Hard-Hit Putnam Adds Redemption Fee

January 5, 2004 (PLANSPONSOR.com) - Putnam Investments, the beleaguered Boston mutual fund company perhaps the hardest hit by fallout from the fund trading scandal, has instituted a 2% short-term redemption fee.

According to a news release, Putnam will impose the fee in the first quarter of 2004 on retail and 401(k) accounts covering all of the company’s funds – except money market, closed-end, and variable annuity funds – for shares sold within five days of purchase.

“The Trustees believe that the 2% short-term trading fee, combined with other enhancements being added to our fair value pricing regime, will virtually eliminate any potential market timing of Putnam Funds,” John Hill, chairman, The Putnam Funds, said in the statement.

In March 2001, Putnam began imposing a 1% redemption fee for shares of global and international funds exchanged or sold within 90 days in retail accounts held directly on the funds’ transfer agency system. Effective December 1, 2003, these fees were expanded to cover all Putnam-administered 401(k) plans and taxable high-yield funds.

Short-term trading fees are designed to discourage short-term flows of money into or out of funds. These short-term flows can cause increased transaction expenses. Short-term trading fees are not paid to Putnam; they are paid directly to the funds to offset transaction expenses, the company said in the statement.

The Putnam statement said the company takes a variety of steps to prevent market timing or late trading in fund accounts.

A measure of how hard the company has been hit by the state/federal probe into market timing, late trading, and fund sales abuses came in a recent fund asset flows report from  Financial Research Corp (FRC). According to FRC’s November data, a $13-billion Putnam outflow on the heels of a $2.28-billion October giveback was enough to lower its asset total to $131.4 billion and drop the company a notch to sixth place in FRC’s ranking of the top 25 largest fund companies (See  Asset Drain Drops Putnam to Sixth Place ).