PROSPECTUS
JANUARY 1, 1994 , AS
REVISED JULY 1, 1994
PUTNAM HIGH YIELD TRUST
CLASS A AND B SHARES
INVESTMENT STRATEGY: INCOME
This Prospectus explains concisely what you should know before
investing in Class A or B shares of the Fund. Please read it
carefully and keep it for future reference. You can find more
detailed information about the Fund in the January 1, 1994
Statement of Additional Information, as amended from time to
time. For a free copy of the Statement, call Putnam Investor
Services at 1-800-225-1581. The Statement has been filed with
the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
Putnam High Yield Trust (the "Fund") seeks high current income.
Capital growth is a secondary objective when consistent with
seeking high current income. THE FUND INVESTS PRIMARILY IN
LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS
OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL
AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD CAREFULLY ASSESS
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. The Fund
may also trade securities for short-term profits. For a
description of these strategies and the related risks, see the
section "How objectives are pursued" on page 8 .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION , ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY , AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL .
B O S T O N * L O N D O N * T O K Y O
<PAGE>
PUTNAM HIGH YIELD TRUST (THE "FUND") INVESTS PRIMARILY IN
HIGH-YIELDING, LOWER-RATED FIXED-INCOME SECURITIES, CONSTITUTING
A DIVERSIFIED PORTFOLIO WHICH PUTNAM INVESTMENT MANAGEMENT, INC.,
THE FUND'S INVESTMENT MANAGER ("PUTNAM MANAGEMENT"), BELIEVES
DOES NOT INVOLVE UNDUE RISK TO INCOME OR PRINCIPAL. IT IS
DESIGNED FOR INVESTORS WILLING TO ASSUME ADDITIONAL RISK IN
RETURN FOR ABOVE-AVERAGE INCOME.
THIS PROSPECTUS OFFERS TWO CLASSES OF SHARES: CLASS A AND CLASS
B. EACH CLASS IS SOLD PURSUANT TO DIFFERENT SALES ARRANGEMENTS
AND BEARS DIFFERENT EXPENSES. FOR MORE INFORMATION ABOUT THE
DIFFERENT SALES ARRANGEMENTS, SEE "ALTERNATIVE SALES
ARRANGEMENTS CLASS A AND B SHARES." FOR INFORMATION ABOUT
VARIOUS EXPENSES BORNE BY EACH CLASS, SEE
"EXPENSES
SUMMARY."
ABOUT THE FUND
Expenses summary 3
Financial highlights Class A and B shares 5
Objectives 8
How objectives are pursued 8
How performance is shown Class A and B shares15
How the Fund is managed 16
Organization and history 16
ABOUT YOUR INVESTMENT
Alternative sales arrangements
Class A and B shares 17
How to buy Class A and B shares 18
Class A and B Distribution Plans 23
How to sell Class A and B shares 24
How to exchange Class A and B shares 26
How the Fund values its shares 26
How Distributions are made; tax
information 27
ABOUT PUTNAM INVESTMENTS, INC. 28
APPENDIX
Fixed-income security ratings 29
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes your maximum
transaction costs from investing in the Fund and expenses
incurred by the Fund based on its most recent fiscal year. The
Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in Class A or Class B shares of
the Fund over specified periods.
CLASS A CLASS B
SHARES SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.75% NONE*
5.0% in the
first year,
Deferred Sales Charge declining to 1.0%
(as a percentage of the lower in the sixth
year ,
of original purchase price or and
eliminated
redemption proceeds) NONE** thereafter
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.56% 0.56%
12b-1 Fees 0.25% 1.00%
Other Expenses 0.21% 0.21%
Total Fund Operating Expenses 1.02% 1.77%
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming (1) 5% annual return and (2) redemption at the end of
each period:
1 3 5 10
year years years years
CLASS A $57 $78 $101
$166
CLASS B $68 $86 $116
$189** *
<PAGE>
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:
1 3 5 10
year years years years
CLASS A $57 $78 $101
$166
CLASS B $18 $56 $ 96
$189** *
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
which the Fund incurs. The management fees shown in the table
reflect an increase in the management fee payable to Putnam
Management, effective July 8, 1993. The 12b-1 fees for Class
A shares shown in the table reflect the amount to which the
Trustees currently limit payments under the Class A Distribution
Plan. Actual management fees, 12b-1 fees and total
operating expenses for Class A shares in fiscal 1993 were
0.47% , 0.24% and 0.92%, respectively. The 12b-1
fees for Class B shares reflect the maximum amount
permitted under the Class B Distribution Plan. For Class B
shares, management fees and "Other expenses" are based on the
operating expenses for the Fund's Class A shares shown in the
table. The Examples do not represent past or future
expense levels and actual expenses may be greater or less than
those shown. Federal regulations require the Examples to assume
a 5% annual return, but actual annual return has varied.
* Class B shares are sold without a front-end sales charge, but
their 12b-1 fees may cause long-term shareholders to pay more
than the economic equivalent of the maximum permitted front-end
sales charge.
** 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. See "How to buy Class A and B shares Class A shares."
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "How to buy Class A and B shares Class B
shares Conversion of Class B shares."
<PAGE>
FINANCIAL HIGHLIGHTS CLASS A AND B SHARES
The table on the following page presents per share financial
information for the Fund's ten most recent fiscal years. This
information has been audited and reported on by the Fund's
independent accountants. The Report of Independent Accountants
and financial statements included in the Fund's Annual Report to
shareholders for the 1993 fiscal year are incorporated by
reference into this Prospectus. The Fund's Annual Report, which
contains additional unaudited performance information, will be
made available without charge upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS*
(FOR A SHARE
OUTSTANDING
THROUGHOUT
THE PERIOD)
<S> <C>
<C> <C>
MARCH
1, 1993
(COMMENCEMENT
OF
OPERATIONS) TO
AUGUST 31 YEAR ENDED
AUGUST 31
1993
1993 1992
CLASS B
CLASS A
NET ASSET VALUE,
BEGINNING OF PERIOD
$12.84 $12.76 $11.55
INVESTMENT ACTIVITIES
NET INVESTMENT INCOME
.62 1.46 1.57
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
.23 .28 1.22
TOTAL FROM INVESTMENT
OPERATIONS
.85 1.74 2.79
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME
(.70) (1.45) (1.56)
IN EXCESS OF NET INVESTMENT INCOME
-- (.04) --
NET REALIZED GAIN
ON INVESTMENTS
-- -- (.02)
PAID-IN CAPITAL
-- -- --
TOTAL DISTRIBUTIONS
(.70) (1.49) (1.58)
NET ASSET VALUE,
END OF PERIOD
$12.99 $13.01 $12.76
<PAGE>
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%) (A)
13.60(B) 14.50 25.50
NET ASSETS, END OF PERIOD
(IN THOUSANDS)
$238,647 $3,189,948 $2,449,282
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (%)
1.69(B) .92 .97
RATIO OF NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS (%)
9.76(B) 11.27 12.63
PORTFOLIO TURNOVER (%)**
50.90 50.90 47.05
SEE PAGE 20 FOR NOTES TO FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS*
(FOR A SHARE
OUTSTANDING
THROUGHOUT
THE PERIOD)
<S> <C> <C> <C> <C>
<C> <C> <C>
YEAR
ENDED AUGUST 31
1991 1990 1989 1988
1987 1986 1985 1984
CLASS A
NET ASSET VALUE,
BEGINNING OF PERIOD $10.99 $13.84 $14.57
$15.28 $15.52 $15.42 $14.82 $17.24
INVESTMENT ACTIVITIES
NET INVESTMENT INCOME 1.52 1.64 1.89
1.82 1.91 1.96 2.11 2.18
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .66 (2.69) (.71)
(.67) (.22) .34 .71 (1.65)
TOTAL FROM INVESTMENT
OPERATIONS 2.18 (1.05) 1.18
1.15 1.69 2.30 2.82 .53
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (1.52) (1.67) (1.86)
(1.86) (1.93) (2.20) (2.22) (2.22)
IN EXCESS OF NET
INVESTMENT INCOME -- -- --
- -- -- -- -- --
NET REALIZED GAIN
ON INVESTMENTS -- (.02) (.05)
- -- -- -- -- (.73)
PAID-IN CAPITAL (.10) (.11) --
- -- -- -- -- --
TOTAL DISTRIBUTIONS (1.62) (1.80) (1.91)
(1.86) (1.93) (2.20) (2.22) (2.95)
NET ASSET VALUE,
END OF PERIOD $11.55 $10.99 $13.84
$14.57 $15.28 $15.52 $15.42 $14.82
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%) (A) 22.47 (7.58)
8.47 8.25 11.34 15.76 20.32 3.19
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,832,181 $1,651,544 $2,415,203
$2,390,123 $2,287,344 $2,361,819 $1,308,290 $646,269
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (%) 1.09 .95 .72
.61 .61 .57 .60 .64
<PAGE>
RATIO OF NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS (%) 14.18 13.76 13.15
12.38 12.15 12.34 13.64 13.75
PORTFOLIO TURNOVER (%)** 72.53 47.64 51.03
75.38 92.81 77.21 160.84 238.88
*FINANCIAL HIGHLIGHTS FOR PERIODS ENDED THROUGH AUGUST 31, 1992
HAVE BEEN RECLASSIFIED AND DATA HAS BEEN PRESENTED TO
CONFORM WITH THE REQUIREMENTS ISSUED BY THE SEC IN APRIL 1993.
**PORTFOLIO TURNOVER CALCULATIONS FOR FISCAL 1985 AND THEREAFTER
INCLUDE TRANSACTIONS IN U.S. GOVERNMENT SECURITIES WITH
MATURITIES GREATER THAN ONE YEAR. PRIOR PERIOD PORTFOLIO TURNOVER
CALCULATIONS EXCLUDE ALL TRANSACTIONS IN U.S.
GOVERNMENT SECURITIES.
(A)TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES
NOT REFLECT THE EFFECT OF SALES CHARGES.
(B)ANNUALIZED
/TABLE
<PAGE>
OBJECTIVES
PUTNAM HIGH YIELD TRUST SEEKS HIGH CURRENT INCOME. CAPITAL
GROWTH IS A SECONDARY OBJECTIVE WHEN CONSISTENT WITH THE
OBJECTIVE OF HIGH CURRENT INCOME. The Fund is not intended to be
a complete investment program, and there is no assurance it will
achieve its objectives.
HOW OBJECTIVES ARE PURSUED
BASIC INVESTMENT STRATEGY
PUTNAM HIGH YIELD TRUST SEEKS HIGH CURRENT INCOME BY INVESTING
PRIMARILY IN HIGH-YIELDING, LOWER-RATED FIXED-INCOME SECURITIES
CONSTITUTING A PORTFOLIO WHICH PUTNAM MANAGEMENT BELIEVES DOES
NOT INVOLVE UNDUE RISK TO INCOME OR PRINCIPAL. Normally, at
least 80% of the Fund's assets will be invested in debt
securities, convertible securities or preferred stocks that are
consistent with its primary investment objective of high current
income. The Fund's remaining assets may be held in cash or money
market instruments, or invested in common stocks and other equity
securities when these types of investments are consistent with
the objective of high current income.
The Fund seeks its secondary objective of capital growth, when
consistent with its primary objective of high current income, by
investing in securities which may be expected to appreciate in
value as a result of declines in long-term interest rates or of
favorable developments affecting the business or prospects of the
issuer which may improve the issuer's financial condition and
credit rating. Putnam Management believes that such
opportunities for capital appreciation often exist in the
securities of smaller capitalization companies which have the
potential for significant growth.
Differing yields on fixed-income securities of the same maturity
are a function of several factors, including the relative
financial strength of the issuers. Higher yields are generally
available from securities in the lower categories of recognized
rating agencies: Baa or lower by Moody's Investors Service, Inc.
("Moody's") or BBB or lower by Standard & Poor's Corporation
("Standard & Poor's"). The Fund may invest in any security which
is rated, at the time of purchase, at least Caa as determined by
Moody's or CCC, as determined by Standard & Poor's, or in any
unrated security which Putnam Management determines is of at
least comparable quality. Securities in the rating categories
below Baa as determined by Moody's and BBB as determined by
Standard & Poor's are considered to be of poor standing and
predominantly speculative. Securities rated Caa by Moody's or
CCC by Standard & Poor's are of poor standing and may be in
default. The rating services' descriptions of securities in the
lower rating categories, including their speculative
characteristics, are in the Appendix to this Prospectus.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis
at the time of rating. Consequently, the rating assigned to any
particular security is not necessarily a reflection of the
issuer's current financial condition, which may be better or
worse than the rating would indicate. ALTHOUGH PUTNAM MANAGEMENT
CONSIDERS SECURITY RATINGS WHEN MAKING INVESTMENT DECISIONS, IT
PERFORMS ITS OWN INVESTMENT ANALYSIS AND DOES NOT RELY
PRINCIPALLY ON THE RATINGS ASSIGNED BY THE RATING SERVICES.
Putnam Management's analysis may include consideration of the
issuer's experience and managerial strength, changing financial
condition, borrowing requirements or debt maturity schedules, and
its responsiveness to changes in business conditions and interest
rates. It also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage and
earnings prospects. Because of the greater number of investment
considerations involved in investing in lower-rated securities,
the achievement of the Fund's objective depends more on Putnam
Management's analytical abilities than would be the case if it
were investing primarily in securities in the higher rating
categories.
At times Putnam Management may judge that conditions in the
securities markets make pursuing the Fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, the Fund may invest in money market
instruments of all types, higher-rated fixed-income securities,
or any other securities which Putnam Management considers
consistent with such defensive strategies. The yield on these
securities would generally be lower than the yield on lower-rated
fixed-income securities. It is impossible to predict when, or
for how long, the Fund will use such alternative strategies.
FOREIGN INVESTMENTS
THE FUND MAY INVEST UP TO 20% OF ITS ASSETS IN SECURITIES
PRINCIPALLY TRADED IN FOREIGN MARKETS. The Fund may also
purchase Eurodollar certificates of deposit without regard to the
20% limit. Since foreign securities are normally denominated and
traded in foreign currencies, the values of the Fund's assets may
be affected favorably or unfavorably by currency exchange rates
and exchange control regulations. There may be less information
publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to
accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The
securities of some foreign companies are less liquid and at times
more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the Fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located
in those foreign countries. Special tax considerations apply to
foreign securities.
The Fund may buy or sell foreign currencies and foreign currency
forward contracts for hedging purposes in connection with its
foreign investments.
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS
AND SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED
IN THE STATEMENT OF ADDITIONAL INFORMATION.
SHORT-TERM TRADING
UNDER CERTAIN MARKET CONDITIONS, THE FUND MAY SEEK PROFITS BY
SHORT-TERM TRADING. The length of time the Fund has held a
particular security is not generally a consideration in
investment decisions. A change in the securities owned by the
Fund is known as "portfolio turnover." To the extent short-term
trading strategies are used, the Fund's portfolio turnover rate
may be higher than that of other mutual funds. Portfolio
turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other
securities. Such transactions may result in realization of
taxable capital gains. Portfolio turnover rates for the Fund's
ten most recent fiscal years are shown in the section "Financial
highlights Class A and B shares."
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE
RISKS OF OWNING SHARES OF A MUTUAL FUND WHICH INVESTS IN LOWER-
RATED SECURITIES BEFORE MAKING AN INVESTMENT IN THE FUND. The
lower ratings of certain securities held by the Fund reflect a
greater possibility that adverse changes in the financial
condition of the issuer, or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely
payments of interest and principal would likely make the values
of securities held by the Fund more volatile and could limit the
Fund's ability to sell its securities at prices approximating the
values the Fund had placed on such securities. In the absence of
a liquid trading market for securities held by it, the Fund may
be unable at times to establish the fair value of such
securities. The rating assigned to a security by Moody's or
Standard & Poor's does not reflect an assessment of the
volatility of the security's market value or of the liquidity of
an investment in the security. For more information about the
rating services' descriptions of lower-rated securities, see the
Appendix to this Prospectus.
Like those of other fixed-income securities, the values of lower-
rated securities fluctuate in response to changes in interest
rates. Thus, a decrease in interest rates will generally result
in an increase in the value of the Fund's assets. Conversely,
during periods of rising interest rates, the value of the Fund's
assets will generally decline. In addition, the values of such
securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of
their issuers. Changes by recognized rating services in their
ratings of any fixed-income security and in the ability of an
issuer to make payments of interest and principal may also affect
the value of these investments. Changes in the value of
portfolio securities generally will not affect income derived
from such securities, but will affect the Fund's net asset value.
The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the Fund's investment objective.
The table below shows the percentages of the Fund's assets
invested during fiscal 1993 in securities assigned to the various
rating categories by Moody's and Standard & Poor's and in unrated
securities determined by Putnam Management to be of comparable
quality:
UNRATED SECURITIES OF
RATED SECURITIES,
COMPARABLE QUALITY,
AS PERCENTAGE OF AS
A PERCENTAGE OF
RATING FUND'S ASSETS
FUND'S ASSETS
"AAA"/ "Aaa" 7.69%
"AA"/ "Aa" 1.11%
"A"/ "A" 2.28%
"BBB"/ "Baa" 0.33%
"BB"/ "Ba" 9.49%
"B"/ "B" 72.22%
5.06%
"CCC"/ "Caa" 1.25%
0.55%
"CC"/ "Ca"
0.02%
"C"/ "C"
Total 94.37%
5.63%
Many of the lower-rated securities in which the Fund invests are
issued to raise funds in connection with the acquisition of a
company, in so-called "leveraged buy-out" transactions. The
highly leveraged capital structure of such issuers may make them
especially vulnerable to adverse changes in economic conditions.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell such
securities when Putnam Management believes it advisable to do so
or may be able to sell such securities only at prices lower than
if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the
issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net
asset value.
The Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or
in additional bonds. The value of zero-coupon bonds is subject
to greater fluctuation in response to changes in market interest
rates than bonds which pay interest currently. Both zero-coupon
bonds and payment in kind bonds allow an issuer to avoid the need
to generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate other investments in order to
satisfy its distribution requirements.
Certain securities held by the Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
Putnam Management seeks to minimize the risks involved in
investing in lower-rated securities through diversification and
careful investment analysis. When the Fund invests in high yield
securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on Putnam Management's investment
analysis than would be the case if the Fund were investing in
securities in the higher rating categories.
Certain investment grade securities in which the Fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
INVESTMENTS IN PREMIUM SECURITIES
The Fund may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity. The Fund does not amortize the
premium paid for such securities in calculating its net
investment income. As a result, the purchase of such securities
provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund
had purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the Fund's
risk of capital loss if such securities are held to maturity (or
first call date).
During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than the current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry premium market values which
would be reflected in the net asset value of the Fund's shares.
As a result, an investor who purchases shares of the Fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative
investments bearing current market interest rates, but may face
an increased risk of capital loss as these higher coupon
securities approach maturity (or first call date). In evaluating
the potential performance of an investment in the Fund, investors
may find it useful to compare the Fund's current dividend rate
with the Fund's "yield," which is computed on a yield-to-maturity
basis in accordance with SEC regulations and which reflects
amortization of market premiums. See "How performance is shown
Class A and B shares."
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL
RISKS. THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE
DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS
DESIGNED TO REDUCE THESE RISKS.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any one
issuer or more than 10% of any one class of securities of any one
issuer* and investing more than: (a) 5% of its total assets in
the securities of any one issuer (other than obligations issued
or guaranteed by the U.S. government or its agencies or
instrumentalities);* (b) 5% of its net assets in companies that,
together with any predecessors, have been in operation less than
three years and in equity securities (other than securities
restricted as to resale) that do not have readily available
market quotations;* (c) 15% of its net assets in securities
restricted as to resale (excluding securities determined by the
Fund's Trustees (or the person designated by the Fund's Trustees
to make such determinations) to be readily marketable);* (d) 25%
of its total assets in any one industry;* or (e) 15% of its net
assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding
securities determined by the Fund's Trustees (or the person
designated by the Fund's Trustees to make such determinations) to
be readily marketable), and in repurchase agreements maturing in
more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional
Information for the full text of these policies and the Fund's
other fundamental policies. Except for investment policies
designated as fundamental in this Prospectus or the Statement,
the investment policies described in this Prospectus and in the
Statement are not fundamental policies. The Trustees may change
any non-fundamental investment policies without shareholder
approval. As a matter of policy, the Trustees would not
materially change the Fund's investment objectives without
shareholder approval.
HOW PERFORMANCE IS SHOWN CLASS A AND B SHARES
YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT THE FUND. "Yield" for each class of shares
is calculated by dividing the Fund's annualized net investment
income per share of such class during a recent 30-day period by
the maximum public offering price per share on the last day of
that period. For this purpose, net investment income is
calculated in accordance with SEC regulations and may differ from
the Fund's net investment income as determined for financial
reporting purposes. SEC regulations require that net investment
income be calculated on a "yield-to-maturity" basis, which has
the effect of amortizing any premiums or discounts in the current
market value of fixed-income securities. The Fund's current
dividend rate is based on the Fund's net investment income as
determined for financial reporting purposes, which may not
reflect amortization in the same manner. See "How objective is
pursued Investments in premium securities." The Fund's yield
reflects the deduction of the maximum initial sales charge in the
case of Class A shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B shares.
"Total return" for the one-, five- and ten-year periods (or since
the commencement of the public offering of the shares of a class,
if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of
$1,000 in the Fund at the maximum public offering price (in the
case of Class A shares) or reflecting the deduction of any
applicable contingent deferred sales charge (in the case of Class
B shares). Total return may also be presented for other periods
or based on investment at reduced sales charge levels or net
asset value. Any quotation of total return or yield not
reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales charges were
used. Quotations of yield or total return for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objectives and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF THE FUND'S BUSINESS. Subject to such policies as
the Trustees may determine, Putnam Management furnishes a
continuing investment program for the Fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the Fund's other affairs and
business. Edward D'Alelio, Managing Director of Putnam
Management and Vice President of the Fund, has had primary
responsibility for the day-to-day management of the Fund's
portfolio since March, 1985.
The Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its Distribution Plans (which are in turn allocated to the
relevant class of shares). The Fund also reimburses Putnam
Management for the compensation and related expenses of certain
officers of the Fund and their staff who provide administrative
services to the Fund. The total reimbursement is determined
annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the Fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.
ORGANIZATION AND HISTORY
Putnam High Yield Trust is a Massachusetts business trust
organized on December 13, 1977. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth of
Massachusetts.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may, without shareholder
approval, be divided into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees determine. The Fund's shares are currently divided
into three classes, two of which are currently being offered.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined by the
Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before the Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The Fund
may also redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply to both
present and future shareholders.
<PAGE>
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T. ; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc. ; HANS H. ESTIN, Vice Chairman, North
American Management; JOHN A. HILL, Principal and Managing
Director, First Reserve Corporation; ELIZABETH T. KENNAN,
President, Mount Holyoke College; LAWRENCE J. LASSER,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.; ROBERT
E. PATTERSON, Executive Vice President, Cabot Partners Limited
Partnership; DONALD S. PERKINS, Director of various corporations,
including AT&T, K mart Corporation and Time Warner Inc.; GEORGE
PUTNAM, III,* President, New Generation Research, Inc.; A.J.C.
SMITH,* Chairman, Chief Executive Officer and Director, Marsh &
McLennan Companies, Inc.; and W. NICHOLAS THORNDIKE, Director of
various corporations and charitable organizations, including
Providence Journal Co. Also, Trustee and President,
Massachusetts General Hospital and Trustee of Eastern Utilities
Associates. The Fund's Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are "interested
persons" of the Fund, Putnam Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS CLASS A AND B SHARES
The Fund offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different
levels of expenses:
CLASS A SHARES. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A
shares are not subject to any charges when they are redeemed
(except for sales at net asset value in excess of $1 million
which are subject to a contingent deferred sales charge).
Certain purchases of Class A shares qualify for reduced sales
charges. Class A shares currently bear a 12b-1 fee at the annual
rate of 0.25% of the Fund's average net assets attributable to
Class A shares. See "How to buy Class A and B shares Class A
shares."
<PAGE>
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of
up to 5% if redeemed within six years. Class B shares also bear
a higher 12b-1 fee than Class A shares, currently at the annual
rate of 1.00% of the Fund's average net assets attributable to
Class B shares. Class B shares will automatically convert into
Class A shares, based on relative net asset value, approximately
eight years after purchase. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion) will have
a higher expense ratio and pay lower dividends than Class A
shares due to the higher 12b-1 fee. See "How to buy Class A and
B shares Class B shares."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. Orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares or
declined. For more information about these sales arrangements,
consult your investment dealer or Putnam Investor Services.
Sales personnel may receive different compensation depending on
which class of shares they sell. Shares may only be exchanged
for shares of the same class of another Putnam fund. See "How to
exchange Class A and B shares."
HOW TO BUY CLASS A AND B SHARES
You can open a Fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy Fund shares three ways through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
BUYING CLASS A AND B SHARES THROUGH PUTNAM MUTUAL FUNDS.
Complete an order form and return it with a check payable to the
Fund to Putnam Mutual Funds, which will act as your agent in
purchasing shares through your designated investment dealer.
BUYING CLASS A AND B SHARES THROUGH SYSTEMATIC INVESTING. You
can make regular investments of $25 or more per month through
automatic deductions from your bank checking account.
Application forms are available from your investment dealer or
through Putnam Investor Services.
<PAGE>
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of Class A shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF
AMOUNT OF SALES
--------------------
CHARGE REALLOWED
NET
TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A
PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE
OFFERING PRICE*
- -----------------------------------------------------------------
- ----------------
<C> <C> <C> <C> <C>
<C>
Less than $ 50,000 4.99% 4.75%
4.25%
$ 50,000 but less than
100,000 4.71 4.50 4.00
100,000 but less than 250,000 3.63 3.50
3.00
250,000 but less than 500,000 2.56 2.50
2.25
500,000 but less than1,000,000 2.04 2.00
1.75
- -----------------------------------------------------------------
- -------------
/TABLE
<PAGE>
*At the discretion of Putnam Mutual Funds, however, the entire
sales charge may at times be reallowed to dealers. The Staff of
the Securities and Exchange Commission has indicated that dealers
who receive more than 90% of the sales charge may be considered
underwriters.
There is no initial sales charge on purchases of Class A shares
of $1 million or more. However, a contingent
deferred sales charge ("CDSC") of 1.00% or 0.50%,
respectively, is imposed on redemptions of such shares
within the first or second year after purchase ,
based on the lower of the shares' cost
and current net asset value . Any shares acquired
by reinvestment of distributions will be redeemed without a CDSC.
In addition, shares purchased by certain investors investing
$1 million or more that have made arrangements with Putnam Mutual
Funds and whose dealer of record waived the commission described
in the next paragraph are not subject to the CDSC. In
determining whether a CDSC is payable, the Fund will first redeem
shares not subject to any charge. Putnam Mutual Funds
receives the entire amount of any CDSC you pay. See the
Statement of Additional Information for more information about
the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value and each subsequent one-year period
beginning with the first purchase at net asset value following
the end of the prior period. Such commissions are paid at the
rate of 1.00% of the amount under $3 million, 0.50% of the next
$47 million and 0.25% thereafter. On sales at net asset value to
a participant-directed qualified retirement plan initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mututla Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under #3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%.
<PAGE>
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AT REDUCED SALES
CHARGES. Consult your investment dealer or Putnam Mutual Funds
for details about Putnam's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Group Sales
Plan, Employee Benefit Plans and other plans. Descriptions are
also included in the order form and in the Statement of
Additional Information. Shares may be sold at net asset value to
certain categories of investors , and the CDSC may be waived
under certain circumstances . See "How to buy Class A and B
shares General" below.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within six years of
purchase. No sales charge is imposed on increases in net asset
value above the initial purchase price. The following types of
shares may be redeemed without charge at any time: (i) shares
acquired by reinvestment of distributions and (ii) shares
otherwise exempt from the CDSC, as described below. Subject to
the foregoing exclusions, the amount of the charge is determined
as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. Therefore when a share is
redeemed, any increase in its value above the initial purchase
price is not subject to any CDSC. The amount of the CDSC
will depend on the number of years since you invested and the
dollar amount being redeemed, according to the following table:
CONTINGENT DEFERRED
SALES CHARGE AS A
YEARS SINCE PERCENTAGE OF
PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
0 1 5.0%
1 2 4.0%
2 3 3.0%
3 4 3.0%
4 5 2.0%
5 6 1.0%
6 and thereafter NONE
In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period. For
information on how sales charges are calculated if you exchange
your shares, see "How to exchange Class A and B shares." Putnam
Mutual Funds receives the entire amount of any CDSC you pay.
CONVERSION OF CLASS B SHARES. Class B shares will automatically
convert into Class A shares at the end of the month eight years
after the purchase date, except as noted below. Class B shares
acquired by exchange from Class B shares of another Putnam fund
will convert into Class A shares based on the time of the initial
purchase. Class B shares acquired through reinvestment of
distributions will convert into Class A shares based on the date
of the initial purchase to which such shares relate. For this
purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling
or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue
to be subject to higher expenses than Class A shares for an
indefinite period.
GENERAL
The Fund may sell Class A shares and Class B shares at net asset
value without an initial sales charge or CDSC to the Fund's
current and retired Trustees (and their families), current and
retired employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, employee benefit plans of
companies with more than 750 employees, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund. In addition, the Fund may sell
shares at net asset value without an initial sales charge or a
CDSC in connection with the acquisition by the Fund of assets of
an investment company or personal holding company, and the CDSC
will be waived on redemptions of shares arising out of
death or <PAGE>
disability or in connection with certain withdrawals from IRA
or other retirement plans. Up to 12% of the value of Class B
shares subject to a Systematic Withdrawal Plan may also be
redeemed each year without a CDSC. See the Statement of
Additional Information.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund
may delay payment until the purchase price of those shares has
been collected or, if you redeem by telephone, until 15 calendar
days after the purchase date.
To eliminate the need for safekeeping, the Fund will not issue
certificates for your shares unless you request them. Putnam
Mutual Funds may, at its expense, provide additional promotional
incentives or payments to dealers that sell shares of the Putnam
funds. In some instances, these incentives or payments may be
offered only to certain dealers who have sold or may sell
significant amounts of shares or paid by dealers to their
employees based on pre-established sales levels. Certain dealers
may not sell all classes of shares.
CLASS A AND B DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The purpose of the Class A Plan is to
permit the Fund to compensate Putnam Mutual Funds for services
provided and expenses incurred by it in promoting the sale of
Class A shares of the Fund, reducing redemptions, or maintaining
or improving services provided to shareholders by Putnam Mutual
Funds or dealers. The Class A Plan provides for payments by the
Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of
the Fund's average net assets attributable to Class A shares,
subject to the authority of the Fund's Trustees to reduce the
amount of payments or to suspend the Class A Plan for such
periods as they may determine. Subject to these limitations, the
amount of such payments and the specific purposes for which they
are made shall be determined by the Trustees of the Fund. At
present, the Trustees have approved payments under the Class A
Plan at the annual rate of 0.25% of the Fund's average net assets
attributable to Class A shares for the purpose of compensating
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's Class A shares,
including payments made by it to dealers under the Service
Agreements referred to below. Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders
will be notified and this Prospectus will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after
purchase shares purchased at net asset value after March 31, 1994
by shareholders investing $1 million or more and by participant-
directed qualified retirement plans sponsored by employers with
more than 750 employees ("NAV Shares"), except for shares owned
by certain investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.20% of
such average net asset value for Class A shares outstanding as of
March 31, 1990 and 0.25% of the average net asset value of shares
acquired after that date (including shares acquired through
reinvestment of distributions). For participant-directed
qualified retirement plans initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates, Putnam Mututla Funds' paymnets to
qualifying dealers on NAV Shares are 100% of the rate stated
above if average plan assets in Putnam funds (excluding money
market funds) during the quarter are less than $20 million, 60%
of the stated rate if average plan assets are at least $20
million but less than $30 million, and 40% of the stated rate if
average plan assets are $30 million or more. For all other
participant-directed qualified retirement plans purchasing NAV
Shares, Putnam Mutual Funds makes quarterly payments to
qualifying dealers at the annual rate of 0.10% of the average net
asset value of such shares.
CLASS B DISTRIBUTION PLAN. The Class B Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate of
up to 1.00% of the Fund's average net assets attributable to
Class B shares, subject to the authority of the Trustees to
reduce the amount of payments or to suspend the Class B Plan for
such periods as they may determine. Putnam Mutual Funds also
receives the proceeds of any CDSC imposed on redemptions of such
shares.
Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell Class B shares. These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. In addition, in order
to further compensate dealers (including, for this purpose,
certain financial institutions) for services provided in
connection with sales of Class B shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class B shares which are attributable to shareholders
for whom the dealers are designated as the dealer of record.
Putnam Mutual Funds makes such payments at an annual rate of
0.25% of such average net asset value of such shares.
GENERAL. Putnam Mutual Funds may suspend or modify the payments
made to dealers described above, and such payments are subject to
the continuation of the relevant Plan described above, the terms
of Service Agreements between dealers and Putnam Mutual Funds,
and any applicable limits imposed by the National Association of
Securities Dealers, Inc.
HOW TO SELL CLASS A AND B SHARES
You can sell your Class A or Class B shares to the Fund any day
the New York Stock Exchange is open, either directly to the Fund
or through your investment dealer. The Fund will only repurchase
shares for which it has received payment.
SELLING CLASS A OR CLASS B SHARES DIRECTLY TO THE FUND. Send a
signed letter of instruction or stock power form to Putnam
Investor Services, along with any certificates that represent
shares you want to sell. The price you will receive is the next
net asset value calculated after the Fund receives your request
in proper form less any applicable CDSC. In order to receive
that day's net asset value, Putnam Investor Services must receive
your request before the close of regular trading on the New York
Stock Exchange. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain
a signature guarantee. Stock power forms are available from your
investment dealer, Putnam Investor Services and many commercial
banks. If you want your redemption proceeds sent to an address
other than your address as it appears on Putnam's records, a
signature guarantee is required. Putnam Investor Services
usually requires additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. Contact Putnam Investor Services for details.
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend repurchases, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account, unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone, in which case you may wish
to submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares which remain outstanding.
The Telephone Redemption Privilege may be modified or terminated
without notice.
SELLING CLASS A AND CLASS B SHARES THROUGH YOUR INVESTMENT
DEALER. Your dealer must receive your request before the close
of regular trading on the New York Stock Exchange to
receive that day's net asset value. Your dealer will be
responsible for furnishing all necessary documentation to Putnam
Investor Services, and may charge for its services.
HOW TO EXCHANGE CLASS A AND CLASS B SHARES
You can exchange your Class A or Class B shares for shares of the
same class of certain other Putnam funds at net asset value
beginning 15 days after purchase. Not all Putnam funds offer
more than one class of shares. If the other Putnam fund offers
only one class of shares, only Class A shares may be exchanged
for such class. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending upon when you originally
purchased the shares and using the schedule of any fund into or
from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares.
For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell Class A and B shares." The Telephone
Exchange Privilege is not available if you were issued
certificates for shares which remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders will be notified of any such action.
to the extent required by law. Consult Putnam Investor
Services before requesting an exchange. See the Statement of
Additional Information to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Long-term corporate bonds and notes, for which market quotations
are not considered readily available, are stated at fair value on
the basis of valuations furnished by a pricing service approved
by the Trustees which determines valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. Short-term investments that
will mature in 60 days or less are stated at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund distributes net investment income monthly and any net
realized capital gains at least annually. Distributions from
capital gains are made after applying any available capital loss
carryovers. A capital loss carryover is currently available.
Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B
shares because expenses attributable to Class B shares will
generally be higher.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge;
(2) receive distributions from net investment income and net
short-term capital gains in cash while reinvesting net long-term
capital gains distributions in additional shares without a sales
charge; or (3) receive all distributions in cash. You can change
your distribution option by notifying Putnam Investor Services in
writing. If you do not select an option when you open your
account, all distributions will be reinvested. All distributions
not paid in cash will be reinvested in shares of the same class
on which the distribution is paid. You will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the Fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the Fund . Similarly,
if correspondence sent by the Fund or Putnam Investor Services is
returned as "undeliverable," Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders. The
Fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis.
All Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will
be taxed as such, regardless of how long you have held the
shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions.
The Fund's transactions in foreign-currency-denominated debt
securities will likely produce a difference between its book
income and its taxable income. This difference may cause part or
all of the Fund's income distributions to constitute returns of
capital for tax purposes or, conversely, require the Fund to make
distributions exceeding book income in order to continue to
qualify as a regulated investment company.
<PAGE>
Early in each year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding
year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the Fund's investor servicing and
transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly-owned by Marsh & McLennan Companies, Inc., a publicly
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
APPENDIX
FIXED-INCOME SECURITY RATINGS
The rating services' descriptions of corporate bonds are:
MOODY'S INVESTORS SERVICE, INC.:
AAA -- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt-edge". Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
AA -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE
FOLLOWING RATING CATEGORIES.)
BAA -- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA -- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in the class.
B -- Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
STANDARD & POOR'S CORPORATION:
AAA -- Debt rated AAA have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated
issues only in small degree.
A -- Debt rated A have a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE FOLLOWING
RATING CATEGORIES.)
BBB -- Debt rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB-B-CCC --Debt rated BB, B and CCC is regarded, on balance,
as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with
the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.<PAGE>
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<PAGE>
PUTNAM HIGH YIELD TRUST
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
Differences between the typeset (printed) prospectus and the
EDGAR filing version.
1. Each interior page of the
prospectus includes the word
"prospectus" at the bottom of
the page.
2. Pagination is different in
printed prospectus.
3. Section headings and
subheadings in the printed
prospectus are printed in
boldface type with colored ink.
4. The first page of the printed
prospectus contains an
illustration of balanced
scales, Putnam's logo.
5. The last page of the printed
prospectus contains a
graphic recyclable logo.
<PAGE>
