July 28 (Bloomberg) -- Putnam Investments plans to introduce performance-based fees on its growth-stock and international funds as part of a price-cutting program aimed at attracting investors.

Putnam will lower management fees by an average of 13 percent on bond funds and 10 percent on asset-allocation funds, the Boston-based money manager said today in a statement. Some changes will take effect Aug. 1, and others will require fund shareholder approval, the company said.

Chief Executive Officer Robert Reynolds, a former Fidelity Investments vice chairman who took over at Putnam in July 2008, has opened funds, hired executives and restructured the company’s equity division in an effort to rebuild assets. Putnam, the fourth-largest U.S. manager of stock and bond funds as recently as 2001, has dropped out of the top 25, according to data from Financial Research Corp. of Boston.

“This is helpful to Putnam’s cause,” Jonathan Rahbar, a fund analyst with Morningstar Inc. in Chicago, said today in an interview. “There is a push to make a leap into the competitive space of a Fidelity or a Vanguard.” Vanguard Group, in Valley Forge, Pennsylvania, is known for low-fee index funds.

Mutual funds typically charge annual fees pegged to a fixed percentage of assets. Performance fees are tied to a fund’s returns. They allow a company to earn more if a fund exceeds its benchmarks. Fees are reduced if a fund lags behind.

‘Philosophical Shift’

Fidelity, the world’s largest mutual-fund company, and Denver-based Janus Capital Group Inc. levy performance-based fees on certain funds.

“This is a philosophical shift we’re making,” Reynolds, 57, said in a telephone interview. “We want to put ourselves on the same side of the table as the fund shareholder.”

Putnam’s fees are considered “average” by research firm Morningstar. The annual asset-weighted expense ratio at Putnam is 1.19 percent for U.S. stock funds, compared with the industry average of 0.77 percent in 2008, Morningstar data show. Asset- weighted expenses factor in the size of the funds in which shareholders invest. The information is based on annual fund reports, Morningstar said.

Putnam funds investing in non-U.S. stock have fees of 1.38 percent, while the industry averages 0.95 percent, according to Morningstar. The company’s taxable bond funds have fees of 1.11 percent. The industry average is 0.64 percent.

Further Discounts

The $1.24 billion Putnam American Government Income Fund will have the biggest proportional reduction to its management fee, moving to 0.41 percent from 0.62 percent. Management fees represent a portion of charges, which can include marketing expenses as well as deposit and withdrawal fees.

Putnam will eliminate the “wrapper” fees on target-date retirement funds that channel a client’s money into securities through other funds at the company.

Putnam will also change the way it offers asset-level discounts. The discounts will now be tied to total assets in Putnam retail mutual funds, rather than to individual fund assets.

Putnam managed $102.8 billion in assets as of June 30, down from a peak of about $420 billion in 2000. It was acquired in 2007 by Montreal-based Power Financial Corp. from New York’s Marsh & McLennan Cos.

Asset-weighted average expense ratios:

Fund Type                Putnam         Industry
U.S. Stock               1.19           0.77
Intl. Equity             1.38           0.95
Taxable Bond             1.11           0.64

Source: Morningstar Inc.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net; Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: July 28, 2009 13:42 EDT