As filed with the Securities and Exchange Commission on
February 22, 1999
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. / /
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(Check appropriate box or boxes)
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PUTNAM FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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JOHN R. VERANI, Vice President
PUTNAM FUNDS TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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<PAGE>
Approximate Date of Proposed Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on March 24, 1999 pursuant
to Rule 488.
An indefinite amount of the Registrant's securities has been registered under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. In reliance upon such Rule, no filing fee is being paid at this
time. A Rule 24f-2 notice for the Registrant for the year ended August 31, 1998
was filed on November 25, 1998.
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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 __.
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.
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TABLE OF CONTENTS
A Message from the Chairman
Notice of Shareholder Meeting
Combined Prospectus/Proxy Statement
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.
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A MESSAGE FROM THE CHAIRMAN
(photograph of George Putnam appears here)
Dear Shareholder:
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:
1. 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 High Yield Trust II, and 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.
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
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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, if
you can 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 transfer 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
__.
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
Jameson Adkins Baxter George Putnam, III
Hans H. Estin Robert E. Patterson
Ronald J. Jackson Donald S. Perkins
Paul L. Joskow A.J.C. Smith
Elizabeth T. Kennan W. Thomas Stephens
Lawrence J. Lasser W. Nicholas Thorndike
John H. Mullin, III
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 15, 1999
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<PAGE>
Prospectus/Proxy Statement
April 15, 1999
Acquisition of the Assets 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
Synopsis
Risk factors
General
Proposal Regarding Approval or Disapproval of Merger and
Related Agreement and Plan of Reorganization
Background and Reasons for the Proposed Merger
Information about the Merger
Voting Information
Agreement and Plan of Reorganization A-1
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 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,
the High Yield Trust II is in the family of funds managed by Putnam Investment
Management, Inc.
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<PAGE>
("Putnam Management"). The 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 Securities and Exchange
Commission 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;
(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; and
(v) a Statement of Additional Information, dated April 15, 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 or 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
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securities commission passed upon the accuracy or adequacy of such
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
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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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.
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
income oriented high yield funds such as High Yield Trust II, and 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
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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 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 do not impose
these limits, it 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 January 31, 1999, High Yield Trust II and the Total Return Fund had net
assets of $1,144,313,395 and $111,996,386, respectively.
The sales charges and the maximum amounts payable under the
distribution plans, adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, for the two Funds are identical. 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.
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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.
<TABLE>
<CAPTION>
Class A Class B Class M
Shares Shares Shares
<S> <C> <C> <C>
Shareholder Fees (fees paid directly
from your investment)
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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<PAGE>
Annual Fund Operating Expenses
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution
Management (12b-1) Other Total Annual
Fees Fees Expenses Fund 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 Fund
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 Fund
(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.
+ 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 reorganization Description of the Merger Shares."
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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 dividend
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.
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.
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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.
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.
Risk Factors
What are the principal risk factors 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. A more detailed description of certain risks associated
with an investment in High Yield Trust II is contained in High Yield Trust II
Prospectus.
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 an
emphasis on current income may lead to an overall lower 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.
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<PAGE>
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 "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 investments are mainly below
investment grade in credit quality. A 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
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 time 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
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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, it 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.
Smaller Companies. Like 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. Like 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. 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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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.
Likely 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. 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.
-19-
<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 by the transfer of all of its
assets to High Yield Trust II in exchange for the Merger Shares and the
assumption by High Yield Trust II of all of the liabilities of the Total Return
Fund.
As of January 31, 1999, there were outstanding 14,984,758 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.
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 __, 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
-20-
<PAGE>
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 company 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 and Plan of Reorganization 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 return approach of the Total Return Fund. Putnam introduced the
Total Return Fund at the beginning of 1997. As of
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<PAGE>
January 31, 1999, it had $111,996,386 in assets. By contrast High Yield Trust
II, launched in January 1998, had $1,144,313,395 in assets as of
January 31, 1999.
The consequence of the Total Return Fund's small size and limited growth
potential is an expectation that its expenses will be relatively high. 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.
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
an 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 federal 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 16, 1999 or such other date
as may be agreed upon by the
-22-
<PAGE>
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 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 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.
The fees and expenses for the transaction are estimated to be $138,000. All fees
and expenses,
-23-
<PAGE>
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
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 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
-24-
<PAGE>
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)
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 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;
-25-
<PAGE>
(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;
(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.
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:
-26-
<PAGE>
(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.
THE TRUSTEES OF PUTNAM HIGH YIELD TOTAL RETURN FUND, INCLUDING
THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND APPROVAL OF
THE AGREEMENT.
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.
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
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<PAGE>
"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 and Plan of Reorganization. The
transactions contemplated by the Agreement and Plan of Reorganization 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 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 and "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) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum.]
Abstentions and broker non-votes have the effect of a negative vote on the
proposal.
As of February 18, 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 and to the best of the knowledge of the Total Return Fund, no person
owned of record or beneficially 5% or more of the outstanding shares of the
Total Return Fund.
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 18, 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
and to the best of the knowledge of High Yield Trust II, no person beneficially
owned 5% or more of the outstanding shares of High Yield Trust II.
-28-
<PAGE>
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 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 vote 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 vote via the internet, you will need the 12-digit
"control" number that appears with your proxy materials. To vote via the
internet, please access MIS on the World Wide Web at www.[ ]. 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 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, including proxies given by telephone, 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.
-29-
<PAGE>
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.
-30-
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of March __, 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 the
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, the 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 the 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 the 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 the High Yield Trust II on such date, (ii) a
number of full and fractional Class B shares of beneficial interest of the 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 the 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 the High Yield Trust II on
such date, and (iii) a number of full and fractional Class M shares of
beneficial interest of the High Yield Trust II (the "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 the 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 the 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
<PAGE>
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
The High Yield Trust II and the Total Return Fund agree as follows:
1. Representations and warranties of the High Yield Trust II. The High Yield
Trust II represents and warrants to and agrees with the Total Return Fund that:
(a) The 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 out its obligations under this Agreement. The High Yield
Trust II is not required to qualify as a foreign association in any
jurisdiction. The 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) The 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 the 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 the 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 the High Yield Trust II makes no representation or
warranty as to any information in the High Yield Trust II Prospectus that does
not specifically relate to the High Yield Trust II.
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(e) There are no material legal, administrative or other proceedings pending or,
to the knowledge of the High Yield Trust II, threatened against the High Yield
Trust II which assert liability or may, if successfully prosecuted to their
conclusion, result in liability on the part of the High Yield Trust II, other
than as have been disclosed in the High Yield Trust II Prospectus.
(f) The 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 the 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 the 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 the 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 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 the 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 the High
Yield Trust II have been offered for sale and sold in conformity with all
applicable federal securities laws.
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(k) The 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 the High
Yield Trust II, and no shareholder of the 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 the 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 the 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 the High Yield Trust II, 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 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
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<PAGE>
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
the 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.
(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 the 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 the 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.
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(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.
(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 the 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, the 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. 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 the High Yield Trust II or the Total Return Fund,
except as previously disclosed to the 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,
the High Yield Trust II will remain in compliance with its mandatory investment
restrictions as set forth in the 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 the High Yield Trust II, and the 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
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<PAGE>
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 the 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 the 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) The Total Return Fund will pay or cause to be paid to the 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 the 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 the High Yield
Trust II.
(c) The Valuation Time shall be 4:00 p.m. Boston time on July 16, 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, the 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 the 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 the 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 shares of the Total Return Fund transferred to the 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 the 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 the 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 the High Yield Trust II on that date, determined as
hereafter provided in this Section 4.
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<PAGE>
(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 the 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 the 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 the High Yield Trust II, in
cooperation with the Total Return Fund, pursuant to procedures that the High
Yield Trust II would use in determining the fair market value of the 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 the High Yield Trust II to take into account differences in
realized and unrealized gains and losses.
(d) The 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 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 the 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 the 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 the 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, the 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, the High Yield Trust
II shall pay any such dividends or distributions
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<PAGE>
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) The 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 the
High Yield Trust II of the transactions contemplated by this Agreement will be
allocated ratably between the High Yield Trust II and the Total Return Fund in
proportion to their net assets as of the Valuation Time, except that the costs
of proxy materials and proxy solicitation will be borne by the Total Return
Fund, and 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 the
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 the High Yield Trust II's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or failure of
any condition to the High Yield Trust II's obligations referred to in Section 8)
the 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 the 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) the 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 the 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 the High Yield Trust II and the Total Return Fund shall
bear all of its own expenses incurred in connection with such transactions.
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<PAGE>
(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 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 the 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 the 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) The High Yield Trust II has, after the preparation and delivery to the High
Yield Trust II by the Total Return Fund of a preliminary version of the Proxy
Statement which was satisfactory to the 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 the High Yield Trust II
will cooperate with the other, and each will furnished 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.
8. Conditions to the High Yield Trust II's obligations. The obligations of the
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.
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(b) That the Total Return Fund shall have furnished to the 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 the 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 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.
(d) That the Total Return Fund shall have delivered to the 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 the High Yield Trust II shall have received an opinion of Ropes & Gray,
in form satisfactory to the 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
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<PAGE>
and assuming due authorization, execution and delivery of this Agreement by the
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 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 the 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 the High Yield Trust II may reasonably deem necessary or desirable.
(g) That the 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 the High Yield Trust II upon receipt of the Investments
transferred to the 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 the High
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 the
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 the High Yield
Trust II will include no assets which the High Yield Trust II, by reason of
charter limitations or of investment restrictions disclosed in the 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 the High Yield Trust II, threatened by the Commission.
(j) That the 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
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<PAGE>
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 the 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 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 the 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 the 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 the 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 the 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 the High Yield Trust II in amounts sufficient and
upon terms satisfactory, in the opinion of the High Yield Trust II or its
counsel, to indemnify the 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 part of the Total Return Fund to have offered and sold such
shares in conformity with such laws.
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<PAGE>
(p) That the High Yield Trust II shall have received from PricewaterhouseCoopers
LLP a letter addressed to the High Yield Trust II dated as of the Exchange Date
satisfactory in form and substance to the 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
the High Yield Trust II's By-laws pursuant to the procedures customarily
utilized by the 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 the 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 the 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 the High Yield Trust II shall have furnished to the Total Return Fund a
statement of the High Yield Trust II's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4 of this
Agreement, all as of the Valuation Time, certified on behalf of the High Yield
Trust II by the 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 the 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 the 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 the 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 the High Yield Trust II shall have furnished to the Total Return Fund a
statement, dated the Exchange Date, signed on behalf of the High Yield Trust II
by the High Yield Trust II's President (or any Vice President) and Treasurer (or
any Assistant Treasurer) certifying that
-14-
<PAGE>
as of the Valuation Time and as of the Exchange Date all representations and
warranties of the 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
the 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) the High Yield Trust II is a business trust duly established
and validly existing in conformity with 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 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 the 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 the High Yield Trust II and no shareholder of the 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 the 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 the 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 the 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 the High Yield Trust II whose responsibility it is
to advise the 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 the 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 suspending 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,
-15-
<PAGE>
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 the
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 the 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 the High Yield Trust II, threatened by the Commission.
(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, the 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
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<PAGE>
Parties will notify the Total Return Fund 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(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) The High Yield Trust II will indemnify and hold harmless, out of the assets
of the 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 the 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
the High Yield Trust II required to be stated therein or necessary to make the
statements relating to the 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 the High Yield Trust II. The Indemnified Parties will notify the 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). The 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 the 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. The
High Yield Trust II's obligation under this Section 10(b) to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee of payment so that
the 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.
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<PAGE>
11. No broker, etc. Each of the Total Return Fund and the 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.
12. Termination. The Total Return Fund and the High Yield Trust II may, by
mutual consent of their trustees, terminate this Agreement, and the Total Return
Fund or the 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 the High Yield Trust II.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the 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 AMERICAN GOVERNMENT INCOME FUND 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 AMERICAN GOVERNMENT INCOME
FUND SUCH REGISTRATION IS NOT REQUIRED."
and, further, the High Yield Trust II will issue stop transfer instructions to
the High Yield Trust II's transfer agent with respect to such shares. The Total
Return Fund will provide the 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.
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
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<PAGE>
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 the 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 the High Yield Trust II individually
but are binding only upon the assets and property of the Total Return Fund and
the High Yield Trust II, respectively.
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<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:
---------------------------
Executive Vice President
PUTNAM HIGH YIELD TOTAL RETURN FUND
By:
---------------------------
Executive Vice President
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<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
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<PAGE>
PUTNAM INVESTMENTS (LOGO)
This is your PROXY CARD.
Please vote this proxy, sign it below, and return it promptly in the envelope
provided.
Your vote is important.
PLEASE FOLD AT PERFORATION BEFORE DETACHING
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Proxy for a meeting of shareholders, July 1, 1999, for Putnam High Yield Total
Return Fund.
This proxy is solicited on behalf of the trustees of Putnam High Yield Total
Return 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 of you 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
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<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 ballot and
return it with your signed proxy in the enclosed envelope.
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Telephone
DO YOU HAVE ANY COMMENTS?
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DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense of follow-up
mailings by signing and returning this proxy as soon as possible. A postage-paid
envelope is enclosed for your convenience.
THANK YOU!
- --------------------------------------------------------------------------------
PLEASE FOLD AT PERFORATION BEFORE DETACHING
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<PAGE>
If you complete and sign the proxy, we'll vote it 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 as may come before the meeting.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
Please mark your choices x in blue or black ink.
1. Approval of the agreement and plan of reorganization providing for the
transfer of all of 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.
FOR AGAINST ABSTAIN
[BOX] [BOX] [BOX]
Note: If you have questions on the proposal, please call 1-800-225-1581.
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<PAGE>
Putnam High Yield Trust II
Form N-14
Part B
Statement of Additional Information
April 15, 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 February __, 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.
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<PAGE>
Putnam High Yield Trust II
Form N-14
Part C
Other Information
Item 15. Indemnification
The information required by this item is incorporated herein by reference to the
Registrant's Initial Registration Statement on Form N-1A under the Securities
Act of 1933 (File No. 333-515) and the Investment Company Act of 1940 (File No.
811-7513).
Item 16. Exhibits
1. Agreement and Declaration of Trust dated January 22, 1996 --
Incorporated by reference to Registrant's Initial Registration
Statement.
2. By-Laws, as amended through January 22, 1996 -- Incorporated
by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization -- constitutes Exhibit A
to Part A hereof.
5a. Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights -- Incorporated by reference to the
Registrant's Initial Registration Statement.
5b. Portions of By-Laws Relating to Shareholders' Rights --
Incorporated by reference to the Registrant's Initial
Registration Statement.
6. Form of Management Contract --Incorporated by reference to
Post-Effective Amendment No. 16 to the Registrant's
Registration Statement.
7a. Distributor's Contract dated June 7, 1996 -- Incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement.
7b. Form of Specimen Dealer Sales Contract --Incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement.
7c. Form of Specimen Financial Institution Sales Contract --
Incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
8. Not applicable.
9. Custodian Agreement with Putnam Fiduciary Trust Company dated
May 3, 1991, as amended July 13, 1992 -- Incorporated by
reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement.
10a. Class A Distribution Plan and Agreement dated June 7, 1996 --
Incorporated by reference to Pre- effective Amendment No. 2 to
the Registrant's Registration Statement.
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<PAGE>
10b. Class B Distribution Plan and Agreement dated June 7, 1996 --
Incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement.
10c. Class M Distribution Plan and Agreement dated June 7, 1996 --
Incorporated by reference to Post-Effective Amendment No. 2 to
the Registrant's Registration Statement.
10d. Rule 18f-3 Plan -- Incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Registration Statement.
11. Form of Opinion of Ropes & Gray, including consent --
Exhibit 1.
12. Form of Opinion of Ropes & Gray as to Tax Matters -- Exhibit 2
13a. Form of Specimen Dealer Service Agreement - Incorporated by
reference to Pre-effective Amendment No. 2 to the Registrant's
Registration Statement.
13b. Form of Specimen Financial Institution Service Agreement --
Incorporated by reference to Pre-effective Amendment No. 2 to
the Registrant's Registration Statement.
14a. Consent of PricewaterhouseCoopers LLP Independent Accountants
to the Putnam High Yield Total Return Fund -- Exhibit 3.
14b. Consent of PricewaterhouseCoopers LLP Independent Accountants
to Putnam High Yield Trust II -- Exhibit 4.
15. Not applicable.
16a. Power of Attorney -- Exhibit 5
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through these of a prospectus
which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Act, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an amendment
to this Registration Statement and will not be used until the amendment
is effective, and that, in determining any liability under the Act,
each post-effective amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
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<PAGE>
(c) The Registrant agrees to file an amendment to this Registration
Statement an opinion of counsel supporting the tax consequences of the
proposed reorganization within a reasonable time after receipt of such
opinion.
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<PAGE>
Notice
A copy of the Agreement and Declaration of Trust, as amended, of Putnam Funds
Trust, is on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this Registration Statement has
been executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually, and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
shareholders of the Registrant individually, but are binding only upon the
assets and property of the Registrant.
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts on February 18, 1999.
PUTNAM FUNDS TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form N-14 has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
*
George Putnam President and Chairman of the Trustees;
Principal Executive Officer; Trustee
*
John A. Hill Vice Chairman and Trustee
*
William F. Pounds Vice Chairman and Trustee
*
John D. Hughes Principal Financial Officer; Senior Vice
President; Treasurer
*
Paul G. Bucuvalas Principal Accounting Officer; Assistant
Treasurer
*
Jameson A. Baxter Trustee
Hans H. Estin Trustee
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<PAGE>
*
Ronald J. Jackson Trustee
*
Paul L. Joskow Trustee
*
Elizabeth T. Kennan Trustee
*
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
*
Donald S. Perkins Trustee
*
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
*
W. Nicholas Thorndike Trustee
*By: Gordon H. Silver, as
Attorney-in-Fact
February 18, 1999
</TABLE>
-6-
<PAGE>
Exhibit Index
11. Form of Opinion of Ropes & Gray, including consent -- Exhibit 1.
12. Form of Opinion of Ropes & Gray as to Tax Matters, including consent
-- Exhibit 2
14a. Consent of PricewaterhouseCoopers LLP Independent Accountants to the
Putnam High Yield Total Return Fund -- Exhibit 3.
14b. Consent of PricewaterhouseCoopers LLP Independent Accountants to the
Putnam High Yield Trust II -- Exhibit 4.
16a. Power of Attorney -- Exhibit 5.
-7-
Exhibit 1
________ __, 1999
Putnam High Yield Trust II
One Post Office Square
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam High Yield Trust II (the "Fund"), a
series of shares of Putnam Funds Trust (the "Trust"), in connection with the
Registration Statement of the Fund on Form N-14 (the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"), relating to the
proposed combination of the Fund with Putnam High Yield Total Return Fund (the
"Total Return Fund"), and the issuance of shares of the Fund in connection
therewith (the "Shares"), all in accordance with the terms of the Agreement and
Plan of Reorganization between the Fund and the Total Return Fund dated as of
March __, 1999 (the "Agreement").
We have examined the Trust's Agreement and Declaration of Trust on file
in the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and the Fund's By-Laws, as amended, and are
familiar with the actions taken by the Fund's Trustees in connection with the
issuance and sale of the Shares. We have also examined such other documents and
records as we have deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of its shares of beneficial
interest.
2. The Shares have been duly authorized and, when issued in accordance
with the Agreement, will be validly issued, fully paid, and
nonassessable by the Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Fund and requires that notice
<PAGE>
of such disclaimer be given in each note, bond, contract, instrument,
certificate, or undertaking entered into or executed by the Trust or its
Trustees. The Agreement and Declaration of Trust provides for indemnification
out of the property of the Fund for all loss and expense of any shareholder of
the Fund held personally liable solely by reason of his being or having been a
shareholder. Thus, the risk of a shareholder's incurring financial loss on
account of being a shareholder is limited to circumstances in which the Fund
itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement and
to the references to our firm in the related prospectus under the caption
"Information about the merger -- Federal income tax consequences."
Very truly yours,
Ropes & Gray
Exhibit 2
February __, 1999
Putnam High Yield Total Return Fund
-- Putnam Funds Trust
Putnam High Yield Trust II
-- Putnam Funds Trust
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of ______, 1999 (the "Agreement"), by Putnam Funds Trust
(the "Trust"), a Massachusetts business trust, on behalf of two of its series,
Putnam High Yield Trust II ("Acquiring Fund") and Putnam High Yield Total Return
Fund ("Target Fund"). The Agreement describes a proposed transaction (the
"Transaction") to occur on ______, 1999, or such other date as may be decided by
the Trust (the "Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Target Fund in exchange for shares of
beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by Acquiring Fund of all of the liabilities of Target Fund following
which the Acquiring Fund Shares received by Target Fund will be distributed by
Target Fund to its shareholders in liquidation and termination of Target Fund.
This opinion as to certain federal income tax consequences of the Transaction is
furnished to you pursuant to Sections 8(g) and 9(g) of the Agreement.
Capitalized terms not defined herein are defined in the Agreement.
Target Fund is a series of the Trust which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Trust which is registered under the
1940 Act as an open-end management investment company. Shares of Acquiring Fund
are redeemable at net asset value at each shareholder's option.
<PAGE>
Putnam High Yield Total Return Fund February __, 1999
Putnam High Yield Trust II
Putnam Funds Trust
-2-
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code. The Target Fund and the
Acquiring Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Target Fund, or upon the distribution of
Acquiring Fund Shares by Target Fund to its shareholders in
liquidation;
(iii) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same as
the basis of his or her Target Fund Shares exchanged therefor;
(v) A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the
period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of
Target Fund transferred to Acquiring Fund in the Transaction
will be the same as the basis of such assets in the hands of
Target Fund immediately prior to the transfer; and
<PAGE>
Putnam High Yield Total Return Fund February __, 1999
Putnam High Yield Trust II
Putnam Funds Trust
-3-
(viii) The holding periods of the assets of Target Fund in the hands
of Acquiring Fund will include the periods during which such
assets were held by Target Fund.
Very truly yours,
Ropes & Gray
Exhibit 3
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the "Registration
Statement") of Putnam High Yield Total Return of our report dated August 17,
1998 relating to the financial statements and financial highlights appearing in
the June 30, 1998 Annual Report to the Shareholders of Putnam High Yield Total
Return, which is incorporated by reference into such Statement of Additional
Information, and to the incorporation by reference of such report into the
Prospectus/Proxy Statement which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants and Financial Statements" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
Exhibit 4
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the "Registration
Statement") of Putnam High Yield Trust II of our report dated October 15, 1998
relating to the financial statements and financial highlights appearing in the
August 31, 1998 Annual Report to the Shareholders of Putnam High Yield Trust II,
which is incorporated by reference into such Statement of Additional
Information, and to the incorporation by reference of such report into the
Prospectus/Proxy Statement which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants and Financial Statements" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
Exhibit 5
POWER OF ATTORNEY
We the undersigned Officers and Trustees of Putnam American Government
Income Fund, hereby severally constitute and appoint George Putnam, Charles E.
Porter, Gordon H. Silver, Timothy W. Diggins and John W. Gerstmayr, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in the capacities indicated below,
the Registration Statement on Form N-14 of Putnam High Yield Trust II and any
and all amendments (including post-effective amendments) to said Registration
Statement and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
our said attorneys, and each of them acting alone, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
the premises, as fully to all intents and purposes as he or she might or could
do in person, and hereby ratify and confirm all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands and common seal on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ George Putnam President and Chairman of February 18, 1999
- -------------------------- the Trustees, Principal
George Putnam Executive Officer; Trustee
/s/ John A. Hill Vice Chairman and Trustee February 18, 1999
- --------------------------
John A. Hill
/s/ William F. Pounds Vice Chairman and Trustee February 18, 1999
- --------------------------
William F. Pounds
/s/ John D. Hughes Principal Financial Officer; February 18, 1999
- -------------------------- Senior Vice President;
John D. Hughes Treasurer
/s/ Paul G. Bucuvalas Principal Accounting February 18, 1999
- -------------------------- Officer; Assistant Treasurer
Paul G. Bucuvalas
/s/ Jameson A. Baxter Trustee February 18, 1999
- --------------------------
Jameson A. Baxter
<PAGE>
/s/ Trustee February __, 1999
- --------------------------
Hans H. Estin
/s/ Ronald J. Jackson Trustee February 18, 1999
- --------------------------
Ronald J. Jackson
/s/ Paul L. Joskow Trustee February 18, 1999
- --------------------------
Paul L. Joskow
/s/ Elizabeth T. Kennan Trustee February 18, 1999
- --------------------------
Elizabeth T. Kennan
/s/ Lawrence J. Lasser Trustee February 18, 1999
- --------------------------
Lawrence J. Lasser
/s/ Trustee February __, 1999
- --------------------------
John H. Mullin, III
/s/ Trustee February __, 1999
- --------------------------
Robert E. Patterson
/s/ Donald S. Perkins Trustee February 18, 1999
- --------------------------
Donald S. Perkins
/s/ George Putnam III Trustee February 18, 1999
- --------------------------
George Putnam III
/s/ Trustee February __, 1999
- --------------------------
A.J.C. Smith
/s/ Trustee February __, 1999
- --------------------------
W. Thomas Stephens
/s/ W. Nicholas Thorndike Trustee February 18, 1999
- --------------------------
W. Nicholas Thorndike
</TABLE>
