Putnam Slices Fees, Ups Disclosures

January 27, 2004 (PLANSPONSOR.com) - In a move to provide "savings" and "information" to investors, Putnam Investments has unveiled a series of fee reductions and investment disclosure reforms.

Perhaps most significant among the bevy of disclosures and cutbacks revealed by Putnam in a news release are plans to make known the total value of Putnam employee and trustee holdings in all Putnam funds and in each Putnam long-term fund, including the amounts invested in Putnam employees’ firm-sponsored retirement plans.   This information will be available to investors on the firm’s Web site and in all fund prospectuses.

As with the other information exposés, Putnam characterized the disclosure reforms as a means to “provide investors with enhanced, easy-to-understand information about fund fees, fund risk, portfolio manager compensation, employee ownership of Putnam funds and sales charge discounts,” the fund management company said in the announcement.

Similarly, Putnam attempted to align its self with shareholder interest in its sweeping fee cutbacks.   With the reductions, the firm will “put 100% of Putnam’s funds below industry-average expense ratios for their peer groups,” Putnam said in the release.   Thus, investors will notice a savings due to the reduced sales charges.

Fee Reductions

The changes related to shareholders’ costs include reducing the front-end sales on all A shares, with the exception of the Intermediate US Government Income Fund and money market funds that already have reduced or no front-end sales charges.   More specifically, the reduction will apply to equity fund purchases below $500,000 and fixed income fund purchases below $250,000.

This will be accomplished by limiting the portion of sales charges retained by Putnam to a maximum of 0.25%.   To better illustrate the impact of this move, Putnam provided an example – on a purchase of $10,000 in Putnam equity funds, the sales charge will be lowered to $525 from the current $575, saving investors $50 or 9%.

Additionally, the Boston-based investment management firm will reduce the maximum allowable purchase of B class shares on any one day from $250,000 to less than $100,000 per trade.   Putnam says the move is consistent with current regulatory recommendations and industry trends to lower B share purchase limits.

Other fee reductions apply to the six Putnam international and global funds that were embroiled in the market-timing and late-trading scandal (See Trading Probes Muscle Out Strong, Putnam Chiefs ).   In this sextet of funds, Putnam will cap the expense ratios at September 30, 2003 levels, a move Putnam says will prevent holders of these six funds from paying higher management fees or other expenses as a result of reduced asset levels after that date.  

Increased Disclosure

Among the disclosure initiatives, Putnam will provide investors a description of the general criteria used in determining portfolio manager incentive compensation in fund prospectuses.   Currently, Putnam depicts the company’s compensation plan as “designed to align manager compensation with investors’ goals by rewarding portfolio managers who meet the long-term objective of consistent, dependable and superior investment performance.”

Further,   Putnam shareholders will receive future fund expense information in dollars and cents, rather than the traditional percentage denotations.   Expense disclosures for each fiscal period will be calculated on the basis of a $1,000 investment and all prospectuses will include a comparison of peer group expense ratios.   Also included in the prospectus disclosures will be the amount of brokerage commissions paid by the fund on purchases and sales of portfolio securities during the prior 12 months, expressed as a percentage of each fund’s assets.

New to the marketing brochures that accompany prospectuses will be Morningstar overall risk ratings for Putnam funds.   This is being included, Putnam said, “to provide an independent multi-year risk evaluation that emphasizes historical downside risk.”

Looking to satisfy the US Securities and Exchange Commission’s (SEC) requirements for enhanced and timely disclosure of front-end sales charge discounts – breakpoints – Putnam will provide investors with additional information on capturing breakpoint discounts in all fund prospectuses and on its Web site.   Moreover, Putnam will include a notice on the front of each prospectus alerting the investors to potential savings available through discounts.