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PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PUTNAM FUNDS TRUST
PUTNAM HIGH QUALITY BOND FUND
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than Registrant)
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Fund Mergers Q&A, March 1999
THIS Q&A IS DESIGNED TO HELP YOU RESPOND TO QUESTIONS ABOUT
FORTHCOMING CHANGES INVOLVING SEVERAL PUTNAM FIXED-INCOME
FUNDS. PROPOSALS HAVE BEEN MADE TO MERGE TWO SMALLER FUNDS
INTO LARGER FUNDS. EACH ISSUE IS ADDRESSED IN A SEPARATE
SECTION BELOW.
1. Putnam High Quality Bond Fund merger
WHY IS PUTNAM HIGH QUALITY BOND FUND CLOSING?
The Trustees have approved Putnam Management's proposal
to merge this fund into Putnam American Government Income
Fund, and shareholders will vote on the proposal July 1,
1999. Consequently, the fund closed to new investors on
February 26. Existing shareholders can continue to add
to their accounts through reinvestment or purchase of
additional shares.
WHY DID PUTNAM MANAGEMENT RECOMMEND THIS MERGER?
Larger mutual funds typically have lower expense ratios
than smaller funds. Therefore, Putnam Management and the
Trustees believe merging the relatively small Putnam High
Quality Bond Fund into a larger fund with a similar
strategy and objective will be more cost-efficient and in
the best interests of shareholders.
HOW WILL SHAREHOLDERS BE AFFECTED?
Assuming the merger is approved by shareholders on July
1, 1999, it will be effective later in July. Shares of
Putnam High Quality Bond Fund will be exchanged for
shares of Putnam American Government Income Fund to
create new accounts of equal net asset value. Both funds
pay distributions monthly. The merger is not intended to
be a taxable event for shareholders.
HOW DO THE TWO FUNDS COMPARE IN TERMS OF STRATEGY AND
OBJECTIVE?
While both funds seek current income and invest primarily
in U.S. government and agency fixed-income securities,
their strategies are slightly different. Putnam American
Government Fund invests substantially all of its assets
in U.S. government and agency securities, Putnam High
Quality Bond Fund may also invest significantly in
investment-grade corporate and foreign bonds.
HOW DO THE TWO FUNDS COMPARE IN TERMS OF ASSETS?
As of March 31, 1999 Putnam American Government Income
Fund had $1,524,841,774 in assets, compared with
$372,697,199 for Putnam High Quality Bond Fund.
HOW HAS THE FUND PERFORMED? HOW HAS PUTNAM AMERICAN
GOVERNMENT FUND PERFORMED?
The fund's mix of U.S. government and high-quality
corporate securities has delivered respectable longer-
term performance (class A shares ranked 155 out of 184,
111 out of 147 and 41 out of 97 for U.S. government funds
tracked by Lipper* for the 1, 3 and 5 years ended
December 31, 1998). However, over the short term it has
lagged behind the rest of its category (class A shares
ranked 155 out of 184 funds for the 12 months ended
December 31).
Putnam American Government Income Fund, which invests
only in U.S. government and agency securities, has had
much stronger results in recent years. Its class A shares
ranked in the top quartile for the three- and five-year
periods ended December 31, 1998, finishing 32 out of 147
U.S. government funds tracked by Lipper* and 15 out of
97, respectively, although for the 10-year period it
finished 38 out of 50 funds. For the 12 months ended
December 31, it finished 47 out of 184.
Returns for the Putnam American Government Income Fund
for the 1, 5 and 10 years are as follows:
Class A Class B Class M
(NAV) (NAV) (NAV)
1 year 8.55% 7.68% 8.36%
5 years 6.87% 6.01% 6.63%
10 years 7.64% 6.77% 7.35%
*Lipper rankings are based on total return performance,
vary over time, and do not include the effects of sales
charges. Performance of other share classes will vary.
Past performance is not indicative of future results.
HAVE THERE BEEN RECENT MANAGEMENT CHANGES?
James Prusko and Jennifer Leichter were appointed
managers of the fund in the spring of 1998. This past
fall, Jennifer moved on to other responsibilities and was
replaced by two new members of Putnam's Core Fixed-Income
Group. Kevin Cronin, Chief Investment Officer of the
group's mortgage and asset-backed team, came to Putnam
from MFS Investment Management. Krishna K. Memani, who
leads the group's high-grade corporate bond team, came to
Putnam from Morgan Stanley.
Michael Martino has been lead manager of Putnam American
Government Income Fund since February of 1994. Kevin
Cronin (see above) joined the team this past fall.
HOW AND WHEN WILL SHAREHOLDERS BE NOTIFIED?
Shareholders will be sent proxies with complete
information about the proposals in mid April and asked to
return their votes by July 1.
2. Putnam High Yield Total Return Fund merger
WHY IS PUTNAM HIGH YIELD TOTAL RETURN FUND CLOSING?
The Trustees have approved Putnam Management's proposal
to merge this fund into Putnam High Yield Trust II, and
shareholders will vote on the proposal July 1, 1999.
Consequently, the fund closed to new investors on
February 26. Existing shareholders can continue to add
to their accounts through reinvestment or purchase of
additional shares.
WHY DID PUTNAM MANAGEMENT RECOMMEND THIS MERGER?
Larger mutual funds typically have lower expense ratios
than smaller funds. Therefore, Putnam Management and the
Trustees believe merging the relatively small Putnam High
Yield Total Return Fund into a larger high yield fund
will be more cost-efficient and in the best interests of
shareholders.
In addition, Putnam Management believes that investors
currently favor more income-oriented high yield funds
such as High Yield Trust II as compared to funds such as
the Total Return Fund with its total return orientation.
HOW WILL SHAREHOLDERS BE AFFECTED?
Assuming the merger is approved by shareholders on July
1, 1999, it will be effective later in July. Shares of
Putnam High Yield Total Return Fund will be exchanged for
shares of Putnam High Yield Trust II to create new
accounts of equal net asset value. The merger is not
intended to be a taxable event for shareholders.
Both funds pay monthly distributions. The March 31, 1999
NAV yields for the the funds are as follows:
Putnam Total Return Fund
Class A: 9.27%
Class B: 8.71%
Class M: 9.18%
Putnam High Yield Trust II
Class A: 9.89%
Class B: 9.18%
Class M: 9.64%
However, the funds differ in the manner in which
distributions are accrued. Putnam High Yield Trust II
accrues a portion of each monthly distribution daily, so
shareholders who redeem before the ex-dividend date will
receive a portion of that month's distribution. Putnam
High Yield Total Return Fund's distribution is payable in
full to shareholders who held fund shares as of the
record date. Those who redeem before the date do not
receive the distribution, but its value is still
reflected in their share price and would be part of any
capital gain or loss on the sale of the shares. Shares
redeemed after the record date receive the full amount of
the distribution, which would then be taxable as ordinary
income.
HOW DO THE TWO FUNDS COMPARE IN TERMS OF ASSETS?
As of March 31, 1999, Putnam High Yield Trust II had
$1,250,489,636 in assets, compared with $111,884,858 for
Putnam High Yield Total Return.
HOW DO THE TWO FUNDS COMPARE IN TERMS OF OBJECTIVE AND
STRATEGY?
The objectives of the two funds differ to some extent.
Putnam High Yield Total Return seeks total return with
equal emphasis on capital gains and income. Putnam
High Yield Trust II seeks high current income with
growth of capital a secondary objective. Thus, Putnam
High Yield Trust II is more income oriented. The
investment policies of the two funds are similar. Each
invests at least 80% of its assets in lower rated fixed
income securities.
HOW HAS THE FUND PERFORMED? HOW HAS PUTNAM HIGH YIELD TRUST
II PERFORMED?
Returns for Putnam High Yield Trust II are as follows:
Class A Class B Class M
(NAV) (NAV) (NAV)
1 year 0.20% -0.30% 0.12%
Life 0.20% -0.30% 0.12%
HAVE THERE BEEN RECENT MANAGEMENT CHANGES?
Jennifer Leichter has been lead manager of both funds
since their inception. Robert Paine is co-lead manager of
Putnam High Yield Total Return Fund and was recently
added to the Putnam High Yield Trust II team. Jeffrey
Kaufman, a member of the Putnam High Yield Total Return
team, also recently joined the Putnam High Yield Trust II
team. Rosemary Thomsen is co-lead manager of Putnam High
Yield Trust II.
HOW AND WHEN WILL SHAREHOLDERS BE NOTIFIED?
Shareholders will be sent proxies with complete
information about the proposals in mid April and asked to
return their votes by July 1.
