PUTNAM HIGH YIELD TRUST
ONE POST OFFICE SQUARE, BOSTON, MA 02109
CLASS A SHARES
INVESTMENT STRATEGY: INCOME
PROSPECTUS - JANUARY 1, 1996,
AS REVISED OCTOBER 1, 1996
This prospectus explains concisely what you should know before
investing in class A shares of Putnam High Yield Trust
(the "fund") which are offered without a sales charge through
eligible employer-sponsored defined contribution plans ("defined
contribution plans") . Please read it carefully and keep it
for future reference. You can find more detailed information
about the fund in the January 1, 1996 statement of
additional information (the "SAI"), as amended from time to time.
For a free copy of the SAI or for other information,
including a prospectus regarding class A shares for other
investors, call Putnam Investor Services at 1-800- 752-
9894 . The SAI has been filed with the Securities and
Exchange Commission and is incorporated into this prospectus by
reference.
THE FUND INVESTS PRIMARILY IN LOWER-RATED BONDS, COMMONLY KNOWN
AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A
GREATER RISK OF LOSS OF PRINCIPAL AND NONPAYMENT OF INTEREST.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. The fund may also trade securities for
short-term profits. For a description of these strategies and
the related risks, see the section "How the fund pursues its
objectives" on page .
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.
PUTNAMINVESTMENTS
PUTNAM DEFINED
CONTRIBUTION PLANS<PAGE>
ABOUT THE FUND
Expenses summary ....................................
2
Financial highlights ................................ 3
Objectives .......................................... 5
How the
fund pursues its objectives . .............. 5
Risk factors .....................................
7 How
performance is shown ............................12
How the fund is
managed . ...........................13
Organization and
history . ..........................13
ABOUT YOUR INVESTMENT
How to buy
shares ..................................15
Distribution
plan....................................16
How to sell
shares . .................................17
How to exchange
shares ...............................17 How the
fund values its shares . .....................18
How the fund makes distributions to shareholders;
tax
information ...................................18
ABOUT PUTNAM INVESTMENTS, INC.
.....................19
APPENDIX..........................................2
0 Securities ratings..................................20
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing
in the fund . The following table summarizes
expenses attributable to class A shares based on
its most recent fiscal year. The example shows the
cumulative expenses attributable to a hypothetical $1,000
investment in class A shares of the fund over specified
periods.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees
0.55%
12b-1 fees
0.25%
Other expenses 0.15%
Total fund operating expenses
0.95%
The table is provided to help you understand the expenses
of investing in the fund and your share of the operating expenses
that the fund incurs. The expenses shown in the table do
not reflect the application of credits related to expense
offset arrangements that reduce certain fund expenses
.
EXAMPLE
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of
each period:
1 3 5 10
YEAR YEARS YEARS YEARS
$10 $30 $53
$117
The example does not represent past or future expense
levels , and actual expenses may be greater or less than
those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual return has
varies. The example does not reflect any charges or expenses
related to your employer's plan.
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A shares. This information has been derived from
the fund's financial statements, which have 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 1995 fiscal year are incorporated by reference into this
prospectus. The fund's annual report, which contains additional
unaudited performance information, is available without charge
upon request.FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993 1992 1991
CLASS A
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.06 $13.01 $12.76 $11.55 $10.99
INVESTMENT ACTIVITIES
Net Investment Income 1.22 1.27 1.46 1.57 1.52
Net Realized and Unrealized Gain
(Loss) on Investments (.01) (.93) .28 1.22 .66
TOTAL FROM INVESTMENT OPERATIONS 1.21 .34 1.74 2.79 2.18
LESS DISTRIBUTIONS FROM:
Net Investment Income (1.22) (1.29) (1.45) (1.56) (1.52)
In Excess of Net Investment Income -- -- (.04) -- --
Net Realized Gain on Investments -- -- -- (.02) --
Paid-in Capital (.04) -- -- -- (.10)
TOTAL DISTRIBUTIONS (1.26) (1.29) (1.49) (1.58) (1.62)
NET ASSET VALUE, END OF PERIOD $12.01 $12.06 $13.01 $12.76 $11.55
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(A) 10.76 2.46 14.50 25.50 22.47
NET ASSETS, END OF
PERIOD (in thousands)$2,997,467 $2,885,748 $3,189,948 $2,449,282 $1,832,181
Ratio of Expenses to Average
Net Assets (%) .95 .94 .92 .97 1.09
Ratio of Net Investment Income
to Average Net Assets (%) 10.27 9.82 11.27 12.63 14.18
Portfolio turnover (%) 81.70 55.00 50.90 47.05 72.53
<PAGE>
FINANCIAL HIGHLIGHTS continued ]
[ (For a share outstanding throughout the period) continued ]
YEAR ENDED AUGUST 31
1990 1989 1988 1987 1986
CLASS A
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.84 $14.57 $15.28 $15.52 $15.42
INVESTMENT ACTIVITIES:
Net Investment Income 1.64 1.89 1.82 1.91 1.96
Net Realized and Unrealized
Gain (Loss) on Investments (2.69) (.71) (.67) (.22) .34
TOTAL FROM INVESTMENT OPERATIONS (1.05) 1.18 1.15 1.69 2.30
LESS DISTRIBUTIONS FROM:
Net Investment Income (1.67) (1.86) (1.86) (1.93) (2.20)
In Excess of Net Investment Income -- -- -- -- --
Net Realized Gain on Investments (.02) (.05) -- -- --
Paid-in Capital (.11) -- -- -- --
TOTAL DISTRIBUTIONS (1.80) (1.91) (1.86) (1.93) (2.20)
NET ASSET VALUE, END OF PERIOD $10.99 $13.84 $14.57 $15.28 $15.52
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) + (7.58) 8.47 8.25 11.34 15.76
NET ASSETS, END OF PERIOD
(In Thousands) $1,651,544 $2,415,203 $2,390,123 $2,287,344 $2,361,819
Ratio of Expenses to Average
Net Assets (%) .95 .72 .61 .61 .57
Ratio of Net Investment Income to
Average Net Assets (%) 13.76 13.15 12.38 12.15 12.34
Portfolio Turnover (%) 47.64 51.03 75.38 92.81 77.21
+ Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
/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 THE FUND PURSUES ITS OBJECTIVES
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 INVESTMENT MANAGEMENT,
INC., THE FUND'S INVESTMENT MANAGER ("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. Although these
smaller companies may present greater opportunities for capital
appreciation, they may also include greater risks than larger,
more established issuers.
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 ("S&P"). 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 S&P or in any unrated security which Putnam
Management determines is of at least comparable quality.
Securities in the rating categories below Baa by Moody's and BBB
by S&P are considered to be of poor standing and predominantly
speculative. Securities rated Caa by Moody's or CCC by S&P 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 objectives 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 fund 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 with those in the United States.
The securities of some foreign companies are less liquid and at
times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally
higher than those in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the recovery
of fund assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the
value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be 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
investments in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign
securities.
The risks described above are typically increased for investments
in securities principally traded in, or issued by issuers located
in, underdeveloped and developing nations, which are sometimes
referred to as "emerging markets."
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 SAI.
RISK FACTORS
THE VALUES OF FIXED-INCOME SECURITIES FLUCTUATE IN RESPONSE TO
CHANGES IN INTEREST RATES. A decrease in interest rates will
generally result in an increase in the value of the fund's
assets. Conversely, during periods of rising interest rates, the
value of the fund's assets will generally decline. The magnitude
of these fluctuations generally is greater for securities with
longer maturities. However, the yields on such securities are
also generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of
their issuers.
Changes by recognized rating services in their ratings of a
fixed-income security and changes in the ability of an issuer to
make payments of interest and principal may also affect the value
of these investments. Changes in the value of portfolio
securities generally will not affect income derived from these
securities, but will affect the fund's net asset value.
INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE
RISKS OF OWNING SHARES OF A MUTUAL FUND THAT INVESTS PRIMARILY 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 at
times may be unable to establish the fair value of such
securities.
The rating assigned to a security by Moody's or S&P does not
reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
The table below shows the percentages of fund net assets
invested during fiscal 1995 in securities assigned to the
various rating categories by S&P, or if unrated by S&P, assigned
to comparable rating categories by Moody's, and in unrated
securities determined by Putnam Management to be of comparable
quality:
<PAGE>
UNRATED SECURITIES OF
RATED SECURITIES, COMPARABLE QUALITY,
AS PERCENTAGE OF AS PERCENTAGE OF
RATING NET ASSETS NET ASSETS
"AAA" 1.28% 0.08%
"AA" 0.53% --
"A" 1.91% 0.11%
"BBB" 0.49% 0.09%
"BB" 12.61% 0.31%
"B" 38.33% 13.85%
"CCC" 5.25% --
"CC" 0.21% --
"C" 0.51% --
------ ------
61.12% 14.44%
====== ======
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
the fund invests in securities in the lower rating categories,
the achievement of the fund's goals is more dependent on Putnam
Management's ability than would be the case if the fund were
investing in securities in the higher rating categories.
The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
The fund may invest in securities of smaller companies. The
securities of smaller companies may involve greater risks than
the securities of larger, more established issuers. They may
have limited product lines, markets or financial resources, or
may depend on a limited management group. Their securities may
trade less frequently and in more limited volume than the
securities of larger, more established companies. As a result,
the price of these securities may fluctuate more erratically, and
to a greater degree, than the prices of the securities of other
larger issuers.
At times, a substantial portion of fund assets may be invested in
securities as to which the fund, by itself or together with other
funds and accounts managed by Putnam Management and its
affiliates, holds all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, the fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing the fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, the fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase the fund's operating expenses and adversely affect the
fund's net asset value.
Certain securities held by the fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
The fund at times may invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or
in additional bonds. The values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds that pay
interest in cash 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 nonetheless is required to accrue interest income on these
investments and to distribute the interest income at least
annually to shareholders. Thus, the fund could be required at
times to liquidate other investments in order to satisfy its
distribution requirements.
The fund may invest in participations and assignments of fixed
and floating rate loans made by financial institutions to
governmental or corporate borrowers. Participations and
assignments involve the additional risk that the institution's
insolvency could delay or prevent the flow of payments on the
underlying loan to the fund. The fund may have limited rights to
enforce the terms of the underlying loan, and the liquidity of
loan participations and assignments may be limited. See the SAI.
INVESTMENTS IN PREMIUM SECURITIES
At times, the fund may invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity.
The fund does not amortize the premium paid for these securities
in calculating its net investment income. As a result, the
purchase of premium securities provides the fund a higher level
of investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the 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 that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of 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 the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in the
fund, investors may find it useful to compare the fund's current
dividend rate with 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."
ILLIQUID SECURITIES
THE FUND MAY INVEST UP TO 15% OF ITS ASSETS IN ILLIQUID
SECURITIES. Putnam Management believes that opportunities to
earn high yields may exist from time to time in securities which
are illiquid and which may be considered speculative. The sale
of these securities is usually restricted under federal
securities laws. As a result of illiquidity, the fund may not be
able to sell these securities when Putnam Management considers it
desirable to do so or may have to sell them at less than fair
market value.
PORTFOLIO TURNOVER
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions 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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the 10
most recent fiscal years are shown in the section "Financial
highlights."
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE IN THE FOLLOWING INVESTMENT PRACTICES,
EACH OF WHICH INVOLVES CERTAIN SPECIAL RISKS. THE SAI CONTAINS
MORE DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING
LIMITATIONS DESIGNED TO REDUCE THESE RISKS.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk 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.
DERIVATIVES
Certain of the instruments in which the fund will invest, such as
foreign currency forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying
asset, such as a security or foreign currency. Further
information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the
SAI.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP 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.* They also prohibit the fund from 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 Trustees (or the person
designated by the 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 Trustees (or the person
designated by the Trustees to make such determinations) to be
readily marketable), and in repurchase agreements maturing in
more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text
of these policies and the fund's other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies described in this prospectus and in the SAI are not
fundamental policies. The Trustees may change any non-
fundamental investment 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
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of the class on the last
day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for financial reporting
purposes. SEC regulations require that net investment income be
calculated on a "yield-to-maturity" basis, which has the effect
of amortizing any premiums or discounts in the current market
value of fixed income securities. The current dividend rate is
based on the net investment income as determined for tax
purposes, which may not reflect amortization in the same manner.
See "How the fund pursues its objectives -- Investments in
premium securities."
"Total return" for the one-, five- and ten-year periods (or for
the life of the class A shares of the Fund , if
shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of
$1,000 in the fund invested at the maximum public offering
price . Total return may also be presented for other
periods or based on investment at reduced sales charge levels.
Any quotation of investment performance not reflecting the
maximum initial sales charge would be reduced if the
sales charge were used.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO NOT PREDICT
FUTURE PERFORMANCE.
Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the
fund's portfolio, the fund's operating expenses and which class
of shares the investor purchases. 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 with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance may be
compared to that of various indexes. See the SAI. Because
shares sold through eligible defined contribution plans are sold
without a sales charge, quotations of investment performance
reflecting the deduction of a sales charge will be lower than the
actual investment performance on shares purchased through such
plans.
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.
The fund pays Putnam Management a quarterly fee for these
services based on the fund's average net assets. See "Expenses
summary" and the SAI.
The following officer of Putnam Management have had
primary responsibility for the day-to-day management of the
fund's portfolio since the year stated below:
BUSINESS EXPERIENCE
YEAR (AT LEAST 5 YEARS)
------ --------------- ----
Jennifer E. Leichter
1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Rosemary H. Thomsen Employed as an investment
Senior Vice President 1995 professional by Putnam
Management since 1986.
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 be divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees determine. The fund's shares are not currently
divided into series. The fund's share are currently
divided into three classes. Only the fund's class A shares
are offered by this prospectus. The fund also
offers other classes of shares with different sales
charges and expenses. Because of these different sales charges
and expenses, the investment performance of the classes will
vary. For more information, including your eligibility to
purchase any other class of shares, contact your investment
dealer or Putnam Mutual Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when otherwise 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
Agreement and 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.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one
at any time, which could apply to both present and future
shareholders.
THE 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, Massachusetts Institute of Technology; JAMESON ADKINS
BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN, Vice
Chairman, North American Management Corp.; JOHN A. HILL,
Chairman and Managing Director, First Reserve
Corporation; RONALD J. JACKSON, Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc., Director of
Safety 1st, Inc., Trustee of Salem Hospital and Overseer of the
Peabody Essex Museum; ELIZABETH T. KENNAN, President Emeritus
and Professor, Mount Holyoke College; LAWRENCE J. LASSER,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.; ROBERT
E. PATTERSON, Executive Vice President and Director of
Acquisitions , Cabot Partners Limited Partnership; DONALD S.
PERKINS,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; GEORGE PUTNAM, III,* President,
New Generation Research, Inc.; ELI SHAPIRO, Alfred P. Sloan
Professor of Management, Emeritus, Alfred P. Sloan School
of Management, Massachusetts Institute of Technology; A.J.C.
SMITH,* Chairman and Chief Executive Officer , Marsh
& McLennan Companies, Inc.; and W. NICHOLAS THORNDIKE, Director
of various corporations and charitable organizations, including
Data General Corporation, Bradley Real Estate, Inc. and
Providence Journal Co. Also, Trustee of Massachusetts General
Hospital and Eastern Utilities Associates. The Trustees
are also Trustees of the other Putnam funds. Those marked with
an asterisk (*) are or may be deemed to be "interested persons"
of the fund, Putnam Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH
YOUR EMPLOYER'S PARTICIPANT-DIRECTED RETIREMENT PLAN. FOR
MORE INFORMATION ABOUT HOW TO PURCHASE SHARES OF THE FUND
THROUGH YOUR EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT
MAY BE PURCHASED, PLEASE CONSULT YOUR EMPLOYER. Shares are sold
to eligible participant-directed retirement plans at the net
asset value per share next determined after receipt of an order
by Putnam Mutual Funds . Orders must be received by
Putnam Mutual Funds before the close of regular trading on the
New York Stock Exchange in order to receive that
day's net asset value . A participant-directed
retirement plan is eligible to purchase fund shares
at net asset value if it invests at least $20 million in
Putnam funds and other investments managed by Putnam Management
and its affiliates and (i) has at least 200 eligible
employees or (ii) invests at least $1 million in class A
shares. A participant-directed qualified retirement plan is also
eligible to purchase fund shares at net asset value if its
investment in class A shares is at least $1 million and the
dealer of record waives its commission with the consent
of Putnam Mutual Funds . Defined contribution plans
participating in a "multi-fund" program approved by
Putnam Mutual Funds may include amounts invested in other
mutual funds participating in such program for purposes of
determining whether the plan may purchase class A shares
at net asset value. Eligible plans may make
additional investments of any amount at any time. To eliminate
the need for safekeeping, the fund will not issue certificates
for your shares .
On sales at net asset value to a participant-directed qualified
retirement plans initially investing at least $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates , Putnam Mutual Funds pays
commissions on the initial investment and on subsequent net
quarterly sales at the rate of 0.15%. Putnam Mutual Funds will
from time to time, at its expense provide additional
promotional incentives or payments to dealers that sell shares of
the Putnam funds. These incentives or payments may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives
and their guests to locations within and outside the United
States for meetings or seminars of a business nature. In some
instances, these incentives or payments may be offered only to
certain dealers who have sold or may sell significant amounts of
shares. Certain dealers may not sell all classes of shares.
DISTRIBUTION PLAN
The class A plan provides for payments by the fund to
Putnam Mutual Funds at the annual rate of up to 0.35% of average
net assets attributable to class A shares. The Trustees
currently limit payments under the class A plan to the annual
rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value, known as "NAV shares," by
shareholders investing $1 million or more. Also excluded until
one year after purchase are NAV shares purchased by participant-
directed qualified retirement plans with at least 200 eligible
employees. NAV shares are not subject to the one-year exclusion
provision in cases where certain shareholders who invested $1
million or more have made arrangements with Putnam Mutual Funds
and the dealer of record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.20% of such average net asset
value for class A shares outstanding as of March 31, 1990 and
0.25% of such 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 Mutual Funds' payments 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 under $30 million, and 40% of
the stated rate if average plan assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing 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.
Payments under the plan are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are subject to the continuation of the
distribution plan, the terms of service agreements
between dealers and Putnam Mutual Funds, and any applicable
limits imposed by the National Association of Securities Dealers,
Inc.
HOW TO SELL SHARES
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S PLAN,
YOU CAN SELL YOUR SHARES THROUGH THE PLAN TO THE FUND
ANY DAY THE NEW YORK STOCK EXCHANGE IS OPEN . For more
information about how to sell shares of the fund
through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Your plan administrator must send a signed letter of
instruction to Putnam Investor Services . The
price you will receive is the next net asset value calculated
after the fund receives your request in proper form . All
requests must be received by the fund prior to the close of
regular trading on the New York Stock Exchange in order to
receive that day's net asset value . If your plan
sells shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee.
THE FUND GENERALLY PROVIDES PAYMENT FOR REDEEMED
SHARES THE BUSINESS DAY AFTER THE REQUEST IS RECEIVED.
Under unusual circumstances, the fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by
federal securities law. The fund will only redeem shares for
which it has received payment .
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you
can exchange your shares for shares of other Putnam funds
available through your plan at net asset value .
Contact your plan administrator or Putnam Investor
Services on how to exchange your shares or how to
obtain prospectuses of other Putnam funds in which you may
invest .
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interest of the
fund, the fund reserves the right to revise or terminate the
exchange privilege, limit the amount or numbers of
exchanges or reject any exchange. Shareholders would be notified
of any such action to the extent required by law. Consult Putnam
Investor Services before requesting an exchange. See the SAI to
find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN.
Portfolio securities for which market quotations are readily
available are valued at market value. 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 valued at amortized cost, which
approximates market value. All other securities and assets are
valued at their fair value following procedures approved by the
Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; 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.
The terms of your plan will govern how your plan may receive
distributions from the fund. Generally, periodic
distributions from the fund to your plan are reinvested in
additional fund shares , although your plan may permit you to
receive fund distributions from net investment income
in cash while reinvesting capital gains
distributions in additional shares or to receive
all fund distributions in cash. If another option
is not selected , all distributions will be reinvested in
additional fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal
taxes on income and gains it distributes . The fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, fund
distributions are taxable 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 your shares. However, distributions
by the fund to employer-sponsored defined contribution
plans that qualify for tax-exempt treatment under federal
income tax laws will not be taxable . Special
tax rules apply to investments through such plans. You should
consult your tax adviser to determine the suitability of the fund
as an investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the fund) from such a plan .
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).<PAGE>
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 Defined Contribution Plans is a
division of Putnam Mutual 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 located at One Post Office Square,
Boston, Massachusetts 02109 and 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
SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
(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
other good and bad times over the future. Uncertainty of
position characterizes bonds in this 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
BONDS
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher - rated categories.
(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE FOLLOWING
RATING CATEGORIES.)
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for bonds in higher -
rated categories.
BB-B-CCC-CC-C -- Debt rated`BB',`B',`CCC',`CC' and`C' is
regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. `BB'
indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service
payments are continued.
