PROSPECTUS
January 1, 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 January 1, 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 and is incorporated into
this prospectus by reference.
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.
Objective
................................................................
Read this section to make sure the fund's objective are
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 first
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 (after fees expensesexpenses (after
expense limitation) expense limitation)
- ---------- ----- -------- -----------
Class A 0.72% .25% 0.53% 1.50%
Class B 0.72% 1.00% 0.53% 2.25%
Class M 0.72% .50% 0.53% 1.75%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. In the
absence of the expense limitation, management fees and total fund
operating expenses would be 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 expenses shown do not reflect the
application of credits that reduce fund expenses. 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 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."
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 which Putnam Investment
Management, Inc. ("Putnam Management"), the fund's investment
manager, 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.
High yield securities provide the potential for both high
current income as well as capital appreciation. The fund
will seek capital appreciation by investing in high yield
and, to the limited extent noted above, equity and other
securities which may be expected to appreciate in value as a
result of declines in long-term interest rates or favorable
developments affecting the business or prospects of the issuer
which may improve the issuer's financial condition and credit
rating. Putnam Management believes that opportunities for
capital appreciation often exist in the securities of smaller
capitalization companies. Although these smaller companies may
present greater opportunities for capital appreciation, they may
also involve greater risks than larger, more established issuers.
See "Risk factors" below.
Convertible securities typically provide current
income while also offering the opportunity for capital
growth through the ability to convert 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 in the lower rating
categories of recognized rating agencies: Baa or lower by Moody's
Investors Service, Inc. ("Moody's") or BBB or lower by Standard &
Poor's ("S&P") and unrated securities, that Putnam Management
determines are of comparable quality . Securities rated below
Baa or BBB are considered to be of poor standing and
predominantly speculative. The fund may invest up to 15% of its
assets in securities rated below Caa by Moody's or CCC by S&P,
including securities in the lowest rating category of each rating
agency (C by Moody's and D by S&P), or in unrated securities that
Putnam Management determines are 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 rating services'
descriptions of securities in the lower rating categories,
including their speculative characteristics, are set forth in the
Appendix to this prospectus.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis
at the time of rating. Consequently, the rating assigned to any
particular security is not necessarily a reflection of the
issuer's current financial condition, which may be better or
worse than the rating would indicate. Although Putnam Management
considers 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 would 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 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 by Moody's or S&P does not
reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
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.
The laws of certain foreign countries may not recognize the
rights of creditors such as the fund, or may not protect the
rights of creditors to the same extent as in the U.S. As a
result, the fund's ability to protect its interests in the event
of a default may be very limited.
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. See the SAI.
The fund may invest in companies with relatively small equity
market capitalizations. These smaller companies may present
greater opportunities for capital appreciation, but may also
involve greater risks. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in 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."
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.
For more information regarding foreign investments, see the SAI.
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. While it is impossible to predict
portfolio turnover rates, based on its experience, Putnam
Management believes that such rate will not exceed 150%.
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 engage in these transactions for nonhedging
purposes, such as to manage the effective duration
of the
fund's portfolio (a measure of the timing of all payments of
interest and principal to be received by the fund based on
their present values) or as a substitute for direct investment.
The fund may also buy and sell combinations of put and call
options on the same underlying security.
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 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.
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.
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) 25% of its total assets in any one industry;* and
(b) 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.
The restriction marked with an asterisk (*) above is a summary
of a fundamental investment policy. See the SAI for the full
text of this policy 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.
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 financial
reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis,
which has the effect of amortizing any premiums or discounts in
the current market value of fixed-income securities. 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 following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
------- -------------------------
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
Mark J. Siegel 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1993. Prior
to June 1993, Mr. Siegel was
Vice President of Salomon
Brothers International, Ltd.
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). 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, 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
June 30, 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
The 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.
As of December 31, 1996 , Putnam Investments,
Inc. owned more than 25% of the shares of the fund and
therefore may be deemed to "control" the fund.
The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may be divided
without shareholder approval into two or more series and are
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 the fund's 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 each class 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 Overseer of 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 appropriate 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
- -----------------------------------------------------------------
There is no initial sales charge on purchases of class A shares
of $1 million or more or purchases by participant-directed
qualified retirement plans with at least 200 eligible employees.
However, a CDSC of 1.00% will be imposed upon redemptions
of shares purchased at net asset value after July 31, 1996 by a
participant-directed qualified retirement plan (including a plan
with at least 200 eligible employees) that initially invested
less than $20 million in Putnam funds and other investments
managed by Putnam Management or its affiliates and that redeems
90% or more of the amount initially invested within two years
after initial purchase. Similarly, a CDSC of 1.00% or 0.50%,
respectively, will be imposed within the first or second year
after purchase on redemptions by any investor, other
than a participant-directed qualified retirement plan,]
that purchased fund shares without an initial sales charge as
part of an investment of $1 million or
more .
Shares purchased by investors investing $1
million or more in class A shares whose dealer of record
waived its commission with the approval of Putnam
Mutual Funds are not subject to the CDSC.
In determining whether a CDSC is payable, 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 current net asset value. Any
shares acquired by reinvestment of distributions will be redeemed
without a CDSC. Putnam Mutual Funds receives the entire amount of
any CDSC you pay. See the SAI for more information about the
CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of class A shares of $1
million or more based on an investor's cumulative purchases
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.
On sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates (including a plan with at least 200 eligible
employees), Putnam Mutual Funds pays commissions during each one-
year measuring period, determined as described above, at the rate
of 1.00% of the first $2 million, 0.80% of the next $1 million
and 0.50% thereafter. On sales at net asset value to all other
participant-directed qualified retirement plans, Putnam Mutual
Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%.
A participant-directed qualified retirement 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 .
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. The
following types of shares may be redeemed without charge at any
time: (i) shares acquired by reinvestment of distributions, and
(ii) shares otherwise exempt from the CDSC, as described in "How
to buy shares -- General" below. For other shares, the amount of
the charge is determined as a percentage of the lesser of the
current market value or the cost of the shares being redeemed.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
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. 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 a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial
purchase price. 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.
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. Participant-directed qualified
retirement plans with at least 50 eligible employees 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.
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
retirement 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 or exchanging 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, exchange 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.
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
Class A distribution plan. The class A plan provides for
payments by the fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of average net assets attributable to class A shares.
The Trustees currently limit payments under the class A plan to
the annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more. Also excluded until one year after purchase are shares
purchased at net asset value by participant-directed qualified
retirement plans with at least 200 eligible employees. These
shares are not subject to the one-year exclusion provision in
cases where certain shareholders who invested $1 million or more
have made arrangements with Putnam Mutual Funds and the dealer of
record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value for class A shares (including shares acquired through
reinvestment of distributions).
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on shares
purchased at net asset value are 100% of the rate stated above if
average plan assets in Putnam funds (excluding money market
funds) during the quarter are less than $20 million, 60% of the
stated rate if average plan assets are at least $20 million but
under $30 million, and 40% of the stated rate if average plan
assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate of
0.10% of the average net asset value of such shares.
Class B and class M distribution plans. The class B and class M
plans provide for payments by the fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of average net assets attributable
to class B shares and class M shares, as the case may be. The
Trustees currently limit payments under the class M plan to the
annual rate of 0.50% of such assets.
Although class B shares are sold without an initial sales charge,
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.
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares." In addition, to further compensate dealers (including
qualifying financial institutions) for services provided in
connection with sales of class B shares and class M shares and
the maintenance of shareholder accounts, Putnam Mutual Funds
makes quarterly payments to qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the dealers are designated as the dealer of record. Putnam
Mutual Funds makes the payments at an annual rate of 0.25% of
such average net asset value of class B shares and class M
shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.15% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.40% of such
average net asset value.
General. Payments under the plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such 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 appropriate 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 from your account 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 will 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.
<PAGE>
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.
<PAGE>
Make the most of your Putnam privileges
As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund
investment.
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any business day of
the month except for the 29th, 30th, or 31st. The amount will be
automatically transferred monthly from your checking or savings
account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. Your
automatic withdrawal may be made on any business day of the month
except for the 29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000 and shares of all
Putnam funds may not be available to all investors.
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you may agree to invest a
minimum dollar amount over 13 months. Depending on your fund,
the minimum is $25,000, $50,000, or $100,000. Whenever you make
an investment under this arrangement, you or your investment
advisor should notify Putnam that a Statement of Intention is in
effect.
<PAGE>
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange (into the fund) and
systematic withdrawal or exchange (out of the fund). These
privileges are subject to change or termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll-free at 1-800-225-1581.
<PAGE>
Putnam Family of Funds*
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fund
Putnam Diversified Equity Trust
Putnam Emerging Markets Fund
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Global Natural Resources Fund+
Putnam Health Sciences Trust
Putnam International Growth Fund++
Putnam International New Opportunities Fund
Putnam International Voyager Fund
Putnam Investors Fund
Putnam New Opportunities Fund
Putnam OTC Emerging Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam International Growth and Income Fund
Putnam New Value Fund
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Diversified Income Trust II
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate U.S. Government Income Fund
Putnam Preferred Income Fund
Putnam U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income funds+++
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments seeking to help maximize your return and
reduce your risk.
The three portfolios:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS**
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*As of 11/1/96.
+Formerly Putnam Natural Resources Fund
++Formerly Putnam Overseas Growth Fund
+++Not available in all states.
**Investments in money market funds are neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a steady net asset value of $1.00 per share, although
there is no assurance this net asset value will be maintained in
the future.
Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.
<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
<PAGE>
PUTNAM HIGH YIELD TOTAL RETURN FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
January 1, 1997
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the fund dated January 1, 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
ADDITIONAL OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . .I-7
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . . . . . .I-8
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-73
<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.
(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.
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:
(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the fund (or the person designated by the Trustees of the fund 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
non-fundamental restriction (1)) 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.
<PAGE>
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 paid to each
Trustee by the fund for the current fiscal year and the fees paid
to each Trustee by all of the Putnam funds during calendar 1995:
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension on Estimated Total
Aggregate 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)
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 $873 $0 $71,676 $150,854
Hans H. Estin/1972 873 0 70,043 150,854
John A. Hill/1985
(5) 873 0 70,043 149,854
Ronald J. Jackson/1996(6) 873 0 70,043 n/a
Elizabeth T. Kennan/1992 873 0 69,709 148,854
Lawrence J. Lasser/1992 873 0 70,043 150,854
Robert E. Patterson/1984 873 0 71,043 152,854
Donald S. Perkins/1982 873 0 69,376 150,854
William F. Pounds/1971 921(7) 0 70,543 149,854
George Putnam/1957 873 0 70,043 150,854
George Putnam, III/1984 873 0 70,043 150,854
A.J.C. Smith/1986 873 0 68,252 149,854
W. Nicholas Thorndike/1992 873 0 71,043 152,854
(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 October 1,
1996. Prior to that date, voluntary retirement benefits were paid to certain retired
Trustees, and no such benefits were accrued as part of fund expenses.
(3) Assumes that each Trustee retires after at least five years of service. Estimated
benefits for each are based on amounts paid to such Trustee for the three most recent
calendar years (or, for Trustees who have not served as Trustees for the three most recent
calendar years, the average amount paid to each Trustee for such years).
(4) As of December 31, 1995, there were 99 funds in the Putnam family.
(5) Includes compensation deferred pursuant to a Trustee Compensation Deferral Plan. The
total amount of deferred compensation payable by the Putnam funds to Mr. Hill as of
December 31, 1995 was $51,141. Information on deferred compensation includes income
earned on such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice Chairman of the Putnam funds.
</TABLE>
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 to receive 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 the date of this SAI, Putnam Investments, Inc. owned of
record and beneficially all of the shares of the fund. Putnam
Investments, Inc. is incorporated in Massachusetts, and its
parent corporation, Marsh & McLennan Companies, Inc., is
incorporated in Delaware. The address of Putnam Investments,
Inc. is One Post Office Square, Boston, MA 02109.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this SAI, each of the following persons is also a Vice President
of the fund 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 (age 39) (3 funds). Managing Director of Putnam
Management.
Edward H. D'Alelio (age 44) (3 funds). Managing Director of
Putnam Management.
Charles G. Pohl (age 35) (3 funds). Senior Vice President of
Putnam Management.
Mark J. Siegel (age 37) (8 funds). Senior Vice President of
Putnam Management, Senior Vice President of Putnam Fiduciary
Trust Company. Prior to June, 1993, Mr. Siegel was Vice
President of Salomon Brothers International LTD.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109 , 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.
