As filed with the Securities and Exchange Commission on
June 30 , 1997
Registration No. 333-515
811-7513
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 5
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
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ACT OF 1940
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Amendment No. 7
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(Check appropriate box or boxes)
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PUTNAM FUNDS 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
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It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on July 27 , 1997 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a) (1)
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/ / on (date) pursuant to paragraph (a) (1)
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<PAGE>
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/ / 75 days after filing pursuant to paragraph (a) (2)
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/ / on (date) pursuant to paragraph (a) (2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM FUNDS TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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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 is not required because each
series of the Registrant , Putnam Equity Fund 97, Putnam
High Yield Total Return and Putnam International Growth and
Income, with a fiscal year end of June 30, 1997, have not yet
completed their initial fiscal year.
---------------------<PAGE>
PUTNAM FUNDS TRUST
PUTNAM HIGH YIELD TOTAL RETURN FUND
CROSS REFERENCE SHEET
(as required by Rule 481(a))
Part A
N-1A Item No. Location
1. Cover Page....................... Cover page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial highlights;
How performance is shown
4. General Description of
Registrant....................... Objective; How the fund
pursues its objective;
Organization and history
5. Management of the Fund........... Expenses summary; How
the fund is managed;
About Putnam
Investments, Inc.
5A. Management's Discussion
of Fund Performance............. Not applicable
6. Capital Stock and Other
Securities....................... Cover page; Organization
and history; How the
fund makes distributions
to shareholders; tax
information
7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution plans; How
to sell shares; How to
exchange shares; How the
fund values its shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
9. Pending Legal Proceedings........ Not applicable
<PAGE>
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......................... How the fund pursues its
objective (Part A);
Investment restrictions;
Miscellaneous investment
practices
14. Management of the Registrant..... Management (Trustees;
Trustee fees; Officers);
Additional officers
15. Control Persons and Principal
Holders of Securities............ Management (Trustees;
Officers); Charges and
expenses (Share
ownership)
16. Investment Advisory and Other
Services......................... Organization and history
(Part A); Management
(Trustees; Officers; The
management contract;
Principal underwriter;
Investor servicing agent
and custodian); Charges
and expenses;
Distribution plans;
Independent accountants
and financial
statements
17. Brokerage Allocation............. Management (Portfolio
transactions); Charges
and expenses
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How the fund
makes distributions to
shareholders; tax
information (Part A);
Suspension of
redemptions
<PAGE>
19. Purchase, Redemption, and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); How to buy shares;
Determination of net
asset value; Suspension
of redemptions
20. Tax Status....................... How the fund makes
distributions to
shareholders; tax
information (Part A);
Taxes
21. Underwriters..................... Management (Principal
underwriter); Charges
and expenses
22. Calculation of Performance Data.. How performance is shown
(Part A) ; Investment
performance; Standard
performance measures
23. Financial Statements............. Independent
accountants and
financial statements
(unaudited)
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.
<PAGE>
This Post-Effective Amendment relates solely to the
Registrant's Putnam High Yield Total Return Fund Series. This
filing amends only the prospectus and statement of additional
information for Putnam High Yield Total Return Fund. Information
relating to other series of the Registrant contained in the
Registrant's Registration Statement is neither amended nor
superseded by this Post-Effective Amendment.
<PAGE>
PROSPECTUS
July 30 , 1997
Putnam High Yield Total Return Fund
Class A, B and M shares
INVESTMENT OBJECTIVE: TOTAL RETURN
INVESTMENT STRATEGY: INCOME
This prospectus explains concisely what you should know before
investing in Putnam High Yield Total Return Fund (the "fund"), a
portfolio of Putnam Funds Trust (the "Trust"). Please read it
carefully and keep it for future reference. You can find more
detailed information in the July 30 , 1997 statement of
additional information (the "SAI"), as amended from time to time.
For a free copy of the SAI or other information, call Putnam
Investor Services at 1-800-225-1581. The SAI has been filed with
the Securities and Exchange Commission (the "Commission")
and is incorporated into this prospectus by reference. The
Commission maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference into this
prospectus and the SAI, and the other information regarding
registrants that file electronically with the Commission.
The fund invests primarily in lower-rated bonds, commonly known
as "junk bonds." Investments of this type are subject to a
greater risk of loss of principal and nonpayment of interest.
Investors should carefully assess the risks associated with an
investment in the fund.
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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO<PAGE>
ABOUT THE FUND
Expenses summary
................................................................
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of the
fund's shares. Use it to help you estimate the impact of
transaction costs on your investment over time.
Financial highlights
.............................................................
....
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
Objective
................................................................
Read this section to make sure the fund's objective is
consistent with your own.
How the fund pursues its objective
................................................................
This section explains in detail how the fund seeks its investment
objective.
Risk factors. All investments entail some risk. Read this
section to make sure you understand the risks that are associated
with an investment in the fund.
How performance is shown
................................................................
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the fund is managed
................................................................
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
Organization and history
................................................................
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
ABOUT YOUR INVESTMENT
Alternative sales arrangements
................................................................
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
................................................................
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
Distribution plans
................................................................
This section tells you what distribution fees are charged against
each class of shares.
How to sell shares
................................................................
In this section you can learn how to sell fund shares, either
directly to the fund or through an investment dealer.
How to exchange shares
................................................................
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
How the fund values its shares
................................................................
This section explains how the fund determines the value of its
shares.
How the fund makes distributions to shareholders; tax information
.................................................................
This section describes the various options you have in choosing
how to receive fund dividends . It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
................................................................
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from investing in the fund and estimated expenses for the
fund's first full fiscal year. The examples show
the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees+ fees expenses expenses+
- -------- ----- -------- -----------
Class A 0.72% 0.25% 0.53% 1.50%
Class B 0.72% 1.00% 0.53% 2.25%
Class M 0.72% 0.50% 0.53% 1.75%
+ after expense limitation
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses shown in the table do not reflect the application of
credits that reduce fund expenses. The management fees shown in
the table reflect an expense limitation currently in effect.
In the absence of the expense limitation, estimated
management fees and total fund operating expenses would have
been 0.80% and 1.58%, respectively, for class A shares; 0.80%
and 2.33%, respectively, for class B shares; and 0.80% and 1.83%,
respectively, for class M shares. The 12b-1 fees shown
in the table reflect amounts currently payable under each
distribution plan. "Other expenses" are based on estimated
expenses the fund expects to incur during its first full
fiscal year.
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3
year years
Class A $62 $93
Class B $73 $100
Class B (no redemption) $23 $70
Class M $50 $86
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return,
but actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end
sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares -
Class A shares."
FINANCIAL HIGHLIGHTS
The following table presents unaudited per share financial
information for class A, B and M shares. This information should
be read in conjunction with the financial statements and notes
thereto which are included in the SAI and are incorporated by
reference into this prospectus.
<PAGE>
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
<PAGE>
CLASS A
For the period
January 2, 1997+
Per share to April 30
operating
performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income
.20(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.09)
Less distributions:
From net investment income (.07)
Net realized gain on investments --
Total distributions (.07)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.10)*
Net assets, end of period (in thousands) $7,817
Ratio of expenses to average net assets (%)(b) .50*
Ratio of net investment income to average
net assets (%) 2.41*
Portfolio turnover (%) 38.59*
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include
amounts
paid through brokerage service and expense offset
arrangements.
(c) Per share net investment loss has been determined on the
basis of weighted average number of shares outstanding
during the period.
<PAGE>
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS B
For the period
January 2, 1997+
Per share to April 30
operating
performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period
$8.50
Investment operations:
Net investment income
.18(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.11)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.33
Total investment return at net asset value (%)(a) (1.35)*
Net assets, end of period (in thousands) $8,902
Ratio of expenses to average net assets (%)(b) .75*
Ratio of net investment income to average
net assets (%) 2.21*
Portfolio turnover (%) 38.59*
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include
amounts
paid through brokerage service and expense offset
arrangements.
(c) Per share net investment loss has been determined on the
basis of weighted average number of shares outstanding
during the period.
<PAGE>
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS M
For the period
January 2, 1997+
Per share to April 30
operating
performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income
.19(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.10)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.15)*
Net assets, end of period (in thousands) $1,045
Ratio of expenses to average net assets (%)(b) .58*
Ratio of net investment income to average
net assets (%) 2.39*
Portfolio turnover (%) 38.59*
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include
amounts
paid through brokerage service and expense offset
arrangements.
(c) Per share net investment loss has been determined on the
basis of weighted average number of shares outstanding
during the period.
<PAGE>
OBJECTIVE
Putnam High Yield Total Return Fund seeks total return through
high current income and capital appreciation. The fund is not
intended to be a complete investment program, and there is no
assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
The fund seeks total return by investing primarily in high-
yielding, lower-rated fixed-income securities. Normally, at
least 80% of the fund's assets will be invested in high yield
fixed income securities (as defined below), including debt
securities, convertible securities and preferred stocks. The
balance of the fund's assets may be invested in any other
securities that Putnam Investment Management, Inc. ,
the fund's investment manager ("Putnam Management") ,
believes are consistent with the fund's objective, including
higher-rated fixed-income securities, common stocks and other
equity securities. The fund may also hold a portion of its
assets in cash and money market securities.
Total return is a measure of the change in value of fund assets
and includes both interest and dividend income earned on
portfolio investments and any realized or unrealized appreciation
or depreciation in the value of such investments. Accordingly,
Putnam Management will select investments for the fund based on
their potential for high current income, capital appreciation, or
both, and will not necessarily select investments paying the
highest available yield at a particular time.
The fund will seek capital appreciation by investing in
high yield securities and, to the limited extent noted
above, equity and other securities that Putnam Management
believes may appreciate in value as a result of
favorable developments affecting the business or prospects of the
issuer ( which may improve the issuer's financial condition
and credit rating , or declines in long-term interest
rates) . Putnam Management believes that opportunities for
capital appreciation often exist in the securities of smaller
capitalization companies although such companies
may also involve greater risks than larger, more established
issuers. See "Risk factors" below.
Convertible securities typically provide both current
income and the opportunity for capital growth through
conversion to the underlying common stock or other equity
securities. Because of this conversion feature, the price of a
convertible security will normally vary in some proportion to
changes in the price of the underlying equity security.
In addition to investing in the securities of U.S. issuers, the
fund may invest without limit in the securities of foreign
corporate and governmental issuers. However, the fund will limit
its investments in securities denominated in foreign currencies
to 25% of its assets. The fund may invest in foreign issuers
located both in more developed areas of the world, such as
Western Europe and Japan, and in developing or "emerging
markets", such as Latin America, Asia and Eastern Europe. The
fund will limit its investments in emerging markets to 25% of its
assets. For these purposes, a country is considered to be an
"emerging market country" based on Putnam Management's evaluation
of the country's level of economic development or the size and
experience of its securities markets. While emerging market
countries may change over time depending on market and economic
conditions, Putnam Management currently believes that these
countries include every country in the world except Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland, the United Kingdom and the
United States. The fund will consider a corporate issuer to be
located in an "emerging market" country if it is organized under
the laws of an emerging market country and has its principal
offices in such a country. Investing in emerging market
countries generally involves special risks. For more information
about these special risks and the risks of investing in foreign
securities generally, see "Foreign investments" below and in the
SAI.
Fixed-income securities
Differing yields on fixed-income securities of the same maturity
are a function of several factors, including the relative
financial strength of the issuers of such securities. For
purposes of the 80% test described above, "high yield fixed-
income securities" include securities rated below Baa or BBB
by a nationally recognized securities rating agency, such
as Standard & Poor's ("S&P") or Moody's Investors Service,
Inc. ("Moody's") , and unrated securities that
Putnam Management determines are of comparable quality.
Securities rated below Baa or BBB (and comparable unrated
securities) are considered to be of poor standing and
predominantly speculative. The fund may invest up to 15% of its
assets in securities rated below CCC or Caa by each of the
agencies rating the security , including securities in the
lowest rating category of each rating agency (D by
S&P and C by Moody's), and in unrated
securities determined by Putnam Management to be of
comparable quality. Such securities may be in default and are
generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
The foregoing investment limitations will be measured at the
time of purchase and, to the extent that a security is assigned a
different rating by one or more of the various rating agencies,
Putnam Management will use the highest rating assigned by any
agency. The rating services' descriptions of securities in
the lower rating categories, including their speculative
characteristics, are included 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 securities 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 and economic conditions
and interest rates. For corporate issuers, Putnam Management
also considers relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings
prospects. Because of the greater number of investment
considerations involved in investing in lower-rated securities,
the achievement of the fund's objective depends more on Putnam
Management's analytical abilities than would be the case if the
fund were investing primarily in securities in the higher rating
categories.
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 other risks
associated with investments in debt securities, participations
and assignments involve the additional 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. See the SAI.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the fund may invest
without limit in cash or money market instruments, securities
issued by the U.S. government or any foreign government or their
agencies or instrumentalities, or in any other securities Putnam
Management considers consistent with such defensive strategies.
For defensive purposes, the fund may also invest without limit in
securities of issuers located in the United States.
It is impossible to predict when, or for how long, these
alternative strategies will be used.
Risk factors
The values of fixed-income securities fluctuate in response to
changes in interest rates. A decrease in interest rates will
generally result in an increase in the value of fund assets.
Conversely, during periods of rising interest rates, the value of
fund assets will generally decline. The magnitude of these
fluctuations generally is greater for securities with longer
maturities. However, the yields on such securities are also
generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic, political
and business conditions affecting the specific industries of
their issuers.
Changes by recognized rating services in their ratings of a
fixed-income security and changes in the ability of an issuer to
make payments of interest and principal may also affect the value
of these investments. Changes in the value of portfolio
securities generally will not affect income derived from these
securities, but will affect the fund's net asset value.
Investors should carefully consider their ability to assume the
risks of owning shares of a mutual fund that invests in lower-
rated securities before making an investment.
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 or political
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 the fund more volatile and could limit the
fund's ability to sell its securities at prices approximating the
values placed on such securities. In the absence of a liquid
trading market for its portfolio securities the fund at times may
be unable to establish the fair value of such securities.
The rating assigned to a security rating agency does not
reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
The table below shows the percentages of fund assets invested
during the life of the fund in securities assigned to the various
rating categories by S&P, or, if unrated by S&P, assigned to
comparable rating categories by another rating agency, and in
unrated securities determined by Putnam Management to be of
comparable quality.
Unrated securities
Rated securities, of comparable quality,
as percentage of as percentage of
Rating net assets net assets
"AAA" ----- 0.02%
"AA" 0.24% 0.12%
"A" 1.09% -----
"BBB" 0.76% -----
"BB" 21.12% 1.83%
"B" 40.61% 9.49%
"CCC" 5.76% 0.08%
----- -----
69.58% 11.54%
===== =====
The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
At times, a substantial portion of fund 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 all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, it may be more difficult to
sell these securities when Putnam Management believes it
advisable to do so or the fund may be able to sell the securities
only at prices lower than if they were more widely held. Under
these circumstances, it may also be more difficult to determine
the fair value of such securities for purposes of computing the
fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, the fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase fund operating expenses and adversely affect its net
asset value.
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.
The fund at times may 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. 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 in cash
currently. The values of zero-coupon bonds and payment-in-kind
bonds are also subject to greater fluctuation in response to
changes in market interest rates than bonds that pay interest in
cash currently.
Even though such bonds do not pay current interest in cash, the
fund nonetheless is required to accrue interest income on these
investments and to distribute the interest income on a current
basis. Thus, the fund could be required at times to liquidate
other investments in order to satisfy its distribution
requirements.
Certain investment grade securities in which the fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
For additional information regarding the risks associated with
investing in securities in the lower rating categories, see the
SAI.
The fund may invest in companies with relatively small equity
market capitalizations. These smaller companies 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 more limited volume than the securities of
larger, more established companies, and only in the over-the-
counter market or on a regional securities exchange. As a result,
the prices of these securities may fluctuate more sharply than
the prices of securities of other issuers.
There may be less publicly available information about smaller
companies or less market interest in their securities than in the
case of larger companies, and it may take a longer period of time
for the prices of such securities to reflect the full value of
their issuers' underlying earnings potential or assets.
Investments in premium securities
At times, the fund 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.
The fund does not amortize the premium paid for these securities
in calculating its net investment income. As a result, the
purchase of premium securities provides a higher level of
investment income distributable to shareholders on a current
basis than if the fund 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 may increase the risk of capital loss if such
securities are held to maturity (or first call date).
During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of fund shares. As a result,
an investor who purchases fund shares during such periods would
initially receive higher taxable monthly 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 the investor 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 the fund, investors may
find it useful to compare the fund's current dividend rate with
its "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."
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
Options and futures portfolio strategies
The fund may engage in a variety of transactions involving the
use of options and futures contracts. The fund may purchase and
sell futures contracts in order to hedge against changes in the
values of securities the fund owns or expects to purchase or to
hedge against interest rate changes. For example, if Putnam
Management expected interest rates to increase, the fund might
sell futures contracts on U.S. government securities. If rates
were to increase, the value of the fund's fixed-income securities
would decline, but this decline might be offset in whole or in
part by an increase in the value of the futures contracts. The
fund may also purchase and sell call and put options on futures
contracts or on securities the fund is permitted to purchase
directly, in addition to or as an alternative to purchasing and
selling futures contracts. The fund may also buy and sell
combinations of put and call options on the same underlying
security. The fund may also engage in futures and options
transactions for nonhedging purposes, such as to substitute for
direct investment or to manage the effective duration. Duration
is a commonly used
measure of the longevity of the fund's debt
instruments.
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on the fund's ability to terminate options and futures
positions at times when Putnam Management deems it desirable to
do so. Options on certain U.S. government securities are traded
in significant volume on securities exchanges. However, other
options which the fund may purchase or sell are traded in the
"over-the-counter" market rather than on an exchange. This means
that the fund will enter into such option contracts with
particular securities dealers who make markets in these options.
The fund's ability to terminate options positions in the over-
the-counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers
participating in such transactions might fail to meet their
obligations to the fund.
The use of options and futures strategies for hedging purposes
also involves the risk of imperfect correlation among movements
in the prices of the securities underlying the futures and
options purchased and sold by the fund, of the options and
futures contracts themselves, and, in the case of hedging
transactions, the securities which are the subject of a hedge.
The fund's ability to engage in options and futures transactions
and to sell related securities may be limited by tax
considerations and by certain regulatory requirements. See the
SAI.
Foreign investments
To the extent the fund invests in foreign securities denominated
and traded in foreign currencies, the values of fund assets may
be affected favorably or unfavorably by currency exchange rates
relative to the U.S. dollar. As a way of seeking to reduce this
risk, the fund will not invest more than 25% of its assets in
securities denominated in currencies other than the U.S. dollar.
There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers may not be
subject to accounting standards 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 those 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 fund 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 that could affect the
value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be limited. The laws of some foreign countries may
limit investments in securities of certain issuers located in
those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above, including the risks of nationalization
and expropriation of assets, are typically increased to the
extent that the fund invests in issuers located in emerging
market countries (as described above). Investments in securities
located in such countries are speculative and subject to certain
special risks. Political and economic structures in many of
these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of
these countries have in the past failed to recognize private
property rights and have at times nationalized and expropriated
the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of the
fund's assets denominated in such currencies. Many emerging
market companies have experienced substantial, and in some
periods extremely high, rates of inflation for many years, and
continued inflation may adversely affect the economies and
securities markets of such countries.
In addition, unanticipated political or social developments may
affect the values of the fund's investments in these countries
and the availability to the fund of additional investments in
these countries. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in such countries
illiquid and more volatile than investments in more developed
countries, and the fund may be required to establish special
custodial or other arrangements before making investments in
these countries. There may be little financial or accounting
information available with respect to issuers located in these
countries, and it may difficult as a result to assess the value
or prospects of an investment in such issuers.
The fund's investments may include securities issued by foreign
governmental issuers through the exchange of existing commercial
bank loans to such countries for new bonds in connection with
debt restructuring, including Brady Bonds, which are issued under
a debt restructuring plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady. These securities may have no (or
only limited) collateralization, and the payment of interest and
principal may be dependent on the willingness and the ability of
the foreign governmental issuer to make payment in accordance
with the terms of the security.
The fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including transactions involving futures contracts, forward
contracts and options. For a further discussion of the risks
associated with purchasing and selling futures contracts and
options, see "Options and futures portfolio strategies." The SAI
also contains information concerning these transactions.
The decision as to whether and to what extent
the fund will engage in foreign currency exchange transactions
will depend on a number of factors, including prevailing market conditions,
the composition of the fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that the fund will engage in foreign currency exchange
transactions at any given time or from time to time.
A more detailed explanation of foreign investments,
and the risks and special tax considerations associated with
them, is included in the SAI.
Other investment practices
The fund may also engage in the following investment practices,
each of which involves certain special risks. The SAI contains
more detailed information about these practices, including
limitations designed to reduce these risks.
Securities loans, repurchase agreements and forward
commitments. The 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.
The 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 if
the other party should default on its obligation and the fund
is delayed or prevented from recovering the collateral or
completing the transaction.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect
to 75% 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). The remaining 25% of its
total assets is not subject to this restriction. To the extent
the fund invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's
securities declines.
Derivatives
Certain of the instruments in which the fund may invest, such
as futures contracts, options and forward contracts, are
considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security or an index.
Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any one
issuer. * They also prohibit the fund from investing
more than:
(a) (with respect to 75% of its total assets) 5% of its
total assets in securities of any one issuer other than the
U.S. government;* or
(b) 25% of its total assets in any one industry (other
than securities of the U.S. government, its agencies or
instrumentalities);* or
(c) 15% of its net assets in any combination of
securities that are not readily marketable, in securities
restricted as to resale (excluding securities determined by the
Trustees (or the person designated by the Trustees to make such
determinations) to be readily marketable), and in repurchase
agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are
summaries of fundamental investment
policies . See the SAI for the full text of these
policies and other fundamental investment policies. Except
for investment policies designated as fundamental in this
prospectus or the SAI, the investment policies described in
this prospectus and in the SAI are not fundamental policies.
The Trustees may change any non-fundamental investment policy
without shareholder approval. As a matter of policy, the
Trustees would not materially change the fund's investment
objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during
a recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ
from net investment income as determined for tax
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. The current dividend
rate is based on net investment income as determined for tax
purposes, which may not reflect amortization in the same
manner. See "How the fund pursues its objective -- Investments
in premium securities."
Yield is based on the price of the shares, including the
maximum initial sales charge in the case of class A and class M
shares, but does not reflect any contingent deferred sales
charge in the case of class B shares.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, if shorter) through the most recent
calendar quarter represents the average annual compounded rate
of return on an investment of $1,000 in the fund invested at
the maximum public offering price (in the case of class A and
class M shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of class B
shares). Total return may also be presented for other periods
or based on investment at reduced sales charge levels. Any
quotation of investment performance not reflecting the maximum
initial sales charge or contingent deferred sales charge would
be reduced if the sales charge were used.
All data are based on past investment results and do not
predict future performance. Investment performance, which will
vary, is based on many factors, including market conditions,
portfolio composition, fund operating expenses and which class
of shares the investor purchases. Investment performance also
often reflects the risks associated with the fund's investment
objective and policies. These factors should be considered
when comparing the fund's investment results with 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. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the
conduct of fund business. Subject to such policies as the
Trustees may determine, Putnam Management furnishes a
continuing investment program for the fund and makes investment
decisions on its behalf. Subject to the control of the
Trustees, Putnam Management also manages the fund's other
affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on average net assets. See "Expense summary"
and the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the years stated below:
<PAGE>
Business experience
Year (at least 5 years)
------- -------------------------
Gail S. Attridge 1997 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to November, 1993, Ms.
Attridge was an Analyst
at Keystone Custody
International.
Jin W. Ho 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1983.
Charles G. Pohl 1996 Employed as an investment
Vice President professional by Putnam
Management since
1983 .
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, and auditing, legal, custodial,
investor servicing and shareholder reporting expenses, and
payments under its distribution plans (which are in turn
allocated to the relevant class of shares). Expenses of the
Trust directly charged or attributable to a fund will be paid
from the assets of that fund. General expenses of the Trust
will be allocated among and charged to the assets of the funds
and any other portfolio of the Trust on a basis that the
Trustees deem fair and equitable, which may be based on the
relative assets of the funds or the nature of the services
performed and relative applicability to each fund. The
fund also reimburses Putnam Management for the compensation and
related expenses of certain fund officers and their staff who
provide administrative services. The total reimbursement is
determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. 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 sales of fund shares (and, if permitted by law,
shares of the other Putnam funds) as a factor in the
selection of broker-dealers.
The fund pays a quarterly fee to Putnam Management based on the
average net assets of the fund, as determined at the close of
each business day during the quarter, at the following annual
rates, expressed as a percentage of the fund's average net
assets: 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 amount over $21.5 billion.
In order to limit the fund's expenses during its start-up
period, Putnam Management has agreed to limit its compensation
(and, to the extent necessary, bear other expenses) through
December 31 , 1997, to the extent that expenses of the
fund (exclusive of brokerage, interest, taxes, deferred
organizational and extraordinary expense, and payments under
the fund's distribution plans) would exceed 1.25% of the fund's
average net assets. For the purpose of determining any such
limitation on Putnam Management's compensation, fund expenses
shall 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.
ORGANIZATION AND HISTORY
Putnam Funds Trust is a Massachusetts business trust
organized on January 22, 1996. 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, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without
shareholder approval , create two or more series of
shares representing separate investment portfolios. The Trust
is currently divided into two series of shares representing
separate investment portfolios. Only shares of Putnam High
Yield Total Return Fund are offered by this prospectus.
Any such series of shares may be divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges
as the Trustees determine. The fund's shares are currently
divided into three classes. Only class A, B and M
shares are offered by this prospectus. The fund may also offer
other classes of shares with different sales charges and
expenses. Because of these different sales charges and
expenses, the investment performance of the classes will vary.
For more information, including your eligibility to purchase
any other class of shares, contact your investment dealer or
Putnam Mutual Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote
together as a single class without regard to series or classes
of shares on all matters except, (i) when required by the
Investment Company Act of 1940 or when the Trustees have
determined that the matter affects the interests of one or more
series or classes materially differently, shares will be voted
by individual series or class; and (ii) when the Trustees have
determined that the matter affects only the interest of one or
more series or classes, only shareholders of that series or
class shall be entitled to vote thereon. Shares are freely
transferable, are entitled to dividends as declared by the
Trustees, and, if the fund were liquidated, would receive the
net assets of the fund. The fund may suspend the sale of
shares at any time and may refuse any order to purchase shares.
Although the 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.
If you own fewer shares than the minimum amount set by the
Trustees (presently 20 shares), the fund may choose to redeem
your shares. You will receive at least 30 days' written notice
before the fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The fund
may also redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply to
both present and future shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of
the Putnam funds. Chairman and Director of Putnam Management
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds").
Director, Marsh & McLennan Companies, Inc.; William F. Pounds,
Vice Chairman. Professor of Management, Alfred P. Sloan
School of Management, Massachusetts Institute of Technology;
Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans
H. Estin, Vice Chairman, North American Management Corp.; John
A. Hill, Chairman and Managing Director, First Reserve
Corporation; Ronald J. Jackson, Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc., Director of
Safety 1st, Inc., Trustee of Salem Hospital and the
Peabody Essex Museum; Elizabeth T. Kennan, President Emeritus
and Professor, 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President, New
Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, 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 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 fund, Putnam Management or
Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. An investor who purchases class A shares pays
a sales charge at the time of purchase. As a result, class A
shares are not subject to any charges when they are redeemed,
except for certain sales at net asset value that are subject to
a contingent deferred sales charge ("CDSC"). Certain purchases
of class A shares qualify for reduced sales charges. Class A
shares bear a lower 12b-1 fee than class B and class M shares.
See "How to buy shares -- Class A shares" and "Distribution
plans."
Class B shares. Class B shares are sold without an initial
sales charge, but are subject to a CDSC if redeemed within a
specified period after purchase. Class B shares also bear a
higher 12b-1 fee than class A and class M shares. Class B
shares automatically convert into class A shares, based on
relative net asset value, approximately eight years after
purchase. For more information about the conversion of class B
shares, see the SAI. This discussion includes information
about how shares acquired through reinvestment of distributions
are treated for conversion purposes. The discussion also notes
certain circumstances under which a conversion may not occur.
Class B shares provide an investor the benefit of putting all
of the investor's dollars to work from the time the investment
is made. Until conversion, class B shares will have a higher
expense ratio and pay lower dividends than class A and class M
shares because of the higher 12b-1 fee. See "How to buy shares
- -- Class B shares" and "Distribution plans."
Class M shares. An investor who purchases class M shares pays
a sales charge at the time of purchase that is lower than the
sales charge applicable to class A shares. Certain purchases
of class M shares qualify for reduced sales charges. Class M
shares bear a 12b-1 fee that is lower than class B shares but
higher than class A shares. Class M shares are not subject to
any CDSC and do not convert into any other class of shares.
See "How to buy shares -- Class M shares" and "Distribution
plans."
Which arrangement is best for you? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount
and intended length of the investment. Investors making
investments that qualify for reduced sales charges might
consider class A or class M shares. Investors who prefer not to
pay an initial sales charge might consider class B shares.
Orders for class B shares for $250,000 or more will be treated
as orders for class A shares or declined. For more information
about these sales arrangements, consult your investment dealer
or Putnam Investor Services. Shares may only be exchanged for
shares of the same class of another Putnam fund. See "How to
exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy fund shares three ways - through most investment
dealers, through Putnam Mutual Funds (at 1-800-225-1581), or
through a systematic investment plan. If you do not have a
dealer, Putnam Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and write a check for the amount you wish to invest,
payable to the fund. Return the completed form and
check to Putnam Mutual Funds, which will act as your agent in
purchasing shares through your designated investment dealer.
Buying shares through systematic investing. You can make
regular investments of $25 or more per month through automatic
deductions from your bank checking or savings account.
Application forms are available from your investment dealer or
through Putnam Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the
New York Stock Exchange. If you buy shares through your
investment dealer, the dealer must receive your order before
the close of regular trading on the New York Stock Exchange to
receive that day's public offering price.
Class A shares
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The
sales charge is allocated between your investment dealer and
Putnam Mutual Funds as shown in the following table, except
when Putnam Mutual Funds, in its discretion, allocates the
entire amount to your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 4.99% 4.75% 4.25%
50,000 but under 100,000 4.71 4.50 4.00
100,000 but under 250,000 3.63 3.50 3.00
250,000 but under 500,000 2.56 2.50 2.25
500,000 but under 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------
No initial sales charge applies to purchases of
class A shares of $1 million or more , or to
purchases by employer-sponsored retirement plans that
have at least 200 eligible employees. However, a
CDSC of 1.00% or 0.50%, respectively, is imposed on
redemptions of these shares within the first or second year
after purchase , unless the dealer of record waived
its commission with Putnam Mutual Funds' approval, or
unless the purchaser is a class A qualified benefit plan (a
retirement plan for which Putnam Fiduciary Trust Company provides
recordkeeping or other services in connection with the
purchase of class A shares ).
Class A qualified benefit plans may purchase class A shares with
no initial sales charge. However, a CDSC of 1.00% is imposed on
redemptions of these shares if, within two years of the
plan's initial purchase of class A shares, it redeems 90%
or more of its cumulative purchases. Thereafter, such a plan is
no longer liable for any CDSC. Class A qualified benefit plans
that initially invest at least $20 million in Putnam
funds and other investments managed by Putnam Management or its
affiliates pursuant to a proposal made by Putnam Mutual
Funds on or before April 15, 1997 are not subject to any
CDSC.
A class A qualified benefit plan participating in a
"multi-fund" program approved by Putnam Mutual Funds may include
amounts invested in other mutual funds participating in such
program for purposes of determining whether the plan may purchase
class A shares at net asset value. These investments will also
be included for purposes of the discount privileges and programs
described elsewhere in this prospectus and in the SAI.
As described in the SAI, Putnam Mutual Funds pays the dealer
of record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays investment dealers of
record commissions on sales of class A shares of $1 million or
more and sales of class A shares to employer-sponsored retirement
plans that have at least 200 eligible employees and that are not
class A qualified benefit plans based on an investor's cumulative
purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-
year measuring period for these purposes will begin 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 $47 million and 0.25%
thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of
the amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
Class M shares
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30 2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
Sales charges will not apply to class M shares purchased with
redemption proceeds received within the prior 90 days from non-
Putnam mutual funds on which the investor paid a front-end or a
contingent deferred sales charge. Class M qualified
retirement plans (retirement plans for which Putnam Fiduciary
Trust Company provides recordkeeping or other services in
connection with the purchase of class M shares) and members
of qualified groups may also purchase class M shares without a
sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to sell fund shares without a CDSC .
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, qualified
benefit plans , and other plans. Descriptions are
also included in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net
asset value without an initial sales charge or a CDSC to current
and retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds , and investors meeting certain requirements
who sold shares of certain Putnam closed-end funds pursuant to a
tender offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming shares or transferring
shares to another person shortly after purchase, you should pay
for those shares with a certified check to avoid any delay in
redemption or transfer. Otherwise, payment may be
delayed until the purchase price of those shares has been
collected or, if you redeem by telephone, until 15 calendar days
after the purchase date. To eliminate the need for safekeeping,
certificates will not be issued for your shares unless you
request them.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. For information
on how sales charges are calculated if you exchange your shares,
see "How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the SAI for more
information about the CDSC.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
The fund has adopted distribution plans to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers described below and in the SAI. The plans
provide for payments by the fund to Putnam Mutual Funds at
annual rates (expressed as a percentage of average net
assets ) of up to 0.35% on class A shares and 1.00% on
class B and class M shares. The Trustees currently limit
payments on class A and class M shares to 0.25% and
0.50% of average net assets, respectively.
Putnam Mutual Funds compensates qualifying dealers
(including, for this purpose, certain financial institutions)
for sales of shares and the maintenance of
shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers
at the annual rate of up to 0.25% of the average net asset
value of class A shares (including shares acquired through
reinvestment of distributions) for which such dealers are
designated as the dealer of record. The payments to dealers
for shares held by class A qualified benefit plans are made at
reduced rates, as described in the SAI. No payments are made
during the first year after purchase on shares
purchased at net asset value by shareholders investing $1 million
or more or by employer-sponsored retirement plans that
have at least 200 eligible employees or that are class A
qualified benefit plans, unless the shareholder has made
arrangements with Putnam Mutual Funds and the dealer of record
has waived the sales commission.
Putnam Mutual Funds makes quarterly payments to
dealers at the annual rates of 0.25% and 0.40% of
the average net asset value of class B and class M
shares for which such dealers are designated as
the dealer of record , respectively .
Putnam Mutual Funds may suspend or modify its payments
to dealers. The payments are also subject to the
continuation of the relevant distribution plan, the terms of
service agreements between dealers and Putnam Mutual Funds, and
any applicable limits imposed by the National Association of
Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York
Stock Exchange is open, either directly to the fund or through
your investment dealer. The fund will only redeem shares for
which it has received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. 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.
Your fund generally sends you payment for your shares the
business day after your request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified
Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value. Not all Putnam
funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares. The CDSC will be
computed using the schedule of any fund into or from which you
have exchanged your shares that would result in your paying the
highest CDSC applicable to your class of shares. For purposes of
computing the CDSC, the length of time you have owned your shares
will be measured from the date of original purchase and will not
be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. The
form is available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all shareholders. In
order to limit excessive exchange activity and in other
circumstances where Putnam Management or the Trustees believe
doing so would be in the best interests of your fund, the fund
reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange.
Consult Putnam Investor Services before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
Securities quoted in foreign currencies are translated into U.S.
dollars at current exchange rates or at such other rates as the
Trustees may determine in computing net asset value. As a
result, fluctuations in the value of such currencies in relation
to the U.S. dollar may affect the net asset value of fund
shares even though there has not been any change in the values of
such securities as quoted in such foreign currencies.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income at least monthly
and any net realized capital gains at least annually.
Distributions paid on class A shares will generally be greater
than those paid on class B and class M shares because expenses
attributable to class B and class M shares will generally be
higher.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting capital gains distributions in
additional
shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the fund. Similarly, if
correspondence sent by the fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will
automatically be reinvested in the fund or in another Putnam
fund.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. The fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis.
Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will
be taxable as such, regardless of how long you have held the
shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, the fund's yield on those securities would be
decreased.
If at the end of the fund's fiscal year more than 50% of the
value of its total assets represents securities of foreign
corporations, the fund intends to make an election permitted by
the Internal Revenue Code to treat any foreign taxes paid by it
as paid by its shareholders. In this case, shareholders who are
U.S. citizens, U.S. corporations and, in some cases, U.S.
residents generally will be required to include in U.S. taxable
income their pro rata share of such taxes, but may then generally
be entitled to claim a foreign tax credit or deduction (but not
both) for their share of such taxes.
Fund transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in value of the foreign
currency concerned. In addition, such activities will likely
produce a difference between book income and taxable income.
This difference may cause a portion of the fund's income
distributions to constitute a return of capital for tax purposes
or require the fund to make distributions exceeding book income
to qualify as a regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Code could subject the fund to a
U.S. federal income tax or other charge on certain "excess
distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
Early in each year Putnam Investor Services will notify you of
the amount and tax status of distributions paid to you for the
preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the fund. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the fund.
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.
<PAGE>
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 edged." 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 risk appear somewhat larger than
the 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.
<PAGE>
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 attaining any real investment standing.
Standard & Poor's
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 capacity to pay interest and repay principal in accordance
with the terms of the obligation. 'BB' indicates the lowest
degree of speculation and 'C' the highest. While such debt will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to
adverse conditions.
BB -- Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The 'BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'BBB-' rating.
B -- Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC -- Debt rated 'CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The 'CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'B' or 'B-'
rating.
CC -- The rating 'CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied 'CCC'
rating.
C -- The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt
rating. The 'C' rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated 'D' are 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 S&P 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.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.<PAGE>
PUTNAM HIGH YIELD TOTAL RETURN FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
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
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PUTNAM HIGH YIELD TOTAL RETURN FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
July 30 , 1997
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the fund dated July 30 , 1997, as revised from time to
time. This SAI contains information which may be useful to
investors but which is not included in the prospectus. If the
fund has more than one form of current prospectus, each reference
to the prospectus in this SAI shall include all of the fund's
prospectuses, unless otherwise noted. The SAI 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.
Part I of this SAI contains specific information about the fund.
Part II includes information about the fund and the other Putnam
funds.
<PAGE>
Table of Contents
Part I
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
I- 3
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
. . . .I-5
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
I- 8
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
I- 9
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
I- 9
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-34
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . .II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . .II-45
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . .II-57
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . .II-58
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . .II-64
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . .II-64
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . .II-64
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . .II-65
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . .II-66
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-71
<PAGE>
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting
securities, the fund may not and will not:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its 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.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options and may enter into foreign exchange contracts and
other financial transactions not involving physical commodities.
(5) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment policies, by
entering into repurchase agreements, or by lending its portfolio
securities.
(6) With respect to 75% of its total assets, invest in the
securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the fund (taken at current
value) would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations
issued or guaranteed as to interest or principal by the U.S.
government or its agencies or instrumentalities.
(7) With respect to 75% of its total assets, acquire more than
10% of the outstanding voting securities of any issuer.
<PAGE>
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such purchase, more than 25% of the fund's total assets would be
invested in any one industry.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest, except for permitted borrowings.
Although certain of the fund's fundamental investment
restrictions permit it to borrow money to a limited extent, the
fund does not currently intend to do so and has not done so
since its inception .
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding fund shares, or (2) 67% or more of the shares present
at a meeting if more than 50% of the outstanding fund shares are
represented at the meeting in person or by proxy.
It is contrary to the fund's present policy, which may be changed
without shareholder approval, to:
Invest in (a) securities which are not readily marketable, (b)
securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated
by the Trustees of the Trust to make such determinations) to be
readily marketable), and (c) repurchase agreements maturing in
more than seven days, if, as a result, more than 15% of the
fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
----------------------------
All percentage limitations on investments (other than pursuant to
the non-fundamental restriction above) 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.
----------------------------
CHARGES AND EXPENSES
Trustee fees
Each Trustee receives 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
following table shows the year each Trustee was first elected a
Trustee of the Putnam funds, the estimated fees to
be paid to each Trustee by the fund for fiscal 1997 and the fees
paid to each Trustee by all of the Putnam funds during calendar
1996:
<PAGE>
COMPENSATION TABLE
Pension or Estimated
Total
Estimated retirement annual benefits
compensation
compensation benefits accrued from all
from all
from the as part of Putnam funds
Putnam
Trustees/Year fund(1) fund expenses(2) upon
retirement(3)funds(4)
Jameson A. Baxter/1994 $62 $0 $85,646
$172,291(5)
Hans H. Estin/1972 $62 $0 85,646
171,291
John A. Hill/1985 $62 $0 85,646
170,791(5)
Ronald J. Jackson/1996(6) $62 $0 85,646
94,807(5)
Elizabeth T. Kennan/1992 $62 $0 85,646
171,291
Lawrence J. Lasser/1992 $62 $0 85,646
169,791
Robert E. Patterson/1984 $62 $0 85,646
182,291
Donald S. Perkins/1982 $62 $0 85,646
170,291
William F. Pounds/1971(7) $63 $0 98,146
197,291
George Putnam/1957 $62 $0 85,646
171,291
George Putnam, III/1984 $62 $0 85,646
171,291
A.J.C. Smith/1986 $62 $0 85,646
169,791
W. Nicholas Thorndike/1992 $62 $0 85,646
181,291
(1) Includes an annual retainer and an attendance fee for each
meeting
attended.
(2) The Trustees approved a Retirement Plan for Trustees of the
Putnam funds
on certain retired Trustees.
(3) Assumes that each Trustee retires at the normal retirement
date.
Estimated benefits for each Trustee are based on Trustee fee
rates in
effect during calendar 1996.
(4) As of December 31, 1996, there were 96 funds in the Putnam
family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation
Deferral Plan.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice
Chairman of the
Putnam funds.
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"), each Trustee who retires with at least five years of
service as a Trustee of the funds is entitled to receive an
annual retirement benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such Trustee's years
of service. A death benefit is also available under the Plan
which assures that the Trustee and his or her beneficiaries will
receive benefit payments for the lesser of an aggregate period of
(i) ten years or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that
are not "interested persons" of the fund, as defined in the
Investment Company Act of 1940) may terminate or amend the Plan
at any time, but no termination or amendment will result in a
reduction in the amount of benefits (i) currently being paid to a
Trustee at the time of such termination or amendment, or (ii) to
which a current Trustee would have been entitled had he
or she retired immediately prior to such termination or
amendment.
For additional information concerning the Trustees, see
"Management" in Part II of this SAI.
Share ownership
As of May 31, 1997, the officers and Trustees of the Trust
as a group own 1.81% of the outstanding class A shares and
less than 1% of the outstanding class B and class M
shares , and, except as noted below, to the knowledge of the
fund, no person owned of record or beneficially 5% or more of any
class of shares of the fund:
Shareholder name Percentage
Class and address owned
----- -------------------- --------
M Donaldson, Lufkin, Jenrette, Inc. 11.10%
P.O. Box 2052
Jersey City, NJ 07303-2052
M Carl J. Fink 6.90%
4017 S.E. Vineyard Rd. Apt. 337
Portland, OR 97267
M Merril Lynch, Pierce Fenner & Smith 6.89%
4800 Deer Lake Dr. E. Fl. 3
Jacksonville, FL 32246
M Sarah S. Grey 5.50%
816 W. Summit Street
Lead, SD 57754
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended April 30, 1997)
Class A Class B Class M
Inception date: 1/2/97 1/2/97 1/2/97
Annualized
total return+
Life of class* -5.76 -6.25% -4.41%
Yield++
30-day
Yield 6.78%
6.43% 6.64%
* Represents cumulative, rather than average annual, total return
+ Reflects an expense limitation in effect, in the absence of the
expense limitation, total return would have been lower.
++ Reflecting an expense limitation then in effect. In the
absence of the expense limitation, the fund's yield for class
A, class B and class M shares would have been 6.80%, 5.56% and
6.20% , respectively.
Data represent past performance and are not indicative of future
results. Total return and yield for class A and class M shares
reflect the deduction of the maximum sales charge of 4.75%
and 3.25%, respectively. Total return for class B shares
reflects the deduction of the applicable contingent deferred
sales charge ("CDSC"). The maximum class B CDSC is 5.0%. See
"Standard performance measures" in Part II of this SAI for
information on how performance is calculated. Past performance is
no guarantee of future results.
<PAGE>
ADDITIONAL OFFICERS
In addition to the persons listed as officers of the Trust in
Part II of this SAI, each of the following persons is also a Vice
President of the Trust and certain of the other Putnam funds, the
total number of which is noted parenthetically. Officers of
Putnam Management hold the same offices in Putnam Management's
parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Jin W. Ho (39) (3 funds). Managing Director of Putnam
Management.
Edward H. D'Alelio (44) (4 funds). Managing Director of
Putnam Management.
Charles G. Pohl (35) (3 funds). Senior Vice President of Putnam
Management.
Gail S. Attridge (36) (9 funds). Vice President of Putnam
Management. Prior to November 1993, Ms. Attridge was an Analyst
at Keystone Custody International.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand, L.L.P., are the fund'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 following are the fund's unaudited financial statements
for the period January 2, 1997 (commencement of operations) to
April 30, 1997.
<PAGE>
<PAGE>
6
Putnam
High Yield
Total
Return
Fund
Portfolio
of
investment
s owned
April 30,
1997
(Unaudited
)
Corporate Bonds and Notes (60.1%) (a)
PRINCIPAL VALUE
AMOUNT
Advertising (0.3%)
$ Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $
50,000 49,860
Aerospace and Defense
(0.1%)
15,000 L-3 Communications Corp. 144A sr. sub. notes 10 15,450
3/8s, 2007
10,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 9,800
Agriculture (1.8%) 25,250
299,734 Premium Standard Farms, Inc. sr. secd. notes 11s, 319,217
2003 (PIK)
Apparel (0.1%)
25,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 24,750
Automotive (2.4%)
200,000 A.P.S Inc. company guaranty 11 7/8s, 2006 200,000
25,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 25,625
75,000 Exide Corp. sr. notes 10s, 2005 75,938
50,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 22,500
80,000 Hawk Corp. sr. notes 10 1/4s, 2003 80,600
15,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 15,150
2007
419,813
Broadcasting
(4.0%)
50,000 Capstar Broadcasting 144A sr. disc. notes stepped- 27,875
coupon zero % (12 3/4s, 2/1/02), 2009 (STP)
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero % 103,500
(11.2s, 11/15/00), 2007(Bermuda) (STP)
272,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon 173,400
zero % (13 1/4s, 5/15/01), 2008(Mexico) (STP)
150,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes 124,125
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 (STP)
10,000 RBS Participacoes S.A. 144A company guaranty 11s, 10,098
2007(Brazil)
25,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 26,188
3/4s, 2006
15,000 Spanish Broadcasting Systems 144A sr. notes 11s, 15,075
2004
125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 125,000
10,000 TCI Satellite Entertainment 144A sr. sub. notes 10 9,500
7/8s, 2007
50,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 49,188
2007(Mexico)
50,000 Young Broadcasting Inc. company guaranty Ser. B, 47,250
9s, 2006
711,199
Building and Construction
(3.0%)
100,000 Consumers International 144A sr. notes 10 1/4s, 103,000
2005
5,000 Continental Homes Holding Corp. sr. notes 10s, 2006 4,925
75,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 74,250
125,000 Presley Cos. sr. notes 12 1/2s, 2001 120,938
100,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 105,000
50,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 54,938
75,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 78,750
541,801
Cable Television (1.5%)
60,000 Adelphia Communications Corp. 144A sr. notes 9 56,700
7/8s, 2007
50,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 48,750
2005
125,000 Diamond Cable Communication Co. sr. disc. notes 86,563
stepped-coupon zero % (11 3/4s, 12/15/00),
2005(United Kingdom) (STP)
115,000 Diamond Cable Communications Co. 144A sr. disc. 68,425
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (STP)
260,438
Chemicals (0.8%)
25,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 24,750
120,000 NL Industries, Inc. sr. notes stepped-coupon zero % 110,850
(13s, 10/15/98), 2005 (STP)
135,600
Connecticut (0.4%)
50,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 65,500
1/2s, 2002
Consumer Products (0.4%)
100,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 65,500
2001
Consumer Services (2.6%)
25,000 Affinity Group Holdings 144A sr. notes 11s, 2007 25,625
20,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 19,800
2009
50,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 55,000
26,375 Falcon Holdings Group, Inc. sr. sub. notes 11s, 22,946
2003 (PIK)
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 129,375
10,000 Hollinger International Publishing, Inc. company 9,875
guaranty 8 5/8s, 2005
200,000 Sun International Hotels Ltd. 144A sr. sub. notes 197,500
9s, 2007
460,121
Electronics and Electrical Equipment
(1.0%)
20,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 17,666
11.74s, 2008
165,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 166,650
10 1/8s, 2007
184,316
Entertainment (1.2%)
50,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 47,500
2004
Food (0.3%)
50,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 49,000
45,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 46,575
50,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 50,625
75,000 Trump A.C. 1st mtge. 11 1/4s, 2006 72,938
219,138
Food and Beverage (0.9%)
50,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 53,125
Forest Products (0.3%)
5,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 5,150
150,000 Doane Products Co. sr. notes 10 5/8s, 2006 156,000
161,150
Health Care (2.1%)
50,000 Gaylord Container Corp. sr. sub. disc. deb. 12 53,750
3/4s, 2005 (STP)
Insurance and Finance
(3.5%)
10,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 10,000
150,000 Integrated Health Services sr. sub. notes 10 3/4s, 160,500
2004
150,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 141,750
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 54,725
366,975
Insurance and Finance (3.5%)
225,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 209,250
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 10,000
2027
150,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 150,000
2003
125,000 Imperial Credit Industries, Inc. 144A sr. notes 9 115,000
7/8s, 2007
25,000 Provident Capital Trust company guaranty 8.6s, 2026 24,125
50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 36,000
50,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 51,375
2003
10,000 Sovereign Capital Trust 144A company guaranty 9s, 9,750
2027
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 10,206
615,706
Medical Supplies and Devices
(0.4%)
75,000 Wright Medical Technology, Inc. sr. secd. notes 75,750
Ser. B, 10 3/4s, 2000
Metals and Mining (1.7%)
10,000 Acindar Industria Argentina de Aceros S.A. bonds 11 10,150
1/4s, 2004(Argentina)
10,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 10,125
2004(Mexico)
15,000 Continental Global Group 144A sr. notes Ser. A, 15,450
11s, 2007
10,000 Echo Bay Mines jr. sub. deb. 11s, 2027(Canada) 9,850
50,000 Maxxam Group Holdings sr. nores Ser. B, 12s, 2003 50,500
150,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 150,750
2006(Canada)
50,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 50,500
297,325
Oil and Gas
(6.1%)
125,000 Cliffs Drilling Co. company guaranty Ser. B, 10 129,688
1/4s, 2003
100,000 Falcon Drilling Co., Inc. sr. notes Ser. B, 9 3/4s, 102,000
2001
50,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 58,125
50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 51,750
5,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 4,750
50,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 53,250
50,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 51,375
2006
25,000 Transamerican Refining 144A 15s, 1998 25,000
600,000 Transamerican Refining Corp. var. rate 1st mtge. 556,500
zero % (18.5s 2/15/98), 2002 (STP)
50,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 55,625
1,088,06
3
Packaging and Containers
(0.5%)
15,000 Innova S De R.L. 144A sr. notes 12 7/8s, 14,775
2007(Mexico)
75,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 81,469
96,244
Paper and Forest Products
(1.0%)
50,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 51,000
50,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 48,000
2003
50,000 Repap New Brunswick sr. notes 10 5/8s, 2005(Canada) 47,000
25,000 Riverwood International Corp. company guaranty 10 23,500
1/4s, 2006
169,500
Publishing (0%)
5,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 4,825
2007(Canada)
Real Estate (0.1%)
20,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 20,400
2007
Recreation (3.3%)
50,000 Alliance Gaming Corp. 12 7/8s, 2003 53,938
150,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 134,250
100,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 99,000
2003 (PIK)
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 153,750
150,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 150,000
590,938
Retail (1.6%)
100,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 97,000
50,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 52,000
10,000 Quality Food Centers, Inc. 144A sr. sub. notes 9,850
8.7s, 2007
125,000 Supermercados Norte 144A bonds 10 7/8s, 2004 125,000
(Argentina)
10,000 William Carter Co. 144A sr. sub. notes 12s, 2008 10,200
294,050
Telecommunications
(10.3%)
125,000 Arch Communications Group sr. disc. notes stepped- 56,875
coupon zero % (10 7/8s, 3/15/01), 2008 (STP)
50,000 Brooks Fiber Properties, Inc. sr. disc. notes 32,750
stepped-coupon zero % (10 7/8s, 3/1/01), 2006 (STP)
225,000 Cencall Communications Corp. sr. disc. notes 166,500
stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 (STP)
75,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 75,656
25,000 Charter Communications International, Inc. sr. 25,813
notes Ser. B, 11 1/4s, 2006
10,000 Consorcio Ecuatoriano 144A notes 14s, 2002 10,100
(Ecuador)
150,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 144,000
2007
25,000 Frontiervision Operating Partners L.P. sr. sub. 25,063
notes 11s, 2006
150,000 GST Telecommunications, Inc. company guaranty 93,000
stepped-coupon zero % (13 7/8s, 15/15/00), 2005
(STP)
25,000 Hyperion Telecommunication Corp. sr. disc. notes 12,750
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003
(STP)
275,000 Intelcom Group (USA), Inc. company guaranty stepped- 163,625
coupon zero % (12 1/2s, 5/1/01), 2006 (STP)
100,000 Intermedia Communications, Inc. sr. disc. notes 64,500
stepped-coupon zero % (12 1/2s, 5/15/01), 2006
(STP)
150,000 International Cabletel, Inc. sr. notes stepped- 98,250
coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006
(STP)
40,000 International Cabletel, Inc. 144A sr. notes 10s, 39,100
2007
85,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon 48,663
zero % (10 1/2s, 3/1/02), 2007 (STP)
50,000 MFS Communications sr. disc. notes stepped-coupon 37,927
zero % (8 7/8s, 1/1/01), 2006 (STP)
275,000 Millicom International Cellular S.A. sr. disc. 192,500
notes stepped-coupon zero % (13 1/2s, 6/1/01),
2006(Luxembourg) (STP)
100,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 99,000
2002
50,000 NEXTEL Communications, Inc. sr. disc. notes stepped- 36,375
coupon zero % (9 3/4s, 2/15/99), 2004 (STP)
150,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 117,000
25,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 19,500
50,000 Paging Network, Inc. sr. sub. notes 10s, 2008 44,500
75,000 Pricellular Wireless Corp. sr. disc. notes stepped- 77,250
coupon Ser. B, zero % (14s, 11/15/97), 2001 (STP)
50,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008(Canada) 51,375
125,000 Teleport Communications Group Inc. sr. disc. notes 85,938
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 (STP)
15,000 Winstar Equipment Corp. 144A company guaranty 12 14,363
1/2s, 2004
1,832,37
3
Textiles (1.2%)
50,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped- 44,000
coupon
Ser. B, zero % (14s, 7/1/99), 2004 (STP)
60,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 60,600
100,000 Polysindo International Finance company guaranty 11 105,000
3/8s, 2006(Indonesia)
209,600
Transportation
(1.0%)
50,000 Atlantic Express, Inc. 144A company guaranty 10 51,250
3/4s, 2004
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 122,500
2003(Greece)
173,750
Utilities (5.9%)
325,000 AES China Generating Co. sr. notes 10 1/8s, 333,531
2006(China)
300,000 Calpine Corp. sr. notes 10 1/2s, 2006 320,250
50,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 51,365
17-A, 9 3/8s, 2017
100,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 106,996
B, 9 1/2s, 2005
150,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 153,933
E, 9s, 2023
50,000 Niagara Mohawk Power Corp. mtge. 9 1/2s, 2000 51,793
25,000 Toledo Edison Co. med. term notes 9.22s, 2021 25,570
1,043,43
8
Total Corporate Bonds and Notes (cost $10,903,400) 10,676,96
5
Brady Bonds (11.0%)
(a)
PRINCIPAL VALUE
AMOUNT
$ 567,450 Argentina (Republic of) deb. 6.75s, 2005 $
520,635
135,000 Argentina (Republic of) FRN Ser. L-GP, 5 1/4s, 2023 87,919
35,000 Bulgaria (Republic of) deb. Ser. PDI, 6.5625s, 2011 21,919
451,621 Brazil (Republic of) FRB 8s, 2014 (POR) 342,667
87,000 Ecuador (Government of) bonds 6.4375s, 2025 58,073
90,000 Poland (Government of) bonds 6.9375s, 2024 87,413
560,000 United Mexican States deb. Ser. A, 6 1/4s, 2019 406,700
250,000 United Mexican States FRB Ser. D, 6.35156s, 2019 221,406
238,095 Venezuela (Government of)deb. Ser. B, 6.75s, 2007 213,095
Total Brady Bonds (cost $1,973,487)
1,959,82
7
Convertible Bonds and Notes (7.6%)
(a)
PRINCIPAL VALUE
AMOUNT
Automotive (0.2%)
$ Magna International cv. sub. deb. 5s, 2002 $
23,000 25,013
Basic Industrial Products
(0%)
7,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 7,770
Broadcasting (0.2%)
22,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 21,148
2005
48,000 Jacor Communications, Inc. cv. sr. notes zero %, 22,320
2011
43,468
Business Equipment and Services
(0.6%)
100,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 84,250
28,000 U.S. Office Products Co. 144A cv. sub. notes 5 23,485
1/2s, 2003
107,735
Cellular Broadcasting (0.2%)
55,000 Comcast Corp. cv. notes 1 1/8s, 2007 28,050
Chemicals (0.1%)
9,000 Hercules, Inc. cv. deb. 8s, 2010 23,929
Computer Services and Software
(0.1%)
25,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 21,125
Computers (0.3%)
25,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s,
2006 22,719
28,000 Softkey International, Inc. 144A cv. sr. notes 5 20,825
1/2s, 2000
20,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 17,475
1/4s, 2003
61,019
Conglomerates
(0.3%)
18,000 Hexcel Corp. cv. sub. notes 7s, 2003
23,490
20,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 21,575
2003
45,065
Consumer Non Durables
(0.3%)
74,000 Coleman Worldwide Corp. cv. sr. sec. notes Liquid
Yeild Option Note ( LYON) zero %, 2013 22,385
24,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 21,660
2007 (NON)
44,045
Consumer Services (0.5%)
60,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015
14,775
20,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 21,650
55,000 Hollinger, Inc. cv. LYON zero %, 2013 20,075
22,000 Pharmaceutical Marketing Services Inc. 144A cv. 18,040
deb. 6 1/4s, 2003
16,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 15,220
2003
89,760
Electronics and Electrical Equipment
(1.4%)
9,000 Diagnostic Retrieval Systems cv. sr. sub. deb. 9s,
2003 11,070
29,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 23,345
2004
29,000 Integrated Device Technology, Inc. cv. sub. notes 5 24,469
1/2s, 2002
30,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 22,275
14,000 Plasma & Materials Technologies, Inc. 144A cv. notes 9,520
7 1/8s, 2001
27,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 22,343
20,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 27,525
10,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 21,538
20,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 18,750
1/2s, 2003
23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 23,230
21,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 21,000
20,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 22,900
247,96
5
Environmental Control (0.1%)
12,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002
11,850
14,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 12,110
23,960
Health Care (0.9%)
50,000 Alza Corp. cv. sub. LYON zero %, 2014
21,938
30,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 27,188
30,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 24,525
20,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 18,100
2006
18,000 Rotech Medical Corp. cv. sub. deb. 5 1/4s, 2003 15,390
22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. 21,120
deb. 9s, 2003
23,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 21,936
150,19
7
Hospital Management and Medical Services
(0.1%)
19,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 20,235
2003
Insurance and Finance (0.5%)
24,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001
23,010
22,000 Mitsubishi Bank Ltd. International Finance cv. trust 22,358
guaranteed notes 3s, 2002(Bermuda)
17,000 Pioneer Financial Services, Inc. cv. sub. notes 6 24,544
1/2s, 2003
40,000 USF&G Corp. cv. sub. notes zero %, 2009 26,200
96,112
Medical Supplies and Devices
(0.1%)
25,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 15,031
Metals and Mining
(0.1%)
20,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 20,300
Oil and Gas (0.3%)
21,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 23,730
3,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 4,361
1/4s, 2006
16,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 14,840
42,931
Paper and Forest Products (0.1%)
24,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 25,500
2000
Pharmaceuticals (0.2%)
16,000 North American Vaccine, Inc. 144A cv. sub. notes 6 15,420
1/2s, 2003
40,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 18,400
2010(Switzerland)
33,820
Pharmaceuticals and Biotechnology
(0.1%)
23,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 18,113
4,000 North American Vaccine, Inc. 144A cv. sub. notes 6 3,855
1/2s, 2003
21,968
Recreation (0.4%)
100,000 Argosy Gaming cv. sub. notes 12s, 2001 71,000
Retail (0.5%)
20,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 20,425
26,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 22,653
20,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 24,325
25,000 Rite Aid Corp. cv. deb. zero %, 2006 18,375
85,778
Telecommunications
(0%)
10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 8,300
1/4s, 2003
Total Convertible Bonds and Notes (cost $1,428,901) 1,360,07
6
Preferred Stocks (4.3%) (a)
NUMBER OF VALUE
SHARES
518 Alliance Gaming Corp. Ser. B, $15.00 pfd. (PIK)
51,800
1,159 American Radio Systems Corp. 144A $11.375 pfd. 114,451
1,798 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. 165,416
pfd.(PIK)
400 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 10,000
1,070 Chancellor Radio Broadcasting 144A $12.00 pfd. 105,930
1,500 Chevy Chase Capital Corp. Ser. A, $10.375 pfd. 72,750
127 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 115,888
25 ICG Holdings, Inc. 14.00% (Canada) 24,125
5 Intermedia Communications, Inc. 144A 13.50% pfd. 48,375
20 NTL Inc. 144A 13.00% pfd. (PIK) 19,400
800 Public Service Co. of New Hampshire $10.60 1st 18,000
mtge. pfd.
20 Spanish Broadcasting Systems 144A 14.25% pfd. 17,600
(PIK)
Total Preferred Stocks (cost $795,863) 763,735
Convertible Preferred Stocks
(3.6%) (a)
NUMBER OF VALUE
SHARES
Automotive (0.1%)
170 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd.
19,040
Banks (0.1%)
230 Sovereign Bancorp Inc. $3.13 cv. pfd. 17,020
Basic Industrial Products (0.1%)
170 Case Corp. $4.50 cv. pfd. ($4.50) 22,823
Broadcasting
(0.2%)
342 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 18,212
360 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 16,200
34,412
Building and Construction
(0.1%)
227 Greenfield Capital Trust $3.00 cv. pfd. 9,307
Business Equipment and Services
(0.1%)
150 Ikon Office Solutions Inc. Ser. BB, $5.04 cv. pfd. 10,200
Computer Services and Software
(0.1%)
240 Vanstar Corp. 144A $3.375 cv. pfd. 7,350
407 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 18,519
25,869
Consumer Non Durables (0.1%)
340 Corning Deleware(L.P.) $3.00 cv. pfd. 25,840
Consumer Services (0.1%)
220 Service Corp. $3.125 cv. pfd. 25,218
Food and Beverages (0.1%)
276 Chiquita Brands International, Inc. Ser. B, $3.75 16,146
cv. pfd.
Insurance and Finance
(1.1%)
285 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 22,515
251 American Bankers Insurance Group, Inc. Ser. B, 15,782
$3.125 cv. pfd.
575 American General Delaware Corp. $3.00 cv. pfd. 33,566
160 Devon Financing Trust $3.25 cv. pfd. 10,200
452 Finova Finance Trust $2.75 cv. pfd. 24,069
700 Matewan Bancshares, Inc. Ser. A, $3.75 cv. pfd. 16,975
385 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 22,426
120 Roosevelt Financial Group $3.25 cv. pfd. 10,230
340 St. Paul Capital LLC $3.00 cv. pfd. 20,910
400 Timet Capital Trust I 144A $3.3125 cv. pfd. 18,800
195,473
Metals and Mining (0.2%)
285 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 14,784
950 Freeport-McMoRan Copper Co., Inc. $1.25 cv. pfd. 25,650
($1.75)
40,434
Oil and Gas (0.6%)
360 Neuvo Energy Ser. A, $2.875 cv. pfd. 16,425
435 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 23,816
360 Tejas Gas Corp. $2.65 cv. pfd. 19,260
380 Tosco Financing Trust 144A $2.875 cv. pfd. 20,995
500 Unocal Capital Trust $3.125 cv. pfd. 28,125
108,621
Real Estate (0.1%)
430 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 19,135
Retail (0.3%)
350 Ann Taylor Finance Trust $4.25 cv. pfd. 23,713
465 Kmart Financing I $3.875 cv. pfd. 26,796
50,509
Telecommunications (0.2%)
600 Airtouch Communications, Inc. Ser. C, $2.125 cv. 27,300
pfd.
Total Convertible Preferred Stocks (cost $660,470) 647,347
Foreign Government Bonds and Notes (1.3%)
(a)
PRINCIPAL VALUE
AMOUNT
Bank of Foreign Economic Affairs of Russia
USD (Vnesheconombank) principal loan 144A 8s, 2020 $
305,000 (NON)(WIS)(PIK) 178,806
USD Morocco (Government of) bonds Ser. A, 6.375s, 2009 35,150
40,000
ZAR South Africa (Republic of) bonds Ser. 153, 13s, 9,980
50,000 2010
Total Foreign Government Bonds and Notes (cost 223,936
$219,478)
Common Stocks (0.2%) (a)
NUMBER OF VALUE
UNITS
15 Advanced Radio Telecommunications units 14s, 2007
15,900
5 Anvil Holdings 144A units 13s, 2009 (PIK) 4,925
200 Colt Telecommunications Group PLC units stepped- 117,000
coupon zero % (12s, 12/15/01), 2006(United Kingdom)
(STP)
25 Esat Holdings Ltd. 144A units stepped-coupon zero % 14,000
(12 1/2s, 2/1/02), 2007(Ireland) (STP)
110 Globalstar L.P. Capital units 11 3/8s, 2004 108,900
20 McCaw International Ltd. 144A units stepped-coupon 9,800
zero % (13s, 4/15/02), 2007 (STP)
50 Nextlink Communications 144A pfd. units zero % 2,350
(.14s,), 2009 (PIK)(STP)
50,000 Winstar Communications, Inc. 144A sr. disc. notes 26,000
stepped-coupon zero % (14s, 10/15/00), 2005 (STP)
Total Units (cost $331,486) 298,875
Common Stocks (0.2%) (a)
NUMBER OF VALUE
SHARES
27,272 Capstar Broadcasting Partners (NON)
29,999
316 Catellus Development Corp. (NON) 4,661
Total Common Stocks (cost $34,711) 34,660
Warrants (0%) (a)
NUMBER OF VALUE
WARRANTS
Expiration
Date
25 Hyperion Telecommunications 144A 750
4/15/01
20 Spanish Broadcasting Systems 144A 2,200
6/30/99
Total Warrants (cost $2,700) 2,950
Short-Term Investments (8.0%) (a)
PRINCIPAL VALUE
AMOUNT
MXP Mexican Treasury Bill zero %, April 2, 1998 $
57,529 59,760
Interest in $473,073,000 joint repurchase agreement
1,367,000 dated April 30, 1997 with Merrill Lynch
due May 1, 1997 with respect to various U.S.
Treasury obligations -- maturity value of
$1,367,205
for an effective yeild of 5.40%.
1,367,20
5
Total Short-Term Investments (cost $1,426,965) 1,426,96
5
total Investments (cost $17,777,461) (b) 17,395,33
6
FOOTNOTES
NOTES
(a) Percentages indicated are based
on net assets of $17,762,038.
(b) The aggregate identified cost on
a tax basis is
$17,777,461, resulting in gross
unrealized appreciation and
depreciation of $130,645 and
$512,770, respectively,
or net unrealized depreciation
of $382,125.
(NON) Non-income-producing security.
(STP) The interest or dividend rate
and date shown parenthetically
represent the new interest or
dividend rate to be paid and the
date the fund will begin
receiving interest or dividend
income at this rate.
(PIK) Income may be received in cash
or additional securities at the
discretion of the issuer.
(WIS) When-issued securities (Note 1).
The coupon rate will be LIBOR
plus 13/16.
(BRA) Brady bonds are foreign bonds
collateralized by the U.S.
Government.
The rates are floating and are
the current rates at April 30,
1997.
144A after the name of a
security represents a security
purchased in a transaction
exempt from registration under
Rule 144A of the Securities Act
of 1933. These securities may be
resold only in transactions
exempt from registration,
normally to qualified
institutional buyers.
The accompanying notes are an
integral part of these financial
statements.
Putnam High Yield Total Return
Statement of assets and liabilities
April 30,1997 (Unaudited)
Assets
Investments in securities, at value
(identified cost $17,777,461) (Note 1) $17,395,33
6
Cash 107,295
Dividends, interest and other receivables 291,423
Receivable for shares of the fund sold 445,849
Receivable for securities sold 253,143
Receivable from Manager (Note 2) 33,864
Unamortized organization expenses (Note 1) 80,672
Total assets 18,607,582
Liabilities
Payable for securities purchased 693,696
Payable for investor servicing and custodian fees 9,942
(Note 2)
Payable for compensation of Trustees (Note 2) 4,000
Payable for administrative services (Note 2) 1,333
Payable for distribution fees (Note 2) 8,228
Payable for organization expenses (Note 1) 80,943
Other accrued expenses 45,893
Total liabilities 844,035
Net assets $17,763,54
7
Represented by
Paid-in capital (Notes 1 and 4) $18,071,79
5
Undistributed net investment income (Note 1) 111,334
Accumulated net realized loss on investments (37,457)
(Note 1)
Net unrealized depreciation of investments (382,125)
Total - Representing net assets applicable to
capital shares outstanding $17,763,54
7
Computation of net asset value and offering price
Net asset value and redemption price per class A
share
($7,816,161 divided by 936,769 shares) $8.34
Offering price per class A share (100/95.25 of $8.76
$8.34)*
Net asset value and offering price per class B
share
($8,901,350 divided by 1,068,486 shares)** $8.33
Net asset value and redemption price per class M
share
($1,044,527 divided by 125,260 shares) $8.34
Offering price per class M share (100/96.75 of $8.62
$8.34)*
* On single sales of less than $50,000. On sales
of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net
asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of
these financial statements.
Putnam High Yield Total Return
Statement of operations
Period January 2, 1997 (commencement of
operations) to
April 30,1997 (Unaudited)
Investment income:
Interest $233,411
Dividends 18,004
Total investment income 251,415
Expenses:
Compensation of Manager (Note 2) 23,481
Investor servicing and custodian fees (Note 2) 19,408
Compensation of Trustees (Note 2) 4,000
Administrative services (Note 2) 1,333
Distribution fees -- Class A (Note 2) 3,185
Distribution fees -- Class B (Note 2) 15,015
Distribution fees -- Class M (Note 2) 775
Amortization of organization expenses (Note 1) 271
Reports to shareholders 6,333
Registration fees 5,456
Auditing 22,867
Legal 2,667
Postage 7,336
Other 1,703
Fees waived by Manager (Note 2) (57,345)
Total expenses 56,485
Expense reduction (Note 2) (13,079)
Net expenses 43,406
Net investment income 208,009
Net realized loss on investments (Notes 1 and 3) (37,457)
Net unrealized depreciation of investments during (382,125
the period )
Net loss on investments (419,582)
Net decrease in net assets resulting from $(211,57
operations 3)
The accompanying notes are an integral part of these financial
statements.
Putnam High Yield Total Return
Statement of changes in net assets For the
period
January 2,
1997
(commencement
of
operation) to
April 30,
1997*
Decrease in net assets
Operations:
Net investment income $208,009
Net realized loss on investments (37,457)
Net unrealized depreciation of investments (382,125)
Net decrease in assets resulting from operations (211,573)
Distributions to shareholders:
From net investment income
Class A (46,942)
Class B (44,326)
Class M (5,407)
Increase from capital share transactions (Note 4) 18,068,795
Total increase in net assets 17,760,547
Net Assets
Beginning of period 3,000
End of period (including undistributed net investment
income $17,763,54
of $109,825) 7
*Unaudited
The accompanying notes are an integral part of
these financial statements.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS A
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .20(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.09)
Less distributions:
From net investment income (.07)
Net realized gain on investments --
Total distributions (.07)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.10)*
Net assets, end of period (in thousands) $7,817
Ratio of expenses to average net assets (%)(b) .50*
Ratio of net investment income to average
net assets (%) 2.41*
Portfolio turnover (%) 38.59*
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS B
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period
$8.50
Investment operations:
Net investment income .18(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.11)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.33
Total investment return at net asset value (%)(a) (1.35)*
Net assets, end of period (in thousands) $8,902
Ratio of expenses to average net assets (%)(b) .75*
Ratio of net investment income to average
net assets (%) 2.21*
Portfolio turnover (%) 38.59*
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS M
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .19(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.10)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.15)*
Net assets, end of period (in thousands) $1,045
Ratio of expenses to average net assets (%)(b) .58*
Ratio of net investment income to average
net assets (%) 2.39*
Portfolio turnover (%) 38.59*
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Notes to
financial statements
April 30, 1997 (Unaudited)
Note 1
Significant
accounting
policies
Putnam High Yield Total Return Fund (the "fund") is registered
under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund
seeks total return through high current income and capital
appreciation by investing primarily in high-yielding, lower-rated
fixed-income securities.
The fund offers class A, class B and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%.
Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge,
but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class M shares
are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and
higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each
class of shares, except that each class bears expenses unique to
that class (including the distribution fees applicable to such
class). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is
required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the
fund, if the fund were liquidated. In addition, the Trustees
declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its
financial statements. The preparation of financial statements is
in conformity with generally accepted accounting principles and
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Actual results
could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is 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. Securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate.
Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market
value, and other investments are stated at fair value following
procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued
by the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account along with
the cash of other registered investment companies and certain
other accounts managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. . These balances may be
invested in one or more repurchase agreements and/or short-term
money market instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. Putnam Management is responsible for
determining that the value of these underlying securities is at
all times at least equal to the resale price, including accrued
interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed).
Interest income is recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the
fund is informed of the ex-dividend date. Discounts on zero
coupon bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery
basis may be settled a month or more after the trade date;
interest income is accrued based on the terms of the security.
Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform
under the contract.
E) Federal taxes It is the policy of the fund to distribute all
of its taxable income within the prescribed time and otherwise
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. It is also the
intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on
income and capital gains.
F) Distributions to shareholders Distributions to shareholders
from net investment income are recorded by the fund on the ex-
dividend date. Capital gain distributions, if any, are recorded
on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are
determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the
fund in connection with its organization, its registration with
the Securities and Exchange Commission and with various states
and the initial public offering of its shares were $80,943. These
expenses are being amortized on projected net asset levels over
a five-year period.
Note 2
Management fee,
administrative services,
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net
assets of the fund. Such fee is based on the following annual
rates: 0.80% of the first $500 million of the 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,
0.53% of any amount over $21.5 billion.
Putnam Management has agreed to limit its compensation (and, to
the extent necessary, bear other expenses) through June 30, 1997,
to the extent that expenses of the fund (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary
expense, credits from Putnam Fiduciary Trust Company (PFTC), a
wholly-owned subsidiary of Putnam Investments, Inc. and payments
under the Trust's distribution plan) would exceed an annual rate
of 1.25% of the fund's average net assets.
The fund reimburses Putnam Management for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of
Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
For the period ended April 30, 1997, fund expenses were reduced
by $13,079 under expense offset arrangements with PFTC and
brokerage service arrangements. Investor servicing and custodian
fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets
utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such
arrangements.
Trustees of the fund receive an annual Trustees fee of $650 and
an additional fee for each Trustee's 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.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which
allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred
fees remain in the fund and are invested in certain Putnam funds
until distribution in accordance with the Plan.
The Fund has adopted an unfunded noncontributory defined benefit
pension plan covering all Trustees of the Fund who have served as
Trustee for at least five years. Benefits under the plan are
equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee fees in the Statement of
operations for the period ended April 30, 1997. Accrued pension
liability is included in Payable for compensation of Trustees in
the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with
respect to its class A, class B and class M shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose
of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-
owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing shares of
the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00%
of the average net assets attributable to class A, class B and
class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 0.25% and .050% of the
average net assets attributable to class A, class B and class M
shares respectively.
Note 3
Purchase and sales of securities
During the period ended April 30, 1997, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $20,253,306 and $3,911,133,
respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At April 30, 1997, there was an unlimited number of shares of
beneficial interest authorized.
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class A Shares Amount
Shares sold 980,136 $8,308,988
Shares issued in connection with 4,596 38,222
reinvestment of distributions
984,732 8,347,210
Shares repurchased (48,081) (406,686)
Net increase 936,651 $7,940,524
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class B Shares Amount
Shares sold 1,153,33 $9,781,816
4
Shares issued in connection with 4,514 37,505
reinvestment of distributions
1,157,84 9,819,321
8
Shares repurchased (89,480) (749,928)
Net increase 1,068,36 $9,069,393
8
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class M Shares Amount
Shares sold 126,277 $1,068,346
Shares issued in connection with 513 4,266
reinvestment of distributions
126,790 1,072,612
Shares repurchased (1,648) (13,734)
Net increase 125,142 $1,058,878
Note 5
Initial capitalization and offering of shares
The fund was established as a Massachusetts business trust on
January 22, 1996. During the period January 22, 1996 to January
2, 1997, the fund had no operations other than those related to
organizational matters, including the initial capital
contribution of $1,000, $1,000 and $1,000 for class A, class B
and class M, respectively, and $80,943 of initial organizational
expenses, and the issuance of 118 shares for each class to Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc.
PUTNAM FUNDS TRUST
Putnam High Yield Total Return Fund
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements
and Supporting Schedules:
(1) Statement of assets and liabilities -- April
30, 1997 (unaudited) (a)(c).
Statement of operations -- For the
period January 1, 1997 (commencement of
operations) to April 30, 1997
(unaudited)(a)(c).
Statement of changes in net assets -- For the
period January 1, 1997 (commencement of
operations) to April 30, 1997
(unaudited)(a)(c).
Financial highlights
(unaudited)(b)(c) .
Notes to financial statements(a)(c).
(2) Supporting Schedules:
Schedule I -- Portfolio of investments owned
-- April 30, 1997 (unaudited)(a)(c).
Schedules II through IX omitted because the
required matter is not present.
(a) Incorporated by reference into Part A.
(b) Included in Part A.
(c) Included in Part B
- ------------------
(b) Exhibits:
1. Agreement and Declaration of Trust dated
January 22, 1996 -- Incorporated by reference
to the Registrant's Initial Registration
Statement.
2. By-Laws, as amended through January 22, 1996
-- Incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's
Registration Statement.
3. Not applicable.
4a. Not applicable.
4b. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights --
Incorporated by reference to the Registrant's
Initial Registration Statement.
4c. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to the
Registrant's Initial Registration Statement.
5. Form of Management Contract dated June 7,
1996 as supplemented October 3, 1996 and
November 1, 1996 -- Incorporated by reference
to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement.
6a. Distributor's Contract for Class A, Class B
and Class M shares dated June 7, 1996 --
Incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's
Registration Statement.
6b. Copy of Specimen Dealer Sales Contract --
Incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's
Registration Statement.
6c. Copy of Specimen Financial Institution Sales
Contract -- Incorporated by reference to Pre-
Effective Amendment No. 2 to the Registrant's
Registration Statement.
7. Trustee Retirement Plan dated October 4, 1996
-- Incorporated by reference to Post-
Effective Amendment No. 4 to the Registrant's
Registration Statement.
8. Copy of Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3, 1991 as
amended July 13, 1992 -- Incorporated by
reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
9. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust
Company -- Incorporated by reference to Pre-
Effective Amendment No. 2 to the Registrant's
Registration Statement.
10. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investments,
Inc. to the Registrant -- Incorporated by
reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
14a. Copy of Prototype Individual Retirement
Account Plan -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
14b. Copy of Prototype Basic Plan Document and
related Plan Agreements -- Incorporated by
reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
15a. Class A Distribution Plan and Agreement dated
June 7, 1996 -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
15b. Class B Distribution Plan and Agreement dated
June 7, 1996 -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
15c. Class M Distribution Plan and Agreement dated
June 7, 1996 -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
15d. Form of Specimen Dealer Service
Agreement --Exhibit 1.
15e. Form of Specimen Financial Institution
Service Agreement -- Incorporated by
reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
16. Schedules for computation of performance
quotations -- Exhibit 2.
17a. Financial Data Schedule for Class A shares --
Exhibit 3.
17b. Financial Data Schedule for Class B shares --
Exhibit 4.
17c. Financial Data Schedule for Class M shares --
Exhibit 5.
18. Rule 18f-3(d) Plan -- Incorporated by
reference to Post-Effective Amendment No. 1
to the Registrant's Registration Statement.
Item 25. Persons Controlled by or under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
As of May 31, 1997, the number of record holders of
each class of securities of the Registrant is as follows:
Number of record holders
-----------------------------------
Class A Class B Class M
------- ------- -------
560 661 94
Item 27. Indemnification
The information required by this item is
incorporated
herein by reference to the Registrant's Initial Registration
Statement on Form N-1A under the Investment Company Act of 1940
(File No. 811-07513).
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
(a) Registrant hereby undertakes, if requested to
do
so by the holders of at least 10% of its outstanding shares, to
call a meeting of shareholders for the purposes of voting upon
the question of removal of a Trustee or Trustees and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
(b) 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.
--------------------------
NOTICE
A copy of the Agreement and Declaration of Trust of
Putnam
Funds 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 an
officer of the Registrant as an officer and not individually and
the obligations of or arising out of this instrument are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the relevant series of the Registrant.
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
30th day of June, 1997.
PUTNAM FUNDS TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Funds
Trust 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
John D. Hughes Senior Vice President; Treasurer
and Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Ronald J. Jackson Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
William F. Pounds Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
June 30, 1997
<PAGE>
Exhi bit Index
15d. Form of Dealer Service Agreement -- Exhibit 1.
16. Schedules for computation of performance
quotations -- Exhibit 2.
17a. Financial Data Schedule for Class A shares -- Exhibit
3.
17b. Financial Data Schedule for Class B shares -- Exhibit
4.
17c. Financial Data Schedule for Class M shares -- Exhibit
5.
DEALER SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
We are pleased to inform you that, pursuant to the terms of this
Dealer Service Agreement, we are authorized to pay you service
fees in connection with the accounts of your customers that hold
shares of certain Putnam Funds listed in SCHEDULE 1 that have
adopted distribution plans pursuant to Rule 12b-1 (the "12b-1
Funds"). Payment of the service fees is subject to your initial
and continuing satisfaction of the following terms and conditions
which may be revised by us from time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Sales Contract with us with respect
to the Putnam Family of Mutual Funds (the "Putnam Funds").
(b) You are the dealer of record for accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS)
during the period for which a service fee is to be paid. Putnam
Fund accounts are accounts in any open-end Putnam Fund, but
excluding any accounts for your firm's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) on accounts in Putnam Funds having
an aggregate average net asset value of at least the minimum
amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records.
For each Putnam Fund account registered in the name of
one of your customers, you will advise us, preferably
by electronic means, before the end of the second month
in each calendar quarter, of the registered
representative's name, identification number, branch
number, and telephone number.<PAGE>
2. S ERVICE FEES
(a) If you meet the qualification requirements set forth above
in Paragraph 1, you will be paid a service fee on assets in the
12b-1 Funds for which you are the dealer of record and which are
serviced by a registered representative of your firm meeting the
Registered Representative Requirements, if any, at the annual
rates specified (excluding any accounts for your firm's own
retirement plans).
(b) You understand and agree that:
(i) all service fee payments are subject to the
limitations contained in each 12b-1 Fund's Distribution
Plan, which may be varied or discontinued at any time;
(ii) you shall waive the right to receive service fee
payments to the extent any 12b-1 Fund fails to make
payments to us under its distribution plan with us;
(iii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to
time, or otherwise comply with the terms of this
Agreement, will render you ineligible to receive
service fees; and
(iv) failure of an assigned registered representative
to provide services required by this Agreement will
render that representative's accounts ineligible as
accounts on which service fees are paid.
3. P AYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES
(a) You will pass through to your registered representatives a
significant share of the service fees paid to you pursuant to
this Agreement.
(b) You will assist us in distributing to your registered
representatives periodic statements which we will have prepared
showing the aggregate average net asset value of shares in Putnam
Funds with which they are credited on our records.<PAGE>
4. REQUIRED SERVICES
(a) You will assign one of your registered representatives to
each Putnam Fund account on your records and reassign the Putnam
Fund account should that representative leave your firm.
(b) You and your registered representatives will assist us and
our affiliates in providing the following services to
shareholders of the Putnam Funds:
(i) Maintain regular contact with shareholders in
assigned accounts and assist in answering inquiries
concerning the Putnam Funds.
(ii) Assist in distributing sales and service
literature provided by us, particularly to the
beneficial owners of accounts registered in your name
(nominee name accounts).
(iii)Assist us and our affiliates in the establishment
and maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will support our marketing efforts by granting
reasonable requests for visits to your offices by our wholesalers
and by including all Putnam Funds on your "approved" list.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.<PAGE>
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for not
more than one year from the date of its execution or adoption and
thereafter for successive annual periods only so long as such
continuance is specifically approved at least annually by the
Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"). This
Agreement shall automatically terminate in the event of its
assignment (as defined by the 1940 Act). In addition, this
Agreement may be terminated at any time, without the payment of
any penalty, by either party upon written notice delivered or
mailed by registered mail, postage prepaid, to the other party,
or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees
of any 12b-1 Fund or by the vote of the holders of the
outstanding voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. MISCELLANEOUS
(a) All communications mailed to us should be sent to the
address listed below. Any notice to you shall be duly given if
mailed or delivered to you at the address specified by you below.
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: ------------------------------
William N. Shiebler, President
and Chief Executive Officer<PAGE>
We accept and agree to the foregoing Agreement as of the date set
forth below.
Dealer: -------------------------
By: ----------------------------
Authorized Signature, Title
------------------------------
------------------------------
Address
Dated: -------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203.<PAGE>
SCHEDULE 1: THE
12B-1 FUNDS
Service fees will be paid on the following Putnam Funds at the
rates set forth in the Prospectus of that Fund:
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asia Pacific Growth Fund
Putnam Asset Allocation Funds
-Putnam Asset Allocation: Growth Portfolio
-Putnam Asset Allocation: Balanced Portfolio
-Putnam Asset Allocation: Conservative Portfolio
Putnam Balanced Retirement Fund
Putnam California Tax Exempt Income Trust
-Putnam California Intermediate Tax Exempt Fund
-Putnam California Tax Exempt Income Fund
Putnam Capital Appreciation Fund
Putnam Convertible Income-Growth Trust
Putnam Diversified Equity Trust
Putnam Diversified Income Trust
Putnam Equity Income Fund
Putnam Europe Growth Fund
Putnam Federal Income Trust
Putnam Florida Tax Exempt Income Fund
The George Putnam Fund of Boston
Putnam Global Governmental Income Trust
Putnam Global Growth Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Health Sciences Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate Tax Exempt Fund
Putnam Intermediate U.S. Government Fund
Putnam Investment Funds
-Putnam International New Opportunities Fund
Putnam Investors Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam Money Market Fund
Putnam Municipal Income Fund
Putnam Natural Resources Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New Opportunities Fund
Putnam New York Tax Exempt Income Trust
-Putnam New York Intermediate Tax Exempt Fund
-Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Preferred Income Trust
Putnam Tax Exempt Income Fund
Putnam Tax-Free Income Trust
-Putnam Tax-Free High Yield Fund
-Putnam Tax-Free Insured Fund
Putnam U.S. Government Income Trust
Putnam Utilities Growth and Income Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
SCHEDULE 2: MINIMUM ASSETS
DEALER FIRM REQUIREMENTS. The minimum aggregate average net
asset value of all accounts in Putnam Funds specified by
Paragraph 1(b) is $250,000. We will review this requirement
prior to the start of each year and inform you of any changes.
REGISTERED REPRESENTATIVE REQUIREMENTS. With respect to
Paragraph 1(c), there is no minimum asset qualification
requirement in the Putnam Funds applicable to each of your
representatives. We will review this requirement prior to the
start of each year and inform you of any changes.
NF-57
2/7/97
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class A Shares
Fiscal period ending: April 30, 1997
Inception date (if less than 10 years of performance): 1/1/97
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
ERV = Ending Redeemable Value $ $ $ 942.39
T = Average Annual
Total Return % % -5.76%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $49,230
Expenses $ 7,512
Reimbursement $ 1,879
Average shares 855,048
NAV $ 8.34
Sales Charge 4.75%
POP $ 8.76
Yield at POP 6.78%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class B Shares
Fiscal period ending: April 30, 1997
Inception date (if less than 10 years of performance): 1/1/97
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
ERV = Ending Redeemable Value $ $ $ 937.48
T = Average Annual
Total Return % % -6.25%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $54,745
Expenses $13,085
Reimbursement $ 5,557
Average shares 946,255
NAV $ 8.33
Maximum Contingent Deferred
Sales Charge 5.0%
Yield at NAV 6.43%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class M Shares
Fiscal period ending: April 30, 1997
Inception date (if less than 10 years of performance): 1/1/97
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
ERV = Ending Redeemable Value $ $ $ 955.82
T = Average Annual
Total Return % % -4.41%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $6,144
Expenses $1,117
Reimbursement $ 483
Average shares 106,796
NAV $ 8.34
Sales Charge 3.25%
POP $ 8.62
Yield at POP 6.64%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam High Yield Total Return Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 17,777,461
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<NUMBER-OF-SHARES-SOLD> 980,136
<NUMBER-OF-SHARES-REDEEMED> (48,081)
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<EXPENSE-RATIO> .52
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam High Yield Total Return Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 17,777,461
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<DIVIDEND-INCOME> 18,004
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<OTHER-INCOME> 0
<EXPENSES-NET> 44,915
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<PER-SHARE-GAIN-APPREC> (.29)
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<PER-SHARE-NAV-END> 8.33
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam High Yield Total Return Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS M
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 17,777,461
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<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
