IMPORTANT INFORMATION
FOR SHAREHOLDERS OF
PUTNAM HIGH YIELD TOTAL RETURN FUND
The document you hold in your hands contains a combined
prospectus/proxy statement and proxy card. A proxy card is, in
essence, a ballot. When you vote your proxy, it tells us how to vote
on your behalf on important issues relating to your fund. If you
complete and sign the proxy, we'll vote it exactly as you tell us. If
you simply sign the proxy, we'll vote it in accordance with the
Trustees' recommendation on page 35.
We urge you to carefully review the prospectus/proxy statement, fill
out your proxy card, and return it to us. When shareholders don't
return their proxies in sufficient numbers, we have to make follow-up
solicitations, which can cost your fund money.
We want to know how you would like to vote and welcome your comments.
Please take a few minutes with these materials and return your proxy
to us.
[logo: Putnam scales
BOSTON o LONDON o TOKYO]
<PAGE>
Table of contents
A Message from the Chairman......................... 1
Notice of Shareholder Meeting....................... 3
Combined Prospectus/Proxy Statement................. 5
Proxy card enclosed
If you have any questions, please contact
us at the special toll-free number we have
set up for you (1-800-225-1581)
or call your financial advisor.
- -----------------------------------------------
<PAGE>
A Message from the Chairman
Dear Shareholder:
[photo: George Putnam]
I am writing you to ask you for your vote on an important matter that affects
your investment in Putnam High Yield Total Return Fund (the "Total Return
Fund"). While you are, of course, welcome to join us at the Total Return Fund's
meeting, most shareholders cast their vote by filling out and signing the
enclosed proxy card.
We are asking for your vote on the following matter:
Approval or disapproval of a proposed merger of the Total Return Fund into
Putnam High Yield Trust II ("High Yield Trust II"). In this merger your shares
of the Total Return Fund would, in effect, be exchanged at net asset value and
on a tax-free basis for shares of High Yield Trust II with an equal net asset
value.
Both funds are fixed-income funds investing primarily in high yield or
lower-rated fixed-income securities. The Total Return Fund seeks total return
through high current income and capital appreciation. High Yield Trust II seeks
high current income, with capital appreciation as a secondary goal when
consistent with achieving high current income.
Both funds seek their goals by investing, under normal market conditions, at
least 80% of their assets in lower-rated securities, which include debt
instruments, convertible debt securities and preferred stock.
The Trustees of the Total Return Fund recommend approval of the merger because
it offers shareholders of the fund, which is relatively small, the opportunity
to pursue a similar investment objective while benefitting from the economies
of scale and lower expenses of a significantly larger fund.
Putnam Management believes that mutual fund investors currently favor
income-oriented high yield funds such as
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High Yield Trust II over funds such as the Total Return Fund with its total
return orientation. Putnam Management does not expect a shift in current
investor preferences in the near future. This makes it unlikely that the Total
Return Fund would achieve economies of scale comparable to those of High Yield
Trust II if it continued to operate as a separate fund.
Your vote is important to us. We appreciate the time and consideration I am sure
you will give this important matter. If you have questions about the proposal,
please call 1-800-225-1581, or call your financial advisor.
Sincerely yours,
/s/ George Putnam
George Putnam, Chairman
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PUTNAM HIGH YIELD TOTAL RETURN FUND
Notice of a Meeting of Shareholders
> This is the formal agenda for the shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in the
event you attend in person.
To the Shareholders of Putnam High Yield Total Return Fund:
A Meeting of Shareholders of Putnam High Yield Total Return Fund (the
"Fund" or the "Total Return Fund") will be held July 1, 1999 at 2:00 p.m.,
Boston time, on the eighth floor of One Post Office Square, Boston,
Massachusetts, to consider the following:
1. Approving or disapproving an Agreement and Plan of Reorganization providing
for the sale of all of the assets of the Fund to Putnam High Yield Trust II
("High Yield Trust II") in exchange for shares of High Yield Trust II and
the assumption by High Yield Trust II of all of the liabilities of the
Fund, and the distribution of such shares to the shareholders of the Fund
in complete liquidation of the Fund. See page 24.
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2. Transacting other business as may properly come before the meeting.
By the Trustees
George Putnam, Chairman
John A. Hill, Vice Chairman
William F. Pounds, Vice Chairman
<TABLE>
<S> <C>
Jameson A. Baxter Robert E. Patterson
Hans H. Estin Donald S. Perkins
Ronald J. Jackson George Putnam, III
Paul L. Joskow A.J.C. Smith
Elizabeth T. Kennan W. Thomas Stephens
Lawrence J. Lasser W. Nicholas Thorndike
John H. Mullin, III
</TABLE>
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, OR FOLLOW THE INSTRUCTIONS IN THESE
MATERIALS RELATING TO TELEPHONIC OR INTERNET VOTING SO THAT YOU WILL BE
REPRESENTED AT THE MEETING.
April 12, 1999
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Prospectus/Proxy Statement
April 12, 1999
> Acquisition of the Assets and Liabilities of
Putnam High Yield Total Return Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
By and in Exchange for Shares of
Putnam High Yield Trust II
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
Table of Contents
<TABLE>
<S> <C>
Synopsis........................................... 9
Risk factors....................................... 18
General............................................ 23
Proposal regarding approval or
disapproval of merger and related
Agreement and Plan of Reorganization............... 24
Background and reasons for the
proposed merger.................................... 25
Information about the merger....................... 27
Voting information................................. 35
Agreement and Plan of Reorganization.............. A-1
</TABLE>
This document will give you the information you need to vote on the
proposed merger. Much of the information is required under rules of the
Securities and Exchange Commission ("SEC"); some of it is technical. If
there is anything you don't understand, please contact us at our special
toll-free number, 1-800-225-1581, or call your financial advisor.
This Prospectus/Proxy Statement relates to the proposed merger of Putnam
High Yield Total Return Fund (the "Total
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Return Fund") into Putnam High Yield Trust II ("High Yield Trust II"). As a
result of the proposed transaction, each Class A, Class B and Class M
shareholder of the Total Return Fund will receive a number of full and
fractional Class A, Class B and Class M shares, respectively, of High Yield
Trust II equal in value at the date of the exchange to the total value of
the shareholder's Total Return Fund shares. Like the Total Return Fund,
High Yield Trust II is in the family of funds managed by Putnam Investment
Management, Inc. ("Putnam Management"). High Yield Trust II and the Total
Return Fund are collectively referred to herein as the "Funds," and each is
referred to individually as a "Fund."
This Prospectus/Proxy Statement explains concisely what you should know
before voting on the proposed merger or investing in High Yield Trust II.
Please read it and keep it for future reference. This Prospectus/Proxy
Statement is accompanied by (i) the Prospectus, dated December 30, 1998, of
High Yield Trust II (the "High Yield Trust II Prospectus"), and (ii) the
Report of Independent Accountants and financial statements included in High
Yield Trust II's Annual Report to Shareholders for the fiscal year ended
August 31, 1998. The High Yield Trust II Prospectus and High Yield Trust
II's Annual Report are incorporated into this Prospectus/Proxy Statement by
reference.
The following documents have been filed with the SEC and are also
incorporated into this Prospectus/Proxy Statement by reference:
(i) the Prospectus, dated October 30, 1998, of the Total Return Fund;
(ii) the Statement of Additional Information of the Total Return Fund,
dated October 30, 1998;
(iii) the Statement of Additional Information of High Yield Trust II, dated
December 30, 1998;
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(iv) the Report of Independent Accountants and financial statements
included in the Total Return Fund's Annual Report to Shareholders for
the fiscal year ended June 30, 1998;
(v) the financial statements included in the Total Return Fund's
Semi-Annual Report to Shareholders for the period ended December 31,
1998; and
(vi) a Statement of Additional Information, dated April 12, 1999, relating
to the proposed merger.
For a free copy of any of the above, please contact us at the special
toll-free number we have set up for you (1-800-225-1581).
Proxy materials, information statements and other information filed by the
Funds can be inspected and copied at the Public Reference Room maintained
by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549 at
prescribed rates. You may also access reports and other information about
the Funds at the Commission's Internet site at http://www.sec.gov.
The securities offered by the accompanying Prospectus/ Proxy Statement 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 such Prospectus/Proxy Statement. Any representation to the
contrary is a criminal offense.
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Shares of High Yield Trust II 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.
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<PAGE>
Synopsis
> The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed merger
between funds. These responses are qualified in their entirety by the
remainder of the Prospectus/Proxy Statement, which contains additional
information and further details regarding the proposed merger.
1. What is being proposed?
The Trustees of the Funds are recommending that shareholders approve the
merger of the Total Return Fund into High Yield Trust II, another mutual
fund in the Putnam Family of Funds. High Yield Trust II has the same
investment adviser, Putnam Investment Management, Inc. ("Putnam
Management") and Trustees as the Total Return Fund.
If approved by shareholders, all of the assets of the Total Return Fund
will be transferred to High Yield Trust II in exchange for shares of High
Yield Trust II with a value equal to those assets net of liabilities, and
for the assumption by High Yield Trust II of all of the liabilities of the
Total Return Fund. Immediately following the transfer, the High Yield Trust
II shares received by the Total Return Fund will be distributed to its
shareholders pro rata.
2. What will happen to my shares of the Total Return Fund as a result of the
merger?
Your shares of the Total Return Fund will, in effect, be exchanged on a
tax-free basis for shares of High Yield Trust II with an equal total net
asset value.
3. Why are the Trustees proposing the merger?
The Trustees of the Total Return Fund recommend approval of the merger
because it offers shareholders of the Fund the opportunity to pursue a
similar investment objective while benefitting from the economies of scale
and lower expenses of a significantly larger fund.
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<PAGE>
The Trustees believe that combining the two Funds will result in lower
expenses for shareholders while preserving shareholders' decision to invest
in a high yield fund. The Total Return Fund is relatively small and has, in
the opinion of Putnam Management, limited opportunities for future growth.
High Yield Trust II's significantly larger size generates economies of
scale, and the Fund has a lower management fee.
Putnam Management believes that mutual fund investors currently favor more
income-oriented high yield funds such as High Yield Trust II as compared to
funds such as the Total Return Fund with its total return orientation.
Putnam Management does not expect a shift in current investor preferences
in the near future, making it unlikely that the Total Return Fund would
achieve economies of scale comparable to those of High Yield Trust II.
4. How do the investment objectives (goals), policies and restrictions of the
two Funds compare?
The two Funds' investment policies are substantially similar, but they
differ in investment objective. The Total Return Fund seeks total return
through high current income and capital appreciation. High Yield Trust II
seeks high current income, with capital appreciation as a secondary goal
when consistent with achieving high current income. Both Funds seek their
goals by investing, under normal market conditions, at least 80% of their
assets in lower rated securities, which include debt instruments,
convertible debt securities and preferred stock. Each Fund invests no more
than 15% of its assets in securities rated below CCC (or its equivalent) by
a nationally recognized securities rating agency, or in unrated investments
that Putnam Management determines are of comparable quality. The policies
of the Total Return Fund limit its investments in securities of foreign
issuers located in emerging markets to 25% of its assets, and also limit
its investments in securities denominated in foreign currencies to 25% of
its assets. Although the policies of High Yield Trust II
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do not impose these limits, the Fund currently expects foreign investments
will remain below these limits.
5. How do the management fees and other expenses of the two Funds compare, and
what are they estimated to be following the merger?
High Yield Trust II has lower overall operating expenses than the Total
Return Fund as a result of its larger size and a lower management fee
structure. The expenses of the funds for the calendar year ended December
31, 1998 are set forth below under "Annual Fund Operating Expenses." The
expenses of the Total Return Fund have been reduced in the past as a result
of management fee waivers by Putnam Management under an expense cap.
However, even with the expense cap the expense ratio of the Total Return
Fund is higher than that of High Yield Trust II. The Total Return Fund's
expense cap expired as of December 31, 1998. As of February 26, 1999, High
Yield Trust II and the Total Return Fund had net assets of $1,172,978,946
and $112,929,518, respectively.
The sales charges payable by shareholders of the Funds and the maximum
amounts payable by the Funds under distribution plans adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 are identical. These
12b-1 fees are 0.25%, 1.00% and 0.50% of average net assets attributable to
Class A, Class B and Class M shares, respectively.
The following tables summarize the maximum fees and expenses you may pay
when investing in the Funds, expenses that each of the Funds incurred in
the 12 months ended December 31, 1998, and estimated expenses that Putnam
Management expects the combined fund to incur in the first year following
the merger.
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Shareholder Fees
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class M
Shares Shares Shares
-------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price)
Total Return Fund 4.75% NONE* 3.25%
High Yield Trust II 4.75% NONE* 3.25%
(Not applicable (Not applicable
to Merger to Merger
Shares) Shares)
Maximum Deferred
Sales Charge (Load)
(as a percentage of
the original purchase
price or redemption
proceeds, whichever
is lower)
Total Return Fund NONE** 5.0%*** NONE
High Yield Trust II NONE** 5.0%*** NONE
-------------------------------------------------------------------------
</TABLE>
*Class B shares are sold without a front-end sales charge, but their
higher 12b-1 fees may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charge for
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 as part of an investment of $1 million or more.
***5.0% in the first year, declining to 1.0% in the sixth year, and
eliminated thereafter.
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Annual Fund Operating Expenses
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Management Distribution Other Total Annual Fund
Fees (12b-1) Fees Expenses Operating Expenses
---------- -------------- ---------- -------------------
<S> <C> <C> <C> <C>
Total Return Fund
Class A 0.80% 0.25% 0.33% 1.38%
Class B 0.80% 1.00% 0.33% 2.13%
Class M 0.80% 0.50% 0.33% 1.63%
High Yield Trust II
Class A 0.64% 0.25% 0.13% 1.02%
Class B 0.64% 1.00% 0.13% 1.77%
Class M 0.64% 0.50% 0.13% 1.27%
High Yield Trust II
(Pro forma
combined)
Class A 0.63% 0.25% 0.13% 1.01%
Class B 0.63% 1.00% 0.13% 1.76%
Class M 0.63% 0.50% 0.13% 1.26%
-------------------- ---- ---- ---- ----
</TABLE>
The tables are provided to help you understand the expenses of investing in
the Funds and your share of the operating expenses which each Fund incurs
and which Putnam Management expects the combined fund to incur in the first
year following the merger. The expenses shown in the table do not reflect
the application of credits related to expense offset arrangements that may
reduce certain fund expenses. The 12b-1 fees shown in the table reflect the
amounts to which the Trustees currently limit payments under each Fund's
Class A and Class M Distribution Plans.
Examples
These examples translate the "Total Annual Fund Operating Expenses" shown
in the preceding table into dollar amounts.
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By doing this, you can more easily compare the cost of investing in the
Funds. The examples make certain assumptions. They assume that you invest
$10,000 in a Fund for the time periods shown and then, except as shown for
Class B shares, redeem all your shares at the end of these periods. They
also assume 5% return on your investment each year and that a Fund's
operating expenses remain the same. The examples are hypothetical; your
actual costs and returns may be higher or lower.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Fund
Class A $609 $891 $1,194 $2,054
Class B $716 $967 $1,344 $2,271****
Class B
(no redemption) $216 $667 $1,144 $2,271****
Class M $485 $822 $1,183 $2,195
High Yield Trust II
Class A $574 $784 $1,011 $1,664
Class B $680 $857 $1,159 $1,886****
Class B
(no redemption) $180 $557 $ 959 $1,886****
Class M $450 $715 $ 999 $1,809
High Yield Trust II
(Pro forma
combined)
Class A $573 $781 $1,006 $1,653
Class B $679 $854 $1,154 $1,875****
Class B
(no redemption) $179 $554 $ 954 $1,875****
Class M $449 $712 $ 994 $1,798
---------------------------------------------------------------------------
</TABLE>
****Reflects conversion of Class B shares to Class A shares (which pay
lower ongoing expenses) approximately eight years after purchase.
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+For purposes of determining the CDSC applicable to Class B Merger Shares,
such shares will be treated as having been acquired as of the dates the
corresponding Class B shares of the Total Return Fund were originally
acquired. See "Information about the merger Description of the Merger
Shares."
6. What are the federal income tax consequences of the proposed merger?
For federal income tax purposes, no gain or loss will be recognized by the
Total Return Fund or its shareholders as a result of the merger.
7. Will my dividend be affected by the merger?
Like the Total Return Fund, High Yield Trust II pays monthly dividends from
net investment income and distributes any net realized capital gains at
least annually. Of course, the amount of these distributions will reflect
the investment policies of High Yield Trust II. Except as noted below, your
existing distribution option (reinvesting in additional shares, receiving
cash, or a combination of cash and additional shares) will continue
following the merger.
High Yield Trust II will not permit any Total Return Fund Shareholder
holding certificates for Total Return Fund shares at the time of the merger
to receive cash dividends or other distributions, receive certificates for
shares issued in the merger ("Merger Shares"), exchange Merger Shares for
shares of other investment companies managed by Putnam Management, or
pledge or redeem Merger Shares until such certificates for Total Return
Fund shares have been surrendered, or, in the case of lost certificates, an
adequate surety bond has been posted.
If a shareholder is not for that reason permitted to receive cash dividends
or other distributions on Merger Shares, High Yield Trust II will pay all
such dividends and distributions in additional shares, notwithstanding any
election the shareholder may have made previously to receive dividends and
distributions on Total Return Fund shares in cash.
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8. Do the procedures for purchasing, redeeming and exchanging shares of the
two Funds differ?
No. The procedures for purchasing and redeeming shares of each Fund, and
for exchanging such shares of each Fund for shares of other Putnam funds,
are identical.
Both Funds currently offer three classes of shares. Shares of both Funds
may be purchased either through investment dealers that have sales
agreements with Putnam Mutual Funds Corp. ("Putnam Mutual Funds") or
directly through Putnam Mutual Funds at prices based on net asset value,
plus varying sales charges, depending on the class and number of shares
purchased. Reinvestment of distributions by the Funds are made at net asset
value for all classes of shares.
Shares of each Fund may be redeemed any day the New York Stock Exchange is
open at their net asset value next determined after receipt by the Fund of
a properly completed redemption request either directly by a Fund or
through an investment dealer.
Shares of both Funds may be exchanged after a ten-day holding period for
shares of the same class of certain other Putnam funds.
9. How will I be notified of the outcome of the merger?
If the proposed merger is approved by shareholders, you will receive
confirmation after the reorganization is completed, indicating your new
account number, share holdings and procedures for returning any Total
Return Fund certificates you may hold. If the merger is not approved,
shareholders will be notified, and the results of the meeting will be
provided in the next annual report of the Total Return Fund.
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10. Will the number of shares I own change?
Yes, but the total value of the shares of High Yield Trust II you receive
will equal the total value of the shares of the Total Return Fund that you
hold at the time of the merger. Even though the net asset value per share
of each fund is different, the total value of a shareholder's holdings will
not change as a result of the merger.
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Risk factors
> What are the principal risks associated with an investment in High Yield
Trust II, and how do they compare with those for the Total Return Fund?
Because the Funds share similar goals and policies, the risks of an
investment in High Yield Trust II are similar to the risks of an investment
in the Total Return Fund.
Yield Orientation. Although the Funds are similar, High Yield Trust II
places more emphasis on current yield than the Total Return Fund, which
gives more equal weighting to current income and potential for capital
gain. Under certain market conditions, such as when the high yield market
is rising in value, High Yield Trust II's emphasis on current income may
lead to a lower overall total return.
Fixed-Income Investments. The value of a company's fixed-income
investments may fall as a result of factors directly relating to that
company, such as decisions made by its management or a reduction in its
credit rating. An investment's value may also fall because of factors
affecting not just the company, but many companies or its industry, such as
increased production costs. The value of an investment may also be affected
by general changes in financial market conditions that are relatively
unrelated to the company or its industry, such as changing interest rates
or currency exchange rates.
Interest Rate Risk. The values of fixed-income investments usually rise
and fall in response to changes in interest rates. Declining interest rates
generally raise the value of existing fixed-income investments, and rising
interest rates generally lower the value of existing fixed-income
investments. Changes in the values of fixed-income investments usually will
not affect the amount of income a Fund receives from them, but will affect
the value of a Fund's shares. Interest rate risk is usually greater for
investments with longer maturities.
Like the Total Return Fund, High Yield Trust II may buy investments that
give the issuing company the option to
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"call," or redeem, these investments before their maturity date. If an
investment were to be "called" by a company during a time of declining
interest rates, the Fund might have to reinvest the proceeds in an
investment offering a lower yield, and therefore might not benefit from any
increase in value as a result of declining interest rates.
Credit Risk & Lower-Rated Investments. Investors normally expect to be
compensated in proportion to the risk they are assuming. Fixed-income
investments of companies with poor credit usually offer higher yields than
those of companies with better credit. Higher-rated investments offer lower
credit risk, but not lower interest rate risk. The value of a higher-rated
investment still fluctuates in response to changes in interest rates.
Like the Total Return Fund, High Yield Trust II's investments are mainly
below investment grade in credit quality. Each Fund may buy investments in
any rating category (and unrated securities of comparable quality), and may
invest up to 15% of its assets in investments rated below CCC (or its
equivalent) by a nationally recognized securities rating agency, including
securities in the lowest rating category of each rating agency, and in
unrated investments that Putnam Management determines are of comparable
quality. A Fund will not necessarily sell an investment if its rating is
reduced. A reduction in an investment's rating will generally cause its
value to decline.
Fixed-income investments rated below BBB (or its equivalent) are considered
below investment grade and are commonly known as "junk bonds." They are
considered to be of poor standing and mainly speculative, and those in the
lowest rating category 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 lower ratings of these investments reflect a
greater possibility that the issuing companies may be unable to make timely
payments of
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<PAGE>
interest and principal and thus default. There may be an increased risk of
default in adverse economic conditions. If this happens, or is perceived as
more likely to happen, the values of those investments will usually be more
volatile. A default or expected default could also make it difficult for a
Fund to sell the investments at prices approximating the values a Fund had
previously placed on them. Because junk bonds are traded mainly by
institutions, they usually have a limited market, which may at times make
it difficult for a Fund to establish their fair value.
Foreign Investments. Like the Total Return Fund, High Yield Trust II may
invest in securities of foreign issuers and securities denominated in
foreign currencies. The Total Return Fund limits its investments in
securities of foreign issuers located in emerging markets to 25% of its
assets, and also limits its investments in securities denominated in
foreign currencies to 25% of its assets. Although High Yield Trust II's
investment policies do not contain these limits, the Fund currently expects
that foreign investments will remain below those limits. Foreign
investments involve certain special risks. For example, their values may
decline in response to changes in currency exchange rates, unfavorable
political and legal developments, unreliable or untimely information, or
economic and financial instability. In addition, the liquidity of these
investments may be more limited than domestic investments, which means the
Fund may at times be unable to sell them at desirable prices. Foreign
settlement procedures may also involve additional risks. These risks are
generally greater in the case of "emerging markets" that typically have
less developed legal and financial systems.
Certain of these risks may also apply to some extent to domestic
investments that are denominated in foreign currencies or that are traded
in foreign markets, or to investments in U.S. companies that have
significant foreign operations.
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<PAGE>
Smaller Companies. As does the Total Return Fund, High Yield Trust II may
invest in small and medium-sized companies. These companies are more likely
than larger companies to have limited product lines, markets or financial
resources, or to depend on a small, less experienced management group.
Investments in smaller companies may trade less frequently and in limited
volume, and their prices may fluctuate more than investments in other
companies. These investments may therefore be more vulnerable to adverse
developments than those of larger companies.
Premium Investments. As does the Total Return Fund, High Yield Trust II
invests in so-called "premium" investments, which offer interest rates
higher than prevailing market rates. In addition, during times of declining
interest rates, many of the Fund's investments may offer interest rates
that are higher than current market rates. When the Fund holds these
premium investments, shareholders are likely to receive higher dividends
(but will bear a greater risk that the value of the Fund's shares will
fall) than they would if the Fund held investments offering current market
rates of interest. Premium investments involve a greater risk of loss,
because their values tend to decline towards the face value over time.
Illiquid Investments. Putnam Management believes that opportunities to
earn high yields may exist in investments that are not liquid and that may
be considered speculative. The sale of these investments is usually
restricted or limited by law, which may mean that High Yield Trust II will
not be able to sell them when Putnam Management considers it desirable to
do so or may be able to sell them only at less than their market value. As
does the Total Return Fund, High Yield Trust II may invest up to 15% of its
assets in illiquid investments.
Derivatives. Like the Total Return Fund, High Yield Trust II may engage in
a variety of transactions involving derivatives such as futures, options,
warrants and swap contracts.
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<PAGE>
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of one or more underlying investments, indexes or
currencies. The Fund's return on a derivative typically depends on the
change in the value of the security, index or currency specified in the
derivative instrument. The Fund's use of derivatives may increase the
amount of taxes payable by shareholders.
Like the Total Return Fund, High Yield Trust II Fund may use derivatives
both for hedging and non-hedging purposes. Derivatives involve special
risks and may result in losses. The Fund will be dependent on Putnam
Management's ability to analyze and manage these sophisticated instruments.
Frequent Trading. Like the Total Return Fund, High Yield Trust II may buy
and sell investments relatively often, which involves higher brokerage
commissions and other expenses, and may increase the amount of taxes
payable by shareholders.
Other Investments. As does the Total Return Fund, in addition to the
investment strategies described above, High Yield Trust II may also make
other types of investments (subject to the requirement that 80% of its
assets be in fixed income securities), such as investments in common stocks
and other equity securities and therefore may be subject to other risks.
22
<PAGE>
General
This Prospectus/Proxy Statement is furnished in connection with the
proposed merger of the Total Return Fund into High Yield Trust II and the
solicitation of proxies by and on behalf of the Trustees of the Total
Return Fund for use at the Meeting of Shareholders. The Meeting is to be
held on July 1, 1999 at 2:00 p.m. at One Post Office Square, 8th Floor,
Boston, Massachusetts. The Notice of the Meeting, the combined
Prospectus/Proxy Statement and the enclosed form of proxy are being mailed
to shareholders on or about April 15, 1999.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the Fund's Clerk at the principal office of the Total Return
Fund, One Post Office Square, Boston, Massachusetts 02109) or in person at
the Meeting, by executing a superseding proxy, or by submitting a notice of
revocation to the Total Return Fund. All properly executed proxies received
in time for the Meeting will be voted as specified in the proxy, or, if no
specification is made, FOR the proposal (set forth in Proposal 1 of the
Notice of Meeting) to implement the merger of the Total Return Fund into
High Yield Trust II.
As of March 15, 1999, there were outstanding 15,095,006 shares of
beneficial interest of the Total Return Fund. Only shareholders of record
on April 1, 1999 will be entitled to notice of and to vote at the Meeting.
Each share is entitled to one vote, with fractional shares voting
proportionally.
The Trustees of the Total Return Fund know of no matters other than those
set forth herein to be brought before the Meeting. If, however, any other
matters properly come before the Meeting, it is the Trustees' intention
that proxies will be voted on such matters in accordance with the judgment
of the persons named in the enclosed form of proxy.
23
<PAGE>
Proposal regarding approval or disapproval of merger
and related Agreement and Plan of Reorganization
The shareholders of the Total Return Fund are being asked to approve or
disapprove a merger between the Total Return Fund and High Yield Trust II
pursuant to an Agreement and Plan of Reorganization between the Funds,
dated as of March 17, 1999 (the "Agreement"), a copy of which is attached
to this Prospectus/Proxy Statement as Exhibit A.
The merger is structured as a transfer of all of the assets of the Total
Return Fund to High Yield Trust II in exchange for the assumption by High
Yield Trust II of all of the liabilities of the Total Return Fund and for
the Class A, Class B and Class M Merger Shares equal in total net asset
value to the net value of assets transferred to High Yield Trust II, all as
more fully described below under "Information about the merger."
After receipt of the Merger Shares, the Total Return Fund will distribute
the Class A Merger Shares to its Class A shareholders, the Class B Merger
Shares to its Class B shareholders and the Class M Merger Shares to its
Class M shareholders in proportion to then existing shareholdings, in
complete liquidation of the Total Return Fund, and the legal existence of
the Total Return Fund as a separate series of the Putnam Funds Trust
business trust under Massachusetts law will be terminated. Each shareholder
of the Total Return Fund will receive a number of full and fractional Class
A, Class B, or Class M Merger Shares equal in value at the date of the
exchange to the aggregate value of the shareholder's Total Return Fund
shares.
Prior to the date of the transfer (the "Exchange Date"), the Total Return
Fund will declare a distribution to shareholders which, together with all
previous distributions, will have the effect of distributing to
shareholders all of its investment com-
24
<PAGE>
pany taxable income (computed without regard to the deduction for dividends
paid) and net realized capital gains, if any, through the Exchange Date.
The Trustees have voted unanimously to approve the proposed transaction and
to recommend that shareholders also approve the transaction. The
transactions contemplated by the Agreement will be consummated only if
approved by the affirmative vote of the holders of either (1) more than 50%
of the outstanding shares of the Total Return Fund entitled to vote, or (2)
67% or more of the shares of the Total Return Fund entitled to vote and
present at the Meeting if more than 50% of the shares of the Total Return
Fund entitled to vote are present at the Meeting in person or by proxy.
In the event that this proposal is not approved by the shareholders of the
Total Return Fund, the Total Return Fund will continue to be managed as a
separate fund in accordance with its current investment objectives and
policies, and the Trustees may consider such alternatives as may be in the
best interests of its shareholders.
Background and reasons for the proposed
merger
The Trustees of each Fund, including all Trustees who are not "interested
persons" of the Funds, have determined that the reorganization would be in
the best interests of each Fund's shareholders, and that the interests of
existing shareholders of each of the Funds would not be diluted as a result
of effecting the reorganization. The Trustees have unanimously approved the
proposed reorganization and have recommended its approval by shareholders.
High Yield Trust II and the Total Return Fund have the same Trustees.
Putnam Management advised the Trustees that it had concluded that the
prospects for the Total Return Fund's growth were limited. Putnam
Management's experience is that investors in high yield mutual funds prefer
more income oriented products to the total return approach of the Total
Return
25
<PAGE>
Fund. Putnam introduced the Total Return Fund at the beginning of 1997. As
of February 26, 1999, it had $112,929,518 in net assets. By contrast High
Yield Trust II, launched in January 1998, had $1,172,978,946 in net assets
as of February 26, 1999.
The consequence of the Total Return Fund's small size and limited growth
potential is an expectation that its expenses will be relatively higher.
The Trustees believe, based on Putnam Management's advice, that
shareholders of the Total Return Fund will benefit from the lower expense
structure of High Yield Trust II. See "Synopsis-Question 5" for more
details on the difference in current expense levels.
Set forth below is total return information for Class A shares of the two
Funds for the one year period ending December 31, 1998:
Annualized Total Return
(period ending December 31, 1998)
<TABLE>
<CAPTION>
Total Investment Return
for Class A shares
at NAV
- ----------------------------------------------------
<S> <C>
Total Return Fund -6.18%
High Yield Trust II 0.20%
- ----------------------------------------------------
</TABLE>
Past Performance is no guarantee of future performance.
Exchange without recognition of gain or loss for Federal Income Tax
purposes. If a Total Return Fund shareholder were to redeem his or her
shares to invest in another fund, like High Yield Trust II, gain or loss
would be recognized by that shareholder for federal income tax purposes.
Also, if the Total Return Fund were liquidated or were reorganized in a
taxable reorganization, the transaction would likely result in a taxable
event for its shareholders. By contrast, the proposed merger will permit
the Total Return Fund's shareholders to exchange their investment for an
investment in High Yield Trust II without recognition of gain or loss for
fed-
26
<PAGE>
eral income tax purposes. After the merger, shareholders will be free to
redeem any or all of High Yield Trust II shares at net asset value at any
time, at which point a taxable gain or loss would be recognized.
Information about the merger
Agreement and plan of reorganization. The proposed merger will be governed
by the Agreement and Plan of Reorganization. The Agreement provides that
High Yield Trust II will acquire all of the assets of the Total Return Fund
in exchange for the assumption by High Yield Trust II of all of the
liabilities of the Total Return Fund and for the issuance of Class A, Class
B and Class M Merger Shares equal in value to the value of the transferred
assets net of assumed liabilities. The shares will be issued on the next
full business day following the time as of which the two Funds' shares are
valued for determining net asset value for the merger (4:00 p.m. Boston
time on July 9, 1999 or such other date as may be agreed upon by the
parties). The following discussion of the Agreement is qualified in its
entirety by the full text of the Agreement, which is attached as Exhibit A
to this Prospectus/ Proxy Statement.
The Total Return Fund will sell all of its assets to High Yield Trust II,
and in exchange, High Yield Trust II will assume all of the liabilities of
the Total Return Fund and deliver to the Total Return Fund (i) a number of
full and fractional Class A Merger Shares having an aggregate net asset
value equal to the value of assets of the Total Return Fund attributable to
its Class A shares, less the value of the liabilities of the Total Return
Fund assumed by High Yield Trust II attributable to such Class A shares;
(ii) a number of full and fractional Class B Merger Shares having a net
asset value equal to the value of assets of the Total Return Fund
attributable to its Class B shares, less the value of the liabilities of
the Total Return Fund assumed by High Yield Trust II attributable to such
Class B shares, and (iii) a number of full and fractional Class
27
<PAGE>
M Merger Shares having a net asset value equal to the value of assets of
the Total Return Fund attributable to its Class M shares, less the value of
the liabilities of the Total Return Fund assumed by High Yield Trust II
attributable to such Class M Shares.
Immediately following the Exchange Date, the Total Return Fund will
distribute pro rata to its shareholders of record as of the close of
business on the Exchange Date the full and fractional Merger Shares
received by the Total Return Fund, with Class A Merger Shares being
distributed to holders of Class A shares of the Total Return Fund, Class B
Merger Shares being distributed to holders of Class B shares of the Total
Return Fund and Class M Merger Shares being distributed to holders of Class
M shares of the Total Return Fund. As a result of the proposed transaction,
each holder of Class A, Class B and Class M shares of the Total Return Fund
will receive a number of Class A, Class B and Class M Merger Shares equal
in aggregate value at the Exchange Date to the value of the Class A, Class
B and Class M shares, respectively, of the Total Return Fund held by the
shareholder. This distribution will be accomplished by the establishment of
accounts on the share records of High Yield Trust II in the name of such
Total Return Fund shareholders, each account representing the respective
number of full and fractional Class A, Class B and Class M Merger Shares
due such shareholder. New certificates for Merger Shares will be issued
only upon written request.
The Trustees of Total Return Fund have determined that the interests of
Total Return Fund shareholders will not be diluted as a result of the
transactions contemplated by the reorganization, and the Trustees of both
Funds have determined that the proposed reorganization is in the best
interests of each Fund.
The consummation of the merger is subject to the conditions set forth in
the Agreement. The Agreement may be terminated
28
<PAGE>
and the merger abandoned at any time, before or after approval by the
shareholders, prior to the Exchange Date by mutual consent of High Yield
Trust II and the Total Return Fund or, if any condition set forth in the
Agreement has not been fulfilled and has not been waived by the party
entitled to its benefits, by such party.
If shareholders of the Total Return Fund approve the acquisition, Putnam
Management will be authorized to reposition the Total Return Fund's
portfolio, subject to tax and other regulatory restraints, so that it
reflects the investment policies of High Yield Trust II. The Agreement
provides that the repositioning of the Total Return Fund portfolio will be
substantially completed prior to the Exchange Date, unless otherwise agreed
by the Total Return Fund and High Yield Trust II. Total Return Fund
shareholders will bear the portfolio trading costs associated with this
repositioning to the extent that it is completed prior to the Exchange
Date. There can be no assurance that such repositioning will be
accomplished prior to the Exchange Date. To the extent the repositioning is
not accomplished prior to the Exchange Date, the costs of the repositioning
will be borne by the shareholders of the surviving fund, including current
shareholders of High Yield Trust II.
Except for the trading costs associated with the repositioning described
above, the fees and expenses for the transaction are estimated to be
$138,000. All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be allocated ratably between the two Funds in proportion to
their net assets as of the day of the transfer, except that the costs of
proxy materials and proxy solicitations will be borne by the Total Return
Fund. However, to the extent that any payment by either Fund of such fees
or expenses would result in the disqualification of High Yield Trust II or
the Total Return Fund as a "regulated investment company" within the
29
<PAGE>
meaning of Section 851 of the Internal Revenue Code of 1986, as amended
(the "Code"), such fees and expenses will be paid directly by the party
incurring them.
Description of the Merger Shares. Merger Shares will be issued to the
Total Return Fund's shareholders in accordance with the procedure under the
Agreement as described above. The Merger Shares are Class A, Class B and
Class M shares of High Yield Trust II. Investors purchasing Class A and
Class M shares pay a sales charge at the time of purchase, but Total Return
Fund shareholders receiving Class A and Class M Merger Shares in the merger
will not pay a sales charge on such shares. Class A and Class M shares of
High Yield Trust II generally are not subject to redemption fees, but such
shares are subject to a 12b-1 fee at the annual rate of 0.25% and 0.50% of
the Fund's average daily net assets attributable to Class A and Class M
shares, respectively. Class B shares of High Yield Trust II are sold
without a sales charge, but are subject to a CDSC of up to 5% if redeemed
within six years of purchase. For purposes of determining the CDSC payable
on redemption of Class B Merger Shares received by holders of Class B
shares of the Total Return Fund, as well as the conversion date of such
shares described below, such shares will be treated as having been acquired
as of the dates such shareholders originally acquired their Class B shares
of the Total Return Fund. Class B shares are also subject to a 12b-1 fee at
the annual rate of 1.00% of the Fund's average daily net assets
attributable to Class B shares. Class B shares will automatically convert
to Class A shares, based on relative net asset value, approximately eight
years after purchase.
Each of the Merger Shares will be fully paid and nonassessable when issued,
will be transferable without restriction, and will have no preemptive or
conversion rights, except that Class B Merger Shares will have the
conversion rights specified above. The Agreement and Declaration of Trust
of
30
<PAGE>
Putnam Funds Trust permits High Yield Trust II to divide its shares,
without shareholder approval, into two or more classes of shares having
such preferences and special or relative rights and privileges as the
Trustees may determine. High Yield Trust II's shares are currently divided
into three classes--Class A, Class B and Class M shares.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of High Yield Trust II.
However, the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of High Yield Trust II and requires that
notice of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by High Yield Trust II or its Trustees.
The Agreement and Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder held personally
liable for the obligations of High Yield Trust II. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which High Yield Trust II would be unable to
meet its obligations. The likelihood of such circumstances is remote. The
shareholders of the Total Return Fund are currently subject to this same
risk of shareholder liability.
Federal income tax consequences. As a condition to the Total Return Fund's
obligation to consummate the reorganization, the Total Return Fund will
receive an opinion from Ropes & Gray, counsel to the Funds, (which opinion
would be based on certain factual representations and subject to certain
qualifications) (the "Tax Opinion") to the effect that, on the basis of the
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), current administrative rules and court decisions, for federal
income tax purposes:
(i) The acquisition by High Yield Trust II of substantially all of the
assets of the Total Return Fund solely in exchange for Merger Shares
and the assumption by High Yield Trust II of liabilities of the Total
Return Fund followed by the
31
<PAGE>
distribution by the Total Return Fund to its shareholders of Merger
Shares in complete liquidation of the Total Return Fund, all pursuant
to the plan of reorganization, constitutes a reorganization within the
meaning of Section 368(a) of the Code and the Total Return Fund and
the High Yield Trust II will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) under Section 361 of the Code, no gain or loss will be recognized by
the Total Return Fund upon the transfer of its assets and the
assumption of its liabilities by High Yield Trust II or upon the
distribution of the Merger Shares to the Total Return Fund's
shareholders in liquidation of the Total Return Fund;
(iii) under Section 354 of the Code, no gain or loss will be recognized by
shareholders of the Total Return Fund on the exchange of their shares
of the Total Return Fund for Merger Shares;
(iv) under Section 358 of the Code, the basis of the Merger Shares received
by the Total Return Fund's shareholders will be the same as the basis
of the Total Return Fund shares exchanged therefor;
(v) under Section 1223(1) of the Code, the holding periods of the Merger
Shares received by the shareholders of the Total Return Fund will
include the holding periods of the Total Return Fund shares exchanged
therefor, provided that at the time of the reorganization the Total
Return Fund shares are held by such shareholders as a capital asset;
(vi) under Section 1032 of the Code, no gain or loss will be recognized by
High Yield Trust II upon the receipt of assets of the Total Return
Fund in exchange for Merger Shares and the assumption by High Yield
Trust II of the liabilities of the Total Return Fund;
32
<PAGE>
(vii) under Section 362(b) of the Code, the basis in the hands of High
Yield Trust II of the assets of the Total Return Fund transferred to
High Yield Trust II will be the same as the basis of such assets in
the hands of the Total Return Fund immediately prior to the transfer;
and
(viii) under Section 1223(2) of the Code, the holding periods of the assets
of the Total Return Fund in the hands of High Yield Trust II will
include the periods during which such assets were held by the Total
Return Fund.
High Yield Trust II will file the Tax Opinion with the SEC at a future
date.
33
<PAGE>
Capitalization. The following table shows the capitalization of the Funds
as of January 31, 1999, and on a pro forma combined basis, giving effect to
the proposed acquisition of assets at net asset value as of that date:
(UNAUDITED)
<TABLE>
<CAPTION>
High Yield Total Return Pro Forma
Trust II Fund+ Combined*
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets
(000's omitted)
Class A 456,792 50,145 506,909
Class B 651,933 58,039 709,932
Class M 35,588 3,745 39,331
Shares outstanding
(000's omitted)
Class A 57,997 6,680 64,360
Class B 82,727 7,801 90,091
Class M 4,518 503 4,993
Net Asset value
per share
Class A 7.88 7.51 7.88
Class B 7.88 7.44 7.88
Class M 7.88 7.45 7.88
---------------------------------------------------------------------------
</TABLE>
+ Total Return Fund assets reflect proxy-related costs.
* Pro forma combined net assets reflect legal and accounting merger-
related costs.
34
<PAGE>
Surrender of certificates. High Yield Trust II will not permit any Total
Return Fund shareholder holding certificates for Total Return Fund shares
at the time of the merger to receive cash dividends or other distributions,
receive certificates for Merger Shares, exchange Merger Shares for shares
of other investment companies managed by Putnam Management, or pledge or
redeem Merger Shares until such certificates for Total Return Fund shares
have been surrendered, or, in the case of lost certificates, an adequate
surety bond has been posted.
THE TRUSTEES OF PUTNAM HIGH YIELD TOTAL RETURN FUND, INCLUDING THE
INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT.
Voting information
Required vote. Proxies are being solicited from the Total Return Fund's
shareholders by its Trustees for the Meeting of Shareholders to be held on
July 1, 1999 at 2:00 p.m. (the "Meeting"), at One Post Office Square, 8th
Floor, Boston, Massachusetts, or at such later time made necessary by
adjournment. Unless revoked, all valid proxies will be voted in accordance
with the specification thereon or, in the absence of specifications, FOR
approval of the Agreement. The transactions contemplated by the Agreement
will be consummated only if approved by the affirmative vote of the holders
of either (1) more than 50% of the outstanding shares of the Total Return
Fund entitled to vote, or (2) 67% or more of the shares of the Total Return
Fund entitled to vote and present at the Meeting if more than 50% of the
shares of the Total Return Fund entitled to vote are present at the Meeting
in person or by proxy.
Record date, quorum and method of tabulation. Shareholders of record of the
Total Return Fund at the close of business on April 1, 1999 (the "record
date") will be entitled
35
<PAGE>
to vote at the Meeting or any adjournment thereof. The holders of 30% of
the shares of the Total Return Fund outstanding at the close of business on
the record date present in person or represented by proxy will constitute a
quorum for the Meeting; however, as noted above, the affirmative vote of
the holders of either (1) more than 50% of the outstanding shares of the
Total Return Fund entitled to vote, or (2) 67% or more of the shares of the
Total Return Fund entitled to vote and present at the Meeting if more than
50% of the shares of the Total Return Fund entitled to vote are present at
the Meeting in person or by proxy, is necessary to approve the merger.
Shareholders are entitled to one vote for each share held, with fractional
shares voting proportionally.
Votes cast by proxy or in person at the meeting will be counted by persons
appointed by the Total Return Fund as tellers for the Meeting. The tellers
will count the total number of votes cast "for" approval of the proposal
for purposes of determining whether sufficient affirmative votes have been
cast. The tellers will count shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote on the matter
for purposes of determining the presence of a quorum. "Broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have
not been received from the beneficial owners or the persons entitled to
vote and (ii) the broker or nominee does not have the discretionary voting
power on a particular matter) will not be counted in determining the number
of shares present. Abstentions and broker non-votes have the effect of a
negative vote on the proposal.
As of February 28, 1999, the officers and Trustees of the Total Return Fund
as a group beneficially owned less than 1% of the outstanding shares of the
Total Return Fund. To the best of the knowledge of the Total Return Fund,
the following shareholders owned of record or beneficially 5% or more of
the outstanding shares of the Total Return Fund:
36
<PAGE>
<TABLE>
<CAPTION>
Shareholder Percentage
Class Name and Address Owned
---------------------------------------------------------------------------
<S> <C> <C>
B Merrill Lynch, Pierce, Fenner & Smith 5.90%
One Liberty Plaza
165 Broadway
New York, NY 10006
M Merrill Lynch, Pierce, Fenner & Smith 6.20%
One Liberty Plaza
165 Broadway
New York, NY 10006
</TABLE>
The votes of the shareholders of High Yield Trust II are not being
solicited, since their approval or consent is not necessary for this
transaction. As of February 28, 1999, the officers and Trustees of High
Yield Trust II as a group beneficially owned less than 1% of the
outstanding shares of High Yield Trust II. To the best of the knowledge of
High Yield Trust II, the following shareholders beneficially owned 5% or
more of the outstanding shares of High Yield Trust II:
<TABLE>
<CAPTION>
Shareholder Percentage
Class Name and Address Owned
---------------------------------------------------------------------------
<S> <C> <C>
B Merrill Lynch, Pierce, Fenner & Smith 7.40%
One Liberty Plaza
165 Broadway
New York, NY 10006
M Dennis Crumpler/Maleah Crumpler 16.00%
Trustees of the M&D Crumpler Trust
U/A Dtd 1/19/98
50 Old Vermont P1 NW
Atlanta, GA 30328
</TABLE>
Solicitation of proxies. In addition to soliciting proxies by mail, the
Trustees and employees of Putnam Management, Putnam Fiduciary Trust Company
and Putnam Mutual Funds may solicit proxies in person or by telephone. The
Total Return Fund may also arrange to have voting instructions recorded by
telephone. This telephonic procedure is designed to authenticate
shareholders' identities, to allow shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm that
their instructions have been properly recorded. The
37
<PAGE>
Total Return Fund has been advised by counsel that these procedures are
consistent with the requirements of applicable law. If these procedures
were subject to a successful legal challenge, such votes would not be
counted at the Meeting. The Total Return Fund is unaware of any such
challenge at this time. Shareholders would be called at the phone number
Putnam Investments has in its records for their accounts, and would be
asked for their Social Security numbers or other identifying information.
The shareholders would then be given an opportunity to authorize their
proxies to vote their shares in accordance with their instructions. To
ensure that the shareholders' instructions have been recorded correctly,
they will also receive a confirmation of their instructions in the mail. A
special toll-free number will be available in the event the information in
the confirmation is incorrect.
Shareholders may have the opportunity to submit their voting instructions
via the Internet by utilizing a program provided through Management
Information Services ("MIS"). The giving of such a proxy will not affect
your right to vote in person should you decide to attend the Meeting. To
use the Internet, you will need the 12-digit "control" number that appears
on your proxy ballot. To vote via the Internet, please access MIS on the
World Wide Web at www.proxyweb.com. The Internet voting procedures are
designed to authenticate shareholder identities, to allow shareholders to
give their voting instructions, and to confirm that shareholders'
instructions have been recorded properly. Shareholders voting via the
Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholders.
Persons holding shares as nominees will be reimbursed upon request for
their reasonable expenses in soliciting instructions from their principals.
The Total Return Fund has retained, at its own expense, D.F. King & Co.,
Inc., 77 Water Street, New York, New York 10005, to aid in the solicitation
of
38
<PAGE>
instructions for nominee and registered accounts for a fee of $2,500 plus
reasonable out-of-pocket expenses for mailing and phone costs.
Revocation of proxies. Proxies may be revoked at any time before they are
voted by a written revocation received by the Clerk of the Total Return
Fund, by properly executing a later-dated proxy or by attending the Meeting
and voting in person.
Adjournment. If sufficient votes in favor of the proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may
propose adjournments of the Meeting for a period or periods of not more
than 60 days in the aggregate to permit further solicitation of proxies.
Any adjournment will require the affirmative vote of a majority of the
votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned. The persons named as proxies will vote in favor of
such adjournment those proxies which they are entitled to vote in favor of
the proposal. They will vote against any such adjournment those proxies
required to be voted against the proposal. The Total Return Fund pays the
costs of any additional solicitation and of any adjourned session.
Shareholder proposals. The Total Return Fund does not hold regular
shareholder annual meetings, but may from time to time schedule special
meetings. In accordance with the regulations of the SEC, in order to be
eligible for inclusion in the Fund's proxy statement for such a meeting, a
shareholder proposal must be received a reasonable time before the Fund
prints and mails its proxy statement. Also, SEC rules permit management to
exercise discretionary authority to vote on shareholder proposals not
included in the Fund's proxy statement if the proponent has not notified
the Fund of the proposal a reasonable time before the Fund mails its proxy
statement. All shareholder proposals must also comply with other
requirements of the SEC's rules and the Fund's Declaration of Trust.
39
<PAGE>
This Page Intentionally Left Blank.
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
March 17, 1999 in Boston, Massachusetts, by and among Putnam Funds Trust, a
Massachusetts business trust, on behalf of its Putnam High Yield Trust II
series ("High Yield Trust II") and Putnam Funds Trust on behalf of its
Putnam High Yield Total Return Fund series (the "Total Return Fund").
PLAN OF REORGANIZATION
(a) The Total Return Fund will sell, assign, convey, transfer and deliver to
High Yield Trust II on the Exchange Date (as defined in Section 6) all of
its properties and assets existing at the Valuation Time (as defined in
Section 3(c)). In consideration therefor, High Yield Trust II shall, on the
Exchange Date, assume all of the liabilities of the Total Return Fund
existing at the Valuation Time and deliver to the Total Return Fund (i) a
number of full and fractional Class A shares of beneficial interest of High
Yield Trust II (the "Class A Merger Shares") having an aggregate net asset
value equal to the value of the assets of the Total Return Fund
attributable to Class A shares of the Total Return Fund transferred to High
Yield Trust II on such date less the value of the liabilities of the Total
Return Fund attributable to Class A shares of the Total Return Fund assumed
by High Yield Trust II on such date, (ii) a number of full and fractional
Class B shares of beneficial interest of High Yield Trust II (the "Class B
Merger Shares") having an aggregate net asset value equal to the value of
the assets of the Total Return Fund attributable to Class B shares of the
Total Return Fund transferred to High Yield Trust II on such date less the
value of the liabilities of the Total Return Fund attributable to Class B
shares of the Total Return Fund assumed by High Yield Trust II on such
date, and (iii) a number of full and fractional Class M shares of
beneficial interest of High Yield Trust II (the "Class M Merger Shares")
having an aggregate net asset value equal to
A-1
<PAGE>
the value of the assets of the Total Return Fund attributable to Class M
shares of the Total Return Fund transferred to High Yield Trust II on such
date less the value of the liabilities of the Total Return Fund
attributable to Class M shares of the Total Return Fund assumed by High
Yield Trust II on such date. The Class A Merger Shares, the Class B Merger
Shares, and the Class M Merger Shares shall be referred to collectively as
the "Merger Shares." It is intended that the reorganization described in
this Plan shall be a reorganization within the meaning of Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of this
Agreement, the Total Return Fund shall distribute in complete liquidation
to its Class A, Class B, and Class M shareholders of record as of the
Exchange Date Class A, Class B, and Class M Merger Shares, each shareholder
being entitled to receive that proportion of such Class A, Class B or Class
M Merger Shares that the number of Class A, Class B, or Class M shares of
beneficial interest of the Total Return Fund held by such shareholder bears
to the number of such Class A, Class B or Class M shares of the Total
Return Fund outstanding on such date. Certificates representing the Merger
Shares will be issued only if the shareholder so requests.
AGREEMENT
High Yield Trust II and the Total Return Fund agree as follows:
1. Representations and warranties of High Yield Trust II. High Yield Trust II
represents and warrants to and agrees with the Total Return Fund that:
(a) High Yield Trust II is a series of shares of Putnam Funds Trust, a business
trust duly established and validly existing under the laws of The
Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry
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out its obligations under this Agreement. High Yield Trust II is not
required to qualify as a foreign association in any jurisdiction. High
Yield Trust II has all necessary federal, state and local authorizations to
carry on its business as now being conducted and to carry out this
Agreement.
(b) High Yield Trust II is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full
force and effect.
(c) A statement of assets and liabilities, statement of operations, statement
of changes in net assets and schedule of investments (indicating their
market values) of High Yield Trust II for the fiscal year ended August 31,
1998, such statements and schedule having been audited by
PricewaterhouseCoopers LLP, independent accountants, have been furnished to
the Total Return Fund. Such statements of assets and liabilities and
schedule of investments fairly present the financial position of High Yield
Trust II as of August 31, 1998 and such statements of operations and
changes in net assets fairly reflect the results of its operations and
changes in net assets for the period covered thereby in conformity with
generally accepted accounting principles.
(d) The prospectus and statement of additional information dated December 30,
1998, previously furnished to the Total Return Fund, and any amendment or
supplement thereto or any superseding prospectus or statement of additional
information in respect thereof in effect prior to the Exchange Date, which
will be furnished to the Total Return Fund (collectively, the "High Yield
Trust II Prospectus") do not and will not, as of the relevant date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided however, that High Yield Trust II makes no
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<PAGE>
representation or warranty as to any information in High Yield Trust II
Prospectus that does not specifically relate to High Yield Trust II.
(e) There are no material legal, administrative or other proceedings pending
or, to the knowledge of High Yield Trust II, threatened against High Yield
Trust II which assert liability or may, if successfully prosecuted to their
conclusion, result in liability on the part of High Yield Trust II, other
than as have been disclosed in High Yield Trust II Prospectus.
(f) High Yield Trust II has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of August 31, 1998 and those
incurred in the ordinary course of High Yield Trust II's business as an
investment company since such date.
(g) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by High Yield Trust II of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act,
state securities or blue sky laws (which term as used herein shall include
the laws of the District of Columbia and of Puerto Rico) or the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act").
(h) The registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by High Yield Trust
II on Form N-14 relating to the Merger Shares issuable hereunder, and the
proxy statement of the Total Return Fund included therein (the "Proxy
Statement"), on the effective date of the Registration Statement (i) will
comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder and (ii)
will not contain any untrue statement of a material fact or omit to state a
material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein
not misleading; and at the time of the shareholders' meeting referred to in
Section 7(a) and at the Exchange Date, the prospectus contained in the
Registration Statement of which the Proxy Statement is a part (the
"Prospectus"), as amended or supplemented by any amendments or supplements
filed or requested to be filed with the Commission by the Total Return
Fund, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to statements
in or omissions from the Registration Statement, the Prospectus or the
Proxy Statement made in reliance upon and in conformity with information
furnished by the Total Return Fund for use in the Registration Statement,
the Prospectus or the Proxy Statement.
(i) There are no material contracts outstanding to which High Yield Trust II is
a party, other than as disclosed in the Registration Statement, the
Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of High
Yield Trust II have been offered for sale and sold in conformity with all
applicable federal securities laws.
(k) High Yield Trust II is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections 851
and 852 of the Code.
(l) The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal securities laws.
(m) The Merger Shares to be issued to the Total Return Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and nonassessable by
High Yield Trust
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<PAGE>
II, and no shareholder of High Yield Trust II will have any preemptive
right of subscription or purchase in respect thereof.
2. Representations and warranties of the Total Return Fund. The Total Return
Fund represents and warrants to and agrees with High Yield Trust II that:
(a) The Total Return Fund is a series of shares of Putnam Funds Trust, a
business trust duly established and validly existing under the laws of The
Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out its obligations under this Agreement. The Total
Return Fund is not required to qualify as a foreign association in any
jurisdiction. The Total Return Fund has all necessary federal, state and
local authorizations to carry on its business as now being conducted and to
carry out this Agreement.
(b) The Total Return Fund is registered under the 1940 Act as an open-end
management investment company, and such registration has not been revoked
or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of operations, statement
of changes in net assets and schedule of investments (indicating their
market values) of the Total Return Fund for the fiscal year ended June 30,
1998, such statements and schedule having been audited by
PricewaterhouseCoopers LLP, independent accountants, have been furnished to
High Yield Trust II. Such statements of assets and liabilities and schedule
of investments fairly present the financial position of the Total Return
Fund as of June 30, 1998, and such statements of operations and changes in
net assets fairly reflect the results of its operations and changes in net
assets for the period covered thereby in conformity with generally accepted
accounting principles.
(d) The prospectus and statement of additional information dated October 30,
1998, previously furnished to High Yield Trust II,
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<PAGE>
and any amendment or supplement thereto or any superseding prospectus or
statement of additional information in respect thereof in effect prior to
the Exchange Date, which will be furnished to High Yield Trust II
(collectively the "Total Return Fund Prospectus"), does not and will not
contain as of the relevant date any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided however, that the
Total Return Fund makes no representation or warranty as to any information
in the Total Return Fund Prospectus that does not specifically relate to
the Total Return Fund.
(e) There are no material legal, administrative or other proceedings pending
or, to the knowledge of the Total Return Fund, threatened against the Total
Return Fund which assert liability or may, if successfully prosecuted to
their conclusion, result in liability on the part of the Total Return Fund,
other than as have been disclosed in the Total Return Fund Prospectus.
(f) The Total Return Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of June 30, 1998 and those incurred
in the ordinary course of the Total Return Fund's business as an investment
company since such date. Prior to the Exchange Date, the Total Return Fund
will advise High Yield Trust II of all material liabilities, contingent or
otherwise, incurred by it subsequent to June 30, 1998, whether or not
incurred in the ordinary course of business.
(g) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Total Return Fund of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, state securities or blue
sky laws, or the H-S-R Act.
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<PAGE>
(h) The Registration Statement, the Prospectus and the Proxy Statement, on the
Effective Date of the Registration Statement and insofar as they do not
relate to High Yield Trust II (i) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7(a) below and
on the Exchange Date, the Prospectus, as amended or supplemented by any
amendments or supplements filed or requested to be filed with the
Commission by High Yield Trust II, will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this
subsection shall apply only to statements of fact relating to the Total
Return Fund contained in the Registration Statement, the Prospectus or the
Proxy Statement, or omissions to state in any thereof a material fact
relating to the Total Return Fund, as such Registration Statement,
Prospectus and Proxy Statement shall be furnished to the Total Return Fund
in definitive form as soon as practicable following effectiveness of the
Registration Statement and before any public distribution of the Prospectus
or Proxy Statement.
(i) There are no material contracts outstanding to which the Total Return Fund
is a party, other than as will be disclosed in the Prospectus or the Proxy
Statement.
(j) All of the issued and outstanding shares of beneficial interest of the
Total Return Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.
(k) The Total Return Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections 851
and 852 of the Code.
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<PAGE>
(l) The Total Return Fund has filed or will file all federal and state tax
returns which, to the knowledge of the Total Return Fund's officers, are
required to be filed by the Total Return Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by the Total Return Fund. All tax liabilities of the
Total Return Fund have been adequately provided for on its books, and to
the knowledge of the Total Return Fund, no tax deficiency or liability of
the Total Return Fund has been asserted, and no question with respect
thereto has been raised, by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid.
(m) At both the Valuation Time and the Exchange Date, the Total Return Fund
will have full right, power and authority to sell, assign, transfer and
deliver the Investments and any other assets and liabilities of the Total
Return Fund to be transferred to High Yield Trust II pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the
Investments and any such other assets and liabilities as contemplated by
this Agreement, High Yield Trust II will acquire the Investments and any
such other assets and liabilities subject to no encumbrances, liens or
security interests whatsoever and without any restrictions upon the
transfer thereof (except for such restrictions as previously disclosed to
High Yield Trust II by the Total Return Fund). As used in this Agreement,
the term "Investments" shall mean the Total Return Fund's investments shown
on the schedule of its investments as of October 31, 1998 referred to in
Section 2(c) hereof, as supplemented with such changes as the Total Return
Fund shall make, and changes resulting from stock dividends, stock splits,
mergers and similar corporate actions.
(n) No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of a
public distribution by either of High
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<PAGE>
Yield Trust II or the Total Return Fund, except as previously disclosed to
High Yield Trust II by the Total Return Fund.
(o) At the Exchange Date, the Total Return Fund will have sold such of its
assets, if any, as necessary to assure that, after giving effect to the
acquisition of the assets of the Total Return Fund pursuant to this
Agreement, High Yield Trust II will remain in compliance with its mandatory
investment restrictions as set forth in High Yield Trust II Prospectus
previously furnished to the Total Return Fund.
3. Reorganization.
(a) Subject to the requisite approval of the shareholders of the Total Return
Fund and to the other terms and conditions contained herein (including the
Total Return Fund's obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as described in
Section 8(m) hereof), the Total Return Fund agrees to sell, assign, convey,
transfer and deliver to High Yield Trust II, and High Yield Trust II agrees
to acquire from the Total Return Fund, on the Exchange Date all of the
Investments and all of the cash and other properties and assets of the
Total Return Fund, whether accrued or contingent (including cash received
by the Total Return Fund upon the liquidation by the Total Return Fund of
any investments purchased by the Total Return Fund after October 31, 1998
and designated by High Yield Trust II as being unsuitable for it to
acquire), in exchange for that number of Merger Shares provided for in
Section 4 and the assumption by High Yield Trust II of all of the
liabilities of the Total Return Fund, whether accrued or contingent,
existing at the Valuation Time. Pursuant to this Agreement, the Total
Return Fund will, as soon as practicable after the Exchange Date,
distribute all of the Class A, Class B and Class M Merger Shares received
by it to the Class A, Class B and Class M shareholders, respectively, of
the Total Return Fund, in complete liquidation of the Total Return Fund.
(b) As soon as practicable following the requisite approval of the shareholders
of the Total Return Fund, the Total Return Fund
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<PAGE>
will, at its expense, effect a repositioning of its portfolio to reflect
the investment policies of High Yield Trust II as described in the Proxy
Statement. Such repositioning will be substantially completed prior to the
Exchange Date, unless otherwise agreed by the Total Return Fund and High
Yield Trust II.
(c) The Total Return Fund will pay or cause to be paid to High Yield Trust II
any interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the Investments and other
properties and assets of the Total Return Fund, whether accrued or
contingent, received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred to High
Yield Trust II at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made shall
have gone "ex" such distribution prior to the Valuation Time, in which case
any such distribution which remains unpaid at the Exchange Date shall be
included in the determination of the value of the assets of the Total
Return Fund acquired by High Yield Trust II.
(d) The Valuation Time shall be 4:00 p.m. Boston time on July 9, 1999 or such
earlier or later day as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
4. Exchange date; valuation time.
On the Exchange Date, High Yield Trust II will deliver to the Total Return
Fund (i) a number of full and fractional Class A Merger Shares having an
aggregate net asset value equal to the value of assets of the Total Return
Fund attributable to Class A shares of the Total Return Fund transferred to
High Yield Trust II on such date less the value of the liabilities of the
Total Return Fund attributable to the Class A shares of the Total Return
Fund assumed by High Yield Trust II on that date, (ii) a number of full and
fractional Class B Merger Shares having an aggregate net asset value equal
to the value of the assets of the Total Return Fund attributable to Class B
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<PAGE>
shares of the Total Return Fund transferred to High Yield Trust II on such
date less the value of the liabilities of the Total Return Fund
attributable to Class B shares of the Total Return Fund assumed by High
Yield Trust II on that date, and (iii) a number of full and fractional
Class M Merger Shares having an aggregate net asset value equal to the
value of the assets of the Total Return Fund attributable to Class M shares
of the Total Return Fund transferred to High Yield Trust II on such date
less the value of the liabilities of the Total Return Fund attributable to
Class M shares of the Total Return Fund assumed by High Yield Trust II on
that date, determined as hereafter provided in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to the Total
Return Fund, the value of the assets attributable to the Class A, Class B
and Class M shares of the Total Return Fund and the value of the
liabilities attributable to the Class A , Class B and Class M shares of the
Total Return Fund to be assumed by High Yield Trust II shall in each case
be determined as of the Valuation Time.
(b) The net asset value of the Class A , Class B and Class M Merger Shares
shall be computed in the manner set forth in High Yield Trust II
Prospectus. The value of the assets and liabilities of the Class A , Class
B and Class M shares of the Total Return Fund shall be determined by High
Yield Trust II, in cooperation with the Total Return Fund, pursuant to
procedures that High Yield Trust II would use in determining the fair
market value of High Yield Trust II's assets and liabilities.
(c) No adjustment shall be made in the net asset value of either the Total
Return Fund or High Yield Trust II to take into account differences in
realized and unrealized gains and losses.
(d) High Yield Trust II shall issue the Merger Shares to the Total Return Fund
in three certificates registered in the name of the Total Return Fund, one
for Class A Merger Shares, one
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<PAGE>
for Class B Merger Shares, and one for Class M Merger Shares (excluding any
fractional shares). The Total Return Fund shall distribute the Class A
Merger Shares to the Class A shareholders of the Total Return Fund by
redelivering such certificates to High Yield Trust II's transfer agent
which will as soon as practicable set up open accounts for each Class A
Total Return Fund shareholder in accordance with written instructions
furnished by the Total Return Fund. The Total Return Fund shall distribute
the Class B Merger Shares to the Class B shareholders of the Total Return
Fund by redelivering such certificates to High Yield Trust II's transfer
agent which will as soon as practicable set up open accounts for each Class
B Total Return Fund shareholder in accordance with written instructions
furnished by the Total Return Fund. The Total Return Fund shall distribute
the Class M Merger Shares to the Class M shareholders of the Total Return
Fund by redelivering such certificates to High Yield Trust II's transfer
agent which will as soon as practicable set up open accounts for each Class
M Total Return Fund shareholder in accordance with written instructions
furnished by the Total Return Fund. With respect to any Total Return Fund
shareholder holding share certificates as of the Exchange Date, High Yield
Trust II will not permit such shareholder to receive dividends and other
distributions on the Merger Shares (although such dividends and other
distributions shall be credited to the account of such shareholder),
receive certificates representing the Merger Shares, exchange the Merger
Shares credited to such shareholder's account for shares of other
investment companies managed by Putnam Investment Management, Inc.
("Putnam"), or pledge or redeem such Merger Shares until such shareholder
has surrendered his or her outstanding Total Return Fund certificates or,
in the event of lost, stolen, or destroyed certificates, posted adequate
bond. In the event that a shareholder shall not be permitted to receive
dividends and other distributions on the Merger Shares as provided in the
preceding sentence, High Yield Trust II shall pay any such
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<PAGE>
dividends or distributions in additional shares, notwithstanding any
election such shareholder shall have made previously with respect to the
payment, in cash or otherwise, of dividends and distributions on shares of
the Total Return Fund. The Total Return Fund will, at its expense, request
the shareholders of the Total Return Fund to surrender their outstanding
Total Return Fund certificates, or post adequate bond, as the case may be.
(e) High Yield Trust II shall assume all liabilities of the Total Return Fund,
whether accrued or contingent, in connection with the acquisition of assets
and subsequent dissolution of the Total Return Fund or otherwise.
5. Expenses, fees, etc.
(a) All fees and expenses, including legal and accounting expenses, portfolio
transfer taxes (if any) or other similar expenses incurred in connection
with the consummation by the Total Return Fund and High Yield Trust II of
the transactions contemplated by this Agreement will be allocated ratably
between High Yield Trust II and the Total Return Fund in proportion to
their net assets as of the Valuation Time, except that (i) the costs of
proxy materials and proxy solicitation will be borne by the Total Return
Fund, and (ii) the costs of repositioning the portfolio of the Total Return
Fund to reflect the investment policies of High Yield Trust II incurred
prior to the Exchange Date shall be borne by the Total Return Fund;
provided, however, that such expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the
payment by the other party of such expenses would result in the
disqualification of High Yield Trust II or the Total Return Fund, as the
case may be, as a "regulated investment company" within the meaning of
Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of High Yield Trust II's being either unwilling or
unable to go forward (other than by reason
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<PAGE>
of the nonfulfillment or failure of any condition to High Yield Trust II's
obligations referred to in Section 8) High Yield Trust II shall pay
directly all reasonable fees and expenses incurred by the Total Return Fund
in connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of the Total Return Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or failure
of any condition to the Total Return Fund's obligations referred to in
Section 9) the Total Return Fund shall pay directly all reasonable fees and
expenses incurred by High Yield Trust II in connection with such
transactions, including without limitation legal, accounting and filing
fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) High Yield Trust II's or the
Total Return Fund's being either unwilling or unable to go forward or (ii)
the nonfulfillment or failure of any condition to High Yield Trust II's or
the Total Return Fund's obligations referred to in Section 8 or Section 9
of this Agreement, then each of High Yield Trust II and the Total Return
Fund shall bear all of its own expenses incurred in connection with such
transactions.
(e) Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no
party shall be liable to the other party for any damages resulting
therefrom, including without limitation consequential damages, except as
specifically set forth above.
6. Exchange date.
Delivery of the assets of the Total Return Fund to be transferred,
assumption of the liabilities of the Total Return Fund to be assumed and
the delivery of the Merger Shares to be
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issued shall be made at the offices of Ropes & Gray, One International
Place, Boston, Massachusetts, at 10:00 A.M. on the next full business day
following the Valuation Time, or at such other time and date agreed to by
High Yield Trust II and the Total Return Fund, the date and time upon which
such delivery is to take place being referred to herein as the "Exchange
Date."
7. Meeting of shareholders; dissolution.
(a) The Total Return Fund agrees to call a meeting of its shareholders as soon
as is practicable after the effective date of the Registration Statement
for the purpose of considering the sale of all of its assets to and the
assumption of all of its liabilities by High Yield Trust II as herein
provided, adopting this Agreement, and authorizing the liquidation and
dissolution of the Total Return Fund.
(b) The Total Return Fund agrees that the liquidation and dissolution of the
Total Return Fund will be effected in the manner provided in the Agreement
and Declaration of Trust of the Total Return Fund in accordance with
applicable law and that on and after the Exchange Date, the Total Return
Fund shall not conduct any business except in connection with its
liquidation and dissolution.
(c) High Yield Trust II has, after the preparation and delivery to High Yield
Trust II by the Total Return Fund of a preliminary version of the Proxy
Statement which was satisfactory to High Yield Trust II and to Ropes & Gray
for inclusion in the Registration Statement, filed the Registration
Statement with the Commission. Each of the Total Return Fund and High Yield
Trust II will cooperate with the other, and each will furnish to the other
the information relating to itself required by the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder set forth in the
Registration Statement, including the Prospectus and the Proxy Statement.
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<PAGE>
8. Conditions to High Yield Trust II's obligations.
The obligations of High Yield Trust II hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of either (1) more than 50% of the outstanding shares of the Total
Return Fund entitled to vote, or (2) 67% or more of the shares of the Total
Return Fund entitled to vote and present at the Meeting if more than 50% of
the shares of the Total Return Fund entitled to vote are present at the
Meeting in person or by proxy.
(b) That the Total Return Fund shall have furnished to High Yield Trust II a
statement of the Total Return Fund's net assets, with values determined as
provided in Section 4 of this Agreement, together with a list of
Investments with their respective tax costs, all as of the Valuation Time,
certified on the Total Return Fund's behalf by the Total Return Fund's
President (or any Vice President) and Treasurer (or any Assistant
Treasurer), and a certificate of both such officers, dated the Exchange
Date, to the effect that as of the Valuation Time and as of the Effective
Date there has been no material adverse change in the financial position of
the Total Return Fund since October 31, 1998 other than changes in the
Investments and other assets and properties since that date or changes in
the market value of the Investments and other assets of the Total Return
Fund, changes due to net redemptions, or changes due to dividends paid or
losses from operations.
(c) That the Total Return Fund shall have furnished to High Yield Trust II a
statement, dated the Exchange Date, signed on behalf of the Total Return
Fund by the Total Return Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer) certifying that as of the Valuation
Time and as of the Exchange Date all representations and warranties of the
Total Return Fund made in this Agreement are true and correct in all
material respects as if made at and as of such dates, and that the Total
Return Fund has com-
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plied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to each of such dates.
(d) That the Total Return Fund shall have delivered to High Yield Trust II a
letter from PricewaterhouseCoopers LLP dated the Exchange Date, stating
that on the basis of an examination under attestation standards established
by the American Institute of Certified Public Accountants ("AICPA"),
management's assertions that for the fiscal period from July 1, 1998 to the
Exchange Date the Total Return Fund (i) qualified as a regulated investment
company under the Internal Revenue Code (the "Code"), (ii) as of the
Exchange Date, has no liability other than liabilities stated for federal
or state income taxes and (iii) as of the Exchange Date, has no liability
for federal excise tax purposes under section 4982 of the Code are fairly
stated.
(e) That there shall not be any material litigation pending with respect to the
matters contemplated by this Agreement.
(f) That High Yield Trust II shall have received an opinion of Ropes & Gray, in
form satisfactory to High Yield Trust II and dated the Exchange Date, to
the effect that (i) the Total Return Fund is a business trust duly
established and validly existing under the laws of The Commonwealth of
Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction except
as may be required by state securities or blue sky laws, (ii) this
Agreement has been duly authorized, executed, and delivered by the Total
Return Fund and, assuming that the Registration Statement, the Prospectus
and the Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940
Act and assuming due authorization, execution and delivery of this
Agreement by High Yield Trust II, is a valid and binding obligation of the
Total Return Fund, (iii) the Total Return Fund has power to sell, assign,
convey, transfer and deliver the assets contemplated hereby and, upon
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consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement, the Total Return Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to High Yield
Trust II, (iv) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate
the Total Return Fund's Agreement and Declaration of Trust, as amended, or
Bylaws or any provision of any agreement known to such counsel to which the
Total Return Fund is a party or by which it is bound, it being understood
that with respect to investment restrictions as contained in the Total
Return Fund's Agreement and Declaration of Trust, Bylaws or then-current
prospectus or statement of additional information, such counsel may rely
upon a certificate of an officer of the Total Return Fund's whose
responsibility it is to advise the Total Return Fund with respect to such
matters, and (v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by the Total
Return Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R Act,
and (vi) such other matters as High Yield Trust II may reasonably deem
necessary or desirable.
(g) That High Yield Trust II shall have received an opinion of Ropes & Gray
dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that,
on the basis of the existing provisions of the Code, current administrative
rules and court decisions, for federal income tax purposes: (i) no gain or
loss will be recognized by High Yield Trust II upon receipt of the
Investments transferred to High Yield Trust II pursuant to this Agreement
in exchange for the Merger Shares and the assumption by High Yield Trust II
of the liabilities of the Total Return Fund, (ii) the basis in the hands of
High
A-19
<PAGE>
Yield Trust II of the Investments will be the same as the basis of the
Investments in the hands of the Total Return Fund immediately prior to such
exchange, and (iii) the holding periods of the Investments in the hands of
High Yield Trust II will include the respective periods during which the
Investments were held by the Total Return Fund.
(h) That the assets of the Total Return Fund to be acquired by High Yield Trust
II will include no assets which High Yield Trust II, by reason of charter
limitations or of investment restrictions disclosed in High Yield Trust II
Prospectus in effect on the Exchange Date, may not properly acquire.
(i) That the Registration Statement shall have become effective under the 1933
Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of High Yield Trust II, threatened by the
Commission.
(j) That High Yield Trust II shall have received from the Commission, any
relevant state securities administrator, the Federal Trade Commission (the
"FTC") and the Department of Justice (the "Department") such order or
orders as Ropes & Gray deems reasonably necessary or desirable under the
1933 Act, the 1934 Act, the 1940 Act, any applicable state securities or
blue sky laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full force and
effect.
(k) That all proceedings taken by the Total Return Fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to High Yield Trust II
and Ropes & Gray.
(l) That, prior to the Exchange Date, the Total Return Fund shall have declared
a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to the shareholders of the Total
Return Fund all of the Total Return Fund's investment company taxable
income for each of its taxable years ending on or after June 30, 1998 and
A-20
<PAGE>
on or prior to the Exchange Date (computed without regard to any deduction
for dividends paid), and all of its net capital gain realized in each of
its taxable years ending on or after June 30, 1998 and on or prior to
the Exchange Date.
(m) That the Total Return Fund's custodian shall have delivered to High Yield
Trust II a certificate identifying all of the assets of the Total Return
Fund held by such custodian as of the Valuation Time.
(n) That the Total Return Fund's transfer agent shall have provided to High
Yield Trust II (i) the originals or true copies of all of the records of
the Total Return Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Total Return Fund outstanding as of the Valuation Time, and (iii) the name
and address of each holder of record of any such shares and the number of
shares held of record by each such shareholder.
(o) That all of the issued and outstanding shares of beneficial interest of the
Total Return Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws and, to the extent
that any audit of the records of the Total Return Fund or its transfer
agent by High Yield Trust II or its agents shall have revealed otherwise,
either (i) the Total Return Fund shall have taken all actions that in the
opinion of High Yield Trust II or its counsel are necessary to remedy any
prior failure on the part of the Total Return Fund to have offered for sale
and sold such shares in conformity with such laws or (ii) the Total Return
Fund shall have furnished (or caused to be furnished) surety, or deposited
(or caused to be deposited) assets in escrow, for the benefit of High Yield
Trust II in amounts sufficient and upon terms satisfactory, in the opinion
of High Yield Trust II or its counsel, to indemnify High Yield Trust II
against any expense, loss, claim, damage or liability whatsoever that may
be asserted or threatened by reason of such failure on the
A-21
<PAGE>
part of the Total Return Fund to have offered and sold such shares in
conformity with such laws.
(p) That High Yield Trust II shall have received from PricewaterhouseCoopers
LLP a letter addressed to High Yield Trust II dated as of the Exchange Date
satisfactory in form and substance to High Yield Trust II to the effect
that, on the basis of an examination under attestation standards
established by the AICPA, management's assertion that as of the Valuation
Time the value of the assets of the Total Return Fund to be exchanged for
the Merger Shares has been determined in accordance with the provisions of
Article 10 section 5 (10.5) of High Yield Trust II's By-laws pursuant to
the procedures customarily utilized by High Yield Trust II in valuing its
assets and issuing its shares is fairly stated.
(q) That the Total Return Fund shall have executed and delivered to High Yield
Trust II an instrument of transfer dated as of the Exchange Date pursuant
to which the Total Return Fund will assign, transfer and convey all of the
assets and other property to High Yield Trust II at the Valuation Time in
connection with the transactions contemplated by this Agreement.
9. Conditions to the Total Return Fund's obligations. The obligations of the
Total Return Fund hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of either (1) more than 50% of the outstanding shares of the Total
Return Fund entitled to vote, or (2) 67% or more of the shares of the Total
Return Fund entitled to vote and present at the Meeting if more than 50% of
the shares of the Total Return Fund entitled to vote are present at the
Meeting in person or by proxy.
(b) That High Yield Trust II shall have furnished to the Total Return Fund a
statement of High Yield Trust II's net assets, together with a list of
portfolio holdings with values determined as pro-
A-22
<PAGE>
vided in Section 4 of this Agreement, all as of the Valuation Time,
certified on behalf of High Yield Trust II by High Yield Trust II's
President (or any Vice President) and Treasurer (or any Assistant
Treasurer), and a certificate of both such officers, dated the Exchange
Date, to the effect that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial position of
High Yield Trust II since August 31, 1998, other than changes in its
portfolio securities since that date, changes in the market value of its
portfolio securities, changes due to net redemptions, or changes due to
dividends paid or losses from operations.
(c) That High Yield Trust II shall have executed and delivered to the Total
Return Fund an Assumption of Liabilities dated as of the Exchange Date
pursuant to which High Yield Trust II will assume all of the liabilities of
the Total Return Fund existing at the Valuation Time in connection with the
transactions contemplated by this Agreement.
(d) That High Yield Trust II shall have furnished to the Total Return Fund a
statement, dated the Exchange Date, signed on behalf of High Yield Trust II
by High Yield Trust II's President (or any Vice President) and Treasurer
(or any Assistant Treasurer) certifying that as of the Valuation Time and
as of the Exchange Date all representations and warranties of High Yield
Trust II made in this Agreement are true and correct in all material
respects as if made at and as of such dates, and that High Yield Trust II
has complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each of such dates.
(e) That there shall not be any material litigation pending or threatened with
respect to the matters by this Agreement.
(f) That the Total Return Fund shall have received an opinion of Ropes & Gray,
in form satisfactory to the Total Return Fund and dated the Exchange Date,
to the effect that (i) High Yield Trust II is a business trust duly
established and validly existing in conformity with the laws of The
Commonwealth of
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<PAGE>
Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction except
as may be required by state securities or blue sky laws, (ii) this
Agreement has been duly authorized, executed and delivered by High Yield
Trust II and, assuming that the Prospectus, the Registration Statement and
the Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act
and assuming due authorization, execution and delivery of this Agreement by
Total Return Fund, is a valid and binding obligation of High Yield Trust
II, (iii) the Merger Shares to be delivered to the Total Return Fund as
provided for by this Agreement are duly authorized and upon such delivery
will be validly issued and will be fully paid and nonassessable by High
Yield Trust II and no shareholder of High Yield Trust II has any preemptive
right to subscription or purchase in respect thereof, (iv) the execution
and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate High Yield Trust II's
Agreement and Declaration of Trust, as amended, or By-laws, or any
provision of any agreement known to such counsel to which High Yield Trust
II is a party or by which it is bound, it being understood that with
respect to investment restrictions as contained in High Yield Trust II's
Agreement and Declaration of Trust, as amended, By-Laws or then-current
prospectus or statement of additional information, such counsel may rely
upon a certificate of an officer of High Yield Trust II whose
responsibility it is to advise High Yield Trust II with respect to such
matters, (v) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by High Yield Trust
II of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required under state securities or blue sky laws and the H-S-R Act, and
(vi) the Registration Statement has become effective under the 1933 Act,
and to the best of the knowledge of such counsel, no stop order sus-
A-24
<PAGE>
pending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act.
(g) That the Total Return Fund shall have received an opinion of Ropes & Gray
dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that,
on the basis of the existing provisions of the Code, current administrative
rules and court decisions, for federal income tax purposes: (i) no gain or
loss will be recognized by the Total Return Fund upon the transfer of the
Investments and the assumption of its liabilities by High Yield Trust II,
or upon the distribution of the Merger Shares by the Total Return Fund to
its shareholders in liquidation of the Total Return Fund, pursuant to this
Agreement, (ii) no gain or loss will be recognized by the shareholders of
the Total Return Fund upon the exchange of their shares of the Total Return
Fund for shares of High Yield Trust II, (iii) the basis of the Merger
Shares received by the Total Return Fund's shareholders in connection with
the transaction will be the same as the basis of the Total Return Fund
shares exchanged therefor, and (iv) the holding periods of the Merger
Shares received by the shareholders of the Total Return Fund will include
the holding periods of the Total Return Fund shares exchanged therefor,
provided that at the time of the reorganization, the Total Return Fund
shares are held by such shareholders as capital assets.
(h) That all proceedings taken by or on behalf of High Yield Trust II in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Total Return Fund and Ropes & Gray.
(i) That the Registration Statement shall have become effective under the 1933
Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of High Yield Trust II, threatened by the
Commission.
A-25
<PAGE>
(j) That the Total Return Fund shall have received from the Commission, any
relevant state securities administrator, the FTC and the Department such
order or orders as Ropes & Gray deems reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, any applicable state
securities or blue sky laws and the H-S-R Act in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
10. Indemnification.
(a) The Total Return Fund will indemnify and hold harmless, out of the assets
of the Total Return Fund but no other assets, High Yield Trust II, its
trustees and its officers (for purposes of this subparagraph, the
"Indemnified Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably incurred by
any one or more of the Indemnified Parties in connection with, arising out
of, or resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with which any
one or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating to
the Total Return Fund contained in the Registration Statement, the
Prospectus or the Proxy Statement or any amendment or supplement to any of
the foregoing, or arising out of or based upon the omission or alleged
omission to state in any of the foregoing a material fact relating to the
Total Return Fund required to be stated therein or necessary to make the
statements relating to the Total Return Fund therein not misleading,
including, without limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Total Return Fund. The Indemnified
Parties will notify the Total Return Fund in writing within ten days after
the receipt by any one or more of the Indemnified
A-26
<PAGE>
Parties of any notice of legal process or any suit brought against or claim
made against such Indemnified Party as to any matters covered by this
Section 10(a). The Total Return Fund shall be entitled to participate at
its own expense in the defense of any claim, action, suit or proceeding
covered by this Section 10(a), or, if it so elects, to assume at its
expense by counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if the Total Return Fund
elects to assume such defense, the Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or proceeding at
their expense. The Total Return Fund's obligation under this Section 10(a)
to indemnify and hold harmless the Indemnified Parties shall constitute a
guarantee of payment so that the Total Return Fund will pay in the first
instance any expenses, losses, claims, damages and liabilities required to
be paid by it under this Section 10(a) without the necessity of the
Indemnified Parties' first paying the same.
(b) High Yield Trust II will indemnify and hold harmless, out of the assets of
High Yield Trust II but no other assets, the Total Return Fund, its
trustees and its officers (for purposes of this subparagraph, the
"Indemnified Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably incurred by
any one or more of the Indemnified Parties in connection with, arising out
of, or resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with which any
one or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating to
High Yield Trust II contained in the Registration Statement, the Prospectus
or the Proxy Statement, or any amendment or supplement to any thereof, or
arising out of, or based upon, the omission or alleged omission to state in
any of the foregoing a material fact relating to High Yield Trust II
required to be stated
A-27
<PAGE>
therein or necessary to make the statements relating to High Yield Trust II
therein not misleading, including without limitation any amounts paid by
any one or more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit or proceeding, or threatened
claim, action, suit or proceeding made with the consent of High Yield Trust
II. The Indemnified Parties will notify High Yield Trust II in writing
within ten days after the receipt by any one or more of the Indemnified
Parties of any notice of legal process or any suit brought against or claim
made against such Indemnified Party as to any matters covered by this
Section 10(b). High Yield Trust II shall be entitled to participate at its
own expense in the defense of any claim, action, suit or proceeding covered
by this Section 10(b), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of any such
claim, action, suit or proceeding, and, if High Yield Trust II elects to
assume such defense, the Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or proceeding at
their own expense. High Yield Trust II's obligation under this Section
10(b) to indemnify and hold harmless the IndemnifiedParties shall
constitute a guarantee of payment so that High Yield Trust II will pay in
the first instance any expenses, losses, claims, damages and liabilities
required to be paid by it under this Section 10(b) without the necessity of
the Indemnified Parties' first paying the same.
11. No broker, etc.
Each of the Total Return Fund and High Yield Trust II represents that there
is no person who has dealt with it who by reason of such dealings is
entitled to any broker's or finder's or other similar fee or commission
arising out of the transactions contemplated by this Agreement.
A-28
<PAGE>
12. Termination.
The Total Return Fund and High Yield Trust II may, by mutual consent of
their trustees, terminate this Agreement, and the Total Return Fund or High
Yield Trust II, after consultation with counsel and by consent of their
trustees or an officer authorized by such trustees, may waive any condition
to their respective obligations hereunder. If the transactions contemplated
by this Agreement have not been substantially completed by October 31,
1999, this Agreement shall automatically terminate on that date unless a
later date is agreed to by the Total Return Fund and High Yield Trust II.
13. Rule 145.
Pursuant to Rule 145 under the 1933 Act, High Yield Trust II will, in connection
with the issuance of any Merger Shares to any person who at the time of the
transaction contemplated hereby is deemed to be an affiliate of a party to
the transaction pursuant to Rule 145(c), cause to be affixed upon the
certificates issued to such person (if any) a legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT
TO PUTNAM HIGH YIELD TRUST II OR ITS PRINCIPAL UNDERWRITER UNLESS (I)
A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PUTNAM HIGH YIELD TRUST II SUCH
REGISTRATION IS NOT REQUIRED."
and, further, High Yield Trust II will issue stop transfer instructions to
High Yield Trust II's transfer agent with respect to such shares. The Total
Return Fund will provide High Yield Trust II on the Exchange Date with the
name of any Total Return Fund shareholder who is to the knowledge of the
Total Return Fund an affiliate of the Total Return Fund on such date.
A-29
<PAGE>
14. Covenants, etc. deemed material.
All covenants, agreements, representations and warranties made under this
Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
15. Sole agreement; amendments.
This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto,
and shall be construed in accordance with and governed by the laws of The
Commonwealth of Massachusetts.
16. Agreement and declaration of trust.
Copies of the Agreements and Declarations of Trust of the Total Return Fund
and High Yield Trust II are on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed by the Trustees of each Fund, respectively, as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees, officers or shareholders of the
Total Return Fund or High Yield Trust II individually but are binding only
upon the assets and property of the Total Return Fund and High Yield Trust
II, respectively.
A-30
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
PUTNAM HIGH YIELD TRUST II
By: /s/ Charles E. Porter
------------------------------
Executive Vice President
PUTNAM HIGH YIELD
TOTAL RETURN FUND
By: /s/ Charles E. Porter
------------------------------
Executive Vice President
A-31
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<PAGE>
[logo: PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581]
51881 4/99
<PAGE>
FOR YOUR CONVENIENCE YOU MAY RECORD YOUR VOTING INSTRUCTIONS VIA THE INTERNET OR
BY RETURNING THIS PROXY CARD BY MAIL
Your vote is very important. If you choose to record your voting instructions
via the Internet, visit the website at www.proxyweb.com. Please refer to the
instructions below. Your voting instructions will be immediately confirmed and
posted.
To record your voting instructions on the Internet
1. Read the proxy statement.
2. Go to www.proxyweb.com
----------------
3. Enter the 12-digit control number on your proxy card.
4. Follow the instructions on the site.
-----------
This is your PROXY CARD.
-----------
Please record your coting instructions on this
proxy card, sign it below, and return it
promptly in the envelope provided.
Your vote is important.
[arrow down] PLEASE FOLD AT PERFORATION BEFORE DETACHING [arrow down]
If you vote on the Internet, there is no need to return your Proxy Card.
***CONTROL NUMBER: 999 999 999 999 99***
Proxy for a meeting of shareholders to be held on July 1, 1999 for Putnam High
Yield Total Return Fund.
This proxy is solicited on behalf of the Trustees of the Fund.
The undersigned shareholder hereby appoints George Putnam, Hans H. Estin, and
Robert E. Patterson, and each of them separately, Proxies, with power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, at the meeting of shareholders of Putnam High Yield Total Return Fund on
July 1, 1999, at 2:00 p.m., Boston time, and at any adjournments thereof, all of
the shares of the Fund that the undersigned shareholder would be entitled to
vote if personally present.
------------------------------------
PLEASE BE SURE TO SIGN AND DATE THIS
PROXY.
------------------------------------
Please sign your name exactly as it appears on
this card. If you are a joint owner, each
owner should sign. When signing as executor,
administrator, attorney. trustee, or guardian,
or as custodian for a minor, please give your
full title as such. If you are signing for a
corporation, please sign the full corporate
name and indicate the signer's office. If you
are a partner, sign the partnership name.
----------------------------------------------
Shareholder sign here Date
----------------------------------------------
Co-owner sign here Date
<PAGE>
HAS YOUR ADDRESS CHANGED?
Please use this form to notify us of any change in address or telephone number
or to provide us with your comments. Detach this form from the proxy card and
return it with your signed proxy in the enclosed envelope.
Street
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Telephone
- --------------------------------------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense of follow-up
mailings by signing and returning this proxy card or by recording your voting
instructions via the Internet as soon as possible. A postage-paid envelope is
enclosed for your convenience.
THANK YOU!
[arrow up] PLEASE FOLD AT PERFORATION BEFORE DETACHING [arrow up]
If you complete and sign the proxy card, we'll vote exactly as you tell us. If
you simply sign the proxy, it will be voted FOR Proposal 1. The Proxies will
also be authorized to vote upon such other matters that may properly come before
the meeting.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
---
Please vote by filling in the FOR AGAINST ABSTAIN
appropriate box.
1. Approval of the Agreement and Plan of [ ] [ ] [ ]
Reorganization providing for the sale
of all the assets of Putnam High
Yield Total Return Fund (the "Fund")
to Putnam High Yield Trust II ("High
Yield Trust II") in exchange for shares
of High Yield Trust II and the
assumption by High Yield Trust II of
all of the liabilities of the Fund,
and the distribution of such shares
to the shareholders of the Fund in
liquidation of the Fund.
Note: If you have questions on the Proposal, plese call 1-800-225-1581.
<PAGE>
Putnam High Yield Trust II
Form N-14
Part B
Statement of Additional Information
April 12, 1999
This Statement of Additional Information contains material which may be of
interest to investors but which is not included in the Prospectus/Proxy
Statement (the "Prospectus") of Putnam High Yield Trust II ("High Yield Trust
II") dated April 12, 1999 relating to the sale of all or substantially all of
the assets of Putnam High Yield Total Return Fund (the "Total Return Fund") to
High Yield Trust II. High Yield Trust II's Statement of Additional Information
dated December 30, 1998, and the Total Return Fund's Statement of Additional
Information dated October 30, 1998, have been filed with the Securities and
Exchange Commission and are incorporated herein by reference. This Statement is
not a Prospectus and is authorized for distribution only when it accompanies or
follows delivery of the Prospectus. This Statement should be read in conjunction
with the Prospectus. Investors may obtain a free copy of the Prospectus or
either or both of the Statements of Additional Information by writing Putnam
Investor Services, One Post Office Square, Boston, MA 02109 or by calling
1-800-225-1581.
Independent Accountants and Financial Statements
PricewaterhouseCoopers LLP are the independent accountants for High Yield Trust
II, 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 for High Yield Trust II.
PricewaterhouseCoopers LLP are also the independent accountants for the Total
Return Fund, providing audit services, tax return reviews and other tax
consulting services and assistance and consultation in connection with the
review of various Securities and Exchange Commission filings for the Total
Return Fund. The following documents are incorporated by reference into this
Statement of Additional Information: (1) the Report of Independent Accountants
and financial statements included in High Yield Trust II's Annual Report for the
fiscal year ended August 31, 1998, filed electronically on October 20, 1998
(File No. 811-7513), and (ii) the Report of Independent Accountants and
financial statements included in the Total Return Fund's Annual Report for the
fiscal year ended June 30, 1998, filed electronically on August 27, 1998 (File
No. 811-7513). The audited financial statements for High Yield Trust II and the
Total Return Fund incorporated by reference into the Prospectus/Proxy Statement
and this Statement of Additional Information have been so included and
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP, given
on their authority as experts in auditing and accounting.
-1-
