii) $50 in the case of transactions exceeding $1,000,000. The Sub-Custodian shall maintain a record of any such variances and notify the Custodian of such variances in periodic transaction reports submitted to the Custodian. The Sub-Custodian will not advise any party with whom the Fund effects securities transactions of the existence of these variance provisions without the consent of the Fund and the Custodian. 2.12 APPOINTMENT OF AGENTS. Without limiting its own responsibility for its obligations assumed hereunder, the Sub- Custodian may at any time and from time to time engage, at its own cost and expense, as an agent to act for the Fund on the Sub- Custodian's behalf with respect to any such obligations any bank or trust company which meets the requirements of the 1940 Act, and the rules and regulations thereunder, to perform services delegated to the Sub-Custodian hereunder, provided that the Fund shall have approved in writing any such bank or trust company and the Sub-Custodian shall give prompt written notice to the Custodian and the Fund of any such engagement. All agents of the Sub-Custodian shall be subject to the instructions of the Sub- Custodian and not the Custodian. The Sub-Custodian may, at any time in its discretion, and shall at the Custodian's direction, remove any bank or trust company which has been appointed as an agent, and shall in either case promptly notify the Custodian and the Fund in writing of the completion of any such action. The agents which the Fund has approved to date are set forth in Schedule B hereto. Schedule B shall be amended from time to time as approved agents are changed, added or deleted. The Custodian shall be responsible for informing the Sub-Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule B, in order that there shall be sufficient time for the Fund to give the approval required by the preceding paragraph and for the Sub-Custodian to complete the appropriate contractual and technical arrangements with such agent. The engagement by the Sub-Custodian of one or more agents to carry out such of the provisions of this Section 2 shall not relieve the Sub-Custodian of its responsibilities or liabilities hereunder. 2.13 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Sub-Custodian may deposit and/or maintain securities owned by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury (collectively referred to herein as "Securities System") in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations (including Rule 17f-4 of the 1940 Act), and subject to the following provisions: 1) The Sub-Custodian may keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Sub-Custodian in the Securities System which shall not include any assets other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Sub-Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Sub-Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Sub-Custodian to reflect such payment and transfer for the account of the Fund. The Sub-Custodian shall transfer securities sold for the account of the Fund upon (a) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (b) the making of an entry on the records of the Sub-Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Sub-Custodian and be provided to the Fund or the Custodian at the Custodian's request. The Sub- Custodian shall furnish the Custodian confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Custodian copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day; 4) The Sub-Custodian shall provide the Custodian with any report obtained by the Sub-Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Sub-Custodian shall have received the initial or annual certificate, as the case may be, required by Section 2.10 hereof; 6) Anything to the contrary in this Agreement notwithstanding, the Sub-Custodian shall be liable to the Fund and the Custodian for any loss or damage to the Fund or the Custodian resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Sub-Custodian or any of its agents or of any of its or their employees or from failure of the Sub-Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Custodian, it shall be entitled to be subrogated to the rights of the Sub-Custodian with respect to any claim against the Securities System or any other person which the Sub-Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund and the Custodian have not been made whole for any such loss or damage. 2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Sub- Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities held by it hereunder and in connection with transfers of securities. 2.15 PROXIES. The Sub-Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of a Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Custodian such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Sub-Custodian shall transmit promptly to the Custodian all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Sub-Custodian from issuers of the securities being held for the account of the Fund. With respect to tender or exchange offers, the Sub- Custodian shall transmit promptly to the Custodian all written information received by the Sub-Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transactions, the Custodian shall notify the Sub-Custodian of the action the Fund desires the Sub- Custodian to take; provided, however, that the Sub-Custodian shall not be liable to the Fund or the Custodian for the failure to take any such action unless such instructions are received by the Sub-Custodian at least two business days prior to the date on which the Sub-Custodian is to take such action. 2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Agreement means a writing signed or initialed by one or more persons who are authorized by the Trustees of the Fund and by vote of the Board of Directors of the Custodian. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Sub- Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Custodian shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Clerk or an Assistant Clerk as to the authorization by the Trustees of the Funds accompanied by a detailed description of procedures approved by the Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices, provided that the Trustees, the Custodian and the Sub-Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. Notwithstanding the foregoing, no Trustee, officer, employee or agent of the Fund shall be permitted access to any securities or similar investments of the Fund deposited with the Sub-Custodian or any agent for any reason except in accordance with the provisions of Rule 17f-2 under the 1940 Act. 2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Sub-Custodian may in its discretion, without express authority from the Custodian: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund and the Custodian; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund held by the Sub-Custodian hereunder except as otherwise directed by the Custodian or the Trustees of the Fund. 2.19 EVIDENCE OF AUTHORITY. The Sub-Custodian shall be protected in acting upon any instruction, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund or the Custodian as custodian of the Fund. The Sub-Custodian may receive and accept a certified copy of a vote of the Trustees of the Fund or the Board of Directors of the Custodian, as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Trustees pursuant to the Declaration of Trust and By-Laws and the Board of Directors of the Custodian, as the case may be as described in such vote, and such vote may be considered as in full force and effect until receipt by the Sub-Custodian of written notice to the contrary. 3. PERFORMANCE STANDARDS; PROTECTION OF THE FUND. The Sub-Custodian shall use its best efforts to perform its duties hereunder in accordance with the standards set forth in Schedule C hereto. Schedule C may be amended from time to time as agreed to by the Custodian and the Trustees of the Fund. 4. RECORDS. The Sub-Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Trustees of the Fund to keep the books of account of the Funds or, if directed in writing to do so by the Custodian, shall itself keep such books of account. The Sub-Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Custodian under its Custodian Agreement with the Fund under the 1940 Act, with particular attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and 31a-2 thereunder, applicable federal and state tax laws, and any other law or administrative rules or procedures which may be applicable to the Fund or the Custodian. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Sub-Custodian be open for inspection by duly authorized officers, employees or agents of the Custodian and the Fund and employees and agents of the Securities and Exchange Commission. The Sub-Custodian shall, at the Custodian's request, supply the Custodian with a tabulation of securities owned by the Fund and held under this Agreement and shall, when requested to do so by the Custodian and for such compensation as shall be agreed upon between the Custodian and Sub-Custodian, include certificate numbers in such tabulations. 5. OPINION AND REPORTS OF THE FUND'S INDEPENDENT ACCOUNTANTS. The Sub-Custodian shall take all reasonable actions, as the Custodian may from time to time request, to obtain from year to year favorable opinions from the Fund's independent public accountants with respect to its activities hereunder in connection with the preparation of the Fund's registration statements and amendments thereto, the Fund's reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 6. REPORTS OF SUB-CUSTODIAN'S INDEPENDENT ACCOUNTANTS. The Sub-Custodian shall provide the Custodian, at such times as the Custodian may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Sub-Custodian under this Agreement; such reports, which shall be of sufficient scope and in sufficient detail as may reasonably be required by the Custodian, shall provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, shall so state. 7. COMPENSATION. The Sub-Custodian shall be entitled to reasonable compensation for its services and expenses as Sub- Custodian, as agreed upon from time to time between the Custodian and the Sub-Custodian. 8. RESPONSIBILITY OF SUB-CUSTODIAN. The Sub-Custodian shall exercise reasonable care and diligence in carrying out the provisions of this Agreement and shall not be liable to the Fund or the Custodian for any action taken or omitted by it in good faith without negligence. So long as and to the extent that it is in the exercise of reasonable care, the Sub-Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Sub- Custodian with respect to redemptions effected by check shall be in accordance with a separate agreement entered into between the Custodian and the Sub-Custodian. The Sub-Custodian shall protect the Fund and the Custodian from direct losses to the Fund resulting from any act or failure to act of the Sub-Custodian in violation of its duties hereunder or of law and shall maintain customary errors and omissions and fidelity insurance policies in an amount not less than $25 million to cover losses to the Fund resulting from any such act or failure to act. If the Custodian requires the Sub-Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Sub- Custodian, result in the Sub-Custodian's being liable for the payment of money or incurring liability of some other form, the Custodian, as a prerequisite to requiring the Sub-Custodian to take such action, shall provide indemnity to the Sub-Custodian in an amount and form satisfactory to it. The Custodian agrees to indemnify and hold harmless the Sub- Custodian from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Agreement, except such as may arise from its own negligent action, negligent failure to act or willful misconduct. To secure any such authorized charges and any advances of cash or securities made by the Sub-Custodian to or for the benefit of the Fund for any purpose which results in the Fund's incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Custodian on behalf of the Fund, unless prohibited from doing so by one or more of the Fund's fundamental investment restrictions, hereby represents that it has obtained from the Fund authorization to apply available cash in any account maintained by the Sub-Custodian on behalf of the Fund and a security interest in and pledge to it of securities held for the Fund by the Sub-Custodian, in an amount not to exceed the amount not prohibited by such restrictions, for the purposes of securing payment of any such advances, and that the Fund has agreed, from time to time, to designate in writing, or to cause its investment adviser to designate in writing, the specific securities subject to such security interest and pledge. The Custodian hereby assigns the benefits of such security interest and pledge to the Sub-Custodian, and agrees that, should the Fund or the Custodian fail to repay promptly any advances of cash or securities, the Sub-Custodian shall be entitled to use such available cash and to dispose of such pledged securities as is necessary to repay any such advances. 9. SUCCESSOR SUB-CUSTODIAN. If a successor Sub-Custodian shall be appointed by the Custodian, the Sub-Custodian shall, upon termination, cause to be delivered to such successor Sub- Custodian, duly endorsed and in the form for transfer, all securities then held by it, shall cause the transfer to an account of the successor Sub-Custodian all of the Fund's securities held in a Securities System and shall cause to be delivered to such successor Sub-Custodian all funds and other property held by it or any of its agents. If no such successor Sub-Custodian shall be appointed, the Sub-Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Trustees of the Fund, cause to be delivered at the office of the Sub-Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor Sub-Custodian or certified copy of a vote of the Trustees shall have been delivered to the Sub-Custodian on or before the date when such termination shall become effective, then the Sub- Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Sub-Custodian and its agents and all instruments held by the Sub-Custodian and its agents relative thereto and all other property held by it and its agents under this Agreement and to cause to be transferred to an account of such successor Sub-Custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Sub-Custodian under this Agreement. In the event that securities, funds and other properties remain in the possession of the Sub-Custodian after the date of termination hereof owing to failure of the Custodian to obtain the certified copy of vote referred to or of the Trustees to appoint a successor Sub-Custodian, the Sub-Custodian shall be entitled to fair compensation for its services during such period as the Sub-Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Sub-Custodian shall remain in full force and effect. Upon termination, the Sub-Custodian shall, upon receipt of a certified copy of a vote of the Trustees of the Fund, cause to be delivered to any other Sub-Custodian designated in such vote such assets, securities and other property of the Fund as are designated in such vote, or pursuant to Proper Instructions, cause such assets, securities and other property of the Fund as are designated by the Custodian to be delivered to one or more of the sub-custodians designated on Schedule D hereto, as from time to time amended. 10. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT. This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid, to the other party, such termination to take effect not sooner than thirty (30) days after the date of mailing; provided, however, that the Sub-Custodian shall not act under Section 2.13 hereof in the absence of receipt of an initial certificate of the Clerk or an Assistant Clerk that the Trustees of the Fund have approved the initial use of a particular Securities System and the receipt of an annual certificate of the Clerk or an Assistant Clerk that the Trustees have reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940; and provided, further, however, that the Custodian shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations or any provision of the Declarations of Trust or By-Laws of the Fund; and provided, further, that the Custodian may at any time, by action of its Board of Directors, or the Trustees of the Fund, as the case may be, immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Sub-Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of this Agreement, the Custodian shall pay to the Sub-Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Sub- Custodian for its reimbursable costs, expenses and disbursements. 11. AMENDMENT AND INTERPRETATION. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought. In connection with the operation of this Agreement, the Sub- Custodian and the Custodian may from time to time agree in writing on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. 12. GOVERNING LAW. This Agreement is executed and delivered in The Commonwealth of Massachusetts and shall be governed by and construed according to the laws of said Commonwealth. 13. NOTICES. Notices and other writings delivered or mailed postage prepaid to the Custodian addressed to the Custodian attention: , or to such other person or address as the Custodian may have designated to the Sub-Custodian in writing, or to the Sub-Custodian at , or to such other address as the Sub-Custodian may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee. 14. BINDING OBLIGATION. This Agreement shall be binding on and shall inure to the benefit of the Custodian and the Sub- Custodian and their respective successors and assigns, provided that neither party hereto may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party. 15. PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior contracts between the Fund or the Custodian and the Sub-Custodian relating to the custody of the Fund's assets. 16. DECLARATION OF TRUST. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that the obligations of or arising out of this instrument are not binding upon any of the Trustees or beneficiaries individually but binding only upon the assets and property of the Funds. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day of , 199 . PUTNAM FIDUCIARY TRUST COMPANY By --------------------------- (SUB-CUSTODIAN) By --------------------------- EXHIBIT 1(A) MASTER FOREIGN SUB-CUSTODIAN AGREEMENT AGREEMENT made this day of , 199 , between Putnam Fiduciary Trust Company, a Massachusetts-chartered trust company (the "Custodian"), and , (the "Sub-Custodian"). WHEREAS, the Sub-Custodian represents to the Custodian that it is eligible to serve as a custodian for a management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and WHEREAS, the Custodian has entered into a Custodian Agreement between it and each of the Putnam Funds listed in Schedule A to this Agreement, each of such Funds acting on its own behalf separately from all the other Funds and not jointly or jointly and severally with any of the other Funds (each of the Funds being hereinafter referred to as the "Fund"), and WHEREAS, the Custodian and the Fund desire to utilize sub-custodians for the purpose of holding cash and securities of the Fund, and WHEREAS, the Custodian wishes to appoint the Sub-Custodian as the Fund's Sub-Custodian, NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF SUB-CUSTODIAN. The Custodian hereby employs and appoints the Sub-Custodian as a sub-custodian for safekeeping of securities and other assets of the Fund for the term and subject to the provisions of this Agreement. Upon request, the Custodian shall deliver to the Sub-Custodian such proxies, powers of attorney or other instruments as may be reasonably necessary or desirable in connection with the performance by the Sub-Custodian of its obligations under this Agreement on behalf of the Fund. 2. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY IT. The Custodian may from time to time deposit or direct the deposit of securities or cash owned by the Fund with the Sub-Custodian. The Sub-Custodian shall have no responsibility or liability for or on account of securities, funds or other property of the Fund not so delivered to it. Except for securities and funds held by 17f-5 Sub-Custodians (as defined in Section 2.11(b)) the Sub-Custodian shall hold and dispose of the securities or cash hereafter held by or deposited with the Sub-Custodian as follows: 2.1. HOLDING SECURITIES. The Sub-Custodian shall hold and, by book-entry or otherwise, identify as belonging to the Fund all non-cash property which has been delivered to the Sub-Custodian. All such securities are to be held or disposed of for, and subject at all times to the instructions of, the Custodian pursuant to the terms of this Agreement. The Sub-Custodian shall maintain adequate records identifying the securities as being held by it as sub-custodian of the Fund. 2.2. DELIVERY OF SECURITIES. The Sub-Custodian shall release and deliver securities of the Fund held by it hereunder (or in a Securities System account of the Sub-Custodian) only upon receipt of Proper Instructions (as defined in Section 2.19), which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor, provided, however, that the Sub-Custodian may release and deliver securities prior to the receipt of payment therefor if (i) in the Sub-Custodian's judgment, (A) release and delivery prior to payment is required by the terms of the instrument evidencing the security or (B) release and delivery prior to payment is the prevailing method of settling securities transactions between institutional investors in the applicable market and (ii) release and delivery prior to payment is in accordance with generally accepted trade practice and with any applicable governmental regulations and the rules of Securities Systems or other securities depositories and clearing agencies in the applicable market. The Sub-Custodian agrees, upon request, to advise the Custodian of all pending transactions in which release and delivery will be made prior to the receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; 4) To the depository agent in connection with tender or other similar offers for such securities; provided that, in any such case, the cash or other consideration is thereafter to be delivered to the Sub-Custodian; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is thereafter to be delivered to the Sub-Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Sub-Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.11 or any other name permitted pursuant to Section 2.3; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are thereafter to be delivered to the Sub-Custodian; 7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that, in any such case, the Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Sub-Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, thereafter are to be delivered to the Sub-Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the now securities and cash, if any, are thereafter to be delivered to the Sub-Custodian; 10) For delivery in connection with any loans of securities made by the Fund, but only against receipt of collateral the adequacy and timing of receipt of which shall be as agreed upon from time to time in writing by the Custodian and the Sub-Custodian, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities; 11) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 12) Upon receipt of instructions from the transfer agent for the Fund (the "Transfer Agent"), for delivery to such Transfer Agent or to the shareholders of the Fund in connection with distributions in kind, in satisfaction of requests by shareholders for repurchase or redemption; 13) For delivery to the Custodian or another sub-custodian of the Fund; and 14) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or an Assistant Clerk, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper corporate purposes, and naming the person or persons to whom delivery of such securities is to be made. 2.3. REGISTRATION OF SECURITIES. Securities of the Fund held by the Sub-Custodian hereunder (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Sub-Custodian or any 17f-5 Sub-Custodian or Foreign Depository (as each of those terms is defined in Section 2.11(b)), which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.11(a). Notwithstanding the foregoing, the Sub-Custodian or agent thereof or any 17f-5 Sub-Custodian or Foreign Depository may hold securities of the Fund in a nominee name which is used for its other clients provided that such name is not used by the Sub-Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository for its own securities and that securities of the Fund are, by book-entry or otherwise, at all times identified as belonging to the Fund and distinguished from other securities held for other clients using the same nominee name. In addition, and notwithstanding the foregoing, the Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign Depository may hold securities of the Fund in its own name if such registration is the prevailing method in the applicable market by which custodians register securities of institutional clients and provided that securities of the Fund are, by book-entry or otherwise, at all times identified as belonging to the Fund and distinguished from other securities held for other clients or for the Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign Depository. All securities accepted by the Sub-Custodian under the terms of this Agreement shall be in good delivery form. 2.4. BANK ACCOUNTS. The Sub-Custodian shall open and maintain a separate bank account or accounts in the name of the Fund or of the Custodian for the benefit of the Fund, subject only to draft or order by the Sub-Custodian acting pursuant to the terms of this Agreement or by the Custodian acting pursuant to the Custodian Agreement, and shall hold in such account or accounts, subject to the provisions hereof, to the Sub-Custodian's credit as sub-custodian of the Fund or the Custodian's credit as custodian for the Fund, cash received for the account of the Fund other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act or cash held as deposits with 17f-5 Sub-Custodians in accordance with the following paragraph. The responsibilities of the Sub-Custodian for cash, including foreign currency, of the Fund accepted on the Sub-Custodian's books as a deposit shall be that of a U.S. bank for a similar deposit. The Sub-Custodian may open a bank account on the books of a 17f-5 Sub-Custodian in the name of the Fund or of the Sub- Custodian as a sub-custodian for the Fund, and may deposit cash, including foreign currency, of the Fund in such account, and such funds shall be withdrawable only pursuant to draft or order of the Sub-Custodian. The records for such account will be maintained by the Sub-Custodian but such account shall not constitute a deposit liability of the Sub-Custodian. The responsibilities of the Sub- Custodian for deposits maintained in such account shall be the same as and no greater than the Sub-Custodian's responsibility in respect of other portfolio securities of the Fund. The Sub-Custodian shall be liable for actual losses incurred by the Fund attributable to any failure on the part of the Sub- Custodian to report accurate cash availability information with respect to the bank accounts referred to in this Section 2.4. 2.5. PAYMENTS FOR SHARES. The Sub-Custodian shall maintain custody of amounts received from the Transfer Agent of the Fund for shares of the Fund issued by the Fund and sold by its distributor and deposit such amounts into the Fund's account. The Sub-Custodian will provide timely notification to the Custodian and the Transfer Agent of any receipt by it of payments for shares of the Fund. 2.6. AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Custodian and the Sub-Custodian, the Sub-Custodian shall, upon the receipt of Proper Instructions, make federal funds available to the Custodian for the account of the Fund as of specified times agreed upon from time to time by the Custodian and the Sub-Custodian with respect to amounts received by the Sub-Custodian for the purchase of shares of the Fund. 2.7. COLLECTION OF INCOME. The Sub-Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder, including securities held in a Securities System, to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held hereunder and shall credit such income, as collected, to the Fund's account. Without limiting the generality of the foregoing, the Sub-Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Arranging for the collection of income due the Fund on securities loaned pursuant to the provisions of Section 2.2(10) shall be the responsibility of the Custodian. The Sub-Custodian will have no duty or responsibility in connection therewith, other than to provide the Custodian with such information or data as may be necessary to assist the Custodian in arranging for the timely delivery to the Sub-Custodian of the income to which the Fund is properly entitled. 2.8. PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Sub-Custodian shall cause monies of the Fund to be paid out in the following cases only: 1) Upon the purchase of securities for the account of the Fund but only (a) against the delivery of such securities to the Sub-Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act, as amended, to act as a custodian and has been designated by the Sub-Custodian as its agent for this purpose) or any 17f-5 Sub-Custodian or any Foreign Depository (as each of those terms is defined in Section 2.11(b)) registered in the name of the Fund or in the name of a nominee referred to in Section 2.3 hereof or in proper form for transfer, provided, however, that the Sub-Custodian may cause monies of the Fund to be paid out prior to delivery of such securities if (i) in the Sub-Custodian's judgment, (A) payment prior to delivery is required by the terms of the instrument evidencing the security or (B) payment prior to delivery is the prevailing method of settling securities transactions between institutional investors in the applicable market and (ii) payment prior to delivery is in accordance with generally accepted trade practice and with any applicable governmental regulations and the rules of Securities Systems or other securities depositories and clearing agencies in the applicable market. The Sub-Custodian agrees, upon request, to advise the Custodian of all pending transactions in which payment will be made prior to the receipt of securities in accordance with the proviso to the foregoing sentence; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.12 hereof; or (c) (i) in the case of a repurchase agreement entered into between the Fund and the Sub-Custodian, another bank or a broker-dealer, against delivery of the securities either in certificate form or through an entry crediting the Sub-Custodian's or its agent's non-proprietary account at any Federal Reserve Bank with such securities or (ii) in the case of a repurchase agreement entered into between the Fund and the Sub-Custodian, against delivery of a receipt evidencing purchase by the Fund of securities owned by the Sub-Custodian along with written evidence of the agreement by the Sub-Custodian to repurchase such securities from the Fund; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign, which transfer may be effected prior to receipt of a confirmation of the deposit from the applicable bank or a financial intermediary; 2) In connection with conversion, exchange or surrender or tender or exercise of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of shares issued by the Fund as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, custodian and sub-custodian, transfer agent and legal fees, including the Custodian's fee; and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends or other distributions declared to shareholders of the Fund; 6) For transfer to the Custodian or another sub-custodian of the Fund; and 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Clerk or Assistant Clerk, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9. LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except as otherwise provided in this Agreement, in any and every case where payment for purchase of securities for the account of the Fund is made by the Sub-Custodian in advance of receipt of the securities purchased in the absence of Proper Instructions from the Custodian to so pay in advance, the Sub-Custodian shall be absolutely liable to the Fund and the Custodian in the event any loss results to the Fund or the Custodian from the payment by the Sub-Custodian in advance of delivery of such securities. 2.10. PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such funds as may be available, the Sub-custodian shall, upon receipt of Proper Instructions, make funds available for payment to a shareholder of the Fund who has delivered to the Transfer Agent a request for redemption or repurchase of shares of the Fund. In connection with the redemption or repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper Instructions, is authorized to wire funds to or through a commercial bank designated by the redeeming shareholder. In connection with the redemption or repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper Instructions, shall honor checks drawn on the Sub-Custodian by a shareholder, when presented to the Sub-Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time among the Fund, the Custodian and the Sub-Custodian. 2.11. APPOINTMENT OF AGENTS AND SUB-CUSTODIANS PURSUANT TO RULE 17F-5. (a) Agents. Without limiting its own responsibility for its obligations assumed hereunder, the Sub-Custodian may at any time and from time to time engage, at its own cost and expense, as an agent to act for the Fund on the Sub-Custodian's behalf with respect to any such obligations any bank or trust company which meets the requirements of the 1940 Act, and the rules and regulations thereunder, to perform services delegated to the Sub-Custodian hereunder, provided that the Fund and the Custodian shall have approved in writing any such bank or trust company. All agents of the Sub-Custodian shall be subject to the instructions of the Sub-Custodian and not the Custodian. The Sub- Custodian may, at any time in its discretion, and shall at the Custodian's direction, remove any bank or trust company which has been appointed as an agent, and shall in either case promptly notify the Custodian and the Fund in writing of the completion of any such action. The agents which the Fund has approved to date are set forth in Schedule B hereto. Schedule B shall be amended from time to time as approved agents are changed, added or deleted. The Custodian shall be responsible for informing the Sub-Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule B, in order that there shall be sufficient time for the Fund to give the approval required by the preceding paragraph and for the Sub-Custodian to complete the appropriate contractual and technical arrangements with such agent. The engagement by the Sub-Custodian of one or more agents shall not relieve the Sub-Custodian of its responsibilities or liabilities hereunder. (b) 17f-5 Sub-Custodians. Securities, funds and other property of the Fund may be held by sub-custodians appointed pursuant to the provisions of this Section 2.11 (each, a "17f-5 Sub-Custodian"). The Sub-Custodian may, at any time and from time to time, appoint any bank or trust company (that meets the requirements of a custodian or a foreign custodian under the Investment Company Act of 1940 and the rules and regulations thereunder, including without limitation Rule 17f-5 thereunder, or that has received an order of the Securities and Exchange Commission ("SEC") exempting it from any of such requirements that it does not meet) to act as a 17f-5 Sub-Custodian for the Fund, provided that the Fund shall have approved in writing (1) any such bank or trust company and the sub-custodian agreement to be entered into between such bank or trust company and the Sub- Custodian, and (2) the 17f-5 Sub-Custodian's offices or branches at which the 17f-5 Sub-Custodian is authorized to hold securities, cash and other property of the Fund. Upon such approval by the Fund, the Sub-Custodian is authorized on behalf of the Fund to notify each 17f-5 Sub-Custodian of its appointment as such. The Sub-Custodian may, at any time in its discretion, remove any bank or trust company that has been appointed as a 17f-5 Sub-Custodian. Those 17f-5 Sub-Custodians and their offices or branches which the Fund has approved to date are set forth on Schedule C hereto. Such Schedule C shall be amended from time to time as 17f-5 Sub-Custodians, branches or offices are changed, added or deleted. The Custodian shall be responsible for informing the Sub-Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule C, in order that there shall be sufficient time for the Fund to give the approval required by the preceding paragraph and for the Sub- Custodian to put the appropriate arrangements in place with such 17f-5 Sub-Custodian pursuant to such sub-custodian agreement. With respect to the securities and funds held by a 17f-5 Sub- Custodian, either directly or indirectly, including demand and interest bearing deposits, currencies or other deposits and foreign exchange contracts, the Sub-Custodian shall be liable to the Custodian and the Fund if and only to the extent that such 17f-5 Sub-Custodian is liable to the Sub-Custodian and the Sub- Custodian recovers under the applicable sub-custodian agreement, provided, however, that the foregoing limitation shall not apply if such 17f-5 Sub-Custodian's liability to the Sub-Custodian is limited because the applicable sub-custodian agreement does not contain provisions substantially similar to the provisions of Section 2 (but not including Section 2.12) of this Agreement. The Sub-Custodian shall also be liable to the Custodian and the Fund for its own negligence in transmitting any instructions received by it from the Fund or the Custodian and for its own negligence in connection with the delivery of any securities or funds held by it to any such 17f-5 Sub-Custodian. The Custodian or the Fund may authorize the Sub-Custodian or one or more of the 17f-5 Sub-Custodians to use the facilities of one or more foreign securities depositories or clearing agencies (each, a "Foreign Depository") that is permitted to be used by registered investment companies by a Rule or Rules of the SEC or that has received an order of the SEC exempting it from any of such requirements that it does not meet. The records of the Sub- Custodian or a 17f-5 Sub-Custodian employing a Foreign Depository or clearing agency shall identify those securities belonging to the Fund which are maintained in such a Foreign Depository. The engagement by the Sub-Custodian of one or more Foreign Depositories shall not relieve the Sub-Custodian of its responsibilities or liabilities hereunder. The Foreign Depositories which the Fund has approved to date are set forth in Schedule C hereto. Schedule C shall be amended from time to time as approved Foreign Depositories are changed, added or deleted. The Custodian shall be responsible for informing the Sub-Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Schedule C, in order that there shall be sufficient time for the Fund to give the approval required by the preceding paragraph and for the Sub-Custodian to complete the appropriate contractual and technical arrangements with such Foreign Depository. In the event that any 17f-5 Sub-Custodian appointed pursuant to the provisions of this Section 2.11 fails to perform any of its obligations under the terms and conditions of the applicable sub- custodian agreement, the Sub-Custodian shall use its best efforts to cause such 17f-5 Sub-Custodian to perform such obligations. In the event that the Sub-Custodian is unable to cause such 17f-5 Sub-Custodian to perform fully its obligations thereunder, the Sub-Custodian shall forthwith upon the Custodian's request terminate such 17f-5 Sub-Custodian as a sub-custodian for the Fund and, if necessary or desirable, appoint another 17f-5 Sub- Custodian in accordance with the provisions of this Section 2.11. At the election of the Custodian, it shall have the right to enforce and shall be subrogated to the Sub-Custodian's rights against any such 17f-5 Sub-Custodian for loss or damage caused the Fund by such 17f-5 Sub-Custodian. At the written request of the Fund, the Sub-Custodian will terminate as a sub-custodian for the Fund any 17f-5 Sub-Custodian appointed pursuant to the provisions of this Section 2.11 in accordance with the termination provisions under the applicable sub-custodian agreement. The Sub-Custodian will not amend any sub-custodian agreement or agree to change or permit any changes thereunder except upon the prior written approval of the Fund. In the event the Sub-Custodian makes any payment to a 17f-5 Sub-Custodian under the indemnification provisions of any sub- custodian agreement, no more than thirty days after written notice to the Custodian of the Sub-Custodian's having made such payment, the Custodian will reimburse the Sub-Custodian the amount of such payment except in respect of any negligence or misconduct of the Sub-Custodian. 2.12. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Sub-Custodian may deposit and/or maintain securities owned by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury or by a federal agency (collectively referred to herein as "Securities System") in accordance with applicable rules and regulations (including Rule 17f-4 of the 1940 Act), and subject to the following provisions: 1) The Sub-Custodian may, either directly or through one or more agents, keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Sub-Custodian or such an agent in the Securities System which shall not include any assets other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Sub-Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Sub-Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Sub-Custodian to reflect such payment and transfer for the account of the Fund. The Sub-Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Sub-Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Sub-Custodian or such an agent and be provided to the Fund or the Custodian at the Custodian's request. The Sub-Custodian shall furnish the Custodian confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Custodian copies of daily transaction statements reflecting each day's transactions in the Securities System for the account of the Fund on the next business day; 4) The Sub-Custodian shall provide the Custodian with any report obtained by the Sub-Custodian on the Securities System's accounting system, internal accounting controls and procedures for safeguarding securities deposited in the Securities System; 5) The Sub-Custodian shall utilize only such Securities Systems as are set forth in a list provided by the Custodian of Securities Systems approved for use by the Board of Trustees of the Fund, which list will be amended from time to time by the Custodian as may be necessary to reflect any subsequent action taken by the Trustees of the Fund; 6) Anything to the contrary in this Agreement notwithstanding, the Sub-Custodian shall be liable to the Fund and the Custodian for any loss or damage to the Fund or the Custodian resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Sub-Custodian or any of its agents or of any of its or their employees or from failure of the Sub-Custodian or any such agent or employee to enforce effectively such rights as it may have against the Securities System. At the election of the Custodian, it shall be entitled to be subrogated to the rights of the Sub-Custodian with respect to any claim against the Securities System or any other person which the Sub-Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund and the Custodian have not been made whole for any such loss or damage. 2.13. DEPOSITARY RECEIPTS. Only upon receipt of Proper Instructions, the Sub-Custodian shall instruct a 17f-5 Sub- Custodian appointed pursuant to Section 2.11(b) hereof or an agent of the Sub-Custodian appointed pursuant to Section 2.11(a) hereof (an "Agent") to surrender securities to the depositary used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such securities against a written receipt therefor adequately describing such securities and written evidence satisfactory to the 17f-5 Sub-Custodian or Agent that the depositary has acknowledged receipt of instructions to issue with respect to such securities ADRs in the name of the Sub-Custodian, or a nominee of the Sub-Custodian, for delivery to the Sub-Custodian in Boston, Massachusetts, or at such other place as the Sub-Custodian may from time to time designate. Only upon receipt of Proper Instructions, the Sub-Custodian shall surrender ADRs to the issuer thereof against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the Sub-Custodian that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the securities underlying such ADRs to a 17f-5 Sub-Custodian or an Agent. 2.14. FOREIGN EXCHANGE TRANSACTIONS AND FUTURES CONTRACTS. Only upon receipt of Proper Instructions, the Sub- Custodian shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund or shall enter into futures contracts or options on futures contracts. Such transactions may be undertaken by the Sub-Custodian with such banking institutions, including the Sub-Custodian and 17f-5 Sub- Custodian(s) appointed pursuant to Section 2.11(b), as principals, as approved and authorized by the Fund. In connection with such transaction, the Sub-Custodian is authorized to make free outgoing payments of cash in the form of U.S. Dollars or foreign currency without receiving confirmation of a foreign exchange contract, futures contract or option thereon or confirmation that the countervalue currency completing the foreign exchange contract or futures contract has been delivered or received or that the option has been delivered or received. Foreign exchange contracts, futures contracts and options, other than those executed with the Sub-Custodian as principal, shall for all purposes of this Agreement be deemed to be portfolio securities of the Fund. 2.15. OPTION TRANSACTIONS. Only upon receipt of Proper Instructions, the Sub-Custodian shall enter into option transactions in accordance with the provisions of any agreement among the Fund, the Custodian, and/or the Sub-Custodian and a broker-dealer. 2.16. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Sub-Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities held by it hereunder and in connection with transfers of securities. 2.17. PROXIES. The Sub-Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered other than in the name of the Fund, all proxies that are received by the Sub-Custodian, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Custodian such proxies, all proxy soliciting materials and all notices relating to such securities. 2.18. COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Sub-Custodian shall transmit promptly to the Custodian all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Sub-Custodian from issuers of the securities being held for the account of the Fund. With respect to tender or exchange offers, the Sub-Custodian shall transmit promptly to the Custodian all written information received by the Sub-Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transactions, the Custodian shall notify the Sub-Custodian of the action the Fund desires the Sub-Custodian to take; provided, however, that the Sub-Custodian shall not be liable to the Fund or the Custodian for the failure to take any such action unless Proper Instructions are received by the Sub-Custodian at least two business days prior to the date on which the Sub-Custodian is to take such action, or in the case of foreign securities, such longer periods as shall have been agreed upon in writing by the Custodian and the Sub-Custodian, which may be in the form of written operating procedures or standards. 2.19. PROPER INSTRUCTIONS. Proper Instructions as used throughout this Agreement means a writing signed or initialed by one or more persons who are authorized by the Trustees of the Fund and by the Custodian. Each such writing shall set forth the specific transaction or type of transaction involved. Oral instructions will be considered Proper Instructions if the Sub-Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Custodian shall cause all oral instructions to be confirmed in writing. Proper Instructions shall also include communications effected directly between the Custodian and Sub-Custodian by electro-mechanical or electronic devices, provided that the Custodian and the Sub-Custodian have approved such procedures. Notwithstanding the foregoing, no Trustee, officer, employee or agent of the Fund shall be permitted access to any securities or similar investments of the Fund deposited with the Sub-Custodian or any agent for any reason except in accordance with the provisions of Rule 17f-2 under the 1940 Act. 2.20. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Sub-Custodian may in its discretion, without express authority from the Custodian: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Custodian; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund held by the Sub-Custodian hereunder except as otherwise directed by the Custodian. 2.21. EVIDENCE OF AUTHORITY. The Sub-Custodian shall be protected in acting upon any instruction, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund or the Custodian as custodian of the Fund. 2.22. PERFORMANCE STANDARDS. The Sub-Custodian shall use its best efforts to perform its duties hereunder in accordance with such standards as are agreed upon from time to time by the Custodian and the Sub-Custodian. 3. RECORDS. The Sub-Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Trustees of the Fund to keep the books of account of the Fund or, if directed in writing to do so by the Custodian, shall itself keep such books of account. The Sub-Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and 31a-2 thereunder; the Sub-Custodian shall also create and maintain such records as are required by applicable federal and state tax laws, and any other law or administrative rules or procedures which may be applicable to the Fund or the Custodian, such laws, rules or procedures to be specified by the Custodian from time to time. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Sub-Custodian be open for inspection by duly authorized officers, employees or agents of the Custodian and the Fund and employees and agents of the Securities and Exchange Commission. The Sub-Custodian shall, at the Custodian's request, supply the Custodian with a tabulation of securities owned by the Fund and held under this Agreement and shall, when requested to do so by the Custodian and for such compensation as shall be agreed upon between the Custodian and Sub-Custodian, include certificate numbers in such tabulations. 4. Opinion and Reports of the Fund's Independent Accountant. The Sub-Custodian shall take all reasonable actions, as the Custodian may from time to time request, to furnish such information with respect to its activities hereunder as the Fund's independent public accountant may request in connection with the accountant's verification of the Fund's securities and similar investments as required by Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration statement and amendments thereto, the Fund's reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 5. Reports of Sub-Custodian's Independent Accountant. The Sub-Custodian shall provide the Custodian, at such times as the Custodian may reasonably require, with reports by an independent public accountant on the accounting system, internal accounting controls and procedures for safeguarding securities, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Sub-Custodian under this Agreement; such reports, which shall be of sufficient scope and in sufficient detail as may reasonably be required by the Custodian, shall provide reasonable assurance that any material inadequacies would be disclosed by such examination, and if there are no such inadequacies, shall so state. 6. Compensation. The Sub-Custodian shall be entitled to reasonable compensation for its services and expenses as sub-custodian, as agreed upon from time to time between the Custodian and the Sub-Custodian. 7. Responsibility of Sub-Custodian. The Sub-Custodian shall exercise reasonable care and diligence in carrying out the provisions of this Agreement and shall not be liable to the Fund or the Custodian for any action taken or omitted by it in good faith without negligence or willful misconduct. So long as and to the extent that it is in the exercise of reasonable care, the Sub-Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and, if in writing, reasonably believed to be signed by the proper party or parties. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Sub-Custodian with respect to redemptions effected by check shall be in accordance with a separate agreement entered into between the Custodian and the Sub-Custodian. It is also understood that the Sub-Custodian shall not be liable for any loss resulting from a Sovereign Risk. A "Sovereign Risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other similar act or event beyond the Sub-Custodian's control. The Sub-Custodian shall protect the Fund and the Custodian from losses to the Fund resulting from any act or failure to act of the Sub-Custodian in violation of its duties hereunder or of any law applicable to the Sub-Custodian's duties hereunder. If the Custodian requires the Sub-Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Sub-Custodian, result in the Sub-Custodian's being liable for the payment of money or incurring liability of some other form, the Custodian, as a prerequisite to requiring the Sub-Custodian to take such action, shall provide indemnity to the Sub-Custodian in an amount and form satisfactory to the Sub-Custodian. The Custodian agrees to indemnify and hold harmless the Sub-Custodian from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) (collectively, "Authorized Charges") incurred or assessed against it or its nominee in connection with the performance of this Agreement, except such as may arise from its own negligent action, negligent failure to act or willful misconduct. The Sub-Custodian is authorized to charge any account of the Fund for such items and such fees. To secure any such Authorized Charges and any advances of cash or securities made by the Sub-Custodian to or for the benefit of the Fund for any purpose which results in the Fund's incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Custodian on behalf of the Fund hereby represents that it has obtained from the Fund authorization to apply available cash in any account maintained by the Sub-Custodian on behalf of the Fund and a security interest in and pledge to the Sub-Custodian of securities of the Fund held by the Sub-Custodian (including those which may be held in a Securities System) up to a maximum of 10% of the value of the net assets held by the Sub-Custodian for the purposes of securing payment of any Authorized Charges and any advances of cash or securities, and that the Fund has agreed, from time to time, to designate in writing, or to cause its investment adviser to, or permit the Custodian to, designate in writing, the securities subject to such security interest and pledge with such specificity and detail as the Sub-Custodian may reasonably request (and in the absence of such designation to permit the Sub- Custodian so to designate securities). The Custodian hereby grants on behalf of the Fund a security interest and pledge to the Sub-Custodian, as aforesaid, in securities and available cash, as security for any Authorized Charges and any advances of cash or securities and agrees that, should the Fund or the Custodian fail to repay promptly any Authorized Charges and any advances of cash or securities, the Sub-Custodian shall be entitled to use such available cash and to dispose of such pledged securities as is necessary to repay any such Authorized Charges or any advances of cash or securities and to exercise the rights of a secured party under the Uniform Commercial Code. The Custodian agrees not to amend the third paragraph of Section 9 of the Custodian Agreement unless it provides the Sub- Custodian with at least thirty (30) days' prior written notice of the substance of any proposed amendments, provided that the foregoing shall not be construed to in any way to provide that the Sub-Custodian's consent shall be required to make such an amendment effective or that the Sub-Custodian's failure to give such consent shall in any way affect its obligations under this Agreement. 8. SUCCESSOR SUB-CUSTODIAN. If a successor sub-custodian shall be appointed by the Custodian, the Sub-Custodian shall, upon termination and upon receipt of Proper Instructions, cause to be delivered to such successor sub-custodian, duly endorsed and in the form for transfer, all securities, funds and other property of the Fund then held by it and all instruments held by the Sub-Custodian related thereto and cause the transfer to an account of the successor sub-custodian all of the Fund's securities held in any Securities Systems. If no such successor sub-custodian shall be appointed, the Sub-Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Trustees of the Fund, cause to be transferred such securities, funds and other property in accordance with such vote. In the event that no written order designating a successor sub-custodian or certified copy of a vote of the Trustees shall have been delivered to the Sub-Custodian on or before the date when such termination shall become effective, then the Sub- Custodian shall have the right to deliver to a bank or trust company, which meets the requirements of the 1940 Act and the rules and regulations thereunder, all securities, funds and other properties of the Fund. Thereafter, such bank or trust company shall be the successor of the Sub-Custodian under this Agreement. In the event that securities, funds and other property remain in the possession of the Sub-Custodian after the date of termination hereof owing to failure of the Custodian to obtain a certified copy of the Trustees appointing a successor sub- custodian, the Sub-Custodian shall be entitled to fair compensation for its services during such period as the Sub- Custodian retains possession of such securities, funds and other property and the provisions of this Agreement relating to the duties and obligations of the Sub-Custodian shall remain in full force and affect. 9. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT. This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid, to the other party, such termination to take effect not sooner than thirty (30) days after the date of mailing; provided, that either party may at any time immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the other party or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought. Upon termination of this Agreement, the Custodian shall pay to the Sub-Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Sub-Custodian for its reimbursable costs, expenses and disbursements. The provisions of Section 7, including, until any Authorized Charges and any advances of cash or securities referred to therein are repaid, all liens and security interests created pursuant thereto, and all rights to indemnification, shall survive any termination of this Agreement. 10. INTERPRETATION. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof. In connection with the operation of this Agreement, the Sub-Custodian and the Custodian may from time to time agree in writing on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. 11. GOVERNING LAW. This Agreement is executed and delivered in The Commonwealth of Massachusetts and shall be governed by and construed according to the internal laws of said Commonwealth, without regard to principles of conflicts of law. 12. NOTICES. Notices and other writings delivered or mailed postage prepaid to the Custodian addressed to the Custodian attention: George H. Crane, Senior Vice President, The Putnam Companies, 99 High Street, Boston, MA 02109 or to such other person or address as the Custodian may have designated to the Sub- Custodian in writing, or to the Sub-Custodian attention: or to such other address as the SubCustodian may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee. 13. BINDING OBLIGATION. This Agreement shall be binding on and shall inure to the benefit of the Custodian and the Sub- Custodian and their respective successors and assigns, provided that neither party hereto may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party. 14. PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior contracts between the Fund or the Custodian and the Sub-Custodian relating to the custody of the Fund's assets. 15. DECLARATION OF TRUST. A copy of the Declaration of Trust of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that the obligations of or arising out of this instrument are not binding upon any of the Trustees or beneficiaries individually but binding only upon the assets and property of the Fund. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day of , 199 . PUTNAM FIDUCIARY TRUST COMPANY By-------------------------------- Name: Title: (Sub-Custodian) By--------------------------------- Name: Title: The Sub-Custodian and Putnam Investments, Inc. ("Putnam"), the sole owner of the Custodian, agree that Putnam shall be the primary obligor with respect to compensation due the Sub-Custodian pursuant to Section 6 of this Agreement in connection with the Sub-Custodian's performance of its responsibilities hereunder. The Custodian and Putnam agree to take all actions necessary and appropriate to assure that the Sub-Custodian shall be compensated in the amounts and on the schedule agreed to by the Custodian and the Sub-Custodian pursuant to Section 6. PUTNAM INVESTMENTS, INC. By:------------------------------- Name: Title: PUTNAM FIDUCIARY TRUST COMPANY By:-------------------------------- Name: Title: (Sub-Custodian) By:---------------------------------- Name: Title: S:\shared\boiler\newfunds\pre-eff\NF-27d.rev EX-99.B9 11 OTH CONTRCT INVESTOR SERVICING AGREEMENT AGREEMENT made as of the 3rd day of June, 1991, between each of the Putnam Funds listed in Appendix A hereto (as the same may from time to time be amended to add one or more additional Putnam Funds or to delete one or more of such Funds), each of such Funds acting severally on its own behalf and not jointly with any of such other Funds (each of such Funds being hereinafter referred to as the "Fund"), and The Putnam Management Company, Inc. (the "Manager"), a Delaware corporation, and Putnam Fiduciary Trust Company (the "Agent"), a Massachusetts trust company. W I T N E S S E T H: WHEREAS, the Fund is an investment company registered under the Investment Company Act of 1940; and WHEREAS, the Fund desires to engage the Manager and the Agent to provide all services required by the Fund in connection with the establishment, maintenance and recording of shareholder accounts, including without limitation all related tax and other reporting requirements, and the implementation of investment and redemption arrangements offered in connection with the sale of the Fund's shares; and WHEREAS, the Agent, an affiliate of the Manager, is willing to provide such services on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties hereto agree as follows: 1. APPOINTMENT. The Fund hereby appoints the Agent as its "Investor Servicing Agent" on the terms and conditions set forth herein. In such capacity the Agent shall act as transfer, distribution disbursing and redemption agent for the Fund and shall act as agent for the shareholders of the Fund in connection with the various shareholder investment and/or redemption plans from time to time made available to shareholders. The Agent hereby accepts such appointment and agrees to perform the respective duties and functions of such offices in accordance with the terms of this agreement and in a manner generally consistent with the practices and standards customarily followed by other high quality investor servicing agents for registered investment companies. Notwithstanding such appointment, however, the parties agree that the Manager may, upon thirty (30) days prior written notice to the Fund, assume such appointment and perform such duties and functions itself. Pending any such assumption, however, the Manager hereby guarantees the performance of the Agent hereunder and shall be fully responsible to the Fund, financially and otherwise, for the performance by the Agent of its agreements contained herein. 2. GENERAL AUTHORITY AND DUTIES. By its acceptance of the foregoing appointment, the Agent shall be responsible for performing all functions and duties which, in the reasonable judgment of the Fund, are necessary or desirable in connection with the establishment, maintenance and recording of the Fund's shareholder accounts and the conduct of its relations with shareholders with respect to their accounts. Without limiting the generality of the foregoing, the Agent shall be responsible: (a) as transfer agent, for performing all functions customarily performed by transfer agents for registered investment companies, including without limitation all functions necessary or desirable to establish and maintain accounts evidencing the ownership of securities issued by the Fund and, to the extent applicable, the issuance of certificates representing such securities, the recording of all transactions pertaining to such accounts, and effecting the issuance and redemption of securities issued by the Fund; (b) as distribution disbursing agent, for performing all functions customarily performed by distribution disbursing agents for registered investment companies, including without limitation all functions necessary or desirable to effect the payment to shareholders of distributions declared from time to time by the Trustees of the Fund; (c) as redemption agent for the Fund, for performing all functions necessary or desirable to effect the redemption of securities issued by the Fund and payment of the proceeds thereof; and (d) as agent for shareholders of the Fund, performing all functions necessary or desirable to maintain all plans or arrangements from time to time made available to shareholders to facilitate the purchase or redemption of securities issued by the Fund. In performing its duties hereunder, in addition to the provisions set forth herein, the Agent shall comply with the terms of the Declaration of Trust, the Bylaws and the current Prospectus and Statement of Additional Information of the Fund, and with the terms of votes adopted from time to time by the Trustees and shareholders of the Fund, relating to the subject matters of this Agreement, all as the same may be amended from time to time. 3. STANDARD OF SERVICE; COMPLIANCE WITH LAWS. The Agent will use its best efforts to provide high quality services to the Fund's shareholders and in so doing will seek to take advantage of such innovations and technological improvements as may be appropriate or desirable with a view to improving the quality and, where possible, reducing the cost of its services to the Fund. In performing its duties hereunder, the Agent shall comply with the provisions of all applicable laws and regulations and shall comply with the requirements of any governmental authority, having jurisdiction over the Agent or the Fund with respect to the duties of the Agent hereunder. 4. COMPENSATION. The Fund shall pay to the Agent, for its services rendered and its costs incurred in connection with the performance of its duties hereunder, such compensation and reimbursements as may from time to time be approved by vote of the Trustees of the Fund. 5. DUTY OF CARE; INDEMNIFICATION. The Agent will at all times act in good faith and exercise reasonable care in performing its duties hereunder. The Agent will not be liable or responsible for delays of errors resulting from circumstances beyond its control, including acts of civil or military authorities, national emergencies, labor difficulties, fire, mechanical breakdown beyond its control, flood or catastrophe, acts of God, insurrection, war, riots or failure beyond its control of transportation, communication or power supply. The Agent may rely on certifications of the Clerk, the President, the Vice Chairman, the Executive Vice President, the Senior Vice President or the Treasurer of the Fund as to any action taken by the shareholders or trustees of the Fund, and upon instructions not inconsistent with this Agreement received from the President, Vice Chairman, the Executive Vice President, the Senior Vice President or the Treasurer of the Fund. If any officer of the Fund shall no longer be vested with authority to sign for the Fund, written notice thereof shall forthwith be given to the Agent by the Fund and, until receipt of such notice by it, the Agent shall be entitled to recognize and act in good faith upon certificates or other instruments bearing the signatures or facsimile signatures of such officers. The Agent may request advice of counsel for the Fund, at the expense of the Fund, with respect to the performance of its duties hereunder. The Fund will indemnify and hold the Agent harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable fees and expenses of counsel) arising out of (i) any action taken by the Agent in good faith consistent with the exercise of reasonable care in accordance with such certifications, instructions or advice, (ii) any action taken by the Agent in good faith consistent with the exercise of reasonable care in reliance upon any instrument or certificate for securities believed by it (a) to be genuine, and (b) to be executed by any person or persons authorized to execute the same; PROVIDED, HOWEVER, that the Agent shall not be so indemnified in the event of its failure to obtain a proper signature guarantee to the extent the same is required by the Declaration of Trust, Bylaws, current Prospectus or Statement of Additional Information of the Fund or a vote of the Trustees of the Fund, and such requirement has not been waived by vote of the Trustees of the Fund, or (iii) any other action taken by the Agent in good faith consistent with the exercise of reasonable care in connection with the performance of its duties hereunder. In the event that the Agent proposes to assert the right to be indemnified under this Section 5 in connection with any action, suit or proceeding against it, the Agent shall promptly after receipt of notice of commencement of such action, suit or proceeding notify the Fund of the same, enclosing a copy of all papers served. In such event, the Fund shall be entitled to participate in such action, suit or proceeding, and, to the extent that it shall wish, to assume the defense thereof, and after notice from the Fund to the Agent of its election so to assume the defense thereof the Fund shall not be liable to the Agent for any legal or other expenses. The parties shall cooperate with each other in the defense of any such action, suit or proceeding. In no event shall the Fund be liable for any settlement of any action or claim effected without its consent. 6. MAINTENANCE OF RECORDS. The Agent will maintain and preserve all records relating to its duties under this Agreement in compliance with the requirements of applicable statutes, rules and regulations, including, without limitation, Rule 31a-1 under the Investment Company Act of 1940. Such records shall be the property of the Fund and shall at all times be available for inspection and use by the officers and agents of the Fund. The Agent shall furnish to the Fund such information pertaining to the shareholder accounts of the Fund and the performance of its duties hereunder as the Fund may from time to time request. The Agent shall notify the Fund promptly of any request or demand by any third party to inspect the records of the Fund maintained by it and will act upon the instructions of the Fund in permitting or refusing such inspection. 7. FUND ACCOUNTS. All moneys of the Fund from time to time made available for the payment of distributions to shareholders or redemptions of shares, or otherwise coming into the possession or control of the Agent or its officers, shall be deposited and held in one or more accounts maintained by the Agent solely for the benefit of the Funds. 8. INSURANCE. The Agent will at all times maintain in effect insurance coverage, including, without limitation, Errors and Omissions, Fidelity Bond and Electronic Data Processing coverages, at levels of coverage consistent with those customarily maintained by other high quality investor servicing agents for registered investment companies and with such policies as the Trustees of the Fund may from time to time adopt. 9. EMPLOYEES. The Agent shall be responsible for the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others caused by such agents or employees. The Agent shall assume full responsibility for its agents and employees under applicable statutes and agrees to pay all applicable employer taxes thereunder with respect to such agents and employees, and such agents and employees shall in no event be considered to be agents or employees of the Fund. 10. TERMINATION. This Agreement shall continue indefinitely until terminated by not less than ninety (90) days prior written notice given by the Fund to the Agent, or by not less than six months prior written notice given by the Agent to the Fund. In the event that in connection with any such termination a successor to any of the Agent's duties or responsibilities hereunder is designated by the Fund by written notice to the Agent, the Agent will cooperate fully in the transfer of such duties and responsibilities, including provision for assistance by the Agent's personnel in the establishment of books, records and other data by such successor. The Fund will reimburse the Agent for all expenses incurred by the Agent in connection with such transfer. 11. MISCELLANEOUS. This Agreement shall be construed and enforced in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. A copy of the Declaration of Trust (including any amendments thereto) of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or officers or shareholders individually, but binding only upon the assets and property of the Fund. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date and year first above written. THE PUTNAM FUNDS, listed on Appendix A /s/Charles E. Porter By ----------------------------------- Charles E. Porter Executive Vice President PUTNAM FIDUCIARY TRUST COMPANY /s/John R. Verani By ----------------------------------- John R. Verani President THE PUTNAM MANAGEMENT COMPANY, INC. /s/Gordon H. Silver By ----------------------------------- Gordon H. Silver Senior Managing Director APPENDIX A The George Putnam Fund of Boston The Putnam Fund for Growth and Income Putnam Investors Fund Putnam Income Fund Putnam Global Growth Fund Putnam Vista Fund Putnam Voyager Fund Putnam Convertible Income-Growth Trust Putnam Money Market Fund Putnam Tax Exempt Income Fund Putnam High Yield Trust Putnam Health Sciences Trust Putnam OTC Emerging Growth Fund Putnam Corporate Asset Trust Putnam U.S. Government Income Trust Putnam American Government Income Fund Putnam Natural Resources Fund Putnam Tax-Free Income Trust Putnam High Yield Advantage Fund Putnam Federal Income Trust Putnam Massachusetts Tax Exempt Income Fund II Putnam Global Governmental Income Trust Putnam Michigan Tax Exempt Income Fund II Putnam Minnesota Tax Exempt Income Fund II Putnam Ohio Tax Exempt Income Fund II Putnam Adjustable Rate U.S. Government Fund Putnam Tax Exempt Money Market Fund Putnam New York Tax Exempt Money Market Fund Putnam Capital Manager Trust Putnam Diversified Income Trust Putnam Dividend Growth Fund Putnam Municipal Income Fund Putnam Pennsylvania Tax Exempt Income Fund Putnam New Jersey Tax Exempt Income Fund Putnam Europe Growth Fund Putnam New Opportunities Fund Putnam Florida Tax Exempt Income Fund Putnam Utilities Growth and Income Fund Putnam New York Tax Exempt Opportunities Fund Putnam Overseas Growth Fund Putnam Asia Pacific Growth Fund Putnam Arizona Tax Exempt Income Fund Putnam Equity Income Fund Putnam Managed Income Trust Putnam Research Analysts Fund Putnam Balanced Government Fund Putnam Growth Fund APPENDIX A CONTINUED Putnam Capital Appreciation Fund Putnam Capital Growth and Income Fund Putnam Asset Allocation Funds Putnam California Tax Exempt Income Trust Putnam California Tax Exempt Money Fund Putnam Intermediate Tax Exempt Fund Putnam New York Tax Exempt Income Trust Putnam Diversified Equity Trust Putnam Short-Term Investment-Grade Bond Fund Putnam Growth and Income Fund II Putnam Investment Funds Dated: January 6, 1995 EX-99.B10 12 OPIN COUNS ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110-2624 (617) 951-7000 TELECOPIER: (617) 951-7050 February 27, 1991 PCM High Yield Fund (the "Fund") One Post Office Square Boston, Massachusetts 02109 Gentlemen: You have informed us that you propose to offer and sell from time to time 833,998 of your shares of beneficial interest (the "Shares"), for cash or securities at the net asset value per share, determined in accordance with your Bylaws, which Shares are in addition to your shares of beneficial interest which you have previously offered and sold or which you are currently offering. We have examined copies of (i) your Agreement and Declaration of Trust as on file at the office of the Secretary of State of The Commonwealth of Massachusetts, which provides for an unlimited number of authorized shares of beneficial interest, and (ii) your Bylaws, which provide for the issue and sale by the Fund of such Shares. We assume that appropriate action will be taken to register or qualify the sale of the Shares under any applicable state and federal laws regulating offerings and sales of securities. Based upon the foregoing, we are of the opinion that: 1. The Fund is a legally organized and validly existing voluntary association with transferable shares of beneficial interest under the laws of The Commonwealth of Massachusetts and is authorized to issue an unlimited number of shares of beneficial interest. 2. Upon the issue of any of the Shares referred to in the first paragraph hereof for cash or securities at net asset value, and the receipt of the appropriate consideration therefor as provided in your Bylaws, such Shares so issued will be validly issued, fully paid and nonassessable by the Fund. ROPES & GRAY PUTNAM CAPITAL MANAGER TRUST -2- February 27, 1991 The Fund is an entity of the type commonly known as a "Massachusetts business trust". 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 its Trustees. The Agreement and Declaration of Trust provides for indemnification out of the property of the Fund for all loss and expense of any shareholder of the Fund held personally liable for the obligations of the Fund solely by reason of his being or having been a shareholder. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations. We understand that this opinion is to be used in connection with the registration of the Shares for offering and sale pursuant to the Securities Act of 1933, as amended, and the provisions of Rule 24e-2 under the Investment Company Act of 1940, as amended. We consent to the filing of this opinion with and as a part of Post-Effective Amendment No. 4 to your Registration Statement No. 33-17486. Very truly yours, /s/ Ropes & Gray Ropes & Gray EX-99.B13 13 STOCK LTR December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 1,666.70 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Growth and Income Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 1,666.70 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM High Yield Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 16,667 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Money Market Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 1,666.70 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Multi-Strategy Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 1,666.70 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM U.S. Government & High Quality Bond Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President December 18, 1987 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 1,666.50 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Voyager Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President April 30, 1990 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 100 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM International Equities Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President April 30, 1992 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 100 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Utilities Growth and Income Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President September 14, 1993 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 100 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Diversified Income Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President April 30, 1994 Putnam Capital Manager Trust One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 100 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM New Opportunities Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, we will reimburse the Fund for its then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Lawrence J. Lasser By: _____________________________ Lawrence J. Lasser, President April 10, 1995 Putnam Capital Manager Trust - PCM Asia Pacific Growth Fund One Post Office Square Boston, MA 02109 Gentlemen: In connection with your sale to us today of 100 shares of beneficial interest (the "Shares") in Putnam Capital Manager Trust - PCM Asia Pacific Growth Fund (the "Fund"), we understand that: (i) the Shares have not been registered under the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in reliance on the sale's being exempt under Section 4(2) of the Act as not involving any public offering; and (iii) in part, your reliance on such exemption is predicated on our representation, which we hereby confirm, that we are acquiring the Shares for investment and for our own account as the sole beneficial owner hereof, and not with a view to or in connection with any resale or distribution of any or all of the Shares or of any interest therein. We hereby agree that we will not sell, assign or transfer the Shares or any interest therein except upon repurchase or redemption by the Fund unless and until the Shares have been registered under the Securities Act of 1933, as amended, or you have received an opinion of your counsel indicating to your satisfaction that such sale, assignment or transfer will not violate the provisions of the Securities Act of 1933, as amended, or any rules and regulations promulgated thereunder. This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date above written. Very truly yours, THE PUTNAM MANAGEMENT COMPANY, INC. /s/ Steven E. Asher By: _____________________________ Steven E. Asher Senior Vice President and Senior Counsel Putnam Investments, Inc. EX-99.B14 14 RETMT PLAN Putnam Retirement Plans: Basic Plan Document Putnam Standard Profit Sharing Plan - "Keogh" Putnam Standard Profit Sharing and 401 (k) Plan Putnam Standard Money Purchase Pension Plan - "Keogh" Putnam Variable Profit Sharing and 401 (k) Plan Putnam Variable Money Purchase Pension Plan Boston London Tokyo Contents I. Putnam Basic Plan Document Article I: Introduction 2 Article II: Definitions 2 Article III: Participation 6 Article IV: Contributions 7 Article V: Cash or Deferred Arrangement under Section 401(k) (CODA) 9 Article VI: Limitations on Allocations 15 Article VII: Eligibility for Distribution of Benefits 17 Article VIII: Vesting 18 Article IX: Payment of Benefits 19 Article X: Joint and Survivor Annuity Requirements 20 Article XI: Minimum Distribution Requirements 22 Article XII: Withdrawals and Loans 25 Article XIII: Trust Fund and Investments 26 Article XIV: Insurance Policies 27 Article XV: Top-Heavy Plans 28 Article XVI: Administration of the Plan 30 Article XVII: Trustee and Insurance Trustee 31 Article XVIII: Amendment 33 Article XIX: Termination of Plan and Trust 34 Article XX: Transfers from Other Qualified Plans; Mergers 35 Article XXI: Miscellaneous 35 II. IRS Opinion Letters The Putnam Standard Profit sharing and 401(k) Plan Opinion Letter 38 The Putnam Standard Money Purchase Pension Plan Opinion Letter 39 The Putnam Variable Profit Sharing and 401 (k) Plan Opinion Letter 40 Putnam Variable Money Purchase Pension Plan Opinion Letter 41 I. Putnam Basic Plan Document Article I: Introduction 2 Article II: Definitions 2 Article III: Participation 6 Article IV: Contributions 7 Article V: Cash or Deferred Arrangement under Section 401 (k) (CODA) 9 Article VI: Limitations on Allocations 15 Article VII: Eligibility for Distribution of Benefits 17 Article VIII: Vesting 18 Article IX: Payment of Benefits 19 Article X: Joint and Survivor Annuity Requirements 20 Article XI: Minimum Distribution Requirements 22 Article XII: Withdrawals and Loans 25 Article XIII: Trust Fund and Investments 26 Article XIV: Insurance Policies 27 Article XV: Top-Heavy Plans 28 Article XVI: Administration of the Plan 30 Article XVII: Trustee and Insurance Trustee 31 Article XVIII: Amendment 33 Article XIX: Termination of Plan and Trust 34 Article XX: Transfers from Other Qualified Plans; Mergers 35 Article XXI: Miscellaneous 35 The Putnam Basic Plan Document ARTICLE 1: Introduction By executing the Plan Agreement, the Employer has established a retirement plan (the "Plan") according to the terms and conditions of the Plan Agreement and this Putnam Basic Plan Document, for the purpose of providing a retirement fund for the benefit of Participants and Beneficiaries. ARTICLE II: Definitions The terms defined in Sections 2.1 through 2.50 appear generally throughout the document. Sections 2.51 through 2.63 and Article V contain definitions of terms used only in a CODA or in a Variable Plan which permits nondeductible Participant Contributions pursuant to Section 5.9 and Section 10.4 contains additional definitions related to distributions from the Plan. Articles VI and XI contain additional definitions of terms used only in those Articles. 2.1 Account means any of, and Accounts means all of, a Participant's Employer contribution Account, Participant Contribution Account, Rollover Account, and if the Plan contains a CODA, the accounts maintained for the Participant pursuant to Article V. 2.2 Affiliated Employer, for purposes of the Plan other than Article VI, means the Employer and a trade or business, whether or not incorporated, which is any of the following: (a) A member of a group of controlled corporations (within the meaning of Section 414(b) of the Code) which includes the Employer; or (b) A trade or business under common control (within the meaning of Section 414(c) of the Code) with the Employer; or (c) A member of an affiliated service group (within the meaning of Section 414(m) of the Code) which includes the Employer; or (d) An entity otherwise required to be aggregated with the Employer pursuant to Section 414(o) of the Code. In determining an Employee's service for vesting and for eligibility to participate in the Plan, all employment with Affiliated Employers will be treated as employment by the Employer. In a Variable Plan, in addition to the Employer, any Affiliated Employer may adopt the Plan for the benefit of its Employees by executing a Plan Agreement. For purposes of Article VI only, the definitions in paragraphs (a) and (b) of this Section 2.2 shall be modified by adding at the conclusion of the parenthetical phrase in each such paragraph the words "as modified by Section 415(h) of the Code." 2.3 Authorized Leave of Absence means a leave of absence from employment granted in writing by an Affiliated Employer. Authorized Leave of Absence shall be granted on account of military service for any period during which an Employee's right to re-employment is guaranteed by law, and for such other reasons and periods as an Affiliated Employer shall consider proper, provided that Employees in similar situations shall be similarly treated. 2.4 Base Contribution Percentage means the percentage so specified in the Plan Agreement. 2.5 Beneficiary means a person entitled to receive benefits under the Plan upon the death of a Participant, in accordance with Section 7.2 and Articles 10 and 11. 2.6 CODA means a cash or deferred arrangement that meets the requirements of Section 401(k) of the Code, adopted as part of a profit sharing plan. 2.7 Code means the Internal Revenue Code of 1986, as amended. 2.8 Compensation means all of an Employee's compensation determined in accordance with the definition elected by the Employer in the Plan Agreement. For purposes of that election, "Form W-2 earnings" means "wages" as defined in Section 3401(a) of the Code in connection with income tax withholding at the source, and all other compensation paid to the Employee by the Employer in the course of its trade or business, for which the Employer is required to furnish the Employee with a written statement under sections 6041(d), 6051(a)(3), and 6052 of the Code, determined without regard to exclusions based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in section 3401(a)(2) of the Code). 2.9 Date of Employment means the first date on which an Employee performs an Hour of Service; or, in the case of an Employee who has incurred one or more One-Year Eligibility Breaks and who is treated as a new Employee under the rules of Section 3.3, the first date on which he performs an Hour of Service after his return to employment. 2.10 Deductible Employee Contribution Account means an account maintained on the books of the Plan on behalf of a Participant, in which are recorded amounts contributed by him to the Plan on a tax-deductible basis under prior law, and the income, expenses, gains and losses thereon. 2.11 Disabled means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. 2.12 Earned Income means a Self-Employed Individual's net earnings from self-employment in the trade or business with respect to which the Plan is established, excluding items not included in gross income and the deductions allocable such items, and reduced by (i) contributions by the Employer to qualified plans, to the extent deductible under Section 404 of the Code, and (ii) the deduction allowed to the Employer under Section 164(f) of the Code for taxable years beginning after December 31, 1989. 2.13 Earnings, effective for all Plan Years beginning after December 31, 1988, means the first $200,000 (as adjusted by the Secretary of the Treasury at the same time and in the same manner as under Section 415(d) of the Code) of the sum of the Compensation and the Earned Income received by an Employee during a Plan Year. In determining the Earnings of a Participant, the rules of Section 414(q)(6) of the Code shall apply, except that in applying those rules the term "family" shall include only the Participant's spouse and the Participant's lineal descendants who have not reached age 19 by the last day of the Plan Year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then (except for purposes of determining the portion of compensation up to the Integration Level), the limitation shall be prorated among the affected individuals in proportion to each such individual's compensation as determined under this section prior to the application of this limitation. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. if a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 2.14 Effective Date means the date so designated in the Plan Agreement. If the Plan Agreement indicates that the Employer is adopting the Plan as an amendment of an existing plan, the provisions of the existing plan apply to all events preceding the Effective Date, except as to specific provisions of the Plan which set forth a retroactive effective date in accordance with Section 1140 of the Tax Reform Act of 1986. 2.15 Eligibility Period means a period of 12 consecutive months beginning on an Employee's most recent Date of Employment or any anniversary thereof, in which he is credited with at least 1,000 Hours of Service; provided that if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting an Eligibility Period, that number shall be substituted for 1,000, and provided further that in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. 2.16 Employee means a common law Employee of an Affiliated Employer; in the case of an Affiliated Employer which is a sole proprietorship, the sole proprietor thereof; in the case of an Affiliated Employer which is a partnership, a partner thereof; and a Leased Employee of an Affiliated Employer. The term "Employee" includes an individual on Authorized Leave of Absence, a Self-employed Individual and an Owner-Employee. 2.17 Employer means the Employer named in the Plan Agreement and any successor to all or the major portion of its assets or business which assumes the obligations of the Employer under the Plan Agreement. 2.18 Employer Contribution Account means an account maintained on the books of the Plan on behalf of a Participant, in which are recorded the amounts allocated for his benefit from contributions by the Employer (other than contributions pursuant to Article 5), Forfeitures by former Participants (if the Plan provides for reallocation of Forfeitures), amounts reapplied under Section 6.1(d), and the income, expenses, gains and losses incurred thereon. 2.19 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 2.20 Excess Earnings means a Participant's Earnings in excess of the Integration Level of the Plan. 2.21 Forfeiture means a nonvested amount forfeited by a former Participant in a Variable Plan, pursuant to Section 8.3; or an amount forfeited by a former Participant or Beneficiary who cannot be located, pursuant to Section 9.5; or a Qualified Matching Contribution or Employer Matching Contribution forfeited pursuant to Section 5.8. 2.22 Hour of Service means each hour described in paragraphs (a), (b), (c), (d) or (e) below, subject to paragraphs (f) and (g) below. (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Affiliated Employer. These hours shall be credited to the Employee for the computation period or periods in which the duties are performed. (b) Each hour for which an Employee is paid, or entitled to payment, by an Affiliated Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period of absence (whether or not such period occurs in a single computation period) unless the Employee's absence in not an Authorized Leave of Absence. Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations, which are incorporated herein by this reference. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Affiliated Employer. The same Hours of Service shall not be credited under both paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c); and no more than 501 Hours of Service shall be credited under this paragraph (c) with respect to payments of back pay, to the extent that such pay is agreed to or awarded for a period of time described in paragraph (b) during which the Employee did not perform or would not have performed any duties. These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. (d) Each hour during an Authorized leave of Absence. Such hours shall be credited at the rate of a customary full work week for an Employee. (e) Solely for purposes of determining whether a One-Year Vesting Break or a One-Year Eligibility Break has occurred, each hour which otherwise would have been credited to an Employee but for an absence from work by reason of: the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of the child by the Employee, or caring for a child for a period beginning immediately after its birth or placement. If the Plan Administrator cannot determine the fours which would normally have been credited during such an absence, the Employee shall be credited with eight Hours of Service for each day of absence. No more than 501 Hours of Service shall be credited under this paragraph by reason of any pregnancy or placement. Hours credited under this paragraph shall be treated as Hours of Service only in the Plan Year or Eligibility Period or both, as the case may be, in which the absence from work begins, if necessary to prevent the Participant's incurring a One-Year Vesting Break or One-Year Eligibility Break in that Period, or, if not, in the period immediately following that in which the absence begins. The Employee must timely furnish to the Employer information reasonably required to establish (i) that an absence from work is for a reason specified above, and (ii) the number of days for which the absence continued. (f) Hours of Service shall be determined on the basis of actual hours for which an Employee is paid or entitled to payment, or as otherwise specified in the Plan Agreement. (g) If the Employer maintains the plan of a predecessor employer, service for the predecessor Employer shall be treated as service for the Employer. 2.23 Insurance Trustee means the person named in the Plan Agreement as Insurance Trustee, and any successor thereto. 2.24 Integration Level means the Earnings amount selected by the Employer in the Plan Agreement. 2.25 Investment Company means an open-end registered investment company for which Putnam Financial Services, Inc., or its affiliate acts a principal underwriter, or for which The Putnam Management Company, Inc., or its affiliate serves as an investment adviser; provided that its prospectus offers its shares under the Plan. 2.26 Investment Company Shares means shares issued by an Investment Company. 2.27 Investment Products means any of the investment products specified by the Employer in accordance with Section 13.2, fro the group of those products sponsored, underwritten or managed by Putnam as shall be made available by Putnam under the Plan, and such other products as shall be accepted in writing by Putnam for availability under the Plan. The term "Investment Products" does not include any Policy selected pursuant to Article XIV. 2.28 Leased Employee means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one year, and such services are of a type historically performed by Employees in the business field of the recipient Employer. The compensation of a Leased Employee for purposes of the Plan means the Compensation (as defined in Section 2.8) of the Leased Employee attributable to services performed for the recipient Employer. Contributions or benefits provided to a leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Provided that leased Employees do not constitute more than 20 percent of the recipient's nonhighly compensated workforce, a leased Employee shall not be considered an Employee of the recipient if he is covered by a money purchase pension plan providing; (1) a nonintegrated Employer contribution rate of at least 10 percent of compensation (as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code), (2) immediate participation, and (3) full and immediate vesting. 2.29 One-Year Eligibility Break means an Eligibility Period during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for 500 the number of Hours of Service specified in any regulations of the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting an Eligibility Period, that number shall be substituted for 500. 2.30 One-Year Vesting Break means a Plan Year during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for the 500 the number of Hours of Service specified in any regulations for the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting a Year of Service, that number shall be substituted for 500. 2.31 Owner-Employee means the sole proprietor of an Affiliated Employer that is a sole proprietorship, or a partner owning more than 10 percent of either the capital or profits interest of an Affiliated Employer that is a partnership. 2.32 Participant means each Employee who has met the requirements for participation in Article III. 2.33 Participant Contribution Account means an account maintained on the books of the plan, in which are recorded non deductible contributions by a Participant in accordance with Section 4.2(e) or a similar provision in effect under the Plan or a predecessor plan for periods before the first Plan Year beginning after December 31, 1986, and any income, expenses, gains or losses incurred thereon. 2.34 Plan means the form of defined contribution retirement plan and trust agreement adopted by the Employer, consisting of the Plan Agreement and the Putnam Basic Plan Document as set forth herein, together with any and all amendments and supplements thereto. 2.35 Plan Administrator means the Employer or its appointee pursuant to Section 16.1. 2.36 Plan Agreement means the separate agreement entered into between the Employer and the Trustee (and the Insurance Trustee, if any) and accepted by Putnam, under which the Employer adopts the Plan and selects among its optional provisions. 2.37 Plan Year means the period of 12 consecutive months specified by the Employer in the Plan Agreement; provided that if the Effective Date is not the first day of the Employer's taxable year, the initial Plan Year shall begin on the Effective Date and end on the last day of the Employer's taxable year. 2.38 Policy means an ordinary life insurance, term insurance, retirement income or endowment policy or an individual or group annuity contract issued by a life insurance company in connection with the Plan, or an interest therein. An ordinary life insurance policy within the meaning of this definition provides non-decreasing death benefits and non-increasing premiums. 2.39 Putnam means Putnam Financial Services, Inc., or a company affiliated with it which Putnam Financial Services, Inc. has designated as its agent to perform specified actions or procedures in connection with the prototype Plan. 2.40 Qualified Participant means (i) in a Standard Plan, any Participant who is an active Employee on the last day of the Plan Year in question or who is credited with more than 500 Hours of Service during the Plan Year in question or whose Retirement or death occurred during the Plan Year in question; and (ii) in a Variable Plan, any Participant who meets the requirements specified by the Employer in the Plan Agreement. If the Plan is not adopted to replace an existing plan, this Section 2.40 is effective on the Effective Date. If the Plan replaces an existing plan, this Section 2.40 is effective on the first day of the first Plan Year that begins after December 31, 1988, or if later, on the Effective Date, and the provision of the existing plan that this Section 2.40 replaces shall continue to apply until that time. 2.41 Recordkeeper means the person or entity designated by the Employer in the Plan Agreement to perform the duties described in Section 16.4, and any successor thereto. 2.42 Retirement means ceasing to be an Employee in accordance with Section 7.1. 2.43 Rollover Account means an account established for an Employee who makes a rollover contribution to the Plan pursuant to Section 4.5. 2.44 Self-Employed Individual means an individual whose personal services are a material income-producing factor in the trade or business for which the Plan is established, and who has Earned Income for the taxable year from that trade or business, or would have Earned Income but for the fact that the trade or Business had no net profits for the taxable year. 2.45 Shareholder-Employee means any officer or Employee of an electing small business corporation, within the meaning of Section 1362 of the Code, who on any day during a taxable year of the Employer owns (or is considered as owning under Section 318(a)(1) of the Code) more than 5% of the outstanding stock of the Employer. 2.46 Social Security Wage Base means the maximum amount considered as wages under Section 3121(a)(1) of the Code as in effect on the first day of the Plan Year. 2.47 Standard Plan means a Plan adopted by execution of a Putnam Standard Profit Sharing Plan Agreement #001 (including such a Plan with a CODA) or a Putnam Standard Money Purchase Pension Plan Agreement #002. 2.48 Trust and Trust Fund means the trust fund established under Section 13.1. 2.49 Trustee means the person, or the entity with trustee powers, named in the Plan Agreement as trustee, and any successor thereto. 2.50 Valuation Date means (i) for a Standard Plan, each business day, and (ii) for a Variable Plan, the last day of each Plan Year, and such other dates as the Employer may designate by written agreement with the Recordkeeper. 2.51 Variable Plan means a Plan adopted by execution of a Putnam Variable Profit Sharing Plan Agreement #003 or a Putnam Variable Money Purchase Pension Plan Agreement #004. 2.52 Year of Service means a Plan Year in which an Employee is credited with at least 1,000 Hours of Service; provided, however, that if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting a Year of Service, that number shall be substituted for 1,000, and provided further that in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. An Employee's Years of Service shall include service credited prior to the Effective Date under any predecessor plan. If the initial Plan Year is shorter than 12 months, each Employee who is credited with at least 1,000 Hours of Service in the 12-month period ending on the last day of the initial Plan Year shall be credited with a Year of Service with respect to the initial Plan Year. (a) Service in any Plan Year (or comparable period prior to the Effective Date) completed before the Employee reached age 18; (b) Service completed during a period in which the Employer did not maintain the Plan or any predecessor plan (as defined under regulations prescribed by the Secretary of the Treasury). The following definitions apply only to cash or deferred arrangements under Section 401(k)(CODA) and to Variable Plans which permits nondeductible Participant contributions pursuant to Section 5.9: 2.53 Deferral Agreement means an Employee's agreement to make one or more Elective Deferrals in accordance with Section 5.2. 2.54 Elective Deferral means any contribution made to the Plan by the Employer at the election of a Participant, in lieu of cash compensation, including contributions made pursuant to a Deferral Agreement or other deferral mechanism. 2.55 Elective Deferral Account means an account maintained on the books of the Plan, in which are recorded a Participant's Elective Deferrals and the income, expenses, gains and losses incurred thereon. 2.56 Employer Matching contribution means a contribution made by the Employer (i) to the Plan pursuant to Section 5.,8 or (ii) to another defined contribution plan on account of a Participant's "elective deferrals" or "employee contributions," as those terms are defined in Section 401(m)(4) of the Code. 2.57 Employer Matching Account means an account maintained on the books of the Plan, in which are recorded the Employer Matching Contributions made on behalf of a Participant and the income, expenses, gains and losses incurred thereon. 2.58 Highly Compensated Employee means any highly compensated active Employee or highly compensated former Employee, as defined in this Section 2.58. For this purpose, the "determination year" shall be the Plan Year, and the "look-back year" shall be the 12-month period immediately preceding the determination year; provided, however, that in a Variable Plan for which the Plan Year is the calendar year, the current Plan Year shall be both the "determination year" and the "look-back year" if the Employer so elects in the Plan Agreement. A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who during the look-back year: (i) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (ii) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer and received compensation during such year that is greater than 50 percent of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term also includes (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year," and among the 100 Employees who received the most compensation from the Employer during the determination year; and (ii) Employees who are 5 percent owners at any time during the look-back year or determination year. If no officer has satisfied the compensation requirement of (iii) above during either a year or a look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) before the determination year, performed no service for the Employer during the determination year, and was a highly compensated active Employee for either the year of separation from service or any determination year ending on or after the Employee's 55th birthday. If during a determination year or look-back year an Employee is a family member of either a 5 percent owner who is an active or former Employee, or a Highly Compensated Employee who is one of the 10 most highly paid Highly Compensated Employees ranked on the basis of compensation paid by the Employer during the year, then the family member and the 5 percent owner or top-ten Highly Compensated Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of the compensation and contributions or benefits of the family member and the 5 percent owner or top-ten highly compensated Employee. For purposes of this Section 2.58, family members include the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. 2.59 Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. 2.60 Qualified Matching Contribution means a contribution made by the Employer that: (i) is allocated in proportion to a Participant's Elective Deferrals or Participant Contributions, as specified by the Employer in the Plan Agreement; (ii) is fully vested at all times, and (iii) is distributable only in accordance with Section 5.13. 2.61 Qualified Matching Account means an account maintained on the books of the Plan, in which are recorded the Qualified Matching Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. 2.62 Qualified Nonelective Contribution means a contribution (other than an Employer Matching contribution or Qualified Matching Contribution) made by the Employer, that: (i) a Participant may no elect to receive in cash until it is distributed from the plan; (ii) is fully vested at all times; and (iii) is distributable only in accordance with Section 5.13. 2.63 Qualified Nonelective Contribution Account means an account maintained on the books of the Plan, in which are recorded the Qualified Nonelective Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. ARTICLE III: Participation 3.1 Initial Participation. An Employee shall become a Participant in the Plan as of the first day of the month in which he first satisfies the age and service requirements specified by the Employer in the Plan Agreement, or as of the Effective Date, whichever is later; provided, however, that: (a) If the Plan is adopted as an amendment of a predecessor plan of the Employer, every Employee who was participating under the predecessor plan when it was so amended shall become a Participant in the Plan as of the Effective Date, whether or not he has satisfied the age and service requirements specified in the Plan Agreement; and (b) Unless the Employer specifies otherwise in the Plan Agreement, any individual who is (i) a nonresident alien receiving no earned income from an Affiliated Employer which constitutes income from sources within the United States, or (ii) included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives if retirement benefits were the subject of good faith bargaining (unless the collective bargaining agreement specifically provides for coverage by the Plan or involves as an employee representative an organization more than one-half of whose members are Employees who are owners, officers or executives of the Employer) shall not participate in the Plan; and (c) If the Plan is a Variable Plan and is not adopted as an amendment of a predecessor plan of the Employer, all Employees on the Effective Date shall become Participants on the Effective Date; if the Employer so elects in the Plan Agreement; and (d) If the Plan is a Variable Plan, (i) only Employees in the eligible classes specified by the Employer in the Plan Agreement shall participate in the Plan; and (ii) eligible Employees will begin participation on the entry date specified in the Plan Agreement. Notwithstanding paragraphs (c) and (d), the Plan must comply with the coverage and participation rules of Sections 410(b) and 401(a)(26) of the Code and the regulations thereunder. 3.2 Special Participation Rule. With respect to a Standard Plan, or a Variable Plan in which the Employer has specified full and immediate vesting in the Plan Agreement, and Employee who incurs a One-Year Eligibility Break before completing the number of Eligibility Periods required under Section 3.1 shall not thereafter be credited with any Eligibility Period completed before the One-Year Eligibility Break. 3.3 Resumed Participation. A former Employee who incurs a One-Year Eligibility Break after having become a Participant shall participate in the Plan as of the date on which he again become an Employee, if (i) his Employer Contribution Account of Employer Matching Account had become partially or fully vested before he incurred a One-Year Vesting Break, or (ii) he incurred fewer than five consecutive One-Year Eligibility Breaks. In any other case, when he again becomes an Employee he shall be treated as a new Employee under Section 3.1. 3.4 Changes in Classification (Variable Plans Only). If a Participant in a Variable Plan ceases to be a member of a classification of Employees eligible to participate in the Plan, but does not incur a One-Year Eligibility Break, he will continue to b e credited with Eligibility Periods while he remains an Employee, and he will resume participation as of the date on which he again becomes a member of a classification of Employees eligible to participate in the Plan. If such a Participant incurs a One-Year Eligibility Break, Section 3.3 will apply. If an Employee who is not a member of a classification of Employees eligible to participate in the Plan satisfies the age and service requirements specified in the Plan Agreement, he will begin to participate immediately upon becoming a member of an eligible classification. 3.5 Benefits for Owner-Employees. If the Plan provides contributions or benefits for one or more Owner-Employees who control both the trade or business with respect to which the Plan is established and one or more other trades or businesses, the Plan and plans established with respect to such other trades or businesses must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the Code with respect to the Employees of this and all such other trades or businesses. If the Plan provides contributions or benefits for one or more Owner Employees who control one or more other trades or businesses, the Employees of each such other trade or business must be included in a plan which satisfies Sections 401(a) and (d) of the Code and which provides contributions and benefits not less favorable than those provided for such Owner-Employees under the Plan. If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which he does not control and such individual controls a trade or business, then the contributions or benefits of the Employees under the plan of the trade or business which he does control must be as favorable as those provided for him under the most favorable plan of the trade or business which he does not control. For purposes of this Section 3.5, an Owner-Employee, or two or more Owner-Employees, shall be considered to control a trade or business if such Owner-Employee, or such two or more Owner-Employees together: (a) own the entire interest in an unincorporated trade or business, or (b) in the case of a partnership, own more than 50 percent of either the capital interest or the profits interest in such partnership. For purposes of the preceding sentence, an Owner-Employee or two or more Owner-Employees shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employees are considered to control within the meaning of the preceding sentence. ARTICLE IV: Contributions 4.1 Provisions Applicable to All Plans. (a) Payment and Crediting of Employer Contributions. the Employer shall pay to the order of the Trustee the aggregate contribution to the Trust Fund (other than the premium payments on any Policy) for each Plan Year. Each contribution shall be accompanied by written instructions from the Employer, in the manner prescribed by Putnam. Neither the Trustee nor Putnam shall be under any duty to inquire into the correctness of the amount or the timing of any contribution, or to collect any amount if the Employer fails to make a contribution as provided in the Plan. (b) Responsibility for Premium Payments. Contributions to be applied to the payment of the premiums on any Policy shall be paid by the Employer directly to the insurer in cash. In determining the amount of any premium due under any Policy with respect to any Participant, the Employer and the Insurance Trustee may rely conclusively upon information furnished by the provider of the Policy. For purposes of Sections 4.2(a), 4.3(a) and Article 5, all Employer contributions used to pay premiums on Policies shall be treated as contributions made to the appropriate Participant's Employer contribution Account. If the Employer omits any premium payment or makes any mistake concerning a premium payment, neither the Employer nor the Insurance Trustee shall have any liability in excess of the premium to be paid. (c) Time for Payment. The aggregate of all contributions with respect to a Plan Year shall be transferred in accordance with paragraphs (a) and (b) no later than the due date (including extensions) for filing the Employer's federal income tax return for that Plan Year. (d) Limitations on Allocations. All allocations shall be subject to the limitations in Article 6. (e) Establishments of Accounts. the employer will establish and maintain (or cause to be established and maintained) for each Participant individual accounts adequate to disclose his interest in the Trust Fund, including such of the following separate accounts as shall apply to the Participant: Deductible Employee Contribution Account, Employer Contribution Account, Participant Contribution Account, and rollover Account; and in a Plan with a CODA, Elective Deferral Account, Qualified Nonelective Account, Qualified Matching Account and Employer Matching Account. The maintenance of such accounts shall be only for recordkeeping purposes, and the assets of separate accounts shall not be required to be segregated for purposes of investment. (f) Restoration of Accounts (Variable Plans Only). Notwithstanding any other provision of the Pan, for any Plan Year in which it is necessary to restore any portion of a Participant's Account pursuant to Section 8.3(b) or 9.5, to the extent that the amount of Forfeitures available is insufficient to accomplish such restoration, the Employer shall contribute the amount necessary to eliminate the insufficiency, regardless or whether the contribution is currently deductible by the Employer under Section 404 of the Code. Forfeitures shall be considered available for allocation pursuant to Sections 4.2, 4.3, and 5.8 in a Plan Year only after all necessary restoration of Accounts has been accomplished. 4.2 Provisions Applicable Only to Profit Sharing Plans. (a) Amount of Annual Contribution. The Employer will contribute for each Plan Year an amount determined accordance with the formula specified by the Employer in the Plan Agreement, less any amount reapplied for the Plan Year under Section 6.1(d), not to exceed the amount deductible under Section 404 of the Code. In a Variable Plan, if the Employer so elects in the Plan Agreement, the amount of Forfeitures occurring a Plan Year shall be applied to reduce the Employer's contribution by a like amount, and such Forfeitures shall be treated as a portion of the Employer contribution for purposes of paragraphs (b) and (c). (b) Allocation of Contributions: General Rule. As of the last day of each Plan Year, the Employer's contribution (and any amounts reapplied under Section 6.1(d) for the Plan Year shall be allocated among the Employer Contribution Accounts of Qualified Participants in proportion to their Earnings. This general rule does not apply to a Plan that is integrated with Social Security or to allocations in a CODA. (c) Plans Integrated with Social Security. If the Employer elects in the Plan Agreement an allocation formula integrated with Social Security, Employer contributions (and any amounts reapplied under Section 6.1(d)) shall be allocated as of the last day of the Plan Year, as follows: (1) Top-Heavy Integration Formula. If the Plan is required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15, or if the Employer has specified in the Plan Agreement that this paragraph (1) will apply whether or not the Plan is Top-Heavy, then: (a) First, among the Employer Contribution Accounts of all Qualified Participants, in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. The total amount allocated in this manner shall be equal to 3% of all Qualified Participants' Earnings (or, if less, the entire amount to be allocated). (b) Next, among the Employer Contribution Accounts of all Qualified Participants who have Excess Earnings, in the ration that each Qualified Participant's Excess Earnings bears to all Qualified Participants' Excess Earnings (or, if less, the entire amount remaining to be allocated). (c) Next, among the Employer Contribution Accounts of all Qualified Participants, in the ratio that the sum of each Qualified Participant's Earnings and Excess Earnings bears to the sum of all Qualified Participants; Earnings and Excess Earnings. the total amount allocated in this manner shall not exceed the lesser of (i) the sum of all Participants' Earnings and Excess Earnings multiplied by the Top-Heavy Maximum Disparity Percentage determined under subparagraph (1)(E), or (ii) the entire amount remaining to be allocated. (d) Finally, any mount remaining shall be allocated among he Employer Contribution Accounts of all Qualified Participants in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. (e) The Top-Heavy Maximum Disparity Percentage shall be the lesser of (i) 2.7% or (ii) the applicable percentage from Table A on page 9. If the Plan's Integration Level is equal to the Social Security Wage Base, the Top-Heavy Maximum Disparity Percentage is 2.7%. (2) Non-Top-Heavy Integration Formula. If the Plan is not required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15, and the Employer has not specified in the Plan Agreement that paragraph (1) will apply whether or not the Plan is Top-Heavy, then: (a) An amount equal to (i) the Maximum Disparity Percentage determined under subparagraph (2)(C) multiplied by the sum of all Qualified Participants' Earnings and Excess Earnings, or (ii) if less, the entire amount to be allocated, shall be allocated among the Employer contribution Amounts of all Participants in the ratio that the sum of each Qualified Participant's Earnings and Excess Earnings bears to the sum of all Qualified Participants' Earnings and Excess Earnings. (b) Any amount remaining after the allocation in paragraph (2)(A) shall be allocated among the Employer contribution Accounts of all Qualified Participants in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. (c) the Maximum Disparity percentage shall be the lesser of (i) 5.7% or (ii) the applicable percentage from Table B on page 9. If the Plan's Integration Level is equal to the Social Security Wage Base, the Maximum Disparity Percentage is 5.7%. (3) In this Section 4.2, Earnings means Earnings as defined in Section 2.13. (d) Allocation of Forfeitures. Forfeitures shall be allocated among the Employer Contribution Amounts of all Qualified Participants in accordance with paragraph (b) or (c), whichever applies to Employer contributions. Forfeitures may b allocated pursuant to paragraphs (c)(1)(B), (c)(1)(C) and (c)(2)(A) only to the extent that the limitation described therein has not been fully utilized by the allocation of Employer contributions and amounts reapplied under Section 6.1(d). (e) Participant Contributions. Except in the case of a Variable Plan in which the Employer has provided in the Plan Agreement for nondeductible Participant contributions, the Plan will accept no such contributions for any Plan Year beginning after the Plan Year in which the Employer adopts this Plan. Nevertheless, a Participant Contribution Account shall be maintained in any Plan which accepted nondeductible Participant contributions for any Plan Year beginning after December 31, 1986, and such contributions, together with any matching contributions (as defined in Section 401(m)(4) of the Code), shall be limited so as to meet the nondiscrimination test of Section 401(m) of the Code. Rules applicable to Participant contributions to a Variable Plan in Plan Years beginning after the adoption of this Plan are set froth in Section 5.9. All Participant Contribution Accounts will be fully vested at all times. 4.3 Provisions Applicable Only to Money Purchase Pension Plans. (a) Amount of Annual Contributions. The Employer will contribute for each Plan Year an amount described in paragraph (b) or (c) below, whichever is applicable, less any amounts reapplied for the Plan Year under Section 6.1(d), not to exceed the amount deductible under Section 404(c) of the Code. In a Variable Plan, if the Employer so elects in the Plan Agreement, the amount of Forfeitures occurring in a Plan year shall be applied to reduce the Employer's contribution by a like amount, and such Forfeitures shall be treated as a portion of the Employer contribution for purposes of paragraphs (b) and (c). (b) Allocation of Contributions: General Rule. The Employer shall contribute an amount equal to the product of the Earnings of all Qualified Participants and the Base Contribution Percentage, and the contribution shall be allocated as of the last day of the Plan Year among the Employer Contribution Accounts of all Qualified Participants in the ratio that the Earnings of each Qualified Participant bears to the Earnings of all Qualified Participants. This general rule does not apply to a plan that is integrated with Social Security. (c) Plans Integrated with Social Security. If the Employer has elected in the Plan Agreement to integrate the Plan with Social Security, the Employer shall contribute an amount equal to the sum of the following amounts, and the contribution shall be allocated as of the last day of the Plan Year as follows: (1) To the Employer Contribution Account of each Qualified Participant, an amount equal to the product of the Base Contribution Percentage and his Earnings, and (2) To the Employer Contribution Account of each Qualified Participant who has Excess Earnings, the product of his Excess Earnings, and the lesser of (i) the Base Contribution Percentage or (ii) the Money Purchase Maximum Disparity Percentage determined under paragraph (d). (3) The Base Contribution Percentage shall be no less than three percent in either of the following circumstances: (i) any Plan Year of a Standard Plan for which the Plan Agreement does not specify that the Employer will perform annual Top-Heavy testing,, or (ii) any Plan Year in which the plan is required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15. (d) The Money Purchase Maximum Disparity Percentage is equal to the lesser of (i) 5.7% or (ii) the applicable percentage from Table C on this page. If the Plan's Integration level is equal to the Social Security Wage Base, the Money Purchase Maximum Disparity Percentage is 5.7%. (e) In this Section 4.3, Earnings means Earnings as defined in Section 2.13. (f) Separate Allocation of Forfeitures. If the Employer has not elected in the Plan Agreement to use Forfeitures to reduce the amount of its contributions, Forfeitures shall be allocated among the Employer Contribution Accounts of all Qualified Participants in proportion to their earnings. 4.4 Paired Plans. An Employer may adopt as paired pans Putnam Standard Profit Sharing Plan (Plan Agreement #001) and Putnam Standard Money Purchase Pension Plan (Plan Agreement #002). Only one of the two paired plans may be integrated with Social Security. In any Plan Year in which Putnam Standard paired plans are top-heavy, each non-key employee who is eligible to participate in both plans will have allocated to his Account in the Putnam Standard Money Purchase Pension Plan a minimum contribution that meets the requirements of Section 12.3. 4.5 Rollover Contributions. An Employee in an eligible class may contribute at any time cash or other property (which is not a collectible within the meaning of Section 408(m) of the Code) acceptable to the Trustee representing qualified rollover amounts under Sections 402,403, or 408 of the code. Amounts so contributed shall be credited to a Rollover Account for the Participant. 4.6 No Deductible Employee contributions. The Plan Administrator shall not accept deductible employee contributions for a taxable year beginning after December 31, 1986. In the event that the Plan is adopted as an amendment of a plan which previously accepted such contributions for any Participant, the Employer will establish and maintain (or cause to be established and maintained) a separate account in which shall be recorded the amount of such contributions and the income, expenses, gains and losses incurred thereon. Such an account shall be nonforfeitable at all times and shall in no event be used to pay premiums on any life insurance policy. Subject to Article 10, Joint and Survivor Annuity Requirements, the Participant may withdraw any part of such an account at any time upon written request to the Plan Administrator. Table A If the Plan s Integration Level is more than: $0 The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base But not more than: The greater of $10,000 or 20% of the social Security Wage Base 80% of the social Security Wage Base Less than the Social Security Wage Base The applicable percentage is: 2.7% 1.3% 2.4% Table B If the Plan s Integration Level is more than: $0 The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base But not more than: The greater of $10,000 or 20% of the social Security Wage Base 80% of the social Security Wage Base Less than the Social Security Wage Base The applicable percentage is: 5.7% 4.3% 5.4% Table C If the Plan s Integration Level is more than: $0 The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base But not more than: The greater of $10,000 or 20% of the social Security Wage Base 80% of the social Security Wage Base Less than the Social Security Wage Base The applicable percentage is: 5.7% 4.3% 5.4% ARTICLE V: Cash or Deferred Arrangement under Section 401(k)(CODA) 5.1 Applicability; Allocations. this Article 5 applies to any profit sharing plan for which the Employer has elected in the Plan Agreement to include a CODA. The Employer may specify in the Plan Agreement that contributions will be made to the Plan only under the CODA, or that contributions may be made under Section 4.2 as well as under the CODA. Allocations to Participants' Accounts of contributions made pursuant to this Article 5 shall be made as soon as administratively feasible after their receipt by the Trustee, but in any case no later than as of the last day of the Plan Year for which the contributions were made. 5.2 CODA Participation. Each Employee who has met the eligibility requirements of Article 3 may make Elective Deferrals to the Plan by completing and returning to the Plan Administrator a Deferral Agreement form which provides that the Participant's cash compensation from the Employer will be reduced by the amount indicated in the Deferral Agreement, and that the Employer will contribute an equivalent amount to the Trust on behalf of the Participant.. The following rules will govern Elective Deferrals: (a) Subject to the limits specified in the Plan Agreement and set forth in Section 5.3, a Deferral Agreement may apply to any amount or percentage of either or both of the Earnings payable to a Participant in each regular payroll period of the Employer, or one or more bonuses payable to a Participant from time to time as specified by the Employer. (b) In accordance with such reasonable rules as the Plan Administrator shall specify, a Deferral Agreement will become effective as soon as is administratively feasible after the Deferral Agreement is returned to the Plan Administrator, and will remain effective until it is modified or terminated. no Deferral Agreement may become effective retroactively. (c) A Participant may modify his Deferral Agreement by competing and returning to the Plan Administrator a new Deferral Agreement form as of any of the dates specified in the Plan Agreement, and any such modification will become effective as described in paragraph (b). (d) A Participant may terminate his Deferral Agreement at any time upon advance written notice to the Plan Administrator, and any such termination will become effective as described in paragraph (b). 5.3 Annual Limit on Elective Deferrals. During any taxable year of a Participant, his Elective Deferrals under the Plan and any other qualified plan of an Affiliated Employer shall not exceed the dollar limit contained in Section 402(g) of the Code in effect at the beginning of the taxable year, a Participant's Elective Deferrals for purposes of this Section 5.3 include all Employer contributions made on his behalf pursuant to an election to defer under any qualified CODA as described in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement (SARSEP) as described in Section 401(h)(1)(B) of the Code, any plan described under Section 501(c)(18) of the Code, and any Employer contributions made on behalf of the Participant for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. The amount of Elective Deferrals of a Participant who receives a hardship distribution pursuant to Section 5.14 shall be reduced, for the taxable year next following the distribution, by the amount of Elective Deferrals made in the taxable year of the hardship distribution. 5.4 Distribution of Excess Elective Deferrals. "Excess Elective Deferrals" means those Elective Deferrals described in Section 5.3 that are incredible in a Participant's gross income under Section 402(g) of the Code, to the extent that the Participant's aggregate elective deferrals for a taxable year exceed the dollar limitation under that Code Section. Excess Elective Deferrals shall be treated as Annual Additions under the Plan, whether or not they are distributed under this Section 5.4 . A Participant may designate to the Plan any Excess Elective Deferrals made during his taxable year by notifying the Employer on or before the following March 15 of the amount of the Excess Elective Deferrals to be so designated. A Participant who has Excess Elective Deferrals for a taxable year, taking into account only his Elective Deferrals under the Plan and any other plans of the Affiliated Employers, shall be deemed to have designated the entire amount of such Excess Elective Deferrals. Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were designated or deemed designated for the preceding year. The income or loss allocable to Excess Elective Deferrals is the income or loss allocable to the Participant's Elective Deferral Account for the taxable year multiplied by a fraction, the numerator of which is the Participant's Account balance attributable to Elective Deferrals without regard to any income or loss occurring during the year. To the extent that the return to a Participant of his Elective Deferrals would reduce an Excess Amount (as defined in Section 6.5(f)), such Excess Deferrals shall be distributed to the Participant in accordance with Article 6. 5.5 Satisfaction of ADP and ACP Tests. In each Plan Year, the Plan must satisfy the ADP test described in Section 5.11. the Employer may cause the Plan to satisfy the ADP or ACP test or both test for a Plan Year by any of the following methods or by any combination of them: (a) By the distribution of Excess Contributions in accordance with Section 5.7, or the distribution of Excess Aggregate Contributions in accordance with Section 5.12, or both; (b) In a Variable Plan that permits all Participants to make Participant Contributions, by recharacterization of Excess Contributions in accordance with Section 5.10; or (c) If the Employer has so elected in the Plan Agreement, by making Qualified Nonelective Contributions or Qualified Matching Contributions or both, in accordance with the Plan Agreement and this Section 5.5. 5.6 Actual Deferral Percentage Test Limit. The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ADP for Participant who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly compensated Employees does not exceed the ADP for Participants who are Non-Highly Compensated employees by more than two percentage points. The following special rules shall apply to the computation of the ADP: (c) Actual Deferral Percentage means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in the group) of (1) the amount of Employer contributions actually paid over to the Trust on behalf of the Participant for the Plan Year to (2) the Participant s Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year the Participant s Earnings for that portion of the Plan Year during which he was eligible to participant in the Plan). Employer contributions on behalf of any Participant shall include: (i) his Elective Deferrals, including Excess Elective Deferrals, but excluding Elective Deferrals that are taken into account in the Average contribution Percentage test described in Section 5.11 (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals), and excluding Elective Deferrals returned to a Participant to reduce an Excess Amount as defined in Section 6.5(f); and (ii) if the Employer has elected to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP test; and (iii) if the Employer has elected to make Qualified Matching Contributions, such amount of Qualified Matching Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for his failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made. (d) In the event that the Plan satisfies the requirement of Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirement s of such sections of the Code only if aggregated with the Plan, then this Section 5.6 shall be applied by determining the ACP of Employees as if all such plans were a single plan. For Plan years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year. (e) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Nonelective contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) allocated to his Accounts under two or more CODAs described in Section 401(k) of the Code that are maintained by the Affiliated Employers shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single CODA. If a Highly Compensated Employee participates in two or more CODAs that have different Plan Years, all CODAs ending with or within the same calendar year shall be treated as a single CODA. (f) For purposes of determining the ADP of a Participant who is a 5-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) and the Compensation for the Plan Year of his Family Members (as defined in section 414(q)(6) of the Code). Family Members of such Highly Compensated Employees shall be disregarded as separate employees in determining the ADP both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (g) For purposes of the ADP test, Elective Deferrals , Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the 12 moth period immediately following the Plan Year to which those contributions relate. (h) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Nonelective Contributions and Qualified Matching Contributions, or both, used in satisfying the test. (i) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 5.7 Distribution of Excess Contributions. "Excess Contributions" means, with respect to any Plan Year, the excess of: (a) The aggregate amount of employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for the Plan Year, over (b) The maximum amount of Employer contributions permitted by the ADP test, determined by reducing contributions made on behalf of Highly Compensated Employees in order of their ADPs, beginning with the highest of such percentages. Notwithstanding any other provision of the Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts Excess Contributions were allocated for the preceding Plan Year; provided, however, that in the case of a Variable Plan in which the Employer has elected in the Plan agreement to re characterize Excess contributions pursuant to Section 5.10, distribution shall be made pursuant to this Section 5.7 to the extent that excess contributions are not so recharacterized. If such excess amounts are distributed more than two an one-half months after the last day of the Plan Year in which the excess amounts arose, an excise tax equal to ten percent of the excess amounts will be imposed on the Employer maintaining the Plan. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of them. Excess Contributions shall be allocated to Participants who are subject to the family member aggregation rules of Section 414(q)(6) of the Code in the manner prescribed by the regulations under that Section. Excess Contributions (including any amounts recharacterized in accordance with Section 5.10) shall be treated as Annual Additions under the Plan. the income or loss allocable to Excess Contributions is the income or loss allocable to the Participant s Elective Deferral Account (and, if applicable, his Qualified Nonelective Account or Qualified Matching Account or both) for the Plan Year multiplied by a faction, the numerator of which is the Participant s Excess Contributions for the year and the denominator of which is the Participant s account balance attributable to Elective Deferrals (and Qualified Nonelective contributions or Qualified Matching Contributions, or both, if any of these are included in the ADP test) without regard to any income or loss occurring during such Plan Year. Excess Contributions shall be distributed from the Participant's Elective Deferral Account and Qualified Matching Account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral Account and Qualified Matching Account. 5.8 Matching Contributions. If so specified in the Plan Agreement, the Employer will make Matching Contributions to the Plan in accordance with the Plan Agreement, but no Matching Contribution shall be made with respect to an Elective Deferral that is returned to a Participant because it represents an Excess Elective Deferral, an Excess Contribution or an Excess Amount (as defined in Section 6.5(f)); or with respect to a Participant contribution that is returned to a Participant because it represents an Excess Aggregate Contribution or an Excess Amount (as defined in Section 6.5(f); and if a Matching Contribution has nevertheless been made with respect to such an Elective Deferral or Participant contribution, the Matching Contribution shall become a Forfeiture as of the end of the Plan Year of which it was contributed, notwithstanding any other provision of the Plan. (a)Employer Matching Contribution (Variable Plans Only). Matching Contributions will be allocated among the employer Matching Accounts of Participants in proportion to their Elective Deferrals or their Participant Contributions, as specified by the Employer in the Plan Agreement. Employer Matching Accounts shall become vested According to the vesting schedule specified in the Plan Agreement, but regardless of that schedule shall be fully vested upon the Participant s Retirement (or, if earlier, his fulfillment of he requirements for early retirement, if any, or attainment of the normal retirement age specified in the Plan Agreement), his death during employment with an Affiliated Employer, an in accordance with Section 19.3. Forfeitures of Employer Matching Contributions, other than Excess Aggregate Contributions, shall be made in accordance with Section 8.3. Forfeitures of Employer Matching Accounts for a Plan Year shall be applied to reduce the total Employer Matching Contribution for the Plan Year, or allocated among the Employer Matching Accounts of Participants in addition to the Employer Matching Contribution for the Plan Year, as elected by the Employer in the Plan Agreement. (b) Qualified Matching Contributions. Qualified Matching Contributions will be allocated among the Qualified Matching contribution Accounts of Participant as specified by the Employer in the Plan Agreement. In a Standard Plan, a Qualified Matching Contribution forfeited pursuant to the first sentence of this Section 5.8 will be applied to reduce the aggregate Matching Contributions otherwise required of the Employer. 5.9 Participant Contributions (Variable Plans Only). If so specified in the Plan Agreement for a Variable Plan, a Participant may make nondeductible Participant contributions to the Plan in accordance with the Plan Agreement and subject to the terms and conditions of this Article 5. Participant Contributions will be allocated to the Participant Contributions Account of the contributing Participant. All Participant Contribution Accounts will be fully vested at all times. 5.10 Recharacterization of Excess Contributions (Variable Plans Only). Provided that the Plan Agreement permits all Participants to make Participant Contributions, the Employer may treat a Participant's Excess Contributions to a Variable Plan as an amount distributed to the Participant and then contributed by the Participant to the Plan as a Participant Contribution. Recharacterized amounts will remain nonforfeitable and subject to the same distribution requirements as Elective Deferrals. Amounts may not be recharacterized by a highly compensated Employee to the extent that a recharacterized amount in combination with other Participant contributions made by that Employee would exceed any stated limit under the Plan on Participant Contributions. Recharacterization must occur no later than two and one-half months after the last day of the Plan Year in which the Excess contributions arose, and is deemed to occur no earlier than the date the last Highly Compensated employee is informed in writing by the Employer of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for his tax year in which the Participant would have received them in cash. 5.11 Average Contribution Percentage Test Limit and Aggregate Limit. the Average Contribution Percentage (hereinafter "ACP") for Participants who are High Compensated Employees for each Plan year and the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan year multiplied by two(2), provided that the ACP for Participants who are Highly compensated Employees does not exceed the ACP for Participants who are Non-Highly Compensated Employees by more than two percentage points. The following rules shall apply to the computation of the ACP: (c) Average Contribution Percentage means the average of the Contribution Percentages of the Eligible Participants in a group. (d) Contribution Percentage means the ratio (expressed as a percentage) of a Participant's Contribution Percentage Amounts to the Participant's Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year, the Participant's Earnings for that portion of the Plan Year during which he was eligible to participate in the Plan). (e) Contribution Percentage Amounts means the sum of the Participant Contributions, Employer Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year. such Contribution Percentage Amounts shall include Forfeitures of Excess Aggregate Contributions or Employer Matching Contributions allocated to the Participant's Account, taken into account in the year in which the allocation is made. If the Employer has elected in the Plan Agreement to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ACP test shall be included in the Contribution Percentage Amounts. Elective Deferrals shall also be included in the contribution Percentage Amounts to the extent, if any, needed to enable the Plan to satisfy the ACP test, so long as the ADP test is met before the Elective Deferrals are used in the ACP test, and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (f) Eligible Participant means any Employee who is eligible to make a Participant Contribution (or an Elective Deferral, if Elective Deferrals are taken into account in the calculation of the Contribution Percentage), or to receive an Employer Matching Contribution (or a Forfeiture thereof) or a Qualified Matching contribution. If a Participant Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if he made such a contribution shall be treated as an Eligible Participant on behalf of whom no Participant Contributions are made. (g) Aggregate Limit means the sum of (i) 125 percent of the greater of the ADP of the Non-Highly Compensated Employees for the Plan Year, or the ACP of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year of the CODA, and (ii) the lesser of 200 percent of, or two plus, the lesser of the ADP or ACP. (h) If one or more Highly Compensated Employees participate in both a CODA and a plan subject to the ACP test maintained by an Affiliated Employer, and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both test s exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with the Highly Compensated Employee whose ACP is the highest) so that the Aggregate Limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amounts is reduced shall be treated as an Excess Aggregate contribution. In determining the Aggregate Limit, the ADP and ACP of Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. The Aggregate Limit will be considered satisfied if both the ADP and ACP of the Highly compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. (i) For purposes of this section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Section 401(k) of the Code, that are maintained by an Affiliated Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more CODAs that have different plan years, all CODAs ending with or within the same calendar year shall be treated as a single CODA. (j) In the event that the Plan satisfies the requirements of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with the Plan, then this Section 5.10 shall be applied by determining the contribution Percentage of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year. (k) For purposes of determining the Contribution Percentage of a Participant who is a five-percent owner or one of the ten most highly-paid Highly Compensated Employers, the Contribution Percentage Amounts and Compensation of the Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of Family Members (as defined in Section 414(q)(6) of the Code). Family Members of such Highly Compensated Employees shall be disregarded as separate employees in determining the Contribution Percentage both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (l) For purposes of the ACP test, Participant Contributions are considered to have been made in the Plan Year in which they were contributed to the Trust. Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. (m) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in the ACP test. (n) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 5.12 Distribution of Excess Aggregate Contributions. Notwithstanding any other provision of the Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Play Year. Excess Aggregate Contributions shall be allocated to Participants whoa re subject to the family member aggregation rules of Section 414(q)(6) of the Code in the manner prescribed by the regulations. If excess amounts attributable to Excess Aggregate Contributions are distributed more than two and on-half months after the last day of the Plan Year in which such excess amounts arose, an excise tax equal to ten percent of the excess amount will be imposed on the Employer maintaining the Plan. j Excess Aggregate Contributions shall be treated as Annual Additions under the Plan. The income or loss allocable to Excess Aggregate Contributions is the income or loss allocable to the Participant's Participant Contribution Account, Employer Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test), and, if applicable, Qualified Nonelective Account and Elective Deferral Account for the Plan Year, multiplied by a fraction, the numerator of which is the Participant's Excess Aggregate Contributions for the year and the denominator of which is the Participant's account balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during the Plan Year. Forfeitures of Excess Aggregate Contributions shall either be reallocated to the accounts of Non-Highly Compensated Employees or applied to reduce Employer contributions, as elected by the Employer in the Plan Agreement. Excess Aggregate Contributions shall be forfeited if forfeitable, or distributed on a prorata basis form the Participant's Participant Contribution Account, Employer Matching Account, and Qualified Matching Account (and, if applicable, the Participant's Qualified Nonelective Account or Elective Deferral Account, or both). Excess Aggregate Contributions means, with respect to any Plan Year, the Excess of: (a) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage and actually mad on behalf of Highly Compensated Employees for the Plan Year, over (b) The maximum Contribution Percentage Amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages, beginning with the highest of such percentages). Such determination shall be made after first detraining Excess Elective Deferrals pursuant to Section 5.4, and then determining Excess Contributions pursuant to Section 5.7. 5.13 Restriction on Distributions. No distribution may be made from a Participant's Elective Deferral Account, Qualified Nonelective Account or Qualified Matching Account until the occurrence of one of the following events: (a) The Participant's Disability, death or termination of employment with the Affiliated Employer; (b) Termination of the Plan without the establishment of another defined contribution plan; (c) If the Plan is a profit sharing plan, the Participant's attainment of age 591/2 (if the Employer has elected in the Plan Agreement t permit such distributions); or (d) In the case of an Employer that is a corporation, the disposition by the Employer to an unrelated entity of (i) substantially all of the assets (within the meaning of Section 409(d)(2) of the Code) used in a trade or business of the Employer, if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with the entity acquiring such assets; or (ii) the Employer's interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code), if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with such subsidiary. In addition, if the Employer has elected in the Plan Agreement to permit such distributions, a distribution may be made from a Participant's Elective Deferral Account in the event of his financial hardship as described in Section 5.14. All distributions upon any of the events listed above are subject to the conditions of Article 10, Joint and Survivor Annuity Requirements. 5.14 Hardship Distributions. If the Employer has so elected in the Plan Agreement, upon a Participant's written request the Employer may permit a distribution from his Elective Deferral Account (and, in a Variable Plan, from his Employer Matching Account). The terms and conditions of Section 12.2 and the special vesting rule contained in Section 8.4 shall apply to hardship distributions from an Employer Contribution Account or and Employer Matching Account. The further terms of this Section 5.14 shall apply to hardship distributions from an Elective Deferral Account. No hardship distribution shall be made from a Qualified Nonelective Account or Qualified Matching Account. (a) The maximum amount that may be distributed on account of hardship from an Elective Deferral Account after December 31, 1988, shall not exceed the sum of (1) the amount credited to the Account as of December 31, 1988, and (2) the aggregate amount of the Elective Deferrals made by the Participant after December 31, 1988, and before the hardship distribution. (b) Hardship distributions shall be permitted only on account of the following financial needs: (1) Expenses for medical care described in section 213(d) of the Code for the Participant, his spouse, children, and dependents, or necessary for these persons to obtain such care; (2) Purchase of the principal residence of the Participant (excluding regular mortgage payments); (3) Payment of tuition and related educational fees for the upcoming 12 months of postsecondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the Participant's eviction from, or the foreclosure of a mortgage on, his principal residence. (c) Hardship distributions shall be subject to the spousal consent requirements contained in Sections 401(a)(11) and 417 of the Code, to the same extent that those requirements apply to a Participant pursuant to Section 10.1. (d) A hardship distribution will be made to a Participant only upon satisfaction of the following conditions: (1) The Participant has obtained all nontaxable loans and all distributions other than hardship distributions available to him form all plans maintained by the Affiliated Employers; (2) The hardship distribution does not exceed the amount of the Participant's financial need as described in paragraph (b) plus any amounts necessary to pay federal, state, and local income taxes and penalties reasonably anticipated to result from the distribution; (3) All plans maintained by the Affiliated Employers provide that the Participant's Elective Deferrals and Participant contributions will be suspended for a period of 12 months following his receipt of a hardship distribution; and (4) All plans maintained by the Affiliated Employers provide that the amount of Elective Deferrals that the Participant may make in his taxable year immediately following the year of a hardship distribution will not exceed the applicable limit under Section 402(g) of the Code for the taxable year, reduced by the amount of Elective Deferrals made by the Participant in the taxable year of the hardship distribution. 5.15 Special Effective Dates. If the Plan is adopted as an amendment of an existing plan, the provisions of Sections 5.3 and Section 5.7 through 5.11 are effective as of the first day of the first Plan Year beginning after December 31, 1986. ARTICLE VI: Limitations on Allocations 6.1 No Additional Plan. If the Participant doe not participate in and has never participated in another qualified plan, or a welfare benefit fund, (as defined in Section 419(e) of the Code), or an individual medical account (as defined in Section 415(1)(2) of the Code) which provides an Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer: (a) The amount of Annual Additions which may be credited to the Participant's accounts for any Limitation Year will to exceed the lesser of the Maximum Annual Additions or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Annual Additions, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Annual Additions. (b) Before determining a Participant's actual Section 415 compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant on the basis of a reasonable estimation of the Participant's Section 415 Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Annual Additions for the Limitation Year will be determined on the basis of the Participant's actual Section 415 compensation for the Limitation Year. (d) If pursuant to paragraph 6.1(c), or as a result of the reallocation of Forfeitures, or as a result of a reasonable error in determining the amount of Elective Deferrals that may be made by a Participant, the Annual Additions exceed the Maximum Annual Additions, the Excess Amount will be disposed of as follows: (1) any nondeductible voluntary Participant Contributions and Elective Deferrals, to the extent they would reduce the Excess Amount, will be returned to the Participant. (2) If after the application of (1) above an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Accounts will be used to reduce Employer contributions (including any allocation of Forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. (3) If after the application of (1) above an Excess Amount still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any Forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary. (4) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section 6.1(d), it will participate in the allocation of the Trust's investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any employer or any Employee contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants. 6.2 Additional Master or Prototype Plan. If in addition to this Plan a Participant is covered under another qualified Master or Prototype defined contribution plan or a welfare benefit fund (as defined in Section 419(e) of the Code), or an individual medical account (as defined in Section 415(1)(2) of the Code) which provides and Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer during any Limitation Year: (a) the annual Additions which may be credited to a Participant's Accounts under this Plan for any such Limitation Year will not exceed the Maximum Annual Additions reduced by the Annual Additions credited to a Participant's accounts under the other plans and welfare benefit funds for the same Limitation year. If the annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by an Affiliated Employer are less than the Maximum Annual Additions, an the Employer contribution that would otherwise be contributed or allocated to the Participant's Accounts under this Plan would cause the Annual Additions for the Limitation year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans an funds for the Plan Year will equal the Maximum Annual Additions. If the Annual Additions with respect to the Participant under such other defined contribution plans and welfare benefit fund in the aggregate are equal to or greater than the Maximum Annual Additions, no amount will be contributed or allocated to the Participant's Accounts under this Plan for the Limitation Year. (b) Before determining a Participant's actual Section 415 Compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant in the manner described in Section 6.1(b). (c) As soon as is administratively feasible after the end of the Plan Year, the Maximum Annual Additions for the Plan Year will b determined on the basis of the Participant's actual Section 415 Compensation for the Plan Year. (d) If, pursuant to Section 6.2(c) or as a result of the allocation of Forfeitures, or as a result of a reasonable error in determining the amount of Elective Deferrals that may be made by a Participant, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated under any qualified Master or Prototype defined contribution plan, except that Annual Additions to any welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date. (e) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of X and Y, where (X) is the total Excess Amount allocated as of such date, and (Y) is the ratio of (1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under the is and all the other qualified Master or Prototype defined contribution plans. (f) Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 6.1(d). 6.3 Additional Non-Master or Non-Prototype Plan. If the Participant is covered under another qualified defined contribution plan maintained by an Affiliated employer which is not a Master or Prototype plan, Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation year will be limited in accordance with Section 6.2 as though the other plan were a Master or Prototype plan, unless the Employer provides other limitations in the Plan Agreement. 6.4 Additional Defined Benefit Plan. If an Affiliated Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Plan Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation Year will be limited in accordance with the Plan Agreement. 6.5 Definitions (a) Annual Additions means the sum of the following amounts credited to a Participant's Accounts for the Limitation Year: (1) Employer contributions; (2) For any Limitation Year beginning after December 31, 1986, after-tax Employee contributions; (3) Forfeitures; (4) Amounts allocated after March 31, 1984, to any individual medical account, as defined in Section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by an Affiliated Employer; (5) Amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to past-retirement medical benefits allocated to the separate account of a key Employee, as defined in Section 419(d)(3) of the Code, under a welfare benefit fund as defined in Section 419(e) of the Code, maintained by an Affiliated Employer; and (6) In a Plan that includes a CODA, Excess Elective Deferrals, Excess Contributions (including recharacterized Elective Deferrals) and Excess Aggregate Contributions. For this purpose, any Excess Amount applied under Sections 6.1(d) or 6.2(e) in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year. any rollover contribution will not be considered an Annual Addition. (b) Section 415 Compensation means, for a self-employed person, his Earned Income; and for any other Participant, his "Form W-2 earnings" as defined in Section 2.8, if the Employer has elected in item 4 of the Plan Agreement a definition of compensation based on "Form W-2 earning"; or if the Employer has not so elected, his wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited to , commissions paid salesmen, compensation for services o the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses), and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not includible in the Participant's gross income for the taxable year in which contributed, or Employer contributions under a simplified Employee pension plan t the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensations; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Participant either becomes freely transferable or is not longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Participant). For purposes of applying the limitations of this Article 6, Section 415 Compensation for a Limitation year is the Section 415 compensation actually paid or includible in gross income during such Limitation Year. (c) Defined Benefit Fraction means a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits under al the defined benefit plans (whether or not terminated) maintained by the Affiliated Employers, and the denominator of which is the lesser of 125 percent of the dollar limitation in effect for the Limitation Year under Sections 415(b) and (d) of the Code, or 140 percent of the Participant's Highest Average Compensation including any adjustments under Section 415(b) of the Code. Notwithstanding the foregoing, if the Participant was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any change in the terms and conditions of the Plan after May 5, 1986,. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code for all Limitation Years beginning before January 1, 1987. (d) Defined Contribution Dollar Limitation means $30,000 or if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the Limitation Year. (e) Defined Contribution Faction means a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by Affiliated Employers for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Affiliated Employers, and the Annual Additions Attributable to all welfare benefit funds, as defined in Section 419(e) of the Code, and individual medical accounts as defined in Section 415(1)(2) of the Code), and the denominator of which is the sum of the Maximum Annual Additions for the current and all prior Limitation Years of service with the Affiliated Employers (regardless of whether a defined contribution plans was maintained by any Affiliated employer). The Maximum Annual Additions in any Plan Year is the lesser of 125 percent of the dollar limitation determined under Section 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code, or 35 percent of the Participant's Section 415 Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986 in one or more defined contribution plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of the excess of the sum of the fractions over 1.0, multiplied by the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would by computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan after May, 5, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat 100% of nondeductible Employee contributions as Annual Additions. (f) Excess Amount means, with respect to any Participant, the amount by which Annual Additions exceed the Maximum Annual Additions. (g) Highest Average Compensation means the average compensation for the three consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the period of 12 consecutive months specified as the Limitation Year in the Plan Agreement. (h) Limitation Year means the period of 12 consecutive months specified in the Plan Agreement. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different period of 12 consecutive months, the new Limitation year must begin on a date within the Limitation Year in which the amendment is made. (i) Master or Prototype Plan means a plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. (j) Maximum Annual Additions, which is the maximum annual addition that my be contributed or allocated to a Participant's account under the plan for any Limitation year, means an amount not exceeding the lesser of (a) the Defined Contribution Dollar Limitation or (b) 25 percent of the Participant's Section 415 Compensation for the Limitation Year. The compensation limitation referred to in (b) shall not apply to any contribution for medical benefits (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition under Section 415 (1)(1) or Section 419A(d)(2) of the Code. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different period of 12 consecutive months, the Maximum Annual Additions will not exceed the Defined contribution Dollar Limitation multiplied by the following fraction: number of months in the short Limitation Year 12 (k) Projected Annual Benefit means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of the plan assuming: (1) the Participant will continue employment until normal retirement age under the Plan (or current age, if later), and (2) The Participant's Section 415 Compensation for the current Limitation year and all other relevant factors used to determine benefits under the plan will remain constant for al future Limitation Years. ARTICLE VII: Eligibility for Distribution of Benefits 7.1 Retirement. After his Retirement, the amount credited to a Participant's Accounts will be distributed to him in accordance with Article 9. The termination of a Participant's employment with the Affiliated Employers after he has (i) attained the normal retirement age specified in the Plan Agreement, (ii) in a Variable Plan, fulfilled the requirement for early retirement (if any) specified in the Plan Agreement, or (iii) become Disabled, will constitute his Retirement. In a Variable Plan, upon a Participant's Retirement (or, if earlier, his attainment of the normal retirement age specified in the Plan Agreement or fulfillment of the requirements for early retirement, if any, specified in the Plan Agreement the participant's Accounts shall become fully vested, regardless of the vesting schedule specified by the Employer in the Plan Agreement. In a Variable Plan, a Participant who separates from service with any vested balance in his Accounts, after satisfying the service requirements for early retirement (if any) is specified in the Plan Agreement) but before satisfying the age requirement (if any is specified in the Plan Agreement), shall be entitled to a fully vested early retirement benefit upon his satisfaction of such age requirement. 7.2 Death. If a Participant dies before the distribution of his Accounts has bee complete, his Beneficiary will be entitled to distribution of benefits in accordance with Article 9. In a Variable Plan, a Participant's Accounts will become fully vested upon his death before termination of his employment with the Affiliated Employers, regardless of the vesting schedule specified by the Employer in the Plan Agreement. A Participant may designate a Beneficiary by completing and returning to the Plan Administrator a form provided for this purpose. The form most recently complete and returned to the Plan Administrator before the Participant's death shall supersede any earlier form. If a Participant has not designated any Beneficiary before his death, or if no Beneficiary so designated survives the Participant, his Beneficiary shall be his surviving spouse, or if there is no surviving spouse, his estate. A married Participant in a profit sharing plan may designate a Beneficiary other an his spouse only if his spouse consents in writing to the designation, and the spouse's consent acknowledges the effect of the consent and is witnessed by a notary public or a representative of the Plan. The beneficiary or beneficiaries named in the designation to which the spouse has so consented may not be change without further written spousal consent unless the terms of the spouse's original written consent expressly permit such a change, and acknowledge that the spouse voluntarily relinquish the consent to a specific beneficiary. the marriage of a Participant shall nullify any designation of a beneficiary previously executed by the Participant. If it is established to the satisfaction of the Plan Administrator that the Participant has no spouse or that the spouse cannot be located, the requirement of spousal consent shall not apply. Any spousal consent, or establishment that spousal consent cannot be obtained, shall apply only to the particular spouse involved. 7.3 Other Termination of Employment. A Participant whose employment terminates for any reason other than his Retirement or death will be entitled to distribution, in accordance with Article 9, of benefits equal to the amount of the vested balance of his Accounts as determined under Article 8. ARTICLE VIII: Vesting 8.1 Vested Balance. The vested balance of a Participant's Accounts will be determined as follows: (a) General Rule. A Participant's Deductible Employee Contribution Account, Participant Contribution Account and Rollover Account, and in a Standard Plan, all of his Accounts, shall be fully vested at all times. The vested portion of his Employer Contribution Account in a Variable plan shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement (or, if the Plan has become top-heavy, the vesting schedule determined under Section 15.5), to the number of Years of Service credited to the Participant as of the end of the Plan Year in which his employment terminates. (b)Special Rules for CODA. In a Plan that includes a CODA, a Participant's Elective Deferral Account, Qualified Nonelective Account, and Qualified Matching Account shall be fully vested at all times. The vested portion of his Employer Matching Account in a Variable Plan shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement (or, if the Plan has become top-heavy, the vesting schedule determined under Section 15.5), to the number of Years of Service credited to the Participant as of the end of the Plan Year in which his employment terminates. (c) Retirement. In a Variable Plan, all of a Participant's Accounts shall become fully vested upon his Retirement or his earlier attainment of early retirement age (if any) or the normal retirement age elected by the Employer in the Plan Agreement. For so long as a former Employee does not receive a distribution (or a deemed distribution) of the vested portion of his accounts, the undistributed portion shall be held in a separate account which shall be invested pursuant to Section 13.3 and shall share in earning and losses of the Trust Fund pursuant to Section 13.4 in the same manner as the Accounts of active Participants. 8.2 Vesting of Accounts of Returned Former Employees (Variable Plans Only). the following rules apply in determining the vested portion of the Accounts of a Participant who incurs one or more consecutive One-Year Vesting Breaks and then returns to employment with an Affiliated Employer: (a) If the Participant incurred fewer than five consecutive One-Year Vesting Breaks, then all of his Years of Service will be taken into account in determining the vested portion of his Accounts, as soon as he has competed one Year of Service following his return to employment. (b) If the Participant incurred five or more consecutive One-Year Vesting Breaks, the: (1) No Year of Service competed after his return to employment will be taken into account in determining the vested portion of his Accounts as of any time before he incurred the first One-Year Vesting Break; (2) Years of Service completed before he incurred the first One-Year Vesting Break will not be taken into account in determining the vested portion of his Accounts as of any time after his return to employment (i) unless some portion of his Employer Contribution Account or Employer Matching Account had become vested before he incurred the first One-Year Vesting break, and (ii) until he has completed one Year of Service following his return to employment; and (3) Separate sub-accounts will be maintained for the Participant's pre-break and post-break Employer Contribution Account and Employer Matching Account, until both sub-accounts become fully vested. Both sub-accounts will share in the earnings and losses of the Trust Fund. 8.3 Forfeiture of Non-Vested Amounts (Variable Plans Only). The portion of a former Employee's Accounts that has not become vested under Section 8.1 shall become a Forfeiture in accordance wit the following rules, and shall be reallocated in accordance with Section 4.2 or 4.3 or Article 5 (whichever applies) no later than the end of the Plan Year in which it becomes a Forfeiture. (a) If Distribution Is Made. If any or all of the vested portion of a Participant's Accounts is distributed in accordance with Section 9.1 or 9.2 before the Participant incurs five consecutive One-Year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture in the Plan Year in which the distribution occurs. For purposes of the Section 8.3, if the value of the vested portion of a Participant's Accounts is zero, he shall be deemed to have received a distribution of the entire vested balance of his Accounts on the day his employment terminates. If the Participant elects to have distributed less than the entire vested portion of his Employer contribution Account or Employer Matching Accounts, the part of the nonvested portion that will become a Forfeiture is the total nonvested portion multiplied by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the total value of the entire vested portion of such Accounts. (b) Right of Payment. If a Participant who receives a distribution pursuant to paragraph (a) returns to employment with an Affiliated Employer, the balance of his Employer Contribution Account and Employer Matching Account will be restored tot he amount of such balance on the date of distribution, if he repays to the Plan the full amount of the distribution, before the earlier of (i) the fifth anniversary of his return to employment or (ii) the date he incurs five consecutive One-Year Vesting Breaks following the date of distribution. If an Employee is deemed to receive a distribution pursuant to this Section 8.3, and he resumes employment covered under this Plan before the date he incurs 5 consecutive One-Year Vesting Breaks, upon his reemployment the Employer-derived account balance of the Employee will be restored to the amount on the date of such deemed distribution . Such restoration will be made, first, from the amount of any Forfeitures available for reallocation as the last day of the Plan Year in which repayment is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(f). (c) If No Distribution Is Made. If no distribution (or deemed distribution) is made to a Participant before he incurs five consecutive One-year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture in the Plan Year that constitutes his fifth consecutive One-year Vesting Break. (d) Adjustment of Accounts. Before a Forfeiture is incurred, a Participant's Accounts shall share in earning s and losses of the Trust Fund pursuant tot Section 13.4 in the same manner as the Accounts of active Participants. (e) Accumulated Deductible Contribution. For Plan Years beginning before January 1, 1989, a Participant's vested Account balance shall not include accumulated deductible contributions within the meaning of Section 72(o)(5)(BB) of the Code. 8.4 Special Rule in the Event of a Withdrawal (Variable Plans Only). If a withdrawal pursuant to Section 12.2 or 12.3 is made from a participant's Employer contribution Account or Employer Matching Account before the Account is fully vested, and the Participant may increase the vested percentage in the Account, then a separate account will be established at the time of the withdrawal, and at any relevant time after the withdrawal the vested portion of the separate account will be equal to the amount "X" determined by the following formula: X = P(AB + D) - D For purposes of the formula, P is the Participant's vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of the withdrawal. 8.5 Vesting Election. If the Plan is amended to change any vesting schedule, or is amended in any way that directly or indirectly affects he computation of a Participant's vested percentage, or is deemed amended by an automatic change to a top-heavy vesting schedule pursuant to Article 15, each Participant who has competed not less than three Years of Service may elect, within a reasonable period after the adoption of the amendment or change, in a writing files with the Employer to have his vested percentage computed under the Plan without regard to such amendment. For a Participant who is not credited with at least one Hours of Service in a Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "five Years of Service " for "three years of Service." The period during which the election may be made shall commence with the date the amendment is adopted, or deemed to be made, and shall end on the latest of (a) 60 days after the amendment is adopted; (b) 60 days after the amendment becomes effective; or (c) 60 days after the Participant is issued written notice of the amendment by the Employer. ARTICLE IX: Payment of Benefits 9.1 Distribution of Accounts. A Participant or Beneficiary who has become eligible for a distribution of benefits pursuant to Article 7 may elect to receive such benefits at any time, subject to the terms and conditions of this Article 9, Article 10 and Article 11. Unless a Participant or Beneficiary elects otherwise, distribution of benefits will begin no later than the 60th day after the end of the Plan Year in which the latest of the following events occurs: (a) The Participant attains age 65 (or if earlier, the normal retirement age specified by the Employer in the Plan Agreement); or (b) The tenth anniversary of the year in which the Participant commenced participation in the Plan; or (c)The Participant's employment wit the Affiliated Employers terminates. A Beneficiary who is the surviving spouse of a Participant may elect to have distribution of benefits begin within the 90-day period following the Participant's death. For purposes of this Section 9.1, the failure of a Participant (and his spouse, if spousal consent is required pursuant to Article 10) to consent to a Distribution while a benefit is "immediately distributable" within the meaning of Section 9.2 shall be considered an election to defer commencement of payment. In a Variable Plan, if the Employer has so specified in the Plan Agreement, the vested portion of a Participant's Accounts will be distributed in a lump sum in cash no later than 60 days after the end of the plan Year in which his employment terminates, if at the time the Participant first became entitled to a distribution the value of such vested portion, derived from Employer and Employee contributions, does not exceed $3,500. Commencement of distributions in any case shall be subject to Section 9.4. 9.2 Restriction on Immediate Distributions. A Participant's account balance is considered "immediately distributable" if any part of the account balance could be distributed to the Participant (or his surviving spouse) before the Participant attains, or would have attained if not deceased, the later of the normal retirement age specified in the Plan Agreement or age 62. (a) If a distribution is one to which sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (b) Notwithstanding paragraph (a), only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the account balance is immediately distributable. furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to Section 10.1 (b) of the Plan, only the Participant need consent to the distribution of an account balance that is immediately distributable. Neither the consent of the Participant nor the spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan, if the Plan does not offer an annuity option (purchased from a commercial provider), a Participant';s account balance may be distributed to the Participant or transferred to another defined contribution plan (other than an Employee stock ownership plan as defined in Section 4975(e)(7) of the Code) maintained by an Affiliated Employer, without the Participant's consent. For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested account balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of section 72(o)(5)(B) of the Code. 9.3 Optional Forms of Distribution. If at the time a Participant first becomes entitled t a distribution the value of his vested Account balance derived from Employer and Employee contributions does not exceed $3,500, distribution shall be made in a lump sum in cash. Subject to the preceding sentence and to the rule of Article 10 concerning joint and survivor annuities, a Participant or Beneficiary may elect to receive benefits in any of the following optional forms: (a) A lump sum payment in cash or in kind or in a combination of both; (b) A series of installments over a period certain that meets the requirements of Article 11; or (c) A nontransferable annuity contract, purchased for a commercial provider, with terms complying with the requirements of Article 11; provided, however, that an annuity for the life of any person shall be available as an optional form of distribution in a Profit Sharing Plan only if the Employer has so elected in the Plan Agreement. (d) In the event that the Plan is adopted as an amendment to an existing plan, each optional form of distribute available under the existing plan shall be made available under the Plan through the purchase of an appropriate annuity contract in accordance with paragraph (c). 9.4 Distribution Procedure. The Trustee shall make or commence distributions to or for the benefit of Participants only on receipt of a written order from the Employer certifying that a distribution of a Participant's benefits is payable pursuant to the Plan, and specifying the time and manner of payment. The amount to be distributed shall be determined as of the Valuation Date coincident with or next following the Employer's written order. The Trustee shall be fully protected in acting upon the written directions of the Employer in making benefit distributions, and shall have not duty to determine the rights or benefits of any person under the Plan or to inquire in to the right or power of the Employer to direct any such distribution. The Trustee shall be entitled to assume conclusively that any determination by the Employer with respect to a distribution meets the requirements of the Plan. The Trustee shall not be required to make any payment hereunder in excess of the net realizable value of the assets of the Account in question at the time of such payment, nor to make any payment in cash unless the Employer has furnished written instructions as to the assets to be converted to cash for the purposes of making payment. 9.5 Lost Distributee. In the event that the Plan Administrator is unable with reasonable effort to locate a person entitled to distribution under the Plan, the Accounts distributable to such a person shall become a Forfeiture at the end of the third Plan Year after the Plan Administrator's efforts to locate such person began; provided, however, that the amount of the Forfeiture shall be restored in the event that such person thereafter submits a claim for benefits under the Plan. such restoration will be made, first, from the Amman of Forfeitures available for reallocation as of the last day of the Plan Year in which the claim is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(f). In a Standard Plan, a Forfeiture occurring under this Section 9.5 shall be reallocated as though it were an Employer contribution. 9.6 Direct Rollovers. This Section 9.6 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. For purposes of this Section 9.6, the following definitions shall apply: (a) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include any distribution that is on e of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's Designated Beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 410(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. ARTICLE X: Joint and Survivor Annuity Requirements 10.1 Applicability. (a) Generally. The provisions of Sections 10.2 thorough 10.5 shall generally apply to a Participant who is credited with at least one Hour of Service on or after August 23, 1984, and such other Participants as provided in Section 10.6. (b) Exception for Certain Profit Sharing Plans. The provisions of Sections 10.2 through 10.5 shall not apply to a Participant in a profit sharing plan if: (i) the Participant does not or cannot elect payment of benefits in the form of a life annuity, and (ii) on the death of the Participant, his Vested Account Balance will be paid to his surviving spouse (unless there is not surviving spouse, or the surviving spouse has consented to the designation of another Beneficiary in a manner conforming to a Qualified Election) and the surviving spouse may elect to have distribution of the Vested account Balance (adjusted in accordance with Section 13.4 for gains or losses occurring after the Participant's death) commence within the 90-day period following the date of the Participant's death. The Participant may waive the spousal death benefit described in this paragraph (b) at any time, provided that no such waiver shall be effective unless it satisfies the conditions applicable under Section 10.4(c) to a Participant's waiver of a Qualified Preretirement Survivor Annuity. The exception in this paragraph (b) shall not be operative with respect to a Participant in a profit sharing plan if the Plan: (1) Is a direct or indirect transferee of a defined benefit plan, money purchase pension plan, target benefit plan, stock bonus plan, or profit sharing plan which is subject to the survivor annuity requirement of Sections 401(a)(11) and 417 of the Code; or (2) Is adopted as an amendment of a plan that did not qualify for the exception in this paragraph (b) before the amendment was adopted. For purposes of this paragraph (b), Vested Account Balance shall have the meaning provided in Section 10.4(f). The provisions of Sections 10.2 through 10.6 set forth the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code. (c) Exception for Certain Amounts. The provisions of Sections 10.2 through 10.5 shall not apply to any distribution mad on or after the first day of the first Plan Year beginning after December 31, 1988, from or under a separate account attributable solely to accumulated deductible employee contributions as defined in Section 72(o)(5)(B) of the Code, and maintained on behalf of a Participant in a money purchase pension plan or a target benefit plan, provided that the exceptions applicable to certain profit sharing plans under paragraph (b) are applicable with respect to the separate account (for this purpose, Vested Account Balance means the Participant's separate account balance attributable solely to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code). 10.2 Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected pursuant to a Qualified election within the 90-day period ending on the Annuity Staring Date, a married Participant's Vested Account Balance will be paid in the form of a Qualified Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance will be paid in the form of life annuity. In either case, the Participant may elect to have such an annuity distributed upon his attainment of the Earliest Retirement Age under the Plan. 10.3 Qualified Preretirement Survivor Annuity. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, the Vested Account Balance of a Participant who dies before the Annuity Staring Date shall be applied toward the purchase of an annuity for the life of his surviving spouse (a "Qualified Preretirement Survivor annuity"). The surviving spouse may elect to have such an annuity distributed within a reasonable period after the Participant's death. For purposes of this Article 10, the term "spouse" means the current spouse or surviving spouse of a Participant, except that a former spouse will be treated as the spouse or surviving spouse (and a current spouse will not be treated as the spouse or surviving spouse) to the extent provided under a qualified domestic relations order as described in Section 414(p0 of the Code. 10.4 Definitions. The following definitions apply: (a) Election Period means the period beginning on the first day of the Plan Year in which a Participant attains age 35 and ending on the date of the Participant's death. If a Participant separates from service before the first of the Plan Year in which he reaches age 35, the Election Period with respect to his account balance as of the date of separation shall begin on the date of separation. A Participant who will not attain age 35 as of the end of a Plan Year may make a special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such an election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under Section 10.5. Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. any new waiver on or after that date shall be subject to the full requirements of this article. (b) Earliest Retirement Age means the earliest date on which the Participant could elect to receive Retirement benefits under the Plan. (c) Qualified Election means a waiver of a Qualified Joint and survivor Annuity or a Qualified Preretirement Survivor Annuity. any such waiver shall not be effective unless: (1) the Participant's spouse consents in writing to the waiver; (2) the waiver designates a specific Beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent); (3) the spouse's consent acknowledges the effect of the waiver; and (4) the spouse's consent is witnessed by a plan representative or notary public., Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the waiver designates a form of benefit payment which may not be change d without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a plan representative that there is no souse or that the spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a spouse obtained under these provisions (and any establishment that the consent of a spouse may not be obtained) shall be effective only with respect to the particular spouse involved. A consent that permits designations by the Participant without any requirement of further consent by the spouse must acknowledge that the spouse has the right to limit the consent to a specific Beneficiary and a specific form o f Benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of those rights. a revocation of a prior waiver may be made by a Participant without the consent of the spouse at anytime before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 10.5. (d) Qualified Joint and Survivor Annuity means an immediate annuity for the life of a Participant, with a survivor annuity for the life of the spouse which is not less than 50 percent and not more than 100 percent of the amount of the annuity which is payable during the joint lives of the Participant and the spouse, and which is the amount of benefit that can be purchased with the Participant's Vested Account Balance. The percentage of the survivor annuity under the Plan shall be 50 percent. (e) Annuity Starting Date means he first day of the first period for which an amount is paid as an annuity (or any other form). (f) Vested Account Balance means the aggregate value of the Participant's vested account balance derived from Employer and Employee contributions (including rollover), whether vested before or upon death, including the proceeds of insurance contracts, if any on the Participant's life. The provisions of this Article 10 shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions or both at the time of death or distribution. 10.5 Notice Requirements. In the case of a Qualified Joint and Survivor annuity, no less than 30 days and no more than 90 days before a Participant's Annuity Starting Date the Plan Administrator shall provide to him a written explanation of (i) the terms and conditions of a Qualified and Joint Survivor Annuity, (ii) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity form of benefit, (iii) the rights of the Participant's spouse, and (iv) the right to make and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. In the case of a Qualified Preretirement survivor Annuity, within the applicable period for a Participant the Plan Administrator provide to him a written explanation of the Qualified Preretirement Survivor Annuity, in terms and manner comparable to the requirements applicable to the explanation of a Qualified Joint and Survivor annuity as described in the preceding paragraph. The applicable period for a Participant is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after an individual becomes a Participant; (iii) a reasonable period ending after this Article 10 first applies to the Participant. Notwithstanding the foregoing, in the case of a Participant who separates from service before attaining age 35, notice must be provided within a reasonable period ending after his separation from service. For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (ii) is the end of the two-year period beginning one year before the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which he reaches age 35, notice shall be provided within the two-year period beginning one year before the separation and ending one year after the separation . If such a Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be redetermined. 10.6 Transitional Rules. (a) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by the preceding sections of this Article 10, must be given the opportunity to elect to have those sections apply if the Participant is credited with at least one Hour of Service under the Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and the Participant had at least ten years of vesting service when he or she separated from service. (b) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under the Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his benefits paid in accordance with paragraph (d) of this section 10.6. (c0 The respective opportunities to elect (as described in paragraphs (a) and (b) above) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence to be paid to those Participants. (d) Any Participant who has so elected pursuant to paragraph (b) of this Section 10.6, an any Participant who does not elect under paragraph (a), or who meets the requirements of paragraph (a) except that he does not have at least ten years of vesting service when he separates from service, shall have his benefits distributed in accordance with all of the following requirements, if his benefits would otherwise have been payable in the form of a life annuity: (1) Automatic joint and survivor annuity. If benefits in the form of a life annuity become payable to a married Participant who: (i) begins to receive payments under the Plan on or after normal retirement age; or (ii) dies on or after normal retirement age while still working for the Employer; or (iii) begins to receive payments on or after the qualified early retirement age; or (iv) separates from service on or after attaining normal retirement age (or the qualified early retirement age) and after satisfying the eligibility requirement for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits; then such benefits will be received under the Plan in the form of a Qualified Joint and Survivor Annuity, unless they Participant has elected otherwise during the election period, which must begin at least six months before the Participant attains qualified early retirement age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time. (2) Election of early survivor annuity. A participant who is employed after attaining the qualified early retirement age will be given the opportunity to elect during the election period to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his death. Any election under this provision will be in writing and may be changed by the Participant at any time. The election period begins o the later of (i) the 90th day before the Participant attains the qualified early retirement age, or (ii) the date on which participation begins, and ends on the date the Participant terminates employment. (3) For purposes of this Section 10.6, qualified early retirement age is the latest of the earliest date under the Plan on which the Participant may elect to receive Retirement benefits, the first day of the 120th month not beginning before the Participant reaches normal retirement age, or the date the Participant begins participation. ARTICLE XI: Minimum Distribution Requirements 11.1 General Rules. Subject to Article 10, Joint and Survivor Annuity Requirements, the requirements of this Article 11 shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of the Plan. Unless otherwise specified, the provisions of this Article 11 apply to calendar years beginning after December 31, 1984. All distributions required under this Article 11 shall be determined and made in accordance with the Income Tax Regulations issued under Section 401(a)(9) of the Code (including proposed regulations, until the adoption of final regulations), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations. 11.2 Required Beginning Date. The entire interest of a Participant must be distributed, or begin to be distributed, no later than the Participant's required beginning date, determined as follows. (a) General Rule. The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2. (b) Transitional Rules. The required beginning date of a Participant who attains age 70 /2 before January 1, 1988, shall be determined in accordance with (1) or (2) below: (1) Non-5-percent Owners. The required beginning date of a Participant who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of his Retirement or his attainment of age 70 1/2 occurs. (2) 5-percent Owners. The required beginning date of a Participant who is a 5-percent owner during any year beginning after December 31, 1979, is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70 1/2, or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires. The required beginning date of a Participant who is not a 5-percent owner, who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. (c) Rules for 5-percent Owners. A Participant is treated as a 5-percent owner for purposes of this Section 11.2 if he is a 5-percent owner as defined in Section 416(i) of the Code (determined in accordance with Section 416 but without regard to whether the Plan is top heavy) at nay time during the Plan Year ending with or within the calendar year in which he attains age 66 1/2, or any subsequent Plan Year. Once distributions have begun to a 5-percent owner under this Section 11.2, they must continue, even if the Participant ceases to be a 5-percent owner in a subsequent year. 11.3 Limits on Distribution Periods. As of the first Distribution Calendar Year, distributions not made in a single sum may be made only over one or a combination of the following periods: (a) the life of the Participant, (b) the life of the Participant and his Designated beneficiary, (c) a period certain not extending beyond the Life Expectancy of the Participant, or (d) a period certain not extending beyond the Joint and Last survivor Expectancy of the Participant and his Designated Beneficiary. Designated Beneficiary means the individual who is designated as the Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations) and Section 7.2. Distribution Calendar Year means a calendar year for which a minimum distribution is required under Section 401(a)(9) of the Code and this Section 11.3. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to Section 11.5. Life Expectancy and Joint and Last Survivor Expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the Participant (or his spouse, in the case of distributions described in Section 11.5(b)) by the time distributions are required to begin, Life Expectancies shall be recalculated annually. Any such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The Life Expectancy of a nonspouse beneficiary may not be recalculated. 11.4 Determination of Amount To Be Distributed Each Year. If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the required beginning date. Paragraphs (a) through (d) apply to distributions in forms other than the purchase of an annuity contract. (a) If a Participant's Benefit is to be distributed over (1) a period not extending beyond the Life Expectancy of the Participant or the Joint Life and Last Survivor Expectancy of the Participant and his Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy of the Designated Beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (b) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50 percent of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. (c) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year, shall not be less than the quotient obtained by dividing the Participant's Benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the Participant's spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy in paragraph (a) above as the relevant divisor, without regard to Proposed Regulations Section 1.401(a)(9)-2. (d) the minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Employee's required beginning date occurs, must be made on or before December 31 of that Distribution Calendar Year. (e) If the Participant's Benefit is distributed in the form of an annuity contract purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations). Applicable Life Expectancy means the Life Expectancy (or Joint and Last Survivor Expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year, reduced by one for each calendar year which has elapsed since the date Life Expectancy was first calculated. If Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall be the first Distribution Calendar Year, and if Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. the applicable calendar year shall be the first Distribution Calendar Year, an if Life Expectancy is being recalculated such succeeding calendar year. If annuity payments commence in accordance with Section 11.4(e) before the required beginning date, the applicable calendar year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant's death with the Participant's remaining interest in the Plan, the applicable calendar year is the year of purchase. Participant's Benefit means the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year), increased by the amount of any contributions or Forfeitures allocated to the account balance as of date in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. For purposes of the preceding sentence, if any portion of the minimum distribution for the first Distribute Calendar Year is made in the second Distribution Calendar Year on or before the required Beginning date, the amount of the minimum distribution made in the second Distribution Calendar Year hall be treated as if it had been made in the immediately preceding Distribute Calendar Year. 1.5 Death Distribution Provisions. (a) Distribution Beginning before Death. If the Participant dies after distribution of his interest has begun, the remaining portion of his interest will continue to be distributed at least as rapidly as under the method of distribution being used before the participant' death. (b) Distribution Beginning after Death. If the Participant dies before distribution of his interest begins, distribution of his entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death, except to he extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) If any portion of he Participant's interest is payable to a Designated Beneficiary, distributions may be mad over the Designated Beneficiary's life, or over a period certain not greater than the Life Expectancy of the Designated Beneficiary, commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; or (2) If the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the later of (i) December 31 of the calendar year immediately following the calendar year in which the Participant died, and (ii) December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Participant has not made an election pursuant to this Section 11.5 by the time of this death, the Participant's Designated Beneficiary must elect the method of distribution no later than the earlier of (i) December 31 of the calendar year in which distributions would be required to begin under this Section 11.5 or (ii) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does to elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (c) For purposes of paragraph (b), if the surviving spouse dies after the Participant, but before payments to the souse begin , the provisions of paragraph (b), with the exception of subparagraph (2) therein, shall be applied as if the surviving spouse were the Participant. (d) For purposes of this Section 11.5, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse of the Participant if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (e) For the purposes of this Section 11.5, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if paragraph (c) above is applicable the date distribution is required to begin to the surviving spouse pursuant to paragraph(b) above). If distribution in the form of an annuity contract described in Section 11.4(e) irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. 11.6 Transitional Rule. Notwithstanding the other requirements of this Article 11, and subject to the requirements of Article 10, Joint and Survivor Annuity Requirement, distribution on behalf of any Participant, including a 5-percent owner, may be made in accordance with al of the following requirements (regardless of when such distribution commences): (a) The distribution is one which would not have disqualified the Trust under Section 401(a)(9) of the Internal Revenue code of 1954 as in effect before its amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Trust is being distributed of, if the Employee is deceased, by a Beneficiary of the Employee. (c) The designation specified in paragraph (b) was in writing, was signed by the Employee or the Beneficiary, and as made before January 1, 1984. (d) The Employee had accrued a benefit under the plan as of December 31, 1983. (e) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distributor will commence, the period over which distributions will be made, an din the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary to whom such distribution is being made will be presumed to have designated the method of distribute under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in paragraphs (a) and (e). If a designation is revoked, any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the regulations thereunder. If a designation is revoked after the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the regulations thereunder, but for the designation described in paragraphs (b) through (e). For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Any changes in the designation generally will be considered to be a revocation of the designation, but the mere substitution or addition of another beneficiary (one not name in the designation) under the designation will not be considered to be a revocation of the designation, so long as the substation or addition does not alter the peered over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case of an amount transferred or rolled over from one plan to another plan, the rules in Q&AJ-2 and Q&AJ-3 of Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations. ARTICLE XII: Withdrawals and Loans 12.1 Withdrawals from Participant Contribution Accounts. Subject to the requirements of Article 10, a Participant may upon written notice to the Employer withdraw any amount from his Participant Contribution Account. A withdrawn amount may not be repaid to the Plan. No forfeiture will occur solely as a result of an Employee's withdrawal of Participant contributions. 12.2 Withdrawals on Account of Hardship (Profit Sharing Plans Only). If the employer has so elected in the Plan Agreement for a profit sharing plan, upon a Participant's written request the Plan Administrator may permit a withdrawal fro the vested portion of the Participant's Accounts on account of the Participant's financial hardship, which must be demonstrated to the satisfaction of the Plan Administrator. In considering such requests, the Plan Administrator shall apply uniform standards that do not discriminate in favor of Highly Compensated Employees. In a Standard Plan with a Code, if hardship withdrawals are permitted from both the Employer Contribution Account and the Elective Deferral Account, they shall be made first from a participant's Employer Contribution Account and thereafter from a Participant's Elective Deferral Account, subject to the additional requirements set forth in Section 5.14. In a Standard Plan, the requirements of Section 5.14(b), (c), (d)(1) and (d)(2) shall also apply to hardship distributions from a Participant's Employer contribution Account. In a Variable Plan with a CODA, if hardship withdrawals are permitted from more than one of the Elective Deferral Account, Employer Matching Account, and Employer contribution Account , they shall be made first from a Participant's Employer contribution Account, and thereafter from the Employer Matching Account, and finally from the Elective Deferral Account, subject to the additional requirement of Section 5.14. A withdrawn amount may not be repaid to the Plan. 12.3 Withdrawals after Reaching Age 59 1/2 (Profit Sharing Plans Only). If so specified by the Employer in the Plan Agreement, a Participant who has reached age 59 1/2 may upon written request to the Employer withdraw during his employment any amount not exceeding the vested balance of his Accounts. A withdrawn amount may not be repaid to the Plan. 12.4 Loans (Variable Plans Only). If the Employer has so elected in the Plan Agreement, the Employer may direct the Trustee to make a loan to a Participant or Beneficiary from the vested portion of his Accounts, subject to the following terms and conditions: (a) The Plan Administrator shall administer the loan program subject to the terms and conditions of this Section 12.4 and to such reasonable additional rules and regulations as the Plan Administrator may establish for the orderly operation of the program. (b) A Participant's or Beneficiary's request for a loan shall be submitted to the Plan Administrator by means of a written application on a form supplied by the Plan Administrator. Applications shall be approved or denied by the Plan Administrator on the basis of its assessment of the borrower's ability to collateralize and repay the loan, as revealed in the loan application. (c) Loans shall be made to all Participants and Beneficiaries on a reasonable equivalent basis. Loans shall not be made available to highly compensated Employees (as defined in Section 414(q) of the Code) in amount greater than the amount made available to other employees (relative to the borrower s Account balance). (d) Loans must be adequately secured by assignment of fifty percent (50%) of the Participant s entire right, title, and interest in and to the Trust fund, evidenced by the Participant s collateral promissory not for the amount of the loan payable to the order of the Trustee. (e) Loans must bear a reasonable interest rate comparable tot he rate charged by commercial lenders in the geographical area for similar loans. The Plan Administrator shall not discriminate among Participants in the matter of interest rates, but loans may bear different interest rates if, in the opinion of the Plan Administrator, the difference in rates is justified by conditions that would customarily be taken into account by a commercial lender in the Employer s geographical area. (f) The period for repayment for any loan shall not exceed five years, except in the case of a loan used to acquire a dwelling unit which within a reasonable time is to be used as the principal residence of the Participant, in which case the repayment period shall not exceed ten years. The terms of a loan shall require that it be repaid in level payments of principal and interest not less frequently then quarterly throughout the repayment period, except that alternative arrangements for repayment may apply in the event that the borrower is on unpaid leave of absence for a period not to exceed one year. (g) To the extent that t Participant would be required under Article 10 to obtain the consent of his spouse to a distribution of an immediately distributable benefit other than a Qualified Joint and Survivor Annuity, the consent of the Participant s spouse shall be required for the u se of the Account as security for a loan. The spouse s consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured, and obtained in accordance with the requirements of Section 10.4(c) for a Qualified Election. Any such consent shall thereafter be binding on the consenting spouse and any subsequent spouse of the Participant. a new consent shall be required for use of the Account as security for any extension, renewal, renegotiation or revision of the original loan. (h) If valid spousal consent has been obtained in accordance with Section 12.4(g), then notwithstanding any other provision of the Plan the portions of the Participant s account balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant s vested account balance (determined without regard to the preceding sentence) is payable to the surviving spouse, then the account balance shall be adjusted by fist reducing the vested account balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse. (i) In the event of default on a loan by a Participant who is an active Employee, foreclosure on the Participant s Account as security will not occur until the Employer has reported to the Trustee the occurrence of an event permitting distribution from the Plan in accordance with Article 9 or Section 5.13. (j) No loan shall be made to an Owner-Employee or a Shareholder-Employee. (k) No loan to any Participant or Beneficiary can be made tot he extend that the amount of the loan, when added to the outstanding balance of all other loans to the Participant or Beneficiary, would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) one-half the value of the vested account balance of the Participant. For the purpose of the above limitation, all loans from all qualified plans of the Affiliated Employers are aggregated. (l) Loans shall be considered investments directed by a Participant pursuant to Section 13.3. The amount loaned shall be charged solely against the Accounts of the Participant, and repaid amounts and interest shall be credited solely thereto. 12.5 Procedure; Amount Available. Withdrawals and loans shall be made subject to the terms and condition applicable to distributions pursuant to Section 9.4, except that the amount of any withdrawal or loan shall be determined by reference to the vested balance of the Participant s Account as of the most recent Valuation Date preceding the withdrawal or loan, and shall not exceed the amount of the vested account balance. ARTICLE XIII: Trust Fund and Investments 13.1 Establishment of Trust Fund. The Employer and the Trustee hereby agree to the establishment of a Trust Fund consisting of all amounts as shall be contributed or transferred from time to time to the Trustee pursuant to the Plan, and all earnings thereon. The Trustee shall hold the assets of the Trust Fund for the exclusive purpose of providing benefits to Participant and Beneficiaries and defraying the reasonable expenses of administering the Plan and no such assets shall ever revert to the Employer, except that: (a) contributions made by the Employer by mistake of fact may be returned to the Employer within one (1) year of the date of payment. (b) contributions that are conditioned on their deductibility under the Code may be returned to the Employer within one (1) year of the disallowance of the deduction, (c) contributions that are conditioned on the initial qualification of the Plan under the Code may be returned to the Employer within one (1) year after such qualification is denied by determination of the Internal Revenue Service, but only if an application for determination of such qualification is made within the time prescribed by law for filing the Employer s federal income tax return for its taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe, and (d) amounts held in a suspense account may be returned to the Employer on termination of the Plan, to the extent that they may not then be allocated to any Participant s Account in accordance with Article 6. All Employer contributions under the Plan other than those made pursuant to Section 4.1(f) are hereby expressly conditioned on the initial qualification of the Plan and their deductibility under the Code. 13.2 Management of Trust Fund. Except to the extent of any investment in Policies pursuant to Article 14, the assets of the Trust Fund shall be held in trust by the Trustee and accounted for in accordance with this Article 13, and shall be invested in accordance with Section 13.3 in the Investment Products specified by the Employer in the Plan Agreement and from time to time thereafter in writing. The Employer shall have the exclusive authority and discretion to select the Investment Products available under the Plan. In making that selection, the Employer shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matter would use in the conduct of an enterprise of like character and with like aims. The Employer shall cause the available Investment Products be diversified sufficiently to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. It is especially intended that the Trustee shall have no discretionary authority to determine the investment of Trust assets. 13.3 Investment Instructions. Except as Article 14 may apply, all amounts held in the Trust Fund under the Plan shall be invested in Investment Products. If the Employer has elected in the Plan Agreement to make investment decisions for the Plan, investment instructions as to the Employer Contribution Accounts, Employer Matching Accounts, Qualified Matching Accounts, and Qualified Nonelective Contribution Accounts shall be the fiduciary responsibility of the Employer, and each of such Accounts shall have a pro rata interest in all assets of the Trust (other than life insurance policies under Article 14) to which the Employer s instructions apply. If the Employer has not elected to make investment decisions for the Plan, then assets of the Trust shall be invested solely in accordance with the instructions of the Participant w to whose Accounts they are allocable, as delivered by the Employer to Putnam in accordance with its service agreement with the Employer, if any. Instructions shall apply to future contributions, past accumulations, or both, according to their terms, and shall be communicated by the Employer to Putnam in accordance with procedures prescribed in the service agreement, if any, between the Employer and Putnam. Instructions shall be effective prospectively, coincident with or within a reasonable time after their receipt in good order by Putnam. An instruction once received shall remain in effect until it is changed by the provision of a new instruction. New instructions shall be accepted by Putnam at any Valuation Date. To the extent the assets of the Trust are to be invested solely in accordance with the instructions of the Participants, the Plan is intended to constitute a plan described in section 404 (cc) of ERISA and Title 29 of the Code of Federal Regulations section 2550.404c-1. In such case, the Employer shall be responsible for providing the Participant with all information required to be given pursuant to ERISA section 404(c) and Title 29 of the Code of Federal Regulations section 2550.404c-1. In the event that the Employer adopts a Putnam prototype plan as an amendment to or restatement of an existing plan, the Employer shall specify one or more Investment Products to serve as the sole investments for all Participants Accounts during the period in which existing records of the Plan are transferred to the Recordkeeper. During that period, new investment, instructions as to existing assets of the Plan cannot be carried out, not can distributions be made from the Plan except to the extent permitted under the terms of the service agreement between the Employer and Putnam. The Employer and the Recordkeeper shall use their best efforts to minimize the duration of the period to which the preceding sentence applies. Neither the Employer nor the Trustee nor Putnam shall be responsible for questioning any instructions of a Participant or for reviewing the investments selected therein, or for any loss resulting from instructions of a Participant or from the failure of a Participant to provide or to change instructions. Neither Putnam nor the Trustee shall have any duty to question any instructions received from the Employer or a Participant or to review the investments thus selected, nor shall Putnam or the Trustee be responsible for any loss resulting from instructions received from the Employer or a Participant or from the failure of the Employer or a Participant to provide or change instructions. In the event that Putnam or the Trustee receives a contribution under the Plan as to which no instructions are delivered, or such instructions as are delivered are unclear to Putnam or the Trustee, such contributions shall be invested until clear instructions are received in the default option set forth in the service agreement between the Employer an Putnam or if no such option is so set forth, in Putnam Daily Dividend Trust. neither Putnam nor the Trustee shall have any discretionary authority or responsibility in the investment of the assets of the Trust Fund. 13.4 Valuation of the Trust Fund. As of each Valuation Date, the Trustee shall determine the fair market value of the Trust Fund, and the net earnings or losses and expenses of the Trust Fund for the period elapsed since the most recent previous Valuation Date shall be allocated amount the Accounts of Participants. Earnings, losses and expenses which pertain to investments which are specifically held for a given Participant s Account shall be allocated solely to that Account. In the event that an investment is not specifically held for a given Participant s Account, the earnings, losses and expenses pertaining o that investment shall be allocated among all Participants Accounts in the ratio that each such Account bears to the total of all Accounts of all Participants. Each Participant s Accounts shall be adjusted pursuant to this Section 13.4 until such time as they are either fully distributed or forfeited, regardless of whether the Participant continues to be an Employee. 13.5 Distributions on Investment Company Shares. Subject to Section 9.3, all dividends and capital gains or other distributions received on any Investment company Shares credited to Participant s Account will (unless received in additional Investment Company Shares) be reinvested in full and fractional shares of the same Investment Company at the price determined as provided in the then current prospectus of the Investment Company. The shares so received or purchased upon such reinvestment will be credited to such accounts. If any dividends or capital gain or other distributions may be received on such Investment Company Shares at the elections of the shareholder in additional share or in cash or other property, the Trustee will elect to receive such dividends or distributions in additional Investment Company Shares. 13.6 Registration and Voting of Investment Company Shares. All Investment Company Shares shall be registered in the name of the Trustee or its nominee. Subject to any requirements of applicable law, the Trustee will transmit to Participants in a Standard Plan, and to the Employer in a Variable Plan, copies of any notices of shareholders meetings, proxies and proxy-soliciting material, prospectuses and the annual or other reports to shareholders, with respect to Investment Company Shares held in the Trust Fund. the Trustee shall act in accordance with directions received fro such Participants or Employer, as the case may be, with respect to matters to be voted upon by the shareholders of the Investment Company. Such directions must be in writing on a form approved by the Trustee, signed by the addressee and delivered to the Trustee within the time prescribed by it. The Trustee will not vote Investment Company Shares as to which it receives no written directions. 13.7 Investment Manager (Variable Plans Only). The Employer, with the consent of Putnam, may appoint an investment manager, as defined in Section 3(38) of the Employee Retirement Income Security Act of 1974, with respect to all or a portion of the assets of the Trust Fund. The Trustee shall have no liability in connection with any action or nonaction pursuant to directions of such an investment manager. ARTICLE XIV: Insurance Policies 14.1 Purchase of Insurance Products. At the time of establishment of the Plan, the Employer shall purchase for each Participant such Policy or Policies, if any, as a Participant shall request and annually thereafter such additional Policies as a Participant shall request, subject to the limitations of Section 14.2. All Policies shall have the same day and month of issue, insofar as reasonably possible. The premiums on all Policies shall be paid at the same intervals (for example, annually, semi-annually, quarterly or monthly) but the interval may be changed with respect to all Policies from time to time. 14.2 Limitation on Premiums. the premiums paid for Policies in respect of any Participants shall be limited so that premiums paid on any ordinary insurance Policies (that is, Policies with both nonincreasing premiums and nondecreasing death benefits) on the life of the Participant shall be 49 percent or less of the Employer s total contributions for the Participant (and Forfeitures allocated and amounts reapplied to his Employer Contribution Account), and premiums paid on term insurance Policies on the life of the Participant shall be less than 25 percent of such amount; provided that if both ordinary life insurance Policies and term Policies are purchased for any Participant, the total premiums on term Policies plus one-half the premiums on ordinary life Policies shall be less than 25 percent of such amount. If at any time the total premiums to be paid by the Employer for a Participant shall equal or exceed the above limitations, then the life insurance coverage of that Participant shall be reduced so that the total premiums shall not equal or exceed the limitations. The required reduction shall be made by changing all or a portion of the life insurance on the Participant to paid-up life insurance or by canceling all or a portion of any term life insurance. 14.3 Policy Options. At the election of the Participant covered hereunder, a Policy may contain a waiver of premium disability benefit provision or a provision for additional indemnity in the event of accidental death, or both, if available on the type of Policy selected and if permitted by the insurer. 14.4 Insurability. If any Participant who has elected that a Policy be purchased is found by the insurer not to be insurable at standard rates, the Employer shall, if permitted by the rules of the insurer, purchase a similar Policy which provides a lesser death benefit and which can be purchased for the same premium. 14.5 Dividends on Policies. Dividends payable on any Policy shall be applied tot he purchase of additional benefits under the Policy unless the Participant requests that they be applied in reduction of premiums. 14.6 Trustee of Policy. The Insurance Trustee shall apply for an be the owner of each Policy purchased under the terms of the Plan. Each Policy must provide that proceeds will be payable to the Insurance Trustee; however, the Insurance Trustee shall be required t pay over all such proceeds to the Participant s Designated Beneficiary in accordance with the distribution provisions of the Plan including, without limitation, Section 10.3. Under no circumstances shall the Trust retain any part of the proceeds. In the event of any conflict between the terms of the Plan and the terms of any Policy purchased hereunder, the Plan provisions shall control. 14.7 Obligations with Respect to Policies. Except as may be otherwise provided in any conditional or dinging receipt issued by an insurer, there shall be no coverage and no death benefit payable under any Policy to be purchased from such insurer until such Policy shall have been delivered and the premium therefor shall have been paid. The Employer and the Insurance Trustee shall not have any responsibility as to the effectiveness of any Policy purchased from an insurer, nor shall either of them have any liability or obligation to pay any amount to any Participant or his beneficiary by reason of any failure or refusal by the insurer to make such payment. 14.8 Distribution of Proceeds on Participant s Death. In the event of the death of a Participant before the conversion provided for in Section 14.9, there shall be payable to the beneficiary named in any Policy on his life the benefits provided by the terms of such Policy. 14.9 conversion of Policies. Except as provided in Section 19.3, if any Policies of a Participant ( other than retirement income, endowment or annuity Policies) are held for his benefit at the time distribution is to commence, the Policies may be converted by the Insurance Trustee into cash, paid to the Trustee, credited to the Employer contribution Account of the Participant, invested in accordance whit the written instructions of the Employer ( and if no such instructions have been given or if such instructions are not clear, invested in Investment Company Shares in the same proportion as the most recent contributions to the Participant s Accounts) and distributed pursuant to Article 9, subject to the terms and conditions of Article 10. Retirement income, endowment or annuity Policies will be distributed directly to the Participant at the time distribution is to commence. 14.10 Conflict with Policies. In the event of any conflict between the terms of the Plan and the terms of any Policies hereunder, the Plan provisions shall control. 14.11 Insurance Loans to Owner-Employees. If an Owner-Employee or Shareholder-Employee receives, either directly or indirectly, any amount from an Insurer as a loan under a Policy, the amount so received shall be considered a distribution under the Plan. Any assignment or pledge (or agreement to assign or pledge) by an Owner-Employee or Shareholder-Employee of any interest in the Plan shall be considered a distributions of such interest. ARTICLE XV: Top-Heavy Plans 15.1 Superseding Effect. For any Plan Year beginning after December 31, 1983, in which Plan is determined to be a Top-Heavy Plan under Section 15.2(b), the provisions of this Article 15 will supersede any conflicting provisions in the Plan or the Plan Agreement. These provisions will be deemed applicable to a Standard Plan at all times, unless the Employer has affirmatively elected in the Plan Agreement to perform top-heavy testing annually. 15.2 Definitions. For purposes of this Article 13, the terms below shall be defined as follows: (a) key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was: (1) an officer of the Employer having annual compensation greater than 50 percent of the amount in effect under Section 415(b)(1)(A) of the Code; (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer having annual compensation of more than $150,000. Annual compensation means compensation as defined in Section 415(c)(3) of the Code, but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the Employee s gross income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code. The determination period is the Plan Year containing the Determination Date, and the four preceding Plan Years. The determination of who is a key Employee will be made in accordance with Section 416(i)(1) of the code and the Regulations thereunder. (b) Top-Heavy: The Plan is Top-Heavy for a Plan Year beginning after December 31, 1983, if any of the following conditions exists: (1) If the Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60 percent. (3) If his Plan is part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation group exceeds 60 percent. (c) Top-Heavy Ratio means the following: (1) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer has not maintained any qualified defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for the Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with Section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Section 416 of the Code and the regulations thereunder. (2) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer maintains or has maintained one or more qualified defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balance under the aggregated qualified defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the Present Value of accrued benefits under the aggregated qualified defined benefit plan or plans for all Key Employees, as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated qualified defined contributions plan or plans for all Participants, determined in accordance with (1) above, and the Present Value of accrued benefits under the qualified defined benefit plan or plans for all Participants as of the Determination Date(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator an denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date; except as provided in Section 416 of the Code and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Participant(a) who is a not a Key Employee but who was a Key Employee in a prior Plan Year, or (b) who has not been credited with at least one Hour of Service for the Employer during the 5-year period ending on the Determination date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. when aggregating plans, the value of account balances and accrued benefits will be calculated whit reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. (d) Permissive Aggregation Group means the Required Aggregation Group of plans plus any other qualified plan or plans (or simplified employee pension plan) of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (e) Required Aggregation Group means: (i) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated) and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Section 401(a)(4) or 410 of the Code. (f) Determination Date means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the Determination Date is the last day of that Plan Year. (g) Valuation Date means the last day of the Plan Year. (h) Present Value means present value based only on the interest and mortality rates specified in any defined benefit plan maintained by the Employer and set forth in the Plan Agreement. 15.3 Minimum Allocation. (a) Except as otherwise provided in paragraphs (c) and (d) below, the Employer contributions and Forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of three percent of such Participant s Earnings, or in the case here the Employer has not defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer contributions and Forfeitures, as a percentage of the first $200,000 of the Key Employee s Earnings, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation of the Employer s contributions and Forfeitures for the Plan Year because of (1) the Participant s failure to be credited with at least 1,000 Hours of Service, or (2) the Participant s failure to make mandatory Employee contributions to the Plan, or (3) the Participant s receiving Earnings less than a stated amount. Neither Elective Deferrals, Employer Matching Contributions nor Qualified Matching Contributions for non-key employees shall be taken into account for purpose of satisfying the requirement of this Section 15.3(a). (b) For purposes of computing the minimum allocation. Earnings will mean Earnings as defined in Section 2.13 of the Plan. (c) The provision in paragraph (a) above shall not apply to any Participant who was to employed by the Employer on the last day of the Plan Year. (d) The provision in paragraph (a) above shall not apply to any Participant to the extent he is covered under any other plan or plans of the Employer, and the Employer has provided in the Plan Agreement that the minimum allocation requirement applicable to Top-Heavy Plans will be met in the other plan or plans. (e) The minimum allocation required (to the extend required to be nonforfeitable under Section 416(b) of the Code) may not be forfeited under Sections 411(a)(3)(B) or (D) of the Code. 15.4 Earnings Limitation. For any Plan Year in which the Plan is Top-Heavy, only the first $200,000 (or such larger amount as may be prescribed by the Secretary of the Treasury or his delegate) of a Participant s annual Earnings shall be taken into account for purposes of determining Employer contributions under the Plan. 15.5 Minimum Vesting Schedules (Variable Plans Only). For any Plan Year in which this Plan is Top-Heavy and any subsequent Plan Year, a minimum vesting schedule will automatically apply to the Plan, as follows: (a) If the Employer has selected in the Plan Agreement as the Plan s regular vesting schedule the Tree Year Cliff, Five Year Graded or Six Year Graded schedule, then the schedule selected in the Plan Agreement shall continue to apply for any Plan Year to which this Section 15.5 applies. (b) If the Employer has selected in the Plan Agreement as the Plans regular vesting schedule the Five Year Cliff schedule, then the Three Year Cliff schedule shall apply in any Plan Year to which this Section 15.5 applies. (c) If the Employer has selected in the Plan Agreement as the Plan s regular vesting schedule the Seven Year Graded schedule, then the Six Year Graded schedule shall apply in any Plan Year to which this Section 15.5 applies. (d) If the Employer has selected in the Plan Agreement as the Plan s regular vesting schedule a schedule other than those described in paragraphs (a), (b) and (c), then the schedule specified by the Employer in the Plan Agreement for this purpose shall apply in any Plan Year to which this Section 15.5 applies. The minimum vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to Employee contributions, including benefits accrued before the effective date of Section 416 of the Code and benefits accrued before the Plan became Top-Heavy. Further, to reduction in a Participant s nonforfeitable percentage may occur in the event the Plan s status as Top-Heavy changes for any Plan Year. However, the vested portion of the Employer Contribution Account of any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy will be determined without regard to this Section 15.5. 15.6 Adjustment of Fractions. For any Plan Year in which the Plan is Top-Heavy, the Defined Benefit Fraction and the Defined Contribution Fraction in Article 6 shall each be computed using 100 percent of the dollar limitations specified in Sections 415(b)(1)(A) and 415(c)(1)(A) instead of 125 percent. In a Variable Plan, the foregoing requirement shall not apply if the Top-Heavy Ratio does not exceed 90 percent and the Employer has elected in the Plan Agreement to provide increased minimum allocations or benefits satisfying Section 416(h)(2) of the Code. ARTICLE XVI: Administration of the Plan 16.1 Plan Administrator. The Plan shall be administered by the Employer, as Plan Administrator and Named Fiduciary within the meaning of ERISA, under rules of uniform application; provided, however, that the Plan Administrator s duties and responsibilities may be delegated to a person appointed by the Employer or a committee established for that purpose, in which case the committee shall be the Plan Administrator and Named Fiduciary. The members of such a committee shall act by majority vote, and may by majority vote authorize any one or ones of their number to act for the committee. The person or committee (if any) initially appointed by the Employer may be named in the Plan Agreement, but the Employer may remove any such person or committee member by written notice to him, and any such person or committee may resign by written notice to the Employer, without the necessity of amending the Plan Agreement. To the extent permitted under applicable law, the Plan Administrator shall have the sole authority to enforce the terms hereof on behalf of any and all persons having or claiming any interest under the Plan, and shall be responsible for he operations of the Plan in accordance with its terms. The Pan Administrator shall have discretionary authority to determine all questions arising out of the administration, interpretation and application of the Plan, all of which determinations shall be conclusive and binding on all persons. The Plan Administrator in carrying out its responsibilities under the Plan , may rely upon the written opinions of its counsel and on certificates of physicians. Subject to the provisions of the Plan and applicable law, the Plan Administrator shall have no liability to any person as a result of any action taken or omitted hereunder by the Plan Administrator. 16.2 Claims Procedure. Claims for participation in or distribution under the Plan shall be made in writing to the Plan Administrator, or an agent designated by the Plan Administrator whose name shall have been communicated t all Participants and other persons as required by law. If any claim so made is denied in whole or in part, the claimant shall be furnished promptly by the Plan Administrator with a written notice: (a) setting forth the reason for the denial, (b) making reference to pertinent Plan provisions. (c) describing any additional material or information from the claimant which is necessary and why, and (d) explaining the claim review procedure set forth herein. Within 60 days after denial of any claim for participation or distribution under the Plan, the claimant may request in writing a review of the denial by the Plan Administrator. Any claimant seeking review hereunder shall be entitled to examine all pertinent documents and to submit issues and comments in writing. The Plan Administrator shall render a decision on review hereunder; provided, that if the Plan Administrator determines that a hearing would be appropriate, its decision on review shall be rendered within 120 days after receipt of the request for review. The decision on review shall be in writing and shall state the reason for the decision, referring to the Plan provisions upon which it is based. 16.3 Employer s Responsibilities. The Employer shall be responsible for: (a) Keeping record of employment and other matters containing all relevant data pertaining to any person affected hereby and his eligibility to participate, allocations to his Accounts, and his other rights under the Plan; (b) Periodic, timely filing of all statements, reports and returns required to be filed by ERISA; (c) Timely preparation and distribution of disclosure materials required by ERISA; (d) Providing notice to interested parties as required by Section 7476 of the Code; (e) Retention of records for periods required by law; and (f) Seeing that all persons required to be bonded on account of handling assets of the Plan are bonded. 16.4 Recordkeeper. The Recordkeeper is hereby designated as agent of the Employer under the Plan to perform directly or through agents certain ministerial duties in connection with the Plan, in particular: (a) To keep and regularly furnish to the Employer a detailed statement of each Participant s Accounts, showing contributions thereto by the Employer and the Participant, Investment Products purchased therewith, earnings thereon and Investment Products purchased therewith, and each redemption or distribution made for any reason, including fees or benefits; and (b) To the extent agreed between the Employer and the Recordkeeper, to prepare for the Employer or to assist the Employer to prepare such returns, reports or forms as the Employer shall be required to furnish to Participants and Beneficiaries or other interested persons and to the Internal Revenue Service or the Department of Labor; all as may be more fully set forth in a service agreement executed by the Employer and the Recordkeeper. If the Employer does not appoint another person or entity as Recordkeeper, the Employer itself shall be the Recordkeeper. 16.5 Prototype Plan. Putnam is the sponsor of the Putnam Basic Plan Document, a prototype plan approved as to form by the Internal Revenue Service. Provided that an Employer s adoption of the Plan is made known to and accepted by Putnam in accordance with the Plan Agreement, Putnam will inform the Employer of amendments to the prototype plan and provide such other services in connection with the Plan as may be agreed between Putnam and the Employer. Putnam may impose for its services as sponsor of the prototype plan such fees as it may establish from time to time in a fee schedule addressed to the Employer. Such fees shall, unless paid by the Employer, be paid from the Trust Fund, and shall in that case be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such fees. ARTICLE XVII: Trustee and Insurance Trustee 17.1 Powers and Duties of the Trustee. The Trustee shall have the authority, in addition to any authority given by law, to exercise the following powers in the administration of the Trust: (a) To invest all or a part of the Trust Fund in Investment Products in accordance with the investment instructions delivered by the Employer pursuant to Section 13.3, without restriction to investments authorized for fiduciaries, including without limitation any common, collective or commingled trust fund maintained by the Trustee (or any other such fund, acceptable to Putnam and the Trustee, that qualifies for exemption from federal income tax pursuant to Revenue Ruling 81-100). Any investment in, and any terms and conditions of, any such common, collective or commingled trust fund available only to employee trusts which meet the requirements of the Code, or corresponding provisions of subsequent income tax laws of the United States, shall constitute an integral part of this Agreement; (b) If this is a Variable Plan and Putnam and the Trustee have consented thereto in writing, to invest without limit in stock of the Employer or any affiliated company; (c) To dispose of all or part of the investments, securities or other property which may from time to time or at any time constitute the Trust Fund in accordance with the written directions furnished by the Employer for the investment of Participants separate Accounts or the payment of benefits or expenses of the Plan, and to make, execute and deliver to the purchasers thereof good and sufficient deeds of conveyance therefore, and all assignments, transfers and other legal instruments, either necessary or convenient for passing the title and ownership thereto, free and discharged of all trust and without liability on the part of such purchasers to see to the application of the purchase money; (d) To hold cash uninvested to the extent necessary to pay benefits or expenses of the Plan; (e) To follow the directions of an investment manager appointed pursuant to Section 13.7; (f) To cause any investment of the Trust Fund to be registered in the name of the Trustee or the name of its nominee or nominees or to retain such investment unregistered or in a form permitting transfer by delivery; provided that the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund: (g) Upon the written direction of or through the Employer, to vote in person or by proxy (in accordance with Section 13.6 and, in the case of stock of the Employer, at the direction of the Employer) with respect to all securities that are part of the Trust Fund; (h) To consult and employ any suitable agent to act on behalf of the Trustee and to contract for legal, accounting, clerical and other services deemed necessary by the Trustee to manage and administer the Trust Fund according to the terms of the Plan; (i) Upon the written direction of the Employer, to make loans from the Trust Fund to Participants in amounts and on terms approved by the Plan Administrator in accordance with the provisions of the Plan; provided that the Employer shall have the sole responsibility for computing and collecting all loan repayments required to be made under the Plan; and (j) To pay from the Trust Fund all taxes imposed or levied with respect to the Trust Fund or any part thereof under existing or future laws, and to contest the validity or amount of any tax assessment, claim or demand respecting the Trust Fund or nay part thereof. 17.2 Limitation of Responsibilities. Except as may otherwise be required under applicable law, neither the Trustee nor the Insurance Trustee nor any of their respective agents shall have any responsibility for: (a) Determining the correctness of the amount of any contribution for the sole collection or payment of contributions, which shall be the sole responsibility of the Employer; (b) Loss or breach caused by any Participant s exercise of control over his Accounts, which shall be the sole responsibility of the Participant; (c) Loss or breach caused by the Employer s exercise of control over Accounts pursuant to Section 13.3, which shall be the sole responsibility of the Employer; (d) Sums paid to an insurer or the validity of any Policy or the accuracy of information provided by an insurer, which shall be the sole responsibility of the insurer; (e) Performance of any other responsibilities not specifically allocated to them under the Plan. 17.3 Fees and Expenses. The Trustee s fees for performing its duties hereunder shall be such reasonable amounts as shall be established by the Trustee from time to time in a fee schedule addressed to the Employer. Such fees, any taxes of any kind which may be levied or assessed upon or in respect of the Trust Fund and any and all expenses reasonably incurred by the Trustee shall, unless paid by the Employer, be paid from the Trust Fund and shall, unless allocable to the Accounts of specific Participants, be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such amounts. Charges and expenses incurred in connection with a specific Investment Product, unless allocable to the Accounts of specific Participants, shall be charged pro rata against the Accounts of all Participants for whose benefit amounts have been invested in the specific Investment Product. 17.4 Reliance on Employer. The Trustee and its agents (and the Insurance Trustee, if any) shall rely upon any decision of the Employer, or of any person authorized by the Employer, purporting to be made pursuant to he terms of the Plan, and upon any information or statements submitted by the Employer or such person (including those relating to the entitlement of any Participant to benefits under the Plan), and shall to inquire as to the basis of any such decision or information or statements, and shall incur no obligation or liability for any action taken or omitted in reliance thereon. The Trustee and its agents shall be entitled to rely on the latest written instruction received from the Employer as to the person or persons authorized to act for the Employer hereunder, and to sign on behalf of the Employer any directions or instructions, until receipt from the Employer of written notice that such authority has been revoked. 17.5 Action Without Instructions. If the Trustee receives no instructions from the Employer in response to communications sent by registered or certified mail to the Employer at its last known address as shown on the books of the Trustee, then the Trustee may make such determinations with respect to administrative matters arising under the Plan as it considers reasonable, notwithstanding any prior instructions or directions given by or on behalf of the Employer, but subject to any instruction or direction given by or on behalf of the Participants. To the extent permitted by applicable law, any determination so made will be binding on all persons having or claiming any interest under the Plan or Trust, and the Trustee will incur no obligation or responsibility for any such determination made in good faith or for any action taken pursuant thereto. I making any such determination the Trustee may require that it be furnished with such relevant documents as it reasonably considers necessary. 17.6 Advice of Counsel. The Trustee and the Insurance Trustee may each consult with legal counsel (who may, but need not be, counsel for the Employer) concerning any questions which may arise with respect to their respective rights and duties under the Plan, and the opinion of such counsel shall be full and complete protection to the extent permitted by applicable law in the respect of any action taken or omitted by the Trustee or the Insurance Trustee, as the case may be, hereunder in accordance with the opinion of such counsel. 17.7 Accounts. The Trustee shall keep full accounts of all receipts and disbursement which pertain to investments in Investment Products, and the Trustee and the Insurance Trustee shall each keep accounts of such other transactions as it is required to perform hereunder. Within a reasonable time following the close of each Plan Year, or upon its removal or resignation or upon termination of the Trust and at such other times as may be appropriate, each shall render to the Employer and any other persons as may be required by law an account of its administration of the Plan and Trust during the period since the last previous such accounting, including such information as may be required by law. The written approval of any account by the Employer and all other persons to whom an account is rendered shall be final and binding as to all matters and transactions stated or shown therein, upon the Employer and Participants and all persons who then are or thereafter become interested in the Trust. The failure of the Employer or any other person to whom an account is rendered to notify the party rendering the account within 60 days after the receipt of any account of his or its objection to the account shall be the equivalent of written approval. If the Employer or any other person to whom an account is rendered files any objections within such 60-day period with respect to any matters or transactions stated or shown in the account and the Employer or such other person and the party rendering the account and the Employer or such person shall have the right to have such questions settled by judicial proceedings, although the Employer or such other person to whom an account is rendered shall have, to the extent permitted by applicable law, only 60 days from filing of written objection t the account to commence legal proceedings. Nothing herein contained shall be construed so as to deprive the Trustee or the Insurance Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of any account or for instructions, the only necessary parties shall be the Trustee, the Insurance Trustee, the Employer and persons to whom an account is required by law to be rendered. 17.8 Access to Records. The Trustee and the Insurance Trustee shall give access to their respective records with respect to the Plan at reasonable times and on reasonable notice to any persona required by law to have access to such records. 17.9 successors. any corporation into which the Trustee may merge or with which it may consolidate or any corporation resulting from any such merger or consolidation shall be the successor of the Trustee without the execution or filing of any additional instrument or the performance of any further act. 17.10 Persons Dealing With Trustee or Insurance Trustee. No person dealing with the Trustee or the Insurance Trustee shall be bound to see to the application of any money or property paid or delivered to such party or to inquire into the validity or propriety of any transactions. 17.11 Resignation and Removal; Procedure. The Trustee or the Insurance trustee may resign at any time by giving 60 days written notice to the Employer and to Putnam. The Employer may remove the Trustee or the Insurance Trustee at any time by giving 60 days written notice to the party removed and to Putnam. In any case of resignation or removal hereunder, the period of notice may be reduced to such shorter period as is satisfactory to the Trustee, the Insurance Trustee and the Employer. Notwithstanding anything to the contrary herein, any resignation hereunder shall take effect at the time notice hereof is given if the Employer may no longer participate in the prototype Plan and is deemed to have an individually designed plan at the time notice is given. 17.12 Action of Trustee Following Resignation or Removal. When the resignation or removal of the Trustee becomes effective, the Trustee shall perform all acts necessary to transfer the Trust Fund to its successor. However, the Trustee may reserve such portion of the Trust Fund as it may reasonably determine to be necessary for payment of its fees and any taxes and expenses, and any balance of such reserve remaining after payment of such fees, taxes and expenses shall be paid over to its successor. The Trustee shall have no responsibility for acts or omissions occurring after its resignation becomes effective. 17.13 Action of Insurance Trustee Following Resignation or Removal. when the Insurance Trustee s resignation or removal becomes effective, the Insurance Trustee shall perform all acts necessary to transfer ownership of the Policies to its successor. If no successor has accepted appointment, the Policies shall be held and owned by the Employer acting as Insurance Trustee until a successor is appointed. 17.14 Effect of Resignation or Removal. Resignation or removal of the Trustee or the Insurance Trustee shall to terminate the Trust. In the event of any vacancy in the position of Trustee (or, in a Plan having amounts invested in Policies, the position of Insurance Trustee), whether the vacancy occurs because of the resignation or removal of the Trustee (or the Insurance Trustee) the Employer shall appoint a successor to fill the vacant position. If the Employer does not appoint such a successor who accepts appointment by the later of 60 days after notice of resignation or removal is given or by such later date as the Trustee or the Insurance Trustee, as the case may be, and Employer may agree in writing to postpone the effective date of the Trustee or the Insurance Trustee s resignation or removal, the Trustee or Insurance Trustee may apply t a court of competent jurisdiction for such appointment of cause the Trust to be terminated, effective as of the date specified by the Trustee or Insurance Trustee, as the case may be, in writing delivered to the Employer. Each successor trustee so appointed and accepting a trusteeship hereunder shall have all of the rights and powers and all of the duties and obligations of the original Trustee or Insurance Trustee, as the case may be, under the provisions hereof, but shall have no responsibility for acts or omissions before he becomes a Trustee or Insurance Trustee. 17.15 Fiscal Year of Trust. The fiscal year of the Trust will coincide with the Plan Year. 17.16 Limitation of Liability. Except as may otherwise be required by law and other provisions of the Plan, no fiduciary of the Plan, within the meaning of Section 3(21) of ERISA, shall be liable for any losses incurred with respect to the management of this Plan nor shall he or it be liable for any acts or omissions except those caused by his or its own negligence or bad faith in failing to carry out his or its duties under the terms contained the Plan. 17.17 Indemnification. Subject to the limitations of applicable law, the Employer agrees to indemnify and hold harmless (i) all fiduciaries, within the meaning of ERISA Sections 3(21) and 404, and (ii) Putnam, for all liability occasioned by any act, of such party or omission to act, in good faith and without gross negligence, and for all expenses incurred by any such party in determining its duty or liability under ERISA with respect to any questions arising under the Plan. ARTICLE XVIII: Amendment 18.1 General. The Employer reserves the power at any time or times to amend the provisions of the Plan and the Plan Agreement to any extent and in any manner that it may deem advisable. If, however, the Employer makes any amendment (including an amendment occasioned by a waiver of the minimum funding requirement under Section 412 (d) of the Code) other than (a) a change in an election made in the Plan Agreement, (b) amendments stated in the Plan Agreement which allow the Plan to satisfy Section 415 and to avoid duplication of minimums under Section 416 of the Code because of the required aggregation of multiple plans, or (c) model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated a individually designed, the Employer shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. In that event, Putnam shall have no further responsibility to provide to the Employer any amendments or other material incident to the prototype plan, and Putnam may resign immediately as Trustee and as Recordkeeper. Any amendment shall be made by delivery to the Trustee (and the Recordkeeper, if any) of a written instrument executed by the Employer providing for such amendment. Upon the delivery of such instrument to the Trustee, such instrument shall become effective in accordance with its terms as to all Participants and all person having or claiming any interest hereunder, provided, that the Employer shall not have the power: (1) To amend the Plan in such a manner as would cause or permit any part of the assets of the Trust to be diverted to purposes other than the exclusive benefit of Participants or their Beneficiaries, or as would cause or permit any portion of such assets to revert to or become the property of the Employer. (2) To amend the Plan retroactively in such a manner as would have the effect of decreasing a Participant s accrued benefit, except that Participant s Account balance may be reduced to the extent permitted under Section 412(c)(80 of the Code. For purposes of this paragraph (2), an amendment shall be treated as reducing a Participant s accrued benefit if it has the effect of reducing his Account balance, or of electing an optional form of benefit with respect to amount attributable to contributions made performed before the adoption of the amendment; or (3) To amend the Plan so as to decrease the portion of a Participant s Account balance that has become vested, as compared to the portion that was vested, under the terms of the Plan without regard to the amendment, as of the later of the date the amendment is adopted or the date it becomes effective. (4) To amend the Plan in such a manner as would increase the duties or liabilities of the Trustee or the Recordkeeper unless the Trustee or the Recordkeeper consents thereto in writing. 18.2 Delegation of Amendment Power. The Employer and all sponsoring organizations of the Putnam Basic Plan Document delegate to Putnam Financial Services, Inc., the power to amend the Plan (including the power to amend this Section 18.2 to name a successor to which such power of amendment shall be delegated), for he purpose of adopting amendments which are certified to Putnam Financial Services, Inc., by counsel satisfactory to it, as necessary or appropriate under applicable law, including any regulation or ruling issued by the United States Treasury Department or any other federal or state department or agency; provided that Putnam Financial Services, Inc., or such successor may amend the Plan only if it has mailed a copy of the proposed amendment to the Employer at its last known address as shown on its books by the date on which it delivers a written instrument providing for such amendment, and only if the same amendment is made on said date to all plans in this form as to which Putnam Financial Services, Inc., or such successor has a similar power of amendment. If a sponsoring organization does not adopt any amendment mad by Putnam Financial Services, Inc., such sponsoring organization shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. ARTICLE XIX: Termination of the Plan and Trust 19.1 General. The Employer has established the Plan and the Trust with the bona fide intention and expectation that contributions will be continued indefinitely, but the Employer shall have not obligation or liability whatsoever to maintain the Plan for any given length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee and Insurance Trustee, without any liability whatsoever for any such discontinuance or termination. 19.2 Events of Termination. The Plan will terminate upon the happening of any of the following events: (a) Death of the Employer, if a sole proprietor, or dissolution or termination of the Employer, unless within 60 days thereafter provision is made by the successor to the business with respect to which the Plan was established for the continuation of the Plan, and such continuation is approved by the Trustee; (b) Merger, consolidation or reorganization of the Employer into one or more corporations or organizations, unless the surviving corporations or organizations adopt the Plan by an instrument in writing delivered to the Trustee within 60 days after such a merger, consolidation and reorganization; (c) Sale of all or substantially all of the assets of the Employer, unless the purchaser adopts the Plan by an instrument in writing delivered to the Trustee within 60 days after the sale; (d) the institution of bankruptcy proceedings by or against the Employer, or a general assignment by the Employer to or for the benefit of its creditors; or (e) Delivery of notice as provided in Section 19.1. 19.3 Effect of Termination. Notwithstanding any other provisions of this Plan, other than Section 19.4, upon termination of the Plan or complete discontinuance of contributions thereunder, each Participant s Accounts will become fully vested and nonforfeitable, and upon partial termination of the Plan, the Accounts of each Participant affected by the partial termination will become fully vested and nonforfeitable. The Employer shall notify the Trustee and the Insurance Trustee in writing of such termination, partial termination or complete discontinuance of contributions. In the events of the complete termination of the Plan or discontinuance of contributions, the Trustee will, after payment of all expenses of the Trust Fund, make distribution of the Trust assets to the Participants or other persons entitled thereto, in such form as the Employer may direct pursuant to Article 10 or, in the absence of such direction, in a single payment in cash or in kind. Upon completion of such distributions under this Article, the Trust will terminate, the Trustee and the Insurance Trustee will be relieved from their obligations under the Trust, and no Participant or other person will have any further claim thereunder. 19.4 Approval of Plan. Notwithstanding any other provision of the Plan, if the Employer fails to obtain or to retain the approval by the Internal Revenue Service of the Plan as a qualified plan under Section 401(a) of the Code, then (i) the Employer shall promptly notify the Trustee, and (ii) the Employer may no longer participate in the Putnam prototype plan, but will be deemed to have an individually designed plan. If it is determined by the Internal Revenue Service that the Plan upon its initial adoption does not qualify under Section 401(a) of the Code, all assets then held under the Plan will be returned within one year of the denial of initial qualification to the Participants and the Employer to the extent attributable to their respective contributions and any income earned thereon, but only if the application for qualification is made by the time prescribed by law for filing the Employer s federal income tax return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. Upon such distribution, the Plan will be considered to be rescinded and to be of no force or effect. ARTICLE XX: Transfers from Other Qualified Plans; Mergers 20.1 General. Notwithstanding any other provision hereof, subject to he approval of the Trustee there may be transferred to the Trustee all or any of the assets held (whether by a trustee, custodian or otherwise) in respect of any other plan which satisfies the applicable requirements of Section 401(a) of the Code and which is maintained for the benefit of any Employee (provided, however, that the Employee is not a member of a class of Employees excluded from eligibility to participate in the Plan) except that insurance policies held in respect of such other plan shall be transferred tot he Insurance Trustee as trustee if the Employer so determines. Any such assets so transferred shall be accompanied by written instructions from the Employer naming the persons for whose benefit such assets have been transferred and showing separately the respective contributions made by the Employer and by the Participants and the current value of the assets attributable thereto. 20.2 Amounts Transferred. The Employer shall credit any assets transferred pursuant to Section 201. to the appropriate Accounts of the persons for whose benefit such assets have been transferred. Any amounts credited as contributions previously made by an employer or by such persons under such other plan shall e treated as contributions previously made under the Plan by the Employer or by such persons, as the case may be. 20.3 Merger or Consolidation. The Plan shall not be merged or consolidated with any other plan, nor shall any assets or liabilities of the Trust Fund be transferred to any other plan, unless each Participant would receive a benefit immediately after the transaction, if the Plan then terminated, which is equal to or greater than the benefit he would have been entitled to receive immediately before the transaction if the Plan had then terminated. ARTICLE XXI: Miscellaneous 21.1 Notice of Plan. The Plan shall be communicated to all Participants by the Employer on or before the last day on which such communication may be made under applicable law. 21.2 No Employment Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the purchase of Policies, nor the payment of any benefits shall be construed as giving to any Participant or any other person any legal or equitable right against the Employer, the Trustee, or the Insurance Trustee, or the Insurance Trustee, except as provided herein or by ERISA; and in no event shall the terms of employment or service of any Participant be modified or in any way be affected hereby. 21.3 Distributions Exclusively From Plan. Participants and Beneficiaries shall look solely to the assets held in the trust and any Policies purchased pursuant to the Plan for the payment of any benefits under the Plan. 21.4 No Alienation. The benefits provided hereunder shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, and any attempt to cause such benefits to be so subjected shall not be recognized, except as provided in Section 12.4 or in accordance with a Qualified domestic relations order within the meaning of Section 414(p) of the Code. The Plan Administrator shall determine whether a domestic relations order is qualified in accordance with written procedures adopted by the Plan Administrator. 21.5 Provision of Information. The Employer, Trustee and Insurance Trustee shall furnish to each other such information relating to the Plan and Trust as may be required under the Code or ERISA and any regulations issued or forms adopted by the Treasury Department or the Labor Department or otherwise thereunder. 21.6 no Prohibited Transactions. The Employer, Trustee, and Insurance Trustee shall, to the extent of their respective powers and authority under the Plan, prevent the Plan from engaging in any transaction known by that person to constitute a transaction prohibited by Section 4975 of the Code and any rules or regulations with respect thereto. 21.7 Governing Law. The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States, and to the extent permitted by such laws, by the laws of the Commonwealth of Massachusetts. 21.8 Gender. Whenever used herein, a pronoun in the masculine gender includes the feminine gender unless the context clearly indicates otherwise. II. IRS Opinion Letters II. IRS Opinion Letters Putnam Standard Profit Sharing and 401(k) Plan Opinion Letter 38 Putnam Standard Money Purchase Pension Plan Opinion Letter 39 Putnam Variable Profit Sharing and 401(k) Plan Opinion Letter 40 Putnam Variable Money Purchase Pension Plan Opinion Letter 41 Putnam Retirement Plans: Plan Agreements for the Simplified Retirement Plans Putnam Profit Sharing Plan (Keogh) Putnam Money Purchase Pension Plan (Keogh) Putnam Profit Sharing and 401(k) Plan Boston*London*Tokyo Contents Part I: Summary of Plan Services Summary of Plan Services 2 Part II: Adopting a Simplified Putnam Retirement Plan Step-by-Step Guide to Establishing a Putnam Profit Sharing Plan (Keogh) 4 Step-by-Step Guide to Establishing a Putnam Money Purchase Pension Plan (Keogh) 5 Step-by-Step Guide to Establishing a Putnam Profit Sharing and 401(k) Plan 6 Suggested Form of Board Resolution for a New Plan 7 Putnam Plan Agreement #001 9 Putnam Plan Agreement #002 19 Instructions for Completing and Distributing Notice to Interested Parties 27 Notice to Interested Parties 29 Plan Investment Form 33 Part III: Questions and Answers about the Simplified Putnam Retirement Plans General Comments 39 Key Definitions 40 Contributions 41 Plan Investments 45 Plan Distributions 45 Top-Heavy Testing 46 Plan Administration 47 Glossary of Terms 49 Part I: Summary of Plan Services Summary of Plan Services 2 Summary of Plan Services Putnam will provide the following administrative services listed below for each of the Simplified Putnam Retirement Plans. A. Plan Installation/Maintenance: 1 Putnam will provide the initial SUMMARY PLAN DESCRIPTION to the Employer for the Employer s completion, review, approval and submission to the Department of Labor and distribution to the Plan Participants and Beneficiaries. 2 Putnam will provide the NOTICE TO INTERESTED PARTIES (page 29 of this booklet) for the Employer s completion, review, approval and distribution to the Plan Participants. 3 Putnam will provide the Employer any PLAN AMENDMENTS necessary to comply with changes required by law. B. Employer and Employee Reports 1 Putnam will process Employer authorization for hardship withdrawals, if applicable, benefit payments, and investment change elections pursuant to Employer instructions in accordance with the Plan. 2 Putnam will allocate contributions to Participant accounts pursuant to Employer instructions in accordance with the Plan. 3 Putnam will provide Consolidated Quarterly Statements and confirmations of each fund transaction to Participants. 4 Putnam will provide the Employer with assistance with the preparation of a Summary Annual Report for distribution to Plan Participants. 5 Putnam will provide the Employer with a 401(k) Plan Group Investment Report, if applicable. 6 Putnam will provide the Employer with sample administrative forms. 7 Putnam will provide the Employer with a Form 5500 kit with instructions to assist the Employer with preparation of the applicable Form 5500 for filing with the IRS. 8 Putnam will provide the Employer with an information kit to assist the Employer in performing an annual TEFRA Top-Heavy Test, if applicable.* 9 Putnam will provide the Employer with an informational kit to assist the Employer in performing a Plan Year-end 401(k) Actual Deferral Percentage Test, if applicable.* 10 Putnam will process Plan distributions, including preparation and mailing of IRS Forms 1099-R. Plan distributions include all payments to Participants and Beneficiaries, and payments to the Employer or its designee. *Putnam will not be responsible for providing information necessary for aggregating tests with other plans maintained by the Employer or plans maintained by other companies under the same controlled group of companies or affiliated service group. Part II: Adopting a Simplified Putnam Retirement Plan Step-by-Step Guide to Establishing a Putnam Profit Sharing Plan (Keogh) 4 Step-by-Step Guide to Establishing a Putnam Money Purchase Pension Plan (Keogh) 5 Step-by-Step Guide to Establishing a Putnam Profit Sharing and 401(k) Plan 6 Suggested Form of Board Resolution for a New Plan 7 Putnam Plan Agreement #001 9 Putnam Plan Agreement #002 19 Notice to Interested Parties 29 Plan Investment Form 33 Step-by-Step Guide to Establishing a Putnam Profit Sharing Plan (Keogh) 1 Contact Putnam or your investment dealer to order Employee Enrollment Kits and the appropriate fund prospectuses for each of your employees. If you already have a retirement plan and will be transferring assets to Putnam, please request the Plan Transfer Booklet. 2 Before adopting the Putnam Plan, corporate employers must pass a Board Resolution. A suggested Form of Board Resolution for New Plan is on page 7. (If you are transferring from your current plan, please see the Suggested Form of Board Resolution provided in the Plan Transfer Booklet.) 3 Complete Plan Agreement #001 on pages 9-18. (You do not need to complete Item 12 of Plan Agreement #001 when adopting a Putnam Profit Sharing Plan.) If you wish to adopt a Paired Putnam Profit Sharing and Money Purchase Pension Plan, you must also complete Plan Agreement #002. 4 Complete and post the Notice to Interested Parties on page 29. 5 Enroll your employees. Each eligible employee must receive an employee enrollment kit and Buyer s Guides (prospectuses) for the Putnam funds that are being offered through your plan. All eligible employees should return a signed enrollment form to you. 6 Complete the Plan Investment Form on pages 33-37 using the employee enrollment forms. 7 Send the following items to Putnam Investor Services, ATTN: Investment Processing, P.O. Box 2701, Boston, MA 02208: * Board Resolution * Plan Agreement #001 * Employee Enrollment Forms * Plan Investment Form * Check payable to Putnam Fiduciary Trust Company for initial contribution and annual participant fee Be sure to keep copies of these forms for your files. 8 Putnam will review your Plan Agreement for acceptance. (Putnam must accept this Agreement in order for you to receive future amendments to the plan.) Putnam will provide you with a Summary Plan Description and Your Putnam Retirement Plan Kit. This kit contains the administrative forms associated with the operation of a Putnam plan. Step-by-Step Guide to Establishing a Putnam Money Purchase Pension Plan (Keogh) 1 Contact Putnam or your investment dealer to order Employee Enrollment Kits and the appropriate fund prospectuses for each of your employees. If you already have a retirement plan and will be transferring assets to Putnam, please request the Plan Transfer Booklet. 2 Before adopting the Putnam Plan, corporate employers must pass a Board Resolution. A suggested Form of Board Resolution for New Plan is on page 7. (If you are transferring from your current plan, please see the Suggested Form of Board Resolution provided in the Plan Transfer Booklet.) 3 Complete Plan Agreement #002 on pages 19-26. (If you wish to adopt a Paired Putnam Profit Sharing and Money Purchase Pension Plan, you must also complete Plan Agreement #001. 4 Complete and post the Notice to Interested Parties on page 29. 5 Enroll your employees. Each eligible employee must receive an employee enrollment kit and Buyers Guides (prospectuses) for the Putnam funds that are being offered through your plan. All eligible employees should return a signed enrollment form to you. 6 Complete the Plan Investment Form on pages 33-37 using the employee enrollment forms. 7 Send the following items to Putnam Investor Services, ATTN: Investment Processing, P.O. Box 2701, Boston, MA 02208: * Board Resolution * Plan Agreement #002 * Employee Enrollment Forms * Plan Investment Form * Check payable to Putnam Fiduciary Trust Company for initial contribution and annual participant fee Be sure to keep copies of these forms for your files. 8 Putnam will review your Plan Agreement for acceptance. (Putnam must accept this Agreement in order for you to receive future amendments to the plan.) Putnam will provide you with a Summary Plan Description and Your Putnam Retirement Plan Kit. This kit contains the administrative forms associated with the operation of a Putnam plan. Step-by-Step Guide to Establishing a Putnam Profit Sharing and 401(k) Plan 1 Contact Putnam or your investment dealer to order Employee Enrollment Kits and the appropriate fund prospectuses for each of your employees. If you already have a retirement plan and will be transferring assets to Putnam, please request the Plan Transfer Booklet. 2 Before adopting the Putnam Plan, corporate employers must pass a Board Resolution. A Suggested Form of Board Resolution for New Plan is on page 7. (If you are transferring from your current plan, please see the Suggested Form of Board Resolution provided in the Plan Transfer Booklet.) 3 Complete Plan Agreement #001 on pages 9-18. 4 Complete and post the Notice to Interested Parties on page 29. 5 Enroll your employees. Each eligible employee must receive an employee enrollment kit and Buyers Guides (prospectuses) for the Putnam funds that are being offered through your plan. All eligible employees should return a signed enrollment form to you. 6 Based on the information provided in your employee s Salary Reduction Agreements, perform the preliminary 401(k) Actual Deferral Percentage Test which is described on page 43 of this booklet. Once you are sure that your plan meets the Actual Deferral Percentage Test, begin payroll deduction procedures. 7 Complete the Plan Investment Form on pages 33-37 using the employee enrollment forms. 8 Send the following items to Putnam Investor Services, ATTN: Investment Processing, P.O. Box 2701, Boston, MA 02208: * Board Resolution * Plan Agreement #001 * Employee Enrollment Forms * Plan Investment Form * Check payable to Putnam Fiduciary Trust Company for initial contribution and annual participant fee Be sure to keep copies of these forms for your files. 9 Putnam will review your Plan Agreement for acceptance. (Putnam must accept this Agreement in order for you to receive future amendments to the plan.) Putnam will provide you with a Summary Plan Description and Your Putnam Retirement Plan Kit. This kit contains the administrative forms associated with the operation of a Putnam plan. For Corporate Employers Only Suggested Form of Board Resolution for New Plan THE UNDERSIGNED certifies that he/she is Secretary of , a corporation organized and existing under the laws of the State of , and that the following resolutions were adopted at a meeting of the Board of Directors of the Corporations called and held on the day of _______ , 19_______, and that the same have not been amended or rescinded and are in full force and effect: RESOLVED, that this Board authorizes and directs the proper officers of this Corporation in the name an on behalf of this Corporation to execute and deliver a Plan Agreement in the form now before this meeting, adopting, effective as of ______, 19____ , the Putnam _________________ Plan (insert type of plan); FURTHER RESOLVED, that this Board authorizes and directs the proper officers of this Corporation to do all such acts and things as they, in their discretion and with advice of counsel, find necessary or desirable to carry out the Plan, including making contributions out of funds of the Corporation in accordance with the Plan Agreement; FURTHER RESOLVED, that ______________ is appointed as Trustee to serve in accordance with the terms and conditions of the Plan, commencing on the effective date as designated in the foregoing resolution: FURTHER RESOLVED, that this Board authorizes and empowers any one of the following officers of this Corporation (insert designated officers): ___________________________________________ to represent this Corporation in all transactions with the Trustee under the terms and conditions of the Plan, and in the name of and on behalf of this Corporation to give all notices and instructions to the Trustee which are necessary or desirable to carry out the Plan, and to receive all communications for the Trustee pursuant thereto; FURTHER RESOLVED, that the President of this Corporation is authorized and directed to submit an application to the Internal Revenue Service for a determination that the Plan qualifies under the provisions of Section 401 of the Internal Revenue Code of 1986, as amended. (Note: IRS filing will not be necessary for most adopters of the Putnam Standard Plans.) THE UNDERSIGNED further certifies that the following are the names and authentic signatures of the officers of the Corporation referred to in the foregoing resolution. (Insert designated officers.) Title Name Signature ____________________ ________________________ IN WITNESS WHEREOF, the undersigned has hereunto set his hand and the corporate seal of the Corporation this ____________ day of___________, 19__________. Secretary _______________________________________ (Corporate Seal) Plan Agreement #001 Putnam Standard Profit Sharing and 401(k) Plan This is the Plan Agreement for a Putnam prototype profit sharing plan with optional Section 401(k) provisions. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at: Putnam Retirement Plan Services P.O. Box 2701 Boston, Ma 02208 Phone: 1-800-662-0019 By executing this Plan Agreement, the Employer establishes a profit sharing plan and trust upon the terms and conditions of Putnam Basic Plan document #01, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. This Plan Agreement must be accepted by Putnam in order for the Employer to receive future amendments to the Putnam Standard Profit Sharing and 401(k) Plan. All Employers complete items 1-11 below. Employers who wish to adopt Section 401(k) provisions also complete item 12. 1. Business Information A. Business Name B. Business Address Street City/State Zip Code Phone SIC Code Person for Putnam to Contact C. Federal Tax Identification Number D. Form of Organization (check one): _____Sole Proprietorship _____Corporation _____Partnership _____SCorporation E. Taxable Year of Business: _____Calendar Year _____Fiscal year ending on_____ 1 Provide the Information requested about the Employer. 2. Plan Information A. Plan Year The Plan Year of your Plan will be the same as the Taxable Year of your Business shown in 1.E. above. If you change the Taxable Year of your Business, the Plan Year will change accordingly. The Plan Year will also be your Plan s Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan. B. Effective Date of Adoption of Plan. Are you adopting this Plan to replace an existing plan? _____Yes _____No If you answered Yes in 2.B. above, the Effective Date of your adoption of this Plan will be the first day of the current Plan Year. Please complete the following: Name of the plan you are replacing Original Effective Date of the plan you are replacing If you answered No in 2.B. above, the Effective Date of your adoption of this Plan will be the later of the first day of the current Plan Year, or the first day your Business began. The Effective Date is (month/day/year) 2B Complete this section only if the adoption of this plan is an amendment to an existing plan. When signed, this document becomes the official plan agreement, superseding any previously signed plan agreements. NOTE: If you are adopting this Plan to replace an existing plan, certain retroactive dates shall apply to comply with the Tax Reform Act of 1986, provided that you adopt this Plan before the end of the 1994 Plan year. 3. Eligibility for Plan Participation (Plan Section 3.1) NOTE: Refer to the Affiliated Employer Determination section in the Putnam Retirement Planning, Easy-to-Follow Instructions Booklet. Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below. A. Classes of Eligible Employees The Plan requires coverage of all classes of employees of the Employer and any Affiliated Employer, except for union employees and nonresident aliens without U.S.source income. The general rules of the Plan exclude employees in those two groups, but if you want employees in one or both categories to be eligible for your Plan, check the appropriate space below. The following employees will be eligible to participate in the Plan: _____Members of the following collective bargaining unit(s) (give names of unions) _____Nonresident aliens with no U.S. source income B. Age Requirement (check one) _____No minimum age required for participation _____Employees must reach age_______(not over 21)to participate 3B Complete 3B to establish the age required (if any) before an employee can become a Plan Participant. C. Service Requirements 1. To become eligible, an employee must complete (check one) _____No minimum service requirement. Skip the rest of this part C if you select this rule. _____One Eligibility Period _____Two Eligibility Periods (may not be chosen if you adopt Section 401(k) provisions under item 12) An Eligibility Period is the 12 month period beginning on an employee s first day of work, and anniversaries of that day. 2. To receive credit for an Eligibility Period, an employee must complete during that period at least (check one) _____1,000 Hours of Service _____Hours of Service (may not exceed 1,000) 3C Complete 3C1 and 3C2 to establish the service required (if any) before an employee can become a Plan Participant. NOTE: A plan may not condition eligibility to participate in the plan on more than two years of service, and may require two years of eligibility service only if the plan provides for full and immediate vesting after two years of service. 3. Hours of Service will be credited to employees by the following method (check one) _____Actual hours for which an employee is paid _____Any employee who has one actual paid hour in the following period will be credited with the number of Hours of Service indicated (check one): _____Day(10 Hours of Service) _____Week(45 Hours of Service) _____Semi-monthly payroll period (95 Hours of Service) _____Month (190 Hours of Service) Complete 3C3 to indicate how Hours of Service will be measured. NOTE: An employee begins participation as of the first day of the month in which he first fulfills the eligibility requirements you have selected. If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. 4. Compensation (Plan Section 2.8) Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one) _____Form W-2 earnings as descried in Section 2.8 of the Plan _____Form W-2 earnings as described in Section 2.8 of the Plan plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax-sheltered 403(b) arrangement, Section 457 deferred compensation plan or contributions described in Section 414(h)(2) that are picked up by a governmental employer. _____All compensation included in the definition of Section 415 Compensation in Section 6.5(b) of the Plan _____All compensation included in the definition in Section 6.5(b) of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax-sheltered 403(b) arrangement, Section 457 deferred compensation plan or contributions described in Section 414(h)(2) that are picked up by a governmental employer. 4 Complete this section to define plan compensation for employees other than owner-employees or self-employed individuals. For owner-employees and self-employed individuals, compensation is earned income as defined in Section 2.12 of the Basic Plan Document. 5. Contributions (Plan Sections 4.1 and 4.2) A. Profit Limitation Will your contributions to the Plan be limited to the current and accumulated profits of your Business? (check one) _____Yes _____NO 5 NOTE: Refer to the Contribution Limits Worksheet contained in a separate booklet for a detailed explanation of contribution limits. You may limit Plan contributions to the profits of your business, but you are not required to do so. Employer Contributions under this plan include profit sharing contributions, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions. If you will make contributions only under the Section 401(k) provisions in item 12 of this Plan Agreement, skip the rest of this part 5. B. Amount The Employer will contribute to the Plan for each Plan Year (check one) _____An amount chosen by the Employer from year to year _____% (not more than 15%) of the Earnings of all Qualified Participants for the Plan Year Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant unless his employment terminates before the last day of the Plan Year for reasons other than his death or Retirement, and he is not credited with more than 500 Hours of Service in the Plan Year. C. Allocation to Qualified Participants Contributions under paragraph B will be shared by Qualified Participants in proportion to their Earnings, unless you check the following space to indicate that your Plan will be integrated with Social Security, as explained on page 41. You must choose the Top-Heavy Integration Formula unless you elect to perform annual top-heavy testing for your Plan. _____Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(c)(1) of the Basic Plan Document in every Plan Year, whether or not the Plan is top-heavy. _____Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(c)(1) of the Basic Plan Document only in Plan Years in which the Plan is top-heavy. In all other Plan Years, contributions will be shared according to the Non-Top-Heavy Integration Formula in Section 4.2(c)(2) of the Basic Plan Document. Complete 5B and 5C only if you wish to increase the amount of contributions allocated to Participants who earn more than the stated amount, by integrating your plan with Social Security. See page 41 for more information. NOTE: If you maintain any other qualified plan in addition to this Plan, only one plan may be integrated with Social Security. If you integrate this Plan with Social Security, see also the top-heavy provisions in item 10. D. Integration Level The Integration Level will be (check one) _____The Social Security Wage Base in effect at the beginning of the Plan Year. _____% (not more than 100%) of the Social Security Wage Base in effect at the beginning of the Plan Year. _____$_____(not more than the Social Security Wage Base). 5D Complete 5D only if you have elected in 5C to integrate your plan with Social Security. See page 41 for more information. 6. Investments (Plan Sections 13.2 and 13.3) The Employer selects in part A below the Investment Products that will be available under the Plan (in addition to life insurance policies selected under Plan Article 14, if any). All Investment Products must be sponsored, underwritten or managed by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts, unless the Employer elects differently in part B below. Investment instructions may be changed on any business day. A. Available Investment Products (Plan Section 13.2) The following investments will be available under the Plan (check one) _____Any Putnam funds _____Other Investment Products In the event that there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in Putnam Daily Dividend Trust until instructions are received in good order, and the Employer will be deemed to have selected Putnam Daily Dividend Trust as an available Investment Product for that purpose. 6A If you wish to offer Putnam Capital Manager a variable annuity issued by Hartford with underlying funds managed by Putnam through your plan, please call Putnam for more information, 1-800-662-0019. B. Instructions (Plan Section 13.3) Investment instructions for amounts held under the Plan generally will be given by each Participant for his own Accounts and delivered to Putnam by the Employer. Check below only if the Employer will make investment decisions under the Plan. _____The Employer will make investment decisions. 6B Place a check mark in the blank if the Employer will direct the investment of Employer Contributions. If you do not check the blank, the Plan provides that each Participant will direct the investment of Employer Contributions allocated to the Employee s account. 7. Distributions and Withdrawals. A. Retirement Distributions. 1. Retirement Age (Plan Section 7.1) Normal retirement age will be _____ (not over the lesser of 65 or any mandatory retirement age enforced by the Employer). 2. Annuities (Plan Section 9.3) Will your Plan permit a Participant to select a life annuity form of distribution? You must check Yes if this Plan replaces an existing Plan that permits distributions in life annuity form. (check one) _____Yes _____No 7A Enter the age (no later than 65) when an Employee may retire from the service of the Employer. B. Hardship Distributions (Plan Section 12.2) Will your Plan permit hardship distributions from Employer Contribution Accounts? You must check Yes if this Plan replaces an existing Plan that permits hardship distributions. (check one) _____Yes _____No C. Withdrawals after Age 59 1/2 (Plan Section 12.3) Will your Plan permit employees over age 59 1/2 to withdraw amounts upon request? You must check Yes if this Plan replaces an existing Plan that permits withdrawals after age 59 1/2. (check one) _____Yes _____No 8. Other Plans You must complete this section if you maintain or ever maintained another qualified plan (other than a Putnam Money Purchase Pension Plan under Plan Agreement #002) in which any Participant in this Plan is (or was) a participant or could become a participant, or if you maintain a welfare benefit fund (as defined in section 419(e) of the Code) or an individual medical account (as defined in section 415(1)(2) of the Code) under which amount are treated as annual additions with respect to any Participant in this Plan. 8 Skip this item 8 if the Plan is the only qualified plan your Business has ever had. The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below: A. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one) _____The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan. _____The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below. _____ _____ B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below: _____ _____ If your Business has ever maintained a defined benefit plan, state below the interest rate and mortality table to be used in establishing the present value of any benefit under the defined benefit plan, for purposes of computing the top-heavy ratio: Interest rate:_____% Mortality table 8A and 8B Complete 8A only if the Employer maintains or ever maintained any other defined contribution plan (other than a master or prototype plan) or any other defined benefit plan. Complete 8B only if the Employer maintains or ever maintained a defined benefit plan. If any of these factual situations exist, the Employer should consult with an attorney or actuary. Failure to complete this section when applicable may adversely affect the tax-qualified status of the Plan. NOTE: Your description under A or B above must not leave the selection of a method to your discretion from year to year. 9. Vesting All Accounts are fully vested at all times. 10. Top-Heavy Provisions (Plan Section 15.3) Federal tax laws require certain plans, called top-heavy plans, to provide a minimum contribution for every non-key employee covered by the plan. Whether a plan is top-heavy is determined by an annual test, explained on page 46. If the plan s regular contribution provisions already meet or exceed the top-heavy minimum contribution, no additional action is required when the plan is top-heavy, so there is no need to perform annual testing. If the plan s regular contribution provisions do not already meet or exceed the top-heavy minimum contribution, annual testing must be performed, and, if the plan proves to be top-heavy, an additional contribution must be made. Your Plan s regular contribution provisions will meet or exceed the top-heavy minimum, and you will not need to perform annual testing, if any of the following applies: (a) You will make contributions only under item 5 of this Plan Agreement (no Section 401(k)), and your Plan is not integrated with Social Security; or (b) Your Plan is integrated with Social Security and you have specified the Top-Heavy Integration Formula in item 5.C; or (c) You will make contributions under item 12 (Section 401(k)), and you have specified in item 12.C. a Qualified Nonelective Contribution of at least 3% on behalf of all Participants; or (d) You will make contributions under item 5 and item 12 (Section 401(k)), and you have specified in item 5.B a contribution of at least 3% of Earnings that will not be integrated with Social Security; or (e) You maintain paired Putnam plans, or you maintain any other qualified plan that automatically provides a minimum top-heavy contribution or benefit for every non-key employee covered by this Plan. NOTE: If you maintain a defined benefit plan in additions to this Plan, you cannot rely on categories (a) through (d). If you fit into any of the above categories, STOP HERE. You do not need to perform annual top-heavy testing. If you do not fit into any of the above categories, then unless you check this item 10 to indicate that you will perform annual top-heavy testing for your Plan, the requirement of a minimum contribution for each non-key employee, contained in Plan Section 15.3, will apply to your Plan at all times. If you check this item 10, Section 15.3 will apply only in Plan Years when you Plan fails the top-heavy test. _____The Employer will perform annual top-heavy testing for the Plan. 11. Plan Administrator (Plan Section 16.1) You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator. The initial Plan Administrator will be (check one) _____This person: _____A committee composed of these people: __________ __________ __________ 12. Section 401(k) Plan Provisions (Plan Article 5) 12 Complete item 12 below if your Plan will allow employees to elect pre-tax contributions under Section 401(k) of the Code. If you will make contributions to the Plan only under item 12, see also the top-heavy provisions in item 10. A. Elective Deferrals (Plan Section 5.2) 1. A Participant may make Elective Deferrals in an amount not to exceed (check one) _____% of his Earnings (not more than 15%) _____$_____(specify a dollar amount in each payroll period) 12A1 Complete section 12 only if you are adopting a Putnam Profit Sharing and 401(k) Plan. If you are adopting a Putnam Profit Sharing Plan (Keogh), go to section 13. By the option selected in 12A1, the Employee s Elective Deferral will be limited to a stated percentage of annual pay, or a stated amount for each pay period. You must state a percentage or an amount, as applicable. NOTE: Elective Deferrals may not exceed the annual dollar limit under Section 402(g) of the Internal Revenue Code. 2. A Participant may begin to make Elective Deferrals, or change the amount of his Elective Deferrals, as of the following dates (check one): _____First business day of each month (monthly). _____First business day of the first, fourth, seventh and tenth months of the Plan Year (quarterly). _____First business day of the first and sixth months of the Plan Year (semiannually). _____First business day of the Plan Year only (annually). 12A2 Complete this section by designating the periods during which employee elections to make Elective Deferral contributions will be permitted, the date such an election will become effective, the periods during which modifications can be made to employees Elective Deferral elections and the date such a modification will take effect. 3. May Participants make Elective Deferrals of bonuses? _____Yes _____No 12A3 If this option is checked, Employees will be entitled to contribute as Elective Deferrals to the Plan a percentage of (or an amount from) bonuses that would otherwise be paid in cash. B. Qualified Matching Contributions (Plan Section 2.60) 12B Skip this part B if you will not make Qualified Matching Contributions. 1. Qualified Matching contributions will be made with respect to (check one) _____Elective Deferrals by all Participants _____Elective Deferrals only by Non-Highly Compensated Participants 12B1 If this section is checked, the Employer will make Qualified Matching contributions (i.e., contributions that match employee Elective Deferrals and that can be used to assist in satisfying the special 401(k) non-discrimination test). These contributions must be fully vested at all times and must be subject to the distribution restrictions described in Section 5.13 of the Basic Plan Document. You must designate the class of employees on whose behalf Qualified Matching Contributions will be made. 2. The amount of Qualified Matching Contributions made with respect to a Participant will be: (Check the provision desired and fill in the % blank(s) in the provision you check. If you wish to determine the amount of Qualified Matching Contributions from year to year instead of specifying a fixed percentage, write V for variable in the % blank at the beginning of each provision you check.) _____% of his Elective Deferrals _____% of his Elective Deferrals that do not exceed _____% of his Compensation. 12B2 By completing this section, the Employer determines the degree to which Qualified Matching Contributions will match the Employees Elective Deferrals. Check one blank and provide the appropriate information for the sentence following the one that you check. C. Qualified Nonelective Contributions (Plan Section 2.62) 12C Skip this part C if you will not make Qualified Nonelective Contributions. If this section is checked, the Employer will be entitled to make Qualified Nonelective Contributions to the Plan, as described in Section 2.62 of the Basic Plan Document. These contributions can assist the Employer in meeting the special 401(k) non-discrimination test. If you complete 1, you must also check 2 (and provide percentage limits where appropriate), to determine the amount of Qualified Nonelective Contributions to be made. See page 42 for more information. Note: If you wish to avoid annual testing to determine whether your Plan is top-heavy, you may need to select a Qualified Nonelective Contribution of at least 3% for all Participants, because Elective Deferrals and Qualified Matching Contributions for non-key employees do not count toward the top-heavy minimum contribution requirement. See item 10 for more information. 1. Qualified Nonelective Contributions will be made on behalf of (check one): _____All Participants _____Only Participants who are not Highly Compensated Employees 2. The amount of Qualified Nonelective Contributions for a Plan Year will be (check one): _____% (not over 15%) of the Earnings of Participants on whose behalf Qualified Nonelective Contributions are made _____An amount determined by the Employer, to be shared in proportion to Compensation by Participants on whose behalf Qualified Nonelective Contributions are made D. Hardship Distributions from 401(k) Accounts (Plan Sections 12.2 and 5.14) Will your Plan permit hardship distributions from Elective Deferral Accounts? (check one) _____Yes _____No 13. Reliance on Opinion Letter You may rely on the opinion letter issued by the National Office of the Internal Revenue Service for this Plan, and avoid filing an application for an IRS determination letter, only if you never maintain or maintained at any time any other plan, except a Putnam Standard Money Purchase Pension Plan under Plan Agreement #002. If you even maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate account for key employees, as defined in section 419A(d)(3) of the Code; or an individual medical account, as defined in section 415(1)(2) of the Code) in addition to this plan (other than a Putnam Standard Money Purchase Pension Plan under Plan Agreement #002), you may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that your Plan is qualified under Section 401 of the Internal Revenue Code. If you adopt or maintain multiple plans and you wish to obtain reliance that your plan(s) are qualified, you should apply to the appropriate Key District Director of Internal Revenue for a determination letter. Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #001 may be used only in conjunction with Putnam s basic plan document #01. 13 Employers should review this section carefully. The adoption of the Putnam Standard Profit Sharing Plan should be reviewed with your legal counsel and tax advisor. Employers Adoption of Putnam Standard Profit Sharing Plan The Employer named below hereby adopts a PUTNAM STANDARD PROFIT SHARING PLAN, and appoints ___________ to serve as Trustee of the Plan. The Employer agrees to pay the fees as determined by completing the Plan Investment Form, in accordance with the terms of the Plan. The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then-current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be a Putnam Standard Profit Sharing Plan upon Putnam s acceptance of this Plan Agreement. Employer signature(s) to adopt Plan: _____ Date of signature: Provide a signature form an authorized representative of the Employer Please print name(s) of authorized person(s) signing above: _________ Phone: Phone: A new Plan must be signed by the last day of the Employer s Taxable Year in which the Plan is to be effective. Dealer Information (to be completed by investment dealer) Name of Investment Dealer Name and No. of Investment Dealer/Representative Name and No of Branch Office Signature of Investment Dealer/Representative Authorized Dealer Signature Representative Phone Number Acceptance of Trustee The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above. A. Putnam Fiduciary Trust Company, Trustee By _______________________________ B. Other Trustee By _________________________ Trustees Tax I.D. Number __ (Trustee) Address of Trustee ______________________________________ Person for Putnam to Contact ____ Phone ____________________ Complete Part B only if you have appointed a Trustee other than Putnam Fiduciary Trust Company. NOTE: Putnam may impose an annual maintenance fee as a condition of its acceptance of this plan as a Putnam Standard Profit Sharing Plan. C. Appointment and Acceptance of Insurance Trustee 1. Appointment to: Name of Insurance Trustee ________________________________ You are hereby designated as Insurance Trustee for Policies to be held in accordance with the terms and conditions of this Plan and Trust. Employer signature to appoint Insurance Trustee: By ___________________________________________________ (Authorized Signature) 2. Acceptance as Insurance Trustee is agreed to in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer as set forth above. By _________________________ Trustee s Tax I.D. Number _____ Address of Insurance Trustee ______________________________ Person for Putnam to Contact ____ Phone ____________________ Complete Part C only if insurance Policies will be purchased under Article 14 of the Plan (in addition to Putnam investment Products). Acceptance by Putnam Putnam hereby accepts this Employer s Plan as a prototype established under the Putnam Defined Contribution Retirement Plan and Trust Agreement. Putnam Mutual Funds Corp. By ___________________________________________________ Plan Agreement #002 Putnam Standard Money Purchase Pension Plan This is the Plan Agreement for a Putnam prototype money purchase pension plan. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at: Putnam Retirement Plan Services P.O. Box 2701 Boston, MA 02208 Phone: 1-800-662-0019 By executing this Plan Agreement, the Employer establishes a money purchase pension plan and trust upon the terms and conditions of Putnam Basic Plan Document #01, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. This Plan Agreement must be accepted by Putnam in order for the Employer to receive future amendments to the Putnam Standard Money Purchase Pension Plan. 1. Business Information A. Business Name B. Business Address Street City/State Zip Code Phone SIC Code Person for Putnam to Contact C. Federal Tax Identification Number D. Form of Organization (check one): _____Sole proprietorship _____Corporation _____Partnership _____S Corporation E. Taxable Year of Business: _____Calendar Year _____Fiscal year ending on:_____ 1 Provide the information requested about the Employer. 2. Plan Information Plan Year The Plan Year of your Plan will be the same as the Taxable Year of your Business shown in 1.E. above. If you change the Taxable Year of your Business, the Plan Year will change accordingly. The Plan Year will also be your Plan s Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan. A. Effective Date of Adoption of Plan. Are you adopting this Plan to replace an existing plan? _____Yes _____No If you answered Yes in 2.A. above, the Effective Date of your adoption of this Plan will be the first day of the current Plan Year. Please complete the following: Name of the plan you are replacing: Original Effective Date of the plan you are replacing: If you answered No in 2.A. above, the Effective Date of your adoption of this Plan will be the later of the first day of the current Plan Year, or the first day your Business began. The Effective Date is (month/day/year) 2A Complete this section only if the adoption of this plan is an amendment to an existing Plan. When signed, this document becomes the official plan agreement, superseding any previously signed plan agreements. NOTE: If you are adopting this Plan to replace an existing Plan, certain retroactive dates shall apply to comply with the Tax Reform Act of 1986, provided that you adopt this Plan before the end of the 1994 Plan year. 3. Eligibility for Plan Participation (Plan Section 3.1) Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below. A. Classes of Eligible Employees The Plan requires coverage of all classes of employees of the Employer and any Affiliated Employer, except for union employees and nonresident aliens without U.S. source income. The general rules of the Plan exclude employees in those two groups, but if you want employees in one or both categories to be eligible for your Plan, check the appropriate space below. The following employees will be eligible to participate in the Plan: _____Members of the following collective bargaining unit(s) (give names of unions) _____Nonresident aliens with no U.S. source income NOTE: Refer to the Affiliated Employer Determination section in the Putnam Retirement Planning, Easy-to-Follow Instructions booklet. B. Age Requirement (check one) _____No minimum age required for participation _____Employees must reach age_______(not over 21) to participate 3B Complete 3B to establish the age required (if any) before an employee can become a Plan Participant. C. Service Requirements 1. To become eligible, an employee must complete (check one) _____No minimum service requirement. Skip the rest of this part C if you select this rule. _____One Eligibility Period _____Two Eligibility Periods An Eligibility Period is the 12 months beginning on an employees first day of work, and anniversaries of that day. 2. To receive credit for an Eligibility Period, an employee must complete during that period at least (check one) _____1,000 Hours of Service _____Hours of Service (may not exceed 1,000) 3C1 and 3C2 Complete 3C1 and 3C2 to establish the service required (if any) before an Employee can become a Plan Participant. NOTE: A plan may not condition eligibility to participate in the plan on more than two years of service and may require two years of eligibility service only if the plan provides for full and immediate vesting after two years of service. 3. Hours of Service will be credited to employees by the following method (check one) _____Actual hours for which an employee is paid _____Any employee who has one actual paid hour in the following period will be credited with the number of Hours of Service indicated (check one): _____Day(10 Hours of Service) _____Week(45 Hours of Service) _____Semi-monthly payroll period (95 Hours of Service) _____Month (190 Hours of Service) 3C3 Complete 3C3 to indicate how Hours of Service will be measured. NOTE: An employee begins participation as of the first day of the month in which he first fulfills the eligibility requirements you have selected. If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. 4. Compensation (Plan Section 2.8) Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one) _____Form W-2 earnings as descried in Section 2.8 of the Plan _____Form W-2 earnings as described in Section 2.8 of the Plan plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax-sheltered 403(b) arrangement, Section 457 deferred compensation plan or contributions described in Section 414(h)(2) that are picked up by a governmental employer. _____All compensation included in the definition of Section 415 Compensation in Section 6.5(b) of the Plan _____All compensation included in the definition of section 415 compensation in Section 6.5(b) of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax-sheltered 403(b) arrangement, Section 457 deferred compensation plan or contributions described in Section 414(h)(2) that are picked up by a governmental employer. 4 Complete this section to determine Plan compensation for Employees other than owner-employees or self-employed individuals. For owner-employees and self-employed individuals, Compensation is earned income as defined in Section 2.12 of the Basic Plan Document. 5. Contributions (Plan Section 4.3) A. Amount The Employer will contribute to the Plan for each Plan Year this Base Contribution Percentage _____ (not more than 25%) of the Earnings of all Qualified Participants for the Plan Year. Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant unless his employment terminates before the last day of the Plan Year for reasons other than his death or Retirement, and he is not credited with more than 500 Hours of Service in the Plan Year. 5 NOTE: Refer to the Contribution Limits Worksheet contained in a separate booklet for a detailed explanation of contribution limits. Enter the percentage of Compensation required to be contributed to the Plan each year. The contribution cannot exceed 25% of Compensation paid to all Participants during the Plan Year. If you accept both this Plan and a profit sharing plan, the combined percentages for the two must not exceed 25% of Compensation. If you wish to integrate your Plan, skip 5A and complete 5B and 5C. B. Allocation to Qualified Participants Contributions will be shared by Qualifed Participants in proportion to their Earnings, unless you check the following space to indicate that your Plan will be integrated with Social Security, as explained on page 41. _____The Plan will be integrated with Social Security, and the Base Contribution Percentage will be _____% (not less than 3% unless you will perform annual top-heavy testing for your Plan). C. Integration Level The Integration Level will be (check one) _____The Social Security Wage Base in effect at the beginning of the Plan Year. _____% (not more tan 100%) of the Social Security Wage Base in effect at the beginning of the Plan Year. _____$_____ (not more than the Social Security Wage Base). 5B and 5C Complete 5B and 5C only if you wish to increase the amount of contributions allocated to Participants who earn more than a stated amount by integrating your plan with Social Security. See page 41 for more information. NOTE: If you maintain any other qualified plan in addition to this Plan, only one plan may be integrated with Social Security. If you integrate this Plan with Social Security, see also the top-heavy provisions in item 10. 6. Investments (Plan Sections 13.2 and 13.3) The Employer selects in part A below the Investment Products that will be available under the Plan (in addition to life insurance policies selected under Plan Article 14, if any). All Investment Products must be sponsored, underwritten or managed by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts, unless the Employer elects differently in part B below. Investment instructions may be changed on any business day. A. Available Investment Products (Plan Section 13.2) The following investments will be available under the Plan (check one) _____Any Putnam funds _____Other Investment Products In the event that there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in Putnam Daily Dividend Trust until instructions are received in good order, and the Employer will be deemed to have selected Putnam Daily Dividend Trust as an available Investment Product for that purpose. 6A If you wish to offer Putnam Capital Manager a variable annuity issued by Hartford with underlying funds managed by Putnam through your plan, please call Putnam for more information, 1-800-662-0019. B. Instructions (Plan Section 13.3) Investment instructions for amounts held under the Plan generally will be given by each Participant for his own Accounts and delivered to Putnam by the Employer. Check below only if the Employer will make investment decisions under the Plan. _____The Employer will make investment decisions. 6B If you place a check mark in the blank the Employer will direct the investment of Employer contributions. If you do not check the blank, the Plan provides that each Participant will direct the investment of Employer contributions allocated to his account. 7. Retirement Age (Plan Section 7.1) Normal retirement age will be _____ (not over the lesser of 65 or any mandatory retirement age enforced by the Employer). 7 Enter the age (no later than 65) when an Employee may retire from the service of the Employer. 8. Other Plans You must complete this section if you maintain or ever maintained another qualified plan (other than a Putnam Profit Sharing Plan under Plan Agreement #001) in which any Participant in this Plan is (or was) a participant or could become a participant, or if you maintain a welfare benefit fund (as defined in section 419(e) of the Code) or an individual medical account (as defined in section 415(1)(2) of the Code) under which amounts are treated as annual additions with respect to any Participant in this Plan. 8 Skip this item 8 if the Plan is the only qualified plan your Business has ever had. The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below: A. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one) _____The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan. _____The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below. _____ _____ B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below: _____ _____ If your Business has ever maintained a defined benefit plan, state below the interest rate and mortality table to be used in establishing the present value of any benefit under the defined benefit plan, for purposes of computing the top-heavy ratio: Interest rate:_____% Mortality table:_________________________________________ 8A and 8B Complete 8A only if the Employer maintains or ever maintained any other defined contribution plan (other than a master or prototype plan) or any other defined benefit plan. Complete 8B only if the Employer maintains or ever maintained a defined benefit plan. If any of these factual situations exist, the Employer should consult with an attorney or actuary. Failure to complete this section when applicable may adversely affect the tax-qualified status of the Plan. NOTE: Your description under A or B above must not leave the selection of a method to your discretion from year to year. 9. Vesting All Accounts are fully vested at all times. 10. Top-Heavy Provisions (Plan Section 15.3) Federal tax laws require certain plans, called top-heavy plans, to provide a minimum contribution for every non-key employee covered by the plan. Whether a plan is top-heavy is determined by an annual test, explained on page 46. If the plan s regular contribution provisions already meet or exceed the top-heavy minimum contribution, no additional action is required when the plan is top-heavy, so there is no need to perform annual testing. If the plan s regular contribution provisions do not already meet or exceed the top-heavy minimum contribution, annual testing must be performed, and, if the plan proves to be top-heavy, an additional contribution must be made. Your Plan s regular contribution provisions will meet or exceed the top-heavy minimum, and you will not need to perform annual testing, if any of the following applies: (a) Your Plan is not integrated with Social Security; or (b) Your Plan is integrated with Social Security and you have specified in item 5.B. a Base Contribution Percentage of at least 3%; or (c) You maintain any other qualified plan that automatically provides a minimum top-heavy contribution or benefit for every non-key employee covered by this Plan. NOTE: If you maintain a defined benefit plan in addition to this Plan, you cannot rely on categories (a) or (b). If you fit into any of the above categories, STOP HERE. You do not need to perform annual top-heavy testing. If you do not fit into any of the above categories, then unless you check this item 10 to indicate that you will perform annual top-heavy testing for your Plan, the requirement of a minimum contribution for each non-key employee, contained in Plan Section 15.3, will apply to your Plan at all times. If you check this item 10, Section 15.3 will apply only in Plan Years when you Plan fails the top-heavy test. _____The Employer will perform annual top-heavy testing for the Plan. 11. Plan Administrator (Plan Section 16.1) You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator. The initial Plan Administrator will be (check one) _____This person: _____A committee composed of these people: __________ __________ __________ 12. Reliance on Opinion Letter You may rely on the opinion letter issued by the National Office of the Internal Revenue Service for this Plan, and avoid filing an application for an IRS determination letter, only if you never maintain or maintained at any time any other plan, except a Putnam Standard Profit Sharing Plan under Plan Agreement #001. If you ever maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate account for key employees, as defined in section 419A(d)(3) of the Code; or an individual medical account, as defined in section 415(1)(2) of the Code) in addition to this plan (other than a Putnam Standard Profit Sharing Plan under Plan Agreement #001), you may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that your Plan is qualified under Section 401 of the Internal Revenue Code. If you adopt or maintain multiple plans and you wish to obtain reliance that your plan(s) are qualified, you should apply to the appropriate Key District Director of Internal Revenue for a determination letter. Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #002 may be used only in conjunction with Putnam s basic plan document #01. 12 Employers should review this section carefully. Adoption of the Plan should be reviewed with your legal counsel and tax advisor. Employers Adoption of Putnam Standard Money Purchase Pension Plan The Employer named below hereby adopts a PUTNAM STANDARD MONEY PURCHASE PENSION PLAN, and appoints ___________ to serve as Trustee of the Plan. The Employer agrees to pay the fees as determined by completing the Plan Investment Form, in accordance with the terms of the Plan. The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then-current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be a Putnam Money Purchase Pension Sharing Plan upon Putnam s acceptance of this Plan Agreement. Employer signature(s) to adopt Plan: _____ Date of signature: Provide a signature from an authorized representative of the Employer. Please print name(s) of authorized person(s) signing above: _________ Phone: Phone: A new Plan must be signed by the last day of the Employer s Taxable Year in which the Plan is to be effective. Dealer Information (to be completed by investment dealer) Name of Investment Dealer ________________________________ Name and No. of Investment Dealer/Representative ______________ Name and No. of Branch Office ______________________________ Signature of Investment Dealer/Representative ________________ Authorized Dealer Signature _______________________________ Representative Phone Number ______________________________ Acceptance of Trustee The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above. A. Putnam Fiduciary Trust Company, Trustee By ___________________________________________________ B. Other Trustee ________________________________________ By (Trustee) _________________ Trustee s Tax I.D. Number _____ Address of Trustee ______________________________________ Person for Putnam to Contact ____ Phone ____________________ Complete Part B only if you have appointed a Trustee other than Putnam Fiduciary Trust Company. NOTE: Putnam may impose an annual maintenance fee as a condition of its acceptance of this plan as a Putnam Standard Money Purchase Pension Plan. C. Appointment and Acceptance of Insurance Trustee 1. Appointment to: Name of Insurance Trustee ________________________________ You are hereby designated as Insurance Trustee for Policies to be held in accordance with the terms and conditions of this Plan and Trust. Employer signature to appoint Insurance Trustee By (Authorized Signature) 2. Acceptance as Insurance Trustee is agreed to in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer as set forth above. By Trustee s Tax I.D. Number Address of Insurance Trustee Person for Putnam to Contact Phone Complete Part C only if insurance Policies will be purchased under Article 14 of the Plan (in addition to Putnam Investment Products). Acceptance by Putnam Putnam hereby accepts this Employer s Plan as a prototype established under the Putnam Defined Contribution Retirement Plan and Trust Agreement. Putnam Mutual Funds Corp. By ___________________________________________________ Instructions for Completing and Distributing Notice to Interested Parties You must distribute the completed Notice to Interested Parties no less than 7 days and no more than 21 days after you sign the Plan Agreement for your Putnam Plan. For your current employees, you may simply post a copy of the Notice on a bulletin board or other space customarily used for announcements to your employees. If you adopt your Putnam Plan as an amendment to an existing plan, individuals who are not current employees but are entitled to benefits under your existing plan (for example, vested former employees or beneficiaries of deceased employees) should be sent a copy of the Notice by first class mail no less than 10 days and no more than 24 days after you sign your Putnam Plan Agreement. Portions of the Notice must be completed by you as described below. Item 1 Enter the name of your business. Item 2 Enter the name of your plan. Item 3 Enter the final digit of the plan number you have chosen for your plan. If this is the first plan you have ever adopted for your business, or if you have adopted the Putnam Plan as an amendment of your only existing plan, the correct number is 001. If your business has one or more other tax qualified retirement plans that were adopted before this plan, and you have not adopted the Putnam Plan as an amendment to any plan, the correct number for his plan is the next higher number after the number(s) of your existing plan(s); for example, 002 or 003. Enter the appropriate IRS opinion letter number. If you have adopted the Profit Sharing and 401(k) Plan, enter D240174a, if you have adopted the Money Purchase Pension Plan, D240175a. Item 4 Enter the name and address of your business and the nine-digit tax identification number assigned to your business for federal income tax and employment tax reporting; for example, 04-0010023. Item 5 If you have appointed a committee or a particular person as plan administrator, enter the name(s) and address of the person(s) appointed. If you have not selected a plan administrator enter the word "Employer." Item 6 Enter the minimum number of years of service and minimum age required for eligibility to participate in your plan, as selected by you in the Plan Agreement. If you selected no minimum requirement, enter "0". Item 7 Select from the attached address chart on page 28 the address of the IRS Key District office that applies to you, and enter that address in the space provided. Item 8 If you have fewer than 100 employees, enter the number equal to 10% of your employees, rounded up. For example, if you have 12 employees, enter "2." If you have 100 or more employees, enter "10." Item 9 Calculate the dates that are 45, 55, 75 and 90 days after the date you signed the Plan Agreement. Enter these dates in the blanks as marked on the Notice. Item 13 Enter the name of your business. IRS DISTRICT Albany, August, Boston, Brooklyn, Buffalo, Burlington, Hartford, Manhattan, Portsmouth, Providence KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division P.O. Box 1680, GPO Brooklyn, NY 11202 IRS DISTRICT Baltimore, District of Columbia, Newark, Philadelphia, Pittsburgh, Richmond, Wilmington, any U.S. possession or foreign country KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division P.O. Box 17010 Baltimore, MD 21203 IRS DISTRICT Cincinnati, Cleveland, Detroit, Indianapolis, Louisville, Parkersburg KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division P.O. Box 3159 Cincinnati, OH 45201 IRS DISTRICT Albuquerque, Austin, Cheyenne, Dallas, Denver, Houston, Oklahoma City, Phoenix, Salt Lake City, Wichita KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division Mail code 4950 DAL 1100 Commerce Street Dallas, TX 75242 IRS DISTRICT Atlanta, Birmingham, Columbia, Ft. Lauderdale, Greensboro, Jackson, Jacksonville, Little Rock, Nashville, New Orleans KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division P.O. Box 941 Atlanta, GA 30370 IRS DISTRICT Honolulu, Laguna Niguel, Las Vegas, Los Angeles, San Jose KEY DISTRICT OFFICE Internal Revenue Service EP Application Receiving Room 5127 P.O. Box 536 Los Angeles, CA 90053-0536 IRS DISTRICT Aberdeen, Chicago, Des Moines, Fargo, Helena, Milwaukee, Omaha, St. Louis, St. Paul, Springfield KEY DISTRICT OFFICE Internal Revenue Service EP/EO Division 230 S. Dearborn DPN 20-6 Chicago, IL 60604 IRS DISTRICT Sacramento, San Francisco KEY DISTRICT OFFICE Internal Revenue Service EP Application Receiving Stop SF 4446 P.O. Box 36001 San Francisco, CA 94102 IRS DISTRICT Anchorage, Boise, Portland, Seattle KEY DISTRICT OFFICE Internal Revenue Service EP Application Receiving P.O. Box 21224 Seattle, WA 98111 Notice to Interested Parties 1. Notice to: All Employees of ______________________________ The employer named above has adopted the plan described in this notice, and had provided this notice as part of the automatic plan qualification process prescribed by the Internal Revenue Service. 2. Name of Plan: ________________________________________ 3. Plan Number: 00_______ Opinion Letter No.______ 4. Name and address of Plan Sponsor: Employer's Tax Identification No.: ________________________ 5. Name of Plan Administrator: ______ ______ 6. The employees eligible to participate under the Plan are those who have reached at least _____ years of age and completed at least _____ years of service. In addition, the following classifications of employees are included: 7. Address of Key District Director having jurisdiction of Plan: ___ ____ _____ _____Members of the following collective bargaining unit(s)(give names of unions): _____ _______ _____Nonresident aliens with no U.S. source of income. Requests for Comments by the Department of Labor 8. It is not contemplated that the Plan will be submitted to the Internal Revenue Service for an advanced determination as to whether or not it meets the qualification requirements of Section 401 or 403(a) of the Internal Revenue Code. 9. The Internal Revenue Service has not issued a determination letter with respect to the qualification of this Plan, which is a standardized prototype plan sponsored by Putnam Mutual Funds Corp. Plans in this category generally are entitled to automatic qualification and are not required to seek a determination letter. Rights of Interested Parties 10. You have the right to submit to the IRS Key District Director at the above address, either individually or jointly with other interested parties, your comments as to whether this Plan meets the qualification requirements of the Internal Revenue Code. You may instead, individually or jointly with other interested parties, request the Department of Labor to submit comments on your behalf to the Key District Director regarding qualification of the Plan. If the Department declines to comment on all or some of the matters you raise, you may individually or jointly (if your request was made to the Department jointly) submit your comments on these matters directly to the IRS Key District Director. 11. The Department of Labor may not comment on behalf of interested parties unless requested to do so by the lesser of ten employees or ten percent of the employees who qualify as interested parties. The number of persons needed for the Department to comment with respect to this Plan is _____ . If you request the Department to comment, your request must be in writing and must specify the matters upon which comments are requested, and must also include: (1) The information contained in items 2 through 5 of this Notice; and (2) the number of persons needed for the Department to comment. A request to the Department to comment should be addressed as follows: Assistant Secretary Pension and Welfare Benefit Administration U.S. Department of Labor 200 Constitution Avenue, N.W. Washington, D.C. 20216 Attn: 3001 Comment Request Comments to the Internal Revenue Service 12. Comments submitted by you to the IRS Key District Director must be in writing and received by him by _____ , 199_____ (75 days after Plan adoption). However, if there are matters that you request the Department of Labor to comment upon on your behalf, and the Department declines, you may submit comments on these matters to the Key District Director to be received by him within 15 days from the time the Department notifies you that it will not comment on a particular matter, or by ____ , 199_____ (75 days after Plan adoption), whichever is later, but in no event later than ___, 199__(90 days after Plan adoption). A request to the Department to comment on your behalf must be received by it by _____ , 199_____ (45 days after Plan adoption) if you wish to preserve your right to comment on a matter upon which the Department declines to comment, or by _____ , 199_____ (55 days after Plan adoption) if you wish to waive that right. Additional Information 13. Detailed instructions regarding the requirements for notification of interested parties may be found in sections 16, 17 and 18 of Revenue Procedure 91-10. Additional information concerning this application (including an updated copy of the Plan and related trust and copies of section 16 of Revenue Procedure 91-10) are available at the offices of ______________ during the hours of 9:00 a.m. to 5:00 p.m. for inspection and copying. (There may be a nominal charge for copying and/or mailing.) NOTE: Section 17 of Revenue Procedure 94-6 is included to provide plan participants with additional information. Section 17 of Revenue Procedure 94-6 WHAT RIGHTS TO NOTICE AND COMMENT DO INTERESTED PARTIES HAVE? * 01 Persons who qualify as interested parties under section 1.7476-1(b) of the regulations, have the following rights: (1) To receive notice, in accordance with section 18 below, that there will be filed an application for an advance determination regarding the qualification of plans described in sections 401, 403(a), 409 and 4975(e)(7) of the Code, or, with respect to plans described in section 7.05 above, to receive notice, in accordance with section 19 below, of the adoption or amendment of such plans; (2) To submit written comments with respect to the qualification of such plans to the Internal Revenue Service; (3) To request the Department of Labor to submit a comment to the Service on behalf of the interested parties; and (4) To submit written comments to the Service on matters with respect to which the Department of Labor was requested to comment but declined. * 02 comments submitted by interested parties must be received by the Key District Director by the 45th day after the date on which the application for determination is received by the Key District Director (see section 17.03 and 17.04 for filing deadlines where the Department of Labor has been requested to comment). Such comments must be in writing, signed by the interested parties or by an authorized representative of such parties (as provided in section 9.01(7) of Rev. Proc. 91-4), addressed to the Key District director to whom the application for determination was submitted, and contain the following information: (1) The names of the interested parties making the comments; (2) The name and taxpayer identification number of the applicant for a determination: (3) The name of the plan, the plan identification number, and the name of the plan administrator; (4) Whether the parties submitting the comment are: (a) Employees eligible to participate under the plan, (b) Employees with accrued benefits under the plan, or former employees with vested benefits under the plan, (c) Beneficiaries of deceased former employees who are eligible to receive or are currently receiving benefits under the plan, (d) Employees not eligible to participate under the plan. (5) The specific matters raised by the interested parties on the question of whether the plan meets the requirements for qualification involving sections 401 and 403(a) of the Code, and how such matters relate to the interests of the parties making the comment; and (6) The address of the interested party submitting the comment (or if a comment is submitted jointly by more than one party, the name and address of a designated representative) to which all correspondence, including a notice of the Service's final determination with respect to qualification, should be sent. (The address designated for notice by the Service will also be used by the Department of Labor in communicating with the parties submitting a request for comment.) The designated representative may be one of the interested parties submitting the comment or an authorized representative. If two or more interested parties submit a single comment and one person is not designated in the comment as the representative for receipt of correspondence, a notice of determination mailed to any interested party who submitted the comment shall be notice to all the interested parties who submitted the comment for purposes of section 7476(b)(5) of the Code. * 03 A request to the Department of Labor to submit to the Key District Director a comment pursuant to section 3001(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) must be made in accordance with the following procedures: (1) The request must be received by the Department of Labor by the 25th day after the day the application is received by the Key District Director. However, if the parties requesting the Department to submit a comment wish to preserve the right to comment to the Key District Director in the event the Department declines to comment, the request must be received by the Department by the 15th day after the application is received by the Key District Director. (2) The request to the Department of Labor to submit a comment to the Key District Director must: (a) Be in writing; (b) Be signed as provided in section 17.02 above; (c) Contain the names of the interested parties requesting the Department to comment and the address of the interested party or designated representative to whom all correspondence with respect to the request should be sent. See also section 17.02(6) above; (d) Contain the information prescribed in section 17.02(2), (3), (4), above; (e) Contain the address of the Key District Director to whom the application was or will be submitted; (f) Contain a statement of the specific matters upon which the Department's comment is sought, as well as how such matters relate to the interested parties making the request; and (g) Be addressed as follows: Deputy Assistant Secretary Pension and Welfare Benefits Administration U.S. Department of Labor 200 Constitution Avenue, N.W. Washington, D.C. 20210 Attention: 3001 Comment Request 04 If a request described in 17.03 is made and the Department of Labor notifies the interested parties making the request that it declines to comment on a matter concerning qualification of the plan which was raised in the request, the parties submitting the request may still submit a comment to the Key District Director on such matter. The comment must be received by the later of the 45th day after the day the application for determination is received by the Key District Director or the 15th day after the day on which notification is given by the Department that it declines to submit a comment on such matter. (See section 17.07 for the date of notification.) In no event may the comment be received later than the 60th day after the application for determination was received. Such a comment must comply with the requirements of section 17.02 and include a statement that the comment is being submitted on matters raised in a request to the Department upon which the Department declined to comment. 05 For rules regarding the confidentiality of contents of written comments submitted by interested parties to the Service pursuant to section 17.02 or 17.04, see section 601.201(o)(5) of the Statement of Procedural Rules. 06 For rules regarding the availability to the application of copies of all comments on the application submitted pursuant to section 17.01(1), (2), or (3) of this revenue procedure, see section 601.201(o)(5) of the Statement of Procedural Rules. 07 An application for an advance determination, a comment to the Key District Director, or a request to the Department of Labor shall be deemed made when it is received by the Key District Director, or the Department. Notification by the Department that it declines to comment shall be deemed given when it is received by the interested party or designated representative. The notice described in section 18.01 below shall be deemed given when it is given in person, posted as prescribed in the regulations under section 7476 of the Code, or received through the mail. In any case where such an application, comment, request, notification, or notice is sent by mail, it shall be deemed received as of the date of the postmark (or if sent by certified or registered mail, the date of certification or registration), if it is deposited in the mail in the United States in an envelope or other appropriate wrapper, first class postage prepaid, properly addressed. However, if such an application, comment, request, notification, or notice is not received within a reasonable period from the date of postmark, the immediately preceding sentence shall not apply. Plan Investment Form Simplified Putnam Retirement Plans Please use this form to indicate your plan's initial investment in the Putnam Family of Funds, listing only one source of contribution per page. 1. Employer Phone No. ( ) Address City/State/Zip Employer's Name (Please Print) Authorized Employer Signature 2. Type of Simplified Putnam Retirement Plan (check one) _____ Putnam Profit Sharing Plan (Keogh) _____ Putnam Money Purchase Pension Plan (Keogh) _____ Paired Putnam Profit Sharing and Money Purchase Pension Plan (Keogh) _____ Putnam Profit Sharing and 401(k) Plan Note: If you have a Paired Putnam Profit Sharing and Money Purchase Pension Plan, you have two plans involving separate Plan contributions. Check this option and complete two Plan Investment Forms. To do this, make a copy of this Form, complete it accordingly and send both Forms with the plans' initial contribution checks. Remember, you only need to include one participant fee in one of your Plan contribution checks. 3. Dealer Representative Phone No. ( ) Dealer Firm Branch Location Representative's Signature 4. Participant Fee: $10.00 X _______ = ___________________ Number of Participants Annual Participant Fee Total Check Amount: Annual Participant Fee $ __________ Employer Contribution $ __________ (from final page) TOTAL $ __________ NOTE: Minimum contribution: $500 per plan; $25 per participant account. This plan does not allow for employee voluntary after-tax contributions. The following Putnam funds are available for retirement plan accounts. Please use these fund codes, listing only one fund per line, when completing the Plan Investment Form. A26 Putnam Adjustable Rate U.S. Government Fund A08 Putnam Convertible Income-Growth Trust A0A Putnam Daily Dividend Trust A43 Putnam Dividend Growth Fund A29 Putnam Diversified Income Trust B0H Putnam Energy-Resources Trust A44 Putnam Europe Growth Fund A02 The Putnam Fund for Growth and Income A01 The George Putnam Fund of Boston A18 Putnam Global Governmental Income Trust A05 Putnam Global Growth Fund A16 Putnam Federal Income Trust A0L Putnam Health Sciences Trust A10 Putnam American Government Income Fund A0D Putnam High Yield Trust A15 Putnam High Yield Advantage Fund A04 Putnam Income Fund A0U Putnam New Opportunities Trust A03 Putnam Investors Fund A0C Putnam Equity/Income Fund A19 Putnam OTC Emerging Growth Fund A0Y Putnam U.S. Government Income Trust A06 Putnam Vista Fund A07 Putnam Voyager Fund In addition to Putnam mutual funds, retirement investments may be made through the Putnam Capital Manager (PCM), a variable annuity. The PCM investment options are listed below. (Please call Putnam if you wish to use PCM in your retirement plan.) PCM Fixed Account PCM Money Market Account PCM U.S. Government and High Quality Bond Fund PCM High Yield Fund PCM Growth and Income Fund PCM International Equities Fund, a global fund PCM Voyager Fund PCM Multi-Strategy Fund Profit Sharing Plan Contributions Employer Date (Please list only one fund per line. Continue on an additional sheet if necessary.) Participant Participant Investment Employer Name Social Security Fund Selected Profit Sharing Plan Number (Please list only Contribution one fund per line) ___________ ______________ __________ $__________ ___________ ______________ __________ __________ Total Profit Sharing Plan Contributions: $ _____________ Money Purchase Pension Plan Contributions Employer Date (Please list only one fund per line. Continue on an additional sheet if necessary.) Participant Participant Investment Employer Name Social Security Fund Selected Money Purchase Number (Please list only Pension Plan one fund per line) Contribution ___________ _________ __________ $__________ ___________ _________ __________ __________ Total Money Purchase Pension Plan Contributions: $ ___________ Employee 401(k) Contributions Employer Date (Please list only one fund per line. Continue on an additional sheet if necessary.) Participant Participant Investment Name Social Security Fund Selected Employee Number (Please list only 401(k) one fund per line) Contribution ________ ____________ __________ $__________ ________ ____________ __________ __________ Total 401(k) Contributions: $ _____________ Part III: Questions and Answers about the Simplified Putnam Retirement Plans General Comments 39 Key Definitions 40 Contributions 41 Plan Investments 45 Plan Distributions 45 Top-Heavy Testing 46 Plan Administration 47 Glossary of Terms 49 Questions and Answers about the Simplified Putnam Retirement Plans While Putnam cannot give you legal or tax advice, our professionals have prepared these Questions and Answers to assist you in selecting among the many options presented in the Putnam Plan Agreements #001 and #002. If you have questions after reviewing them, consult your investment dealer or call Putnam Retirement Plan Services at 1-800-662-0019. Please remember that these Questions and Answers are only a general guide to help you make decisions in consultation with your legal and tax advisors. I. General Comments Q-1. Why should I adopt a Putnam Plan? A-1. Simplified Putnam Retirement Plans offer you and your Employees the opportunity to make retirement contributions on a tax-favored basis. The benefits to your business are twofold. First, a retirement plan will help you attract and retain good employees. Second, your Plan will qualify for tax-favored treatment. The tax laws generally do not allow employers to deduct wages until an employee includes those wages in income. But an employer can deduct its qualified retirement plan contributions when they are made, even though employees will not have to report those amounts as taxable income until the plan later distributes benefits. In the meantime, the plan contributions accumulate earnings tax-deferred. Q-2. What documents do I need? A-2. (1) A Putnam Basic Plan Document and (2) A Putnam Plan Agreement #001 (Standard Profit Sharing (Keogh) and Standard Profit Sharing and 401(k) Plan) or Putnam Plan Agreement #002 (Standard Money Purchase Pensions Plan (Keogh)). Q-3. What are these documents for? A-3. The Putnam Basic Plan Document contains the general rules for maintaining a Putnam Retirement Plan, and allows you to make certain choices for your own plan. You indicate your choices when you complete Putnam Plan Agreement #001 (for the Profit Sharing Plan (Keogh) or the Profit Sharing and 401(k) Plan) or #002 (for the Money Purchase Pension Plan Keogh). Q-4. Do terms beginning with capital letters have special meanings? A-4. Both the Putnam Basic Plan Document and the Plan Agreements contain terms that begin with capital letters because they have special definitions in the Basic Plan Document. These Questions and Answers also contain terms that begin with a capital letter because they have a special definition, either here or in Article 2 of the Basic Plan Document. All of these terms are defined in the Glossary of Terms at the end of these Questions and Answers. When the term "item" is used in these Questions and Answers, it refers to the numbered and lettered items to be completed in Putnam Plan Agreement #001 or #002. II. Key Definitions Q-5. What is an Affiliated Employer for purposes of the Plan? (Item 3.A) A-5. The term Affiliated Employer includes the business that is adopting or amending a Putnam plan, and any businesses related to that business as part of: * a "controlled group of corporations," as defined in Internal Revenue Code Section 414(b), * a group of businesses under "common control," as defined in Internal Revenue Code Section 414(c), or * an "affiliated service group," as defined in Internal Revenue Code Section 414(m). Generally, businesses that have 80% or more common ownership are Affiliated Employers, and businesses with as little as 10% common ownership may form an affiliated service group if one of them regularly performs services for or with the other. Your close relatives generally are considered to own any interest in a business that you own, and vice versa, for purposes of these rules. Please read the Affiliated Employers Worksheet (contained in a separate booklet) and consult your attorney or tax advisor if you suspect your business falls within any of the categories mentioned above. Q-6. How many Hours of Service should I specify as the minimum requirement for an Eligibility Period? (item 3.C.2) A-6. You may not require an Employee to complete more than 1,000 Hours of Service during the 12 months following his date of hire (or anniversaries of that date) in order to be credited with an Eligibility Period. Because 1,000 Hours of Service over 12 months equals approximately 20 hours per week, your election of the 1,000-hour option will prevent Employees who normally work less than 20 hours per week from becoming participants in your Plan. On the other hand, you could completely avoid counting Hours of Service by entering "1" in item 3.C.2 as the Hours of Service requirement. In that case, an individual who is paid for one Hour of Service will be credited with that Eligibility Period. You may require, in item 3.C.1, that an employee remain employed for one or two Eligibility Periods before he begins to participate in your Plan. (One Eligibility Period maximum for Elective Deferrals.) Q-7. How should "Compensation" be defined for purposes of my Plan? (Item 4) A-7. The definition of Compensation you choose will affect the amount you contribute to the Plan for you Employees. As a basic measure, you may elect either Form W-2 wages or the amount treated as compensation for purposes of Code Section 415, which is described in Section 6.5(b) of the Basic Plan Document. (The principal difference is that Form W-2 wages include all reimbursements for moving expenses, while the Code Section 415 amount includes reimbursements for moving expenses only if the reimbursed amount is not deductible by the Employee.) The term Earnings refers to both the Compensation paid to an Employee and the earned income of a self-employed worker. The Earnings of a self-employed worker include only his earned income from the trade or business with respect to which the Plan is established, and do not include contributions to the Plan (to the extent deductible under Code Section 404). See Section 2.13 of the Basic Plan Document. The definition of Compensation that you choose in the Plan Agreement will not affect the calculation of certain limits in the tax laws, for which special definitions apply regardless of the definition in the Plan. For an explanation of these limits and special definitions, see the Contribution Limits Worksheet contained in a separate booklet. Profit Sharing and 401(k) Plans Only: Both of the basic measures of compensation exclude any pre-tax contributions made by the Employee under a cafeteria (flexible compensation) plan, 401(k) plan, SARSEP, 403(b) plan, Section 457 deferred compensation plan or contributions described in Section 414(h)(2) that are "picked up" by a governmental employer. You may choose to add back these pre-tax amount for purposes of your Putnam Plan. For example, suppose Employee A has Form W-2 wages of $25,000, and he makes Elective Deferrals of $2,000 under a Putnam Profit Sharing and 401(k) Plan. If your business makes an Employer Contribution equal to 3% of each Plan Participant's Earnings, Employee A's allocation will be $750 (3% of 25,000) if the Plan counts only Form W-2 wages as Earnings, but $810 (3% of $27,000) if the Elective Deferral is added back. Q-8. Is there a limit on the amount of Earnings my Plan may take into account during a Plan Year? A-8. Yes. Regardless of the definition of Earnings you choose in item 4, for Plan Years beginning after December 31, 1993, only the first $150,000 of any Employee's Gross Earnings (including any pre-tax contributions) counts for your 1994 Plan Year for purposes of your Putnam Plan. The calculation is made on the basis of your Plan Year specified in item 2.A., which may or may not be the calendar year. If your Plan Year contains less than 12 months (for example, if you did not establish your Plan as of the first day of the Plan Year), you must limit each Employee's Earnings to the portion of the $150,000 limit that corresponds to the portion of 12 months represented by your Plan Year. The ceiling will be adjusted periodically for inflation. If your business employs the spouse or child (under age 19) of a 5% owner of the business, or of one of its ten most highly compensated employees, the combined Earnings of the spouse or child and those of the 5% owner or highly compensated employee may not exceed the current dollar limit. III. Contributions Q-9. What does it mean to "integrate" my Plan with Social Security? (Item 5.C and D of Plan Agreement #001, and Item 5.B and C of Plan Agreement #002). A-9. Generally, a Profit Sharing Plan or Money Purchase Pension Plan must allocate Employer Contributions pro rata according to the Earnings of Participants. For example, if the Earnings of all Participants total $200,000 for a given year, a Participant who earns $20,000 will be entitled to 10% ($20,000/$200,000) of the Employer Contribution. Integration represents a narrow exception to that general rule. By integrating, a plan may allocate extra contributions to Employees who have Earnings in excess of the Social Security Wage Base ("Wage Base"). This extra allocation is allowed because Social Security calls for no employer FICA tax payments on an employee's income in excess of the Wage Base, and thus prevents individuals who earn above the Wage Base from accruing Social Security retirement benefits in the same proportion to total pay as those earning below the Wage Base. Q-10. How does integration work? A-10. Section 4.2(c) of the Basic Plan Document sets forth the Integration Formula according to which Employer Contributions will be allocated among participants in an integrated Plan. Under that formula, the amount of Earnings at which a plan begins to make extra allocations is called its Integration Level. A related term is Excess Earnings, which means the amount of a Participant's Earnings above in Integration Level. For example, if a plan has an Integration Level of $16,000, an Employee whose Earnings are $20,000 a year has Excess Earnings of $4,000. Remember, the term Earnings includes amounts above and below the Integration Level. Putnam has designed its Integration Formula to adjust automatically each year so that the percentage of the extra Employer Contribution allocated in proportion to Excess Earnings is the maximum allowed by law. In general, the percentage rate of extra Employer Contributions allocated on the basis of Excess Earnings cannot exceed the percentage rate allocated on the basis of total Earnings, or 5.7% of Excess Earnings, whichever is less. For example, if your Plan requires an Employer Contribution sufficient to provide all Participants an allocation of 3% of their total Earnings, it may also allocate to the accounts of Participants who earn more than the Integration Level an extra amount equal to no more than 3% of their Excess Earnings. Thus, a Participant with Earnings of $20,000 will get a regular allocation of $600. If the Integration Level of the Plan is $16,000, he will also get an extra allocation of $120. On the other hand, if the Integration Formula results in an allocation to all Participants of an amount in excess of 5.7% of their total Earnings, the extra amount allocated to the Accounts of Participants who earn more than the Integration Level may not be more than 5.7% of their Excess Earnings. Q-11. How should I choose my Plan's Integration Level? (Item 5.D of Plan Agreement #001, and Item 5.C of Plan Agreement #002) A-11. You may select an Integration Level from among the three alternatives listed. The first choice presented is the Wage Base, which is adjusted annually to keep pace with the cost of living. Over recent years, the Wage Base has risen steadily: Year 1991 1992 1993 1994 Wage Base $53,400 $55,500 $57,600 $60,600 By defining your Plan's Integration Level as the Wage Base, or as a percentage of the Wage Base (the second option listed), you will build in an annual increase that you can expect to reflect the annual increase in pay levels. If instead you select a fixed dollar amount as your Integration Level (the third option), your formula is simpler, but it does not provide any hedge against annual wage inflation. To Maximize the extra allocations to Employees you want to benefit through integration, the Integration Level should be set as close as possible to the highest Earnings of the Participants you want to exclude from sharing in extra contributions. For example, suppose that your work force breaks down as follows for 1994: Class of Employee Executives Supervisors Rank and File Earnings Range Over $65,000 $30,000-$45,000 Under $20,000 If you want to make extra allocations only to your executives, the Wage Base ($60,600 for 1994) would be appropriate. An Integration Level equal to 50% of the Wage Base ($30,300 for 1994) would extend the benefits of integration to your supervisors as well as executives. Q-12. What types of contributions should I choose for my Profit Sharing and 401(k) Plan? (Items 5 and 12 of Plan Agreement #001) A-12. The various types of employer and employee contributions that may be made to your Putnam Profit Sharing and 401(k) Plan are described below. Employer Contributions (Item 5). Your business may make contributions in a discretionary amount that can vary from year to year, or you may specify a formula that will be used to calculate every year's contributions (for example, 5% of pay for the year). Generally, every Employee's share of each Employer Contribution will equal the percentage that his Earnings bear to the total Earnings of all Participants. Alternatively, you may elect to "integrate" your Plan with Social Security. Item 5.C presents this choice, and Q&A-9 and Q&A-10 explain how integration works. Elective Deferrals (Item 12.A). These contributions are often called 401(k) or before-tax contributions, because an Employee's taxable income will be reduced by the amount he chooses to contribute as an Elective Deferral. An active Employee under age 59 1/2 may withdraw elective Deferrals only in the event of financial hardship, and then only if you check "Yes" for item 12.D. Qualified Matching Contributions (Item 12.B). Qualified Matching Contributions cannot be withdrawn while a Participant remains an active Employee. You may use Qualified Matching Contributions to help your Plan pass the ADP Test, and thereby increase the Elective Deferrals allowed for Highly Compensated Employees. See Q&A-19. Qualified Nonelective Contributions (Item 12.C). Qualified Nonelective Contributions are subject to the same distribution restrictions as Qualified Matching Contributions. You may use Qualified Nonelective Contributions to help your Plan pass the ADP Test, and thereby increase the Elective Deferrals allowed for your Highly Compensated Employees. See Q&A-19. Q-13. Are there any overall limits on the amount that may be contributed to my Plan each year? A-13. Yes, there are two different limits. For a detailed explanation, refer to the Contribution Limits Worksheet contained in a separate Booklet. The first rule limits your overall contribution to the Plan for each Plan Year to the amount your business is allowed to deduct under section 404 of the Internal Revenue Code (see Section 4.2(a) of your Basic Plan Document). The deduction limit for Profit Sharing Plans is 15% of the total Earning paid during the Plan Year to all Plan Participants, excluding Elective Deferrals. For purposes of the 15% Profit Sharing Plan deduction limit, all of the following types of contributions are aggregated: * Employer Contributions * Qualified Matching contributions * Qualified Nonelective Contributions * Elective Deferrals The deduction limit for Money Purchase Pension Plans is 25% of the total Earnings paid during the Plan Year to all Plan Participants. The second overall Plan contribution limit applies on a Participant-by-Participant basis. This limit provides generally that the Annual Additions (as defined in the next paragraph) to each Participant's Account for a Plan Year may not exceed the lesser of: * 25% of the Participant's Earnings, excluding Elective Deferrals and pre-tax contributions under a cafeteria (flexible compensation) plan, SARSEP, 403(b) annuity or account, or a Section 457 deferred compensation plan, or * $30,000. The following types of contributions are considered to be Annual Additions: Employer Contributions, Qualified Matching Contributions, Qualified Nonelective Contributions, and Elective Deferrals. Rollover Contributions and investment earnings of all kinds are not Annual Additions. The Annual Additions limit applies on a combined basis to all plans of a single business, and to all plans of any businesses that would meet the definition of Affiliated Employers (in Q&A-3) if "50%" were substituted for "80%." Q-14. What is the deadline for making employer contributions for a Plan Year? A-14. In order to deduct the contributions your business makes for a Plan Year, the contributions must be paid to the Trustee no later than the due date (including any applicable extension) for filing the tax return for the taxable year of your business that corresponds to the Plan Year. In addition, ERISA requires that Elective Deferrals to a 401(k) plan be paid to the Trustee as soon as practicable after they are made or withheld, and in any event within 90 days. Q-15. For a Putnam Profit Sharing and 401(k) Plan, what is the current dollar limit on the amount of a Participant's annual Elective Deferrals, and how is that amount determined? (Item 12.A of Plan Agreement #001) A-15. For calendar year 1994, the dollar limit is $9,240. This amount is revised annually by the Internal Revenue Service to reflect the cost-of-living adjustments, and is published in an IRS announced issued early each year. The limits for the past four years have been as follows: Year 1991 1992 1993 1994 Deferral Limit $8,475 $8,728 $8,994 $9,240 For the current limit, please call Putnam Retirement Plan Services at 1-800-662-0019. Q-16. Is there any other limit on the amount of Elective Deferrals that my Employees may make? A-16. No, for your Non-Highly Compensated Employees ("NHCEs"). Yes, for your Highly Compensated Employees ("HCEs"), because the amount of their Elective Deferrals is subject to a second limit under the ADP Test contained in Section 401(k) of the Internal Revenue Code. "ADP," an abbreviation of the term "actual deferral percentage," means the average of the percentages of Earnings that a group of Employees contribute in the form of Elective Deferrals during the Plan Year. For example, suppose Widget Company's Plan covers two HCEs, who earn $75,000 and $100,000 respectively during the 1991 Plan Year. If the first HCE makes total Elective Deferrals of $7,500 for the year, his deferral percentage equals 10% ($7,500 deferred divided by $75,000 Earnings). If the other HCE makes no Elective Deferrals, her deferral percentage equals 0%. The actual deferral percentage, or ADP, for the HCEs as a group equals the average of 10% and 0%, or 5%. The same method applies when you calculate the ADP of your NHCEs. For each Plan Year, the ADP of your HCEs cannot exceed the ADP of your NHCEs by more than a certain percentage. That percentage varies as shown below: Actual ADP of NHCE Group 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% Maximum ADP of HCE Group 2% 4% 5% 6% 7% 8% 10% 2.5% 15% 17.5% 20% For example, the ADP of Widget's two HCEs was 5%. According to the above chart, the ADP of Widget's NHCEs must be at least 3% in order for Widget's Plan to satisfy the ADP test. Suppose the ADP of Widget's NHCEs was only 1%. The ADP of its HCEs would then be capped at 2%. If the ADP of Widget's HCEs exceeded 2% as of the end of the Plan Year being tested, Widget would have to reduce that ADP to 2% by following one of the two methods described in Q&A-18. The precise rules for ADP testing are set forth in Section 5.6 of your Basic Plan Document and a separate booklet. To protect the qualified status of your Plan, your Plan Administrator is responsible for performing the ADP Test each year to ensure that the ADP of your HCEs falls within the limits described above. The ADP Worksheet will guide you, step-by-step, through performance of this test. Q-17. Who is a Highly Compensated Employee? A-17. Your Highly Compensated Employees ("HCEs") include any Employee described in Section 2.58 of the Basic Plan Document. The HCE Worksheet contained in a separate booklet will help you identify your HCEs. Any Employee who is not an HCE is a Non-Highly Compensated Employee ("NHCE"). Q-18. What if my Plan fails the ADP Test for a Plan Year? A-18. If the ADP for HCEs for a Plan Year exceeds the maximum allowed under the ADP Test, then the difference between the ADP for HCEs and the ADP for NHCEs must be reduced by either lowering the ADP for HCEs, or raising the ADP for NHCEs, or both. To lower the ADP for HCEs, your Plan may refund sufficient Elective Deferrals to HCEs to bring their ADP down to the level that satisfies the ADP Test. Amounts refunded within the first 2-1/2 months after the end of a Plan Year, and the income attributable to the refunded Excess Contributions, will be included in the contributing HCEs' gross income in the taxable year when the Excess Contributions were made (not the year when the distribution occurs). Exception: If the total amount of Excess Contributions refunded to a Participant is less than $100, the refunded amount is taxable in the year of distribution. If the refunds are not made until after the 2-1/2 month deadline, the refunded amount and income will be taxable in the year of distribution. Section 5.4 of your Basic Plan Document sets forth the rules for calculating the income attributable to Excess Contributions by HCEs. Your business must take action to make the necessary refunds within 2-1/2 months after the Plan Year ends in order to avoid paying a nondeductible 10% excise tax on the Excess Contributions. If the excess is not corrected within 12 months after the Plan Year ends, the Elective Deferral portion of your Plan will be disqualified. An alternative way to correct a failed ADP Test is to raise the ADP of the NHCE group to the required level by making Qualified Nonelective Contributions for allocation to NHCEs only (see item 12.C.1). These contributions must be made by the due date (including extensions) for the Employer's tax return for its fiscal year that corresponds to the Plan Year to which the ADP Test applies. Q-19. How may Qualified Nonelective Contributions ("QNECs") and Qualified Matching Contributions help my Plan pass the ADP Test for a Plan Year? A-19. QNECs and Qualified Matching Contributions may be counted as Elective Deferrals by NHCEs in the ADP Test. IV. Plan Investments Q-20. Who should direct the investment of Employer contributions to my Plan? (Item 6.B) A-20. If your Plan is a 401(k) Plan, Participants always control the investment of Elective Deferrals themselves. With respect to all other contributions to a Profit Sharing or Money Purchase Pension Plan, you may choose in item 6.B of your Plan Agreement to make investment decisions for those contributions yourself. If you elect to direct your Plan's investments, you may be held personally liable for losses or for an inadequate rate of return. On the other hand, if you do not elect this option, the Plan provides that your Employees will direct the investment of all assets in their accounts. The Plan has been drafted to take advantage of the provisions of ERISA Section 404(c)1 if you choose. Generally you cannot be held responsible for the performance of the Plan's investments directed by Participants and Beneficiaries in an ERISA Section 404(c) plan, provided that: (1) Participants and Beneficiaries may choose from at least three diversified categories of investments, designated by you, having materially different risk and return characteristics; (2) Participants and Beneficiaries may change their investment instructions at least once in any three-month period, and more frequently if any investment with comparatively high market volatility is offered under the Plan; and (3) You provide Participants and Beneficiaries with sufficient information concerning the Plan's investment alternatives, such as prospectuses. Please call Putnam Retirement Plan Services at 1-800-662-0019 for more information regarding these requirements. Even if your Plan complies with the requirements described above for an ERISA Section 404(c) plan, you remain responsible for selecting and monitoring on an on-going basis the group of investments that will be available under the Plan, and for directing the investment of the account of a Participant or Beneficiary who gives no directions himself or who is legally incompetent. Putnam mutual funds and the separate investment portfolios available under PCM annuity contracts are considered "look-through" investments that provide diversification within a risk and return category, even for small accounts in a Plan. Of course, your Plan may offer more than three choices of investments. V. Plan Distributions Q-21. Should my Profit Sharing and 401(k) Plan permit Participants to choose life annuities as a form of distribution? (Item 7.A.2 of Plan Agreement #001) (Note: All Money Purchase Pension Plans are required to include life annuities as a form of distribution.) A-21. The life annuity option presented in item 7.A.2 allows Participants to use their Account balances to purchase an annuity contract such as the Putnam Capital Manager variable annuity. Under the annuity contract, a Participant will receive monthly payments for the remainder of his life, or for the Participant's life and that of another person. If a Participant who is married at the time of separation from service chooses a life annuity, then the Participant's spouse must give notarized, written consent to the election of any form of distribution other than a "joint and survivor" annuity providing income for the spouse's life, after the death of the Participant (see Article 11 of the Basic Plan Document). Spousal consent will also be required for any subsequent hardship distribution. If you are adopting your Putnam Plan as a replacement for a prior plan under which Participants had an option to receive their benefits in the form of a life annuity, you must check "Yes" for item 7.A.2. Q-22. What rules apply if my Profit Sharing (Keogh) or Profit Sharing and 401(k) Plan permits hardship distributions to Participants? (Items 7.B and 12.D of Plan Agreement #001) (Note: Money Purchase Pension Plans are not allowed to make hardship distributions.) A-22. Section 5.14 of the Basic Plan Document sets forth the precise standards for making hardship distributions to Employees from Putnam's Profit Sharing Plans. Generally, an applicant for a hardship distribution must fulfill two conditions to the satisfaction of the Plan Administrator. The purpose for the hardship distribution must be one of the following: (1) paying medical expenses of the Participant and his family, (2) making a down payment or paying closing costs for purchasing the Participant's primary residence, (3) paying tuition for the upcoming 12 months of post-secondary education for the Participant or his immediate family, or (4) paying an amount necessary to prevent the Participant's eviction form his principal residence, or foreclosure of the mortgage on it. In addition, the amount distributed must be limited to the amount of the expense that creates the hardship (plus taxes generated by the distribution), and in a Profit Sharing and 401(k) Plan the amount of a hardship distribution from any source other than the Employer Contribution Account cannot exceed the aggregate amount of Elective Deferrals he has made after December 31, 1988, plus the balance credited to the Participant's Elective Deferral Account as of December 31, 1988. Earnings that accrue on Elective Deferrals after that date may not be distributed on account of hardship. Q-23. What income tax withholding rules apply to distributions from the Plan? A-23. If a Participant's Account distributions will continue over a period of at least 10 years in substantially equal installments, the Participant may elect whether to have federal income tax withheld. If the Account will be distributed in any other form -- such as a single payment -- then the Plan must withhold federal income tax from the distribution unless the Participant elects to have the distribution transferred directly to an individual retirement account (IRA) or to another employer's qualified retirement plan. Each Participant who is entitled to a Plan distribution should receive the Special Tax Notice explaining the choices the Participant has with respect to income tax withholding. A copy of the Special Tax Notice is available by contacting ***** at 1-800-622-0019. VI. Top-Heavy Testing Q-24. Can I avoid annual top-heavy testing of my Plan? (Item 10). A-24. Yes, if you design the Plan to operate as though it is always top-heavy. To do that, you must select in item 5 of your Plan Agreement a contribution formula that meets the following requirements: If your Plan is a Profit Sharing Plan (Keogh), either leave item 5.C blank, or check the first blank in item 5.C. If your Plan is a Profit Sharing and 401(k) Plan, either complete the second blank in item 5.B with a percentage that is at least 3% AND leave item 5.C blank, or complete the first blank in item 12.C.2 with a percentage that is at least 3%. If your Plan is a Money Purchase Pension Plan, either complete item 5.A and leave items 5.B and 5.C blank, or leave item 5.A blank and complete the second blank in item 5.B with a percentage that is at least 3%. Q-25. What is a top-heavy Plan? (Item 10). A-25. Your Plan will be top-heavy for a Plan Year it its Top-Heavy Ratio exceeds 60%. Q&A-26 explains how to compute the Top-Heavy Ratio. The determination of whether your plan is top-heavy must be made separately for each Plan Year, because the top-heavy status of your Plan can change from Plan Year to Plan Year. Q-26. How is the Top-Heavy Ratio calculated? A-26. The Top-Heavy Ratio is a fraction, determined for a Plan Year, based on the Account balances in all qualified defined contribution plans of your business as of the last day of the preceding Plan Year. (In the first Plan Year of your Plan, these determinations are made as of its last day.) The numerator of the Top-Heavy Ratio fraction equals the sum of the Account balances of your Key Employees, as defined in Q&A-27. The denominator of the Top-Heavy Ratio fraction equals the sum of the Account balances of all of your Employees (including Key Employees). For purposes of determining the numerator and denominator of the Top-Heavy Ratio fraction, any part of any Account balance which has been distributed to a Participant in the five-year period ending on the calculation date is added back to the Participant's Account. Q-27. Who is a Key Employee? A-27. A person is a Key Employee of a business (corporation or unincorporated form) if he owns certain amounts of the business or has relatively large Gross Earnings from the business. Gross Earnings means Earnings plus Elective Deferrals plus any pre-tax contributions made by the Employee under a cafeteria (flexible compensation) plan, 401(k) plan, SARSEP, 403(b) plan, or a Section 457 deferred compensation plan. Your Key Employees for 1994 include any individual who, during your Plan Year beginning in 1994, falls into at least one of the following categories: receive more than $59,400 in Gross Earnings and is an officer of your business. receives more than $30,000 in Gross Earnings, and is one of the ten (or fewer) Employees who own the largest employee-owned interests in your business. owns at least a 5% interest in your business. receives more than $150,000 in Gross Earnings and owns at least a 1% interest in your business. Your Key Employees for 1994 also include anyone who was a Key Employee in any of the previous four Plan Years. The IRS annually adjusts the dollar amounts listed above according to cost-of-living increases. For the most current amounts, call Putnam Retirement Plan Services at 1-800-662-0019. any Employee who is not a Key Employee is a Non-Key Employee. Q-28. What are the consequences if my Plan is Top-Heavy? (Item 10) A-28. As explained in item 10 of your Plan Agreement, for any Plan Year in which your Plan is top-heavy, each Non-Key Employee who is employed on the last day of the Plan Year must have allocated to his account an Employer Contribution equal to the lesser of: (1) 3% of his Earnings, or (2) the highest percentage of Earnings allocated to any Key Employee (including the Key Employees' Elective Deferrals, if any). See the Top-Heavy Worksheet contained in a separate booklet for a detailed explanation. Q-29. Does this mean the contribution rules of my Plan may change form year to year, depending on whether it is top-heavy? A-29. Yes, unless you design the Plan to operate as though it is always top-heavy, as described in Q&A-24. VII. Plan Administration Q-30. Whom should I appoint to be my Plan Administrator? (Item 11) A-30. The person or entity you appoint as Plan Administrator bears legal responsibility for the operation of your Plan. A plan's administrator is a "fiduciary" under federal law, and is therefore subject to duties of prudence and loyalty to the Plan when acting as Plan Administrator. Frequently, the business that adopts a Plan acts in this capacity, although you may instead name a committee or individual by resolution or vote of the board of directors. The Plan Administrator has authority to interpret the provisions of the Plan and apply them to specific situations, a such as whether an Employee has become eligible to participate. All decisions of the Plan Administrator must follow the written rules of the Plan and must apply uniformly to all Participants in similar circumstances. Q-31. Do I have to obtain a special fidelity bond from an insurance company for my Plan? A-31. Yes, federal law requires a bond insuring the Plan against any fraud or dishonesty which may be committed by you or any of your officers or Employees who have access to the Plan's assets. Often the bond coverage can be obtained as a rider to your existing business insurance. Q-32. Should I submit my Plan to the Internal Revenue Service for a determination letter? A-32. The Internal Revenue Service has issued a favorable opinion letter as to the form of the Putnam Basic Plan Document, Plan Agreement #001, and Plan Agreement #002. This letter shows that Putnam's plan documents include all the terms required to qualify for tax-favored treatment under Section 401(a) of the Internal Revenue Code (see Q&A-1). You do not need to submit your Putnam Plan to the Internal Revenue Service, provided that: (1) you make only the choices presented in the Plan Agreement and do not modify the Plan in any other way; and (2) your business does not now have, and never has had, any other plan except for a Putnam paired plan, as explained in Q&A-33. Note: if you adopt a Putnam Plan as an amendment to an existing plan of the same type (profit sharing or money purchase), the existing plan is not an "other" plan for this purpose. If you now maintain or you have ever maintained any other plan except your Putnam Plan or a Putnam paired plan, you must file IRS Form 5307, "Application for Determination for Adopters of Master or Prototype, Regional Prototype or Volume Submitter Plans," with the Internal Revenue Service no later than the last day of your first Plan Year that begins after December 31, 1991. Please keep in mind that, even if you take the above steps, Putnam's opinion letter and your Plan's own determination letter do not control whether or not your Plan complies in operation with the Internal Revenue Code requirements described in the Putnam Basic Plan Document and Plan Agreement. Compliance in operation is your responsibility. We have prepared these Questions and Answers to assist you, but there is no substitute for individual attention to your particular situation. Therefore, we strongly encourage you to consult with your legal and tax advisors. Q-33. What are Putnam paired plans? A-33. Putnam paired plans are specially designed so that you can adopt both a Profit Sharing Plan and a Money Purchase Pension Plan, and not be required to submit either Putnam plan to the Internal Revenue Service for a determination letter. A Putnam Standard Money Purchase Pension Plan may be paired with either a Putnam Standard Profit Sharing Plan (Keogh) or a Putnam Standard Profit Sharing and 401(k) Plan. Only one of two paired plans may be integrated with Social Security. If paired plans are top-heavy, the top-heavy minimum contributions will be made in the Money Purchase Pension Plan. You might choose to adopt paired plans if you want to provide a minimum contribution every year (such as 5% of Earnings), but you also want to have the flexibility of making contributions greater than 15% of Earnings when your business has an especially profitable year. For example, if you adopt a Money Purchase Pension Plan with an annual contribution equal to 10% of Earnings and a Profit Sharing Plan with a discretionary contribution that varies from year to year, your business could contribute and deduct 10% of Earnings to the Money Purchase Pension Plan in any year regardless of profits or losses, but could also contribute and deduct up to 25% of Earnings in a profitable year (10% in the Money Purchase Pension Plan and 15% in the Profit Sharing Plan). Alternatively, you could use paired plans in order to have both a fixed rate of annual employer contributions (in a Money Purchase Pension Plan) and permit optional 401(k) contributions (in a Profit Sharing and 401(k) Plan). Part VIII. Glossary of Terms Account: All of a Participant s accounts. Basic Plan Document. ADP Test: A test limiting the Elective Deferrals that may be made on behalf of HCEs. (BPD5.6) Affiliated Employer: A member of a controlled group of corporations, or trades or businesses under common control, or an affiliated service group, with your business. (BPD2.2) Annual Additions: All of the following: Elective Deferrals, Employer Contributions, Qualified Matching Contributions, and Qualified Nonelective Contributions. (BPD Article 6) Actual Deferral Percentage Test: See ADP Test. Compensation: Whatever amount you designate in item 4. (BPD2.8) Earnings: Compensation of an employee or earned income of a self-employed worker, as limited (for 1994) to $150,000. Call Putnam Retirement Plan Services 1-800-662-0019 for the current limit. (BPD2.13) Elective Deferrals: Before-tax contributions made pursuant to an Employee s salary reduction agreement, according to the terms you select in item 12.A of your Plan Agreement. (BPD2.54) Eligibility Period: The 12-month periods beginning on an Employees first day of work and anniversaries of that date. (BPD2.15) Employee: An individual who performs services for your business. (BPD2.16) Employer Contributions: Contributions made pursuant to item 5 of your Plan Agreement. (BPD2.18) ERISA: The Employee Retirement Income Security Act of 1974, a federal law governing employee benefits, as amended from time to time. (BPD2.19) Family Member: An Employees spouse, children, grandchildren, parents or grandparents, and the spouse of an Employee s child or grandchild. A Family Member of an Employee who is one of the 10 highest paid Employees or is a 5% owner is not considered separately from the Employee for purposes of determining who are HCEs. (BPD2.58) Fidelity Bond: A bond, obtained from an insurance company, that protects the Plan against loss from the dishonesty of persons who handle contributions or distributions. Gross Earnings: Earnings plus Elective Deferrals plus any other pre-tax contributions to a cafeteria (flexible compensation) plan, SARSEP or 403(b) plan. Highly Compensated Employee (HCE): Generally, one who: Received more than $99,000 in Gross Earnings in the 1994 Plan Year or $96,368 the previous Plan Year. Received more than $66,000 in Gross Earnings in the 1994 Plan Year or $64,245 the previous Plan Year, and was in the top-paid 20% of your Employees. Received more than $59,400 in Gross Earnings in the 1994 Plan Year or $57,821 the previous Plan Year, and acted as an officer of your business. Owned at least a 5% interest in your business in the 1994 or 1993 Plan Year. These compensation limits are adjusted annually. Please call Putnam Retirement Plan Services at 1-800-662-0019 for the current limits. Hour of Service: Generally, any hour for which an Employee is paid or entitled to payment. (BPD2.22) Integration Level: The level of Earnings selected in item 5. Participants who earn in excess of the Integration Level receive an extra share of Employer Contributions. (BPD2.24) Key Employee: Generally, an Employee who during the current Plan Year falls into one of the following categories or was a Key Employee during any of the previous four years: Received more than $59,400 in Gross Earnings and acted as an officer of the business. Received more than $30,000 in Gross Earnings and was one of 10 Employees who owned the largest employee-owned interests in your business. Owned at least a 5% interest in your business. Received more than $150,000 in Gross Earnings and owned at least a 1% interest in your business. (BPD 15.2(a)) These compensation limits are adjusted annually. Please call Putnam Retirement Plan Services at 1-800-345-4000 for the current limits. Non-Key Employee: An Employee who is not a Key Employee. (BPD15.2(a)) Officer: For both corporate and non-corporate entities, officer includes any person who performs officer-like functions. Participant: An Employee who has satisfied the eligibility requirements specified in item 3 of your Plan Agreement. (BPD2.32) Plan: Your Putnam Profit Sharing Plan (Keogh), Putnam Profit Sharing and 401(k) Plan or Putnam Money Purchase Pension Plan (Keogh). (BPD2.34) Plan Administrator: The entity you appoint in item 11. The Plan Administrator has responsibility for enforcing the terms of the Plan. (Q&A-29; BPD2.35 and 16.1) Plan Year: Your Plans 12-month reporting year, as selected in item 2.A of your Plan Agreement. (BPD2.37) Qualified Matching Contributions: Contributions made pursuant to item 12.B. (BPD2.60) Qualified Nonelective Contributions: Contributions made pursuant to item 12.C. (BPD2.62) Top-Heavy Plan: A plan subject to special contribution rules because Key Employees Accounts hold 60% or more of Plan assets. (BPD15.3) Top-Heavy Ratio: The ratio of Key Employees Account balances to total assets of the Plan, used to determine whether a plan is top-heavy. (BPD15(c)) Wage Base: The maximum amount considered as wages for purposes of Social Security (FICA) tax, as in effect on the first day of the Plan Year. (BPD2.46) DRAFT OF 10/15/93 PUTNAM PROFIT SHARING AND 401(K) PLAN PLAN AGREEMENT #001 This is the Plan Agreement for a Putnam prototype profit sharing plan with optional Section 401(k) provisions. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at: Putnam Dedicated Corporate Services One Adams Place E2B Quincy, MA 02169 Phone: 1-800-752-9894 * * * * * By executing this Plan Agreement, the Employer establishes a profit sharing plan and trust upon the terms and conditions of Putnam Basic Plan Document #05, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. This Plan Agreement must be accepted by Putnam in order for the Employer to receive future amendments to the Putnam Profit Sharing and 401(k) Plan. * * * * * All Employers complete items 1-13 below. Employers who wish to adopt Section 401(k) provisions also complete item 14. 1. Business Information. The Employer adopting this Plan is: a. Business Name: ____________________________________ b. Business Address: _____________________________ ________________________SIC Code: _______ _______________________________ Person for Putnam to Contact: __________________________ Phone: __________________________ c. Federal Tax Identification Number: __________________ d. Form of Organization (check one): _____ Sole proprietorship _____ Corporation _____ Partnership _____ S Corporation e. Taxable Year of Business: ______ Calendar Year ______ Fiscal year ending on _______________________ 2. Plan Information. a. Plan Year. Check one: _____ The Plan Year will be the same as the Taxable Year of the Business shown in 1.E. above. If the Taxable Year of the Business changes, the Plan Year will change accordingly. _____ The Plan Year will be the period of 12 months beginning on the first day of __________________________ (month) and ending on the last day of __________________________ (month). The Plan Year will also be your Plan's Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan. If your Plan Year is the calendar year, do you wish to make the "calendar year election" for identifying your Highly Compensated Employees? _____ Yes _____ No b. Effective Date of Adoption of Plan. Are you adopting this Plan to replace an existing plan? _____ Yes _____ No If you answered Yes in 2.B. above, the Effective Date of your adoption of this Plan will be the first day of the current Plan Year. Please complete the following: ____________________________________________________________ Name of the plan you are replacing ____________________________________________________________ Original Effective Date of the plan you are replacing If you answered No in 2.B. above, the Effective Date of your adoption of this Plan will be the day you select below (not before the first day of the current Plan Year, and not before the day your Business began). The Effective Date is: _______________________ month/day/year 3. Eligibility for Plan Participation (Plan Section 3.1). Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below. a. Classes of Eligible Employees. The Plan requires coverage of all classes of employees of the Employer and any Affiliated Employer, except for union employees and nonresident aliens without U.S.-source income. The general rules of the Plan exclude employees in those two groups, but if you want employees in one or both categories to be eligible for your Plan, check the appropriate space below. The following employees will be eligible to participate in the Plan: _____ Members of the following collective bargaining unit(s) (give names of unions): ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ _____ Nonresident aliens with no U.S.-source income b. Age Requirement (check and complete one): _____ No minimum age required for participation _____ Employees must reach age __ (not over 21) to participate c. Service Requirements. i. To become eligible, an employee must complete (choose one): _____ a. No minimum service required. Skip the rest of this part C. _____ b. One 6-month Eligibility Period _____ c. One 12-month Eligibility Period _____ d. Two 12-month Eligibility Periods (may not be chosen if you adopt either Section 401(k) provisions under item 14 or a vesting schedule other than the first choice under item 8.A, which provides for 100% full and immediate vesting). ii. A 6-month Eligibility Period is a 6 month period beginning either on an employee's first day of work with the Employer, or on the date 6 months following the employee's first day of work and anniversaries of those dates. A 12-month Eligibility Period is the 12-month period beginning on an employee's first day of work with the Employer, and anniversaries of that date. If the Employer acquires a business, will the Eligibility Period for employees of the acquired business be the 12-month period beginning on the first day of work for the acquired business and anniversaries of that date (or the 6 month period beginning on the first day of work for the acquired business, the date 6 months following the first day of work and anniversaries of those dates, if applicable)? _____ Yes _____ No iii. a. To receive credit for a 6-month Eligibility Period, an employee must complete during it at least: _____ 500 Hours of Service _____ _____________ Hours of Service (under 500) Note: If you adopt a 6-month Eligibility Period, in any event, an employee will automatically receive credit for the Eligibility Period if the employee completes at least 1,000 Hours of Service during a 12-month consecutive month period following the first day of work. b. To receive credit for a 12-month Eligibility Period, an employee must complete during it at least: _____ 1,000 Hours of Service _____ _____________ Hours of Service (under 1,000) iv. Hours of Service will be credited to employees by the following method (check one): _____ a. Actual hours for which an employee is paid _____ b. Any employee who has one actual paid hour in the following period will be credited with the number of Hours of Service indicated (check one): _____ Day (10 Hours of Service) _____ Week (45 Hours of Service) _____ Semi-monthly payroll period (95 Hours of Service) _____ Month (190 Hours of Service) Note: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. v. Entry Dates. Each Employee in an eligible class who completes the age and service requirements specified above will begin to participate in the Plan on (check one): _____ The first day of the month in which he fulfills the requirements _____ The first of the following dates occurring after he fulfills the requirements (or, if earlier, the first day of the first Plan Year that begins after the date he fulfills the requirements) (check one): _____ The first day of any month (monthly). _____ The first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly). _____ The first day of the first month and the seventh month in a Plan Year (semiannually). d. (For New Plans Only) Will all Employees be required to meet the age and service requirements specified in B and C above? _____ Yes _____ No; all Employees on the Effective Date will be eligible as of the Effective Date, even if they have not met the age and service requirements. 4. Compensation (Plan Section 2.8). Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one): _____ Form W-2 earnings as defined in Section 2.8 of the Plan _____ Form W-2 earnings as defined in Section 2.8 of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer 5. Contributions (Plan Sections 4.1 - 4.3). a. Profit Limitation. Will Employer contributions to the Plan be limited to the current and accumulated profits of your Business? Check one: _____ Yes _____ No If you will make contributions only under the Section 401(k) provisions in item 14 of this Plan Agreement, skip the rest of this part 5. b. Amount. The Employer will contribute to the Plan for each Plan Year (check one): _____ An amount chosen by the Employer from year to year ______ ____% of the Earnings of all Qualified Participants for the Plan Year If you checked (2) above, will Forfeitures for a Plan Year be applied to reduce the amount of the contribution otherwise required? _____ Yes _____ No If you check No, Forfeitures will be allocated as though they were additional Employer Contributions. c. Allocations to Participants 1. Allocation to Qualified Participants. Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant unless, for reasons other than his death or Retirement, he is not an active Employee on the last day of the Plan Year, and he is not credited with more than 500 Hours of Service in the Plan Year. 2. Integration with Social Security. Contributions under paragraph B will be shared by Qualified Participants in proportion to their Earnings, unless you check one of the spaces below. _____ Each Qualified Participant's share will be a uniform dollar amount. _____ Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(d)(1) of the Basic Plan Document in every Plan Year, whether or not the Plan if top-heavy. _____ Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(d)(1) of the Basic Plan Document only in Plan Years in which the Plan is top-heavy. In all other Plan Years, contributions will be shared according to the Non-Top-Heavy Integration Formula in Section 4.2(d)(2) of the Basic Plan Document. 3. Integration Level. (Complete only if you have elected in 5C2 to integrate your Plan with Social Security). The Integration Level will be (check one): ____ The Social Security Wage Base in effect at the beginning of the Plan Year. ____ __% (not more than 100%) of the Social Security Wage Base in effect at the beginning of the Plan Year. ____ $__________ (not more than the Social Security Wage Base). D. Participant Contributions. Will your Plan allow Participants to make after-tax contributions? Yes No 6. Investments (Plan Sections 13.2 and 13.3). The Employer selects in part A below the Investment Products that will be available under the Plan (in addition to life insurance policies selected under Plan Article 14, if any). All Investment Products must be sponsored, underwritten, managed or expressly agreed to in writing by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts unless the Employer elects differently in B below. a. Available Investment Products (Plan Section 13.2). The following investments will be available under the Plan (check one): _____ The group of Putnam funds selected by the Employer and communicated to Participants in writing. A current list of the funds selected by the Employer from time to time shall be kept with the records of the Plan. The initial list of funds is as follows: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ______ Putnam Fiduciary Trust Company GIC Fund ______ Other Investment Products (as defined in Section 2.26 of the Plan) In the event that there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in the default option selected by the Employer in its Service Agreement with Putnam (or if the Employer makes no such selection, in Putnam Daily Dividend Trust) until instructions are received in good order, and the Employer will be deemed to have selected the option indicated in its Service Agreement with Putnam (or if none, Putnam Daily Dividend Trust) as an available Investment Product for that purpose. b. Instructions (Plan Section 13.3). Investment instructions for amounts held under the Plan generally will be given by each Participant for his own Accounts and delivered to Putnam as indicated in the Service Agreement between Putnam and the Employer. Check below only if the Employer will make investment decisions under the Plan. _____ The Employer will make investment decisions. c. Changes. Investment instructions may be changed (check one): _____ on any Valuation Date (daily) _____ on the first day of any month (monthly) _____ on the first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly) d. Voting of Employer Stock. Section 13.8 of the Plan provides that Employer Stock held as an investment under the Plan will be voted in accordance with the Employer's instructions unless the Employer elects that Participants will direct the voting of Employer Stock to the extent described in Section 13.8. Check below only if Participants will direct the voting of Employer Stock. _____ Participants are hereby appointed named fiduciaries for the purpose of voting of Employer Stock in accordance with Section 13.8. 7. Distributions and Withdrawals. a. Retirement Distributions. i. Normal Retirement Age (Plan Section 7.1). Normal retirement age will be _______ (not over the lesser of 65 or any mandatory retirement age enforced by the Employer). ii. Early Retirement (Plan Section 7.1). Check and complete the item below only if you want Participants to become fully vested upon fulfilling specified age and service requirements before reaching normal retirement age: _____ Early retirement will be permitted at age ____ with at least ________ Years of Service. iii. Annuities (Plan Section 9.3). Will your Plan permit a Participant to select a life annuity form of distribution? You must check Yes if this Plan replaces an existing Plan that permits distributions in life annuity form. Check one: _____ Yes _____ No b. Hardship Distributions (Plan Section 12.2). Will your Plan permit hardship distributions from Employer Contribution Accounts? You must check Yes if this Plan replaces an existing Plan that permits hardship distributions. Check one: _____ Yes _____ No c. Withdrawals after Age 59 1/2 (Plan Section 12.3). Will your Plan permit employees over age 59 1/2 to withdraw amounts upon request? You must check Yes if this Plan replaces an existing Plan that permits withdrawals after age 59 1/2. Check one: _____ Yes _____ No 8. Vesting. a. Time of Vesting. The provision checked below will determine a Participant's vested percentage in his Employer Contribution Account and, if you adopt the Section 401(k) provisions in item 14 and will make Employer Matching Contributions, his Employer Matching Contribution Account (check one): _____ 100% vesting immediately upon participation in the Plan. If you check this option, skip the rest of this part 8. _____ Six Year Graded Schedule: Vested Percentage 20% 40% 60% 80% 100% Years of Service 2 3 4 5 6 _____ Three Year Cliff Schedule: Vested Percentage 0% 100% Years of Service 0-2 3 _____ Other Schedule (must be at least as favorable as Six Year Graded Schedule or Three Year Cliff Schedule): Vested Percentage __% __% __% __% __% Years of Service ___ ___ ___ ___ ___ b. Service. Skip this part B if your Plan will include all of an employee's service in determining his Years of Service for vesting. Years of Service for vesting will exclude (check one or more): _____ Service before the Effective Date of the Plan, if this is a new plan, or service before the effective date of your existing plan, if this Plan replaces an existing plan _____ Service before the Plan Year in which an employee reached age 18 _____ Service for a business acquired by the Employer, before the date of acquisition c. Hours of Service. The number of Hours of Service required for crediting a Year of Service for vesting will be (check one): _____ 1,000 Hours of Service _____ ___________________ Hours of Service (under 1,000) d. Year of Service Measuring Period (Plan Section 2.49). The periods of 12 months used for measuring Years of Service will be (check one): _____ Plan Years _____ 12-month Eligibility Periods Note: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. 9. Loans. Will your Plan permit loans to employees from their Accounts? _____ Yes _____ No 10. Automatic Distribution of Small Accounts (Plan Section 9.1). Will your Plan automatically distribute vested account balances not exceeding $3,500, within 60 days after the end of the Plan Year in which a Participant separates from employment? _____ Yes _____ No Note: The time for distribution cannot be left to the discretion of the Employer or the Plan Administrator. If you check No above, small accounts will be distributable at the time selected by the Participant. 11. Top-Heavy Minimum Contributions (Plan Section 15.3). For any Plan Year in which the Plan is top-heavy, you must provide for each Participant who is a non-key employee and who is employed on the last day of the Plan Year an allocation equal to 3% of his Earnings (or if less, the highest percentage allocated to any key employee). Neither Elective Deferrals, nor Employer Matching Contributions nor Qualified Matching Contributions for a non-key employee may be taken into account for purposes of this requirement. Skip paragraphs A and B below if you do not maintain any other qualified plan in addition to this Plan. a. If you maintain another qualified plan in addition to this Plan, specify below whether a non-key employee who participates in both plans will receive a top-heavy minimum contribution (or benefit) in this Plan or the other plan (check one): The top-heavy minimum contribution (or benefit) for non-key employees participating both in this Plan and another qualified plan maintained by the Employer will be provided in: _____ This Plan _____ The plan named here: ______________________ b. (Skip this paragraph if you do not maintain a defined benefit plan.) If you maintain a defined benefit plan in addition to this Plan, and the Top-Heavy Ratio (as defined in Plan Section 15.2(c)) for the combined plans is between 60% and 90%, you may elect to provide an increased minimum allocation or benefit pursuant to Plan Section 15.4. Specify your election by completing the statement below: The Employer will provide an increased (specify contribution or benefit) __________________________________ in its (specify defined contribution or defined benefit) ______________________ plan as required under Plan Section 15.4. 12. Other Plans. Skip this item 12 if the Plan is the only qualified plan your Business has ever had. You must complete this section if you maintain or ever maintained another qualified plan in which any Participant in this Plan is (or was) a participant or could become a participant. The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below: a. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one): _____ The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan. _____ The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below. _________________________________________________________________ _________________________________________________________________ B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below: _________________________________________________________________ _________________________________________________________________ Note: Your description under A or B above must not leave the selection of a method to your discretion from year to year. 13. Administration. a. Plan Administrator (Plan Section 16.1). You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator. The initial Plan Administrator will be (check one): _____ This person: _______________________________ _____ A committee composed of these people: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ b. Recordkeeper (Plan Section 16.3). Unless Putnam expressly permits otherwise, you must appoint Putnam as Recordkeeper to perform certain routine services determined upon execution of a written Service Agreement between Putnam and you. The initial Recordkeeper will be: _______________________________________________________ Name _______________________________________________________ Address Complete item 14 below if your Plan will allow employees to elect pre-tax contributions under Section 401(k) of the Code. 14. Section 401(k) Plan Provisions (Plan Article 5). a. Elective Deferrals (Plan Section 5.2). i. A Participant may make Elective Deferrals in an amount not to exceed (check one): _____ (a) ___% of his Earnings _____ (b) $_______ (specify a dollar amount) for each payroll period Note: Elective Deferrals may not exceed the annual dollar limit under Section 402(g) of the Internal Revenue Code. ii. A Participant may begin to make Elective Deferrals, or change the amount of his Elective Deferrals, as of the following dates (check one): _____ First business day of each month (monthly). _____ First business day of the first, fourth, seventh and tenth months of the Plan Year (quarterly). _____ First business day of the first and seventh months of the Plan Year (semiannually). _____ First business day of the Plan Year only (annually). iii. May Participants make Elective Deferrals of bonuses? _____ Yes _____ No Note: You may choose to make Employer Matching Contributions or Qualified Matching Contributions, or neither, or both. Qualified Matching Contributions are always fully vested and cannot be distributed from the Plan before a Participant reaches age 59 1/2 or leaves employment. They will be used, to the extent needed, to help the Plan pass the ADP test explained on page __ of the Q & As. Employer Matching Contributions are subject to the vesting schedule elected in item 8 of this Plan Agreement, and can be withdrawn during employment in the event of financial hardship (as defined in Section 12.2 of the Plan) if you so elect in part F below. b. Employer Matching Contributions (Plan Section 5.8). Skip this part B if you will not make Employer Matching Contributions. i. The Employer will contribute and will allocate to each Participant's Employer Matching Account an amount equal to: (Check the provision(s) desired, and fill in the % blank(s) in each provision you check. If you wish to determine the amount of Employer Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check.) _____ ___% of Elective Deferrals _____ ___% of Elective Deferrals that do not exceed ___% of Earnings _____ ___% of Elective Deferrals that do not exceed ___% of Earnings plus ___% of Elective Deferrals that do not exceed ___% of Earnings _____ ___% of Elective Deferrals that do not exceed ___% of Earnings plus ___% of Elective Deferrals that do not exceed ___% of Earnings plus ___% of Elective Deferrals that do not exceed ___% of Earnings ii. Will forfeited Employer Matching Contributions be applied to reduce the total contribution specified in B.(1) above? _____ Yes _____ No If you check No, forfeited Employer Matching Contributions will be allocated as though they were additional Employer Matching Contributions. c. Qualified Matching Contributions (Plan Section 2.58). Skip this part C if you will not make Qualified Matching Contributions. i. Qualified Matching Contributions will be made with respect to (check one): _____ Elective Deferrals by all Participants _____ Elective Deferrals only by Non-Highly Compensated Participants ii. The amount of Qualified Matching Contributions made with respect to a Participant will be: (Check the provision desired and fill in the % blank(s) in the provision you check. If you wish to determine the amount of Qualified Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check.) _____ ___% of his Elective Deferrals _____ ___% of his Elective Deferrals that do not exceed ___% of his Earnings _____ ___% of his Elective Deferrals that do not exceed ___% of Earnings, plus ___% of Elective Deferrals that do not exceed ___% of Earnings _____ ___% of his Earnings d. Qualified Nonelective Contributions (Plan Section 2.60): Skip this part D if you will not make Qualified Nonelective Contributions. i. Qualified Nonelective Contributions will be made on behalf of (check one): _____ All Participants _____ Only Participants who are not Highly Compensated Employees ii. The amount of Qualified Nonelective Contributions for a Plan Year will be (check one): _____ ___% (not over 15%) of the Earnings of Participants on whose behalf Qualified Nonelective Contributions are made _____ An amount determined by the Employer from year to year, to be shared in proportion to Earnings by Participants on whose behalf Qualified Nonelective Contributions are made Note: Qualified Nonelective Contributions will be used, to the extent needed, to help the Plan pass the ADP test, explained on page __ of the Q & As. e. ACP Test. Every plan that has after-tax Participant Contributions, Employer Matching Contributions or Qualified Matching Contributions must pass an annual test called the ACP test, which is explained on page __ of the Q & As. Elective Deferrals and Qualified Nonelective Contributions will be used to help the Plan pass the ACP test, to the extent needed. f. Hardship Distributions from 401(k) Accounts (Plan Sections 12.2 and 5.14). i. Will your Plan permit hardship distributions from Elective Deferral Accounts? Check one: _____ Yes _____ No ii. If your Plan has Employer Matching Contributions, will it permit hardship distributions from Employer Matching Accounts? You must check Yes if this Plan replaces an existing plan that permits hardship distributions. Check one: _____ Yes _____ No 15. Reliance on Opinion Letter. If you ever maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate accounts for key employees, as defined in Section 419A(d)(3) of the Code; or an individual medical account, as defined in Section 415(l)(2) of the Code) in addition to this plan, you may not rely on an opinion letter issued to Putnam by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Internal Revenue Code. If you maintain or adopt multiple plans, in order to obtain reliance with respect to plan qualification of the Plan, you must receive a determination letter from the appropriate Key District Office of Internal Revenue. Putnam will prepare an application for such a letter upon your request at a fee agreed upon by the parties. The Employer may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this plan is qualified under Section 401 of the Code unless the terms of the plan, as herein adopted or amended, that pertain to the requirements of Section 401(a)(4), 401(a)(17), 401(1), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986 or later laws, (a) are made effective retroactively to the first day of the first Year beginning after December 31, 1988 (or such later date on which these requirements first become effective with respect to this plan); or (b) are made effective no later than the first day on which the Employer is no longer entitled, under regulations, to rely on a reasonable, good faith interpretation of these requirements, and the prior provisions of the plan constitute such an interpretation. Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #001 may be used only in conjunction with Putnam's basic plan document #05. * * * * * EMPLOYER'S ADOPTION OF PUTNAM PROFIT SHARING AND 401(k) PLAN The Employer named below hereby adopts a PUTNAM PROFIT SHARING AND 401(k) PLAN, and appoints __________________ to serve as Trustee of the Plan. (Note: you may appoint a trustee other than Putnam Fiduciary Trust Company only with Putnam's express permission.) The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be acknowledged by Putnam as a Putnam Profit Sharing and 401(k) Plan only upon Putnam's acceptance of this Plan Agreement. Employer signature(s) to adopt Plan: Date of signature: _________________________________________________________________ _________________________________________________________________ Please print name(s) of authorized person(s) signing above: _________________________________________________________________ Phone:____________________ _________________________________________________________________ Phone:____________________ A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective. INVESTMENT DEALER INFORMATION Firm: _________________________________________________________________ Branch: ________________________________________________________________ Address: _________________________________________________________________ Registered Representative: ___________________________________ Name _________________________________________ Phone * * * * * ACCEPTANCE OF TRUSTEE The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above. A. Putnam Fiduciary Trust Company, Trustee By: _________________________________________________________________ Complete Part B only if you have appointed a Trustee other than Putnam Fiduciary Trust Company. Note: Putnam may impose an annual maintenance fee as a condition of its acceptance of this plan as a Putnam Prototype Profit Sharing and 401(k) Plan. B. _________________________________, Trustee By: _________________________________ Trustee's Tax I.D. Number _______________ (Trustee) _________________________________________________________________ Address of Trustee Person for Putnam to Contact: ________________________________ P h o n e : _______________ Complete Part C only if insurance Policies will be purchased under Article 14 of the Plan (in addition to Putnam Investment Products). C. Appointment and Acceptance of Insurance Trustee 1. Appointment to: _________________________________________________________________ Name of Insurance Trustee You are hereby designated as Insurance Trustee for Policies to be held in accordance with the terms and conditions of this Plan and Trust. Employer signature to appoint Insurance Trustee: By:______________________________________________________________ (Authorized Signature) 2. Acceptance as Insurance Trustee is agreed to in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer as set forth above. By:_____________________________________ Trustee's Tax I.D. Number _________________ _________________________________________________________________ Address of Insurance Trustee Person for Putnam to Contact: ________________________________ Phone: _______________ * * * * * ACCEPTANCE BY PUTNAM Putnam hereby accepts this Employer's Plan as a prototype established under Putnam Basic Plan Document #05. Putnam Mutual Funds Corp. By: ______________________________ DRAFT OF 10/18/93 PUTNAM MONEY PURCHASE PLAN PLAN AGREEMENT #002 This is the Plan Agreement for a Putnam prototype money purchase plan. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at: Putnam Dedicated Corporate Services One Adams Place E2B Quincy, MA 02169 Phone: 1-800-752-9894 * * * * * By executing this Plan Agreement, the Employer establishes a money purchase plan and trust upon the terms and conditions of Putnam Basic Plan Document #05, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM MONEY PURCHASE PLAN. * * * * * 16. Business Information. The Employer adopting this Plan is: a. Business Name: ____________________________________ b. Business Address: ______________________________ _______________________________ SIC Code: ______ _______________________________ Person for Putnam to Contact: __________________________ Phone: __________________________ c. Federal Tax Identification Number: _____________ d. Form of Organization (check one): _____ Sole proprietorship _____ Corporation _____ Partnership _____ S Corporation e. Taxable Year of Business: ______ Calendar Year ______ Fiscal year ending on ________________________ 17. Plan Information. a. Plan Year. Check one: _____ The Plan Year will be the same as the Taxable Year of the Business shown in 1.E. above. If the Taxable Year of the Business changes, the Plan Year will change accordingly. _____ The Plan Year will be the period of 12 months beginning on the first day of __________________________ (month) and ending on the last day of __________________________ (month). The Plan Year will also be your Plan's Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan. If your Plan Year is the calendar year, do you wish to make the "calendar year election" for identifying your Highly Compensated Employees? _____ Yes _____ No b. Effective Date of Adoption of Plan. Are you adopting this Plan to replace an existing plan? _____ Yes _____ No If you answered Yes in 2.B. above, the Effective Date of your adoption of this Plan will be the first day of the current Plan Year. Please complete the following: _____________________________________________________________ Name of the plan you are replacing ______________________________________________________________ Original Effective Date of the plan you are replacing If you answered No in 2.B. above, the Effective Date of your adoption of this Plan will be the day you select below (not before the first day of the current Plan Year, and not before the day your Business began). The Effective Date is: _______________________ month/day/year 18. Eligibility for Plan Participation (Plan Section 3.1). Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below. a. Classes of Eligible Employees. The Plan requires coverage of all classes of employees of the Employer and any Affiliated Employer, except for union employees and nonresident aliens without U.S.-source income. The general rules of the Plan exclude employees in those two groups, but if you want employees in one or both categories to be eligible for your Plan, check the appropriate space below. The following employees will be eligible to participate in the Plan: _____ Members of the following collective bargaining unit(s) (give names of unions): ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ _____ Nonresident aliens with no U.S.-source income b. Age Requirement (check and complete one): _____ No minimum age required for participation _____ Employees must reach age __ (not over 21) to participate c. Service Requirements. i. To become eligible, an employee must complete (choose one): _____ a. No minimum service required. Skip the rest of this part C. _____ b. One 6-month Eligibility Period _____ c. One 12-month Eligibility Period _____ d. Two 12-month Eligibility Periods (may not be chosen if you adopt either Section 401(k) provisions under item 14 or a vesting schedule other than the first choice under item 8.A, which provides for 100% full and immediate vesting). ii. A 6-month Eligibility Period is a 6-month period beginning either on an employee's first day of work with the Employer or on the date 6-months following the employee's first day of work, and anniversaries of those dates. A 12-month Eligibility Period is the 12-month period beginning on an employee's first day of work with the Employer, and anniversaries of that date. If the Employer acquires a business, will the Eligibility Period for employees of the acquired business be the 12-month period beginning on the first day of work for the acquired business and anniversaries of that date (or the 6-month period beginning on the first day of work for the acquired business, the date 6 months following the first day of work and anniversaries of those dates, if applicable)? _____ Yes _____ No iii. a. To receive credit for a 6-month Eligibility Period, an employee must complete during it at least: _____ 500 Hours of Service _____ _____________ Hours of Service (under 500) Note: If you adopt a 6-month Eligibility Period, in any event, an employee will automatically receive credit for the Eligibility Period if the employee completes at least 1,000 Hours of Service during a 12-month consecutive month period following the first day of work. b. To receive credit for a 12-month Eligibility Period, an employee must complete during it at least: _____ 1,000 Hours of Service _____ _____________ Hours of Service (under 1,000) iv. Hours of Service will be credited to employees by the following method (check one): _____ a. Actual hours for which an employee is paid _____ b. Any employee who has one actual paid hour in the following period will be credited with the number of Hours of Service indicated (check one): _____ Day (10 Hours of Service) _____ Week (45 Hours of Service) _____ Semi-monthly payroll period (95 Hours of Service) _____ Month (190 Hours of Service) Note: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. v. Entry Dates. Each Employee in an eligible class who completes the age and service requirements specified above will begin to participate in the Plan on (check one): _____ The first day of the month in which he fulfills the requirements. _____ The first of the following dates occurring after he fulfills the requirements (or, if earlier, the first day of the first Plan Year that begins after the date he fulfills the requirements) (check one): _____ The first day of any month (monthly). _____ The first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly). _____ The first day of the first month and the seventh month in a Plan Year (semiannually). d. (For New Plans Only) Will all Employees be required to meet the age and service requirements specified in B and C above? _____ Yes _____ No; all Employees on the Effective Date will be eligible as of the Effective Date, even if they have not met the age and service requirements. 19. Compensation (Plan Section 2.8). Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one): _____ Form W-2 earnings as defined in Section 2.8 of the Plan. _____ Form W-2 earnings as defined in Section 2.8 of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer. _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan. _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer. 20. Contributions (Plan Section 4.3). a. Amount. The Employer will contribute to the Plan for each Plan Year this Basic Contribution Percentage (not more than 25%) ____% of the Earnings of all Qualified Participants for the Plan Year. b. Allocations to Participants 1. Allocation to Qualified Participants. Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant unless, for reasons other than his death or Retirement, he is not an active Employee on the last day of the Plan Year, and he is not credited with more than 500 Hours of Service in the Plan Year. 2. Integration with Social Security. Contributions under paragraph B will be shared by Qualified Participants in proportion to their Earnings, unless you check the following space to indicate that your Plan will be integrated with Social Security, as explained on page 3 of the Qs & As. The Plan will be integrated with Social Security, and the Base Contribution Percentage will be ___% (not less than 3% unless you will perform annual top-heavy testing for your Plan). 3. Integration Level. (Complete only if you have elected in 5.B.2. to integrate your Plan with Social Security). The Integration Level will be (check one): ____ The Social Security Wage Base in effect at the beginning of the Plan Year. ____ __% (not more than 100%) of the Social Security Wage Base in effect at the beginning of the Plan Year. ____ $__________ (not more than the Social Security Wage Base). c. Participant Contributions. Will your Plan allow Participants to make after-tax contributions? Yes No 21. Investments (Plan Sections 13.2 and 13.3). The Employer selects in part A below the Investment Products that will be available under the Plan (in addition to life insurance policies selected under Plan Article 14, if any). All Investment Products must be sponsored, underwritten, managed or expressly agreed to in writing by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts unless the Employer elects differently in B below. a. Available Investment Products (Plan Section 13.2). The following investments will be available under the Plan (check one): _____ The group of Putnam funds selected by the Employer and communicated to Participants in writing. A current list of the funds selected by the Employer from time to time shall be kept with the records of the Plan. The initial list of funds is as follows: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ______ Putnam Fiduciary Trust Company GIC Fund ______ Other Investment Products (as defined in Section 2.26 of the Plan) In the event that there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in the default option selected by the Employer in its Service Agreement with Putnam (or if the Employer makes no such selection, in Putnam Daily Dividend Trust) until instructions are received in good order, and the Employer will be deemed to have selected the option indicated in its Service Agreement with Putnam (or if none, Putnam Daily Dividend Trust) as an available Investment Product for that purpose. b. Instructions (Plan Section 13.3). Investment instructions for amounts held under the Plan generally will be given by each Participant for his own Accounts and delivered to Putnam as indicated in the Service Agreement between Putnam and the Employer. Check below only if the Employer will make investment decisions under the Plan. _____ The Employer will make investment decisions. c. Changes. Investment instructions may be changed (check one): _____ on any Valuation Date (daily) _____ on the first day of any month (monthly) _____ on the first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly) d. Voting of Employer Stock. Section 13.8 of the Plan provides that Employer Stock held as an investment under the Plan will be voted in accordance with the Employer's instructions unless the Employer elects that Participants will direct the voting of Employer Stock to the extent described in Section 13.8. Check below only if Participants will direct the voting of Employer Stock. _____ Participants are hereby appointed named fiduciaries for the purpose of voting of Employer Stock in accordance with Section 13.8. 22. Retirement Age. a. Normal Retirement Age (Plan Section 7.1). Normal retirement age will be _______ (not over the lesser of 65 or any mandatory retirement age enforced by the Employer). b. Early Retirement (Plan Section 7.1). Check and complete the item below only if you want Participants to become fully vested upon fulfilling specified age and service requirements before reaching normal retirement age: _____ Early retirement will be permitted at age ____ with at least ________ Years of Service. 23. Vesting. a. Time of Vesting. The provision checked below will determine a Participant's vested percentage in his Employer Contribution Account. _____ 100% vesting immediately upon participation in the Plan. If you check this option, skip the rest of this part 8. _____ Six Year Graded Schedule: Vested Percentage 20% 40% 60% 80% 100% Years of Service 2 3 4 5 6 _____ Three Year Cliff Schedule: Vested Percentage 0% 100% Years of Service 0-2 3 _____ Other Schedule (must be at least as favorable as Six Year Graded Schedule or Three Year Cliff Schedule): Vested Percentage __% __% __% __% __% Years of Service ___ ___ ___ ___ ___ b. Service. Skip this part B if your Plan will include all of an employee's service in determining his Years of Service for vesting. Years of Service for vesting will exclude (check one or more): _____ Service before the Effective Date of the Plan, if this is a new plan, or service before the effective date of your existing plan, if this Plan replaces an existing plan _____ Service before the Plan Year in which an employee reached age 18 _____ Service for a business acquired by the Employer, before the date of acquisition c. Hours of Service. The number of Hours of Service required for crediting a Year of Service for vesting will be (check one): _____ 1,000 Hours of Service _____ ___________________ Hours of Service (under 1,000) d. Year of Service Measuring Period (Plan Section 2.49). The periods of 12 months used for measuring Years of Service will be (check one): _____ Plan Years _____ 12-month Eligibility Periods NOTE: IF YOU ARE ADOPTING THIS PLAN TO REPLACE AN EXISTING PLAN, EMPLOYEES WILL BE CREDITED UNDER THIS PLAN WITH ALL SERVICE CREDITED TO THEM UNDER THE PLAN YOU ARE REPLACING. 24. Loans. Will your Plan permit loans to employees from their Accounts? _____ Yes _____ No 25. Automatic Distribution of Small Accounts (Plan Section 9.1). Will your Plan automatically distribute vested account balances not exceeding $3,500, within 60 days after the end of the Plan Year in which a Participant separates from employment? _____ Yes _____ No Note: The time for distribution cannot be left to the discretion of the Employer or the Plan Administrator. If you check No above, small accounts will be distributable at the time selected by the Participant. 26. Top-Heavy Minimum Contributions (Plan Section 15.3). For any Plan Year in which the Plan is top-heavy, you must provide for each Participant who is a non-key employee and who is employed on the last day of the Plan Year an allocation equal to 3% of his Earnings (or if less, the highest percentage allocated to any key employee). Skip paragraphs A and B below if you do not maintain any other qualified plan in addition to this Plan. a. If you maintain another qualified plan in addition to this Plan, specify below whether a non-key employee who participates in both plans will receive a top-heavy minimum contribution (or benefit) in this Plan or the other plan (check one): The top-heavy minimum contribution (or benefit) for non-key employees participating both in this Plan and another qualified plan maintained by the Employer will be provided in: _____ This Plan (Check this if the other plan is another Putnam prototype plan.) _____ The plan named here: ______________________ b. (Skip this paragraph if you do not maintain a defined benefit plan.) If you maintain a defined benefit plan in addition to this Plan, and the Top-Heavy Ratio (as defined in Plan Section 15.2(c)) for the combined plans is between 60% and 90%, you may elect to provide an increased minimum allocation or benefit pursuant to Plan Section 15.4. Specify your election by completing the statement below: The Employer will provide an increased (specify contribution or benefit) __________________________________ in its (specify defined contribution or defined benefit) ______________________ plan as required under Plan Section 15.4. 27. Other Plans. Skip this item 12 if the Plan is the only qualified plan your Business has ever had. You must complete this section if you maintain or ever maintained another qualified plan in which any Participant in this Plan is (or was) a participant or could become a participant. The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below: a. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one): _____ The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan. _____ The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below. _________________________________________________________________ ________________________________________________________________ B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below: _________________________________________________________________ ________________________________________________________________ NOTE: YOUR DESCRIPTION UNDER A OR B ABOVE MUST NOT LEAVE THE SELECTION OF A METHOD TO YOUR DISCRETION FROM YEAR TO YEAR. If your Business has ever maintained a defined benefit plan, state below the interest rate and mortality table to be used in establishing the present value of any benefit under the defined benefit plan for purposes of computing the top-heavy ratio: Interest rate: %______________________________________ Mortality table: __________________________________ 28. Administration. a. Plan Administrator (Plan Section 16.1). You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator. The initial Plan Administrator will be (check one): _____ This person: _______________________________ _____ A committee composed of these people: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ b. Recordkeeper (Plan Section 16.3). Unless Putnam expressly permits otherwise, you must appoint Putnam as Recordkeeper to perform certain routine services determined upon execution of a written Service Agreement between Putnam and you. The initial Recordkeeper will be: ______________________________________________________ Name ______________________________________________________ Address 29. Reliance on Opinion Letter. If you ever maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate accounts for key employees, as defined in Section 419A(d)(3) of the Code; or an individual medical account, as defined in Section 415(l)(2) of the Code) in addition to this plan, you may not rely on an opinion letter issued to Putnam by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Internal Revenue Code. If you maintain or adopt multiple plans, in order to obtain reliance with respect to plan qualification of the Plan, you must receive a determination letter from the appropriate Key District Office of Internal Revenue. Putnam will prepare an application for such a letter upon your request at a fee agreed upon by the parties. The Employer may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this plan is qualified under Section 401 of the Code unless the terms of the plan, as herein adopted or amended, that pertain to the requirements of Section 401(a)(4), 401(a)(17), 401(1), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986 or later laws, (a) are made effective retroactively to the first day of the first Year beginning after December 31, 1988 (or such later date on which these requirements first become effective with respect to this plan); or (b) are made effective no later than the first day on which the Employer is no longer entitled, under regulations, to rely on a reasonable, good faith interpretation of these requirements, and the prior provisions of the plan constitute such an interpretation. Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #002 may be used only in conjunction with Putnam's basic plan document #05. * * * * * EMPLOYER'S ADOPTION OF PUTNAM MONEY PURCHASE PLAN The Employer named below hereby adopts a PUTNAM MONEY PURCHASE PLAN, and appoints __________________ to serve as Trustee of the Plan. (Note: you may appoint a trustee other than Putnam Fiduciary Trust Company only with Putnam's express permission.) The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be acknowledged by Putnam as a Putnam Money Purchase Plan only upon Putnam's acceptance of this Plan Agreement. Employer signature(s) to adopt Plan: Date of signature: ____________________________________________________ ____________________________________________________ Please print name(s) of authorized person(s) signing above: ____________________________________________________ Phone:____________________ ____________________________________________________ Phone:____________________ A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective. INVESTMENT DEALER INFORMATION Firm: ____________________________________________________________ Branch: __________________________________________________________ Address: ________________________________________________________ Registered Representative:__________________________________ Name ______________________________________ Phone * * * * * ACCEPTANCE OF TRUSTEE The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above. A. Putnam Fiduciary Trust Company, Trustee By: ______________________________________________________________ Complete Part B only if you have appointed a Trustee other than Putnam Fiduciary Trust Company. Note: Putnam may impose an annual maintenance fee as a condition of its acceptance of this plan as a Putnam Prototype Money Purchase Plan. B. _________________________________, Trustee By: _________________________________ Trustee's Tax I.D. Number _______________ (Trustee) _________________________________________________________________ Address of Trustee Person for Putnam to Contact: ________________________________ P h o n e : _______________ Complete Part C only if insurance Policies will be purchased under Article 14 of the Plan (in addition to Putnam Investment Products). C. Appointment and Acceptance of Insurance Trustee 1. Appointment to: _________________________________________________________________ Name of Insurance Trustee You are hereby designated as Insurance Trustee for Policies to be held in accordance with the terms and conditions of this Plan and Trust. Employer signature to appoint Insurance Trustee: By:_____________________________________________________________ (Authorized Signature) 2. Acceptance as Insurance Trustee is agreed to in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer as set forth above. By:___________________ Trustee's Tax I.D. Number ________ _______________________________________________________________ Address of Insurance Trustee Person for Putnam to Contact: ________________________________ Phone: _____________ * * * * * ACCEPTANCE BY PUTNAM Putnam hereby accepts this Employer's Plan as a prototype established under Putnam Basic Plan Document #05. Putnam Mutual Funds Corp. By: ______________________________ PUTNAM PROFIT SHARING AND 401(K) PLAN PLAN AGREEMENT #003 This is the Plan Agreement for a Putnam prototype profit sharing plan with optional Section 401(k) provisions. Please consult a tax or legal advisor and review the entire form before you sign it. If you fail to fill out this Putnam Plan Agreement properly, the Plan may be disqualified. You can get further information to help you complete the Plan Agreement from your investment dealer, or from Putnam at: Putnam Defined Contribution Plans Attn: Trust Administration/Level 3 859 Willard St. E3D Quincy, MA 02269 Phone: 1-800-752-5766 * * * * * By executing this Plan Agreement, the Employer establishes a profit sharing plan and trust upon the terms and conditions of Putnam Basic Plan Document #05, as supplemented and modified by the provisions elected by the Employer in this Plan Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM PROFIT SHARING AND 401(K) PLAN. * * * * * All Employers complete items 1-11 below. Employers who wish to adopt Section 401(k) provisions also complete item 12. 30. Business Information. The Employer adopting this Plan is: a. Business Name: ____________________________________ b. Business Address: ______________________________ _______________________________ _______________________________ Person for Putnam to Contact: __________________________ Phone: __________________________ c. Federal Tax Identification Number: _____________ d. Form of Organization (check one): _____ Sole proprietorship _____ Corporation _____ Partnership _____ S Corporation e. Taxable Year of Business: _____ Calendar Year _____ Fiscal year ending on _______________________ 31. Plan Information. a. Plan Year. Check one: _____ The Plan Year will be the same as the Taxable Year of the Business shown in 2.A. above. If the Taxable Year of the Business changes, the Plan Year will change accordingly. _____ The Plan Year will be the period of 12 months beginning on the first day of __________________________ (month) and ending on the last day of __________________________ (month). The Plan Year will also be your Plan's Limitation Year for purposes of the contribution limitation rules in Article 6 of the Plan. b. Effective Date of Adoption of Plan. Are you adopting this Plan to replace an existing plan? _____ Yes _____ No If you answered Yes in 2.B. above, please complete the following: _____________________________________________________________ Name of the plan you are replacing ______________________________________________________________ Original Effective Date of the plan you are replacing The Effective Date of your adoption of this Plan will be the day you select below (not before the first day of the current Plan Year, and not before the day your Business began). The Effective Date is: _______________________ month/day/year c. Identifying Highly Compensated Employees. Check One: _____ The Plan will use the regular method under Plan Section 2.56 for identifying Highly Compensated Employees. If your Plan Year is the calendar year, do you wish to make the regular method's "calendar year election" for identifying your Highly Compensated Employees? _____ Yes _____ No _____ The Plan will use the simplified method under Plan Section 2.56 for identifying Highly Compensated Employees. 32. Eligibility for Plan Participation (Plan Section 3.1). Employees will be eligible to participate in the Plan when they complete the requirements you select in A, B and C below. a. Classes of Eligible Employees. The Plan requires coverage of all classes of employees of the Employer and any Affiliated Employer, except for union employees and nonresident aliens without U.S.-source income. The general rules of the Plan exclude employees in those two groups, but if you want employees in one or both categories to be eligible for your Plan, check the appropriate space below. The following employees will be eligible to participate in the Plan: _____ Members of the following collective bargaining unit(s) (give names of unions): _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _____ Nonresident aliens with no U.S.-source income b. Age Requirement (check and complete one): _____ No minimum age required for participation _____ Employees must reach age ___ (not over 21) to participate c. Service Requirements. A 6-month Eligibility Period is a 6-month period beginning either on an employee's first day of work with the Employer or on the date 6 months following the employee's first day of work, and anniversaries of those dates. A 12-month Eligibility Period is the 12- month period beginning on an employee's first day of work with the Employer, and anniversaries of that date. i. To become eligible, an employee must complete (choose one): _____ a. No minimum service required. Skip the rest of this part C. _____ b. One 6-month Eligibility Period _____ c. One 12-month Eligibility Period _____ d. Two 12-month Eligibility Periods (may not be chosen if you adopt either the Section 401(k) provisions under item 12 or a vesting schedule other than the first choice under item 8.A, which provides for 100% full and immediate vesting). ii. If the Employer acquires a business, will the Eligibility Period for employees of the acquired business be the 12-month period beginning on the first day of work for the acquired business, and anniversaries of that date (or the 6-month period beginning on the first day of work for the acquired business, the date 6 months following the first day of work and anniversaries of those dates, if applicable)? _____ Yes _____ No iii. a. To receive credit for a 6-month Eligibility Period, an employee must complete during it at least: _____ 500 Hours of Service _____ _____________ Hours of Service (must be 1 hour or more) (under 500) Note: If you adopt a 6-month Eligibility Period, in any event, an employee will automatically receive credit for the Eligibility Period if the employee completes at least 1,000 Hours of Service during a 12 consecutive month period following the first day of work. b. To receive credit for a 12-month Eligibility Period, an employee must complete it during at least: _____ 1,000 Hours of Service _____ _____________ Hours of Service (must be 1 hour or more) (under 1,000) iv. Hours of Service will be credited to employees by the following method (check one): _____ a. Actual hours for which an employee is paid _____ b. Any employee who has one actual paid hour in the following period will be credited with the number of Hours of Service indicated (check one): _____ Day (10 Hours of Service) _____ Week (45 Hours of Service) _____ Semi-monthly payroll period (95 Hours of Service) _____ Month (190 Hours of Service) Note: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. v. Entry Dates. Each Employee in an eligible class who completes the age and service requirements specified above will begin to participate in the Plan on (check one): _____ The first day of the month in which he fulfills the requirements. _____ The first of the following dates occurring after he fulfills the requirements (check one): _____ The first day of the month following the date he fulfills the requirements (monthly). _____ The first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly). _____ The first day of the first month and the seventh month in a Plan Year (semiannually). d. (For New Only) Will all Employees be required to meet the age and service requirements specified in B and C above? _____ Yes _____ No; all Employees on the Effective Date will be eligible as of the Effective Date, even if they have not met the age and service requirements. 33. Compensation (Plan Section 2.8). Compensation for purposes of the Plan will be the amount of the following that is actually paid by your Business to an employee during the Plan Year (check one): _____ Form W-2 earnings as defined in Section 2.8 of the Plan. _____ Form W-2 earnings as defined in Section 2.8 of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer. _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan. _____ All compensation included in the definition of Code Section 415 Compensation in Section 6.5(b) of the Plan, plus any amounts withheld from the employee under a 401(k) plan, cafeteria plan, SARSEP, tax sheltered 403(b) arrangement, or Code Section 457 deferred compensation plan, or contributions described in Code Section 414(h)(2) that are picked up by a governmental employer. 34. Contributions (Plan Sections 4.1 and 4.2). a. Profit Limitation. Will Employer contributions to the Plan be limited to the current and accumulated profits of your business? (check one): _____ Yes _____ No If you will make contributions only under the Section 401(k) provisions in item 12 of this Plan Agreement, skip the rest of this part 5. b. Amount. The Employer will contribute to the Plan for each Plan Year (check one): _____ An amount chosen by the Employer from year to year ______ ____% of the Earnings of all Qualified Participants for the Plan Year ______ $____ for each Qualified Participant How will Forfeitures of Employer Contributions (Profit Sharing) be applied? _____ to reduce the amount of the contribution otherwise required _____ to reallocate as an additional Employer Contribution to current participants c. Allocations to Participants 1. Allocation to Qualified Participants. Any Employee who has met the eligibility requirements in item 3 of this Plan Agreement is a Qualified Participant unless, for reasons other than his death or Retirement, he is not an active Employee on the last day of the Plan Year, and he is not credited with more than 500 Hours of Service in the Plan Year. How will contributions be allocated? _______ Prorata (percentage based on compensation) _______ Uniform Dollar (specific dollar amount for each participant) $ _______. _______ Integrated With Social Security (complete (2) and (3) below) 2. Integration with Social Security. Contributions under paragraph B will be shared by Qualified Participants in proportion to their Earnings, unless you check one of the spaces below. _____ Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(d)(1) of the Basic Plan Document in every Plan Year, whether or not the Plan is top-heavy. _____ Contributions will be shared according to the Top-Heavy Integration Formula in Section 4.2(d)(1) of the Basic Plan Document only in Plan Years in which the Plan is top-heavy. In all other Plan Years, contributions will be shared according to the Non-Top-Heavy Integration Formula in Section 4.2(d)(2) of the Basic Plan Document. 3. Integration Level. (Complete only if you have elected in 5.C.2 to integrate your Plan with Social Security. The Integration Level will be (check one): ____ The Social Security Wage Base in effect at the beginning of the Plan Year. ____ __% (not more than 100%) of the Social Security Wage Base in effect at the beginning of the Plan Year. ____ $__________ (not more than the Social Security Wage Base). NOTE: The Social Security Wage Base is indexed annually to reflect increases in the cost of living. D. Participant Contributions (Plan Section 4.2(f)). Will your Plan allow Participants to make after-tax contributions? Yes No 35. Investments (Plan Sections 13.2 and 13.3). The Employer selects in part A below the Investment Products that will be available under the Plan. All Investment Products must be sponsored, underwritten, managed or expressly agreed to in writing by Putnam. From the group of available Investment Products selected by the Employer, each Participant chooses the investments for his own Accounts unless the Employer elects differently in B below. a. Available Investment Products (Plan Section 13.2). The following investments will be available under the Plan (check one): Mutual Funds _____ The group of Putnam funds selected by the Employer and communicated to Participants in writing. A current list of the funds selected by the Employer from time to time shall be kept with the records of the Plan. The initial list of funds is as follows (up to six (6) funds may be selected): _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ Other Investment Options ______ Putnam Stable Value Fund ______ Existing Guaranteed Investment Contract ("GIC") ______________________________ Note: You may include an existing GIC option above, provided that the entire balance of the contract(s) mature within three years of the date your assets are transferred to Putnam. In the event that there is any amount in the Trust Fund for which no instructions or unclear instructions are delivered, it will be invested in the default option selected by the Employer in its Service Agreement with Putnam (or if the Employer makes no such selection, in Putnam Daily Dividend Trust) until instructions are received in good order, and the Employer will be deemed to have selected the option indicated in its Service Agreement with Putnam (or if none, Putnam Daily Dividend Trust) as an available Investment Product for that purpose. b. Instructions (Plan Section 13.3). Investment instructions for amounts held under the Plan generally will be given by each Participant for his own Accounts and delivered to Putnam as indicated in the Service Agreement between Putnam and the Employer. Check below only if the Employer will make investment decisions under the Plan with respect to the following contributions made to the Plan. _____ The Employer will make all investment decisions. _____ The Employer will make investment decisions with respect to Employer Matching Contributions made pursuant to Section 12.B and C of this Plan Agreement. _____ The Employer will make investment decisions with respect to Qualified Nonelective Contributions made pursuant to Section 12.D of this Plan Agreement. _____ The Employer will make investment decisions with respect to Employer profit sharing contributions made pursuant to Section 5.B. of this Plan Agreement. c. Changes. Investment instructions may be changed (check one): _____ on any Valuation Date (daily) _____ on the first day of any month. _____ on the first day of the first, fourth, seventh and tenth months in a Plan Year (quarterly) 36. Distributions and Withdrawals. a. Retirement Distributions. i. Normal Retirement Age (Plan Section 7.1). Normal retirement age will be _______ (not over age 65). ii. Early Retirement (Plan Section 7.1). Check and complete the item below only if you want Participants to become fully vested upon fulfilling specified age and service requirements before reaching normal retirement age: _____ Early retirement will be permitted at age ____ with at least ________ Years of Service. iii. Annuities (Plan Section 9.3). Will your Plan permit a Participant to select a life annuity form of distribution? You must check Yes if this Plan replaces an existing plan that permits distributions in life annuity form. Check one: _____ Yes _____ No b. Hardship Distributions (Plan Section 12.2). Will your Plan permit hardship distributions from Employer Contribution Accounts? You must check Yes if this Plan replaces an existing plan that permits hardship distributions from Employer Contribution Accounts. Check one: _____ Yes _____ No c. Withdrawals after Age 59 1/2 (Plan Section 12.3). Will your Plan permit employees over age 59 1/2 to withdraw amounts upon request? You must check Yes if this Plan replaces an existing plan that permits withdrawals after age 59 1/2. (check one): _____ Yes _____ No d. Loans. Will your Plan permit loans under the Putnam Loan Program to employees from their Accounts? (Note: no other loan program may be used) _____ Yes _____ No e. Automatic Distribution of Small Accounts (Plan Section 9.1). Will your Plan automatically distribute vested account balances not exceeding $3,500, within 60 days after the end of the Plan Year in which a Participant separates from employment? _____ Yes _____ No Note: If you check No above, the time for distribution cannot be left to the discretion of the Employer or the Plan Administrator. Small accounts will be distributable at the time selected by the Participant. 37. Vesting (Plan Article 8). a. Time of Vesting. The provision checked below will determine a Participant's vested percentage in his Employer Contribution Account and, if you adopt the Section 401(k) provisions in item 12 and will make Employer Matching Contributions, in his Employer Matching Account (check one): _____ 100% vesting immediately upon participation in the Plan. If you check this option, skip the rest of this part 8. _____ Six Year Graded Schedule: Vested Percentage 20% 40% 60% 80% 100% Years of Service 2 3 4 5 6 _____ Three Year Cliff Schedule: Vested Percentage 0% 100% Years of Service 0-2 3 _____ Other Schedule (must be at least as favorable as Six Year Graded Schedule or Three Year Cliff Schedule): Vested Percentage __% __% __% __% __% Years of Service ___ ___ ___ ___ ___ b. Service for Vesting. Skip this part B if your Plan will include all of an employee's service in determining his Years of Service for vesting. Years of Service for vesting will exclude (check one or more): _____ Service before the Effective Date of the Plan, if this is a new plan, or service before the effective date of your existing plan, if this Plan replaces an existing plan _____ Service before the Plan Year in which an employee reached age 18 _____ Service for a business acquired by the Employer, before the date of acquisition c. Hours of Service for Vesting. The number of Hours of Service required for crediting a Year of Service for vesting will be (check one): _____ 1,000 Hours of Service _____ ___________________ Hours of Service (under 1,000) d. Year of Service Measuring Period for Vesting (Plan Section 2.50). The periods of 12 months used for measuring Years of Service will be (check one): _____ Plan Years _____ 12-month Eligibility Periods Note: If you are adopting this Plan to replace an existing plan, employees will be credited under this Plan with all service credited to them under the plan you are replacing. 38. Top-Heavy Minimum Contributions (Plan Section 15.3). For any Plan Year in which the Plan is top-heavy, you must provide for each Participant who is a non-key employee and who is employed on the last day of the Plan Year an allocation equal to 3% of his Earnings (or if less, the highest percentage allocated to any key employee). Neither Elective Deferrals, Employer Matching Contributions nor Qualified Matching Contributions for a non-key employee may be taken into account for purposes of this requirement. Skip paragraphs A and B below if you do not maintain any other qualified plan in addition to this Plan. a. If you maintain another qualified plan in addition to this Plan, specify below whether a non-key employee who participates in both plans will receive a top-heavy minimum contribution (or benefit) in this Plan or the other plan (check one): The top-heavy minimum contribution (or benefit) for non-key employees participating both in this Plan and another qualified plan maintained by the Employer will be provided in: _____ This Plan _____ The plan named here: ______________________ b. (Skip this paragraph if you do not maintain a defined benefit plan.) If you maintain a defined benefit plan in addition to this Plan, and the Top-Heavy Ratio (as defined in Plan Section 15.2(c)) for the combined plans is between 60% and 90%, you may elect to provide an increased minimum allocation or benefit pursuant to Plan Section 15.4. Specify your election by completing the statement below: The Employer will provide an increased (specify contribution or benefit) __________________________________ in its (specify defined contribution or defined benefit) ______________________ plan as required under Plan Section 15.4. 39. Other Plans. Skip this item 10 if this Plan is the only qualified plan your Business has ever had or if the only other plan your Business ever maintained was a defined contribution master or prototype plan. You must complete this section if you maintain or ever maintained another qualified plan in which any Participant in this Plan is (or was) a participant or could become a participant. The Plan and your other plan(s) combined will meet the contribution limitation rules in Article 6 of the Plan as you specify below: a. If a Participant in the Plan is covered under another qualified defined contribution plan maintained by your Business, other than a master or prototype plan (check one): _____ The provisions of Section 6.2 of the Plan will apply as if the other plan were a master or prototype plan. _____ The plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in the manner you describe below. _________________________________________________________________ _________________________________________________________________ B. If a Participant in the Plan is or has ever been a participant in a defined benefit plan maintained by your Business, the plans will meet the limits of Article 6 in the manner you describe below: ________________________________________________________________ ________________________________________________________________ Note: Your description under A or B cannot be left to discretion changed from year to year. If you want to amend it from year to year, you must execute a new plan agreement. If your Business has ever maintained a defined benefit plan, state below the interest rate and mortality table to be used in establishing the present value of any benefit under the defined benefit plan for purposes of computing the top-heavy ratio: Interest rate: %__________________________ Mortality Table: __________________________ 40. Administration. a. Plan Administrator (Plan Section 16.1). You may appoint a person or a committee to serve as Plan Administrator. You may remove and replace anyone you have appointed, and anyone you have appointed may resign, without the need to amend this Plan Agreement, provided that you notify Participants in writing of any such change. If you do not appoint a Plan Administrator, the Plan provides that the Employer will be the Plan Administrator. The initial Plan Administrator will be (check one): _____ This person: _______________________________ _____ A committee composed of these people: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ b. Recordkeeper (Plan Section 16.4). You must appoint Putnam as Recordkeeper to perform certain routine services determined upon execution of a written Service Agreement between Putnam and you. _______________________________________________________ Name _______________________________________________________ Address COMPLETE ITEM 12 BELOW IF YOUR PLAN WILL ALLOW EMPLOYEES TO ELECT PRE-TAX CONTRIBUTIONS UNDER SECTION 401(K) OF THE CODE. 41. Section 401(k) Plan Provisions (Plan Article 5). a. Elective Deferrals (Plan Section 5.2). i. A Participant may make Elective Deferrals for each year in an amount not to exceed (check one): _____ (a) _______% of his Earnings _____ (b) $______ (specify a dollar amount) _____ (c) _______% of his Earnings up to $_______ (specify dollar amount) Note: Elective Deferrals may not exceed the annual dollar limit under Section 402(g) of the Internal Revenue Code. ii. A Participant may begin to make Elective Deferrals, or change the amount of his Elective Deferrals, as of the following dates (check one): _____ First business day of each month (monthly). _____ First business day of the first, fourth, seventh and tenth months of the Plan Year (quarterly). _____ First business day of the first and seventh months of the Plan Year (semiannually). _____ First business day of the Plan Year only (annually). iii. May Participants make Elective Deferrals of bonuses? _____ Yes _____ No b. Employer Matching Contributions of Employee Elective Deferrals (Plan Section 5.8). Skip this part B if you will not make Employer Matching Contributions. Employer Matching Contributions are subject to the vesting schedule elected in item 8 of this Plan Agreement, and can be withdrawn during employment in the event of financial hardship (as defined in Section 12.2 of the Plan) if you so elect in part F below. i. The Employer will contribute and will allocate to each Participant's Employer Matching Account an amount equal to: (Check the provision(s) desired, and fill in the % blank(s) in each provision you check. If you wish to determine the amount of Employer Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check. Also write "V" for variable in the % blank for earnings.) _____ ___% of Elective Deferrals _____ ___% of Elective Deferrals that do not exceed ___% of Earnings _____ Additionally, in applying the above limitation(s), Elective Deferrals shall not exceed $__________. (2) How will Forfeitures for Employer Matching Contributions be applied? _____ to reduce the amount of the contribution otherwise required _____ to reallocate as an additional Employer Matching Contribution to current participants c. Hardship Distributions from 401(k) Accounts (Plan Sections 12.2 and 5.14). (1) Will your Plan permit hardship distributions from Elective Deferral Accounts? (check one): _____ Yes _____ No (2) If your Plan has Employer Matching Contributions, will it permit hardship distributions from Employer Matching Accounts? _____ Yes _____ No 42. QNEC and QMACs. Note: Qualified Matching Contributions are always fully vested and cannot be distributed from the Plan before a Participant reaches age 59 1/2 or leaves employment. They will be used to the extent needed, to help the Plan pass the ADP test explained on page 8 of the Qs & As. a. Qualified Matching Contributions (Plan Section 2.58). Skip this part A if you will not make Qualified Matching Contributions. i. Qualified Matching Contributions will be made with respect to (check one): _____ Elective Deferrals by all Participants _____ Elective Deferrals only by Non-Highly Compensated Participants ii. The amount of Qualified Matching Contributions made with respect to a Participant will be: (Check the provision desired and fill in the % blank(s) in the provision you check. If you wish to determine the amount of Qualified Matching Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check.) _____ ___% of his Elective Deferrals _____ ___% of his Elective Deferrals that do not exceed ___% of his Earnings _____ ___% of his Earnings _____ Additionally, in applying the above limitation(s), Qualified Matching Contributions shall not exceed $________. b. Qualified Nonelective Contributions (Plan Section 2.60). i. Qualified Nonelective Contributions will be made on behalf of (check one): _____ All Participants _____ Only Participants who are not Highly Compensated Employees ii. The amount of Qualified Nonelective Contributions for a Plan Year will be (check one). If you wish to determine the amount of Qualified Nonelective Contributions from year to year instead of specifying a fixed percentage, write "V" for variable in the % blank at the beginning of each provision you check: _____ ___% (not over 15%) of the Earnings of Participants on whose behalf Qualified Nonelective Contributions are made _____ An amount determined by the Employer from year to year, to be shared in proportion to Earnings by Participants on whose behalf Qualified Nonelective Contributions are made Note: Qualified Nonelective Contributions will be used, to the extent needed, to help the Plan pass the ADP test, explained on page 8 of the Qs & As. c. ACP Test. Every plan that has after-tax Participant Contributions, Employer Matching Contributions or Qualified Matching Contributions must pass an annual test called the ACP test, which is explained on page 10 of the Qs & As. Elective Deferrals and Qualified Nonelective Contributions will be used to help the Plan pass the ACP test, to the extent needed. 43. Reliance on Opinion Letter. If you ever maintained or you later adopt any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate accounts for key employees, as defined in Section 419A(d)(3) of the Code; or an individual medical account, as defined in Section 415(l)(2) of the Code) in addition to this plan, you may not rely on an opinion letter issued to Putnam by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Internal Revenue Code. If you maintain or adopt multiple plans, in order to obtain reliance with respect to plan qualification of the Plan, you must receive a determination letter from the appropriate Key District Office of Internal Revenue. Putnam will prepare an application for such a letter upon your request at a fee agreed upon by the parties. The Employer may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this plan is qualified under Section 401 of the Code unless the terms of the plan, as herein adopted or amended, that pertain to the requirements of Sections 401(a)(4), 401(a)(5), 401(a)(17), 401(l), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986 or later laws, (a) are made effective retroactively to the first day of the first Year beginning after December 31, 1988 (or such later date on which these requirements first become effective with respect to this plan); or (b) are made effective no later than the first day on which the Employer is no longer entitled, under regulations, to rely on a reasonable, good faith interpretation of these requirements, and the prior provisions of the plan constitute such an interpretation. Putnam will inform you of all amendments it makes to the prototype plan. If Putnam ever discontinues or abandons the prototype plan, Putnam will inform you. This Plan Agreement #001 may be used only in conjunction with Putnam's basic plan document #05. * * * * * EMPLOYER'S ADOPTION OF PUTNAM PROFIT SHARING AND 401(k) PLAN The Employer named below hereby adopts a PUTNAM PROFIT SHARING AND 401(k) PLAN, and appoints Putnam Fiduciary Trust Company to serve as Trustee of the Plan. The Employer acknowledges that it has received copies of the current prospectus for each Investment Product available under the Plan, and represents that it will deliver copies of the then current prospectus for each such Investment Product to each Participant before each occasion on which the Participant makes an investment instruction as to his Account. The Employer further acknowledges that the Plan will be acknowledged by Putnam as a Putnam Profit Sharing and 401(k) Plan only upon Putnam's acceptance of this Plan Agreement. Employer signature(s) to adopt Plan: Date of signature: ____________________________________________________ ____________________________________________________ Please print name(s) of authorized person(s) signing above: ____________________________________________________ Phone:____________________ ____________________________________________________ Phone:____________________ A new Plan must be signed by the last day of the Plan Year in which the Plan is to be effective. INVESTMENT DEALER INFORMATION Firm: ___________________________________________________________ Branch: _________________________________________________________ Address: ________________________________________________________ Registered Representative: ___________________________________ Name _________________________________________ Phone * * * * * ACCEPTANCE OF TRUSTEE The Trustee accepts appointment in accordance with the terms and conditions of the Plan, effective as of the date of execution by the Employer set forth above. A. Putnam Fiduciary Trust Company, Trustee By: ______________________________________________________________ ACCEPTANCE BY PUTNAM Putnam hereby accepts this Employer's Plan as a prototype established under Putnam Basic Plan Document #05. Putnam Mutual Funds Corp. By: ______________________________ PUTNAM BASIC PLAN DOCUMENT #05 TABLE OF CONTENTS PAGE ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Account. . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Affiliated Employer. . . . . . . . . . . . . . . . . . . . 2 2.3 Authorized Leave of Absence. . . . . . . . . . . . . . . . 2 2.4 Base Contribution Percentage . . . . . . . . . . . . . . . 3 2.5 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 CODA . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 Compensation . . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Date of Employment . . . . . . . . . . . . . . . . . . . . 3 2.10 Disabled . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.11 Earned Income. . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Effective Date . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Eligibility Period . . . . . . . . . . . . . . . . . . . . 4 2.15 Employee . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.16 Employer . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.17 Employer Contribution Account. . . . . . . . . . . . . . . 5 2.17(a) Employer Stock . . . . . . . . . . . . . . . . . . . . 5 2.18 Excess Earnings. . . . . . . . . . . . . . . . . . . . . . 6 2.19 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.20 Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . 6 2.21 Hour of Service. . . . . . . . . . . . . . . . . . . . . . 6 2.22 Insurance Trustee. . . . . . . . . . . . . . . . . . . . . 7 2.23 Integration Level. . . . . . . . . . . . . . . . . . . . . 7 2.24 Investment Company . . . . . . . . . . . . . . . . . . . . 8 2.25 Investment Company Shares. . . . . . . . . . . . . . . . . 8 2.26 Investment Products. . . . . . . . . . . . . . . . . . . . 8 2.27 Leased Employee. . . . . . . . . . . . . . . . . . . . . . 8 2.28 One-Year Eligibility Break . . . . . . . . . . . . . . . . 8 2.29 One-Year Vesting Break . . . . . . . . . . . . . . . . . . 9 2.30 Owner-Employee . . . . . . . . . . . . . . . . . . . . . . 9 2.31 Participant. . . . . . . . . . . . . . . . . . . . . . . . 9 2.32 Participant Contribution Account . . . . . . . . . . . . . 9 2.33 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.34 Plan Administrator . . . . . . . . . . . . . . . . . . . . 9 2.35 Plan Agreement . . . . . . . . . . . . . . . . . . . . . . 9 2.36 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . 9 2.37 Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.38 Putnam . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.39 Qualified Domestic Relations Order . . . . . . . . . . . . 10 2.40 Qualified Participant. . . . . . . . . . . . . . . . . . . 10 2.41 Recordkeeper . . . . . . . . . . . . . . . . . . . . . . . 10 2.42 Retirement . . . . . . . . . . . . . . . . . . . . . . . . 10 2.43 Rollover Account . . . . . . . . . . . . . . . . . . . . . 10 2.44 Self-Employed Individual . . . . . . . . . . . . . . . . . 10 2.45 Shareholder-Employee . . . . . . . . . . . . . . . . . . . 11 2.46 Social Security Wage Base. . . . . . . . . . . . . . . . . 11 2.47 Trust and Trust Fund . . . . . . . . . . . . . . . . . . . 11 2.48 Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.49 Valuation Date . . . . . . . . . . . . . . . . . . . . . . 11 2.50 Year of Service. . . . . . . . . . . . . . . . . . . . . . 11 2.51 Deferral Agreement . . . . . . . . . . . . . . . . . . . . 12 2.52 Elective Deferral. . . . . . . . . . . . . . . . . . . . . 12 2.53 Elective Deferral Account. . . . . . . . . . . . . . . . . 12 2.54 Employer Matching Contribution . . . . . . . . . . . . . . 12 2.55 Employer Matching Account. . . . . . . . . . . . . . . . . 12 2.56 Highly Compensated Employee. . . . . . . . . . . . . . . . 12 2.57 Non-Highly Compensated Employee. . . . . . . . . . . . . . 15 2.58 Qualified Matching Contribution. . . . . . . . . . . . . . 15 2.59 Qualified Matching Account . . . . . . . . . . . . . . . . 15 2.60 Qualified Nonelective Contribution . . . . . . . . . . . . 15 2.61 Qualified Nonelective Contribution Account . . . . . . . . 16 ARTICLE 3. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 Initial Participation. . . . . . . . . . . . . . . . . . . 17 3.2 Special Participation Rule . . . . . . . . . . . . . . . . 17 3.3 Resumed Participation. . . . . . . . . . . . . . . . . . . 18 3.4 Benefits for Owner-Employees . . . . . . . . . . . . . . . 18 3.5 Changes in Classification. . . . . . . . . . . . . . . . . 18 ARTICLE 4. CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 20 4.1 Provisions Applicable to All Plans . . . . . . . . . . . . 20 4.2 Provisions Applicable Only to Profit Sharing Plans . . . . 21 4.3 Provisions Applicable Only to Money Purchase Pension Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.4 Rollover Contributions . . . . . . . . . . . . . . . . . . 26 4.5 No Deductible Employee Contributions . . . . . . . . . . . 26 4.6 Paired Plans . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 5. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k) (CODA) . . . . . . . . . . . . . . . . . . . . . . . . 28 5.1 Applicability; Allocations . . . . . . . . . . . . . . . . 28 5.2 CODA Participation . . . . . . . . . . . . . . . . . . . . 28 5.3 Annual Limit on Elective Deferrals . . . . . . . . . . . . 28 5.4 Distribution of Certain Elective Deferrals . . . . . . . . 29 5.5 Satisfaction of ADP and ACP Tests. . . . . . . . . . . . . 30 5.6 Actual Deferral Percentage Test Limit. . . . . . . . . . . 30 5.7 Distribution of Excess Contributions . . . . . . . . . . . 32 5.8 Matching Contributions . . . . . . . . . . . . . . . . . . 33 5.9 Participant Contributions. . . . . . . . . . . . . . . . . 34 5.10 Recharacterization of Excess Contributions . . . . . . . . 34 5.11 Average Contribution Percentage Test Limit and Aggregate Limit . . . . . . . . . . . . . . . . . . . . . . . . 35 5.12 Distribution of Excess Aggregate Contributions . . . . . . 38 5.13 Restriction on Distributions . . . . . . . . . . . . . . . 39 5.14 Hardship Distributions . . . . . . . . . . . . . . . . . . 40 5.15 Special Effective Dates. . . . . . . . . . . . . . . . . . 41 ARTICLE 6. LIMITATIONS ON ALLOCATIONS . . . . . . . . . . . . . . . . . 42 6.1 No Additional Plan . . . . . . . . . . . . . . . . . . . . 42 6.2 Additional Master or Prototype Plan. . . . . . . . . . . . 43 6.3 Additional Non-Master or Non-Prototype Plan. . . . . . . . 44 6.4 Additional Defined Benefit Plan. . . . . . . . . . . . . . 45 6.5 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS . . . . . . . . . . 50 7.1 Retirement . . . . . . . . . . . . . . . . . . . . . . . . 50 7.2 Death. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.3 Other Termination of Employment. . . . . . . . . . . . . . 51 ARTICLE 8. VESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.1 Vested Balance . . . . . . . . . . . . . . . . . . . . . . 52 8.2 Vesting of Accounts of Returned Former Employees . . . . . 52 8.3 Forfeiture of Non-Vested Amounts . . . . . . . . . . . . . 53 8.4 Special Rule in the Event of a Withdrawal. . . . . . . . . 54 8.5 Vesting Election . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 9. PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . 56 9.1 Distribution of Accounts . . . . . . . . . . . . . . . . . 56 9.2 Restriction on Immediate Distributions . . . . . . . . . . 56 9.3 Optional Forms of Distribution . . . . . . . . . . . . . . 58 9.4 Distribution Procedure . . . . . . . . . . . . . . . . . . 58 9.5 Lost Distributee . . . . . . . . . . . . . . . . . . . . . 59 9.6 Direct Rollovers . . . . . . . . . . . . . . . . . . . . . 59 9.7 Distributions Required by a Qualified Domestic Relations Order. . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS . . . . . . . . . . 61 10.1 Applicability . . . . . . . . . . . . . . . . . . . . . . 61 10.2 Qualified Joint and Survivor Annuity. . . . . . . . . . . 62 10.3 Qualified Preretirement Survivor Annuity. . . . . . . . . 62 10.4 Definitions . . . . . . . . . . . . . . . . . . . . . . . 62 10.5 Notice Requirements . . . . . . . . . . . . . . . . . . . 64 10.6 Transitional Rules. . . . . . . . . . . . . . . . . . . . 65 ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS . . . . . . . . . . . . . 68 11.1 General Rules . . . . . . . . . . . . . . . . . . . . . . 68 11.2 Required Beginning Date . . . . . . . . . . . . . . . . . 68 11.3 Limits on Distribution Periods. . . . . . . . . . . . . . 69 11.4 Determination of Amount to Be Distributed Each Year. . . 70 11.5 Death Distribution Provisions . . . . . . . . . . . . . . 71 11.6 Transitional Rule . . . . . . . . . . . . . . . . . . . . 73 ARTICLE 12. WITHDRAWALS AND LOANS . . . . . . . . . . . . . . . . . . . 75 12.1 Withdrawals from Participant Contribution Accounts . . . 75 12.2 Withdrawals on Account of Hardship. . . . . . . . . . . . 75 12.3 Withdrawals After Reaching Age 59 1/2 . . . . . . . . . . 75 12.4 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 75 12.5 Procedure; Amount Available . . . . . . . . . . . . . . . 78 ARTICLE 13. TRUST FUND AND INVESTMENTS. . . . . . . . . . . . . . . . . 79 13.1 Establishment of Trust Fund . . . . . . . . . . . . . . . 79 13.2 Management of Trust Fund. . . . . . . . . . . . . . . . . 79 13.3 Investment Instructions . . . . . . . . . . . . . . . . . 80 13.4 Valuation of the Trust Fund . . . . . . . . . . . . . . . 82 13.5 Distributions on Investment Company Shares. . . . . . . . 82 13.6 Registration and Voting of Investment Company Shares . . 83 13.7 Investment Manager. . . . . . . . . . . . . . . . . . . . 83 13.8 Employer Stock. . . . . . . . . . . . . . . . . . . . . . 83 13.9 Insurance Contracts . . . . . . . . . . . . . . . . . . . 86 ARTICLE 14. INSURANCE POLICIES. . . . . . . . . . . . . . . . . . . . . 88 14.1 Purchase of Insurance Products. . . . . . . . . . . . . . 88 14.2 Limitation on Premiums. . . . . . . . . . . . . . . . . . 88 14.3 Policy Options. . . . . . . . . . . . . . . . . . . . . . 88 14.4 Insurability. . . . . . . . . . . . . . . . . . . . . . . 88 14.5 Dividends on Policies . . . . . . . . . . . . . . . . . . 88 14.6 Trustee of Policy . . . . . . . . . . . . . . . . . . . . 89 14.7 Obligations with Respect to Policies. . . . . . . . . . . 89 14.8 Distribution of Proceeds on Participant's Death . . . . . 89 14.9 Conversion of Policies. . . . . . . . . . . . . . . . . . 89 14.10 Conflict with Policies. . . . . . . . . . . . . . . . . . 90 14.11 Insurance Loans to Owner-Employees. . . . . . . . . . . . 90 ARTICLE 15. TOP-HEAVY PLANS . . . . . . . . . . . . . . . . . . . . . . 91 15.1 Superseding Effect. . . . . . . . . . . . . . . . . . . . 91 15.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . 91 15.3 Minimum Allocation. . . . . . . . . . . . . . . . . . . . 94 15.4 Adjustment of Fractions . . . . . . . . . . . . . . . . . 95 ARTICLE 16. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . 96 16.1 Plan Administrator. . . . . . . . . . . . . . . . . . . . 96 16.2 Claims Procedure. . . . . . . . . . . . . . . . . . . . . 96 16.3 Employer's Responsibilities . . . . . . . . . . . . . . . 97 16.4 Recordkeeper. . . . . . . . . . . . . . . . . . . . . . . 97 16.5 Prototype Plan. . . . . . . . . . . . . . . . . . . . . . 98 ARTICLE 17. TRUSTEE AND INSURANCE TRUSTEE . . . . . . . . . . . . . . . 99 17.1 Powers and Duties of the Trustee. . . . . . . . . . . . . 99 17.2 Limitation of Responsibilities. . . . . . . . . . . . . .100 17.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . .101 17.4 Reliance on Employer. . . . . . . . . . . . . . . . . . .101 17.5 Action Without Instructions . . . . . . . . . . . . . . .101 17.6 Advice of Counsel . . . . . . . . . . . . . . . . . . . .102 17.7 Accounts. . . . . . . . . . . . . . . . . . . . . . . . .102 17.8 Access to Records . . . . . . . . . . . . . . . . . . . .103 17.9 Successors. . . . . . . . . . . . . . . . . . . . . . . .103 17.10 Persons Dealing with Trustee or Insurance Trustee. . . .103 17.11 Resignation and Removal; Procedure. . . . . . . . . . . .103 17.12 Action of Trustee Following Resignation or Removal . . .103 17.13 Action of Insurance Trustee Following Resignation or Removal. . . . . . . . . . . . . . . . . . . . . . . . . .103 17.14 Effect of Resignation or Removal. . . . . . . . . . . . .103 17.15 Fiscal Year of Trust. . . . . . . . . . . . . . . . . . .104 17.16 Limitation of Liability . . . . . . . . . . . . . . . . .104 17.17 Indemnification . . . . . . . . . . . . . . . . . . . . .104 ARTICLE 18. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . .105 18.1 General . . . . . . . . . . . . . . . . . . . . . . . . .105 18.2 Delegation of Amendment Power . . . . . . . . . . . . . .106 ARTICLE 19. TERMINATION OF THE PLAN AND TRUST . . . . . . . . . . . . .107 19.1 General . . . . . . . . . . . . . . . . . . . . . . . . .107 19.2 Events of Termination . . . . . . . . . . . . . . . . . .107 19.3 Effect of Termination . . . . . . . . . . . . . . . . . .107 19.4 Approval of Plan. . . . . . . . . . . . . . . . . . . . .108 ARTICLE 20. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS; MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . . .109 20.1 General . . . . . . . . . . . . . . . . . . . . . . . . .109 20.2 Amounts Transferred . . . . . . . . . . . . . . . . . . .109 20.3 Merger or Consolidation . . . . . . . . . . . . . . . . .109 ARTICLE 21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .110 21.1 Notice of Plan. . . . . . . . . . . . . . . . . . . . . .110 21.2 No Employment Rights. . . . . . . . . . . . . . . . . . .110 21.3 Distributions Exclusively From Plan . . . . . . . . . . .110 21.4 No Alienation . . . . . . . . . . . . . . . . . . . . . .110 21.5 Provision of Information. . . . . . . . . . . . . . . . .110 21.6 No Prohibited Transactions. . . . . . . . . . . . . . . .110 21.7 Governing Law . . . . . . . . . . . . . . . . . . . . . .110 21.8 Gender. . . . . . . . . . . . . . . . . . . . . . . . . .111 PUTNAM BASIC PLAN DOCUMENT #05 ARTICLE 44. INTRODUCTION By executing the Plan Agreement, the Employer has established a retirement plan (the "Plan") according to the terms and conditions of the Plan Agreement and this Putnam Basic Plan Document #05, for the purpose of providing a retirement fund for the benefit of Participants and Beneficiaries. ARTICLE 45. DEFINITIONS The terms defined in Sections 2.1 through 2.49 appear generally throughout the document. Sections 2.50 through 2.60 and Article 5 contain definitions of terms used only in a CODA and Section 10.4 contains additional definitions related to distributions from the Plan. Articles 6 and 11 contain additional definitions of terms used only in those Articles. 45..1 Account means any of, and Accounts means all of, a Participant's Employer Contribution Account, Participant Contribution Account, Rollover Account, and if the Plan contains a CODA, the accounts maintained for the Participant pursuant to Article 5. 45..2 Affiliated Employer, for purposes of the Plan other than Article 6, means the Employer and a trade or business, whether or not incorporated, which is any of the following: (a) A member of a group of controlled corporations (within the meaning of Section 414(b) of the Code) which includes the Employer; or (b) A trade or business under common control (within the meaning of Section 414(c) of the Code) with the Employer; or (c) A member of an affiliated service group (within the meaning of Section 414(m) of the Code) which includes the Employer; or (d) An entity otherwise required to be aggregated with the Employer pursuant to Section 414(o) of the Code. In determining an Employee's service for vesting and for eligibility to participate in the Plan, all employment with Affiliated Employers will be treated as employment by the Employer. For purposes of Article 6 only, the definitions in paragraphs (a) and (b) of this Section 2.2 shall be modified by adding at the conclusion of the parenthetical phrase in each such paragraph the words "as modified by Section 415(h) of the Code." 45..3 Authorized Leave of Absence means a leave of absence from employment granted in writing by an Affiliated Employer. Authorized Leave of Absence shall be granted on account of military service for any period during which an Employee's right to re-employment is guaranteed by law, and for such other reasons and periods as an Affiliated Employer shall consider proper, provided that Employees in similar situations shall be similarly treated. 45..4 Base Contribution Percentage means the percentage so specified in the Plan Agreement. 45..5 Beneficiary means a person entitled to receive benefits under the Plan upon the death of a Participant, in accordance with Section 7.2 and Articles 10 and 11. 45..6 CODA means a cash or deferred arrangement that meets the requirements of Section 401(k) of the Code, adopted as part of a profit sharing plan. 45..7 Code means the Internal Revenue Code of 1986, as amended. 45..8 Compensation means all of an Employee's compensation determined in accordance with the definition elected by the Employer in the Plan Agreement. For purposes of that election, "Form W-2 earnings" means "wages" as defined in Section 3401(a) of the Code in connection with income tax withholding at the source, and all other compensation paid to the Employee by the Employer in the course of its trade or business, for which the Employer is required to furnish the Employee with a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code, determined without regard to exclusions based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code). Compensation shall include only amounts actually paid to the Employee during the Plan Year, except that if the Employer so elects in the Plan Agreement, Compensation shall include any amount which is contributed to an employee benefit plan for the Employee by the Employer pursuant to a salary reduction agreement, and which is not includible in the gross income of the Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the Code. (For a self-employed person, the relevant term is Earned Income, as defined in Section 2.11.) 45..9 Date of Employment means the first date on which an Employee performs an Hour of Service; or, in the case of an Employee who has incurred one or more One-Year Eligibility Breaks and who is treated as a new Employee under the rules of Section 3.3, the first date on which he performs an Hour of Service after his return to employment. 45..10 Disabled means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. 45..11 Earned Income means a Self-Employed Individual's net earnings from self-employment in the trade or business with respect to which the Plan is established, excluding items not included in gross income and the deductions allocable to such items, and reduced by (i) contributions by the Employer to qualified plans, to the extent deductible under Section 404 of the Code, and (ii) the deduction allowed to the taxpayer under Section 164(f) of the Code for taxable years beginning after December 31, 1989. 45..12 Earnings, for determining all benefits provided under the Plan for all Plan Years beginning after December 31, 1988, means the first $200,000 (as adjusted by the Secretary of the Treasury at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase effective on any January 1 is effective for all Plan Years beginning in the calendar year in which that January 1 occurs, and the first such dollar increase is effective on January 1, 1990) of the sum of the Compensation and the Earned Income received by an Employee during a Plan Year. Notwithstanding the foregoing, for Plan Years beginning after December 31, 1993, Earnings means the first $150,000 (as adjusted periodically by the Secretary of the Treasury for inflation) of the sum of the Compensation and Earned Income received by an Employee during a Plan Year. To calculate an allocation to a Participant's Account for any Plan Year shorter than 12 months, the dollar limit on Earnings must be multiplied by a fraction of which the denominator is 12 and the numerator is the number of months in the Plan Year. In determining the Earnings of a Participant, the rules of Section 414(q)(6) of the Code shall apply, except that in applying those rules the term "family" shall include only the Participant's spouse and the Participant's lineal descendants who have not reached age 19 by the last day of the Plan Year. If as a result of the application of such rules the applicable Earnings limitation described above is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Earnings as determined under this Section prior to the application of this limitation. 45..13 Effective Date means the date so designated in the Plan Agreement. If the Plan Agreement indicates that the Employer is adopting the Plan as an amendment of an existing plan, the provisions of the existing plan apply to all events preceding the Effective Date, except as to specific provisions of the Plan which set forth a retroactive effective date in accordance with Section 1140 of the Tax Reform Act of 1986. 45..14 Eligibility Period means a period of service with the Employer which an Employee is required to complete in order to commence participation in the Plan. A 12-month Eligibility Period is a period of 12 consecutive months beginning on an Employee's most recent Date of Employment or any anniversary thereof, in which he is credited with at least 1,000 Hours of Service. A 6-month Eligibility Period is a period of 6 consecutive months beginning on an Employee's most recent Date of Employment or any anniversary thereof, or on the 6-month anniversary of such Date of Employment or any anniversary thereof, in which he is credited with at least 500 Hours of Service; provided, however, that if he is credited with 1,000 Hours of Service during a 12-consecutive-month period following his Date of Employment or any anniversary thereof, he shall be credited with an Eligibility Period. Notwithstanding the foregoing, if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting a 12-month Eligibility Period or less than 500 a 6-month Eligibility Period, that number shall be so substituted, and in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service in the case of a 12-month Eligibility Period, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. If the Employer so elects in the Plan Agreement, an Employee's most recent Date of Employment for purposes of this Section 2.14 shall be the first date on which he performed services for a business acquired by the Employer. 45..15 Employee means a common law Employee of an Affiliated Employer; in the case of an Affiliated Employer which is a sole proprietorship, the sole proprietor thereof; in the case of an Affiliated Employer which is a partnership, a partner thereof; and a Leased Employee of an Affiliated Employer. The term "Employee" includes an individual on Authorized Leave of Absence, a Self- Employed Individual and an Owner-Employee. 45..16 Employer means the Employer named in the Plan Agreement and any successor to all or the major portion of its assets or business which assumes the obligations of the Employer under the Plan Agreement. 45..17 Employer Contribution Account means an account maintained on the books of the Plan on behalf of a Participant, in which are recorded the amounts allocated for his benefit from contributions by the Employer (other than contributions pursuant to Article 5), Forfeitures by former Participants (if the Plan provides for reallocation of Forfeitures), amounts reapplied under Section 6.1(d), and the income, expenses, gains and losses incurred thereon. 2.17(a) Employer Stock means securities constituting "qualifying employer securities" of an Employer within the meaning of Section 407(d)(5) of ERISA. 45..18 Excess Earnings means a Participant's Earnings in excess of the Integration Level of the Plan. 45..19 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 45..20 Forfeiture means a nonvested amount forfeited by a former Participant, pursuant to Section 8.3, or an amount forfeited by a former Participant or Beneficiary who cannot be located, pursuant to Section 9.5. 45..21 Hour of Service means each hour described in paragraphs (a), (b), (c), (d) or (e) below, subject to paragraphs (f) and (g) below. (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Affiliated Employer. These hours shall be credited to the Employee for the computation period or periods in which the duties are performed. (b) Each hour for which an Employee is paid, or entitled to payment, by an Affiliated Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period of absence (whether or not such period occurs in a single computation period) unless the Employee's absence is not an Authorized Leave of Absence. Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations, which are incorporated herein by this reference. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Affiliated Employer. The same Hours of Service shall not be credited under both paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c); and no more than 501 Hours of Service shall be credited under this paragraph (c) with respect to payments of back pay, to the extent that such pay is agreed to or awarded for a period of time described in paragraph (b) during which the Employee did not perform or would not have performed any duties. These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. (d) Each hour during an Authorized Leave of Absence. Such hours shall be credited at the rate of a customary full work week for an Employee. (e) Solely for purposes of determining whether a OneYear Vesting Break or a One-Year Eligibility Break has occurred, each hour which otherwise would have been credited to an Employee but for an absence from work by reason of: the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of the child by the Employee, or caring for a child for a period beginning immediately after its birth or placement. If the Plan Administrator cannot determine the hours which would normally have been credited during such an absence, the Employee shall be credited with eight Hours of Service for each day of absence. No more than 501 Hours of Service shall be credited under this paragraph by reason of any pregnancy or placement. Hours credited under this paragraph shall be treated as Hours of Service only in the Plan Year or Eligibility Period or both, as the case may be, in which the absence from work begins, if necessary to prevent the Participant's incurring a One-Year Vesting Break or One-Year Eligibility Break in that period, or, if not, in the period immediately following that in which the absence begins. The Employee must timely furnish to the Employer information reasonably required to establish (i) that an absence from work is for a reason specified above, and (ii) the number of days for which the absence continued. (f) Hours of Service shall be determined on the basis of actual hours for which an Employee is paid or entitled to payment, or as otherwise specified in the Plan Agreement. (g) If the Employer maintains the plan of a predecessor Employer, service for the predecessor Employer shall be treated as service for the Employer. If the Employer does not maintain the plan of a predecessor Employer, service for the predecessor Employer shall be treated as service for the Employer only to the extent that the Employer so elects in the Plan Agreement. (h) Hours of Service shall be credited to a Leased Employee as though he were an Employee. 45..22 Insurance Trustee means the person named in the Plan Agreement as Insurance Trustee, and any successor thereto. 45..23 Integration Level means the Earnings amount selected by the Employer in the Plan Agreement. 45..24 Investment Company means an open-end registered investment company for which Putnam Mutual Funds Corp., or its affiliate acts as principal underwriter, or for which Putnam Investment Management, Inc., or its affiliate serves as an investment adviser; provided that its prospectus offers its shares under the Plan. 45..25 Investment Company Shares means shares issued by an Investment Company. 45..26 Investment Products means any of the investment products specified by the Employer in accordance with Section 13.2, from the group of those products sponsored, underwritten or managed by Putnam as shall be made available by Putnam under the Plan, and such other products as shall be expressly agreed to in writing by Putnam for availability under the Plan. The term "Investment Products" does not include any Policy selected pursuant to Article 14. 45..27 Leased Employee means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by Employees in the business field of the recipient Employer. The compensation of a Leased Employee for purposes of the Plan means the Compensation (as defined in Section 2.8) of the Leased Employee attributable to services performed for the recipient Employer. Contributions or benefits provided to a leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Provided that leased Employees do not constitute more than 20% of the recipient's nonhighly compensate workforce, a leased Employee shall not be considered an Employee of the recipient if he is covered by a money purchase pension plan providing: (1) a nonintegrated Employer contribution rate of at least 10% of compensation (as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code), (2) immediate participation, and (3) full and immediate vesting. 45..28 One-Year Eligibility Break means a 12-month Eligibility Period during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for 500 the number of Hours of Service specified in any regulations of the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting a 12-month Eligibility Period, that number shall be substituted for 500. 45..29 One-Year Vesting Break means a Year of Service measuring period, as elected by the Employer in the Plan Agreement, during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for 500 the number of Hours of Service specified in any regulations for the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting a Year of Service, that number shall be substituted for 500. 45..30 Owner-Employee means the sole proprietor of an Affiliated Employer that is a sole proprietorship, or a partner owning more than 10% of either the capital or profits interest of an Affiliated Employer that is a partnership. The Plan Administrator shall be responsible for identifying Owner-Employees to the Recordkeeper. 45..31 Participant means each Employee who has met the requirement for participation in Article 3. An Employee is not a Participant for any period before the entry date applicable to him. 45..32 Participant Contribution Account means an account maintained on the books of the Plan, in which are recorded nondeductible contributions by a Participant pursuant to Sections 4.2(f), 4.3(e) and 5.9, and any income, expenses, gains or losses incurred thereon. 45..33 Plan means the form of defined contribution retirement plan and trust agreement adopted by the Employer, consisting of the Plan Agreement and the Putnam Basic Plan Document #05 as set forth herein, together with any and all amendments and supplements thereto. 45..34 Plan Administrator means the Employer or its appointee pursuant to Section 16.1. 45..35 Plan Agreement means the separate agreement entered into between the Employer and the Trustee (and the Insurance Trustee, if any) and accepted by Putnam, under which the Employer adopts the Plan and selects among its optional provisions. 45..36 Plan Year means the period of 12 consecutive months specified by the employer in the Plan Agreement. 45..37 Policy means an ordinary life insurance, term insurance, retirement income or endowment policy or an individual or group annuity contract issued by a life insurance company in connection with the Plan, or an interest therein. An ordinary life insurance policy within the meaning of this definition provides non-decreasing death benefits and non-increasing premiums. Policy shall also include any other insurance policy expressly agreed to in writing by Putnam. 45..38 Putnam means Putnam Mutual Funds Corp., or a company affiliated with it which Putnam Mutual Funds Corp. has designated as its agent to perform specified actions or procedures in connection with the prototype Plan. 45..39 Qualified Domestic Relations Order means any judgment, decree or order (including approval of a property settlement agreement) which constitutes a "qualified domestic relations order" within the meaning of Code Section 414(p). A judgment, decree or order shall not fail to be a Qualified Domestic Relations Order merely because it requires a distribution to an alternate payee (or the segregation of accounts pending distribution to an alternate payee) before the Participant is otherwise entitled to a distribution under the Plan. 45..40 Qualified Participant means any Participant who is an active Employee on the last day of the Plan Year in question or who is credited with more than 500 Hours of Service during the Plan Year in question or whose Retirement or death occurred during the Plan Year in question. If the Plan is not adopted to replace an existing plan, this Section 2.39 is effective on the Effective Date. If the Plan replaces an existing plan, this Section 2.39 is effective on the first day of the first Plan Year that begins after December 31, 1988, or if later, on the Effective Date, and the provision of the existing plan that this Section 2.39 replaces shall continue to apply until that time. 45..41 Recordkeeper means the person or entity designated by the Employer in the Plan Agreement to perform the duties described in Section 16.4, and any successor thereto. If Putnam is the Recordkeeper, the terms and conditions of its service will be as specified in a service agreement between the Employer and Putnam. 45..42 Retirement means ceasing to be an Employee in accordance with Section 7.1. 45..43 Rollover Account means an account established for an Employee who makes a rollover contribution to the Plan pursuant to Section 4.4. 45..44 Self-Employed Individual means an individual whose personal services are a material income-producing factor in the trade or business for which the Plan is established, and who has Earned Income for the taxable year from that trade or business, or would have Earned Income but for the fact that the trade or business had no net profits for the taxable year. 45..45 Shareholder-Employee means any officer or Employee of an electing small business corporation, within the meaning of Section 1362 of the Code, who on any day during a taxable year of the Employer owns (or is considered as owning under Section 318(a)(1) of the Code) more than 5% of the outstanding stock of the Employer. The Plan administrator shall be responsible for identifying Shareholder-Employees to the Recordkeeper. 45..46 Social Security Wage Base means the maximum amount considered as wages under Section 3121(a)(1) of the Code as in effect on the first day of the Plan Year. 45..47 Trust and Trust Fund mean the trust fund established under Section 13.1. 45..48 Trustee means the person, or the entity with trustee powers, named in the Plan Agreement as trustee, and any successor thereto. 45..49 Valuation Date means each day when the New York Stock Exchange is open, or such other date or dates as the Employer may designate by written agreement with the Recordkeeper. 45..50 Year of Service means a Plan Year or an 12-month Eligibility Period, as elected by the Employer in the Plan Agreement, in which an Employee is credited with at least 1,000 Hours of Service; provided, however, that if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting a Year of Service, that number shall be substituted for 1,000, and provided further that in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. An Employee's Years of Service shall include service credited prior to the Effective Date under any predecessor plan. If the initial Plan Year is shorter than 12 months, each Employee who is credited with at least 1,000 Hours of Service in the 12-month period ending on the last day of the initial Plan Year shall be credited with a Year of Service with respect to the initial Plan Year. If the Employer has so elected in the Plan Agreement, Years of Service for vesting shall not include: (a) Service in any Plan Year (or comparable period prior to the Effective Date) completed before the Employee reached age 18; (b) Service completed during a period in which the Employer did not maintain the Plan or any predecessor plan (as defined under regulations prescribed by the Secretary of the Treasury). If the Employer has so elected in the Plan Agreement, Years of Service for vesting shall include employment by a business acquired by the Employer, before the date of the acquisition. The following definitions apply only to cash or deferred arrangements under Section 401(k) (CODA): 45..51 Deferral Agreement means an Employee's agreement to make one or more Elective Deferrals in accordance with Section 5.2. 45..52 Elective Deferral means any contribution made to the Plan by the Employer at the election of a Participant, in lieu of cash compensation, including contributions made pursuant to a Deferral Agreement or other deferral mechanism. 45..53 Elective Deferral Account means an account maintained on the books of the Plan, in which are recorded a Participant's Elective Deferrals and the income, expenses, gains and losses incurred thereon. 45..54 Employer Matching Contribution means a contribution made by the Employer (i) to the Plan pursuant to Section 5.8, or (ii) to another defined contribution plan on account of a Participant's "elective deferrals" or "employee contributions," as those terms are used in Section 401(m)(4) of the Code. 45..55 Employer Matching Account means an account maintained on the books of the Plan, in which are recorded the Employer Matching Contributions made on behalf of a Participant and the income, expenses, gains and losses incurred thereon. 45..56 Highly Compensated Employee means any highly compensated active Employee or highly compensated former Employee as defined in subsection (a) below; provided, however, that if the Employer so elects in the Plan Agreement, Highly Compensated Employee means any highly compensated Employee under the simplified method described in subsection (b) below. (a) Regular Method. A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who during the look-back year: (i) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (ii) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer and received compensation during such year that is greater than 50% of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term also includes (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year," and among the 100 Employees who received the most compensation from the Employer during the determination year; and (ii) Employees who are 5% owners at any time during the look-back year or determination year. If no officer has satisfied the compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) before the determination year, performed no service for the Employer during the determination year, and was a highly compensated active Employee for either the year of separation from service or any determination year ending on or after the Employee's 55th birthday. If during a determination year or look-back year an Employee is a family member of either a 5% owner who is an active or former Employee, or a Highly Compensated Employee who is one of the 10 most highly paid Highly Compensated Employees ranked on the basis of compensation paid by the Employer during the year, then the family member and the 5% owner or top-ten Highly Compensated Employee shall be treated as a single Employee receiving compensation and Plan contributions or benefits equal to the sum of the compensation and contributions or benefits of the family member and the 5% owner or top-ten Highly Compensated Employee. For purposes of this Section 2.56(a), family members include the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. For purposes of this subsection (a), the "determination year" shall be the Plan Year, and the "look-back year" shall be the 12-month period immediately preceding the determination year; provided, however, that in a Plan for which the Plan Year is the calendar year, the current Plan Year shall be both the "determination year" and the "look-back year" if the Employer so elects in the Plan Agreement. (b) Simplified Method. An Employee is a Highly Compensated Employee under this simplified method if (i) the Employee is a 5-percent owner during the Plan Year; (ii) the Employee's compensation for the Plan Year exceeds $75,000 (as adjusted pursuant to Section 415(d) of the Code); (iii) the Employee's compensation for the Plan Year exceeds $50,000 (as adjusted pursuant to Section 415(d) of the Code) and the Employee is in the top-paid group of Employees; or (iv) the Employee is an officer of the Employer and received compensation during the Plan Year that is greater than 50% of the dollar limitation under Code Section 415(b)(1)(A). The lookback provisions of Code Section 414(q) do not apply to determining Highly Compensated Employees under this simplified method. An Employer that applies this simplified method for determining Highly Compensated Employees may choose to apply this method on the basis of the Employer's workforce as of a single day during the Plan Year ("snapshot day"). In applying this simplified method on a snapshot basis, the Employer shall determine who is a Highly Compensated Employee on the basis of the data as of the snapshot day. If the determination of who is a Highly Compensated Employee is made earlier than the last day of the Plan Year, the Employee's compensation that is used to determine an Employee's status must be projected for the Plan Year under a reasonable method established by the Employer. Notwithstanding the foregoing, in addition to those Employees who are determined to be highly compensated on the Plan's snapshot day, as described above, where there are Employees who are not employed on the snapshot day but who are taken into account for purposes of testing under Section 5.6 or 5.11, the Employer must treat as a Highly Compensated Employee any Eligible Employee for the Plan Year who: (1) terminated prior to the snapshot day and was a Highly Compensated Employee in the prior year; (2) terminated prior to the snapshot day and (i) was a 5-percent owner, (ii) had compensation for the Plan Year greater than or equal to the projected compensation of any Employee who is treated as a Highly Compensated Employee on the snapshot day (except for Employees who are Highly Compensated Employees solely because they are 5-percent owners or officers), or (iii) was an officer and had compensation greater than or equal to the projected compensation of any other officer who is a Highly Compensated Employee on the snapshot day solely because that person is an officer; or (3) becomes employed subsequent to the snapshot day and (i) is a 5-percent owner, (ii) has compensation for the Plan Year greater than or equal to the projected compensation of any Employe who is treated as a Highly Compensated Employee on the snapshot day (except for Employees who are Highly Compensated Employees solely because they are 5-percent owners or officers), or (iii) is an officer and has compensation greater than or equal to the projected compensation of any other officer who is a Highly Compensated Employee on the snapshot day solely because that person is an officer. If during a Plan Year an Employee is a family member of either a 5-percent owner who is an Employee, or a Highly Compensated Employee who is one of the ten most highly paid Highly Compensated Employees ranked on the basis of compensation paid by the Employees during the year, then the family member and the 5-percent owner or top-ten-Highly- Compensated-Employee shall be treated as a single Employee receiving compensation and Plan contributions or benefits equal to the sum of the compensation and contributions or benefits of the family member and the 5-percent owner or top- ten-Highly-Compensated-Employee. For purposes of this Section 2.56(b), family members include the spouse, lineal ascendants and descendants of the Employee and the spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. 45..57 Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. 45..58 Qualified Matching Contribution means a contribution made by the Employer that: (i) is allocated in proportion to a Participant's Elective Deferrals, (ii) is fully vested at all times and (iii) is distributable only in accordance with Section 5.11. 45..59 Qualified Matching Account means an account maintained on the books of the Plan, in which are recorded the Qualified Matching Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. 45..60 Qualified Nonelective Contribution means a contribution (other than an Employer Matching Contribution or Qualified Matching Contribution) made by the Employer, that: (i) a Participant may not elect to receive in cash until it is distributed from the Plan; (ii) is fully vested at all times; and (iii) is distributable only in accordance with Section 5.11. 45..61 Qualified Nonelective Contribution Account means an account maintained on the books of the Plan, in which are recorded the Qualified Nonelective Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. ARTICLE 46. PARTICIPATION 46..1 Initial Participation. An Employee shall begin participation in the Plan as of the entry date specified in the Plan Agreement, or as of the Effective Date, whichever is later; provided, however, that: (a) If the Plan is adopted as an amendment of a predecessor plan of the Employer, every Employee who was participating under the predecessor plan when it was so amended shall become a Participant in the Plan as of the Effective Date, whether or not he has satisfied the age and service requirements specified in the Plan Agreement; and (b) Unless the Employer specifies otherwise in the Plan Agreement, any individual who is (i) a nonresident alien receiving no earned income from an Affiliated Employer which constitutes income from sources within the United States, or (ii) included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives (excluding from the term "Employee representatives" any organization of which more than half of the members are Employees who are owners, officers, or executives of an Affiliated Employer), if retirement benefits were the subject of good faith bargaining and no more than 2% of the Employees covered by the collective bargaining agreement are professionals as defined in Section 1.410(b)-9 of the Income Tax Regulations, shall not participate in the Plan until the later of the date on which he ceases to be described in clause (i) or (ii), whichever is applicable, or the entry date specified by the Employer in the Plan Agreement; and (c) If the Plan is not adopted as an amendment of a predecessor plan of the Employer, all Employees on the Effective Date shall begin participation on the Effective Date, if the Employer so elects in the Plan Agreement; and (d) A Participant shall cease to participate in the Plan when he becomes a member of a class of Employees ineligible to participate in the Plan, and shall resume participation immediately upon his return to a class of Employees eligible to participate in the Plan. 46..2 Special Participation Rule. With respect to a Plan in which the Employer has specified full and immediate vesting in the Plan Agreement, an Employee who incurs a One-Year Eligibility Break before completing the number of Eligibility Periods required under Section 3.1 shall not thereafter be credited with any Eligibility Period completed before the One-Year Eligibility Break. 46..3 Resumed Participation. A former Employee who incurs a One-Year Eligibility Break after having become a Participant shall participate in the Plan as of the date on which he again becomes an Employee, if (i) his Employer Contribution Account or Employer Matching Account had become partially or fully vested before he incurred a One-Year Vesting Break, or (ii) he incurred fewer than five consecutive One-Year Eligibility Breaks. In any other case, when he again becomes an Employee he shall be treated as a new Employee under Section 3.1. 46..4 Benefits for Owner-Employees. If the Plan provides contributions or benefits for one or more Owner-Employees who control both the trade or business with respect to which the Plan is established and one or more other trades or businesses, the Plan and plans established with respect to such other trades or businesses must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the Code with respect to the Employees of this and all such other trades or businesses. If the Plan provides contributions or benefits for one or more Owner Employees who control one or more other trades or businesses, the Employees of each such other trade or business must be included in a plan which satisfies Sections 401(a) and (d) of the Code and which provides contributions and benefits not less favorable than those provided for such Owner-Employees under the Plan. If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which he does not control and such individual controls a trade or business, then the contributions or benefits of the Employees under the plan of the trade or business which he does control must be as favorable as those provided for him under the most favorable plan of the trade or business which he does not control. For purposes of this Section 3.4, an Owner-Employee, or two or more Owner-Employees, shall be considered to control a trade or business if such Owner-Employee, or such two or more Owner- Employees together: (a) own the entire interest in an unincorporated trade or business, or (b) in the case of a partnership, own more than 50% of either the capital interest or the profits interest in such partnership. For purposes of the preceding sentence, an Owner-Employee or two or more Owner-Employees shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee or such two or more Owner-- Employees are considered to control within the meaning of the preceding sentence. 46..5 Changes in Classification. If a Participant ceases to be a member of a classification of Employees eligible to participate in the Plan, but does not incur a One-Year Eligibility Break, he will continue to be credited with Years of Service for vesting while he remains an Employee, and he will resume participation as of the date on which he again becomes a member of a classification of Employees eligible to participate in the Plan. If such a Participant incurs a One-Year Eligibility Break, Section 3.3 will apply. If a Participant who ceases to be a member of a classification of Employees eligible to participate in the Plan becomes a member of a classification of Employees eligible to participate in another plan of the Employer, his Account, if any, under the Plan shall, upon the Administrator's direction, be transferred to the plan in which he has become eligible to participate, if such plan permits receipt of such Account. If an Employee who is not a member of a classification of Employees eligible to participate in the Plan satisfies the age and service requirements specified in the Plan Agreement, he will begin to participate immediately upon becoming a member of an eligible classification. If such an Employee has account balances under another plan of the Employer, such account balances shall be transferred to the Plan upon the Employee's commencement of participation in the Plan, if such other plan permits such transfer. ARTICLE 47. CONTRIBUTIONS 47..1 Provisions Applicable to All Plans. (a) Payment and Crediting of Employer Contributions. The Employer shall pay to the order of the Trustee the aggregate contribution to the Trust Fund (other than the premium payments on any Policy) for each Plan Year. Each contribution shall be accompanied by written instructions from the Employer, in the manner prescribed by Putnam. Neither the Trustee nor Putnam shall be under any duty to inquire into the correctness of the amount or the timing of any contribution, or to collect any amount if the Employer fails to make a contribution as provided in the Plan. (b) Responsibility for Premium Payments. Contributions to be applied to the payment of the premiums on any Policy shall be paid by the Employer directly to the insurer in cash. In determining the amount of any premium due under any Policy with respect to any Participant, the Employer and the Insurance Trustee may rely conclusively upon information furnished by the provider of the Policy. For purposes of Sections 4.2, 4.3 and Article 5, all Employer contributions used to pay premiums on Policies shall be treated as contributions made to the appropriate Participant's Employer Contribution Account. If the Employer omits any premium payment or makes any mistake concerning a premium payment, neither the Employer nor the Insurance Trustee shall have any liability in excess of the premium to be paid. (c) Time for Payment. The aggregate of all contributions with respect to a Plan Year shall be transferred to the Trustee or the insurer no later than the due date (including extensions) for filing the Employer's federal income tax return for that Plan Year. (d) Limitations on Allocations. All allocations shall be subject to the limitations in Article 6. (e) Establishment of Accounts. The Employer will establish and maintain (or cause to be established and maintained) for each Participant individual accounts adequate to disclose his interest in the Trust Fund, including such of the following separate accounts as shall apply to the Participant: Employer Contribution Account, Participant Contribution Account, and Rollover Account; and in a Plan with a CODA, Elective Deferral Account, Qualified Nonelective Account, Qualified Matching Account and Employer Matching Account. The maintenance of such accounts shall be only for recordkeeping purposes, and the assets of separate accounts shall not be required to be segregated for purposes of investment. (f) Restoration of Accounts. Notwithstanding any other provision of the Plan, for any Plan Year in which it is necessary to restore any portion of a Participant's Account pursuant to Section 8.3(b) or 9.5, to the extent that the amount of Forfeitures available is insufficient to accomplish such restoration, the Employer shall contribute the amount necessary to eliminate the insufficiency, regardless of whether the contribution is currently deductible by the Employer under Section 404 of the Code. Forfeitures shall be considered available for allocation pursuant to Sections 4.2 and 5.8 in a Plan Year only after all necessary restoration of Accounts has been accomplished. 47..2 Provisions Applicable Only to Profit Sharing Plans. (a) Amount of Annual Contribution. The Employer will contribute for each Plan Year an amount determined in accordance with the formula specified by the Employer in the Plan Agreement, less any amounts reapplied for the Plan Year under Section 6.1(d), not to exceed the amount deductible under Section 404 of the Code. If the Employer so elects in the Plan Agreement, the amount of Forfeitures occurring in a Plan Year shall be applied to reduce the Employer's contribution by a like amount, and such Forfeitures shall be treated as a portion of the Employer contribution for purposes of paragraphs (b) and (c). (b) Allocation of Contributions: General Rule. As of the last day of each Plan Year, the Employer's contribution (and any amounts reapplied under Section 6.1(d)) for the Plan Year shall be allocated among the Employer Contribution Accounts of Qualified Participants in proportion to their Earnings, unless the Employer elects in the Plan Agreement to allocate contributions in a uniform dollar amount to the Account of each Qualified Participant. This rule does not apply to a Plan that is integrated with Social Security or to allocations in a CODA. (c) Per Capita Allocation. An Employer may elect in the Plan Agreement to allocate Employer Contributions and any amounts reapplied under Section 6.1(d) (but not allocations in a CODA) in a uniform dollar amount to the Account of each Qualified Participant. (d) Plans Integrated with Social Security. Subject to Section 4.6 and if the Employer elects in the Plan Agreement an allocation formula integrated with Social Security, Employer contributions (and any amounts reapplied under Section 6.1(d)) shall be allocated as of the last day of the Plan Year, as follows: (1) Top-Heavy Integration Formula. If the Plan is required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15, or if the Employer has specified in the Plan Agreement that this paragraph (1) will apply whether or not the Plan is Top-Heavy, then: (A) First, among the Employer Contribution Accounts of all Qualified Participants, in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. The total amount allocated in this manner shall be equal to 3% of all Qualified Participants' Earnings (or, if less, the entire amount to be allocated). (B) Next, among the Employer Contribution Accounts of all Qualified Participants who have Excess Earnings, in the ratio that each Qualified Participant's Excess Earnings bears to all Qualified Participants' Excess Earnings. The total amount allocated in this manner shall be equal to 3% of all Qualified Participants' Excess Earnings (or, if less, the entire amount remaining to be allocated). (C) Next, among the Employer Contribution Accounts of all Qualified Participants, in the ratio that the sum of each Qualified Participant's Earnings and Excess Earnings bears to the sum of all Qualified Participants' Earnings and Excess Earnings. The total amount allocated in this manner shall not exceed the lesser of (i) the sum of all Participants' Earnings and Excess Earnings multiplied by the Top-Heavy Maximum Disparity Percentage determined under subparagraph (1)(E), or (ii) the entire amount remaining to be allocated. (D) Finally, any amount remaining shall be allocated among the Employer Contribution Accounts of all Qualified Participants in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. (E) The Top-Heavy Maximum Disparity Percentage shall be the lesser of (i) 2.7% or (ii) the applicable percentage from the following table: If the Plan's Integration Level is More than: But not more than: The applicable percentage is: $0 The greater of $10,000 or 20% of the Social Security Wage Base 2.7% The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base 1.3% 80% of the Social Security Wage Base Less than the Social Security Wage Base 2.4% If the Plan's Integration Level is equal to the Social Security Wage Base, the Top-Heavy Maximum Disparity Percentage is 2.7%. (2) Non-Top Heavy Integration Formula. If the Plan is not required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15, and the Employer has not specified in the Plan Agreement that paragraph (1) will apply whether or not the Plan is Top-Heavy, then: (A) An amount equal to (i) the Maximum Disparity Percentage determined under subparagraph (2)(C) multiplied by the sum of all Qualified Participants' Earnings and Excess Earnings, or (ii) if less, the entire amount to be allocated, shall be allocated among the Employer Contribution Account of all Participants in the ratio that the sum of each Qualified Participant's Earnings and Excess Earnings bears to the sum of all Qualified Participants' Earnings and Excess Earnings. (B) Any amount remaining after the allocation in paragraph (2)(A) shall be allocated among the Employer Contribution Accounts of all Qualified Participants in the ratio that each Qualified Participant's Earnings bears to all Qualified Participants' Earnings. (C) The Maximum Disparity Percentage shall be the lesser of (i) 5.7% or (ii) the applicable percentage from the following table: If the Plan's Integration Level is more than: But not more than: The applicable percentage is: $0 The greater of $10,000 or 20% of the Social Security Wage Base 5.7% The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base 4.3% 80% of the Social Security Wage Base Less than the Social Security Wage Base 5.4% If the Plan's Integration Level is equal to the Social Security Wage Base, the Maximum Disparity Percentage is 5.7%. (3) In this Section 4.2, Earnings means Earnings as defined in Section 2.12. (e) Allocation of Forfeitures. Forfeitures shall be allocated among the Employer Contribution Accounts of all Qualified Participants in accordance with paragraph (a) or (b), whichever applies to Employer Contributions. Forfeitures may be allocated pursuant to paragraphs (d)(1)(B), (d)(1)(C) and (d)(2)(A) only to the extent that the limitation described therein has not been fully utilized by the allocation of Employer Contributions and amounts reapplied under Section 6.1(d). (f) Participant Contributions. If so specified in the Plan Agreement, a Participant may make nondeductible contributions to the Plan in accordance with the Plan Agreement. Such contributions shall be limited so as to meet the nondiscrimination test of Section 401(m) of the Code, as set out in Section 5.11 of the Plan. Participant contributions will be allocated to the Participant Contributions Account of the contributing Participant. All Participant Contributions Accounts will be fully vested at all times. 47..3 Provisions Applicable Only to Money Purchase Pension Plans. (a) Amount of Annual Contributions. The Employer will contribute for each Plan Year an amount described in paragraph (b) or (c) below, whichever is applicable, less any amounts reapplied for the Plan Year under Section 6.1(d), not to exceed the amount deductible under Section 404(c) of the Code. If the Employer so elects in the Plan Agreement, the amount of Forfeitures occurring in a Plan Year shall be applied to reduce the Employer's contribution by a like amount, and such Forfeitures shall be treated as a portion of the Employer Contribution for purposes of paragraphs (b) and (c). (b) Allocation of Contributions; General Rule. The Employer shall contribute an amount equal to the product of the Earnings of all Qualified Participants and the Base Contribution Percentage, and the contribution shall be allocated as of the last day of the Plan Year among the Employer Contribution Accounts of all Qualified Participants in the ratio that the Earnings of each Qualified Participant bears to the Earnings of all Qualified Participants. This general rule does not apply to a Plan that is integrated with Social Security. (c) Plans Integrated with Social Security. Subject to Section 4.6 and if the Employer has elected in the Plan Agreement to integrate the Plan with Social Security, the Employer shall contribute an amount equal to the sum of the following amounts, and the contribution shall be allocated as of the last day of the Plan Year as follows: (1) To the Employer Contribution Account of each Qualified Participant, an amount equal to the product of the Base Contribution Percentage and his Earnings, and (2) To the Employer Contribution Account of each Qualified Participant who has Excess Earnings, the product of his Excess Earnings and the lesser of (i) the Base Contribution Percentage or (ii) the Money Purchase Maximum Disparity Percentage determined under paragraph (d). (3) The Base Contribution Percentage shall be no less than three percent in either of the following circumstances: (i) any Plan Year of a Plan for which the Plan Agreement does not specify that the Employer will perform annual Top-Heavy testing, or (ii) any Plan Year in which the Plan is required to provide a minimum allocation for the Plan Year pursuant to the Top-Heavy Plan rules of Article 15. (d) The Money Purchase Maximum Disparity Percentage is equal to the lesser of (i) 5.7% or (ii) the applicable percentage from the following table: If the Plan's Integration Level is more than: But not more than: The applicable percentage is: $0 The greater of $10,000 or 20% of the Social Security Wage Base 5.7% The greater of $10,000 or 20% of the Social Security Wage Base 80% of the Social Security Wage Base 4.3% 80% of the Social Security Wage Base Less than the Social Security Wage Base 5.4% If the Plan's Integration Level is equal to the Social Security Wage Base, the Money Purchase Maximum Disparity Percentage is 5.7%. (e) Participant Contributions. If so specified in the Plan Agreement, a Participant may make nondeductible contributions to the Plan in accordance with the Plan Agreement. Such contributions shall be limited so as to meet the nondiscrimination test of Section 401(m) of the Code, as set out in Section 5.11 of the Plan. Participant contributions will be allocated to the Participant Contributions Account of the contributing Participant. All Participant Contributions Accounts will be fully vested at all times. (f) Separate Allocation of Forfeitures. If the Employer has not elected in the Plan Agreement to use Forfeitures to reduce the amount of its contribution, Forfeitures shall be allocated among the Employer Contribution Accounts of all Qualified Participants in proportion of their Earnings. 47..4 Rollover Contributions. An Employee in an eligible class may contribute at any time cash or other property (which is not a collectible within the meaning of Section 408(m) of the Code) acceptable to the Trustee representing qualified rollover amounts under Sections 402, 403, or 408 of the Code. Amounts so contributed shall be credited to a Rollover Account for the Participant. 47..5 No Deductible Employee Contributions. The Plan Administrator shall not accept deductible employee contributions. 47..6 Paired Plans. An Employer may adopt as paired plans Putnam Profit Sharing and 401(k) Plan (Plan Agreement #001) and Putnam Money Purchase Pension Plan (Plan Agreement #002). Only one of the two paired plans may be integrated with Social Security. In any Plan Year in which Putnam paired plans are top-heavy, each non- key employee who is eligible to participate in both plans will have allocated to his account in the Putnam Money Purchase Pension Plan a minimum contribution that meets the requirements of Section 15.3. ARTICLE 48. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k) (CODA) 48..1 Applicability; Allocations. This Article 5 applies to any plan for which the Employer has elected in the Plan Agreement to include a CODA. The Employer may specify in the Plan Agreement that contributions will be made to the Plan only under the CODA, or that contributions may be made under Section 4.2 as well as under the CODA. Allocations to Participants' Accounts of contributions made pursuant to this Article 5 shall be made as soon as administratively feasible after their receipt by the Trustee, but in any case no later than as of the last day of the Plan Year for which the contributions were made. 48..2 CODA Participation. Each Employee who has met the eligibility requirements of Article 3 may make Elective Deferrals to the Plan by completing and returning to the Plan Administrator a Deferral Agreement form which provides that the Participant's cash compensation from the Employer will be reduced by the amount indicated in the Deferral Agreement, and that the Employer will contribute an equivalent amount to the Trust on behalf of the Participant. The following rules will govern Elective Deferrals: (a) Subject to the limits specified in the Plan Agreement and set forth in Section 5.3, a Deferral Agreement may apply to any amount or percentage of either or both of the Earnings payable to a Participant in each regular payroll period of the Employer, or one or more bonuses payable to a Participant from time to time as specified by the Employer. (b) In accordance with such reasonable rules as the Plan Administrator shall specify, a Deferral Agreement will become effective as soon as is administratively feasible after the Deferral Agreement is returned to the Plan Administrator, and will remain effective until it is modified or terminated. No Deferral Agreement may become effective retroactively. (c) A Participant may modify his Deferral Agreement by completing and returning to the Plan Administrator a new Deferral Agreement form as of any of the dates specified in the Plan Agreement, and any such modification will become effective as described in paragraph (b). (d) A Participant may terminate his Deferral Agreement at any time upon advance written notice to the Plan Administrator, and any such Termination will become effective as described in paragraph (b). 48..3 Annual Limit on Elective Deferrals. During any taxable year of a Participant, his Elective Deferrals under the Plan and any other qualified plan of an Affiliated Employer shall not exceed the dollar limit contained in Section 402(g) of the Code in effect at the beginning of the taxable year. With respect to any taxable year, a Participant's Elective Deferrals for purposes of this Section 5.3 include all Employer contributions made on his behalf pursuant to an election to defer under any qualified CODA as described in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement (SARSEP) as described in Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under Section 457 of the Code, any plan described under Section 501(c)(18) of the Code, and any Employer contributions made on behalf of the Participant for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. The amount of Elective Deferrals of a Participant who receives a hardship distribution pursuant to Section 5.14 shall be reduced, for the taxable year next following the distribution, by the amount of Elective Deferrals made in the taxable year of the hardship distribution. 48..4 Distribution of Certain Elective Deferrals. "Excess Elective Deferrals" means those Elective Deferrals described in Section 5.3 that are includible in a Participant's gross income under Section 402(g) of the Code, to the extent that the Participant's aggregate elective deferrals for a taxable year exceed the dollar limitation under that Code Section. Excess Elective Deferrals shall be treated as Annual Additions under the Plan, whether or not they are distributed under this Section 5.4. A Participant may designate to the Plan any Excess Elective Deferrals made during his taxable year by notifying the Employer on or before the following March 15 of the amount of the Excess Elective Deferrals to be so designated. A Participant who has Excess Elective Deferrals for a taxable year, taking into account only his Elective Deferrals under the Plan and any other plans of the Affiliated Employers, shall be deemed to have designated the entire amount of such Excess Elective Deferrals. Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were so designated or deemed designated for the preceding year. The income or loss allocable to Excess Elective Deferrals is the income or loss allocable to the Participant's Elective Deferral Account for the taxable year multiplied by a fraction, the numerator of which is the Participant's Excess Elective Deferrals for the year and the denominator of which is the Participant's Account balance attributable to Elective Deferrals without regard to any income or loss occurring during the year. To the extent that the return to a Participant of his Elective Deferrals would reduce an Excess Amount (as defined in Section 6.5(f)), such Excess Deferrals shall be distributed to the Participant in accordance with Article 6. 48..5 Satisfaction of ADP and ACP Tests. In each Plan Year, the Plan must satisfy the ADP test described in Section 5.6 and the ACP test described in Section 5.9. The Employer may cause the Plan to satisfy the ADP or ACP test or both tests for a Plan Year by any of the following methods or by any combination of them: (a) By the distribution of Excess Contributions in accordance with Section 5.7, or the distribution of Excess Aggregate Contributions in accordance with Section 5.12, or both; or (b) If the Employer has so elected in the Plan Agreement, by making Qualified Nonelective Contributions or Qualified Matching Contributions or both, in accordance with the Plan Agreement and this Section 5.5. 48..6 Actual Deferral Percentage Test Limit. The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who are Non-Highly Compensated Employees by more than two percentage points. The following special rules shall apply to the computation of the ADP: (c) "Actual Deferral Percentage" means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in the group) of (1) the amount of Employer contributions actually paid over to the Trust on behalf of the Participant for the Plan Year to (2) the Participant's Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year, the Participant's Earnings for that portion of the Plan Year during which he was eligible to participate in the Plan). Employer contributions on behalf of any Participant shall include: (i) his Elective Deferrals, including Excess Elective Deferrals of Highly Compensated Employees, but excluding (A) Excess Elective Deferrals of Non- Highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or another plan maintained by an Affiliated Employer, and (B) Elective Deferrals that are taken into account in the Average Contribution Percentage test described in Section 5.11 (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals), and excluding Elective Deferrals returned to a Participant to reduce an Excess Amount as defined in Section 6.5(f); and (ii) if the Employer has elected to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP test; and (iii) if the Employer has elected to make Qualified Matching Contributions, such amount of Qualified Matching Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP test. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for his failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made. (d) In the event that the Plan satisfies the requirements of Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with the Plan, then this Section 5.6 shall be applied by determining the ADP of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year. (e) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) allocated to his Accounts under two or more CODAs described in Section 401(k) of the Code that are maintained by the Affiliated Employers shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single CODA. If a Highly Compensated Employee participates in two or more CODAs that have different Plan Years, all CODAs ending with or within the same calendar year shall be treated as a single CODA, except that CODAs to which mandatory disaggregation applies in accordance with regulations issued under Section 401(k) of the Code shall be treated as separate CODAs. (f) For purposes of determining the ADP of a Participant who is a 5% owner or one of the ten most highly-paid Highly Compensated Employees, the Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) and the Compensation of such a Participant shall include the Elective Deferrals (and, if applicable, Qualified Nonelective Contributions and Qualified Matching Contributions, or both) and Compensation for the Plan Year of his Family Members (as defined in Section 414(q)(6) of the Code). Family Members of such Highly Compensated Employees shall be disregarded as separate employees in determining the ADP both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (g) For purposes of the ADP test, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the 12-month period immediately following the Plan Year to which those contributions relate. (h) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in satisfying the test. (i) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 48..7 Distribution of Excess Contributions. "Excess Contributions" means, with respect to any Plan Year, the excess of: (a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for the Plan Year, over (b) The maximum amount of Employer contributions permitted by the ADP test, determined by reducing contributions made on behalf of Highly Compensated Employees in order of their ADPs, beginning with the highest of such percentages. Notwithstanding any other provision of the Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts Excess Contributions were allocated for the preceding Plan Year. The income or loss allocable to Excess Contributions is the income or loss allocable to the Participant's Elective Deferral Account (and, if applicable, his Qualified Nonelective Account or Qualified Matching Account or both) for the Plan Year multiplied by a fraction, the numerator of which is the Participant's Excess Contributions for the year and the denominator is the Participant's account balance attributable to Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if any of these are included in the ADP test) without regard to any income or loss occurring during the Plan Year. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which the excess amounts arose, an excise tax equal to 10% of the excess amounts will be imposed on the Employer maintaining the Plan. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of them. Excess Contributions shall be allocated to a Participant who is a family member subject to the family member aggregation rules of Section 414(q)(6) of the Code in the proportion that the Participant's Elective Deferrals (and other amounts treated as his Elective Deferrals) bear to the combined Elective Deferrals (and other amounts treated as Elective Deferrals) of all of the Participants aggregated to determine his family members' combined ADP. Excess Contributions shall be treated as Annual Additions under the Plan. Excess Contributions shall be distributed from the Participant's Elective Deferral Account and Qualified Matching Account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral Account and Qualified Matching Account. 48..8 Matching Contributions. If so specified in the Plan Agreement, the Employer will make Matching Contributions to the Plan in accordance with the Plan Agreement, but no Matching Contribution shall be made with respect to an Elective Deferral that is returned to a Participant because it represents an Excess Elective Deferral, an Excess Contribution or an Excess Amount (as defined in Section 6.5(f)); and if a Matching Contribution has nevertheless been made with respect to such an Elective Deferral, the Matching Contribution shall be forfeited, notwithstanding any other provision of the Plan. (a) Employer Matching Contributions. Employer Matching Contributions will be allocated among the Employer Matching Accounts of Participants in proportion to their Elective Deferrals. Employer Matching Accounts shall become vested according to the vesting schedule specified in the Plan Agreement, but regardless of that schedule shall be fully vested upon the Participant's Retirement (or, if earlier, his fulfillment of the requirements for early retirement, if any, or attainment of the normal retirement age specified in the Plan Agreement), his death during employment with an Affiliated Employer, and in accordance with Section 19.3. Forfeitures of Employer Matching Contributions, other than Excess Aggregate Contributions, shall be made in accordance with Section 8.3. Forfeitures of Employer Matching Accounts for a Plan Year shall be applied to reduce the total Employer Matching Contribution for the Plan Year, or allocated among the Employer Matching Accounts of Participants in addition to the Employer Matching Contribution for the Plan Year, as elected by the Employer in the Plan Agreement. (b) Qualified Matching Contributions. Qualified Matching Contributions will be allocated among the Qualified Matching Contribution Accounts of Participants as specified by the Employer in the Plan Agreement. 48..9 Participant Contributions. If so specified in the Plan Agreement, a Participant may make nondeductible contributions to the Plan in accordance with the Plan Agreement. Such contributions, together with any matching contributions (as defined in Section 401(m)(4) of the Code), shall be limited so as to meet the nondiscrimination test of Section 401(m) of the Code, as set forth in Section 5.11 of the Plan. Participant contributions will be allocated to the Participant Contributions Account of the contributing Participant. All Participant Contribution Accounts will be fully vested at all times. 48..10 Recharacterization of Excess Contributions. Provided that the Plan Agreement permits all Participants to make Participant Contributions, the Employer may treat a Participant's Excess Contributions as an amount distributed to the Participant and then contributed by the Participant to the Plan as a Participant Contribution. Recharacterized amounts will remain nonforfeitable and subject to the same distribution requirements as Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated Employe to the extent that a recharacterized amount in combination with other Participant Contributions made by that Employee would exceed any stated limit under the Plan on Participant Contributions. Recharacterization must occur no later than two and one-half months after the last day of the Plan Year in which the Excess Contributions arose, and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing by the Employer of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for his tax year in which the Participant would have received them in cash. 48..11 Average Contribution Percentage Test Limit and Aggregate Limit. The Average Contribution Percentage (hereinafter "ACP") for Participants who are Highly Compensated Employees for each Plan Year and the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by two (2), provided that the ACP for Participants who are Highly Compensated Employees does not exceed the ACP for Participants who are Non-Highly Compensated Employees by more than two percentage points. The following rules shall apply to the computation of the ACP: (c) Average Contribution Percentage means the average of the Contribution Percentages of the Eligible Participants in a group. (d) Contribution Percentage means the ratio (expressed as a percentage) of a Participant's Contribution Percentage Amounts to the Participant's Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year, the Participant's Earnings for that portion of the Plan Year during which he was eligible to participate in the Plan). (e) Contribution Percentage Amounts means the sum of the Participant Contributions, Employer Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall include Forfeitures of Excess Aggregate Contributions or Employer Matching Contributions allocated to the Participant's Account, taken into account in the year in which the allocation is made. If the Employer has elected in the Plan Agreement to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ACP test shall be in the Contribution Percentage Amounts. Elective Deferrals shall also be included in the Contribution Percentage Amounts to the extent, if any, needed to enable the Plan to satisfy the ACP test, so long as the ADP test is met before the Elective Deferrals are used in the ACP test, and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (f) Eligible Participant means any Employee who is eligible to make an Elective Deferral, if Elective Deferrals are taken into account in the calculation of the Contribution Percentage, or to receive an Employer Matching Contribution (or a Forfeiture thereof) or a Qualified Matching Contribution. (g) Aggregate Limit means the sum of (i) 125% of the greater of the ADP of the Non-Highly Compensated Employees for the Plan Year, or the ACP of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the CODA, and (ii) the lesser of 200% of, or two plus, the lesser of the ADP or ACP. "Lesser" is substituted for "greater" in clause (i) of the preceding sentence, and "greater" is substituted for "lesser" after the phrase "two plus the" in clause (ii) of the preceding sentence, if that formulation will result in a larger Aggregate Limit. (h) If one or more Highly Compensated Employees participate in both a CODA and a plan subject to the ACP test maintained by an Affiliated Employer, and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with the Highly Compensated Employee whose ACP is the highest) so that the Aggregate Limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Aggregate Contribution. In determining the Aggregate Limit, the ADP and ACP of Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. The Aggregate Limit will be considered satisfied if both the ADP and ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. (i) For purposes of this section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Section 401(a) of the Code, or CODAs described in Section 401(k) of the Code, that are maintained by an Affiliated Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more CODAs that have different plan years, all CODAs ending with or within the same calendar year shall be treated as a single CODA, except that CODAs to which mandatory disaggregation applies in accordance with regulations issued under Section 401(k) of the Code shall be treated as separate CODAs. (j) In the event that the Plan satisfies the requirements of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with the Plan, then this Section 5.11 shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year. (k) For purposes of determining the Contribution Percentage of a Participant who is a 5% owner or one of the ten most highly-paid Highly Compensated Employers, the Contribution Percentage Amounts and Compensation of the Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of Family Members (as defined in Section 414(q)(6) of the Code). Family Members of such Highly Compensated Employees shall be disregarded as separate employees in determining the Contribution Percentage both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (l) For purposes of the ACP test, Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. (m) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in the ACP test. (n) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 48..12 Distribution of Excess Aggregate Contributions. Notwithstanding any other provision of the Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. The income or loss allocable to Excess Aggregate Contributions is the income or loss allocable to the Participant's Employer Matching Contribution Account, Qualified Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Nonelective Account and Elective Deferral Account for the Plan Year, multiplied by a fraction, the numerator of which is the Participant's Excess Aggregate Contributions for the year and the denominator of which is the Participant's account balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during the Plan Year. Excess Aggregate Contributions shall be allocated to a Participant who is subject to the family member aggregation rules of Section 414(q)(6) of the Code in the proportion that the Participant's Employer Matching Contributions (and other amounts treated as his Employer Matching Contributions) bear to the combined Employer Matching Contributions (and other amounts treated as Employer Matching Contributions) of all of the Participants aggregated to determine its family members' combined ACP. If excess amounts attributable to Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, an excise tax equal to 10% of the excess amounts will be imposed on the Employer maintaining the Plan. Excess Aggregate Contributions shall be treated as Annual Additions under the Plan. Forfeitures of Excess Aggregate Contributions that are Employer Matching Contributions shall either be reallocated to the accounts of Non-Highly Compensated Employees or applied to reduce Employer Contributions, as elected by the Employer in the Plan Agreement. Other forfeitures of Excess Aggregate Contributions shall be applied to reduce Employer contributions. Excess Aggregate Contributions shall be forfeited if forfeitable, or distributed on a pro-rata basis from the Participant's Participant Contribution Account, Employer Matching Account, and Qualified Matching Account (and, if applicable, the Participant's Qualified Nonelective Account or Elective Deferral Account, or both). Excess Aggregate Contributions means, with respect to any Plan Year, the excess of: (a) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage and actually made on behalf of Highly Compensated Employees for the Plan Year, over (b) The maximum Contribution Percentage Amounts permitted by the ACP test and the Aggregate Limit (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages, beginning with the highest of such percentages). Such determination shall be made after first determining Excess Elective Deferrals pursuant to Section 5.4, and then determining Excess Contributions pursuant to Section 5.7. 48..13 Restriction on Distributions. No distribution may be made from a Participant's Elective Deferral Account, Qualified Nonelective Account or Qualified Matching Account until the occurrence of one of the following events: (a) The Participant's Disability, death or termination of employment with the Affiliated Employers; (b) Termination of the Plan without the establishment of another defined contribution plan other than an employee stock ownership plan as defined in Section 4975(e) or Section 409 of the Code, or a simplified employee pension plan as defined in Section 408(k) of the Code; (c) The Participant's attainment of age 59 1/2 (if the Employer has elected in the Plan Agreement to permit such distributions); or (d) In the case of an Employer that is a corporation, the disposition by the Employer to an unrelated entity of (i) substantially all of the assets (within the meaning of Section 409(d)(2) of the Code) used in a trade or business of the Employer, if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with the entity acquiring such assets; or (ii) the Employer's interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code), if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with such subsidiary. In addition, if the Employer has elected in the Plan Agreement to permit such distributions, a distribution may be made from a Participant's Elective Deferral Account in the event of his financial hardship as described in Section 5.14. All distributions upon any of the events listed above are subject to the conditions of Article 10, Joint and Survivor Annuity Requirements. In addition, distributions made after March 31, 1988, on account of an event described in subSection (b) or (d) above must be made in a lump sum. 48..14 Hardship Distributions. If the Employer has so elected in the Plan Agreement, upon a Participant's written request the Employer may permit a distribution from his Elective Deferral Account and from his Employer Matching Account. The terms and conditions of Section 12.2 and the special vesting rule contained in Section 8.4 shall apply to hardship distributions from an Employer Contribution Account or an Employer Matching Account. The further terms of this Section 5.14 shall apply to hardship distributions from an Elective Deferral Account. No hardship distribution shall be made from a Qualified Nonelective Account or a Qualified Matching Account. (a) The maximum amount that may be distributed on account of hardship from an Elective Deferral Account after December 31, 1988, shall not exceed the sum of (1) the amount credited to the Account as of December 31, 1988, and (2) the aggregate amount of the Elective Deferrals made by the Participant after December 31, 1988, and before the hardship distribution. (b) Hardship distributions shall be permitted only on account of the following financial needs: (1) Expenses for medical care described in Section 213(d) of the Code for the Participant, his spouse, children and dependents, or necessary for these persons to obtain such care; (2) Purchase of the principal residence of the Participant (excluding regular mortgage payments); (3) Payment of tuition and related educational fees for the upcoming 12 months of post-secondary education for the Participant, his spouse, children or dependents; or (4) Payments necessary to prevent the Participant's eviction from, or the foreclosure of a mortgage on, his principal residence. (c) Hardship distributions shall be subject to the spousal consent requirements contained in Sections 411(a)(11) and 417 of the Code, to the same extent that those requirements apply to a Participant pursuant to Section 10.1. (d) A hardship distribution will be made to a Participant only upon satisfaction of the following conditions: (1) The Participant has obtained all nontaxable loans and all distributions other than hardship distributions available to him from all plans maintained by the Affiliated Employers; (2) The hardship distribution does not exceed the amount of the Participant's financial need as described in paragraph (b) plus any amounts necessary to pay federal, state and local income taxes and penalties reasonably anticipated to result from the distribution; (3) All plans maintained by the Affiliated Employers provide that the Participant's Elective Deferrals and voluntary after-tax contributions will be suspended for a period of 12 months following his receipt of a hardship distribution; and (4) All plans maintained by the Affiliated Employers provide that the amount of Elective Deferrals that the Participant may make in his taxable year immediately following the year of a hardship distribution will not exceed the applicable limit under Section 402(g) of the Code for the taxable year, reduced by the amount of Elective Deferrals made by the Participant in the taxable year of the hardship distribution. 48..15 Special Effective Dates. If the Plan is adopted as an amendment of an existing plan, the provisions of Sections 5.3 and Section 5.7 through 5.11 are effective as of the first day of the first Plan Year beginning after December 31, 1986. ARTICLE 49. LIMITATIONS ON ALLOCATIONS 49..1 No Additional Plan. If the Participant does not participate in and has never participated in another qualified plan, or a welfare benefit fund (as defined in Section 419(e) of the Code), or an individual medical account (as defined in Section 415(1)(2) of the Code) which provides an Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer: (a) The amount of Annual Additions (as defined in Section 6.5(a)) which may be credited to the Participant's Accounts for any Limitation Year will not exceed the lesser of the Maximum Annual Additions or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Annual Additions, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Annual Additions. (b) Before determining a Participant's actual Section 415 Compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant on the basis of a reasonable estimation of the Participant's Section 415 Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Annual Additions for the Limitation Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Limitation Year. (d) If pursuant to paragraph (c), or as a result of the reallocation of Forfeitures, or as a result of a reasonable error in determining the amount of Elective Deferrals that may be made by a Participant, the Annual Additions exceed the Maximum Annual Additions, the Excess Amount will be disposed of as follows: (1) Any nondeductible voluntary Participant contributions and Elective Deferrals, to the extent they would reduce the Excess Amount, will be returned to the Participant. (2) If after the application of (1) above an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Accounts will be used to reduce Employer contributions (including any allocation of Forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. (3) If after the application of (1) above an Excess Amount still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any Forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary. (4) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section 6.1(d), it will participate in the allocation of the Trust's investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any Employer or any Employee contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants. 49..2 Additional Master or Prototype Plan. If in addition to this Plan a Participant is covered under another qualified Master or Prototype defined contribution plan or a welfare benefit fund (as defined in Section 419(e) of the Code), or an individual medical account (as defined in Section 415(1)(2) of the Code) which provides an Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer during any Limitation Year: (a) The Annual Additions which may be credited to a Participant's Accounts under this Plan for any such Limitation Year will not exceed the Maximum Annual Additions reduced by the Annual Additions credited to a Participant's accounts under the other plans and welfare benefit funds for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by an Affiliated Employer are less than the Maximum Annual Additions, and the Employer contribution that would otherwise be contributed or allocated to the Participant's Accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Plan Year will equal the Maximum Annual Additions. If the Annual Additions with respect to the Participant under such other defined contribution plans and welfare benefit funds in the aggregate are equal to or greater than the Maximum Annual Additions, no amount will be contributed or allocated to the Participant's Accounts under this Plan for the Limitation Year. (b) Before determining a Participant's actual Section 415 Compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant in the manner described in Section 6.1(b). (c) As soon as is administratively feasible after the end of the Plan Year, the Maximum Annual Additions for the Plan Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Plan Year. (d) If, pursuant to Section 6.2(c) or as a result of the allocation of Forfeitures, or of a reasonable error in determining the amount of Elective Deferrals that may be made by him, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated under any qualified Master or Prototype defined contribution plan, except that Annual Additions to any welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date. (e) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of X and Y, where (X) is the total Excess Amount allocated as of such date, and (Y) is the ratio of: (1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified Master or Prototype defined contribution plans. (f) Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 6.1(d). 49..3 Additional Non-Master or Non-Prototype Plan. If the Participant is covered under another qualified defined contribution plan maintained by an Affiliated Employer which is not a Master or Prototype plan, Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation Year will be limited in accordance with Section 6.2 as though the other plan were a Master or Prototype plan, unless the Employer provides other limitations in the Plan Agreement. 49..4 Additional Defined Benefit Plan. If an Affiliated Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation Year will be limited in accordance with the Plan Agreement. 49..5 Definitions. (a) Annual Additions means the sum of the following amounts credited to a Participant's Accounts for the Limitation Year: (1) Employer contributions; (2) For any Limitation Year beginning after December 31, 1986, after-tax Employee contributions; (3) Forfeitures; (4) Amounts allocated after March 31, 1984, to any individual medical account, as defined in Section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by an Affiliated Employer; (5) Amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to postretirement medical benefits allocated to the separate account of a key Employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund as defined in Section 419(e) of the Code, maintained by an Affiliated Employer; and (6) In a Plan that includes a CODA, Excess Elective Deferrals, Excess Contributions (including recharacterized Elective Deferrals) and Excess Aggregate Contributions. For this purpose, any Excess Amount applied under Sections 6.1(d) or 6.2(e) in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year. Any rollover contribution will not be considered an Annual Addition. (b) Section 415 Compensation means, for a self-employed person, his earned income; and for any other Participant, his "Form W-2 earnings" as defined in Section 2.8, if the Employer has elected in item 4 of the Plan Agreement a definition of Compensation based on "Form W-2 earnings"; or if the Employer has not so elected, his wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a nonaccountable plan as described in Income Tax Regulations Section 1.62-2(c)), and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not includible in the Participant's gross income for the taxable year in which contributed, or Employer contributions under a simplified Employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensations; (2) Amounts realized from the exercise of a non- qualified stock option, or when restricted stock (or property) held by the Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Participant). For purposes of applying the limitations of this Article 6, Section 415 Compensation for a Limitation Year is the Section 415 Compensation actually paid or made available during such Limitation Year. (c) Defined Benefit Fraction means a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits under all the defined benefit plans (whether or not terminated) maintained by the Affiliated Employers, and the denominator of which is the lesser of 125% of the dollar limitation in effect for the Limitation Year under Sections 415(b) and (d) of the Code, or 140% of the Participant's Highest Average Compensation including any adjustments under Section 415(b) of the Code. Notwithstanding the foregoing, if the Participant was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any change in the terms and conditions of the Plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code for all Limitation Years beginning before January 1, 1987. (d) Defined Contribution Dollar Limitation means $30,000 or if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the Limitation Year. (e) Defined Contribution Fraction means a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by Affiliated Employers for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Affiliated Employers, and the Annual Additions attributable to all welfare benefit funds, as defined in Section 419(e) of the Code, and individual medical accounts, as defined in Section 415(l)(2) of the Code), and the denominator of which is the sum of the Maximum Annual Additions for the current and all prior Limitation Years of service with the Affiliated Employers (regardless of whether a defined contribution plan was maintained by any Affiliated Employer). The Maximum Annual Additions in any Plan Year is the lesser of 125% of the dollar limitation determined under Sections 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code, or 35% of the Participant's Section 415 Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986 in one or more defined contribution plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to product of the excess of the sum of the fractions over 1.0, multiplied by the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan after May 5, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat 100% of nondeductible Employee contributions as Annual Additions. (f) Excess Amount means, with respect to any Participant, the amount by which Annual Additions exceed the Maximum Annual Additions. (g) Highest Average Compensation means the average compensation for the three consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the period of 12 consecutive months specified as the Limitation Year in the Plan Agreement. (h) Limitation Year means the period of 12 consecutive months specified in the Plan Agreement. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different period of 12 consecutive months, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. (i) Master or Prototype plan means a plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. (j) Maximum Annual Additions, which is the maximum annual addition that may be contributed or allocated to a Participant's account under the plan for any Limitation Year, means an amount not exceeding the lesser of (a) the Defined Contribution Dollar Limitation or (b) 25% of the Participant's Section 415 Compensation for the Limitation Year. The compensation limitation referred to in (b) shall not apply to any contribution for medical benefits (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition under Section 415(l)(1) or Section 419A(d)(2) of the Code. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different period of 12 consecutive months, the Maximum Annual Additions will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: number of months in the short Limitation Year 12 (k) Projected Annual Benefit means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of the Plan assuming: (1) The Participant will continue employment until normal retirement age under the Plan (or current age, if later), and (2) The Participant's Section 415 Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the plan will remain constant for all future Limitation Years. ARTICLE 50. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS 50..1 Retirement. After his Retirement, the amount credited to a Participant's Accounts will be distributed to him in accordance with Article 9. The termination of a Participant's employment with the Affiliated Employers after he has (i) attained the normal retirement age specified in the Plan Agreement, (ii) fulfilled the requirements for early retirement (if any) specified in the Plan Agreement, or (iii) become Disabled will constitute his Retirement. Upon a Participant's Retirement (or, if earlier, his attainment of the normal retirement age specified in the Plan Agreement or fulfillment of the requirements for early retirement, if any, specified in the Plan Agreement) the Participant's Accounts shall become fully vested, regardless of the vesting schedule specified by the Employer in the Plan Agreement. A Participant who separates from service with any vested balance in his Accounts, after satisfying the service requirements for early retirement (if any is specified in the Plan Agreement) but before satisfying the age requirement for early retirement (if any is specified in the Plan Agreement), shall be entitled to a fully vested early retirement benefit upon his satisfaction of such age requirement. 50..2 Death. If a Participant dies before the distribution of his Accounts has been completed, his Beneficiary will be entitled to distribution of benefits in accordance with Article 9. A Participant's Accounts will become fully vested upon his death before termination of his employment with the Affiliated Employers, regardless of the vesting schedule specified by the Employer in the Plan Agreement. A Participant may designate a Beneficiary by completing and returning to the Plan Administrator a form provided for this purpose. The form most recently completed and returned to the Plan Administrator before the Participant's death shall supersede any earlier form. If a Participant has not designated any Beneficiary before his death, or if no Beneficiary so designated survives the Participant, his Beneficiary shall be his surviving spouse, or if there is no surviving spouse, his estate. A married Participant may designate a Beneficiary other than his spouse only if his spouse consents in writing to the designation, and the spouse's consent acknowledges the effect of the consent and is witnessed by a notary public or a representative of the Plan. The beneficiary or beneficiaries named in the designation to which the spouse has so consented may not be changed without further written spousal consent unless the terms of the spouse's original written consent expressly permit such a change, and acknowledge that the spouse voluntarily relinquishes the right to limit the consent to a specific beneficiary. The marriage of a Participant shall nullify any designation of a beneficiary previously executed by the Participant. If it is established to the satisfaction of the Plan Administrator that the Participant has no spouse or that the spouse cannot be located, the requirement of spousal consent shall not apply. Any spousal consent, or establishment that spousal consent cannot be obtained, shall apply only to the particular spouse involved. 50..3 Other Termination of Employment. A Participant whose employment terminates for any reason other than his Retirement or death will be entitled to distribution, in accordance with Article 9, of benefits equal to the amount of the vested balance of his Accounts as determined under Article 8. ARTICLE 51. VESTING 51..1 Vested Balance. The vested balance of a Participant's Accounts will be determined as follows: (a) General Rule. A Participant's Participant Contribution Account and Rollover Account shall be fully vested at all times. The vested portion of his Employer Contribution Account shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement, to the number of Years of Service credited to the Participant as of the end of the Year of Service in which his employment terminates. The vesting schedule specified in the Plan Agreement applies to all benefits within the meaning of Section 411(a)(7) of the Code, except those attributable to Employee contributions. (b) Special Rules for CODA. In a Plan that includes a CODA, a Participant's Elective Deferral Account, Qualified Nonelective Account, and Qualified Matching Account shall be fully vested at all times. The vested portion of his Employer Matching Account shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement, to the number of Years of Service credited to the Participant as of the end of the Year of Service in which his employment terminates. (c) Retirement. All of a Participant's Accounts shall become fully vested upon his Retirement or his earlier attainment of early retirement age (if any) or the normal retirement age elected by the Employer in the Plan Agreement. For so long as a former Employee does not receive a distribution (or a deemed distribution) of the vested portion of his Accounts, the undistributed portion shall be held in a separate account which shall be invested pursuant to Section 13.3 and shall share in earnings and losses of the Trust Fund pursuant to Section 13.4 in the same manner as the Accounts of active Participants. 51..2 Vesting of Accounts of Returned Former Employees. The following rules apply in determining the vested portion of the Accounts of a Participant who incurs one or more consecutive One- Year Vesting Breaks and then returns to employment with an Affiliated Employer: (a) If the Participant incurred fewer than five consecutive One-Year Vesting Breaks, then all of his Years of Service will be taken into account in determining the vested portion of his Accounts, as soon as he has completed one Year of Service following his return to employment. (b) If the Participant incurred five or more consecutive One-Year Vesting Breaks, then: (1) No Year of Service completed after his return to employment will be taken into account in determining the vested portion of his Accounts as of any time before he incurred the first One-Year Vesting Break; (2) Years of Service completed before he incurred the first One-Year Vesting Break will not be taken into account in determining the vested portion of his Accounts as of any time after his return to employment (i) unless some portion of his Employer Contribution Account or Employer Matching Account had become vested before he incurred the first One-Year Vesting Break, and (ii) until he has completed one Year of Service following his return to employment; and (3) Separate sub-accounts will be maintained for the Participant's pre-break and post-break Employer Contribution Account and Employer Matching Account, until both sub-accounts become fully vested. Both sub-accounts will share in the earnings and losses of the Trust Fund. 51..3 Forfeiture of Non-Vested Amounts. The portion of a former Employee's Accounts that has not become vested under Section 8.1 shall become a Forfeiture in accordance with the following rules, and shall be reallocated in accordance with Section 4.2 or Article 5 (whichever applies) no later than the end of the Plan Year in which it becomes a Forfeiture. (a) If Distribution Is Made. If any or all of the vested portion of a Participant's Accounts is distributed in accordance with Section 9.1 or 9.2 before the Participant incurs five consecutive One-Year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture in the Plan Year in which the distribution occurs. For purposes of this Section 8.3, if the value of the vested portion of a Participant's Accounts is zero, he shall be deemed to have received a distribution of the entire vested balance of his Accounts on the day his employment terminates. If the Participant elects to have distributed less than the entire vested portion of his Employer Contribution Account or Employer Matching Accounts, the part of the nonvested portion that will become a Forfeiture is the total nonvested portion multiplied by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the total value of the entire vested portion of such Accounts. (b) Right of Repayment. If a Participant who receives a distribution pursuant to paragraph (a) returns to employment with an Affiliated Employer, the balance of his Employer Contribution Account and Employer Matching Account will be restored to the amount of such balance on the date of distribution, if he repays to the Plan the full amount of the distribution, before the earlier of (i) the fifth anniversary of his return to employment or (ii) the date he incurs five consecutive One-Year Vesting Breaks following the date of distribution. If an Employee is deemed to receive a distribution pursuant to this Section 8.3, and he resumes employment covered under this Plan before the date he incurs five consecutive One-Year Vesting Breaks, upon his reemployment the Employer-derived account balance of the Employee will be restored to the amount on the date of such deemed distribution. Such restoration will be made, first, from the amount of any Forfeitures available for reallocation as of the last day of the Plan Year in which repayment is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(f). (c) If No Distribution Is Made. If no distribution (or deemed distribution) is made to a Participant before he incurs five consecutive One-Year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture at the end of the Plan Year that constitutes his fifth consecutive One- Year Vesting Break. (d) Adjustment of Accounts. Before a Forfeiture is incurred, a Participant's Accounts shall share in earnings and losses of the Trust Fund pursuant to Section 13.4 in the same manner as the Accounts of active Participants. (e) Accumulated Deductible Contributions. For Plan Years beginning before January 1, 1989, a Participant's vested Account balance shall not include accumulated deductible contributions within the meaning of Section 72(o)(5)(B) of the Code. 51..4 Special Rule in the Event of a Withdrawal. If a withdrawal pursuant to Section 12.2 or 12.3 is made from a Participant's Employer Contribution Account or Employer Matching Account before the Account is fully vested, and the Participant may increase the vested percentage in the Account, then a separate account will be established at the time of the withdrawal, and at any relevant time after the withdrawal the vested portion of the separate account will be equal to the amount "X" determined by the following formula: X = P(AB + D) - D For purposes of the formula, P is the Participant's vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of the withdrawal. 51..5 Vesting Election. If the Plan is amended to change any vesting schedule, or is amended in any way that directly or indirectly affects the computation of a Participant's vested percentage, each Participant who has completed not less than three Years of Service may elect, within a reasonable period after the adoption of the amendment or change, in a writing filed with the Employer to have his vested percentage computed under the Plan without regard to such amendment. For a Participant who is not credited with at least one Hour of Service in a Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "five Years of Service" for "three Years of Service." The period during which the election may be made shall commence with the date the amendment is adopted, or deemed to be made, and shall end on the latest of (a) 60 days after the amendment is adopted; (b) 60 days after the amendment becomes effective; or (c) 60 days after the Participant is issued written notice of the amendment by the Employer. ARTICLE 52. PAYMENT OF BENEFITS 52..1 Distribution of Accounts. A Participant or Beneficiary who has become eligible for a distribution of benefits pursuant to Article 7 may elect to receive such benefits at any time, subject to the terms and conditions of this Article 9, Article 10 and Article 11. Unless a Participant or Beneficiary elects otherwise, distribution of benefits will begin no later than the 60th day after the end of the Plan Year in which the latest of the following events occurs: (a) The Participant attains age 65 (or if earlier, the normal retirement age specified by the Employer in the Plan Agreement); or (b) The tenth anniversary of the year in which the Participant commenced participation in the Plan; or (c) The Participant's employment with the Affiliated Employers terminates. A Beneficiary who is the surviving spouse of a Participant may elect to have distribution of benefits begin within the 90-day period following the Participant's death. For purposes of this Section 9.1, the failure of a Participant (and his spouse, if spousal consent is required pursuant to Article 10) to consent to a distribution while a benefit is "immediately distributable" within the meaning of Section 9.2 shall be considered an election to defer commencement of payment. If the Employer has so specified in the Plan Agreement, the vested portion of a Participant's Accounts will be distributed in a lump sum in cash no later than 60 days after the end of the Plan Year in which his employment terminates, if at the time the Participant first became entitled to a distribution the value of such vested portion derived from Employer and Employee contributions does not exceed $3,500. Commencement of distributions in any case shall be subject to Section 9.4. 52..2 Restriction on Immediate Distributions. A Participant's account balance is considered "immediately distributable" if any part of the account balance could be distributed to the Participant (or his surviving spouse) before the Participant attains, or would have attained if not deceased, the later of the normal retirement age specified in the Plan Agreement or age 62. (a) If the value of a Participant's vested account balance derived from Employer and Employee contributions exceeds (or at the time of any prior distribution exceeded) $3,500, and the account balance is immediately distributable, the Participant and his spouse (or where either the Participant or the spouse has died), the survivor must consent to any such distribution, unless an exception described in paragraph (b) applies. The consent of the Participant and his spouse shall be obtained in writing within the 90-day period ending on the annuity starting date, which is the first day of the first period for which an amount is paid as an annuity (or any other form). The Plan Administrator shall notify the Participant and the spouse, no less than 30 days and no more than 90 days before the annuity starting date, of the right to defer any distribution until the Participant's account balance is no longer immediately distributable. Such notification shall include a general description of the material features of the optional forms of benefit available under the Plan and an explanation of their relative values, in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code. If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the required notification is given, provided that: (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (b) Notwithstanding paragraph (a), only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the account balance is immediately distributable. Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to Section 10.1(b) of the Plan, only the Participant need consent to the distribution of an account balance that is immediately distributable. Neither the consent of the Participant nor the spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan, if the Plan does not offer an annuity option purchased from a commercial provider), and no Affiliated Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), a Participant's account balance shall be distributed to the Participant without his consent. If any Affiliated Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), a Participant's account balance shall be transferred to that defined contribution plan without his consent, unless he consents to an immediate distribution. For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested account balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code. 52..3 Optional Forms of Distribution. Provided that the Employer has so elected in the Plan Agreement, if at the time a Participant first becomes entitled to a distribution the value of his vested Account balance derived from Employer and Employee contributions does not exceed $3,500, distribution shall be made in a lump sum in cash. Subject to the preceding sentence and to the rules of Article 10 concerning joint and survivor annuities, a Participant or Beneficiary may elect to receive benefits in any of the following optional forms: (a) A lump sum payment in cash or in kind or in a combination of both; (b) A series of installments over a period certain that meets the requirements of Article 11; or (c) A nontransferable annuity contract, purchased from a commercial provider, with terms complying with the requirements of Article 11; provided, however, that an annuity for the life of any person shall be available as an optional form of distribution only if the Employer has so elected in the Plan Agreement. (d) In the event that the Plan is adopted as an amendment to an existing plan, each optional form of distribution available under the existing plan shall be made available under the Plan, and may be made available where necessary through the purchase of an appropriate annuity contract in accordance with paragraph (c). 52..4 Distribution Procedure. The Trustee shall make or commence distributions to or for the benefit of Participants only on receipt of an order from the Employer in writing or by such other means unable as shall be acceptable to the Trustee, certifying that a distribution of a Participant's benefits is payable pursuant to the Plan, and specifying the time and manner of payment. The amount to be distributed shall be determined as of the Valuation Date coincident with or next following the Employer's order. The Trustee shall be fully protected in acting upon the directions of the Employer in making benefit distributions, and shall have no duty to determine the rights or benefits of any person under the Plan or to inquire into the right or power of the Employer to direct any such distribution. The Trustee shall be entitled to assume conclusively that any determination by the Employer with respect to a distribution meets the requirements of the Plan. The Trustee shall not be required to make any payment hereunder in excess of the net realizable value of the assets of the Account in question at the time of such payment, nor to make any payment in cash unless the Employer has furnished instructions as to the assets to be converted to cash for the purposes of making payment. 52..5 Lost Distributee. In the event that the Plan Administrator is unable with reasonable effort to locate a person entitled to distribution under the Plan, the Accounts distributable to such a person shall become a Forfeiture at the end of the third Plan Year after the Plan Administrator's efforts to locate such person began; provided, however, that the amount of the Forfeiture shall be restored in the event that such person thereafter submits a claim for benefits under the Plan. Such restoration will be made, first, from the amount of Forfeitures available for reallocation as of the last day of the Plan Year in which the claim is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(f). A Forfeiture occurring under this Section 9.5 shall be reallocated as though it were an Employer contribution. 52..6 Direct Rollovers. This Section 9.6 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. For purposes of this Section 9.6, the following definitions shall apply: (a) Eligible Rollover Distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributees and the distributee's Designated Beneficiary, or for a specified period of ten years or more, any distribution to the extent such distribution is required under section 401(a)(9) of the Code, and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible Retirement Plan. An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Distributee. A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) Direct Rollover. A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 52..7 Distributions Required by a Qualified Domestic Relations Order. To the extent required by a Qualified Domestic Relations Order, the Plan Administrator shall make distributions from a Participant's Accounts to any alternate payee named in such order in a manner consistent with the distribution options otherwise available under the Plan, regardless of whether the Participant is otherwise entitled to a distribution at such time under the Plan. ARTICLE 53. JOINT AND SURVIVOR ANNUITY REQUIREMENTS 53..1 Applicability. (a) Generally. The provisions of Sections 10.2 through 10.5 shall generally apply to a Participant who is credited with at least one Hour of Service on or after August 23, 1984, and such other Participants as provided in Section 10.6. (b) Exception for Certain Plans. The provisions of Sections 10.2 through 10.5 shall not apply to a Participant if: (i) the Participant does not or cannot elect payment of benefits in the form of a life annuity, and (ii) on the death of the Participant, his Vested Account Balance will be paid to his surviving spouse (unless there is no surviving spouse, or the surviving spouse has consented to the designation of another Beneficiary in a manner conforming to a Qualified Election) and the surviving spouse may elect to have distribution of the Vested Account Balance (adjusted in accordance with Section 13.4 for gains or losses occurring after the Participant's death) commence within the 90-day period following the date of the Participant's death. The Participant may waive the spousal death benefit described in this paragraph (b) at any time, provided that no such waiver shall be effective unless it satisfies the conditions applicable under Section 10.4(c) to a Participant's waiver of a Qualified Preretirement Survivor Annuity. The exception in this paragraph (b) shall not be operative with respect to a Participant in a profit sharing plan if the Plan: (1) Is a direct or indirect transferee of a defined benefit plan, money purchase pension plan, target benefit plan, stock bonus plan, or profit sharing plan which is subject to the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code; or (2) Is adopted as an amendment of a plan that did not qualify for the exception in this paragraph (b) before the amendment was adopted. For purposes of this paragraph (b), Vested Account Balance shall have the meaning provided in Section 10.4(f). The provisions of Sections 10.2 through 10.6 set forth the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code. (c) Exception for Certain Amounts. The provisions of Sections 10.2 through 10.5 shall not apply to any distribution made on or after the first day of the first Plan Year beginning after December 31, 1988, from or under a separate account attributable solely to accumulated deductible employee contributions as defined in Section 72(o)(5)(B) of the Code, and maintained on behalf of a Participant in a money purchase pension plan or a target benefit plan, provided that the exceptions applicable to certain profit sharing plans under paragraph (b) are applicable with respect to the separate account (for this purpose, Vested Account Balance means the Participant's separate account balance attributable solely to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code). 53..2 Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected pursuant to a Qualified Election within the 90-day period ending on the Annuity Starting Date, a married Participant's Vested Account Balance will be paid in the form of a Qualified Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance will be paid in the form of a life annuity. In either case, the Participant may elect to have such an annuity distributed upon his attainment of the Earliest Retirement Age under the Plan. 53..3 Qualified Preretirement Survivor Annuity. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, the Vested Account Balance of a Participant who dies before the Annuity Starting Date shall be applied toward the purchase of an annuity for the life of his surviving spouse (a "Qualified Preretirement Survivor Annuity"). The surviving spouse may elect to have such an annuity distributed within a reasonable period after the Participant's death. For purposes of this Article 10, the term "spouse" means the current spouse or surviving spouse of a Participant, except that a former spouse will be treated as the spouse or surviving spouse (and a current spouse will not be treated as the spouse or surviving spouse) to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code. 53..4 Definitions. The following definitions apply: (a) Election Period means the period beginning on the first day of the Plan Year in which a Participant attains age 35 and ending on the date of the Participant's death. If a Participant separates from service before the first day of the Plan Year in which he reaches age 35, the Election Period with respect to his account balance as of the date of separation shall begin on the date of separation. A Participant who will not attain age 35 as of the end of a Plan Year may make a special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such an election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under Section 10.5. Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after that date shall be subject to the full requirements of this article. (b) Earliest Retirement Age means the earliest date on which the Participant could elect to receive Retirement benefits under the Plan. (c) Qualified Election means a waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any such waiver shall not be effective unless: (1) the Participant's spouse consents in writing to the waiver; (2) the waiver designates a specific Beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent); (3) the spouse's consent acknowledges the effect of the waiver; and (4) the spouse's consent is witnessed by a plan representative or notary public. Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the waiver designates a form of benefit payment which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a spouse obtained under these provisions (and any establishment that the consent of a spouse may not be obtained) shall be effective only with respect to the particular spouse involved. A consent that permits designations by the Participant without any requirement of further consent by the spouse must acknowledge that the spouse has the right to limit the consent to a specific Beneficiary and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of those rights. A revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 10.5. (d) Qualified Joint and Survivor Annuity means an immediate annuity for the life of a Participant, with a survivor annuity for the life of the spouse which is not less than 50% and not more than 100% of the amount of the annuity which is payable during the joint lives of the Participant and the spouse, and which is the amount of benefit that can be purchased with the Participant's Vested Account Balance. The percentage of the survivor annuity under the Plan shall be 50%. (e) Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity (or any other form). (f) Vested Account Balance means the aggregate value of the Participant's vested account balance derived from Employer and Employee contributions (including rollovers), whether vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant's life. The provisions of this Article 10 shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions or both at the time of death or distribution. 53..5 Notice Requirements. In the case of a Qualified Joint and Survivor Annuity, no less than 30 days and no more than 90 days before a Participant's Annuity Starting Date the Plan Administrator shall provide to him a written explanation of (i) the terms and conditions of a Qualified Joint and Survivor Annuity, (ii) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity form of benefit, (iii) the rights of the Participant's spouse, and (iv) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. In the case of a Qualified Preretirement Survivor Annuity, within the applicable period for a Participant the Plan Administrator shall provide to him a written explanation of the Qualified Preretirement Survivor Annuity, in terms and manner comparable to the requirements applicable to the explanation of a Qualified Joint and Survivor Annuity as described in the preceding paragraph. The applicable period for a Participant is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after an individual becomes a Participant; (iii) a reasonable period ending after this Article 10 first applies to the Participant. Notwithstanding the foregoing, in the case of a Participant who separates from service before attaining age 35, notice must be provided within a reasonable period ending after his separation from service. For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (iii) is the end of the two-year period beginning one year before the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which he reaches age 35, notice shall be provided within the two-year period beginning one year before the separation and ending one year after the separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be redetermined. 53..6 Transitional Rules. (a) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by the preceding Sections of this Article 10, must be given the opportunity to elect to have those Sections apply if the Participant is credited with at least one Hour of Service under the Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and the Participant had at least ten years of vesting service when he or she separated from service. (b) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under the Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his benefits paid in accordance with paragraph (d) of this Section 10.6. (c) The respective opportunities to elect (as described in paragraphs (a) and (b) above) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence to be paid to those Participants. (d) Any Participant who has so elected pursuant to paragraph (b) of this Section 10.6, and any Participant who does not elect under paragraph (a), or who meets the requirements of paragraph (a) except that he does not have at least ten years of vesting service when he separates from service, shall have his benefits distributed in accordance with all of the following requirements, if his benefits would otherwise have been payable in the form of a life annuity: (1) Automatic joint and survivor annuity. If benefits in the form of a life annuity become payable to a married Participant who: (i) begins to receive payments under the Plan on or after normal retirement age; or (ii) dies on or after normal retirement age while still working for the Employer; or (iii) begins to receive payments on or after the qualified early retirement age; or (iv) separates from service on or after attaining normal retirement age (or the qualified early retirement age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits; then such benefits will be received under the Plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the election period, which must begin at least six months before the Participant attains qualified early retirement age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time. (2) Election of early survivor annuity. A Participant who is employed after attaining the qualified early retirement age will be given the opportunity to elect during the election period to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his death. Any election under this provision will be in writing and may be changed by the Participant at any time. The election period begins on the later of (i) the 90th day before the Participant attains the qualified early retirement age, or (ii) the date on which participation begins, and ends on the date the Participant terminates employment. (3) For purposes of this Section 10.6, qualified early retirement age is the latest of the earliest date under the Plan on which the Participant may elect to receive Retirement benefits, the first day of the 120th month beginning before the Participant reaches normal retirement age, or the date the Participant begins participation. ARTICLE 54. MINIMUM DISTRIBUTION REQUIREMENTS 54..1 General Rules. Subject to Article 10, Joint and Survivor Annuity Requirements, the requirements of this Article 11 shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of the Plan. Unless otherwise specified, the provisions of this Article 11 apply to calendar years beginning after December 31, 1984. All distributions required under this Article 11 shall be determined and made in accordance with the Income Tax Regulations issued under Section 401(a)(9) of the Code (including proposed regulations, until the adoption of final regulations), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)- 2 of the proposed regulations. 54..2 Required Beginning Date. The entire interest of a Participant must be distributed, or begin to be distributed, no later than the Participant's required beginning date, determined as follows. (a) General Rule. The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2. (b) Transitional Rules. The required beginning date of a Participant who attains age 70 1/2 before January 1, 1988, shall be determined in accordance with (1) or (2) below: (1) Non-5% owners. The required beginning date of a Participant who is not a 5% owner is the first day of April of the calendar year following the calendar year in which the later of his Retirement or his attainment of age 70 1/2 occurs. (2) 5% owners. The required beginning date of a Participant who is a 5% owner during any year beginning after December 31, 1979, is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70 1/2, or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5% owner, or the calendar year in which the Participant retires. The required beginning date of a Participant who is not a 5% owner, who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. (c) Rules for 5% Owners. A Participant is treated as a 5% owner for purposes of this Section 11.2 if he is a 5% owner as defined in Section 416(i) of the Code (determined in accordance with Section 416 but without regard to whether the Plan is top heavy) at any time during the Plan Year ending with or within the calendar year in which he attains age 66 1/2, or any subsequent Plan Year. Once distributions have begun to a 5% owner under this Section 11.2, they must continue, even if the Participant ceases to be a 5% owner in a subsequent year. 54..3 Limits on Distribution Periods. As of the first Distribution Calendar Year, distributions not made in a single sum may be made only over one or a combination of the following periods: (a) the life of the Participant, (b) the life of the Participant and his Designated Beneficiary, (c) a period certain not extending beyond the Life Expectancy of the Participant, or (d) a period certain not extending beyond the Joint and Last Survivor Expectancy of the Participant and his Designated Beneficiary. Designated Beneficiary means the individual who is designated as the Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations) and Section 7.2. Distribution Calendar Year means a calendar year for which a minimum distribution is required under Section 401(a)(9) of the Code and this Section 11.3. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to Section 11.5. Life Expectancy and Joint and Last Survivor Expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the Participant (or his spouse, in the case of distributions described in Section 11.5(b)) by the time distributions are required to begin, Life Expectancies shall be recalculated annually. Any such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The Life Expectancy of a nonspouse beneficiary may not be recalculated. 54..4 Determination of Amount to Be Distributed Each Year. If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the required beginning date. Paragraphs (a) through (d) apply to distributions in forms other than the purchase of an annuity contract. (a) If a Participant's Benefit is to be distributed over (1) a period not extending beyond the Life Expectancy of the Participant or the Joint Life and Last Survivor Expectancy of the Participant and his Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy of the Designated Beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (b) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. (c) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year, shall not be less than the quotient obtained by dividing the Participant's Benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the Participant's spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy in paragraph (a) above as the relevant divisor, without regard to Proposed Regulations Section 1.401(a)(9)-2. (d) The minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Employee's required beginning date occurs, must be made on or before December 31 of that Distribution Calendar Year. (e) If the Participant's Benefit is distributed in the form of an annuity contract purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations). Applicable Life Expectancy means the Life Expectancy (or Joint and Last Survivor Expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year, reduced by one for each calendar year which has elapsed since the date Life Expectancy was first calculated. If Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall be the first Distribution Calendar Year, and if Life Expectancy is being recalculated such succeeding calendar year. If annuity payments commence in accordance with Section 11.4(e) before the required beginning date, the applicable calendar year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant's death with the Participant's remaining interest in the Plan, the applicable calendar year is the year of purchase. Participant's Benefit means the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year), increased by the amount of any contributions or Forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. For purposes of the preceding sentence, if any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the required beginning date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. 54..5 Death Distribution Provisions. (a) Distribution Beginning before Death. If the Participant dies after distribution of his interest has begun, the remaining portion of his interest will continue to be distributed at least as rapidly as under the method of distribution being used before the Participant's death. (b) Distribution Beginning after Death. If the Participant dies before distribution of his interest begins, distribution of his entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death, except to the extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) If any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the Designated Beneficiary's life, or over a period certain not greater than the Life Expectancy of the Designated Beneficiary, commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; or (2) If the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the later of (i) December 31 of the calendar year immediately following the calendar year in which the Participant died, and (ii) December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Participant has not made an election pursuant to this Section 11.5 by the time of his death, the Participant's Designated Beneficiary must elect the method of distribution no later than the earlier of (i) December 31 of the calendar year in which distributions would be required to begin under this Section 11.5, or (ii) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (c) For purposes of paragraph (b), if the surviving spouse dies after the Participant, but before payments to the spouse begin, the provisions of paragraph (b), with the exception of subparagraph (2) therein, shall be applied as if the surviving spouse were the Participant. (d) For purposes of this Section 11.5, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse of the Participant if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (e) For the purposes of this Section 11.5, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if paragraph (c) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to paragraph (b) above). If distribution in the form of an annuity contract described in Section 11.4(e) irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. 54..6 Transitional Rule. Notwithstanding the other requirements of this Article 11, and subject to the requirements of Article 10, Joint and Survivor Annuity Requirements, distribution on behalf of any Participant, including a 5% owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (a) The distribution is one which would not have disqualified the Trust under Section 401(a)(9) of the Internal Revenue Code of 1954 as in effect before its amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Trust is being distributed or, if the Employee is deceased, by a Beneficiary of the Employee. (c) The designation specified in paragraph (b) was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984. (d) The Employee had accrued a benefit under the Plan as of December 31, 1983. (e) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary to whom such distribution is being made will be presumed to have designated the method of distribution under which the distribution is being made, if the method of distribution was specified in writing and the distribution satisfies the requirements in paragraphs (a) and (e). If a designation is revoked, any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the regulations thereunder. If a designation is revoked after the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the regulations thereunder, but for the designation described in paragraphs (b) through (e). For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Any changes in the designation generally will be considered to be a revocation of the designation, but the mere substitution or addition of another beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as the substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case of an amount transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of Section 1.401(a)(9)-l of the Proposed Income Tax Regulations shall apply. ARTICLE 55. WITHDRAWALS AND LOANS 55..1 Withdrawals from Participant Contribution Accounts. Subject to the requirements of Article 10, a Participant may upon written notice to the Employer withdraw any amount from his Participant Contribution Account. A withdrawn amount may not be repaid to the Plan. No forfeiture will occur solely as a result of an Employee's withdrawal of Participant contributions. 55..2 Withdrawals on Account of Hardship. If the Employer has so elected in the Plan Agreement, upon a Participant's written request the Plan Administrator may permit a withdrawal of funds from the vested portion of the Participant's Accounts (excluding the amount credited to a Rollover Account) on account of the Participant's financial hardship, which must be demonstrated to the satisfaction of the Plan Administrator. In considering such requests, the Plan Administrator shall apply uniform standards that do not discriminate in favor of Highly Compensated Employees. In a Plan with a CODA, if hardship withdrawals are permitted from both the Employer Contribution Account and the Elective Deferral Account, they shall be made first from a Participant's Employer Contribution Account and thereafter from a Participant's Elective Deferral Account, subject to the additional requirements set forth in Section 5.14. The requirements of Section 5.14(b), (c), (d)(1) and (d)(2) shall also apply to hardship distributions from a Participant's Employer Contribution Account and Employer Matching Account. In a Plan with a CODA, if hardship withdrawals are permitted from more than one of the Elective Deferral Account, Employer Matching Account, and Employer Contribution Account, they shall be made first from a Participant's Employer Contribution Account, and thereafter from the Employer Matching Account, and finally from the Elective Deferral Account, subject to the additional requirements of Section 5.14. A withdrawn amount may not be repaid to the Plan. 55..3 Withdrawals After Reaching Age 59 1/2. If so specified by the Employer in the Plan Agreement, a Participant who has reached age 59 1/2 may upon written request to the Employer withdraw during his employment any amount not exceeding the vested balance of his Accounts. A withdrawn amount may not be repaid to the Plan. 55..4 Loans. If the Employer has so elected in the Plan Agreement, the Employer may direct the Trustee to make a loan to a Participant or Beneficiary from the vested portion of his Accounts, subject to the following terms and conditions and to such reasonable additional rules and regulations as the Plan Administrator may establish for the orderly operation of the program: (a) The Plan Administrator shall administer the loan program subject to the terms and conditions of this Section 12.4. (b) A Participant's or Beneficiary's request for a loan shall be submitted to the Plan Administrator by means of a written application on a form supplied by the Plan Administrator. Applications shall be approved or denied by the Plan Administrator on the basis of its assessment of the borrower's ability to collateralize and repay the loan, as revealed in the loan application. (c) Loans shall be made to all Participants and Beneficiaries on a reasonably equivalent basis. Loans shall not be made available to highly compensated Employees (as defined in Section 414(q) of the Code) in amounts greater than the amounts made available to other Employees (relative to the borrower's Account balance). (d) Loans must be evidenced by the Participant's promissory note for the amount of the loan payable to the order of the Trustee, and adequately secured by assignment of not more than fifty percent (50%) of the Participant's entire right, title and interest in and to the Trust Fund, exclusive of any asset as to which Putnam is not the Trustee. (e) Loans must bear a reasonable interest rate comparable to the rate charged by commercial lenders in the geographical area for similar loans. The Plan Administrator shall not discriminate among Participants in the matter of interest rates, but loans may bear different interest rates if, in the opinion of the Plan Administrator, the difference in rates is justified by conditions that would customarily be taken into account by a commercial lender in the Employer's geographical area. (f) The Period for repayment for any loan shall not exceed five years, except in the case of a loan used to acquire a dwelling unit which within a reasonable time is to be used as the principal residence of the Participant, in which case the repayment period shall not exceed ten years. The terms of a loan shall require that it be repaid in level payments of principal and interest not less frequently then quarterly throughout the repayment period, except that alternative arrangements for repayment may apply in the event that the borrower is on unpaid leave of absence for a period not to exceed one year. (g) To the extent that a Participant would be required under Article 10 to obtain he consent of his spouse to a distribution of an immediately distributable benefit other than a Qualified Joint and Survivor Annuity, the consent of the Participant's spouse shall be required for the use of his Account as security for a loan. The spouse's consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured, and obtained in accordance with the requirements of Section 10.4(c) for a Qualified Election. Any such consent shall thereafter be binding on the consenting spouse and any subsequent spouse of the Participant. A new consent shall be required for use of the Account as security for any extension, renewal, renegotiation or revision of the original loan. (h) If valid spousal consent has been obtained in accordance with Section 12.4(g), then notwithstanding any other provision of the Plan the portion of the Participant's account balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's vested account balance (determined without regard to the preceding sentence) is payable to the surviving spouse, then the account balance shall be adjusted by first reducing the vested account balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse. (i) In the event of default on a loan by a Participant who is an active Employee, foreclosure on the Participant's Account as security will not occur until the Employer has reported to the Trustee the occurrence of an event permitting distribution from the Plan in accordance with Article 9 or Section 5.13. (j) No loan shall be made to an Owner-Employee or a Shareholder-Employee. (k) No loan to any Participant or Beneficiary can be made to the extent that the amount of the loan, when added to the outstanding balance of all other loans to the Participant or Beneficiary, would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) one-half the value of the vested account balance of the Participant. For the purpose of the above limitation, all loans from all qualified plans of the Affiliated Employers are aggregated. (1) Loans shall be considered investments directed by a Participant pursuant to Section 13.3. The amount loaned shall be charged solely against the Accounts of the Participant, and repaid amounts and interest shall be credited solely thereto. 55..5 Procedure; Amount Available. Withdrawals and loans shall be made subject to the terms and conditions applicable to distributions pursuant to Section 9.4, except that the amount of any withdrawal or loan shall be determined by reference to the vested balance of the Participant's Account as of the most recent Valuation Date preceding the withdrawal or loan, and shall not exceed the amount of the vested account balance. ARTICLE 56. TRUST FUND AND INVESTMENTS 56..1 Establishment of Trust Fund. The Employer and the Trustee hereby agree to the establishment of a Trust Fund consisting of all amounts as shall be contributed or transferred from time to time to the Trustee pursuant to the Plan, and all earnings thereon. The Trustee shall hold the assets of the Trust Fund for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying the reasonable expenses of administering the Plan, and no such assets shall ever revert to the Employer, except that: (a) contributions made by the Employer by mistake of fact, as determined by the Employer, may be returned to the Employer within one (1) year of the date of payment, (b) contributions that are conditioned on their deductibility under Section 404 of the Code may be returned to the Employer, to the extent disallowed, within one (1) year of the disallowance of the deduction, (c) contributions that are conditioned on the initial qualification of the Plan under the Code, and all investment gains attributable to them, may be returned to the Employer within one (1) year after such qualification is denied by determination of the Internal Revenue Service, but only if an application for determination of such qualification is made within the time prescribed by law for filing the Employer's federal income tax return for its taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe, and (d) amounts held in a suspense account may be returned to the Employer on termination of the Plan, to the extent that they may not then be allocated to any Participant's Account in accordance with Article 6. All Employer contributions under the Plan other than those made pursuant to Section 4.1(f) are hereby expressly conditioned on the initial qualification of the Plan and their deductibility under the Code. Investment gains attributable to contributions returned pursuant to subSections (a) and (b) shall not be returned to the contributing Employer, and investment losses attributable to such contributions shall reduce the amount returned. 56..2 Management of Trust Fund. Except to the extent of any investment in Policies pursuant to Article 14, the assets of the Trust Fund shall be held in trust by the Trustee and accounted for in accordance with this Article 13, and shall be invested in accordance with Section 13.3 in the Investment Products specified by the Employer in the Plan Agreement and from time to time thereafter in writing. The Employer shall have the exclusive authority and discretion to select the Investment Products available under the Plan. In making that selection, the Employer shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The Employer shall cause the available Investment Products to be diversified sufficiently to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. It is especially intended that the Trustee shall have no discretionary authority to determine the investment of Trust assets. Notwithstanding the foregoing, assets of the Trust Fund shall also be invested in Employer Stock if so elected by the Employer and agreed to by Putnam under the service agreement executed by the Employer and Putnam pursuant to the establishment of the Plan. 56..3 Investment Instructions. Except as Article 14 may apply, all amounts held in the Trust Fund under the Plan shall be invested in Investment Products. If the Employer has elected in the Plan Agreement to make investment decisions with respect to Employer contributions to the Plan, investment instructions as to Employer Contribution Accounts, Employer Matching Accounts, Qualified Matching Accounts and Qualified Nonelective Contribution Accounts shall be the fiduciary responsibility of the Employer, and each of such Accounts shall have a pro rata interest in all assets of the Trust (other than Policies under Article 14) to which the Employer's instructions apply. If the Employer has not elected to make investment decisions for the Plan, then assets of the Trust shall be invested solely in accordance with the instructions of the Participant to whose Accounts they are allocable, as delivered to Putnam in accordance with its service agreement with the Employer. Instructions shall apply to future contributions, past accumulations, or both, according to their terms, and shall be communicated by the Employer to Putnam in accordance with procedures prescribed in the service agreement between the Employer and Putnam. Instructions shall be effective prospectively, coincident with or within a reasonable time after their receipt in good order by Putnam. An instruction once received shall remain in effect until it is changed by the provision of a new instruction. New instructions shall be accepted by Putnam at the time and in the manner provided in the Plan Agreement. To the extent the assets of the Trust are to be invested solely in accordance with the instructions of the Participants, the Plan is intended to constitute a plan described in section 404(c) of ERISA and Title 29 of the Code of Federal Regulations section 2550.404c-1. In such case, the Employer shall be the Plan fiduciary responsible for providing the Participants with all information required to be given pursuant to ERISA section 404(c) and Title 29 of the Code of Federal Regulations section 2550.404c-1. In the event that the Employer adopts a Putnam prototype plan as an amendment to or restatement of an existing plan, the Employer shall specify one or more Investment Products to serve as the sole investments for all Participants' Accounts during the period in which existing records of the Plan are transferred to the Recordkeeper. During that period, new investment instructions as to existing assets of the Plan cannot be carried out, nor can distributions be made from the Plan except to the extent permitted under the terms of the service agreement between the Employer and Putnam. The Employer and the Recordkeeper shall use their best efforts to minimize the duration of the period to which the preceding sentence applies. To the extent specifically authorized and provided in the service agreement between the Employer and Putnam, the Employer may direct the Trustee to establish as an Investment Product a fund all of the assets of which shall be invested in shares of stock of the Employer that constitute "qualifying employer securities" within the meaning of section 407(d)(5) of ERISA ("Employer Stock"). The Plan Administrator as named fiduciary shall continually monitor the suitability of acquiring and holding Employer Stock under the fiduciary duty rules of section 404(a)(1) of ERISA (as modified by section 404(a)(2) of ERISA) and the requirements of section 404(c) of ERISA, and shall be responsible for ensuring that the procedures relating to the purchase, holding and sale of Employer Stock, and the exercise of any and all rights with respect to such Employer Stock shall be in accordance with section 404(c) of ERISA. The Trustee shall not be liable for any loss, or by reason of any breach, which arises from the direction of the Plan Administrator with respect to the acquisition and holding of Employer Stock. The Employer shall be responsible for determining whether, under the circumstances prevailing at a given time, its fiduciary duty to Plan Participants and Beneficiaries under the Plan and ERISA requires that the Employer follow the advice of independent counsel as to the voting and tender or retention of Employer Stock. Putnam shall be under no duty to question or review the investment directions given by the Employer or to make suggestions to the Employer in connection therewith. Putnam shall not be liable for any loss, or by reason of any breach, that arises from the Employer's exercise or non-exercise of rights under this Article 13, or from any direction of the Employer unless it is clear on the face of the direction that the actions to be taken under the direction are prohibited by the fiduciary duty rules of Section 404(a) of ERISA. All interest, dividends and other income received with respect to, and any proceeds received from the sale or other disposition of, securities or other property held in an investment fund shall be credited to and reinvested in such investment fund, and all expenses of the Trust that are properly allocated to a particular investment fund shall be so allocated and charged. The Employer may at any time direct Putnam to eliminate any investment fund or funds, and Putnam shall thereupon dispose of the assets of such investment fund and reinvest the proceeds thereof in accordance with the directions of the Employer. Neither the Employer nor the Trustee nor Putnam shall be responsible for questioning any instructions of a Participant or for reviewing the investments selected therein, or for any loss resulting from instructions of a Participant or from the failure of a Participant to provide or to change instructions. Neither Putnam nor the Trustee shall have any duty to question any instructions received from the Employer or a Participant or to review the investments selected thereby, nor shall Putnam or the Trustee be responsible for any loss resulting from instructions received from the Employer or a Participant or from the failure of the Employer or a Participant to provide or to change instructions. In the event that Putnam or the Trustee receives a contribution under the Plan as to which no instructions are delivered, or such instructions as are delivered are unclear to Putnam or the Trustee, such contribution shall be invested until clear instructions are received in the default investment option set forth in the service agreement between the Employer and Putnam, or if no such option is so set forth, in Putnam Daily Dividend Trust. Neither Putnam nor the Trustee shall have any discretionary authority or responsibility in the investment of the assets of the Trust Fund. 56..4 Valuation of the Trust Fund. As of each Valuation Date, the Trustee shall determine the fair market value of the Trust Fund, and the net earnings or losses and expenses of the Trust Fund for the period elapsed since the most recent previous Valuation Date shall be allocated among the Accounts of Participants. Earnings, losses and expenses which pertain to investments which are specifically held for a given Participant's Account shall be allocated solely to that Account. In the event that an investment is not specifically held for a given Participant's Account, the earnings, losses and expenses pertaining to that investment shall be allocated among all Participants' Accounts in the ratio that each such Account bears to the total of all Accounts of all Participants. Each Participant's Accounts shall be adjusted pursuant to this Section 13.4 until such time as they are either fully distributed or forfeited, regardless of whether the Participant continues to be an Employee. 56..5 Distributions on Investment Company Shares. Subject to Section 9.3, all dividends and capital gains or other distributions received on any Investment Company Shares credited to Participant's Account will (unless received in additional Investment Company Shares) be reinvested in full and fractional shares of the same Investment Company at the price determined as provided in the then current prospectus of the Investment Company. The shares so received or purchased upon such reinvestment will be credited to such accounts. If any dividends or capital gain or other distributions may be received on such Investment Company Shares at the election of the shareholder in additional shares or in cash or other property, the Trustee will elect to receive such dividends or distributions in additional Investment Company Shares. 56..6 Registration and Voting of Investment Company Shares. All Investment Company Shares shall be registered in the name of the Trustee or its nominee. Subject to any requirements of applicable law, the Trustee will transmit to the Employer copies of any notices of shareholders' meetings, proxies and proxy-soliciting materials, prospectuses and the annual or other reports to share holders, with respect to Investment Company Shares held in the Trust Fund. The Trustee shall act in accordance with directions received from Participants or the Employer, as the case may be, with respect to matters to be voted upon by the shareholders of the Investment Company. Such directions must be in writing on a form approved by the Trustee, signed by the addressee and delivered to the Trustee within the time prescribed by it. The Trustee will not vote Investment Company Shares as to which it receives no written directions. 56..7 Investment Manager. The Employer, with the consent of Putnam, may appoint an investment manager, as defined in Section 3(38) of the Employee Retirement Income Security Act of 1974, with respect to all or a portion of the assets of the Trust Fund. The Trustee shall have no liability in connection with any action or nonaction pursuant to directions of such an investment manager. 56..8 Employer Stock. (a) Voting Rights. Notwithstanding any other provision of the Plan, the provisions of this Section 13.8(a) shall govern the voting of Employer Stock held by Putnam as Trustee under the Plan. The Trustee shall vote Employer Stock in accordance with the directions of the Employer unless the Employer has elected in the Plan Agreement that Participants shall be appointed named fiduciaries as to the voting of Employer Stock and shall direct the Trustee as to the voting of Employer Stock in accordance with the provisions of this Section 13.8(a). In either case, the Employer shall be responsible for determining whether, under the circumstances prevailing at a given time, its fiduciary duty to Participants and Beneficiaries under the Plan and ERISA requires that the Employer follow the advice of independent counsel as to the voting of Employer Stock. The remainder of this Section 13.8(a) applies only if the Employer elects in the Plan Agreement that Participants shall direct the Trustee as to the voting of Employer Stock. When the issuer of Employer Stock files preliminary proxy solicitation materials with the Securities and Exchange Commission, the Employer shall cause a copy of all the materials to be simultaneously sent to the Trustee, and the Trustee shall prepare a voting instruction form based upon these materials. At the time of mailing of notice of each annual or special stockholders' meeting of the issuer of Employer Stock, the Employer shall cause a copy of the notice and all proxy solicitation materials to be sent to each Participant, together with the foregoing voting instruction form to be returned to the Trustee or its designee. The form shall show the number of full and fractional shares of Employer Stock credited to the Participant's accounts, whether or not vested. For purposes of this Section 13.8(a), the number of shares of Employer Stock deemed credited to a Participant's accounts shall be determined as of the last preceding Valuation Date for which an allocation has been completed and Employer Stock has actually been credited to Participant's accounts. The Employer shall provide the Trustee with a copy of any materials provided to Participants and shall certify to the Trustee that the materials have been mailed or otherwise sent to Participants. Each Participant shall have the right to direct the Trustee as to the manner in which to vote that number of shares of Employer Stock held under the Plan (whether or not vested) equal to a fraction, of which the numerator is the number of shares of Employer Stock credited to his account and the denominator is the number of shares of Employer Stock credited to all Participants' accounts. Such directions shall be communicated in writing or by facsimile or similar means and shall be held in confidence by the Trustee and not divulged to the Employer, or any officer or employee thereof, or any other persons. Upon its receipt of directions, the Trustee shall vote the shares of Employer Stock as directed by the Participant. The Trustee shall not vote those shares of Employer Stock credited to the accounts of Participants for which no voting directions are received. With respect to shares of Employer Stock held in the Trust which are not credited to a Participant's account, the Plan Administrator shall retain the status of named fiduciary and shall direct the voting of such Employer Stock. (b) Tendering Rights. Notwithstanding any other provision of the Plan, the provisions of this Section 13.8(b) shall govern the tendering of Employer Stock by Putnam as Trustee under the Plan. In the event of a tender offer, the Trustee shall tender Employer Stock in accordance with the directions of the Employer unless the Employer has elected in the Plan Agreement that Participants shall be appointed name fiduciaries as to the tendering of Employer Stock in accordance with the provisions of this Section 13.8(b). The remainder of this Section 13.8(b) applies only if the Employer elects in the Plan Agreement that Participants shall direct the Trustee as to the tendering of Employer stock. Upon commencement of a tender offer for any Employer Stock, the Employer shall notify each Plan Participant, and use its best efforts to distribute timely or cause to be distributed to Participants the same information that is distributed to shareholders of the issuer of Employer Stock in connection with the tender offer, and after consulting with the Trustee shall provide at the Employer's expense a means by which Participants may direct the Trustee whether or not to tender the Employer Stock credited to their accounts (whether or not vested). The Employer shall provide to the Trustee a copy of any material provided to Participants and shall certify to the Trustees that the materials have been mailed or otherwise sent to Participants. Each Participant shall have the right to direct the Trustee to tender or not to tender some or all of the shares of Employer Stock credited to his accounts. Directions from a Participant to the Trustee concerning the tender of Employer Stock shall be communicated in writing or by facsimile or such similar means as is agreed upon by the Trustees and the Employer. The Trustee shall tender or not tender shares of Employer Stock as directed by the Participant. A Participant who has directed the Trustee to tender some or all of the shares of Employer Stock credited to his accounts may, at any time before the tender offer withdrawal date, direct the Trustee to withdraw some or all of the tendered shares, and the Trustee shall withdraw the directed number of shares from the tender offer before the tender offer withdrawal deadline. A Participant shall not be limited as to the number of directions to tender or withdraw that he may give to the Trustee. The Trustee shall not tender shares of Employer Stock credited to a Participant's accounts for which it has received no directions from the Plan Participant. The Trustee shall tender that number of shares of Employer Stock not credited to Participants' accounts determined by multiplying the total number of such shares by a fraction, the numerator of which is the number of shares of Employer Stock credited to Participants' accounts for which the Trustee has received directions from Participants to tender (which directions have not been withdrawn as of the date of this determination), and the denominator of which is the total number of shares of Employer Stock credited to Participants' accounts. A direction by a Participant to the Trustee to tender shares of Employer Stock credited to his accounts shall not be considered a written election under the Plan by the Participant to withdraw or to have distributed to him any or all of such shares. The Trustee shall credit to each account of the Plan Participant from which the tendered shares were taken the proceeds received by the Trustee in exchange for the shares of Employer Stock tendered from that account. Pending receipt of directions through the Administrator from the Participant as to the investment of the proceeds of the tendered shares, the Trustee shall invest the proceeds as the Administrator shall direct. To the extent that any Participant gives no direction as to the tendering of Employer stock that he has the right to direct under this Section 13.8(a), the Trustee shall not tender such Employer Stock. (c) Other Rights. With respect to all rights in connection with Employer Stock other than the right to vote and the right to tender, Participants are hereby appointed named fiduciaries to the same extent (if any) as provided in the foregoing paragraphs of this Section 13.8 with regard to the right to vote, and the Trustee shall follow the directions of Participants and the Plan Administrator with regard to the exercise of such rights to the same extent as with regard to the right to vote. 56..9 Insurance Contracts. If so provided in the Plan Agreement, the Plan Administrator may direct the Trustee to receive and hold or apply assets of the Trust to the purchase of individual or group insurance or annuity contracts ("policies" or "contracts") issued by any insurance company and in a form approved by the Plan Administrator (including contracts under which the contract holder is granted options to purchase insurance or annuity benefits), or financial agreements which are backed by group insurance or annuity contracts ("financial agreements"). If such investments are to be made, the Plan Administrator shall direct the Trustee to execute and deliver such applications and other documents as are necessary to establish record ownership, to value such policies, contracts or financial agreements under the method of valuation selected by the Plan Administrator, and to record or report such values to the Plan Administrator or any investment manager selected by the Plan Administrator, in the form and manner agreed to by the Plan Administrator. The Plan Administrator may direct the Trustee to exercise or may exercise directly the powers of contract holder under any policy, contract or financial agreement, and the Trustee shall exercise such powers only upon direction of the Plan Administrator. The Trustee shall have no authority to act in its own discretion, with respect to the terms, acquisition, valuation, continued holding and/or disposition of any such policy, contract or financial agreement or any asset held thereunder. The Trustee shall be under no duty to question any direction of the Plan Administrator or to review the form of any such policy, contract or financial agreement or the selection of the issuer thereof, or to make recommendations to the Plan Administrator or to any issuer with respect to the form of any such policy, contract or financial agreement. The Trustee shall be fully protected in acting in accordance with written directions of the Plan Administrator, and shall be under no liability for any loss of any kind which may result by reason of any action taken or omitted by it in accordance with any direction of the Plan Administrator, or by reason of inaction in the absence of written directions from the Plan Administrator. In the event that the Plan Administrator directs that any monies or property be paid or delivered to the contract holder other than for the benefit of specific individual beneficiaries, the Trustee agrees to accept such monies or property as assets of the Trust subject to all the terms hereof. ARTICLE 57. INSURANCE POLICIES 57..1 Purchase of Insurance Products. At the time of establishment of the Plan, if elected by the Employer and agreed to by Putnam under the service agreement executed by the Employer and Putnam pursuant to the establishment of the Plan, the Employer shall purchase for each Participant such Policy or Policies, if any, as a Participant shall request and annually thereafter such additional Policies as a Participant shall request, subject to the limitations of Section 14.2. All Policies shall have the same day and month of issue, insofar as reasonably possible. The premiums on all Policies shall be paid at the same intervals (for example, annually, semi-annually, quarterly or monthly), but the interval may be changed with respect to all Policies from time to time. 57..2 Limitation on Premiums. The premiums paid for Policies in respect of any Participants shall be limited so that premiums paid on any ordinary insurance Policies (that is, Policies with both nonincreasing premiums and nondecreasing death benefits) on the life of the Participant shall be 49% or less of the Employer's total contributions for the Participant (and Forfeitures allocated and amounts reapplied to his Employer Contribution Account), and premiums paid on term insurance Policies on the life of the Participant shall be less than 25% of such amount; provided that if both ordinary life insurance Policies and term Policies are purchased for any Participant, the total premiums on term Policies plus one-half the premiums on ordinary life Policies shall be less than 25% of such amount. If at any time the total premiums to be paid by the Employer for a Participant shall equal or exceed the above limitations, then the life insurance coverage of that Participant shall be reduced so that the total premiums shall not equal or exceed the limitations. The required reduction shall be made by changing all or a portion of the life insurance on the Participant to paid-up life insurance or by cancelling all or a portion of any term life insurance. 57..3 Policy Options. At the election of the Participant covered hereunder, a Policy may contain a waiver of premium disability benefit provision or a provision for additional indemnity in the event of accidental death, or both, if available on the type of Policy selected and if permitted by the insurer. 57..4 Insurability. If any Participant who has elected that a Policy be purchased is found by the insurer not to be insurable at standard rates, the Employer shall, if permitted by the rules of the insurer, purchase a similar Policy which provides a lesser death benefit and which can be purchased for the same premium. 57..5 Dividends on Policies. Dividends and other credits payable on any Policy shall be applied to the purchase of additional benefits under the Policy unless the Participant requests that they be applied in reduction of premiums. 57..6 Trustee of Policy. Upon direction by the Plan Administrator, the Insurance Trustee shall apply for and be the owner of each Policy purchased under the terms of the Plan. Each Policy must provide that proceeds will be payable to the Insurance Trustee; however, the Insurance Trustee shall be required to pay over all such proceeds to the Participant's Designated Beneficiary in accordance with the distribution provisions of the Plan including, without limitation, Section 10.3. Under no circumstances shall the Trust retain any part of the proceeds. In the event of any conflict between the terms of the Plan and the terms of any Policy purchased hereunder, the Plan provisions shall control. The Insurance Trustee shall be fully protected in acting in accordance with written instructions of the Plan Administrator and shall be under no liability for any loss of any kind which may result by reason of any action taken or omitted by it in accordance with any direction of the Plan Administrator, or by reason of inaction in the absence of written directions from the Plan Administrator. 57..7 Obligations with Respect to Policies. Except as may be otherwise provided in any conditional or binding receipt issued by an insurer, there shall be no coverage and no death benefit payable under any Policy to be purchased from such insurer until such Policy shall have been delivered and the premium therefor shall have been paid. The Employer and the Insurance Trustee shall not have any responsibility as to the effectiveness of any Policy purchased from an insurer, nor shall either of them have any liability or obligation to pay any amount to any Participant or his beneficiary by reason of any failure or refusal by the insurer to make such payment. 57..8 Distribution of Proceeds on Participant's Death. In the event of the death of a Participant before the conversion provided for in Section 14.9, there shall be payable to the beneficiary named in any Policy on his life the benefits provided by the terms of such Policy. 57..9 Conversion of Policies. Except as provided in Section 19.3, if any Policies of a Participant (other than retirement income, endowment or annuity Policies) are held for his benefit at the time distribution is to commence, the Policies may be converted by the Insurance Trustee into cash, paid to the Trustee, credited to the Employer Contribution Account of the Participant, invested in accordance with the written instructions of the Employer (and if no such instructions have been given or if such instructions are not clear, invested in Investment Company Shares in the same proportion as the most recent contributions to the Participant's Accounts) and distributed pursuant to Article 9, subject to the terms and conditions of Article 10. Retirement income, endowment or annuity Policies will be distributed directly to the Participant at the time distribution is to commence. 57..10 Conflict with Policies. In the event of any conflict between the terms of the Plan and the terms of any Policies hereunder, the Plan provisions shall control. 57..11 Insurance Loans to Owner-Employees. If an Owner- Employee or Shareholder-Employee receives, either directly or indirectly, any amount from an Insurer as a loan under a Policy, the amount so received shall be considered a distribution under the Plan. Any assignment or pledge (or agreement to assign or pledge) by an Owner-Employee or Shareholder-Employee of any interest in the Plan shall be considered a distribution of such interest. ARTICLE 58. TOP-HEAVY PLANS 58..1 Superseding Effect. For any Plan Year beginning after December 31, 1983, in which Plan is determined to be a Top-Heavy Plan under Section 15.2(b), the provisions of this Article 15 will supersede any conflicting provisions in the Plan or the Plan Agreement. 58..2 Definitions. For purposes of this Article 15, the terms below shall be defined as follows: (a) Key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was: (1) an officer of the Employer having annual compensation greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code; (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer having annual compensation exceeding the dollar limitation under Section 415(c)(1)(A) of the Code; (3) a 5% owner of the Employer; or (4) a 1% owner of the Employer having annual compensation of more than $150,000. Annual compensation means compensation satisfying the definition elected by the Employer in item 4 of the Plan Agreement, but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code. The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the Regulations thereunder. (b) Top-Heavy: The Plan is Top-Heavy for any Plan Year beginning after December 31, 1983, if any of the following conditions exists: (1) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (3) If this plan is part of a Required Aggregation Group and part of a Permissive Aggregation Group of Plans and the Top-Heavy Ratio for the Permissive Aggregation group exceeds 60%. (c) Top-Heavy Ratio means the following: (1) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer has not maintained any qualified defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with Section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Section 416 of the Code and the regulations thereunder. (2) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer maintains or has maintained one or more qualified defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated qualified defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the Present Value of accrued benefits under the aggregated qualified defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated qualified defined contributions plan or plans for all Participants, determined in accordance with (1) above, and the Present Value of accrued benefits under the qualified defined benefit plan or plans for all Participants as of the Determination Date(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12- month period ending on the Determination Date; except as provided in Section 416 of the Code and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Participant (A) who is not a Key Employee but who was a Key Employee in a prior Plan Year, or (B) who has not been credited with at least one Hour of Service for the Employer during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. (d) Permissive Aggregation Group means the Required Aggregation Group of plans plus any other qualified plan or plans (or simplified employee pension plan) of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (e) Required Aggregation Group means (i) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated) and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Section 401(a)(4) or 410 of the Code. (f) Determination Date means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the Determination Date is the last day of that Plan Year. (g) Valuation Date means the last day of the Plan Year. (h) Present Value means present value based only on the interest and mortality rates specified by the Employer in the Plan Agreement. 58..3 Minimum Allocation. (a) Except as otherwise provided in paragraphs (c) and (d) below, the Employer contributions and Forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of 3% of such Participant's Earnings, or in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer contributions and Forfeitures, as a percentage of the first $200,000 of the Key Employee's Earnings, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation of the Employer's contributions and Forfeitures for the Plan Year because of (1) the Participant's failure to be credited with at least 1,000 Hours of Service, or (2) the Participant's failure to make mandatory Employee contributions to the Plan, or (3) the Participant's receiving Earnings less than a stated amount. Neither Elective Deferrals, Employer Matching Contributions nor Qualified Matching Contributions for non-Key Employees shall be taken into account for purposes of satisfying the requirement of this Section 15.3(a). (b) For purposes of computing the minimum allocation, Earnings will mean Section 415 Compensation as defined in Section 6.5(b) of the Plan. (c) The provision in paragraph (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (d) The provision in paragraph (a) above shall not apply to any Participant to the extent he is covered under any other plan or plans of the Employer, and the Employer has provided in the Plan Agreement that the minimum allocation requirement applicable to Top-Heavy Plans will be met in the other plan or plans. (e) The minimum allocation required (to the extent required to be nonforfeitable under Section 416(b) of the Code) may not be forfeited under Sections 411(a)(3)(B) or (D) of the Code. 58..4 Adjustment of Fractions. For any Plan Year in which the Plan is Top-Heavy, the Defined Benefit Fraction and the Defined Contribution Fraction in Article 6 shall each be computed using 100% of the dollar limitations specified in Sections 415(b)(1)(A) and 415(c)(1)(A) instead of 125%. The foregoing requirement shall not apply if the Top-Heavy Ratio does not exceed 90% and the Employer has elected in the Plan Agreement to provide increased minimum allocations or benefits satisfying Section 416(h)(2) of the Code. ARTICLE 59. ADMINISTRATION OF THE PLAN 59..1 Plan Administrator. The Plan shall be administered by the Employer, as Plan Administrator and Named Fiduciary within the meaning of ERISA, under rules of uniform application; provided, however, that the Plan Administrator's duties and responsibilities may be delegated to a person appointed by the Employer or a committee established by the Employer for that purpose, in which case the committee shall be the Plan Administrator and Named Fiduciary. The members of such a committee shall act by majority vote, and may by majority vote authorize any one or ones of their number to act for the committee. The person or committee (if any) initially appointed by the Employer may be named in the Plan Agreement, but the Employer may remove any such person or committee member by written notice to him, and any such person or committee may resign by written notice to the Employer, without the necessity of amending the Plan Agreement. To the extent permitted under applicable law, the Plan Administrator shall have the sole authority to enforce the terms hereof on behalf of any and all persons having or claiming any interest under the Plan, and shall be responsible for the operation of the Plan in accordance with its terms. The Plan Administrator shall have discretionary authority to determine all questions arising out of the administration, interpretation and application of the Plan, all of which determinations shall be conclusive and binding on all persons. The Plan Administrator, in carrying out its responsibilities under the Plan, may rely upon the written opinions of its counsel and on certificates of physicians. Subject to the provisions of the Plan and applicable law, the Plan Administrator shall have no liability to any person as a result of any action taken or omitted hereunder by the Plan Administrator. 59..2 Claims Procedure. Claims for participation in or distribution under the Plan shall be made in writing to the Plan Administrator, or an agent designated by the Plan Administrator whose name shall have been communicated to all Participants and other persons as required by law. If any claim so made is denied in whole or in part, the claimant shall be furnished promptly by the Plan Administrator with a written notice: (a) setting forth the reason for the denial, (b) making reference to pertinent Plan provisions, (c) describing any additional material or information from the claimant which is necessary and why, and (d) explaining the claim review procedure set forth herein. Within 60 days after denial of any claim for participation or distribution under the Plan, the claimant may request in writing a review of the denial by the Plan Administrator. Any claimant seeking review hereunder shall be entitled to examine all pertinent documents and to submit issues and comments in writing. The Plan Administrator shall render a decision on review hereunder; provided, that if the Plan Administrator determines that a hearing would be appropriate, its decision on review shall be rendered within 120 days after receipt of the request for review. The decision on review shall be in writing and shall state the reason for the decision, referring to the Plan provisions upon which it is based. 59..3 Employer's Responsibilities. The Employer shall be responsible for: (a) Keeping records of employment and other matters containing all relevant data pertaining to any person affected hereby and his eligibility to participate, allocations to his Accounts, and his other rights under the Plan; (b) Periodic, timely filing of all statements, reports and returns required to be filed by ERISA; (c) Timely preparation and distribution of disclosure materials required by ERISA; (d) Providing notice to interested parties as required by Section 7476 of the Code; (e) Retention of records for periods required by law; and (f) Seeing that all persons required to be bonded on account of handling assets of the Plan are bonded. 59..4 Recordkeeper. The Recordkeeper is hereby designated as agent of the Employer under the Plan to perform directly or through agents certain ministerial duties in connection with the Plan, in particular: (a) To keep and regularly furnish to the Employer a detailed statement of each Participant's Accounts, showing contributions thereto by the Employer and the Participant, Investment Products purchased therewith, earnings thereon and Investment Products purchased therewith, and each redemption or distribution made for any reason, including fees or benefits; and (b) To the extent agreed between the Employer and the Recordkeeper, to prepare for the Employer or to assist the Employer to prepare such returns, reports or forms as the Employer shall be required to furnish to Participants and Beneficiaries or other interested persons and to the Internal Revenue Service or the Department of Labor; all as may be more fully set forth in a service agreement executed by the Employer and the Recordkeeper. If the Employer does not appoint another person or entity as Recordkeeper, the Employer itself shall be the Recordkeeper. 59..5 Prototype Plan. Putnam is the sponsor of the Putnam Basic Plan Document, a prototype plan approved as to form by the Internal Revenue Service. Provided that an Employer's adoption of the Plan is made known to and accepted by Putnam in accordance with the Plan Agreement, Putnam will inform the Employer of amendments to the prototype plan and provide such other services in connection with the Plan as may be agreed between Putnam and the Employer. Putnam may impose for its services as sponsor of the prototype plan such fees as it may establish from time to time in a fee schedule addressed to the Employer. Such fees shall, unless paid by the Employer, be paid from the Trust Fund, and shall in that case be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such fees. ARTICLE 60. TRUSTEE AND INSURANCE TRUSTEE 60..1 Powers and Duties of the Trustee. The Trustee shall have the authority, in addition to any authority given by law, to exercise the following powers in the administration of the Trust: (a) To invest all or a part of the Trust Fund in Investment Products in accordance with the investment instructions delivered by the Employer pursuant to Section 13.3, without restriction to investments authorized for fiduciaries, including without limitation any common, collective or commingled trust fund maintained by the Trustee (or any other such fund, acceptable to Putnam and the Trustee, that qualifies for exemption from federal income tax pursuant to Revenue Ruling 81-100). Any investment in, and any terms and conditions of, any such common, collective or commingled trust fund available only to employee trusts which meet the requirements of the Code, or corresponding provisions of subsequent income tax laws of the United States, shall constitute an integral part of this Agreement; (b) If Putnam and the Trustee have consented thereto in writing, to invest without limit in stock of the Employer or any affiliated company; (c) To dispose of all or part of the investments, securities or other property which may from time to time or at any time constitute the Trust Fund in accordance with the written directions furnished by the Employer for the investment of Participants' separate Accounts or the payment of benefits or expenses of the Plan, and to make, execute and deliver to the purchasers thereof good and sufficient deeds of conveyance therefore, and all assignments, transfers and other legal instruments, either necessary or convenient for passing the title and ownership thereto, free and discharged of all trusts and without liability on the part of such purchasers to see to the application of the purchase money; (d) To hold cash uninvested to the extent necessary to pay benefits or expenses of the Plan; (e) To follow the directions of an investment manager appointed pursuant to Section 13.7; (f) To cause any investment of the Trust Fund to be registered in the name of the Trustee or the name of its nominee or nominees or to retain such investment unregistered or in a form permitting transfer by delivery; provided that the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (g) Upon written direction of or through the Employer, to vote in person or by proxy (in accordance with Section 13.6 and, in the case of stock of the Employer, at the direction of the Employer or Participants) with respect to all securities that are part of the Trust Fund; (h) To consult and employ any suitable agent to act on behalf of the Trustee and to contract for legal, accounting, clerical and other services deemed necessary by the Trustee to manage and administer the Trust Fund according to the terms of the Plan; (i) Upon the written direction of the Employer, to make loans from the Trust Fund to Participants in amounts and on terms approved by the Plan Administrator in accordance with the provisions of the Plan; provided that the Employer shall have the sole responsibility for computing and collecting all loan repayments required to be made under the Plan; and (j) To pay from the Trust Fund all taxes imposed or levied with respect to the Trust Fund or any part thereof under existing or future laws, and to contest the validity or amount of any tax assessment, claim or demand respecting the Trust Fund or any part thereof. 60..2 Limitation of Responsibilities. Except as may otherwise be required under applicable law, neither the Trustee nor the Insurance Trustee nor any of their respective agents shall have any responsibility for: (a) Determining the correctness of the amount of any contribution for the sole collection or payment of contributions, which shall be the sole responsibility of the Employer; (b) Loss or breach caused by any Participant's exercise of control over his Accounts, which shall be the sole responsibility of the Participant; (c) Loss or breach caused by the Employer's exercise of control over Accounts pursuant to Section 13.3, which shall be the sole responsibility of the Employer; (d) Sums paid to an insurer or the validity of any Policy or the accuracy of information provided by an insurer, which shall be the sole responsibility of the insurer; (e) Performance of any other responsibilities not specifically allocated to them under the Plan. 60..3 Fees and Expenses. The Trustee's fees for performing its duties hereunder shall be such reasonable amounts as shall be established by the Trustee from time to time in a fee schedule addressed to the Employer. Such fees, any taxes of any kind which may be levied or assessed upon or in respect of the Trust Fund and any and all expenses reasonably incurred by the Trustee shall, unless paid by the Employer, be paid from the Trust Fund and shall, unless allocable to the Accounts of specific Participants, be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such amounts. Charges and expenses incurred in connection with a specific Investment Product, unless allocable to the Accounts of specific Participants, shall be charged pro rata against the Accounts of all Participants for whose benefit amounts have been invested in the specific Investment Product. 60..4 Reliance on Employer. The Trustee and its agents (and the Insurance Trustee, if any) shall rely upon any decision of the Employer, or of any person authorized by the Employer, purporting to be made pursuant to the terms of the Plan, and upon any information or statements submitted by the Employer or such person (including those relating to the entitlement of any Participant to benefits under the Plan), and shall not inquire as to the basis of any such decision or information or statements, and shall incur no obligation or liability for any action taken or omitted in reliance thereon. The Trustee and its agents shall be entitled to rely on the latest written instructions received from the Employer as to the person or persons authorized to act for the Employer hereunder, and to sign on behalf of the Employer any directions or instructions, until receipt from the Employer of written notice that such authority has been revoked. 60..5 Action Without Instructions. If the Trustee receives no instructions from the Employer in response to communications sent by registered or certified mail to the Employer at its last known address as shown on the books of the Trustee, then the Trustee may make such determinations with respect to administrative matters arising under the Plan as it considers reasonable, notwithstanding any prior instructions or directions given by or on behalf of the Employer, but subject to any instruction or direction given by or on behalf of the Participants. To the extent permitted by applicable law, any determination so made will be binding on all persons having or claiming any interest under the Plan or Trust, and the Trustee will incur no obligation or responsibility for any such determination made in good faith or for any action taken pursuant thereto. In making any such determination the Trustee may require that it be furnished with such relevant documents as it reasonable considers necessary. 60..6 Advice of Counsel. The Trustee and the Insurance Trustee may each consult with legal counsel (who may, but need not be, counsel for the Employer) concerning any questions which may arise with respect to their respective rights and duties under the Plan, and the opinion of such counsel shall be full and complete protection to the extent permitted by applicable law in the respect of any action taken or omitted by the Trustee or the Insurance Trustee, as the case may be, hereunder in accordance with the opinion of such counsel. 60..7 Accounts. The Trustee shall keep full accounts of all receipts and disbursements which pertain to investments in Investment Products, and the Trustee and the Insurance Trustee shall each keep accounts of such other transactions as it is required to perform hereunder. Within a reasonable time following the close of each Plan Year, or upon its removal or resignation or upon termination of the Trust and at such other times as may be appropriate, each shall render to the Employer and any other persons as may be required by law an account of its administration of the Plan and Trust during the period since the last previous such accounting, including such information as may be required by law. The written approval of any account by the Employer and all other persons to whom an account is rendered shall be final and binding as to all matters and transactions stated or shown therein, upon the Employer and Participants and all persons who then are or thereafter become interested in the Trust. The failure of the Employer or any other person to whom an account is rendered to notify the party rendering the account within 60 days after the receipt of any account of his or its objection to the account shall be the equivalent of written approval. If the Employer or any other person to whom an account is rendered files any objections within such 60-day period with respect to any matters or transactions stated or shown in the account and the Employer or such other person and the party rendering the account cannot amicably settle the questions raised by such objections, the party rendering the account and the Employer or such person shall have the right to have such questions settled by judicial proceedings, although the Employer or such other person to whom an account is rendered shall have, to the extent permitted by applicable law, only 60 days from filing of written objection to the account to commence legal proceedings. Nothing herein contained shall be construed so as to deprive the Trustee or the Insurance Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlements of any account or for instructions, the only necessary parties shall be the Trustee, the Insurance Trustee, the Employer and persons to whom an account is required by law to be rendered. 60..8 Access to Records. The Trustee and the Insurance Trustee shall give access to their respective records with respect to the Plan at reasonable times and on reasonable notice to any person required by law to have access to such records. 60..9 Successors. Any corporation into which the Trustee may merge or with which it may consolidate or any corporation resulting from any such merger or consolidation shall be the successor of the Trustee without the execution or filing of any additional instrument or the performance of any further act. 60..10 Persons Dealing with Trustee or Insurance Trustee. No person dealing with the Trustee or the Insurance Trustee shall be bound to see to the application of any money or property paid or delivered to such party or to inquire into the validity or propriety of any transactions. 60..11 Resignation and Removal; Procedure. The Trustee or the Insurance Trustee may resign at any time by giving 60 days' written notice to the Employer and to Putnam. The Employer may remove the Trustee or the Insurance Trustee at any time by giving 60 days' written notice to the party removed and to Putnam. In any case of resignation or removal hereunder, the period of notice may be reduced to such shorter period as is satisfactory to the Trustee, the Insurance Trustee and the Employer. Notwithstanding anything to the contrary herein, any resignation hereunder shall take effect at the time notice thereof is given if the Employer may no longer participate in the prototype Plan and is deemed to have an individually designed plan at the time notice is given. 60..12 Action of Trustee Following Resignation or Removal. When the resignation or removal of the Trustee becomes effective, the Trustee shall perform all acts necessary to transfer the Trust Fund to its successor. However, the Trustee may reserve such portion of the Trust Fund as it may reasonably determine to be necessary for payment of its fees and any taxes and expenses, and any balance of such reserve remaining after payment of such fees, taxes and expenses shall be paid over to its successor. The Trustee shall have no responsibility for acts or omissions occurring after its resignation becomes effective. 60..13 Action of Insurance Trustee Following Resignation or Removal. When the Insurance Trustee's resignation or removal becomes effective, the Insurance Trustee shall perform all acts necessary to transfer ownership of the Policies to its successor. If no successor has accepted appointment, the Policies shall be held and owned by the Employer acting as Insurance Trustee until a successor is appointed. 60..14 Effect of Resignation or Removal. Resignation or removal of the Trustee or the Insurance Trustee shall not terminate the Trust. In the event of any vacancy in the position of Trustee (or, in a Plan having amounts invested in Policies, the position of Insurance Trustee), whether the vacancy occurs because of the resignation or removal of the Trustee (or the Insurance Trustee) the Employer shall appoint a successor to fill the vacant position. If the Employer does not appoint such a successor who accepts appointment by the later of 60 days after notice of resignation or removal is given or by such later date as the Trustee or the Insurance Trustee, as the case may be, and Employer may agree in writing to postpone the effective date of the Trustee's or the Insurance Trustee's resignation or removal, the Trustee or Insurance Trustee may apply to a court of competent jurisdiction for such appointment or cause the Trust to be terminated, effective as of the date specified by the Trustee or Insurance Trustee, as the case may be, in writing delivered to the Employer. Each successor Trustee so appointed and accepting a trusteeship hereunder shall have all of the rights and powers and all of the duties and obligations of the original Trustee or Insurance Trustee, as the case may be, under the provisions hereof, but shall have no responsibility for acts or omissions before he becomes a Trustee or Insurance Trustee. 60..15 Fiscal Year of Trust. The fiscal year of the Trust will coincide with the Plan Year. 60..16 Limitation of Liability. Except as may otherwise be required by law and other provisions of the Plan, no fiduciary of the Plan, within the meaning of Section 3(21) of ERISA, shall be liable for any losses incurred with respect to the management of the Plan, nor shall he or it be liable for any acts or omissions except those caused by his or its own negligence or bad faith in failing to carry out his or its duties under the terms contained in the Plan. 60..17 Indemnification. Subject to the limitations of applicable law, the Employer agrees to indemnify and hold harmless (i) all fiduciaries, within the meaning of ERISA Sections 3(21) and 404, and (ii) Putnam, for all liability occasioned by any act of such party or omission to act, in good faith and without gross negligence, and for all expenses incurred by any such party in determining its duty or liability under ERISA with respect to any question under the Plan. ARTICLE 61. AMENDMENT 61..1 General. The Employer reserves the power at any time or times to amend the provisions of the Plan and the Plan Agreement to any extent and in any manner that it may deem advisable. If, however, the Employer makes any amendment (including an amendment occasioned by a waiver of the minimum funding requirement under Section 412(d) of the Code) other than (a) a change in an election made in the Plan Agreement, (b) amendments stated in the Plan Agreement which allow the Plan to satisfy Section 415 and to avoid duplication of minimums under Section 416 of the Code because of the required aggregation of multiple plans, or (c) model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as individually designed, the Employer shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. In that event, Putnam shall have no further responsibility to provide to the Employer any amendments or other material incident to the prototype plan, and Putnam may resign immediately as Trustee and as Recordkeeper. Any amendment shall be made by delivery to the Trustee (and the Recordkeeper, if any) of a written instrument executed by the Employer providing for such amendment. Upon the delivery of such instrument to the Trustee, such instrument shall become effective in accordance with its terms as to all Participants and all persons having or claiming any interest hereunder, provided, that the Employer shall not have the power: (1) To amend the Plan in such a manner as would cause or permit any part of the assets of the Trust to be diverted to purposes other than the exclusive benefit of Participants or their Beneficiaries, or as would cause or permit any portion of such assets to revert to or become the property of the Employer. (2) To amend the Plan retroactively in such a manner as would have the effect of decreasing a Participant's accrued benefit, except that a Participant's Account balance may be reduced to the extent permitted under Section 412(c)(8) of the Code. For purposes of this paragraph (2), an amendment shall be treated as reducing a Participant's accrued benefit if it has the effect of reducing his Account balance, or of eliminating an optional form of benefit with respect to amounts attributable to contributions made performed before the adoption of the amendment; or (3) To amend the Plan so as to decrease the portion of a Participant's Account balance that has become vested, as compared to the portion that was vested, under the terms of the Plan without regard to the amendment, as of the later of the date the amendment is adopted or the date it becomes effective. (4) To amend the Plan in such a manner as would increase the duties or liabilities of the Trustee or the Recordkeeper unless the Trustee or the Recordkeeper consents thereto in writing. 61..2 Delegation of Amendment Power. The Employer and all sponsoring organizations of the Putnam Basic Plan Document delegate to Putnam Mutual Funds Corp., the power to amend the Plan (including the power to amend this Section 18.2 to name a successor to which such power of amendment shall be delegated), for the purpose of adopting amendments which are certified to Putnam Mutual Funds Corp., by counsel satisfactory to it, as necessary or appropriate under applicable law, including any regulation or ruling issued by the United States Treasury Department or any other federal or state department or agency; provided that Putnam Mutual Funds Corp., or such successor may amend the Plan only if it has mailed a copy of the proposed amendment to the Employer at its last known address as shown on its books by the date on which it delivers a written instrument providing for such amendment, and only if the same amendment is made on said date to all plans in this form as to which Putnam Mutual Funds Corp., or such successor has a similar power of amendment. If a sponsoring organization does not adopt any amendment made by Putnam Mutual Funds Corp., such sponsoring organization shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. ARTICLE 62. TERMINATION OF THE PLAN AND TRUST 62..1 General. The Employer has established the Plan and the Trust with the bona fide intention and expectation that contributions will be continued indefinitely, but the Employer shall have no obligation or liability whatsoever to maintain the Plan for any given length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee and the Insurance Trustee, without any liability whatsoever for any such discontinuance or termination. 62..2 Events of Termination. The Plan will terminate upon the happening of any of the following events: (a) Death of the Employer, if a sole proprietor, or dissolution or termination of the Employer, unless within 60 days thereafter provision is made by the successor to the business with respect to which the Plan was established for the continuation of the Plan, and such continuation is approved by the Trustee; (b) Merger, consolidation or reorganization of the Employer into one or more corporations or organizations, unless the surviving corporations or organizations adopt the Plan by an instrument in writing delivered to the Trustee within 60 days after such a merger, consolidation and reorganization; (c) Sale of all or substantially all of the assets of the Employer, unless the purchaser adopts the Plan by an instrument in writing delivered to the Trustee within 60 days after the sale; (d) The institution of bankruptcy proceedings by or against the Employer, or a general assignment by the Employer to or for the benefit of its creditors; or (e) Delivery of notice as provided in Section 19.1. 62..3 Effect of Termination. Notwithstanding any other provisions of this Plan, other than Section 19.4, upon termination of the Plan or complete discontinuance of contributions thereunder, each Participant's Accounts will become fully vested and nonforfeitable, and upon partial termination of the Plan, the Accounts of each Participant affected by the partial termination will become fully vested and nonforfeitable. The Employer shall notify the Trustee and the Insurance Trustee in writing of such termination, partial termination or complete discontinuance of contributions. In the event of the complete termination of the Plan or discontinuance of contributions, the Trustee will, after payment of all expenses of the Trust Fund, make distribution of the Trust asses to the Participants or other persons entitled thereto, in such form as the Employer may direct pursuant to Article 10 or, in the absence of such direction, in a single payment in cash or in kind. Upon completion of such distributions under this Article, the Trust will terminate, the Trustee and the Insurance Trustee will be relieved from their obligations under the Trust, and no Participant or other person will have any further claim thereunder. 62..4 Approval of Plan. Notwithstanding any other provision of the Plan, if the Employer fails to obtain or to retain the approval by the Internal Revenue Service of the Plan as a qualified plan under Section 401(a) of the Code, then (i) the Employer shall promptly notify the Trustee, and (ii) the Employer may no longer participate in the Putnam prototype plan, but will be deemed to have an individually designed plan. If it is determined by the Internal Revenue Service that the Plan upon its initial adoption does not qualify under Section 401(a) of the Code, all assets then held under the Plan will be returned within one year of the denial of initial qualification to the Participants and the Employer to the extent attributable to their respective contributions and any income earned thereon, but only if the application for qualification is made by the time prescribed by law for filing the Employer's federal income tax return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. Upon such distribution, the Plan will be considered to be rescinded and to be of no force or effect. ARTICLE 63. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS; MERGERS 63..1 General. Notwithstanding any other provision hereof, subject to the approval of the Trustee there may be transferred to the Trustee all or any of the assets held (whether by a trustee, custodian or otherwise) in respect of any other plan which satisfies the applicable requirements of Section 401(a) of the Code and which is maintained for the benefit of any Employee (provided, however, that the Employee is not a member of a class of Employees excluded from eligibility to participate in the Plan) except that insurance policies held in respect of such other plan shall be transferred to the Insurance Trustee as trustee if the Employer so determines. Any such assets so transferred shall be accompanied by written instructions from the Employer naming the persons for whose benefit such assets have been transferred and showing separately the respective contributions made by the Employer and by the Participants and the current value of the assets attributable thereto. Notwithstanding the foregoing, if a Participant's employment classification changes under Section 3.5 such that he begins participation in another plan of the Employer, his Account, if any, shall, upon the Administrator's direction, be transferred to the plan in which he has become eligible to participate, if such plan permits receipt of such Account. 63..2 Amounts Transferred. The Employer shall credit any assets transferred pursuant to Section 20.1 or Section 3.5 to the appropriate Accounts of the persons for whose benefit such assets have been transferred. Any amounts credited as contributions previously made by an employer or by such persons under such other plan shall be treated as contributions previously made under the Plan by the Employer or by such persons, as the case may be. 63..3 Merger or Consolidation. The Plan shall not be merged or consolidated with any other plan, nor shall any assets or liabilities of the Trust Fund be transferred to any other plan, unless each Participant would receive a benefit immediately after the transaction, if the Plan then terminated, which is equal to or greater than the benefit he would have been entitled to receive immediately before the transaction if the Plan had then terminated. ARTICLE 64. MISCELLANEOUS 64..1 Notice of Plan. The Plan shall be communicated to all Participants by the Employer on or before the last day on which such communication may be made under applicable law. 64..2 No Employment Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the purchase of Policies, nor the payment of any benefits shall be construed as giving to any Participant or any other person any legal or equitable right against the Employer, the Trustee, or the Insurance Trustee, except as provided herein or by ERISA; and in no event shall the terms of employment or service of any Participant be modified or in any way be affected hereby. 64..3 Distributions Exclusively From Plan. Participants and Beneficiaries shall look solely to the assets held in the Trust and any Policies purchased pursuant to the Plan for the payment of any benefits under the Plan. 64..4 No Alienation. The benefits provided hereunder shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, and any attempt to cause such benefits to be so subjected shall not be recognized, except as provided in Section 12.4 or in accordance with a Qualified Domestic Relations Order. The Plan Administrator shall determine whether a domestic relations order is qualified in accordance with written procedures adopted by the Plan Administrator. Notwithstanding the foregoing, an order shall not fail to be a Qualified Domestic Relations Order merely because it requires a distribution to an alternate payee (or the segregation of accounts pending distribution to an alternate payee) before the Participant is otherwise entitled to a distribution under the Plan. 64..5 Provision of Information. The Employer, Trustee and Insurance Trustee shall furnish to each other such information relating to the Plan and Trust as may be required under the Code or ERISA and any regulations issued or forms adopted by the Treasury Department or the Labor Department or otherwise thereunder. 64..6 No Prohibited Transactions. The Employer, Trustee, and Insurance Trustee shall, to the extent of their respective powers and authority under the Plan, prevent the Plan from engaging in any transaction known by that person to constitute a transaction prohibited by Section 4975 of the Code and any rules or regulations with respect thereto. 64..7 Governing Law. The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States, and to the extent permitted by such laws, by the laws of the Commonwealth of Massachusetts 64..8 Gender. Whenever used herein, a pronoun in the masculine gender includes the feminine gender unless the context clearly indicates otherwise. PUTNAM BASIC PLAN DOCUMENT #05 TABLE OF CONTENTS PAGE ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Affiliated Employer . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Authorized Leave of Absence . . . . . . . . . . . . . . . . . . 2 2.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 CODA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 Date of Employment. . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Disabled. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.10 Earned Income. . . . . . . . . . . . . . . . . . . . . . . . . 3 2.11 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Eligibility Period . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.15 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.16 Employer Contribution Account. . . . . . . . . . . . . . . . . 5 2.17 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.18 Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.19 Hour of Service. . . . . . . . . . . . . . . . . . . . . . . . 5 2.20 Insurance Trustee. . . . . . . . . . . . . . . . . . . . . . . 7 2.21 Investment Company . . . . . . . . . . . . . . . . . . . . . . 7 2.22 Investment Company Shares. . . . . . . . . . . . . . . . . . . 7 2.23 Investment Products. . . . . . . . . . . . . . . . . . . . . . 7 2.24 Leased Employee. . . . . . . . . . . . . . . . . . . . . . . . 7 2.25 One-Year Eligibility Break . . . . . . . . . . . . . . . . . . 8 2.26 One-Year Vesting Break . . . . . . . . . . . . . . . . . . . . 8 2.27 Owner-Employee . . . . . . . . . . . . . . . . . . . . . . . . 8 2.28 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.29 Participant Contribution Account. . . . . . . . . . . . . . . 8 2.30 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.31 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . 9 2.32 Plan Agreement . . . . . . . . . . . . . . . . . . . . . . . . 9 2.33 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.34 Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.35 Putnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.36 Qualified Participant. . . . . . . . . . . . . . . . . . . . . 9 2.37 Recordkeeper . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.38 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.39 Rollover Account . . . . . . . . . . . . . . . . . . . . . . . 10 2.40 Self-Employed Individual . . . . . . . . . . . . . . . . . . . 10 2.41 Shareholder-Employee . . . . . . . . . . . . . . . . . . . . . 10 2.42 Trust and Trust Fund . . . . . . . . . . . . . . . . . . . . . 10 2.43 Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.44 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . 10 2.45 Year of Service. . . . . . . . . . . . . . . . . . . . . . . . 10 2.46 Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . 11 2.47 Elective Deferral. . . . . . . . . . . . . . . . . . . . . . . 11 2.48 Elective Deferral Account. . . . . . . . . . . . . . . . . . . 11 2.49 Employer Matching Contribution . . . . . . . . . . . . . . . . 11 2.50 Employer Matching Account. . . . . . . . . . . . . . . . . . . 11 2.51 Highly Compensated Employee. . . . . . . . . . . . . . . . . . 11 2.52 Non-Highly Compensated Employee. . . . . . . . . . . . . . . . 13 2.53 Qualified Matching Contribution. . . . . . . . . . . . . . . . 13 2.54 Qualified Matching Account . . . . . . . . . . . . . . . . . . 13 2.55 Qualified Nonelective Contribution . . . . . . . . . . . . . . 13 2.56 Qualified Nonelective Contribution Account . . . . . . . . . . 13 ARTICLE 3. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . 14 3.1 Initial Participation . . . . . . . . . . . . . . . . . . . . . 14 3.2 Special Participation Rule. . . . . . . . . . . . . . . . . . . 14 3.3 Resumed Participation . . . . . . . . . . . . . . . . . . . . . 15 3.4 Benefits for Owner-Employees. . . . . . . . . . . . . . . . . . 15 ARTICLE 4. CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 16 4.1 Payment and Crediting of Employer Contributions . . . . . . . . 16 4.2 Amount and Allocation of Annual Contribution. . . . . . . . . . 17 4.3 Rollover Contributions. . . . . . . . . . . . . . . . . . . . . 18 4.4 No Deductible Employee Contributions. . . . . . . . . . . . . . 18 ARTICLE 5. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k) (CODA) . . . . . . . . . . . . . . . . . . . . 19 5.1 Applicability; Allocations. . . . . . . . . . . . . . . . . . . 19 5.2 CODA Participation. . . . . . . . . . . . . . . . . . . . . . . 19 5.3 Annual Limit on Elective Deferrals. . . . . . . . . . . . . . . 19 5.4 Distribution of Certain Elective Deferrals. . . . . . . . . . . 20 5.5 Satisfaction of ADP and ACP Tests . . . . . . . . . . . . . . . 21 5.6 Actual Deferral Percentage Test Limit . . . . . . . . . . . . . 21 5.7 Distribution of Excess Contributions. . . . . . . . . . . . . . 23 5.8 Matching Contributions. . . . . . . . . . . . . . . . . . . . . 24 5.9 Average Contribution Percentage Test Limit and Aggregate Limit . . . . . . . . . . . . . . . . . . . . . . . . 25 5.10 Distribution of Excess Aggregate Contributions . . . . . . . . 28 5.11 Restriction on Distributions . . . . . . . . . . . . . . . . . 29 5.12 Hardship Distributions . . . . . . . . . . . . . . . . . . . . 30 5.13 Special Effective Dates. . . . . . . . . . . . . . . . . . . . 32 ARTICLE 6. LIMITATIONS ON ALLOCATIONS . . . . . . . . . . . . . . . . . 33 6.1 No Additional Plan. . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Additional Master or Prototype Plan . . . . . . . . . . . . . . 34 6.3 Additional Non-Master or Non-Prototype Plan . . . . . . . . . . 35 6.4 Additional Defined Benefit Plan . . . . . . . . . . . . . . . . 35 6.5 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS . . . . . . . . . . 41 7.1 Retirement. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.2 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.3 Other Termination of Employment . . . . . . . . . . . . . . . . 42 ARTICLE 8. VESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.1 Vested Balance. . . . . . . . . . . . . . . . . . . . . . . . . 43 8.2 Vesting of Accounts of Returned Former Employees. . . . . . . . 43 8.3 Forfeiture of Non-Vested Amounts. . . . . . . . . . . . . . . . 44 8.4 Special Rule in the Event of a Withdrawal. . . . . . . . . . . 45 8.5 Vesting Election. . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 9. PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . 47 9.1 Distribution of Accounts. . . . . . . . . . . . . . . . . . . . 47 9.2 Restriction on Immediate Distributions. . . . . . . . . . . . . 47 9.3 Optional Forms of Distribution. . . . . . . . . . . . . . . . . 49 9.4 Distribution Procedure. . . . . . . . . . . . . . . . . . . . . 49 9.5 Lost Distributee. . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS . . . . . . . . . . 51 10.1 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . 51 10.2 Qualified Joint and Survivor Annuity . . . . . . . . . . . . . 52 10.3 Qualified Preretirement Survivor Annuity . . . . . . . . . . . 52 10.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.5 Notice Requirements. . . . . . . . . . . . . . . . . . . . . . 54 10.6 Transitional Rules . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS . . . . . . . . . . . . . 58 11.1 General Rules. . . . . . . . . . . . . . . . . . . . . . . . . 58 11.2 Required Beginning Date. . . . . . . . . . . . . . . . . . . . 58 11.3 Limits on Distribution Periods . . . . . . . . . . . . . . . . 59 11.4 Determination of Amount to be Distributed Each Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 11.5 Death Distribution Provisions. . . . . . . . . . . . . . . . . 61 11.6 Transitional Rule. . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE 12. WITHDRAWALS AND LOANS . . . . . . . . . . . . . . . . . . . 65 12.1 Withdrawals from Participant Contribution Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 12.2 Withdrawals on Account of Hardship . . . . . . . . . . . . . . 65 12.3 Withdrawals After Reaching Age 59 1/2 . . . . . . . . . . . . . 65 12.4 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 12.5 Procedure; Amount Available. . . . . . . . . . . . . . . . . . 68 ARTICLE 13. TRUST FUND AND INVESTMENTS. . . . . . . . . . . . . . . . . 69 13.1 Establishment of Trust Fund. . . . . . . . . . . . . . . . . . 69 13.2 Management of Trust Fund . . . . . . . . . . . . . . . . . . . 69 13.3 Investment Instructions. . . . . . . . . . . . . . . . . . . . 70 13.4 Valuation of the Trust Fund. . . . . . . . . . . . . . . . . . 71 13.5 Distributions on Investment Company Shares . . . . . . . . . . 72 13.6 Registration and Voting of Investment Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 13.7 Investment Manager . . . . . . . . . . . . . . . . . . . . . . 72 13.8 Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE 14. INSURANCE POLICIES. . . . . . . . . . . . . . . . . . . . . 75 14.1 Purchase of Insurance Products . . . . . . . . . . . . . . . . 75 14.2 Limitation on Premiums . . . . . . . . . . . . . . . . . . . . 75 14.3 Policy Options . . . . . . . . . . . . . . . . . . . . . . . . 75 14.4 Insurability . . . . . . . . . . . . . . . . . . . . . . . . . 75 14.5 Dividends on Policies. . . . . . . . . . . . . . . . . . . . . 75 14.6 Trustee of Policy. . . . . . . . . . . . . . . . . . . . . . . 76 14.7 Obligations with Respect to Policies . . . . . . . . . . . . . 76 14.8 Distribution of Proceeds on Participant's Death. . . . . . . . 76 14.9 Conversion of Policies . . . . . . . . . . . . . . . . . . . . 76 14.10 Conflict with Policies. . . . . . . . . . . . . . . . . . . . 76 14.11 Insurance Loans to Owner-Employees. . . . . . . . . . . . . . 76 ARTICLE 15. TOP-HEAVY PLANS . . . . . . . . . . . . . . . . . . . . . . 78 15.1 Superseding Effect . . . . . . . . . . . . . . . . . . . . . . 78 15.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 78 15.3 Minimum Allocation . . . . . . . . . . . . . . . . . . . . . . 81 15.4 Adjustment of Fractions. . . . . . . . . . . . . . . . . . . . 82 ARTICLE 16. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . 83 16.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . 83 16.2 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . 83 16.3 Employer's Responsibilities. . . . . . . . . . . . . . . . . . 84 16.4 Recordkeeper . . . . . . . . . . . . . . . . . . . . . . . . . 84 16.5 Prototype Plan . . . . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE 17. TRUSTEE AND INSURANCE TRUSTEE . . . . . . . . . . . . . . . 86 17.1 Powers and Duties of the Trustee . . . . . . . . . . . . . . . 86 17.2 Limitation of Responsibilities . . . . . . . . . . . . . . . . 87 17.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 88 17.4 Reliance on Employer . . . . . . . . . . . . . . . . . . . . . 88 17.5 Action Without Instructions. . . . . . . . . . . . . . . . . . 88 17.6 Advice of Counsel. . . . . . . . . . . . . . . . . . . . . . . 89 17.7 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 17.8 Access to Records. . . . . . . . . . . . . . . . . . . . . . . 90 17.9 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . 90 17.10 Persons Dealing with Trustee or Insurance Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 17.11 Resignation and Removal; Procedure. . . . . . . . . . . . . . 90 17.12 Action of Trustee Following Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 17.13 Action of Insurance Trustee Following Resignation or Removal. . . . . . . . . . . . . . . . . . . . 90 17.14 Effect of Resignation or Removal. . . . . . . . . . . . . . . 90 17.15 Fiscal Year of Trust. . . . . . . . . . . . . . . . . . . . . 91 17.16 Limitation of Liability . . . . . . . . . . . . . . . . . . . 91 17.17 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 91 ARTICLE 18. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . 92 18.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 18.2 Delegation of Amendment Power. . . . . . . . . . . . . . . . . 93 ARTICLE 19. TERMINATION OF THE PLAN AND TRUST . . . . . . . . . . . . . 94 19.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 19.2 Events of Termination. . . . . . . . . . . . . . . . . . . . . 94 19.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 94 19.4 Approval of Plan . . . . . . . . . . . . . . . . . . . . . . . 95 ARTICLE 20. TRANSFERS FROM OTHER QUALIFIED PLANS; MERGERS . . . . . . . 96 20.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 20.2 Amounts Transferred. . . . . . . . . . . . . . . . . . . . . . 96 20.3 Merger or Consolidation. . . . . . . . . . . . . . . . . . . . 96 ARTICLE 21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 97 21.1 Notice of Plan . . . . . . . . . . . . . . . . . . . . . . . . 97 21.2 No Employment Rights . . . . . . . . . . . . . . . . . . . . . 97 21.3 Distributions Exclusively From Plan. . . . . . . . . . . . . . 97 21.4 No Alienation. . . . . . . . . . . . . . . . . . . . . . . . . 97 21.5 Provision of Information . . . . . . . . . . . . . . . . . . . 97 21.6 No Prohibited Transactions . . . . . . . . . . . . . . . . . . 97 21.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 97 21.8 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 PUTNAM BASIC PLAN DOCUMENT #05 ARTICLE 65. INTRODUCTION By executing the Plan Agreement, the Employer has established a retirement plan (the "Plan") according to the terms and conditions of the Plan Agreement and this Putnam Basic Plan Document #05, for the purpose of providing a retirement fund for the benefit of Participants and Beneficiaries. The Plan is a profit sharing plan for purposes of section 401(a)(27) of the Code. ARTICLE 66. DEFINITIONS The terms defined in Sections 2.1 through 2.45 appear generally throughout the document. Sections 2.46 through 2.56 and Article 5 contain definitions of terms used only in a CODA and Section 10.4 contains additional definitions related to distributions from the Plan. Articles 6 and 11 contain additional definitions of terms used only in those Articles. 66..1 Account means any of, and Accounts means all of, a Participant's Employer Contribution Account, Participant Contribution Account, Rollover Account, and if the Plan contains a CODA, the accounts maintained for the Participant pursuant to Article 5. 66..2 Affiliated Employer, for purposes of the Plan other than Article 6, means the Employer and a trade or business, whether or not incorporated, which is any of the following: (a) A member of a group of controlled corporations (within the meaning of section 414(b) of the Code) which includes the Employer; or (b) A trade or business under common control (within the meaning of section 414(c) of the Code) with the Employer; or (c) A member of an affiliated service group (within the meaning of section 414(m) of the Code) which includes the Employer; or (d) An entity otherwise required to be aggregated with the Employer pursuant to section 414(o) of the Code. In determining an Employee's service for vesting and for eligibility to participate in the Plan, all employment with Affiliated Employers will be treated as employment by the Employer. For purposes of Article 6 only, the definitions in paragraphs (a) and (b) of this Section 2.2 shall be modified by adding at the conclusion of the parenthetical phrase in each such paragraph the words "as modified by section 415(h) of the Code." 66..3 Authorized Leave of Absence means a leave of absence from employment granted in writing by an Affiliated Employer. Authorized Leave of Absence shall be granted on account of military service for any period during which an Employee's right to re-employment is guaranteed by law, and for such other reasons and periods as an Affiliated Employer shall consider proper, provided that Employees in similar situations shall be similarly treated. 66..4 Beneficiary means a person entitled to receive benefits under the Plan upon the death of a Participant, in accordance with Section 7.2 and Articles 10 and 11. 66..5 CODA means a cash or deferred arrangement that meets the requirements of section 401(k) of the Code, adopted as part of a profit sharing plan. 66..6 Code means the Internal Revenue Code of 1986, as amended. 66..7 Compensation means all of an Employee's compensation determined in accordance with the definition elected by the Employer in the Plan Agreement. For purposes of that election, "Form W-2 earnings" means "wages" as defined in section 3401(a) of the Code in connection with income tax withholding at the source, and all other compensation paid to the Employee by the Employer in the course of its trade or business, for which the Employer is required to furnish the Employee with a written statement under sections 6041(d), 6051(a)(3) and 6052 of the Code, determined without regard to exclusions based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in section 3401(a)(2) of the Code). Compensation shall include only amounts actually paid to the Employee during the Plan Year, except that if the Employer so elects in the Plan Agreement, Compensation shall include any amount which is contributed to an employee benefit plan for the Employee by the Employer pursuant to a salary reduction agreement, and which is not includible in the gross income of the Employee under section 125, 402(a)(8), 402(h) or 403(b) of the Code. (For a self-employed person, the relevant term is Earned Income, as defined in Section 2.10.) 66..8 Date of Employment means the first date on which an Employee performs an Hour of Service; or, in the case of an Employee who has incurred one or more One-Year Eligibility Breaks and who is treated as a new Employee under the rules of Section 3.3, the first date on which he performs an Hour of Service after his return to employment. 66..9 Disabled means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. 66..10 Earned Income means a Self-Employed individual's net earnings from self-employment in the trade or business with respect to which the Plan is established, excluding items not included in gross income and the deductions allocable to such items, and reduced by (i) contributions by the Employer to qualified plans, to the extent deductible under section 404 of the Code, and (ii) the deduction allowed to the taxpayer under section 164(f) of the Code for taxable years beginning after December 31, 1989. 66..11 Earnings, for determining all benefits provided under the Plan for all Plan Years beginning after December 31, 1988, means the first $200,000 (as adjusted by the Secretary of the Treasury at the same time and in the same manner as under section 415(d) of the Code, except that the dollar increase effective on any January 1 is effective for all Plan Years beginning in the calendar year in which that January 1 occurs, and the first such dollar increase is effective on January 1, 1990) of the sum of the Compensation and the Earned Income received by an Employee during a Plan Year. To calculate an allocation to a Participant's Account for any Plan Year shorter than 12 months, the dollar limit described in the preceding sentence must be multiplied by a fraction of which the denominator is 12 and the numerator is the number of months in the Plan Year. In determining the Earnings of a Participant, the rules of section 414(q)(6) of the Code shall apply, except that in applying those rules the term "family" shall include only the Participant's spouse and the Participant's lineal descendant who have not reached age 19 by the last day of the Plan Year. If as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Earnings as determined under this section prior to the application of this limitation. 66..12 Effective Date means the date so designated in the Plan Agreement. If the Plan Agreement indicates that the Employer is adopting the Plan as an amendment of an existing plan, the provisions of the existing plan apply to all events preceding the Effective Date, except as to specific provisions of the Plan which set forth a retroactive effective date in accordance with Section 1140 of the Tax Reform Act of 1986. 66..13 Eligibility Period means a period of 12 consecutive months beginning on an Employee's most recent Date of Employment or any anniversary thereof, in which he is credited with at least 1,000 Hours of Service; provided that if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting an Eligibility Period, that number shall be substituted for 1,000, and provided further that in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. If the Employer so elects in the Plan Agreement, an Employee's most recent Date of Employment for purposes of this Section 2.13 shall be the first date on which he performed services for a business acquired by the Employer. 66..14 Employee means a common law Employee of an Affiliated Employer; in the case of an Affiliated Employer which is a sole proprietorship, the sole proprietor thereof; in the case of an Affiliated Employer which is a partnership, a partner thereof; and a Leased Employee of an Affiliated Employer. The term "Employee" includes an individual on Authorized Leave of Absence, a Self- Employed Individual and an Owner-Employee. 66..15 Employer means the Employer named in the Plan Agreement and any successor to all or the major portion of its assets or business which assumes the obligations of the Employer under the Plan Agreement. 66..16 Employer Contribution Account means an account maintained on the books of the Plan on behalf of a Participant, in which are recorded the amounts allocated for his benefit from contributions by the Employer (other than contributions pursuant to Article 5), Forfeitures by former Participants (if the Plan provides for reallocation of Forfeitures), amounts reapplied under Section 6.1(d), and the income, expenses, gains and losses incurred thereon. 66..17 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 66..18 Forfeiture means a nonvested amount forfeited by a former Participant, pursuant to Section 8.3, or an amount forfeited by a former Participant or Beneficiary who cannot be located, pursuant to Section 9.5. 66..19 Hour of Service means each hour described in paragraphs (a), (b), (c), (d) or (e) below, subject to paragraphs (f) and (g) below. (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Affiliated Employer. These hours shall be credited to the Employee for the computation period or periods in which the duties are performed. (b) Each hour for which an Employee is paid, or entitled to payment, by an Affiliated Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period of absence (whether or not such period occurs in a single computation period) unless the Employee's absence is not an Authorized Leave of Absence. Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations, which are incorporated herein by this reference. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Affiliated Employer. The same Hours of Service shall not be credited under both paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c); and no more than 501 Hours of Service shall be credited under this paragraph (c) with respect yo payments of back pay, to the extent that such pay is agreed to or awarded for a period of time described in paragraph (b) during which the Employee did not perform or would not have performed any duties. These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. (d) Each hour during an Authorized Leave of Absence. Such hours shall be credited at the rate of a customary full work week for an Employee. (e) Solely for purposes of determining whether a OneYear Vesting Break or a One-Year Eligibility Break has occurred, each hour which otherwise would have been credited to an Employee but for an absence from work by reason of: the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of the child by the Employee, or caring for a child for a period beginning immediately after its birth or placement. If the Plan Administrator cannot determine the hours which would normally have been credited during such an absence, the Employee shall be credited with eight Hours of Service for each day of absence. No more than 501 Hours of Service shall be credited under this paragraph by reason of any pregnancy or placement. Hours credited under this paragraph shall be treated as Hours of Service only in the PLan Year or Eligibility Period or both, as the case may be, in which the absence from work begins, if necessary to prevent the Participant's incurring a One-Year Vesting Break or One-Year Eligibility Break in that period, or, if not, in the period immediately following that in which the absence begins. The Employee must timely furnish to the Employer information reasonably required to establish (i) that an absence from work is for a reason specified above, and (ii) the number of days for which the absence continued. (f) Hours of Service shall be determined on the basis of actual hours for which an Employee is paid or entitled to payment, or as otherwise specified in the Plan Agreement. (g) If the Employer maintains the plan of a predecessor employer, service for the predecessor Employer shall be treated as service for the Employer. If the Employer does not maintain the plan of a predecessor employer, service for the predecessor employer shall be treated as service for the Employer only to the extent that the Employer so elects in the Plan Agreement. (h) Hours of Service shall be credited to a Leased Employee as though he were an Employee. 66..20 Insurance Trustee means the person named in the Plan Agreement as Insurance Trustee, and any successor thereto. 66..21 Investment Company means an open-end registered investment company for which Putnam Financial Services, Inc., or its affiliate acts as principal underwriter, or for which The Putnam Management Company, Inc., or its affiliate serves as an investment adviser; provided that its prospectus offers its shares under the Plan. 66..22 Investment Company Shares means shares issued by an Investment Company. 66..23 Investment Products means any of the investment products specified by the Employer in accordance with Section 13.2, from the group of those products sponsored, underwritten or managed by Putnam as shall be made available by Putnam under the Plan, and such other products as shall be expressly agreed to in writing by Putnam for availability under the Plan. The term "Investment Products" does not include any Policy selected pursuant to Article 14. 66..24 Leased Employee means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by Employees in the business field of the recipient Employer. The compensation of a Leased Employee for purposes of the Plan means the Compensation (as defined in Section 2.7) of the Leased Employee attributable to services performed for the recipient Employer. Contributions or benefits provided to a leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Provided that leased Employees do not constitute more than 20% of the recipient's nonhighly compensate workforce, a leased Employee shall not be considered an Employee of the recipient if he is covered by a money purchase pension plan providing: (1) a nonintegrated Employer contribution rate of at least 10% of compensation (as defined in section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee's gross income under section 125, section 402(a)(8), section 402(h) or section 403(b) of the Code), (2) immediate participation, and (3) full and immediate vesting. 66..25 One-Year Eligibility Break means an Eligibility Period during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for 500 the number of Hours of Service specified in any regulations of the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting an Eligibility Period, that number shall be substituted for 500. 66..26 One-Year Vesting Break means a Year of Service measuring period, as elected by the Employer in the Plan Agreement, during which an individual is not credited with more than 500 Hours of Service; provided, however, that in the case of an Employee in a seasonal industry, there shall be substituted for 500 the number of Hours of Service specified in any regulations for the Secretary of Labor dealing with breaks in service, and provided further that if the Employer has elected in the Plan Agreement to establish a number less than 500 as the requisite Hours of Service for crediting a Year of Service, that number shall be substituted for 500. 66..27 Owner-Employee means the sole proprietor of an Affiliated Employer that is a sole proprietorship, or a partner owning more than 10% of either the capital or profits interest of an Affiliated Employer that is a partnership. The Plan Administrator shall be responsible for identifying Owner-Employees to the Recordkeeper. 66..28 Participant means each Employee who has met the requirement for participation in Article 3. An Employee is not a Participant for any period before the entry date applicable to him. 66..29 Participant Contribution Account means an account maintained on the books of the Plan, in which are recorded nondeductible contributions by a Participant pursuant to Section 4.2(d), and any income, expenses, gains or losses incurred thereon. 66..30 Plan means the form of defined contribution retirement plan and trust agreement adopted by the Employer, consisting of the Plan Agreement and the Putnam Basic Plan Document #05 as set forth herein, together with any and all amendments and supplements thereto. 66..31 Plan Administrator means the Employer or its appointee pursuant to Section 16.1. 66..32 Plan Agreement means the separate agreement entered into between the Employer and the Trustee (and the Insurance Trustee, if any) and accepted by Putnam, under which the Employer adopts the Plan and selects among its optional provisions. 66..33 Plan Year means the period of 12 consecutive months specified by the employer in the Plan Agreement; provided that if the Effective Date is not the first day of the Employer's taxable year, the initial Plan Year shall begin on the Effective Date and end on the last day of the Employer's taxable year. 66..34 Policy means an ordinary life insurance, term insurance, retirement income or endowment policy or an individual or group annuity contract issued by a life insurance company in connection with the Plan, or an interest therein. An ordinary life insurance policy within the meaning of this definition provides non-decreasing death benefits and non-increasing premiums. 66..35 Putnam means Putnam Financial Services, Inc., or a company affiliated with it which Putnam Financial Services, Inc. has designated as its agent to perform specified actions or procedures in connection with the prototype Plan. 66..36 Qualified Participant means any Participant who is an active Employee on the last day of the Plan Year in question or who is credited with more than 500 Hours of Service during the Plan Year in question or whose Retirement or death occurred during the Plan Year in question. If the Plan is not adopted to replace an existing plan, this Section 2.36 is effective on the Effective Date. If the Plan replaces an existing plan, this Section 2.36 is effective on the first day of the first Plan Year that begins after December 31, 1988, or if later, on the Effective Date, and the provision of the existing plan that this Section 2.36 replaces shall continue to apply until that time. 66..37 Recordkeeper means the person or entity designated by the Employer in the Plan Agreement to perform the duties described in Section 16.4, and any successor thereto. If Putnam is the Recordkeeper, the terms and conditions of its service will be as specified in a service agreement between the Employer and Putnam. 66..38 Retirement means ceasing to be an Employee in accordance with Section 7.1. 66..39 Rollover Account means an account established for an Employee who makes a rollover contribution to the Plan pursuant to Section 4.3. 66..40 Self-Employed Individual means an individual whose personal services are a material income-producing factor in the trade or business for which the Plan is established, and who has Earned Income for the taxable year from that trade or business, or would have Earned Income but for the fact that the trade or business had no net profits for the taxable year. 66..41 Shareholder-Employee means any officer or Employee of an electing small business corporation, within the meaning of section 1362 of the Code, who on any day during a taxable year of the Employer owns (or is considered as owning under section 318(a)(1) of the Code) more than 5% of the outstanding stock of the Employer. The Plan administrator shall be responsible for identifying Shareholder-Employees to the Recordkeeper. 66..42 Trust and Trust Fund mean the trust fund established under Section 13.1. 66..43 Trustee means the person, or the entity with trustee powers, named in the Plan Agreement as trustee, and any successor thereto. 66..44 Valuation Date means each day when the New York Stock Exchange is open, or such other date or dates as the Employer may designate by written agreement with the Recordkeeper. 66..45 Year of Service means a Plan Year or an Eligibility Period, as elected by the Employer in the Plan Agreement, in which an Employee is credited with at least 1,000 Hours of Service; provided, however, that if the Employer has elected in the Plan Agreement to establish a number less than 1,000 as the requisite for crediting a Year of Service, that number shall be substituted for 1,000, and provided further that in the case of an Employee in a seasonal industry (as defined under regulations prescribed by the Secretary of Labor) in which the customary extent of employment during a calendar year is fewer than 1,000 Hours of Service, the number specified in any regulations prescribed by the Secretary of Labor dealing with years of service shall be substituted for 1,000. An Employee's Years of Service shall include service credited prior to the Effective Date under any predecessor plan. If the initial Plan Year is shorter than 12 months, each Employee who is credited with at least 1,000 Hours of Service in the 12-month period ending on the last day of the initial Plan Year shall be credited with a Year of Service with respect to the initial Plan Year. If the Employer has so elected in the Plan Agreement, Years of Service for vesting shall not include: (a) Service in any Plan Year (or comparable period prior to the Effective Date) completed before the Employee reached age 18; (b) Service completed during a period in which the Employer did not maintain the Plan or any predecessor plan (as defined under regulations prescribed by the Secretary of the Treasury). If the Employer has so elected in the Plan Agreement, Years of Service for vesting shall include employment by a business acquired by the Employer, before the date of the acquisition. The following definitions apply only to cash or deferred arrangements under section 401(k) (CODA): 66..46 Deferral Agreement means an Employee's agreement to make one or more Elective Deferrals in accordance with Section 5.2. 66..47 Elective Deferral means any contribution made to the Plan by the Employer at the election of a Participant, in lieu of cash compensation, including contributions made pursuant to a Deferral Agreement or other deferral mechanism. 66..48 Elective Deferral Account means an account maintained on the books of the Plan, in which are recorded a Participant's Elective Deferrals and the income, expenses, gains and losses incurred thereon. 66..49 Employer Matching Contribution means a contribution made by the Employer (i) to the Plan pursuant to Section 5.8, or (ii) to another defined contribution plan on account of a Participant's "elective deferrals" or "employee contributions," as those terms are used in section 401(m) (4) of the Code. 66..50 Employer Matching Account means an account maintained on the books of the Plan, in which are recorded the Employer Matching Contributions made on behalf of a Participant and the income, expenses, gains and losses incurred thereon. 66..51 Highly Compensated Employee means any highly compensated active Employee or highly compensated former Employee, as defined in this Section 2.51. For this purpose, the "determination year" shall be the Plan Year, and the "look-back year" shall be the 12-month period immediately preceding the determination year; provided, however, that in a Plan for which the Plan Year is the calendar year, the current Plan Year shall be both the "determination year" and the "look-back year" if the Employer so elects in the Plan Agreement. A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who during the look-back year: (i) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to section 415(d) of the Code); (ii) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to section 415(d) of the Code) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer and received compensation during such year that is greater than 50% of the dollar limitation in effect under section 415(b)(1)(A) of the Code. The term also includes (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year," and among the 100 Employees who received the most compensation from the Employer during the determination year; and (ii) Employees who are 5% owners at any time during the look-back year or determination year. If no officer has satisfied the compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) before the determination year, performed no service for the Employer during the determination year, and was a highly compensated active Employee for either the year of separation from service or any determination year ending on or after the Employee's 55th birthday. If during a determination year or look-back year an Employee is a family member of either a 5% owner who is an active or former Employee, or a Highly Compensated Employee who is one of the 10 most highly paid Highly Compensated Employees ranked on the basis of compensation paid by the Employer during the year, then the family member and the 5% owner or top-ten Highly Compensate Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of the compensation and contributions or benefits of the family member and the 5% owner or top-ten highly compensated Employee. For purposes of this Section 2.51, family members include the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of mployees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the compensation that is considered will be made in accordance with section 414(q) of the Code and the regulations thereunder. 66..52 Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. 66..53 Qualified Matching Contribution means a contribution made by the Employer that: (i) is allocated in proportion to a Participant's Elective Deferrals, (ii) is fully vested at all times and (iii) is distributable only in accordance with Section 5.11. 66..54 Qualified Matching Account means an account maintained on the books of the Plan, in which are recorded the Qualified Matching Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. 66..55 Qualified Nonelective Contribution means a contribution (other than an Employer Matching Contribution or Qualified Matching Contribution) made by the Employer, that: (i) a Participant may not elect to receive in cash until it is distributed from the Plan; (ii) is fully vested at all times; and (iii) is distributable only in accordance with Section 5.11. 66..56 Qualified Nonelective Contribution Account means an account maintained on the books of the Plan, in which are recorded the Qualified Nonelective Contributions on behalf of a Participant and the income, expense, gain and loss attributable thereto. ARTICLE 67. PARTICIPATION 67..1 Initial Participation. An Employee shall begin participation in the Plan as of the entry date specified in the Plan Agreement, or as of the Effective Date, whichever is later; provided, however, that: (a) if the Plan is adopted as an amendment of a predecessor plan of the Employer, every Employee who was participating under the predecessor plan when it was so amended shall become a Participant in the Plan as of the Effective Date, whether or not he has satisfied the age and service requirements specified in the Plan Agreement; and (b) Unless the Employer specifies otherwise in the Plan Agreement, any individual who is (i) a nonresident alien receiving no earned income from an Affiliated Employer which constitutes income from sources within the United States, or (ii) included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives (excluding from the term "Employee representatives" any organization of which more than half of the members are Employees who are owners, officers, or executives of an Affiliated Employer), if retirement benefits were the subject of good faith bargaining and no more than 2% of the Employees covered by the collective bargaining agreement are professionals as defined in Section 1.410(b)-9 of the Income Tax Regulations, shall not participate in the Plan until the later of the date on which he ceases to be described in clause (i) or (ii), whichever is applicable, or the entry date specified by the Employer in the Plan Agreement; and (c) If the Plan is not adopted as an amendment of a predecessor plan of the Employer, all Employees on the Effective Date shall begin participation on the Effective Date, if the Employer so elects in the Plan Agreement. (d) A Participant shall cease to participate in the Plan when he becomes a member of a class of Employees ineligible to participate in the Plan, and shall resume participation immediately upon his return to a class of Employees eligible to participate in the Plan. 67..2 Special Participation Rule. With respect to a Plan in which the Employer has specified full and immediate vesting in the Plan Agreement, an Employee who incurs a One-Year Eligibility Break before completing the number of Eligibility Periods required under Section 3.1 shall not thereafter be credited with any Eligibility Period completed before the One-Year Eligibility Break. 67..3 Resumed Participation. A former Employee who incurs a One-Year Eligibility Break after having become a Participant shall participate in the Plan as of the date on which he again becomes an Employee, if (i) his Employer Contribution Account or Employer Matching Account had become partially or fully vested before he incurred a One-Year Vesting Break, or (ii) he incurred fewer than five consecutive One-Year Eligibility Breaks. In any other case, when he again becomes an Employee he shall be treated as a new Employee under Section 3.1. 67..4 Benefits for Owner-Employees. If the Plan provides contributions or benefits for one or more Owner-Employees who control both the trade or business with respect to which the Plan is established and one or more other trades or businesses, the Plan and plans established with respect to such other trades or businesses must, when looked at as a single plan, satisfy sections 401(a) and (d) of the Code with respect to the Employees of this and all such other trades or businesses. If the Plan provides contributions or benefits for one or more Owner Employees who control one or more other trades or businesses, the Employees of each such other trade or business must be included in a plan which satisfies sections 401(a) and (d) of the Code and which provides contributions and benefits not less favorable than those provided for such Owner-Employees under the Plan. If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which he does not control and such individual controls a trade or business, then the contributions or benefits of the Employees under the plan of the trade or business which he does control must be as favorable as those provided for him under the most favorable plan of the trade or business which he does not control. For purposes of this Section 3.4, an Owner-Employee, or two or more Owner-Employees, shall be considered to control a trade or business if such Owner-Employee, or such two or more Owner- Employees together: (a) own the entire interest in an unincorporated trade or business, or (b) in the case of a partnership, own more than 50% of either the capital interest or the profits interest in such partnership. For purposes of the preceding sentence, an Owner-Employee or two or more Owner-Employees shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee or such two or more Owner-- Employees are considered to control within the meaning of the preceding sentence. ARTICLE 68. CONTRIBUTIONS 68..1 Payment and Crediting of Employer Contributions. The Employer shall pay to the order of the Trustee the aggregate contribution to the Trust Fund (other than the premium payments on any Policy) for each Plan Year. Each contribution shall be accompanied by written instructions from the Employer, in the manner prescribed by Putnam. Neither the Trustee nor Putnam shall be under any duty to inquire into the correctness of the amount or the timing of any contribution, or to collect any amount if the Employer fails to make a contribution as provided in the Plan. (a) Responsibility for Premium Payments. Contributions to be applied to the payment of the premiums on any Policy shall be paid by the Employer directly to the insurer in cash. In determining the amount of any premium due under any Policy with respect to any Participant, the Employer and the Insurance Trustee may rely conclusively upon information furnished by the provider of the Policy. For purposes of Section 4.2 and Article 5, all Employer contributions used to pay premiums on Policies shall be treated as contributions made to the appropriate Participant's Employer Contribution Account. If the employer omits any premium payment or makes any mistake concerning a premium payment, neither the Employer nor the Insurance Trustee shall have any liability in excess of the premium to be paid. (b) Time for Payment. The aggregate of all contributions with respect to a Plan Year shall be transferred to the Trustee or the insurer no later than the due date (including extensions) for filing the Employer's federal income tax return for that Plan Year. (c) Limitations on Allocations. All allocations shall be subject to the limitations in Article 6. (d) Establishment of Accounts. The Employer will establish and maintain (or cause to be established and maintained) for each Participant individual accounts adequate to disclose his interest in the Trust Fund, including such of the following separate accounts as shall apply to the Participant: Employer Contribution Account, Participant Contribution Account, and Rollover Account; and in a Plan with a CODA, Elective Deferral Account, Qualified Nonelective Account, Qualified Matching Account and Employer Matching Account. The maintenance of such accounts shall be only for recordkeeping purposes, and the assets of separate accounts shall not be required to be segregated for purposes of investment. (e) Restoration of Accounts. Notwithstanding any other provision od the Plan, for any Plan Year in which it is necessary to restore any portion of a Participant's Account pursuant to Section 8.3(b) or 9.5, to the extent that the amount of Forfeitures available is insufficient to accomplish such restoration, the Employer shall contribute the amount necessary to eliminate the insufficiency, regardless of whether the contribution is currently deductible by the Employer under section 404 of the Code. Forfeitures shall be considered available for allocation pursuant to Sections 4.2 and 5.8 in a Plan Year only after all necessary restoration of Accounts has been accomplished. 68..2 Amount and Allocation of Annual Contribution. The Employer will contribute for each Plan Year an amount determined in accordance with the formula specified by the Employer in the Plan Agreement, less any amounts reapplied for the Plan Year under Section 6.1(d), not to exceed the amount deductible under section 404 of the Code. If the Employer so elects in the Plan Agreement, the amount of Forfeitures occurring in a Plan Year shall be applied to reduce the Employer's contribution by a like amount, and such Forfeitures shall be treated as a portion of the Employer contribution for purposes of paragraphs (a) and (b). (a) Allocation of Contributions: General Rule. As of the last day of each Plan Year, the Employer's contribution (and any amounts reapplied under Section 6.1(d)) for the Plan Year shall be allocated among the Employer Contribution Accounts of Qualified Participants in proportion to their Earnings, unless the Employer elects in the Plan Agreement to allocate contributions in a uniform dollar amount to the Account of each Qualified Participant. This rule does not apply to allocations in a CODA. (b) Per Capita Allocation. An Employer may elect in the Plan Agreement to allocate Employer Contributions and any amounts reapplied under Section 6.1(d) (but not allocations in a CODA) in a uniform dollar amount to the Account of each Qualified Participant. (c) Allocation of Forfeitures. Forfeitures shall be allocated among the Employer Contribution Accounts of all Qualified Participants in accordance with paragraph (a) or (b), whichever applies to Employer Contributions. (d) Participant Contributions. The Plan will accept no nondeductible Participant contributions for any Plan Year beginning after the Plan Year in which the Employer adopts this Plan. Nevertheless, a Participant Contribution Account shall be maintained in any Plan that accepted nondeductible Participant contributions for any Plan Year, and such contributions, together with any matching contributions (as defined in section 401(m)(4) of the Code), shall be limited so as to meet the nondiscrimination test of section 401(m) of the Code, as set forth in Section 5.9 of the Plan. All Participant Contribution Accounts will be fully vested at all times. 68..3 Rollover Contributions. An Employee in an eligible class may contribute at any time cash or other property (which is not a collectible within the meaning of section 408(m) of the Code) acceptable to the Trustee representing qualified rollover amounts under sections 402, 403, or 408 of the Code. Amounts so contributed shall be credited to a Rollover Account for the Participant. 68..4 No Deductible Employee Contributions. The Plan Administrator shall not accept deductible employee contributions. ARTICLE 69. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k) (CODA) 69..1 Applicability; Allocations. This Article 5 applies to any plan for which the Employer has elected in the Plan Agreement to include a CODA. The Employer may specify in the Plan Agreement that contributions will be made to the Plan only under the CODA, or that contributions may be made under Section 4.2 as well as under the CODA. Allocations to Participants' Accounts of contributions made pursuant to this Article 5 shall be made as soon as administratively feasible after their receipt by the Trustee, but in any case no later than as of the last day of the Plan Year for which the contributions were made. 69..2 CODA Participation. Each Employee who has met the eligibility requirements of Article 3 may make Elective Deferrals to the Plan by completing and returning to the Plan Administrator a Deferral Agreement form which provides that the Participant's cash compensation from the Employer will be reduced by the amount indicated in the Deferral Agreement, and that the Employer will contribute an equivalent amount to the Trust on behalf of the Participant. The following rules will govern Elective Deferrals: (a) Subject to the limits specified in the Plan Agreement and set forth in Section 5.3, a Deferral Agreement may apply to any amount or percentage of either or both of the Earnings payable to a Participant in each regular payroll period of the Employer, or one or more bonuses payable to a Participant from time to time as specified by the Employer. (b) In accordance with such reasonable rules as the Plan Administrator shall specify, a Deferral Agreement will become effective as soon as is administratively feasible after the Deferral Agreement is returned to the Plan Administrator, and will remain effective until it is modified or terminated. No Deferral Agreement may become effective retroactively. (c) A Participant may modify his Deferral Agreement by completing and returning to the Plan Administrator a new Deferral Agreement form as of any of the dates specified in the Plan Agreement, and any such modification will become effective as described in paragraph (b). (d) A Participant may terminate his Deferral Agreement at any time upon advance written notice to the Plan Administrator, and any such Termination will become effective as described in paragraph (b). 69..3 Annual Limit on Elective Deferrals. During any taxable year of a Participant, his Elective Deferrals under the Plan and any other qualified plan of an Affiliated Employer shall not exceed the dollar limit contained in section 402(g) of the Code in effect at the beginning of the taxable year. With respect to any taxable year, a Participant's Elective Deferrals for purposes of this Section 5.3 include all Employer contributions made on his behalf pursuant to an election to defer under any qualified CODA as described in section 401(k) of the Code, any simplified employee pension cash or deferred arrangement (SARSEP) as described in section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under section 457 of the Code, any plan described under section 501(c)(18) of the Code, and any Employer contributions made on behalf of the Participant for the purchase of an annuity contract under section 403(b) of the Code pursuant to a salary reduction agreement. The amount of Elective Deferrals of a Participant who receives a hardship distribution pursuant to Section 5.14 shall be reduced, for the taxable year next following the distribution, by the amount of Elective Deferrals made in the taxable year of the hardship distribution. 69..4 Distribution of Certain Elective Deferrals. "Excess Elective Deferrals" means those Elective Deferrals described in Section 5.3 that are includible in a Participant's gross income under section 402(g) of the Code, to the extent that the Participant's aggregate elective deferrals for a taxable year exceed the dollar limitation under that Code section. Excess Elective Deferrals shall be treated as Annual Additions under the Plan, whether or not they are distributed under this Section 5.4. A Participant may designate to the Plan any Excess Elective Deferrals made during his taxable year by notifying the Employer on or before the following March 15 of the amount of the Excess Elective Deferrals to be so designated. A Participant who has Excess Elective Deferrals for a taxable year, taking into account only his Elective Deferrals under the Plan and any other plans of the Affiliated Employers, shall be deemed to have designated the entire amount of such Excess Elective Deferrals. Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were so designated or deemed designated for the preceding year. The income or loss allocable to Excess Elective Deferrals is the income or loss allocable to the Participant's Elective Deferral Account for the taxable year multiplied by a fraction, the numerator of which is the Participant's Excess Elective Deferrals for the year and the denominator of which is the Participant's Account balance attributable to Elective Deferrals without regard to any income or loss occurring during the year. To the extent that the return to a Participant of his Elective Deferrals would reduce an Excess Amount (as defined in Section 6.5(f)), such Excess Deferrals shall be distributed to the Participant in accordance with Article 6. 69..5 Satisfaction of ADP and ACP Tests. In each Plan Year, the Plan must satisfy the ADP test described in Section 5.6 and the ACP test described in Section 5.9. The Employer may cause the Plan to satisfy the ADP or ACP test or both tests for a Plan Year by any of the following methods or by any combination of them: (a) By the distribution of Excess Contributions in accordance with Section 5.7, or the distribution of Excess Aggregate Contributions in accordance with Section 5.10, or both; or (b) If the Employer has so elected in the Plan Agreement, by making Qualified Nonelective Contributions or Qualified Matching Contributions or both, in accordance with the Plan Agreement and this Section 5.5. 69..6 Actual Deferral Percentage Test Limit. The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who are Non-Highly Compensated Employees by more than two percentage points. The following special rules shall apply to the computation of the ADP: (c) "Actual Deferral Percentage" means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in the group) of (1) the amount of Employer contributions actually paid over to the Trust on behalf of the Participant for the Plan Year to (2) the Participant's Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year, the Participant's Earnings for that portion of the Plan Year during which he was eligible to participate in the Plan). Employer contributions on behalf of any Participant shall include: (i) his Elective Deferrals, including Excess Elective Deferrals of Highly Compensated Employees, but excluding (A) Excess Elective Deferrals of Non- Highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or another plan maintained by an Affiliated Employer, and (B) Elective Deferrals that are taken into account in the Average Contribution Percentage test described in Section 5.11 (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals), and excluding Elective Deferrals returned to a Participant to reduce an Excess Amount as defined in Section 6.5(f); and (ii) if the Employer has elected to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP test; and (iii) if the Employer has elected to make Qualified Matching Contributions, such amount of Qualified Matching Contributions, if any, as shall be necessary to enable the Plan to satisfy the ADP test. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for his failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made. (d) In the event that the Plan satisfies the requirements of sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with the Plan, then this Section 5.6 shall be applied by determining the ADP of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy section 401(k) of the Code only if they have the same Plan Year. (e) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) allocated to his Accounts under two or more CODAS described in section 401(k) of the Code that are maintained by the Affiliated Employers shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single CODA. If a Highly Compensated Employee participates in two or more CODAs that have different Plan Years, all CODAs ending with or within the same calendar year shall be treated as a single CODA, except that CODAs to which mandatory disaggregation applies in accordance with regulations issued under section 401(k) of the Code shall be treated as separate CODAS. (f) For purposes of determining the ADP of a Participant who is a 5% owner or one of the 10 most highly-paid Highly Compensated Employees, the Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if these are treated as Elective Deferrals for purposes of the ADP test) and the Compensation of such a Participant shall include the Elective Deferrals (and, if applicable, Qualified Nonelective contributions and Qualified Matching Contributions, or both) and Compensation for the Plan Year of his Family Members (as defined in section 414(q)(6) of the Code). Family Members of such Highly Compensated Employees shall be disregarded as separate employees in determining the ADP both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (g) For purposes of the ADP test, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the 12-month period immediately following the Plan Year to which those contributions relate. (h) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in satisfying the test. (i) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 69..7 Distribution of Excess Contributions. "Excess Contributions" means, with respect to any Plan Year, the excess of: (a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for the Plan Year, over (b) The maximum amount of Employer contributions permitted by the ADP test, determined by reducing contributions made on behalf of Highly Compensated Employees in order of their ADPs, beginning with the highest of such percentages. Notwithstanding any other provision of the Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts Excess Contributions were allocated for the preceding Plan Year. The income or loss allocable to Excess Contributions is the income or loss allocable to the Participant's Elective Deferral Account (and, if applicable, his Qualified Nonelective Account or Qualified Matching Account or both) for the Plan Year multiplied by a fraction, the numerator of which is the Participant's Excess Contributions for the year and the denominator is the Participant's account balance attributable to Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if any of these are included in the ADP test) without regard to any income or loss occurring during the Plan Year. if such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which the excess amounts arose, an excise tax equal to 10% of the excess amounts will be imposed on the Employer maintaining the Plan. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of them. Excess Contributions shall be allocated to a Participant who is a family member subject to the family member aggregation rules of section 414(q)(6) of the Code in the proportion that the Participant's Elective Deferrals (and other amounts treated as his Elective Deferrals) bear to the combined Elective Deferrals (and other amounts treated as Elective Deferrals) of all of the Participants aggregated to determine his family members' combined ADP. Excess Contributions shall be treated as Annual Additions under the Plan. Excess Contributions shall be distributed from the Participant's Elective Deferral Account and Qualified Matching Account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral Account and Qualified Matching Account. 69..8 Matching Contributions. If so specified in the Plan Agreement, the Employer will make Matching Contributions to the Plan in accordance with the Plan Agreement, but no Matching Contribution shall be made with respect to an Elective Deferral that is returned to a Participant because it represents an Excess Elective Deferral, an Excess Contribution or an Excess Amount (as defined in Section 6.5(f)); and if a Matching Contribution has nevertheless been made with respect to such an Elective Deferral, the Matching Contribution shall be forfeited, notwithstanding any other provision of the Plan. (a) Employer Matching Contributions. Employer Matching Contributions will be allocated among the Employer Matching Accounts of Participants in proportion to their Elective Deferrals. Employer Matching Accounts shall become vested according to the vesting schedule specified in the Plan Agreement, but regardless of that schedule shall be full vested upon the Participant's Retirement (or, if earlier, his fulfillment of the requirements for early retirement, if any, or attainment of the normal retirement age specified in the Plan Agreement), his death during employment with an Affiliated Employer, and in accordance with Section 19.3. Forfeitures of Employer Matching Contributions, other than Excess Aggregate Contributions, shall be made in accordance with Section 8.3. Forfeitures of Employer Matching Accounts for a Plan Year shall be applied to reduce the total Employer Matching Contribution for the Plan Year, or allocated among the Employer Matching Accounts of Participants in addition to the Employer Matching Contribution for the Plan Year, as elected by the Employer in the Plan Agreement. (b) Qualified Matching Contributions. Qualified Matching Contributions will be allocated among the Qualified Matching Contribution Accounts of Participants as specified by the Employer in the Plan Agreement. 69..9 Average Contribution Percentage Test Limit and Aggregate Limit. The Average Contribution Percentage (hereinafter "ACP") for Participants who are Highly Compensated Employees for each Plan Year and the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-Highly Compensated Employees for the same Plan Year multiplied by two (2), provided that the ACP for Participants who are Highly Compensated Employees does not exceed the ACP for Participants who are Non-Highly Compensated Employees by more than two percentage points. The following rules shall apply to the computation of the ACP: (c) Average Contribution Percentage means the average of the Contribution Percentages of the Eligible Participants in a group. (d) Contribution Percentage means the ratio (expressed as a percentage) of a Participant's Contribution Percentage Amounts to the Participant's Earnings for the Plan Year (or, provided that the Employer applies this method to all Employees for a Plan Year, the Participant's Earnings for that portion of the Plan Year during which he was eligible to participate in the Plan). (e) Contribution Percentage Amounts means the sum of the Participant Contributions, Employer Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall include Forfeitures of Excess Aggregate Contributions or Employer Matching Contributions allocated to the Participant's Account, taken into account in the year in which the allocation is made. If the Employer has elected in the Plan Agreement to make Qualified Nonelective Contributions, such amount of Qualified Nonelective Contributions, if any, as shall be necessary to enable the Plan to satisfy the ACP test shall be in the Contribution Percentage Amounts. Elective Deferrals shall also be included in the Contribution Percentage Amounts to the extent, if any, needed to enable the Plan to satisfy the ACP test, so long as the ADP test is met before the Elective Deferrals are used in the ACP test, and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (f) Eligible Participant means any Employee who is eligible to make an Elective Deferral, if Elective Deferrals are taken into account in the calculation of the Contribution Percentage, or to receive an Employer Matching Contribution (or a Forfeiture thereof) or a Qualified Matching Contribution. (g) Aggregate Limit means the sum of (i) 125% of the greater of the ADP of the Non-Highly Compensated Employees for the Plan Year, or the ACP of Non-Highly Compensated Employees under the Plan subject to Code section 401(m) for the Plan Year beginning with or within the Plan Year of the CODA, and (ii) the lesser of 200% of, or two plus, the lesser of the ADP or ACP. "Lesser" is substituted for "greater" in clause (i) of the preceding sentence, and "greater" is substituted for "lesser" after the phrase "two plus the" in clause (ii) of the preceding sentence, if that formulation will result in a larger Aggregate Limit. (h) If one or more Highly Compensated Employees participate in both a CODA and a plan subject to the ACP test maintained by an Affiliated Employer, and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with the Highly Compensated Employee whose ACP is the highest) so that the Aggregate Limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Aggregate Contribution. In determining the Aggregate Limit, the ADP and ACP of Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. The Aggregate Limit will be considered satisfied if both the ADP and ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. (i) For purposes of this section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in section 401(a) of the Code, or CODAs described in section 401(k) of the Code, that are maintained by an Affiliated Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more CODAs that have different plan years, all CODAs ending with or within the same calendar year shall be treated as a single CODA, except that CODAs to which mandatory disaggregation applies in accordance with regulations issued under section 401(k) of the Code shall be treated as separate CODAs. (j) In the event that the Plan satisfies the requirements of sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with the Plan, then this section 5.9 shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy section 401(m) of the Code only if they have the same Plan Year. (k) For purposes of determining the Contribution Percentage of a Participant who is a 5% owner or one of the 10 most highly-paid Highly Compensated Employers, the Contribution Percentage Amounts and Compensation of the Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of Family Members (as defined in section 414(q)(6) of the Code). Family members of such highly Compensated Employees shall be disregarded as separate employees in determining the Contribution Percentage both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (l) For purposes of the ACP test, Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. (m) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in the ACP test. (n) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 69..10 Distribution of Excess Aggregate Contributions. Notwithstanding any other provision of the Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. The income or loss allocable to Excess Aggregate Contributions is the income or loss allocable to the Participant's Employer Matching Contribution Account, Qualified Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Nonelective Account and Elective Deferral Account for the Plan Year, multiplied by a fraction, the numerator of which is the Participant's Excess Aggregate Contributions for the year and the denominator of which is the Participant's account balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during the Plan Year. Excess Aggregate Contributions shall be allocated to a Participant who is subject to the family member aggregation rules of section 414(q)(6) of the Code in the proportion that the Participant's Employer Matching Contributions (and other amounts treated as his Employer Matching Contributions) bear to the combined Employer Matching Contributions (and other amounts treated as Employer Matching Contributions) of all of the Participants aggregated to determine its family members' combined ACP. If excess amounts attributable to Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, an excise tax equal to 10% of the excess amounts will be imposed on the Employer maintaining the Plan. Excess Aggregate Contributions shall be treated as Annual Additions under the Plan. Forfeitures of Excess Aggregate Contributions that are Employer Matching Contributions shall either be reallocated to the accounts of Non-Highly Compensated Employees or applied to reduce Employer Contributions, as elected by the Employer in the Plan Agreement. Other forfeitures of Excess Aggregate Contributions shall be applied to reduce Employer contributions. Excess Aggregate Contributions shall be forfeited if forfeitable, or distributed on a pro-rata basis from the Participant's Participant Contribution Account, Employer Matching Account, and Qualified Matching Account (and, if applicable, the Participant's Qualified Nonelective Account or Elective Deferral Account, or, both). Excess Aggregate Contributions means, with respect to any Plan Year, the Excess of: (a) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage and actually made on behalf of Highly Compensated Employees for the Plan Year, over (b) The maximum Contribution Percentage Amounts permitted by the ACP test and the Aggregate Limit (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages, beginning with the highest of such percentages). Such determination shall be made after first determining Excess Elective Deferrals pursuant to Section 5.4, and then determining Excess Contributions pursuant to Section 5.7. 69..11 Restriction on Distributions. No distribution may be made from a Participant's Elective Deferral Account, Qualified Nonelective Account or Qualified Matching Account until the occurrence of one of the following events: (a) The Participant's Disability, death or termination of employment with the Affiliated Employers; (b) Termination of the Plan without the establishment of another defined contribution plan other than an employee stock ownership plan as defined in section 4975(e) or section 409 of the Code, or a simplified employee pension plan as defined in section 408(k) of the Code; (c) The Participant's attainment of age 59 1/2 (if the Employer has elected in the Plan Agreement to permit such distributions); or (d) In the case of an Employer that is a corporation, the disposition by the Employer to an unrelated entity of (i) substantially all of the assets (within the meaning of section 409(d)(2) of the Code) used in a trade or business of the Employer, if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with the entity acquiring such assets; or (ii) he Employer's interest in a subsidiary (within the meaning of section 409(d)(3) of the Code), if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with such subsidiary. In addition, if the Employer has elected in the Plan Agreement to permit such distributions, a distribution may be made from a Participant's Elective Deferral Account in the event of his financial hardship as described in Section 5.12. All distributions upon any of the events listed above are subject to the conditions of Article 10, Joint and Survivor Annuity Requirements. In addition, distributions made after March 31, 1988, on account of an event described in subsection (b) or (d) above must be made in a lump sum. 69..12 Hardship Distributions. If the Employer has so elected in the Plan Agreement, upon a Participant's written request the Employer may permit a distribution from his Elective Deferral Account and from his Employer Matching Account. The terms and conditions of Section 12.2 and the special vesting rule contained in Section 8.4 shall apply to hardship distributions from an Employer Contribution Account or an Employer Matching Account. The further terms of this Section 5.12 shall apply to hardship distributions from an Elective Deferral Account. No hardship distribution shall be made from a Qualified Nonelective Account or a Qualified Matching Account. (a) The maximum amount that may be distributed on account of hardship from an Elective Deferral Account after December 31, 1988, shall not exceed the sum of (1) the amount credited to the Account as of December 31, 1988, and (2) the aggregate amount of the Elective Deferrals made by the Participant after December 31, 1988, and before the hardship distribution. (b) Hardship distributions shall be permitted only on account of the following financial needs: (1) Expenses for medical care described in section 213(d) of the Code for the Participant, his spouse, children and dependents, or necessary for these persons to obtain such care; (2) Purchase of the principal residence of the Participant (excluding regular mortgage payments); (3) Payment of tuition and related educational fees for the upcoming 12 months of post-secondary education for the Participant, his spouse, children or dependents; or (4) Payments necessary to prevent the Participant's eviction from, or the foreclosure of a mortgage on, his principal residence. (c) Hardship distributions shall be subject to the spousal consent requirements contained in sections 411(a)(11) and 117 of the Code, to the same extent that those requirements apply to a Participant pursuant to Section 10.1. (d) A hardship distribution will be made to a Participant only upon satisfaction of the following conditions: (1) The Participant has obtained all nontaxable loans and all distributions other than hardship distributions available to him from all plans maintained by the Affiliated Employers; (2) The hardship distribution does not exceed the amount of the Participant's financial need as described in paragraph (b) plus any amounts necessary to pay federal, state and local income taxes and penalties reasonably anticipated to result from the distribution; (3) All plans maintained by the Affiliated Employers provide that the Participant's Elective Deferrals and voluntary after-tax contributions will be suspended for a period of 12 months following his receipt of a hardship distribution; and (4) All plans maintained by the Affiliated Employers provide that the amount of Elective Deferrals that the Participant may make in his taxable year immediately following the year of a hardship distribution will not exceed the applicable limit under section 402(g) of the Code for the taxable year, reduced by the amount of Elective Deferrals made by the Participant in the taxable year of the hardship distribution. 69..13 Special Effective Dates. If the Plan is adopted as an amendment of an existing plan, the provisions of Sections 5.3 and Section 5.7 through 5.9 are effective as of the first day of the first Plan Year beginning after December 31, 1986. ARTICLE 70. LIMITATIONS ON ALLOCATIONS 70..1 No Additional Plan. If the Participant does not participate in and has never participated in another qualified plan, or a welfare benefit fund, (as defined in section 419(e) of the Code), or an individual medical account (as defined in section 415(1)(2) of the Code) which provides an Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer: (a) The amount of Annual Additions which may be credited to the Participant's accounts for any Limitation Year will not exceed the lesser of the Maximum Annual Additions or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Annual Additions, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Annual Additions. (b) Before determining a Participant's actual Section 415 Compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant on the basis of a reasonable estimation of the Participant's Section 415 Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Annual Additions for the Limitation Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Limitation Year. (d) If pursuant to paragraph (c), or as a result of the reallocation of Forfeitures, or as a result of a reasonable error in determining the amount of Elective Deferrals that may be made by a Participant, the Annual Additions exceed the Maximum Annual Additions, the Excess Amount will be disposed of as follows: (1) Any nondeductible voluntary Participant contributions and Elective Deferrals, to the extent they would reduce the Excess Amount, will be returned to the Participant. (2) If after the application of (1) above an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Accounts will be used to reduce Employer contributions (including any allocation of Forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. (3) If after the application of (1) above an Excess Amount still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any Forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary. (4) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section 6.1(d), it will participate in the allocation of the Trust's investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any Employer or any Employee contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants. 70..2 Additional Master or Prototype Plan. If in addition to this Plan a Participant is covered under another qualified Master or Prototype defined contribution plan or a welfare benefit fund (as defined in section 419(e) of the Code), or an individual medical account (as defined in section 415(1)(2) of the Code) which provides an Annual Addition as defined in Section 6.5(a), maintained by an Affiliated Employer during any Limitation Year: (a) The Annual Additions which may be credited to a Participant's Accounts under this Plan for any such Limitation Year will not exceed the Maximum Annual Additions reduced by the Annual Additions credited to a Participant's accounts under the other plans and welfare benefit funds for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by an Affiliated Employer are less than the Maximum Annual Additions, and the Employer contribution that would otherwise be contributed or allocated to the Participant's Accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Plan Year will equal the Maximum Annual Additions. If the Annual Additions with respect to the Participant under such other defined contribution plans and welfare benefit funds in the aggregate are equal to or greater than the Maximum Annual Additions, no amount will be contributed or allocated to the Participant's Accounts under this Plan for the Limitation Year. (b) Before determining a Participant's actual Section 415 Compensation for a Limitation Year, the Employer may determine the Maximum Annual Additions for the Participant in the manner described in Section 6.1(b). (c) As soon as is administratively feasible after the end of the Plan Year, the Maximum Annual Additions for the Plan Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Plan Year. (d) If, pursuant to Section 6.2(c) or as a result of the allocation of Forfeitures, or of a reasonable error in determining the amount of Elective Deferrals that may be made by him, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated under any qualified Master or Prototype defined contribution plan, except that Annual Additions to any welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date. (e) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of X and Y, where (X) is the total Excess Amount allocated as of such date, and (Y) is the ratio of: (1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified Master or Prototype defined contribution plans. (f) Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 6.1(d). 70..3 Additional Non-Master or Non-Prototype Plan. If the Participant is covered under another qualified defined contribution plan maintained by an Affiliated Employer which is not a Master or Prototype plan, Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation Year will be limited in accordance with Section 6.2 as though the other plan were a Master or Prototype plan, unless the Employer provides other limitations in the Plan Agreement. 70..4 Additional Defined Benefit Plan. If an Affiliated Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to the Participant's Accounts under this Plan for any Limitation Year will be limited in accordance with the Plan Agreement. 70..5 Definitions. (a) Annual Additions means the sum of the following amounts credited to a Participant's Accounts for the Limitation Year: (1) Employer contributions; (2) For any Limitation Year beginning after December 31, 1986, after-tax Employee contributions; (3) Forfeitures; (4) Amounts allocated after March 31, 1984, to any individual medical account, as defined in section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by an Affiliated Employer; (5) Amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to postretirement medical benefits allocated to the separate account of a Key Employee, as defined in section 419A(d)(3) of the Code, under a welfare benefit fund as defined in section 419(e) of the Code, maintained by an Affiliated Employer; and (6) In a Plan that includes a CODA, Excess Elective Deferrals, Excess Contributions (including recharacterized Elective Deferrals) and Excess Aggregate Contributions. For this purpose, any Excess Amount applied under Sections 6.1(d) or 6.2(e) in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year. Any rollover contribution will not be considered an Annual Addition. (b) Section 415 Compensation means, for a self-employed person, his earned income; and for any other Participant, his "Form W-2 earnings" as defined in Section 2.7, if the Employer has elected in item 4 of the Plan Agreement a definition of Compensation based on "Form W-2 earnings"; or if the Employer has not so elected, his wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited, to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a nonaccountable plan as described in Income Tax Regulations Section 1.62-2(c)), and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not includible in the Participant's gross income for the taxable year in which contributed, or Employer contributions under a Simplified Employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensations; (2) Amounts realized from the exercise of a non- qualified stock option, or when restricted stock (or property) held by the Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Participant). For purposes of applying the limitations of this Article 6, Section 415 Compensation for a Limitation Year is the Section 415 Compensation actually paid or made available during such Limitation Year. (c) Defined Benefit Fraction means a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits under all the defined benefit plans (whether or not terminated) maintained by the Affiliated Employers, and the denominator of which is the lesser of 125% of the dollar limitation in effect for the Limitation Year under sections 415(b) and (d) of the Code, or 140% of the Participant's Highest Average Compensation including any adjustments under section 415(b) of the Code. Notwithstanding the foregoing, if the Participant was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any change in the terms and conditions of the Plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of section 415 of the Code for all Limitation Years beginning before January 1, 1987. (d) Defined Contribution Dollar Limitation means $30,000 or if greater, one-fourth of the defined benefit dollar limitation set forth in section 415(b)(1) of the Code as in effect for the Limitation Year. (e) Defined Contribution Fraction means a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by Affiliated Employers for the current and all prior Limitation Years including the Annual Additions attributable to the Participant's nondeductible Employee contributions to all definEd benefit plans, whether or not terminated, maintained by the Affiliated Employers, and the Annual Additions attributable to all welfare benefit funds, as defined in section 419(e) of the Code, and individual medical accounts, as defined in section 415(l)(2) of the Code), and the denominator of which is the sum of the maximum Annual Additions for the current and all prior Limitation Years of service with the Affiliated Employers (regardless of whether a defined contribution plan was maintained by any Affiliated Employer). The Maximum Annual Additions in any Plan Year is the lesser of 125% of the dollar limitation determined under sections 415(b) and (d) of the Code in effect under section 415(c)(1)(A) of the Code, or 35% of the Participant's Section 415 Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986 in one or more defined contribution plans maintained by an Affiliated Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to product of the excess of the sum of the factions over 1.0, multiplied by the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan after May 5, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat 100% of nondeductible Employee contributions as Annual Additions. (f) Excess Amount means, with respect to any Participant, the amount by which Annual Additions exceed the Maximum Annual Additions. (g) Highest Average Compensation means the average compensation for the three consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the period of 12 consecutive months specified as the Limitation Year in the Plan Agreement. (h) Limitation Year means the period of 12 consecutive months specified in the Plan Agreement. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different period of 12 consecutive months, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. (i) Master or Prototype plan means a plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. (j) Maximum Annual Additions, which is the maximum annual addition that may be contributed or allocated to a Participant's account under the plan for any Limitation Year, means an amount not exceeding the lesser of (a) the Defined Contribution Dollar Limitation or (b) 25% of the Participant's Section 415 Compensation for the Limitation Year. The compensation limitation referred to in (b) shall not apply to any contribution for medical benefits (within the meaning of section 401(h) or section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition under section 415(l)(1) or section 419A(d)(2) of the Code. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different period of 12 consecutive months, the Maximum Annual Additions will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: number of months in the short Limitation Year 12 (k) Projected Annual Benefit means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of the plan assuming: (1) the Participant will continue employment until normal retirement age under the Plan (or current age, if later), and (2) the Participant's Section 415 Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the plan will remain constant for all future Limitation Years. ARTICLE 71. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS 71..1 Retirement. After his Retirement, the amount credited to a Participant's Accounts will be distributed to him in accordance with Article 9. The termination of a Participant's employment with the Affiliated Employers after he has (i) attained the normal retirement age specified in the Plan Agreement, (ii) fulfilled the requirements for early retirement (if any) specified in the Plan Agreement, or (iii) become Disabled, will constitute his Retirement. Upon a Participant's Retirement (or, if earlier, his attainment of the normal retirement age specified in the Plan Agreement or fulfillment of the requirements for early retirement, if any, specified in the Plan Agreement) the Participant's Accounts shall become fully vested, regardless of the vesting schedule specified by the Employer in the Plan Agreement. A Participant who separates from service with any vested balance in his Accounts, after satisfying the service requirements for early retirement (if any is specified in the Plan Agreement) but before satisfying the age requirement for early retirement (if any is specified in the Plan Agreement), shall be entitled to a fully vested early retirement benefit upon his satisfaction of such age requirement. 71..2 Death. if a Participant dies before the distribution of his Accounts has been completed, his Beneficiary will be entitled to distribution of benefits in accordance with Article 9. A Participant's Accounts will become fully vested upon his death before termination of his employment with the Affiliated Employers, regardless of the vesting schedule specified by the Employer in the Plan Agreement. A Participant may designate a Beneficiary by completing and returning to the Plan Administrator a form provided for this purpose. The form most recently completed and returned to the Plan Administrator before the Participant's death shall supersede any earlier form. If a Participant has not designated any Beneficiary before his death, or if no Beneficiary so designated survives the Participant, his Beneficiary shall be his surviving spouse, or if there is no surviving spouse, his estate. A married Participant may designate a Beneficiary other than his spouse only if his spouse consents in writing to the designation, and the spouse's consent acknowledges the effect of the consent and is witnessed by a notary public or a representative of the Plan. The beneficiary or beneficiaries named in the designation to which the spouse has so consented may not be changed without further written spousal consent unless the terms of the spouse's original written consent expressly permit such a change, and acknowledge that the spouse voluntarily relinquishes the right to limit the consent to a specific beneficiary. The marriage of a Participant shall nullify any designation of a beneficiary previously executed by the Participant. If it is established to the satisfaction of the Plan Administrator that the Participant has no spouse or that the spouse cannot be located, the requirement of spousal consent shall not apply. Any spousal consent, or establishment that spousal consent cannot be obtained, shall apply only to the particular spouse involved. 71..3 Other Termination of Employment. A Participant whose employment terminates for any reason other than his Retirement or death will be entitled to distribution, in accordance with Article 9, of benefits equal to the amount of the vested balance of his Accounts as determined under Article 8. ARTICLE 72. VESTING 72..1 Vested Balance. The vested balance of a Participant's Accounts will be determined as follows: (a) General Rule. A Participant's Participant Contribution Account and Rollover Account shall be fully vested at all times. The vested portion of his Employer Contribution Account shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement, to the number of Years of Service credited to the Participant as of the end of the Year of Service in which his employment terminates. The vesting schedule specified in the Plan Agreement applies to all benefits within the meaning of section 411(a)(7) of the Code, except those attributable to Employee contributions. (b) Special Rules for CODA. In a Plan that includes a CODA, a Participant's Elective Deferral Account, Qualified Nonelective Account, and Qualified Matching Account shall be fully vested at all times. The vested portion of his Employer Matching Account shall be equal to the percentage that corresponds, in the vesting schedule specified in the Plan Agreement, to the number of Years of Service credited to the Participant as of the end of the Year of Service in which his employment terminates. (c) Retirement. All of a Participant's Accounts shall become fully vested upon his Retirement or his earlier attainment of early retirement age (if any) or the normal retirement age elected by the Employer in the Plan Agreement. For so long as a former Employee does not receive a distribution (or a deemed distribution) of the vested portion of his Accounts, the undistributed portion shall be held in a separate account witch shall be invested pursuant to Section 13.3 and shall share in earnings and losses of the Trust Fund pursuant to Section 13.4 in tile same manner as the Accounts of active Participants. 72..2 Vesting of Accounts of Returned Former Employees. The following rules apply in determining the vested portion of the Accounts of a Participant who incurs one or more consecutive One- Year Vesting Breaks and then returns to employment with an Affiliated Employer: (a) If the Participant incurred fewer than five consecutive One-Year Vesting Breaks, then all of his Years of Service will be taken into account in determining the vested portion of his Accounts, as soon as he has completed one Year of Service following his return to employment. (b) If the Participant incurred five or more consecutive One-Year Vesting Breaks, then: (1) No Year of Service completed after his return to employment will be taken into account in determining the vested portion of his Accounts as of any time before he incurred the first One-Year Vesting Break; (2) Years of Service completed before he incurred the first One-Year Vesting Break will not be taken into account in determining the vested portion of his Accounts as of any time after his return to employment (i) unless some portion of his Employer Contribution Account or Employer Matching Account had become vested before he incurred the first One-Year Vesting Break, and (ii) until he has completed one Year of Service following his return to employment; and (3) Separate sub-accounts will be maintained for the Participant's prebreak and post-break Employer Contribution Account and Employer Matching Account, until both sub-accounts become fully vested. Both sub-accounts will share in the earnings and losses of the Trust Fund. 72..3 Forfeiture of Non-Vested Amounts. The portion of a former Employee's Accounts that has not become vested under Section 8.1 shall become a Forfeiture in accordance with the following rules, and shall be reallocated in accordance with Section 4.2 or Article 5 (whichever applies) no later than the end of the Plan Year in which it becomes a Forfeiture. (a) If Distribution Is Made. If any or all of the vested portion of a Participant's Accounts is distributed in accordance with Section 9.1 or 9.2 before the Participant incurs five consecutive One-Year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture in the Plan Year in which the distribution occurs. For purposes of this Section 8.3, if the value of the vested portion of a Participant's Accounts is zero, he shall be deemed to have received a distribution of the entire vested balance of his Accounts on the day his employment terminates. If the Participant elects to have distributed less than the entire vested portion of his Employer Contribution Account or Employer Matching Accounts, the part of the nonvested portion that will become a Forfeiture is the total nonvested portion multiplied by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the total value of the entire vested portion of such Accounts. (b) Right of Repayment. If a Participant who receives a distribution pursuant to paragraph (a) returns to employment with an Affiliated Employer, the balance of his Employer Contribution Account and Employer Matching Account will be restored to the amount of such balance on the date of distribution, if he repays to the Plan the full amount of the distribution, before the earlier of (i) the fifth anniversary of his return to employment or (ii) the date he incurs five consecutive One-Year Vesting Breaks following the date of distribution. If an Employee is deemed to receive a distribution pursuant to this Section 8.3, and he resumes employment covered under this Plan before the date he incurs 5 consecutive One-Year Vesting Breaks, upon his reemployment the Employer-derived account balance of the Employee will be restored to the amount on the date of such deemed distribution. Such restoration will be made, first, from the amount of any Forfeitures available for reallocation as the last day of the Plan Year in which repayment is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(e). (c) If No Distribution Is Made. If no distribution (or deemed distribution) is made to a Participant before he incurs five consecutive One-Year Vesting Breaks, the nonvested portion of his Accounts shall become a Forfeiture at the end of the Plan Year that constitutes his fifth consecutive One- Year Vesting Break. (d) Adjustment of Accounts. Before a Forfeiture is incurred, a Participant's Accounts shall share in earnings and losses of the Trust Fund pursuant to Section 13.4 in the same manner as the Accounts of active Participants. (e) Accumulated Deductible Contributions. For Plan Years beginning before January 1, 1989, a Participant's vested Account balance shall not include accumulated deductible contributions within the meaning of section 72(o)(5)(B) of the Code. 72..4 Special Rule in the Event of a Withdrawal. If a withdrawal pursuant to Section 12.2 or 12.3 is made from a Participant's Employer Contribution Account or Employer Matching Account before the Account is fully vested, and the Participant may increase the vested percentage in the Account, then a separate account will be established at the time of the withdrawal, and at any relevant time after the withdrawal the vested portion of the separate account will be equal to the amount "X" determined by the following formula: X = P(AB + D) - D For purposes of the formula, P is the Participant's vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of the withdrawal. 72..5 Vesting Election. If the Plan is amended to change any vesting schedule, or is amended in any way that directly or indirectly affects the computation of a Participant's vested percentage, each Participant who has completed not less than three Years of Service may elect, within a reasonable period after the adoption of the amendment or change, in a writing filed with the Employer to have his vested percentage computed under the Plan without regard to such amendment. For a Participant who is not credited with at least one Hour of Service in a Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "five Years of Service" for "three Years of Service." The period during which the election may be made shall commence with the date the amendment is adopted, or deemed to be made, and shall end on the latest of (a) 60 days after the amendment is adopted; (b) 60 days after the amendment becomes effective; or (c) 60 days after the Participant is issued written notice of the amendment by the Employer. ARTICLE 73. PAYMENT OF BENEFITS 73..1 Distribution of Accounts. A Participant or Beneficiary who has become eligible for a distribution of benefits pursuant to Article 7 may elect to receive such benefits at any time, subject to the terms and conditions of this Article 9, Article 10 and Article 11. Unless a Participant or Beneficiary elects otherwise, distribution of benefits will begin no later than the 60th day after the end of the Plan Year in which the latest of the following events occurs: (a) The Participant attains age 65 (or if earlier, the normal retirement age specified by the Employer in the Plan Agreement); or (b) The tenth anniversary of the year in which the Participant commenced participation in the Plan; or (c) The Participant's employment with the Affiliated Employers terminates. A Beneficiary who is the surviving spouse of a Participant may elect to have distribution of benefits begin within the 90-day period following the Participant's death. For purposes of this Section 9.1, the failure of a Participant (and his spouse, if spousal consent is required pursuant to Article 10) to consent to a distribution while a benefit is "immediately distributable" within the meaning of Section 9.2 shall be considered an election to defer commencement of payment. If the Employer has so specified in the Plan Agreement, the vested portion of a Participant's Accounts will be distributed in a lump sum in cash no later than 60 days after the end of the Plan Year in which his employment terminates, if at the time the Participant first became entitled to a distribution the value of such vested portion, derived from Employer and Employee contributions, does not exceed $3,500. Commencement of distributions in any case shall be subject to Section 9.4. 73..2 Restriction on Immediate Distributions. A Participant's account balance is considered "immediately distributable" if any part of the account balance could be distributed to the Participant (or his surviving spouse) before the Participant attains, or would have attained if not deceased, the later of the normal retirement age specified in the Plan Agreement or age 62. (a) If the value of a Participant's vested account balance derived from Employer and Employee contributions exceeds (or at the time of any prior distribution exceeded) $3,500, and the account balance is immediately distributable, the Participant and his spouse (or where either the Participant or the spouse has died), the survivor must consent to any such distribution, unless an exception described in paragraph (b) applies. The consent of the Participant and his spouse shall be obtained in writing within the 90-day period ending on the annuity starting date, which is the first day of the first period for which an amount is paid as an annuity (or any other form). The Plan Administrator shall notify the Participant and the spouse, no less than 30 days and no more than 90 days before the annuity starting date, of the right to defer any distribution until the Participant's account balance is no longer immediately distributable. Such notification shall include a general description of the material features of the optional forms of benefit available under the Plan and an explanation of their relative values, in a manner that would satisfy the notice requirements of section 417(a)(3) of the Code. (b) Notwithstanding paragraph (a), only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the account balance is immediately distributable. Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to Section 10.1(b) of the Plan, only the Participant need consent to the distribution of an account balance that is immediately distributable. Neither the consent of the Participant nor the spouse shall be required to the extent that a distribution is required to satisfy section 401(a)(9) or section 415 of the Code. In addition, upon termination of the Plan, if the Plan does not offer an annuity option (purchased from a commercial provider, and no Affiliated Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), a Participant's account balance shall be distributed to the Participant without his consent. If any Affiliated Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), a Participant's account balance shall be transferred to that defined contribution plan without his consent, unless he consents to an immediate distribution. For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested account balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of section 72(o)(5)(B) of the Code. 73..3 Optional Forms of Distribution. Provided that the Employer has so elected in the Plan Agreement, if at the time a Participant first becomes entitled to a distribution the value of his vested Account balance derived from Employer and Employee contributions does not exceed $3,500, distribution shall be made in a lump sun in cash. Subject to the preceding sentence and to the rules of Article 10 concerning joint and survivor annuities, a Participant or Beneficiary may elect to receive benefits in any of the following optional forms: (a) A lump sum payment in cash or in kind or in a combination of both; (b) A series of installments over a period certain that meets the requirements of Article 11; or (c) A nontransferable annuity contract, purchased from a commercial provider, with terms complying with the requirements of Article 11; provided, however, that an annuity for the life of any person shall be available as an optional form of distribution only if the Employer has so elected in the Plan Agreement. (d) In the event that the Plan is adopted as an amendment to an existing plan, each optional form of distribution available under the existing plan shall be made available under the Plan, and may be made available where necessary through the purchase of an appropriate annuity contract in accordance with paragraph (c). 73..4 Distribution Procedure. The Trustee shall make or commence distributions to or for the benefit of Participants only on receipt of an order from the Employer in writing or by such other means; as shall be acceptable to the Trustee, certifying that a distribution of a Participant's benefits is payable pursuant to the Plan, and specifying the time and manner of payment. The amount to be distributed shall be determined as of the Valuation Date coincident with or next following the Employer's order. The Trustee shall be fully protected in acting upon the directions of the Employer in making benefit distributions, and shall have no duty to determine the rights or benefits of any person under the Plan or to inquire into the right or power of the Employer to direct any such distribution. The Trustee shall be entitled to assume conclusively that any determination by the Employer with respect to a distribution meets the requirements of the Plan. The Trustee shall not be required to make any payment hereunder in excess of the net realizable value of the assets of the Account in question at the time of such payment, nor to make any payment in cash unless the Employer has furnished instructions as to the assets to be converted to cash for the purposes of making payment. 73..5 Lost Distributee. In the event that the Plan Administrator is unable with reasonable effort to locate a person entitled to distribution under the Plan, the Accounts distributable to such a person shall become a Forfeiture at the end of the third Plan Year after the Plan Administrator's efforts to locate such person began; provided, however, that the amount of the Forfeiture shall be restored in the event that such person thereafter submits a claim for benefits under the Plan. Such restoration will be made, first, from the amount of Forfeitures available for reallocation as of the last day of the Plan Year in which the claim is made, to the extent thereof; and to the extent that Forfeitures are not available or are insufficient to restore the balance, from contributions made by the Employer pursuant to Section 4.1(e). A Forfeiture occurring under this Section 9.5 shall be reallocated as though it were an Employer contribution. ARTICLE 74. JOINT AND SURVIVOR ANNUITY REQUIREMENTS 74..1 Applicability. (a) Generally. The provisions of Sections 10.2 through 10.5 shall generally apply to a Participant who is credited with at least one Hour of Service on or after August 23, 1984, and such other Participants as provided in Section 10.6. (b) Exception for Certain Plans. The provisions of Sections 10.2 through 10.5 shall not apply to a Participant if: (i) the Participant does not or cannot elect payment of benefits in the form of a life annuity, and (ii) on the death of the Participant, his Vested Account Balance will be paid to his surviving spouse (unless there is no surviving spouse, or the surviving spouse has consented to the designation of another Beneficiary in a manner conforming to a Qualified Election) and the surviving spouse may elect to have distribution of the Vested Account Balance (adjusted in accordance with Section 13.4 for gains or losses occurring after the Participant's death) commence within the 90-day period following the date of the Participant's death. The Participant may waive the spousal death benefit described in this paragraph (b) at any time, provided that no such waiver shall be effective unless it satisfies the conditions applicable under Section 10.4(c) to a Participant's waiver of a Qualified Preretirement Survivor Annuity. The exception in this paragraph (b) shall not be operative with respect to a Participant in a profit sharing plan if the Plan: (1) is a direct or indirect transferee of a defined benefit plan, money purchase pension plan, target benefit plan, stock bonus plan, or profit sharing plan which is subject to the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code; or (2) is adopted as an amendment of a plan that did not qualify for the exception in this paragraph (b) before the amendment was adopted. For purposes of this paragraph (b), Vested Account Balance shall have the meaning provided in Section 10.4(f). The provisions of Sections 10.2 through 10.6 set forth the survivor annuity requirements of sections 401(a)(11) and 417 of the Code. (c) Exception for Certain Amounts. The provisions of Sections 10.2 through 10.5 shall not apply to any distribution made on or after the first day of the first Plan Year beginning after December 31, 1988, from or under a separate account attributable solely to accumulated deductible employee contributions as defined in section 72(o)(5)(B) of the Code, and maintained on behalf of a Participant in a money purchase pension plan or a target benefit plan, provided that the exceptions applicable to certain profit sharing plans under paragraph (b) are applicable with respect to the separate account (for this purpose, Vested Account Balance means the Participant's separate account balance attributable solely to accumulated deductible employee contributions within the meaning of section 72(o)(5)(B) of the Code). 74..2 Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected pursuant to a Qualified Election within the 90-day period ending on the Annuity Starting Date, a married Participant's Vested Account Balance will be paid in the form of a Qualified Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance will be paid in the form of a life annuity. In either case, the Participant may elect to have such an annuity distributed upon his attainment of the Earliest Retirement Age under the Plan. 74..3 Qualified Preretirement Survivor Annuity. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, the Vested Account Balance of a Participant who dies before the Annuity Starting Date shall be applied toward the purchase of an annuity for the life of his surviving spouse (a "Qualified Preretirement Survivor Annuity"). The surviving spouse may elect to have such an annuity distributed within a reasonable period after the Participant's death. For purposes of this Article 10, the term "spouse" means the current spouse or surviving spouse of a Participant, except that a former spouse will be treated as the spouse or surviving spouse (and a current spouse will not be treated as the spouse or surviving spouse) to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code. 74..4 Definitions. The following definitions apply: (a) Election Period means the period beginning on the first day of the year in which a Participant attains age 35 and ending on the date of the Participant's death. If a Participant separates from service before the first day of the Plan Year which he reaches age 35, the Election Period with respect to his account balance as of the date of separation shall begin on the date of separation. A Participant who will not attain age 35 as of the end of a Plan Year may make a special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such an election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under Section 10.5. Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after that date shall be subject to the full requirements of this article. (b) Earliest Retirement Age means the earliest date on which the Participant could elect to receive Retirement benefits under the Plan. (c) Qualified Election means a waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any such waiver shall not be effective unless: (1) the Participant's spouse consents in writing to the waiver; (2) the waiver designates a specific Beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent); (3) the spouse's consent acknowledges the effect of the waiver; and (4) the spouse's consent is witnessed by a plan representative or notary public. Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the waiver designates a form of benefit payment which may not be changed without spousal consent (unless the spouse's consent expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a spouse obtained under these provisions (and any establishment that the consent of a spouse may not be obtained) shall be effective only with respect to the particular spouse involved. A consent that permits designations by the Participant without any requirement of further consent by the spouse must acknowledge that the spouse has the right to limit the consent to a specific Beneficiary and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of those rights. A revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 10.5. (d) Qualified Joint and Survivor Annuity means an immediate annuity for the life of a Participant, with a survivor annuity for the life of the spouse which is not less than 50% and not more than 100% of the amount of the annuity which is payable during the joint lives of the Participant and the spouse, and which is the amount of benefit that can be purchased with the Participant's Vested Account Balance. The percentage of the survivor annuity under the Plan shall be 50%. (e) Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity (or any other form). (f) Vested Account Balance means the aggregate value of the Participant's vested account balance derived from Employer and Employee contributions (including rollovers), whether vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant's life. The provisions of this Article 10 shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions or both at the time of death or distribution. 74..5 Notice Requirements. In the case of a Qualified Joint and Survivor Annuity, no less than 30 days and no more than 90 days before a Participant's Annuity Starting Date the Plan Administrator shall provide to him a written explanation of (i) the terms and conditions of a Qualified Joint and Survivor Annuity, (ii) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity form of benefit, (iii) the rights of the Participant's spouse, and (iv) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. In the case of a Qualified Preretirement Survivor Annuity, within the applicable period for a Participant the Plan Administrator shall provide to him a written explanation of the Qualified Preretirement Survivor Annuity, in terms and manner comparable to the requirements applicable to the explanation of a Qualified Joint and Survivor Annuity as described in the preceding paragraph. The applicable period for a Participant is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after an individual becomes a Participant; (iii) a reasonable period ending after this Article 10 first applies to the Participant. Notwithstanding the foregoing, in the case of a Participant who separates from service before attaining age 35, notice must be provided within a reasonable period ending after his separation from service. For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (iii) is the end of the two-year period beginning one year before the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which he reaches age 35, notice shall be provided within the two-year period beginning one year before the separation and ending one year after the separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be redetermined. 74..6 Transitional Rules. (a) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by the preceding sections of this Article 10, must be given the opportunity to elect to have those sections apply if the Participant is credited with at least one Hour of Service under the Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and the Participant had at least ten years of vesting service when he or she separated from service. (b) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under the Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his benefits paid in accordance with paragraph (d) of this Section 10.6. (c) The respective opportunities to elect (as described in paragraphs (a) and (b) above) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence to be paid to those Participants. (d) Any Participant who has so elected pursuant to paragraph (b) of this Section 10.6, and any Participant who does not elect under paragraph (a), or who meets the requirements of paragraph (a) except that he does not have at least ten years of vesting service when he separates from service, shall have his benefits distributed in accordance with all of the following requirements, if his benefits would otherwise have been payable in the form of a life annuity: (1) Automatic joint and survivor annuity. if benefits in the form of a life annuity become payable to a married Participant who: (i) begins to receive payments under the Plan on or after normal retirement age; or (ii) dies on or after normal retirement age while still working for the Employer; or (iii) begins to receive payments on or after the qualified early retirement age; or (iv) separates from service on or after attaining normal retirement age (or the qualified early retirement age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits; then such benefits will be received under the Plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the election period, which must begin at least six months before the Participant attains qualified early retirement age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time. (2) Election of early survivor annuity. A Participant who is employed after attaining the qualified early retirement age will be given the opportunity to elect during the election period to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his death. Any election under this provision will be in writing and may be changed by the Participant at any time. The election period begins on the later of (i) the 90th day before the Participant attains the qualified early retirement age, or (ii) the date on which participation begins, and ends on the date the Participant terminates employment. (3) For purposes of this Section 10.6, qualified early retirement age is the latest of the earliest date under the Plan on which the Participant may elect to receive Retirement benefits, the first day of the 120th month beginning before the Participant reaches normal retirement age, or the date the Participant begins participation. ARTICLE 75. MINIMUM DISTRIBUTION REQUIREMENTS 75..1 General Rules. Subject to Article 10, Joint and Survivor Annuity Requirements, the requirements of this Article 11 shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of the Plan. Unless otherwise specified, the provisions of this Article 11 apply to calendar years beginning after December 31, 1984. All distributions required under this Article 11 shall be determined and made in accordance with the Income Tax Regulations issued under section 401(a)(9) of the Code (including proposed regulations, until the adoption of final regulations), including the minimum distribution incidental benefit requirement of section 1.401(a)(9)- 2 of the proposed regulations. 75..2 Required Beginning Date. The entire interest of a Participant must be distributed, or begin to be distributed, no later than the Participant's required beginning date, determined as follows. (a) General Rule. The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2. (b) Transitional Rules. The required beginning date of a Participant who attains age 70 1/2 before January 1, 1988, shall be determined in accordance with (1) or (2) below: (1) Non-5% owners. The required beginning date of a Participant who is not a 5% owner is the first day of April of the calendar year following the calendar year in which the later of his Retirement or his attainment of age 70 1/2 occurs. (2) 5% owners. The required beginning date of a Participant who is a 5% owner during any year beginning after December 31, 1979, is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70 1/2, or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5% owner, or the calendar year in which the Participant retires. The required beginning date of a Participant who is not a 5% owner, who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. (c) Rules for 5% Owners. A Participant is treated as a 5% owner for purposes of this Section 11.2 if he is a 5% owner as defined in section 416(i) of the Code (determined in accordance with section 416 but without regard to whether the Plan is top heavy) at any time during the Plan Year ending with or within the calendar year in which he attains age 66 1/2, or any subsequent Plan Year. Once distributions have begun to a 5% owner under this Section 11.2, they must continue, even if the Participant ceases to be a 5% owner in a subsequent year. 75..3 Limits on Distribution Periods. As of the first Distribution Calendar Year, distributions not made in a single sum may be made only over one or a combination of the following periods: (a) the life of the Participant, (b) the life of the Participant and his Designated beneficiary, (c) a period certain not extending beyond the Life Expectancy of the Participant, or (d) a period certain not extending beyond the Joint and Last Survivor Expectancy of the Participant and his Designated Beneficiary. Designated Beneficiary means the individual who is designated as the Beneficiary under the Plan in accordance with section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations) and Section 7.2. Distribution Calendar Year means a calendar year for which a minimum distribution is required under section 401(a)(9) of the Code and this Section 11.3. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first Distribution Calendar year is the calendar year in which distributions are required to begin pursuant to Section 11.5. Life Expectancy and Joint and Last Survivor Expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the Participant (or his spouse, in the case of distributions described in Section 11.5(b)) by the time distributions are required to begin, Life Expectancies shall be recalculated annually. Any such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The Life Expectancy of a nonspouse beneficiary may not be recalculated. 75..4 Determination of Amount to be Distributed Each Year. If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the required beginning date. Paragraphs (a) through (d) apply to distributions in forms other than the purchase of an annuity contract. (a) If a Participant's Benefit is to be distributed over (1) a period not extending beyond the Life Expectancy of the Participant or the Joint Life and Last Survivor Expectancy of the Participant and his Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy of the Designated Beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (b) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. (c) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year, shall not be less than the quotient obtained by dividing the Participant's Benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the Participant's spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy in paragraph (a) above as the relevant divisor, without regard to Proposed Regulations Section 1.401(a)(9)-2. (d) The minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Employee's required beginning date occurs, must be made on or before December 31 of that Distribution Calendar Year. (e) If the Participant's Benefit is distributed in the form of an annuity contract purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of section 401(a)(9) of the Code and the regulations issued thereunder (including proposed regulations, until the adoption of final regulations). Applicable Life Expectancy means the Life Expectancy (or Joint and Last Survivor Expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year, reduced by one for each calendar year which has elapsed since the date Life Expectancy was first calculated. if Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall be the first Distribution Calendar Year, and if Life Expectancy is being recalculated such succeeding calendar year. If annuity payments commence in accordance with Section 11.4(e) before the required beginning date, the applicable calendar year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant's death with the Participant's remaining interest in the Plan, the applicable calendar year is the year of purchase. Participant's Benefit means the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year), increased by the amount of any contributions or Forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. For purposes of the preceding sentence, if any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the required beginning date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. 75..5 Death Distribution Provisions. (a) Distribution Beginning Before Death. If the Participant dies after distribution of his interest has begun, the remaining portion of his interest will continue to be distributed at least as rapidly as under the method of distribution being used before the Participant's death. (b) Distribution Beginning after Death. If the Participant dies before distribution of his interest begins, distribution of his entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death, except to the extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) If any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the Designated Beneficiary's life, or over a period certain not greater than the Life Expectancy of the Designated Beneficiary, commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; or (2) If the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the later of (i) December 31 of the calendar year immediately following the calendar year in which the Participant died, and (ii) December 31 of the calendar year in which the Participant would have attained age 70 1`/2. If the Participant has not made an election pursuant to this Section 11.5 by the time of his death, the Participant's Designated Beneficiary must elect the method of distribution no later than the earlier of (i) December 31 of the Calendar year in which distributions would be required to begin under this Section 11.5, or (ii) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (c) For purposes of paragraph (b), if the surviving spouse dies after the Participant, but before payments to the spouse begin, the provisions of paragraph (b), with the exception of subparagraph (2) therein, shall be applied as if the surviving spouse were the Participant. (d) For purposes of this Section 11.5, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse of the Participant if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (e) For the purposes of this Section 11.5, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if paragraph (c) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to paragraph (b) above). If distribution in the form of an annuity contract described in Section 11.4(e) irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. 75..6 Transitional Rule. Notwithstanding the other requirements of this Article 11, and subject to the requirements of Article 10, Joint and Survivor Annuity Requirements, distribution on behalf of any Participant, including a 5% owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (a) The distribution is one which would not have disqualified the Trust under section 401(a)(9) of the Internal Revenue Code of 1954 as in effect before its amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Trust is being distributed or, if the Employee is deceased, by a Beneficiary of the Employee. (c) The designation specified in paragraph (b) was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984. (d) The Employee had accrued a benefit under the plan as of December 31, 1983. (e) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary to whom such distribution is being made will be presumed to have designated the method of distribution under which the distribution is being made, if the method of distribution was specified in writing and the distribution satisfies the requirements in paragraphs (a) and (e). If a designation is revoked, any subsequent distribution must satisfy the requirements of section 401(a)(9) of the Code and the regulations thereunder. If a designation is revoked after the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy section 401(a)(9) of the Code and the regulations thereunder, but for the designation described in paragraphs (b) through (e). For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Any changes in the designation generally will be considered to be a revocation of the designation, but the mere substitution or addition of another beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as the substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case of an amount transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of Section 1.401(a)(9)-l of the Proposed Income Tax Regulations shall apply. ARTICLE 76. WITHDRAWALS AND LOANS 76..1 Withdrawals from Participant Contribution Accounts. Subject to the requirements of Article 10, a Participant may upon written notice to the Employer withdraw any amount from his Participant Contribution Account. A withdrawn amount may not be repaid to the Plan. No forfeiture will occur solely as a result of an Employee's withdrawal of Participant contributions. 76..2 Withdrawals on Account of Hardship. If the Employer has so elected in the Plan Agreement, upon a Participant's written request the Plan Administrator may permit a withdrawal of funds from the vested portion of the Participant's Accounts (excluding the amount credited to a Rollover Account) on account of the Participant's financial hardship, which must be demonstrated to the satisfaction of the Plan Administrator. In considering such requests, the Plan Administrator shall apply uniform standards that do not discriminate in favor of Highly Compensated Employees. In a Plan with a CODA, if hardship withdrawals are permitted from both the Employer Contribution Account and the Elective Deferral Account, they shall be made first from a Participant's Employer Contribution Account and thereafter from a Participant's Elective Deferral Account, subject to the additional requirements set forth in Section 5.12. The requirements of Section 5.12(b), (c), (d)(1) and (d)(2) shall also apply to hardship distributions from a Participant's Employer Contribution Account and Employer Matching Account. In a Plan with a CODA, if hardship withdrawals are permitted from more than one of the Elective Deferral Account, Employer Matching Account, and Employer Contribution Account, they shall be made first from a Participant's Employer Contribution Account, and thereafter from the Employer Matching Account, and finally from the Elective Deferral Account, subject to the additional requirements of Section 5.12. A withdrawn amount may not be repaid to the Plan. 76..3 Withdrawals After Reaching Age 59 1/2. If so specified by the Employer in the Plan Agreement, a Participant who has reached age 59 1/2 may upon written request to the Employer withdraw during his employment any amount not exceeding the vested balance of his Accounts. A withdrawn amount may not be repaid to the Plan. 76..4 Loans. If the Employer has so elected in the Plan Agreement, the Employer may direct the Trustee to make a loan to a Participant or Beneficiary from the vested portion of his Accounts, subject to the following terms and conditions and to such reasonable additional rules and regulations as the Plan Administrator may establish for the orderly operation of the program: (a) The Plan Administrator shall administer the loan program subject to the terms and conditions of this Section 12.4. (b) A Participant's or Beneficiary's request for a loan shall be submitted to the Plan Administrator by means of a written application on a form supplied by the Plan Administrator. Applications shall be approved or denied by the Plan Administrator on the basis of its assessment of the borrower's ability to collateralize and repay the loan, as revealed in the loan application. (c) Loans shall be made to all Participants and Beneficiaries on a reasonably equivalent basis. Loans shall not be made available to highly compensated Employees (as defined in section 414(q) of the Code) in amounts greater than the amounts made available to other Employees (relative to the borrower's Account balance). (d) Loans must be evidenced by the Participant's promissory note for the amount of the loan payable to the order of the Trustee, and adequately secured by assignment of not more than 50% of the Participant's entire right, title and interest in and to the Trust Fund, exclusive of any asset as to which Putnam is not the Trustee. (e) Loans must bear a reasonable interest rate comparable to the rate charged by commercial lenders in the geographical area for similar loans. The Plan Administrator shall not discriminate among Participants in the matter of interest rates, but loans may bear different interest rates if, in the opinion of the Plan Administrator, the difference in rates is justified by conditions that would customarily be taken into account by a commercial lender in the Employer's geographical area. (f) The Period for repayment for any loan shall not exceed five years, except in the case of a loan used to acquire a dwelling unit which within a reasonable time is to be used as the principal residence of the Participant, in which case the repayment period shall not exceed ten years. The terms of a loan shall require that it be repaid in level payments of principal and interest not less frequently then quarterly throughout the repayment period, except that alternative arrangements for repayment may apply in the event that the borrower is on unpaid leave of absence for a period not to exceed one year. (g) To the extent that a Participant would be required under Article 10 to obtain he consent of his spouse to a distribution of an immediately distributable benefit other than a Qualified Joint and Survivor Annuity, the consent of the Participant's spouse shall be required for the use of his Account as security for a loan. The spouse's consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured, and obtained in accordance with the requirements of Section 10.4(c) for a Qualified Election. Any such consent shall thereafter be binding on the consenting spouse and any subsequent spouse of the Participant. A new consent shall be required for use of the Account as security for any extension, renewal, renegotiation or revision of the original loan. (h) If valid spousal consent has been obtained in accordance with Section 12.4(g), then notwithstanding any other provision of the Plan the portion of the Participant's account balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's vested account balance (determined without regard to the preceding sentence) is payable to the surviving spouse, then the account balance shall be adjusted by first reducing the vested account balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse. (i) In the event of default on a loan by a Participant who is an active Employee, foreclosure on the Participant's Account as security will not occur until the Employer has reported to the Trustee the occurrence of an event permitting distribution from the Plan in accordance with Article 9 or Section 5.11. (j) No loan shall be made to an Owner-Employee or a Shareholder-Employee. (k) No loan to any Participant or Beneficiary can be made to the extent that the amount of the loan, when added to the outstanding balance of all other loans to the Participant or Beneficiary, would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) one-half the value of the vested account balance of the Participant. For the purpose of the above limitation, all loans from all qualified plans of the Affiliated Employers are aggregated. (1) Loans shall be considered investments directed by a Participant pursuant to Section 13.3. The amount loaned shall be charged solely against the Accounts of the Participant, and repaid amounts and interest shall be credited solely thereto. 76..5 Procedure; Amount Available. Withdrawals and loans shall be made subject to the terms and conditions applicable to distributions pursuant to Section 9.4, except that the amount of any withdrawal or loan shall be determined by reference to the vested balance of the Participant's Account as of the most recent Valuation Date preceding the withdrawal or loan, and shall not exceed the amount of the vested account balance. ARTICLE 77. TRUST FUND AND INVESTMENTS 77..1 Establishment of Trust Fund. The Employer and the Trustee hereby agree to the establishment of a Trust Fund consisting of all amounts as shall be contributed or transferred from time to time to the Trustee pursuant to the Plan, and all earnings thereon. The Trustee shall hold the assets of the Trust Fund for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying the reasonable expenses of administering the Plan, and no such assets shall ever revert to the Employer, except that: (a) contributions made by the Employer by mistake of fact, as determined by the Employer, may be returned to the Employer within one (1) year of the date of payment, (b) contributions that are conditioned on their deductibility under section 404 of the Code may be returned to the Employer, to the extent disallowed, within one (1) year of the disallowance of the deduction, (c) contributions that are conditioned on the initial qualification of the Plan under the Code, and all investment gains attributable to them, may be returned to the Employer within one (1) year after such qualification is denied by determination of the internal Revenue Service, but only if an application for determination of such qualification is made within the time prescribed by law for filing the Employer's federal income tax return for its taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe, and (d) amounts held in a suspense account may be returned to the Employer on termination of the Plan, to the extent that they may not then be allocated to any Participant's Account, in accordance with Article 6. All Employer contributions under the Plan other than those made pursuant to Section 4.1(e) are hereby expressly conditioned on the initial qualification of the Plan and their deductibility under the Code. Investment gains attributable to contributions returned pursuant to subsections (a) and (b) shall not be returned to the contributing Employer, and investment losses attributable to such contributions shall reduce the amount returned. 77..2 Management of Trust Fund. Except to the extent of any investment in Policies pursuant to Article 14, the assets of the Trust Fund shall be held in trust by the Trustee and accounted for in accordance with this Article 13, and shall be invested in accordance with Section 13.3 in the Investment Products specified by the Employer in the Plan Agreement and from time to time thereafter in writing. The Employer shall have the exclusive authority and discretion to select the Investment Products available under the Plan. In making that selection, the Employer shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The Employer shall cause the available Investment Products to be diversified sufficiently to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. It is especially intended that the Trustee shall have no discretionary authority to determine the investment of Trust assets. 77..3 Investment Instructions. Except as Article 14 may apply, all amounts held in the Trust Fund under the Plan shall be invested in Investment Products. If the Employer has elected in the Plan Agreement to make investment decisions for the Plan, investment instructions as to Employer Contribution Accounts, Employer Matching Accounts, Qualified Matching Accounts and Qualified Nonelective Contribution Accounts shall be the fiduciary responsibility of the Employer, and each of such Accounts shall have a pro rata interest in all assets of the Trust (other than Policies under Article 14) to which the Employer's instructions apply. If the Employer has not elected to make investment decisions for the Plan, then assets of the Trust shall be invested solely in accordance with the instructions of the Participant to whose Accounts they are allocable, as delivered to Putnam in accordance with its service agreement with the Employer. Instructions shall apply to future contributions, past accumulations, or both, according to their terms, and shall be communicated by the Employer to Putnam in accordance with procedures prescribed in the service agreement between the Employer and Putnam. Instructions shall be effective prospectively, coincident with or within a reasonable time after their receipt in good order by Putnam. An instruction once received shall remain in effect until it is changed by the provision of a new instruction. New instructions shall be accented by Putnam at any Valuation Date. In the event that the Employer adopts a Putnam prototype plan as an amendment to or restatement of an existing plan, the Employer shall specify one or more investment Products to serve as the sole investments for all Participants' Accounts during the period in which existing records of the Plan are transferred to the Recordkeeper. During that period, new investment instructions as to existing assets of the Plan cannot be carried out, nor can distributions be made from the Plan except to the extent permitted under the terms of the service agreement between the Employer and Putnam. The Employer and the Recordkeeper shall use their best efforts to minimize the duration of the period to which the preceding sentence applies. To the extent specifically authorized and provided in the service agreement between the Employer and Putnam, the Employer may direct the Trustee to establish as an Investment Product a fund all of the assets of which shall be invested in shares of stock of the Employer that constitute "qualifying employer securities" within the meaning of Section 407(d)(5) of ERISA ("Employer Stock"). Putnam shall be under no duty to question or review the investment directions given by the Employer or to make suggestions to the Employer in connection therewith. Putnam shall not be liable for any loss, or by reason of any breach, that arises from the Employer's exercise or non-exercise of rights under this Article 13, or from any direction of the Employer unless it is clear on the face of the direction that the actions to be taken under the direction are prohibited by the fiduciary duty rules of Section 404(a) of ERISA. All interest, dividends and other income received with respect to, and any proceeds received from the sale or other disposition of, securities or other property held in an investment fund shall be credited to and reinvested in such investment fund, and all expenses of the Trust that are properly allocated to a particular investment fund shall be so allocated and charged. The Employer may at any time direct Putnam to eliminate any investment fund or funds, and Putnam shall thereupon dispose of the assets of such investment fund and reinvest the proceeds thereof in accordance with the directions of the Employer. Neither the Employer nor the Trustee nor Putnam shall be responsible for questioning any instructions of a Participant or for reviewing the investments selected therein, or for any loss resulting from instructions of a Participant or from the failure of a Participant to provide or to change instructions. Neither Putnam nor the Trustee shall have any duty to question any instructions received from the Employer or a Participant or to review the investments selected thereby, nor shall Putnam or the Trustee be responsible for any loss resulting from instructions received from the Employer or a Participant or from the failure of the Employer or a Participant to provide or to change instructions. In the event that Putnam or the Trustee receives a contribution under the Plan as to which no instructions are delivered, or such instructions as are delivered are unclear to Putnam or the Trustee, such contribution shall be invested until clear instructions are received in the default investment option set forth in the service agreement between the Employer and Putnam, or if no such option is so set forth, in Putnam Daily Dividend Trust. Neither Putnam nor the Trustee shall have any discretionary authority or responsibility in the investment of the assets of the Trust Fund. 77..4 Valuation of the Trust Fund. As of each Valuation Date, the Trustee shall determine the fair market value of the Trust Fund, and the net earnings or losses and expenses of the Trust Fund for the period elapsed since the most recent previous Valuation Date shall be allocated among the Accounts of Participants. Earnings, losses and expenses which pertain to investments which are specifically held for a given Participant's Account shall be allocated solely to that Account. In the event that an investment is not specifically held for a given Participant's Account, the earnings, losses and expenses pertaining to that investment shall be allocated among all Participants' Accounts in the ratio that each such Account bears to the total of all Accounts of all Participants. Each Participant's Accounts shall be adjusted pursuant to this Section 13.4 until such time as they are either fully distributed or forfeited, regardless of whether the Participant continues to be an Employee. 77..5 Distributions on Investment Company Shares. Subject to Section 9.3, all dividends and capital gains or other distributions received on any Investment Company Shares credited to Participant's Account will (unless received in additional Investment Company Shares) be reinvested in full and fractional shares of the same Investment Company at the price determined as provided in the then current prospectus of the Investment Company. The shares so received or purchased upon such reinvestment will be credited to such accounts. If any dividends or capital gain or other distributions may be received on such Investment Company Shares at the election of the shareholder in additional shares or in cash or other property, the Trustee will elect to receive such dividends or distributions in additional Investment Company Shares. 77..6 Registration and Voting of Investment Company Shares. All Investment Company Shares shall be registered in the name of the Trustee or its nominee. Subject to any requirements of applicable law, the Trustee will transmit to the Employer copies of any notices of shareholders' meetings, proxies and proxy-soliciting materials, prospectuses and the annual or other reports to share holders, with respect to Investment Company Shares held in the Trust Fund. The Trustee shall act in accordance with directions received from Participants or the Employer, as the case may be, with respect to matters to be voted upon by the shareholders of the Investment Company. Such directions must be in writing on a form approved by the Trustee, signed by the addressee and delivered to the Trustee within the time prescribed by it. The Trustee will not vote Investment Company Shares as to which it receives no written directions. 77..7 Investment Manager. The Employer, with the consent of Putnam, may appoint an investment manager, as defined in Section 3(38) of the Employee Retirement Income Security Act of 1974, with respect to all or a portion of the assets of the Trust Fund. The Trustee shall have no liability in connection with any action or nonaction pursuant to directions of such an investment manager. 77..8 Employer Stock. Notwithstanding any other provision of the Plan, the provisions of this Section 13.8 shall govern the voting of Employer Stock held by Putnam as Trustee under the Plan. The Trustee shall vote Employer Stock in accordance with the directions of the Employer unless the Employer has elected in the Plan Agremeent that Participants shall be appointed Named Fiduciaries as to the voting of Employer Stock and shall direct the Trustee as to the voting of Employer Stock in accordance with the provisions of the second, third and fourth paragraphs of this Section 13.8. In either case, the Employer shall be responsible for determining whether, under the circumstances prevailing at a given time, its fiduciary duty to Participants nd Beneficiaries under the Plan and ERISA requires that the Employer follow the advice of independent counsel as to the voting of Employer Stock. The remainder of this Section 13.8 applies only if the Employer elects in the plan Agreement that Participants shall direct the Trustee as to the voting of Employer Stock. When the issuer of Employer Stock files preliminary proxy solicitation materials with the Securities and Exchange Commission, the Employer shall cause a copy of all the materials to be simultaneously sent to the Trustee, and the Trustee shall prepare a voting instruction form based upon these materials. At the time of mailing of notice of each annual or special stockholders' meeting of the issuer of Employer Stock, the Employer shall cause a copy of the notice and all proxy solicitation materials to be sent to each Participant, together with the foregoing voting instruction form to be returned to the Trustee or its designee. The form shall show the number of full and fractional shares of Employer Stock credited to the Participant's accounts, whether or not vested. For purposes of this Section 13.8, the number of shares of Employer Stock deemed credited to a Participant's accounts shall be determined as of the last preceding Valuation Date for which an allocation has been completed and Employer Stock has actually been credited to Participant's accounts. The Employer shall provide the Trustee with a copy of any materials provided to Participants and shall certify to the Trustee that the materials have been mailed or otherwise sent to Participants. Each Participant shall have the right to direct the Trustee as to the manner in which to vote that number of shares of Employer Stock held under the Plan equal to a fraction, of which the numerator is the number of shares of Employer Stock credited to his account and the denominator is the number of shares of Employer Stock credited to all Participants' accounts. Such directions shall be communicated in writing or by facsimile or similar means and shall be held in confidence by the Trustee and not divulged to the Employer, or any officer or employee thereof, or any other persons. Upon its receipt of directions, the Trustee shall vote the shares of Employer Stock as directed by the Participant. To the extent that any Participant gives no direction as to the voting of Employer Stock that he has the right to direct under this Section 13.8, the Plan Administrator shall retain the status of Named Fiduciary and shall direct the voting of such Employer Stock. With respect to all rights in connection with Employer Stock other than the right to vote, Participants are hereby appointed Named Fiduciaries to the same extent (if any) as provided in the foregoing paragraphs of this Section 13.8 with regard to the right to vote, and the Trustee shall follow the directions of Participants and the Plan Administrator with regard to the exercise of such rights to the same extent as with regard to the right to vote. ARTICLE 78. INSURANCE POLICIES 78..1 Purchase of Insurance Products. At the time of establishment of the Plan, the Employer shall purchase for each Participant such Policy or Policies, if any, as a Participant shall request and annually thereafter such additional Policies as a Participant shall request, subject to the limitations of Section 14.2. All Policies shall have the same day and month of issue, insofar as reasonably possible. The premiums on all Policies shall be paid at the same intervals (for example, annually, semi- annually, quarterly or monthly), but the interval may be changed with respect to all Policies from time to time. 78..2 Limitation on Premiums. The premiums paid for Policies in respect of any Participants shall be limited so that premiums paid on any ordinary insurance Policies (that is, Policies with both nonincreasing premiums and nondecreasing death benefits) on the life of the Participant shall be 49% or less of the Employer's total contributions for the Participant (and Forfeitures allocated and amounts reapplied to his Employer Contribution Account), and premiums paid on term insurance Policies on the life of the Participant shall be less than 25% of such amount; provided that if both ordinary life insurance Policies and term Policies are purchased for any Participant, the total premiums on term Policies plus one-half the premiums on ordinary life Policies shall be less than 25% of such amount. If at any time the total premiums to be paid by the Employer for a Participant shall equal or exceed the above limitations, then the life insurance coverage of that Participant shall be reduced so that the total premiums shall not equal or exceed the limitations. The required reduction shall be made by changing all or a portion of the life insurance on the Participant to paid-up life insurance or by cancelling all or a portion of any term life insurance. 78..3 Policy Options. At the election of the Participant covered hereunder, a Policy may contain a waiver of premium disability benefit provision or a provision for additional indemnity in the event of accidental death, or both, if available on the type of Policy selected and if permitted by the insurer. 78..4 Insurability. If any Participant who has elected that a Policy be purchased is found by the insurer not to be insurable at standard rates, the Employer shall, if permitted by the rules of the insurer, purchase a similar Policy which provides a lesser death benefit and which can be purchased for the same premium. 78..5 Dividends on Policies. Dividends and other credits payable on any Policy shall be applied to the purchase of additional benefits under the Policy unless the Participant requests that they be applied in reduction of premiums. 78..6 Trustee of Policy. The Insurance Trustee shall apply for and be the owner of each Policy purchased under the terms of the Plan. Each Policy must provide that proceeds will be payable to the Insurance Trustee; however, the Insurance Trustee shall be required to pay over all such proceeds to the Participant's Designated Beneficiary in accordance with the distribution provisions of the Plan including, without limitation, Section 10.3. Under no circumstances shall the Trust retain any part of the proceeds. In the event of any conflict between the terms of the Plan and the terms of any Policy purchased hereunder, the Plan provisions shall control. 78..7 Obligations with Respect to Policies. Except as may be otherwise provided in any conditional or binding receipt issued by an insurer, there shall be no coverage and no death benefit payable under any Policy to be purchased from such insurer until such Policy shall have been delivered and the premium therefor shall have been paid. The Employer and the Insurance Trustee shall not have any responsibility as to the effectiveness of any Policy purchased from an insurer, nor shall either of them have any liability or obligation to pay any amount to any Participant or his beneficiary by reason of any failure or refusal by the insurer to make such payment. 78..8 Distribution of Proceeds on Participant's Death. In the event of the death of a Participant before the conversion provided for in Section 14.9, there shall be payable to the beneficiary named in any Policy on his life the benefits provided by the terms of such Policy. 78..9 Conversion of Policies. Except as provided in Section 19.3, if any Policies of a Participant (other than retirement income, endowment or annuity Policies) are held for his benefit at the time distribution is to commence, the Policies may be converted by the Insurance Trustee into cash, paid to the Trustee, credited to the Employer Contribution Account of the Participant, invested in accordance with the written instructions of the Employer (and if no such instructions have been given or if such instructions are not clear, invested in Investment Company Shares in the same proportion as the most recent contributions to the Participant's Account) and distributed pursuant to Article 9, subject to the terms and conditions of Article 10. Retirement income, endowment or annuity Policies will be distributed directly to the Participant at the time distribution is to commence. 78..10 Conflict with Policies. In the event of any conflict between the terms of the Plan and the terms of any Policies hereunder, the Plan provisions shall control. 78..11 Insurance Loans to Owner-Employees. If an Owner- Employee or Shareholder-Employee receives, either directly or indirectly, any amount from an Insurer as a loan under a Policy, the amount so received shall be considered a distribution under the Plan. Any assignment or pledge (or agreement to assign or pledge) by an Owner-Employee or Shareholder-Employee of any interest in the Plan shall be considered a distribution of such interest. ARTICLE 79. TOP-HEAVY PLANS 79..1 Superseding Effect. For any Plan Year beginning after December 31, 1983, in which Plan is determined to be a Top-Heavy Plan under Section 15.2(b), the provisions of this Article 15 will supersede any conflicting provisions in the Plan or the Plan Agreement. 79..2 Definitions. For purposes of this Article 15, the terms below shall be defined as follows: (a) Key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was: (1) an officer of the Employer having annual compensation greater than 50% of the amount in effect under section 415(b)(1)(A) of the Code; (2) an owner (or considered an owner under section 318 of the Code) of one of the ten largest interests in the Employer having annual compensation exceeding the dollar limitation under Section 415(c)(1)(A) of the Code; (3) a 5% owner of the Employer; or (4) a 1% owner of the Employer having annual compensation of more than $150,000. Annual compensation means compensation satisfying the definition elected by the Employer in item 4 of the Plan Agreement, but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludible from the Employee's gross income under section 125, section 402(a)(8), section 402(h) or section 403(b) of the Code. The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder. (b) Top-Heavy: the Plan is Top-Heavy for any Plan Year beginning after December 31, 1983, if any of the following conditions exists: (1) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (3) If this plan is part of a Required Aggregation Group and part of a Permissive Aggregation Group of Plans and the Top-Heavy Ratio for the Permissive Aggregation group exceeds 60%. (c) Top-Heavy Ratio means the following: (1) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer has not maintained any qualified defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the op-Heavy ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balances distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under section 416 of the Code and the regulations thereunder. (2) If the Employer maintains one or more qualified defined contribution plans (or any simplified employee pension plan) and the Employer maintains or has maintained one or more qualified defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated qualified defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the Present Value of accrued benefits under the aggregated qualified defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated qualified defined contributions plan or plans for all Participants, determined in accordance with (1) above, and the Present Value of accrued benefits under the qualified defined benefit plan or plans for all Participants as of the Determination Date(s), all determined in accordance with section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12- month period ending on the Determination Date; except as provided in section 416 of the Code and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Participant (A) who is not a Key Employee but who was a Key Employee in a prior Plan Year, or (B) who has not been credited with at least one Hour of Service for the Employer during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of section 411(b)(1)(C) of the Code. (d) Permissive Aggregation Group means the Required Aggregation Group of plans plus any other qualified plan or plans (or simplified employee pension plan) of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. (e) Required Aggregation Group means (i) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated) and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of section 401(a)(4) or 410 of the Code. (f) Determination Date means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the Determination Date is the last day of that Plan Year. (g) Valuation Date means the last day of the Plan Year. (h) Present Value means present value based only on the interest and mortality rates specified by the Employer in the Plan Agreement. 79..3 Minimum Allocation. (a) Except as otherwise provided in paragraphs (c) and (d) below, the Employer contributions and Forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of 3% of such Participant's Earnings, or in the case where the Employer has no defined benefit plan which designates this Plan to satisfy section 401 of the Code, the largest percentage of Employer contributions and Forfeitures, as a percentage of the first $200,000 of the Key Employee's Earnings, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation of the Employer's contributions and Forfeitures for the Plan Year because of (1) the Participant's failure to be credited with at least 1,000 Hours of Service, or (2) the Participant's failure to make mandatory Employee contributions to the Plan, or (3) the Participant's receiving Earnings less than a stated amount. Neither Elective Deferrals, Employer Matching Contributions nor Qualified Matching Contributions for non-Key Employees shall be taken into account for purposes of satisfying the requirement of this Section 15.3(a). (b) For purposes of computing the minimum allocation, Earnings will mean Section 415 Compensation as defined in Section 6.5(b) of the Plan. (c) The provision in paragraph (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (d) The provision in paragraph (a) above shall not apply to any Participant to the extent he is covered under any other plan or plans of the Employer, and the Employer has provided in the Plan Agreement that the minimum allocation requirement applicable to Top-Heavy Plans will be met in the other plan or plans. (e) The minimum allocation required (to the extent required to be nonforfeitable under section 416(b) of the Code) may not be forfeited under sections 411(a)(3)(B) or (D) of the Code. 79..4 Adjustment of Fractions. For any Plan Year in which the Plan is Top-Heavy, the Defined Benefit Fraction and the Defined Contribution Fraction in Article 6 shall each be computed using 100% of the dollar limitations specified in sections 415(b)(1)(A) and 415(c)(1)(A) instead of 125%. The foregoing requirement shall not apply if the Top-Heavy Ratio does not exceed 90% and the Employer has elected in the Plan Agreement to provide increased minimum allocations or benefits satisfying section 416(h)(2) of the Code. ARTICLE 80. ADMINISTRATION OF THE PLAN 80..1 Plan Administrator. The Plan shall be administered by the Employer, as Plan Administrator and Named Fiduciary within the meaning of ERISA, under rules of uniform application; provided, however, that the Plan Administrator's duties and responsibilities may be delegated to a person appointed by the Employer or a committee established by the Employer for that purpose, in which case the committee shall be the Plan Administrator and Named Fiduciary. The member os such a committee shall act by majority vote, and may by majority vote authorize any one or ones of their number to act for the committee. The person or committee (if any) initially appointed by the Employer may be named in the Plan Agreement, but the Employer may remove any such person or committee member by written notice to him, and any such person or committee may resign by written notice to the Employer, without the necessity of amending the Plan Agreement. To the extent permitted under applicable law, the Plan Administrator shall have the sole authority to enforce the terms hereof on behalf of any and all persons having or claiming any interest under the Plan, and shall be responsible for the operation of the Plan in accordance with its terms. The Plan Administrator shall have discretionary authority to determine all questions arising out of the administration, interpretation and application of the Plan, all of which determinations shall be conclusive and binding on all persons. The Plan Administrator, in carrying out its responsibilities under the Plan, may rely upon the written opinions of its counsel and on certificates of physicians. Subject to the provisions of the Plan and applicable law, the Plan Administrator shall have no liability to any person as a result of any action taken or omitted hereunder by the Plan Administrator. 80..2 Claims Procedure. Claims for participation in or distribution under the Plan shall be made in writing to the Plan Administrator, or an agent designated by the Plan Administrator whose name shall have been communicated to all Participants and other persons as required by law. If any claim so made is denied in whole or in part, the claimant shall be furnished promptly by the Plan Administrator with a written notice: (a) setting forth the reason for the denial, (b) making reference to pertinent Plan provisions, (c) describing any additional material or information from the claimant which is necessary and why, and (d) explaining the claim review procedure set forth herein. Within 60 days after denial of any claim for participation or distribution under the Plan, the claimant may request in writing a review of the denial by the Plan Administrator. Any claimant seeking review hereunder shall be entitled to examine all pertinent documents and to submit issues and comments in writing. The Plan Administrator shall render a decision on review hereunder; provided, that if the Plan Administrator determines that a hearing would be appropriate, its decision on review shall be rendered within 120 days after receipt of the request for review. The decision on review shall be in writing and shall state the reason for the decision, referring to the Plan provisions upon which it is based. 80..3 Employer's Responsibilities. The Employer shall be responsible for: (a) Keeping records of employment and other matters containing all relevant data pertaining to any person affected hereby and his eligibility to participate, allocations to his Accounts, and his other rights under the Plan; (b) Periodic, timely filing of all statements, reports and returns required to be filed by ERISA; (c) Timely preparation and distribution of disclosure materials required by ERISA; (d) Providing notice to interested parties as required by section 7476 of the Code; (e) Retention of records for periods required by law; and (f) Seeing that all persons required to be bonded on account of handling assets of the Plan are bonded. 80..4 Recordkeeper. The Recordkeeper is hereby designated as agent of the Employer under the Plan to perform directly or through agents certain ministerial duties in connection with the Plan, in particular: (a) To keep and regularly furnish to the Employer a detailed statement of each Participant's Accounts, showing contributions thereto by the Employer and the Participant, Investment Products purchased therewith, earnings thereon and Investment Products purchased therewith, and each redemption or distribution made for any reason, including fees or benefits; and (b) To the extent agreed between the Employer and the Recordkeeper, to prepare for the Employer or to assist the Employer shall be required to furnish to Participants and Beneficiaries or other interested persons and to the Internal Revenue Service or the Department of Labor; all as may be more fully set forth in a service agreement executed by the Employer and the Recordkeeper. If the Employer does not appoint another person or entity as Recordkeeper, the Employer itself shall be the Recordkeeper. 80..5 Prototype Plan. Putnam is the sponsor of the Putnam Basic Plan Document, a prototype plan approved as to form by the Internal Revenue Service. Provided that an Employer's adoption of the Plan is made known to and accepted by Putnam in accordance with the Plan Agreement, Putnam will inform the Employer of amendments to the prototype plan and provide such other services in connection with the Plan as may be agreed between Putnam and the Employer. Putnam may impose for its services as sponsor of the prototype plan such fees as it may establish from time to time in a fee schedule addressed to the Employer. Such fees shall, unless paid by the Employer, be paid from the Trust Fund, and shall in that case be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such fees. ARTICLE 81. TRUSTEE AND INSURANCE TRUSTEE 81..1 Powers and Duties of the Trustee. The Trustee shall have the authority, in addition to any authority given by law, to exercise the following powers in the administration of the Trust: (a) To invest all or a part of the Trust Fund in Investment Products in accordance with the investment instructions delivered by the Employer pursuant to Section 13.3, without restriction to investments authorized for fiduciaries, including without limitation any common, collective or commingled trust fund maintained by the Trustee (or any other such fund, acceptable to Putnam and the Trustee, that qualifies for exemption from federal income tax pursuant to Revenue Ruling 81-100). Any investment in, and any terms and conditions of, any such common, collective or commingled trust fund available only to employee trusts which meet the requirements of the Code, or corresponding provisions of subsequent income tax laws of the United States, shall constitute an integral part of this Agreement; (b) If Putnam and the Trustee have consented thereto in writing, to invest without limit in stock of the Employer or any affiliated company; (c) To dispose of all or part of the investments, securities or other property which may from time to time or at any time constitute the Trust Fund in accordance with the written directions furnished by the Employer for the investment of Participants' separate Accounts or the payment of benefits or expenses of the Plan, and to make, execute and deliver to the purchasers thereof good and sufficient deeds of conveyance therefore, and all assignments, transfers and other legal instruments, either necessary or convenient for passing the title and ownership thereto, free and discharged of all trusts and without liability on the part of such purchasers to see to the application of the purchase money; (d) To hold cash uninvested to the extent necessary to pay benefits or expenses of the Plan; (e) To follow the directions of an investment manager appointed pursuant to Section 13.7 (f) To cause any investment of the Trust Fund to be registered in the name of the Trustee or the name of its nominee or nominees or to retain such investment unregistered or in a form permitting transfer by delivery; provided that the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (g) Upon written direction of or through the Employer, to vote in person or by proxy (in accordance with Section 13.6 and, in the case of stock of the Employer, at the direction of the Employer or Participants) with respect to all securities that are part of the Trust Fund; (h) To consult and employ any suitable agent to act on behalf of the Trustee and to contract for legal, accounting, clerical and other services deemed necessary by the Trustee to manage and administer the Trust Fund according to the terms of the plan' (i) Upon the written direction of the Employer, to make loans from the Trust Fund to Participants in amounts and on terms approved by the Plan Administrator in accordance with the provisions of the Plan; provided that the Employer shall have the sole responsibility for computing and collecting all loan repayments required to be made under the Plan; and (j) To pay from the Trust Fund all taxes imposed or levied with respect to the Trust Fund or any part thereof under existing or future laws, and to contest the validity or amount of any tax assessment, claim or demand respecting the Trust Fund or any part thereof. 81..2 Limitation of Responsibilities. Except as may otherwise be required under applicable law, neither the Trustee nor the Insurance Trustee nor any of their respective agents shall have any responsibility for: (a) Determining the correctness of the amount of any contribution for the sole collection or payment of contributions, which shall be the sole responsibility of the Employer; (b) Loss or breach caused by any Participant's exercise of control over his Accounts, which shall be the sole responsibility of the Participant; (c) Loss or breach caused by the Employer's exercise of control over Accounts pursuant to Section 13.3, which shall be the sole responsibility of the Employer; (d) Sums paid to an insurer or the validity of any Policy or the accuracy of information provided by an insurer, which shall be the sole responsibility of the insurer; (e) Performance of any other responsibilities not specifically allocated to them under the Plan. 81..3 Fees and Expenses. The Trustee's fees for performing its duties hereunder shall be such reasonable amounts as shall be established by the Trustee from time to time in a fee schedule addressed to the Employer. Such fees, any taxes of any kind which may be levied or assessed upon or in respect of the Trust Fund and any and all expenses reasonably incurred by the Trustee shall, unless paid by the Employer, be paid from the Trust Fund and shall, unless allocable to the Accounts of specific Participants, be charged pro rata against the Accounts of all Participants. The Trustee is expressly authorized to cause Investment Products to be sold or redeemed for the purpose of paying such amounts. Charges and expenses incurred in connection with a specific Investment Product, unless allocable to the Accounts of specific Participants, shall be charged pro rata against the Accounts of all Participants for whose benefit amounts have been invested in the specific Investment Product. 81..4 Reliance on Employer. The Trustee and its agents (and the Insurance Trustee, if any) shall rely upon any decision of the Employer, or of any person authorized by the Employer, purporting to be made pursuant to the terms of the Plan, and upon any information or statements submitted by the Employer or such person (including those relating to the entitlement of any Participant to benefits under the Plan), and shall not inquire as to the basis of any such decision or information or statements, and shall incur no obligation or liability for any action taken or omitted in reliance thereon. The Trustee and its agents shall be entitled to rely on the latest written instructions received from the Employer as to the person or persons authorized to act for the Employer hereunder, and to sign on behalf of the Employer any directions or instructions, until receipt from the Employer of written notice that such authority has been revoked. 81..5 Action Without Instructions. If the Trustee receives no instructions from the Employer in response to communications sent by registered or certified mail to the Employer at its last known address as shown on the books of the Trustee, then the Trustee may make such determinations with respect to administrative matters arising under the Plan as it considers reasonable, notwithstanding any prior instructions or directions given by or on behalf of the Employer, but subject to any instruction or direction given by or on behalf of the Participants. To the extent permitted by applicable law, any determination so made will be binding on all persons having or claiming any interest under the Plan or Trust, and the Trustee will incur no obligation or responsibility for any such determination made in good faith or for any action taken pursuant thereto. In making any such determination the Trustee may require that it be furnished with such relevant documents as it reasonable considers necessary. 81..6 Advice of Counsel. The Trustee and the Insurance Trustee may each consult with legal counsel (who may, but need not be, counsel for the Employer) concerning any questions which may arise with respect to their respective rights and duties under the Plan, and the opinion of such counsel shall be full and complete protection to the extent permitted by applicable law in the respect of any action taken or omitted by the Trustee or the Insurance Trustee, as the case may be, hereunder in accordance with the opinion of such counsel. 81..7 Accounts. The Trustee shall keep full accounts of all receipts and disbursements which pertain to investments in Investment Products, and the Trustee and the Insurance Trustee shall each keep accounts of such other transactions as it is required to perform hereunder. Within a reasonable time following the cost of each Plan Year, or upon its removal or resignation or upon termination of the Trust and at such other times as may be appropriate, each shall render to the Employer and any other persons as may be required by law an account of its administration of the Plan and Trust during the period since the last previous such accounting, including such information as may be required by law. The written approval of any account by the Employer and all other persons to whom an account is rendered shall be final and binding as to all matters and transactions stated or shown therein, upon the Employer and Participants and all persons who then are or thereafter become interested in the Trust. The failure of the Employer or any other person to whom an account is rendered to notify the party rendering the account within 60 days after the receipt of any account of his or its objection to the account shall be the equivalent of written approval. If the Employer or any other person to whom an account is rendered files any objections within such 60-day period with respect to any matters or transactions stated or shown in the account and the Employer or such other person and the party rendering the account cannot amicably settle the questions raised by such objections, the party rendering the account and the Employer or such person shall have the right to have such questions settled by judicial proceedings, although the Employer or such other person to whom an account is rendered shall have, to the extent permitted by applicable law, only 60 days from filing of written objection to the account to commence legal proceedings. Nothing herein contained shall be construed so as to deprive the Trustee or the Insurance Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlements of any account or for instructions, the only necessary parties shall be the Trustee, the Insurance Trustee, the Employer and persons to whom an account is required by law to be rendered. 81..8 Access to Records. The Trustee and the Insurance Trustee shall give access to their respective records with respect to the Plan at reasonable times and on reasonable notice to any person required by law to have access to such records. 81..9 Successors. Any corporation into which the Trustee may merge or with which it may consolidate or any corporation resulting from any such merger or consolidation shall be the successor of the Trustee without the execution or filing of any additional instrument or the performance of any further act. 81..10 Persons Dealing with Trustee or Insurance Trustee. No person dealing with the Trustee or the Insurance Trustee shall be bound to see to the application of any money or property paid or delivered to such party or to inquire into the validity or propriety of any transactions. 81..11 Resignation and Removal; Procedure. The Trustee or the Insurance Trustee may resign at any time by giving 60 days' written notice to the Employer and to Putnam. The Employer may remove the Trustee or the Insurance Trustee at any time by giving 60 days' written notice to the party removed and to Putnam. In any case of resignation or removal hereunder, the period of notice may be reduced to such shorter period as is satisfactory to the Trustee, the Insurance Trustee and the Employer. Notwithstanding anything to the contrary herein, any resignation hereunder shall take effect at the time notice thereof is given if the Employer may no longer participate in the prototype Plan and is deemed to have an individually designed plan at the time notice is given. 81..12 Action of Trustee Following Resignation or Removal. When the resignation or removal of the Trustee becomes effective, the Trustee shall perform all acts necessary to transfer the Trust Fund to its successor. However, the Trustee may reserve such portion of the Trust Fund as it may reasonably determine to be necessary for payment of its fees and any taxes and expenses, and any balance of such reserve remaining after payment of such fees, taxes and expenses shall be paid over to its successor. The Trustee shall have no responsibility for acts or omissions occurring after its resignation becomes effective. 81..13 Action of Insurance Trustee Following Resignation or Removal. When the Insurance Trustee's resignation or removal becomes effective, the Insurance Trustee shall perform all acts necessary to transfer ownership of the Policies to its successor. If no successor has accepted appointment, the Policies shall be held and owned by the Employer acting as Insurance Trustee until a successor is appointed. 81..14 Effect of Resignation or Removal. Resignation or removal of the Trustee or the Insurance Trustee shall not terminate the Trust. In the event of any vacancy in the position of Trustee (or, in a Plan having amounts invested in Policies, the position of Insurance Trustee), whether the vacancy occurs because of the resignation or removal of the Trustee (or the Insurance Trustee) the Employer shall appoint a successor to fill the vacant position. If the Employer does not appoint such a successor who accepts appointment by the later of 60 days after notice of resignation or removal is given or by such later date as the Trustee or the Insurance Trustee, as the case may be, and Employer may agree in writing to postpone the effective date of the Trustee or the Insurance Trustee's resignation or removal, the Trustee or Insurance Trustee may apply to a court of competent jurisdiction for such appointment of cause the Trust to be terminated, effective as of the date specified by the Trustee or Insurance Trustee, as the case may be, in writing delivered to the Employer. Each successor Trustee so appointed and accepting a trusteeship hereunder shall have all of the rights and powers and all of the duties and obligations of the original Trustee or Insurance Trustee, as the case may be, under the provisions hereof, but shall have no responsibility for acts or omissions before he becomes a Trustee or Insurance Trustee. 81..15 Fiscal Year of Trust. The fiscal year of the Trust will coincide with the Plan Year. 81..16 Limitation of Liability. Except as may otherwise be required by law and other provisions of the Plan, no fiduciary of the Plan, within the meaning of Section 3(21) of ERISA, shall be liable for any losses incurred with respect to the management of the Plan, nor shall he or it be liable for any acts or omissions except those caused by his or its own negligence or bad faith in failing to carry out his or its duties under the terms contained in the Plan. 81..17 Indemnification. Subject to the limitations of applicable law, the Employer agrees to indemnify and hold harmless (i) all fiduciaries, within the meaning of ERISA Sections 3(21) and 404, and (ii) Putnam, for all liability occasioned by any act of such party or omission to act, in good faith and without gross negligence, and for all expenses incurred by any such party in determining its duty or liability under ERISA with respect to any question under the Plan. ARTICLE 82. AMENDMENT 82..1 General. The Employer reserves the power at any time or times to amend the provisions of the Plan and the Plan Agreement to any extent and in any manner that it may deem advisable. If, however, the Employer makes any amendment (including an amendment occasioned by a waiver of the minimum funding requirement under section 412(d) of the Code) other than (a) a change in an election made in the Plan Agreement, (b) amendments stated in the Plan Agreement which allow the Plan to satisfy section 415 and to avoid duplication of minimums under section 416 of the Code because of the required aggregation of multiple plans, or (c) model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as individually designed, the Employer shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. In that event, Putnam shall have no further responsibility to provide to the Employer any amendments or other material incident to the prototype plan, and Putnam may resign immediately as Trustee and as Recordkeeper. Any amendment shall be made by delivery to the Trustee (and the Recordkeeper, if any) of a written instrument executed by the Employer providing for such amendment. Upon the delivery of such instrument to the Trustee, such instrument shall become effective in accordance with its terms as to all Participants and all persons having or claiming any interest hereunder, provided, that the Employer shall not have the power: (1) To amend the Plan in such a manner as would cause or permit any part of the assets of the Trust to be diverted to purposes other than the exclusive benefit of Participants or their Beneficiaries, or as would cause or permit any portion of such assets to revert to or become the property of the Employer. (2) To amend the Plan retroactively in such a manner as would have the effect of decreasing a Participant's accrued benefit, except that a Participant's Account balance may be reduced to the extent permitted under section 412(c)(8) of the Code. For purposes of this paragraph (2), an amendment shall be treated as reducing a Participant's accrued benefit if it has the effect of reducing his Account balance, or of eliminating an optional form of benefit with respect to amounts attributable to contributions made performed before the adoption of the amendment; or (3) To amend the Plan so as to decrease the portion of a Participant's Account balance that has become vested, as compared to the portion that was vested, under the terms of the Plan without regard to the amendment, as of the later of the date the amendment is adopted or the date it becomes effective. (4) To amend the Plan in such a manner as would increase the duties or liabilities of the Trustee or the Recordkeeper unless the Trustee or the Recordkeeper consents thereto in writing. 82..2 Delegation of Amendment Power. The Employer and all sponsoring organizations of the Putnam Basic Plan Document delegate to Putnam Financial Services, Inc., the power to amend the Plan (including the power to amend this Section 18.2 to name a successor to which such power of amendment shall be delegated), for the purpose of adopting amendments which are certified to Putnam Financial Services, Inc., by counsel satisfactory to it, as necessary or appropriate under applicable law, including any regulation or ruling issued by the United States Treasury Department or any other federal or state department or agency; provided that Putnam Financial Services, Inc., or such successor may amend the Plan only if it has mailed a copy of the proposed amendment to the Employer at its last known address as shown on its books by the date on which it delivers a written instrument providing for such amendment, and only if the same amendment is made on said date to all plans in this form as to which Putnam Financial Services, Inc., or such successor has a similar power of amendment. If a sponsoring organization does not adopt any amendment made by Putnam Financial Services, Inc., such sponsoring organization shall cease to participate in this prototype Plan and will be considered to have an individually designed plan. ARTICLE 83. TERMINATION OF THE PLAN AND TRUST 83..1 General. The Employer has established the Plan and the Trust with the bona fide intention and expectation that contributions will be continued indefinitely, but the Employer shall have no obligation or liability whatsoever to maintain the Plan for any given length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee and the Insurance Trustee, without any liability whatsoever for any such discontinuance or termination. 83..2 Events of Termination. The Plan will terminate upon the happening of any of the following events: (a) Death of the Employer, if a sole proprietor, or dissolution or termination of the Employer, unless within 60 days thereafter provision is made by the successor to the business with respect to which the Plan was established for the continuation of the Plan, and such continuation is approved by the Trustee; (b) Merger, consolidation or reorganization of the Employer into one or more corporations or organizations, unless the surviving corporations or organizations adopt the Plan by an instrument in writing delivered to the Trustee within 60 days after such a merger, consolidation and reorganization; (c) Sale of all or substantially all of the assets of the Employer, unless the purchaser adopts the Plan by an instrument in writing delivered to the Trustee within 60 days after the sale; (d) The institution of bankruptcy proceedings by or against the Employer, or a general assignment by the Employer to or for the benefit of its creditors; or (e) Delivery of notice as provided in Section 19.1. 83..3 Effect of Termination. Notwithstanding any other provisions of this Plan, other than Section 19.4, upon termination of the Plan or complete discontinuance of contributions thereunder, each Participant's Accounts will become fully vested and nonforfeitable, and upon partial termination of the Plan, the Accounts of each Participant affected by the partial termination will become fully vested and nonforfeitable. The Employer shall notify the Trustee and the Insurance Trustee in writing of such termination, partial termination or complete discontinuance of contributions. In the event of the complete termination of the Plan or discontinuance of contributions, the Trustee will, after payment of all expenses of the Trust Fund, make distribution of the Trust asses to the Participants or other persons entitled thereto, in such form as the Employer may direct pursuant to Article 10 or, in the absence of such direction, in a single payment in cash or in kind. Upon completion of such distributions under this Article, the Trust will terminate, the Trustee and the Insurance Trustee will be relieved from their obligations under the Trust, and no Participant or other person will have any further claim thereunder. 83..4 Approval of Plan. Notwithstanding any other provision of the Plan, if the Employer fails to obtain or to retain the approval by the Internal Revenue Service of the Plan as a qualified plan under section 401(a) of the Code, then (i) the Employer shall promptly notify the Trustee, and (ii) the Employer may no longer participate in the Putnam prototype plan, but will be deemed to have an individually designed plan. If it is determined by the Internal Revenue Service that the Plan upon its initial adoption does not qualify under section 401(a) of the Code, all assets then held under the Plan will be returned within one year of the denial of initial qualification to the Participants and the Employer to the extent attributable to their respective contributions and any income earned thereon, but only if the application for qualification is made by the time prescribed by law for filing the Employer's federal income tax return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. Upon such distribution, the Plan will be considered to be rescinded and to be of no force or effect. ARTICLE 84. TRANSFERS FROM OTHER QUALIFIED PLANS; MERGERS 84..1 General. Notwithstanding any other provision hereof, subject to the approval of the Trustee there may be transferred to the Trustee all or any of the assets held (whether by a trustee, custodian or otherwise) in respect of any other plan which satisfies the applicable requirements of section 401(a) of the Code and which is maintained for the benefit of any Employee (provided, however, that the Employee is not a member of a class of Employees excluded from eligibility to participate in the Plan) except that insurance policies held in respect of such other plan shall be transferred to the Insurance Trustee as trustee if the Employer so determines. Any such assets so transferred shall be accompanied by written instructions from the Employer naming the persons for whose benefit such assets have been transferred and showing separately the respective contributions made by the Employer and by the Participants and the current value of the assets attributable thereto. 84..2 Amounts Transferred. The Employer shall credit any assets transferred pursuant to Section 20.1 to the appropriate Accounts of the persons for whose benefit such assets have been transferred. Any amounts credited as contributions previously made by an employer or by such persons under such other plan shall be treated as contributions previously made under the Plan by the Employer or by such persons, as the case may be. 84..3 Merger or Consolidation. The Plan shall not be merged or consolidated with any other plan, nor shall any assets or liabilities of the Trust Fund be transferred to any other plan, unless each Participant would receive a benefit immediately after the transaction, if the Plan then terminated, which is equal to or greater than the benefit he would have been entitled to receive immediately before the transaction if the Plan had then terminated. ARTICLE 85. MISCELLANEOUS 85..1 Notice of Plan. The Plan shall be communicated to all Participants by the Employer on or before the last day on which such communication may be made under applicable law. 85..2 No Employment Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the purchase of Policies, nor the payment of any benefits shall be construed as giving to any Participant or any other person any legal or equitable right against the Employer, the Trustee, or the Insurance Trustee, except as provided herein or by ERISA; and in no event shall the terms of employment or service of any Participant be modified or in any way be affected hereby. 85..3 Distributions Exclusively From Plan. Participants and Beneficiaries shall look solely to the assets held in the Trust and any Policies purchased pursuant to the Plan for the payment of any benefits under the Plan. 85..4 No Alienation. The benefits provided hereunder shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, and any attempt to cause such benefits to be so subjected shall not be recognized, except as provided in Section 12.4 or in accordance with a qualified domestic relations order within the meaning of section 414(p) of the Code. The Plan Administrator shall determine whether a domestic relations order is qualified in accordance with written procedures adopted by the Plan Administrator. 85..5 Provision of Information. The Employer, Trustee and Insurance Trustee shall furnish to each other such information relating to the Plan and Trust as may be required under the Code or ERISA and any regulations issued or forms adopted by the Treasury Department or the Labor Department or otherwise thereunder. 85..6 No Prohibited Transactions. The Employer, Trustee, and Insurance Trustee shall, to the extent of their respective powers and authority under the Plan, prevent the Plan from engaging in any transaction known by that person to constitute a transaction prohibited by section 4975 of the Code and any rules or regulations with respect thereto. 85..7 Governing Law. The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States, and to the extent permitted by such laws, by the laws of the Commonwealth of Massachusetts 85..8 Gender. Whenever used herein, a pronoun in the masculine gender includes the feminine gender unless the context clearly indicates otherwise. EX-99.B16 15 PERF QUOT SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Diversified Income Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): September 15, 1993 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 N/A $1,000 ERV = Ending Redeemable Value $958 N/A $9,797 T = Average Annual Total Return -4.23% N/A -1.57%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $1,455,589.11 Expenses $124,955.54 Reimbursement $0 Average shares 22,073,011.30 NAV $9.74 Sales Charge 0% POP $9.74 Yield at POP 7.54% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Global Asset Allocation Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): February 1, 1988 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $975 $1,452 $17,996 T = Average Annual Total Return -2.50% +7.74% +8.86%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $1,315,261.62 Expenses $271,194.62 Reimbursement $0 Average shares 31,399,015.57 NAV $13.19 Sales Charge 0% POP $13.19 Yield at POP 3.04% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Global Growth Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): May 1, 1990 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 N/A $1,000 ERV = Ending Redeemable Value $990 N/A $1,400 T = Average Annual Total Return -0.96% N/A +7.47%* *Life of fund, if less than 10 years SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Growth and Income Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): February 1, 1988 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $1,004 $1,527 $2,224 T = Average Annual Total Return +0.35% +8.84% +12.25%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $6,816,713.28 Expenses $897,273.68 Reimbursement $0 Average shares 115,380,202.57 NAV $16.44 Sales Charge 0% POP $16.44 Yield at POP 3.77% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM High Yield Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): February 1, 1988 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $992 $1,838 $1,925 T = Average Annual Total Return -0.94% +12.94% +9.93%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $2,958,185.72 Expenses $186,875.13 Reimbursement $0 Average shares 27,605,990.43 NAV $11.46 Sales Charge 0% POP $11.46 Yield at POP 10.74% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Money Market Fund Fiscal periods ending: December 31, 1994 Inception date (if less than 10 years of performance):' February 1, 1988 7 DAY YIELD FORMULA - DIVIDENDS DECLARED FOR LAST 7 DAYS / 7 *365 TOTAL DIVIDENDS DECLARED PER SHARE FOR LAST 7 DAYS: 0.0009684 7 DAY YIELD = 5.05% CALCULATION OF 7 DAY EFFECTIVE YIELD 7 DAY YIELD ^52.142857 ( 1 + --------------------) -1 (100 * 52.142587) 7 DAY EFFECTIVE YIELD = 5.18% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM New Opportunities Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): May 2, 1994 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment N/A N/A $1,000 ERV = Ending Redeemable Value N/A N/A $1,082 T = Average Annual Total Return N/A N/A +8.20%* *Life of fund, if less than 10 years SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM U.S. Government and High Quality Bond Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): February 1, 1988 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $968 $1,459 $1,711 T = Average Annual Total Return -3.23% +7.85% +8.08%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $4,240,491.93 Expenses $340,433.61 Reimbursement $0 Average shares 52,497,891.47 NAV $12.22 Sales Charge 0% POP $12.22 Yield at POP 7.41% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Utilities Growth and Income Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): May 4, 1992 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 N/A $1,000 ERV = Ending Redeemable Value $930 N/A $1,129 T = Average Annual Total Return -7.02 N/A +4.67%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $1,758,837.53 Expenses $200,519.94 Reimbursement $0 Average shares 35,920,448.20 NAV $10.68 Sales Charge 0% POP $10.68 Yield at POP 4.92% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Capital Manager Trust - PCM Voyager Fund Fiscal period ending: December 31, 1994 Inception date (if less than 10 years of performance): February 1, 1988 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $1,010 $1,894 $2,583 T = Average Annual Total Return +1.04% +13.63% +14.70%* *Life of fund, if less than 10 years EX-27.1PCMDIVERSIFIE 16 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Diversified Income Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 225,462,853 215,213,104 6,941,074 146 0 222,154,324 4,593,399 0 1,625,596 6,218,995 0 223,466,160 22,158,718 7,864,187 11,319,097 0 (8,073,322) 0 (10,776,606) 215,935,329 128,809 15,290,337 (41,539) 1,468,134 13,909,473 (10,118,686) (11,419,826) (7,629,039) 0 (923,710) (30,310) 0 15,377,877 (1,179,615) 96,269 135,486,311 466,744 16,223 0 0 1,219,268 0 1,468,134 183,516,750 10.23 .61 (1.04) (.06) 0 0 9.74 .80 0 0
EX-27.2PCMGLOBALASSE 17 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Global Asset Allocation Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 407,953,016 413,262,492 6,199,744 36,797 0 419,499,033 3,376,643 0 1,899,596 5,276,239 0 406,600,695 31,412,939 20,812,494 8,082,455 0 (5,525,272) 0 5,064,916 414,222,794 6,167,581 8,893,556 (120,258) 2,866,407 12,074,472 (6,770,122) (14,795,291) (9,490,941) 0 (7,190,360) (11,496,489) 0 10,087,974 (914,728) 1,427,199 116,916,043 5,686,419 10,466,761 0 0 2,501,953 0 2,866,407 377,158,816 14.29 .35 (.71) (.29) (.45) 0 13.19 .76 0 0
EX-27.3PCMGLOBALGROW 18 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Global Growth Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 648,062,465 673,301,902 7,150,471 318 0 680,452,691 8,502,388 0 2,129,472 10,668,648 0 629,499,650 49,694,917 25,790,024 4,411,370 0 10,166,269 0 25,743,542 669,820,831 10,340,857 1,355,890 (772,779) 4,225,236 6,698,732 9,837,464 (25,364,720) (8,828,524) 0 (1,755,654) (596,922) 0 26,805,651 (3,078,714) 177,956 317,034,858 2,222,232 (1,268,057) 0 0 3,316,215 0 4,225,236 548,731,948 13.68 .13 (.26) (.05) (.02) 0 13.48 .77 0 0
EX-27.4PCMGROWTHANDI 19 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Growth and Income Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 1,937,001,094 1,916,921,814 31,694,457 14,604 0 1,948,630,875 38,372,615 0 2,877,907 41,250,522 0 1,845,393,392 116,102,107 80,995,739 60,139,264 0 21,926,977 0 (20,079,280) 1,907,380,353 65,436,353 7,433,569 (260,221) 10,596,711 62,012,990 28,738,990 (86,913,187) 3,838,793 0 (34,766,658) (52,663,594) 0 30,722,147 (1,260,962) 5,555,183 499,998,762 33,019,005 46,038,494 0 0 9,644,524 0 10,596,711 1,709,146,935 17.38 .50 (.48) (.38) (.58) 0 16.44 .62 0 0
EX-27.5PCMHIGHYIELDF 20 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM High Yield Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 341,194,192 319,305,075 9,586,636 234 0 328,891,945 1,104,890 0 667,634 1,772,524 0 321,713,387 28,534,560 23,278,300 30,924,066 0 (3,628,915) 0 (21,889,117) 327,119,421 652,019 32,841,165 0 2,346,050 31,147,134 (2,313,782) (31,597,378) (2,764,026) 0 (19,436,636) (3,958,132) 0 16,441,517 (13,214,755) 2,029,498 35,382,542 18,987,101 4,658,425 0 0 2,098,314 0 2,346,050 317,033,784 12.53 1.05 (1.17) (.79) (.16) 0 11.46 .74 0 0
EX-27.6PCMMONEYMARKE 21 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Money Market Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 241,281,380 241,281,380 3,200,098 7 0 244,481,485 0 0 417,542 417,542 0 244,063,943 244,063,943 129,329,364 0 0 0 0 0 244,063,943 0 10,268,658 0 1,269,623 8,999,035 0 0 8,999,035 0 (8,999,035) 0 0 410,265,816 (304,530,272) 8,999,035 114,734,579 0 0 0 0 960,766 0 1,269,623 230,840,545 1.00 .037 0 (.037) 0 0 1.00 .55 0 0
EX-27.7PCMNEWOPPORTU 22 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM New Opportunities Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 68,515,037 71,288,318 636,670 29 0 71,925,017 3,209,515 0 123,506 3,333,021 0 65,603,166 6,339,364 0 7,145 0 208,404 0 2,773,281 68,591,996 35,077 96,927 (458) 123,763 7,783 208,404 2,773,281 2,989,468 0 0 0 0 8,196,685 (1,857,321) 0 68,519,996 0 0 0 0 119,511 0 123,763 26,350,663 10.00 0 .82 0 0 0 10.82 .47 0 0
EX-27.8PCMU.S.GOVERN 23 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM U.S. Government and High Quality Bond Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 648,395,932 629,820,909 11,687,196 205 0 641,508,310 0 0 1,050,715 1,050,667 0 644,153,378 52,428,374 36,932,747 42,245,471 0 (27,366,231) 0 (18,575,023) 640,457,595 0 46,808,415 0 4,558,248 42,250,167 (27,041,922) (39,147,476) (23,939,231) 0 (35,768,463) (11,557,390) 0 5,684,034 (11,468,847) 3,849,672 (94,928,119) 35,837,014 11,159,834 0 0 4,062,088 0 4,558,248 680,335,523 13.53 .81 (1.24) (.66) (.22) 0 12.22 .67 0 0
EX-27.9PCMUTILTIESGR 24 FINAN DATA SCHED WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Utilities Growth and Income Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 420,980,109 385,997,969 4,844,196 1,463,119 0 392,305,284 7,373,727 0 762,234 8,135,961 0 412,901,814 35,972,992 36,932,747 20,383,278 0 (14,133,263) 0 (34,982,506) 384,169,323 18,699,274 5,555,727 (108,207) 2,778,737 21,368,057 (13,986,615) (38,349,785) (30,968,343) 0 (12,928,125) (4,625,690) 0 3,208,077 (5,806,839) 1,639,007 (59,111,443) 12,277,821 4,397,602 0 0 2,450,006 0 2,778,737 408,637,794 12.00 .60 (1.44) (.35) (.13) 0 10.68 .68 0 0
EX-27.10PCMVOYAGERFU 25 FINAN DATA SCHED
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PCM Voyager Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 DEC-31-1994 903,235,914 1,028,741,159 9,665,538 15,991 0 1,038,422,688 8,404,827 0 3,045,417 11,450,244 0 877,887,925 46,258,720 30,129,714 3,066,110 0 20,512,825 0 125,505,584 1,026,972,444 6,661,553 2,748,787 (91,936) 5,975,097 3,343,307 23,119,443 (9,860,844) 16,601,906 0 (1,560,454) (12,726,366) 0 18,624,849 (3,187,363) 691,520 351,774,093 1,404,274 10,101,153 0 0 5,347,055 841,562,958 5,975,097 0 22.41 .07 .14 (.05) (.37) 0 22.20 .71 0 0
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