-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQhUK2uaPqYyB1DGoY1M22najI4+kXyZJ63Bv1yolLcw06FXVItFzCZfsfeA5VYE DPC8zNPWnch+7lO4WmO13g== 0000869392-97-000043.txt : 19970701 0000869392-97-000043.hdr.sgml : 19970701 ACCESSION NUMBER: 0000869392-97-000043 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970630 EFFECTIVENESS DATE: 19970630 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM FUNDS TRUST CENTRAL INDEX KEY: 0001005942 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-00515 FILM NUMBER: 97632364 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07513 FILM NUMBER: 97632365 BUSINESS ADDRESS: STREET 1: ONE POST STREET 2: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921010 MAIL ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 485BPOS 1 DEFINITIVE INFORMATION As filed with the Securities and Exchange Commission on June 30 , 1997 Registration No. 333-515 811-7513 - ----------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM N-1A ---- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / ---- ---- Pre-Effective Amendment No. / / ---- ---- Post-Effective Amendment No. 5 / X / and ---- ---- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X / ACT OF 1940 ---- ---- Amendment No. 7 / X / (Check appropriate box or boxes) ---- --------------- PUTNAM FUNDS TRUST (Exact name of registrant as specified in charter) One Post Office Square, Boston, Massachusetts 02109 (Address of principal executive offices) Registrant's Telephone Number, including Area Code (617) 292-1000 -------------- It is proposed that this filing will become effective (check appropriate box) ---- / / immediately upon filing pursuant to paragraph (b) - ---- ---- / X / on July 27 , 1997 pursuant to paragraph (b) - ---- ---- / / 60 days after filing pursuant to paragraph (a) (1) - ---- ---- / / on (date) pursuant to paragraph (a) (1) - ---- ---- / / 75 days after filing pursuant to paragraph (a) (2) - ---- ---- / / on (date) pursuant to paragraph (a) (2) of Rule 485. - ---- If appropriate, check the following box: ---- / / this post-effective amendment designates a new - ---- effective date for a previously filed post-effective amendment. -------------- JOHN R. VERANI, Vice President PUTNAM FUNDS TRUST One Post Office Square Boston, Massachusetts 02109 (Name and address of agent for service) --------------- Copy to: JOHN W. GERSTMAYR, Esquire ROPES & GRAY One International Place Boston, Massachusetts 02110 --------------------- The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 notice is not required because each series of the Registrant , Putnam Equity Fund 97, Putnam High Yield Total Return and Putnam International Growth and Income, with a fiscal year end of June 30, 1997, have not yet completed their initial fiscal year. --------------------- PUTNAM FUNDS TRUST PUTNAM HIGH YIELD TOTAL RETURN FUND CROSS REFERENCE SHEET (as required by Rule 481(a)) Part A N-1A Item No. Location 1. Cover Page....................... Cover page 2. Synopsis......................... Expenses summary 3. Condensed Financial Information.. Financial highlights; How performance is shown 4. General Description of Registrant....................... Objective; How the fund pursues its objective; Organization and history 5. Management of the Fund........... Expenses summary; How the fund is managed; About Putnam Investments, Inc. 5A. Management's Discussion of Fund Performance............. Not applicable 6. Capital Stock and Other Securities....................... Cover page; Organization and history; How the fund makes distributions to shareholders; tax information 7. Purchase of Securities Being Offered.......................... How to buy shares; Distribution plans; How to sell shares; How to exchange shares; How the fund values its shares 8. Redemption or Repurchase......... How to buy shares; How to sell shares; How to exchange shares; Organization and history 9. Pending Legal Proceedings........ Not applicable Part B N-1A Item No. Location 10. Cover Page....................... Cover page 11. Table of Contents................ Cover page 12. General Information and History.. Organization and history (Part A) 13. Investment Objectives and Policies......................... How the fund pursues its objective (Part A); Investment restrictions; Miscellaneous investment practices 14. Management of the Registrant..... Management (Trustees; Trustee fees; Officers); Additional officers 15. Control Persons and Principal Holders of Securities............ Management (Trustees; Officers); Charges and expenses (Share ownership) 16. Investment Advisory and Other Services......................... Organization and history (Part A); Management (Trustees; Officers; The management contract; Principal underwriter; Investor servicing agent and custodian); Charges and expenses; Distribution plans; Independent accountants and financial statements 17. Brokerage Allocation............. Management (Portfolio transactions); Charges and expenses 18. Capital Stock and Other Securities....................... Organization and history (Part A); How the fund makes distributions to shareholders; tax information (Part A); Suspension of redemptions 19. Purchase, Redemption, and Pricing of Securities Being Offered...... How to buy shares (Part A); How to sell shares (Part A); How to exchange shares (Part A); How to buy shares; Determination of net asset value; Suspension of redemptions 20. Tax Status....................... How the fund makes distributions to shareholders; tax information (Part A); Taxes 21. Underwriters..................... Management (Principal underwriter); Charges and expenses 22. Calculation of Performance Data.. How performance is shown (Part A) ; Investment performance; Standard performance measures 23. Financial Statements............. Independent accountants and financial statements (unaudited) Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. This Post-Effective Amendment relates solely to the Registrant's Putnam High Yield Total Return Fund Series. This filing amends only the prospectus and statement of additional information for Putnam High Yield Total Return Fund. Information relating to other series of the Registrant contained in the Registrant's Registration Statement is neither amended nor superseded by this Post-Effective Amendment. PROSPECTUS July 30 , 1997 Putnam High Yield Total Return Fund Class A, B and M shares INVESTMENT OBJECTIVE: TOTAL RETURN INVESTMENT STRATEGY: INCOME This prospectus explains concisely what you should know before investing in Putnam High Yield Total Return Fund (the "fund"), a portfolio of Putnam Funds Trust (the "Trust"). Please read it carefully and keep it for future reference. You can find more detailed information in the July 30 , 1997 statement of additional information (the "SAI"), as amended from time to time. For a free copy of the SAI or other information, call Putnam Investor Services at 1-800-225-1581. The SAI has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated into this prospectus by reference. The Commission maintains a Web site (http://www.sec.gov) that contains the SAI, material incorporated by reference into this prospectus and the SAI, and the other information regarding registrants that file electronically with the Commission. 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. 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 AMOUNT INVESTED. BOSTON * LONDON * TOKYO ABOUT THE FUND Expenses summary ................................................................ This section describes the sales charges, management fees, and annual operating expenses that apply to various classes of the fund's shares. Use it to help you estimate the impact of transaction costs on your investment over time. Financial highlights ............................................................. .... Study this table to see, among other things, how the fund performed each year for the past 10 years or since it began investment operations if it has been in operation for less than 10 years. Objective ................................................................ Read this section to make sure the fund's objective is consistent with your own. How the fund pursues its objective ................................................................ This section explains in detail how the fund seeks its investment objective. Risk factors. All investments entail some risk. Read this section to make sure you understand the risks that are associated with an investment in the fund. How performance is shown ................................................................ This section describes and defines the measures used to assess fund performance. All data are based on past investment results and do not predict future performance. How the fund is managed ................................................................ Consult this section for information about the fund's management, allocation of its expenses, and how purchases and sales of securities are made. Organization and history ................................................................ In this section, you will learn when the fund was introduced, how it is organized, how it may offer shares, and who its Trustees are. ABOUT YOUR INVESTMENT Alternative sales arrangements ................................................................ Read this section for descriptions of the classes of shares this prospectus offers and for points you should consider when making your choice. How to buy shares ................................................................ This section describes the ways you may purchase shares and tells you the minimum amounts required to open various types of accounts. It explains how sales charges are determined and how you may become eligible for reduced sales charges on each class of shares. Distribution plans ................................................................ This section tells you what distribution fees are charged against each class of shares. How to sell shares ................................................................ In this section you can learn how to sell fund shares, either directly to the fund or through an investment dealer. How to exchange shares ................................................................ Find out in this section how you may exchange fund shares for shares of other Putnam funds. The section also explains how exchanges can be made without sales charges and the conditions under which sales charges may be required. How the fund values its shares ................................................................ This section explains how the fund determines the value of its shares. How the fund makes distributions to shareholders; tax information ................................................................. This section describes the various options you have in choosing how to receive fund dividends . It also discusses the tax status of the payments and counsels you to seek specific advice about your own situation. ABOUT PUTNAM INVESTMENTS, INC. ................................................................ Read this section to learn more about the companies that provide marketing, investment management, and shareholder account services to Putnam funds and their shareholders. APPENDIX Securities ratings About the fund EXPENSES SUMMARY Expenses are one of several factors to consider when investing. The following table summarizes your maximum transaction costs from investing in the fund and estimated expenses for the fund's first full fiscal year. The examples show the cumulative expenses attributable to a hypothetical $1,000 investment over specified periods. Class A Class B Class M shares shares shares Shareholder transaction expenses Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% NONE* 3.25%* Deferred sales charge 5.0% in the first (as a percentage year, declining of the lower of to 1.0% in the original purchase sixth year, and price or redemption eliminated proceeds) NONE** thereafter NONE Annual fund operating expenses (as a percentage of average net assets) Total fund Management 12b-1 Other operating fees+ fees expenses expenses+ - -------- ----- -------- ----------- Class A 0.72% 0.25% 0.53% 1.50% Class B 0.72% 1.00% 0.53% 2.25% Class M 0.72% 0.50% 0.53% 1.75% + after expense limitation The table is provided to help you understand the expenses of investing and your share of fund operating expenses. The expenses shown in the table do not reflect the application of credits that reduce fund expenses. The management fees shown in the table reflect an expense limitation currently in effect. In the absence of the expense limitation, estimated management fees and total fund operating expenses would have been 0.80% and 1.58%, respectively, for class A shares; 0.80% and 2.33%, respectively, for class B shares; and 0.80% and 1.83%, respectively, for class M shares. The 12b-1 fees shown in the table reflect amounts currently payable under each distribution plan. "Other expenses" are based on estimated expenses the fund expects to incur during its first full fiscal year. Examples Your investment of $1,000 would incur the following expenses, assuming 5% annual return and, except as indicated, redemption at the end of each period: 1 3 year years Class A $62 $93 Class B $73 $100 Class B (no redemption) $23 $70 Class M $50 $86 The examples do not represent past or future expense levels. 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 varies. * The higher 12b-1 fees borne by class B and class M shares may cause long-term shareholders to pay more than the economic equivalent of the maximum permitted front-end sales charge on class A shares. ** A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares that were purchased without an initial sales charge. See "How to buy shares - Class A shares." FINANCIAL HIGHLIGHTS The following table presents unaudited per share financial information for class A, B and M shares. This information should be read in conjunction with the financial statements and notes thereto which are included in the SAI and are incorporated by reference into this prospectus. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS A For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .20(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.09) Less distributions: From net investment income (.07) Net realized gain on investments -- Total distributions (.07) Net asset value, end of period $8.34 Total investment return at net asset value (%)(a) (1.10)* Net assets, end of period (in thousands) $7,817 Ratio of expenses to average net assets (%)(b) .50* Ratio of net investment income to average net assets (%) 2.41* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS B For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .18(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.11) Less distributions: From net investment income (.06) Net realized gain on investments -- Total distributions (.06) Net asset value, end of period $8.33 Total investment return at net asset value (%)(a) (1.35)* Net assets, end of period (in thousands) $8,902 Ratio of expenses to average net assets (%)(b) .75* Ratio of net investment income to average net assets (%) 2.21* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS M For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .19(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.10) Less distributions: From net investment income (.06) Net realized gain on investments -- Total distributions (.06) Net asset value, end of period $8.34 Total investment return at net asset value (%)(a) (1.15)* Net assets, end of period (in thousands) $1,045 Ratio of expenses to average net assets (%)(b) .58* Ratio of net investment income to average net assets (%) 2.39* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. OBJECTIVE Putnam High Yield Total Return Fund seeks total return through high current income and capital appreciation. The fund is not intended to be a complete investment program, and there is no assurance it will achieve its objective. HOW THE FUND PURSUES ITS OBJECTIVE Basic investment strategy The fund seeks total return by investing primarily in high- yielding, lower-rated fixed-income securities. Normally, at least 80% of the fund's assets will be invested in high yield fixed income securities (as defined below), including debt securities, convertible securities and preferred stocks. The balance of the fund's assets may be invested in any other securities that Putnam Investment Management, Inc. , the fund's investment manager ("Putnam Management") , believes are consistent with the fund's objective, including higher-rated fixed-income securities, common stocks and other equity securities. The fund may also hold a portion of its assets in cash and money market securities. Total return is a measure of the change in value of fund assets and includes both interest and dividend income earned on portfolio investments and any realized or unrealized appreciation or depreciation in the value of such investments. Accordingly, Putnam Management will select investments for the fund based on their potential for high current income, capital appreciation, or both, and will not necessarily select investments paying the highest available yield at a particular time. The fund will seek capital appreciation by investing in high yield securities and, to the limited extent noted above, equity and other securities that Putnam Management believes may appreciate in value as a result of favorable developments affecting the business or prospects of the issuer ( which may improve the issuer's financial condition and credit rating , or declines in long-term interest rates) . Putnam Management believes that opportunities for capital appreciation often exist in the securities of smaller capitalization companies although such companies may also involve greater risks than larger, more established issuers. See "Risk factors" below. Convertible securities typically provide both current income and the opportunity for capital growth through conversion to the underlying common stock or other equity securities. Because of this conversion feature, the price of a convertible security will normally vary in some proportion to changes in the price of the underlying equity security. In addition to investing in the securities of U.S. issuers, the fund may invest without limit in the securities of foreign corporate and governmental issuers. However, the fund will limit its investments in securities denominated in foreign currencies to 25% of its assets. The fund may invest in foreign issuers located both in more developed areas of the world, such as Western Europe and Japan, and in developing or "emerging markets", such as Latin America, Asia and Eastern Europe. The fund will limit its investments in emerging markets to 25% of its assets. For these purposes, a country is considered to be an "emerging market country" based on Putnam Management's evaluation of the country's level of economic development or the size and experience of its securities markets. While emerging market countries may change over time depending on market and economic conditions, Putnam Management currently believes that these countries include every country in the world except Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The fund will consider a corporate issuer to be located in an "emerging market" country if it is organized under the laws of an emerging market country and has its principal offices in such a country. Investing in emerging market countries generally involves special risks. For more information about these special risks and the risks of investing in foreign securities generally, see "Foreign investments" below and in the SAI. Fixed-income securities Differing yields on fixed-income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers of such securities. For purposes of the 80% test described above, "high yield fixed- income securities" include securities rated below Baa or BBB by a nationally recognized securities rating agency, such as Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's") , and unrated securities that Putnam Management determines are of comparable quality. Securities rated below Baa or BBB (and comparable unrated securities) are considered to be of poor standing and predominantly speculative. The fund may invest up to 15% of its assets in securities rated below CCC or Caa by each of the agencies rating the security , including securities in the lowest rating category of each rating agency (D by S&P and C by Moody's), and in unrated securities determined by Putnam Management to be of comparable quality. Such securities may be in default and are generally regarded by the rating agencies as having extremely poor prospects of ever attaining any real investment standing. The foregoing investment limitations will be measured at the time of purchase and, to the extent that a security is assigned a different rating by one or more of the various rating agencies, Putnam Management will use the highest rating assigned by any agency. The rating services' descriptions of securities in the lower rating categories, including their speculative characteristics, are included 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 securities 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 and economic conditions and interest rates. For corporate issuers, Putnam Management 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 the fund were investing primarily in securities in the higher rating categories. The fund may invest in participations and assignments of fixed and floating rate loans made by financial institutions to governmental or corporate borrowers. In addition to other risks associated with investments in debt securities, 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. Defensive strategies 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 fund assets. In implementing these defensive strategies, the fund may invest without limit in cash or money market instruments, securities issued by the U.S. government or any foreign government or their agencies or instrumentalities, or in any other securities Putnam Management considers consistent with such defensive strategies. For defensive purposes, the fund may also invest without limit in securities of issuers located in the United States. It is impossible to predict when, or for how long, these alternative strategies will be used. 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 fund assets. Conversely, during periods of rising interest rates, the value of fund 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, political 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 in lower- rated securities before making an investment. 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 or political 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 placed on such securities. In the absence of a liquid trading market for its portfolio securities the fund at times may be unable to establish the fair value of such securities. The rating assigned to a security rating agency 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 assets invested during the life of the fund in securities assigned to the various rating categories by S&P, or, if unrated by S&P, assigned to comparable rating categories by another rating agency, and in unrated securities determined by Putnam Management to be of comparable quality. Unrated securities Rated securities, of comparable quality, as percentage of as percentage of Rating net assets net assets "AAA" ----- 0.02% "AA" 0.24% 0.12% "A" 1.09% ----- "BBB" 0.76% ----- "BB" 21.12% 1.83% "B" 40.61% 9.49% "CCC" 5.76% 0.08% ----- ----- 69.58% 11.54% ===== ===== 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. 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, it may be more difficult to sell these securities when Putnam Management believes it advisable to do so or the fund 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 fund operating expenses and adversely affect its 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. 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 in cash currently. The values of zero-coupon bonds and payment-in-kind bonds are also subject to greater fluctuation in response to changes in market interest rates than bonds that pay interest in cash 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 on a current basis. Thus, the fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Certain investment grade securities in which the fund may invest share some of the risk factors discussed above with respect to lower-rated securities. For additional information regarding the risks associated with investing in securities in the lower rating categories, see the SAI. The fund may invest in companies with relatively small equity market capitalizations. These smaller companies 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, and only in the over-the- counter market or on a regional securities exchange. As a result, the prices of these securities may fluctuate more sharply than the prices of securities of other issuers. There may be less publicly available information about smaller companies or less market interest in their securities than in the case of larger companies, and it may take a longer period of time for the prices of such securities to reflect the full value of their issuers' underlying earnings potential or assets. 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 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 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 fund shares. As a result, an investor who purchases fund shares 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 its "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." 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 its portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense, 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 are shown in the section "Financial highlights." Options and futures portfolio strategies The fund may engage in a variety of transactions involving the use of options and futures contracts. The fund may purchase and sell futures contracts in order to hedge against changes in the values of securities the fund owns or expects to purchase or to hedge against interest rate changes. For example, if Putnam Management expected interest rates to increase, the fund might sell futures contracts on U.S. government securities. If rates were to increase, the value of the fund's fixed-income securities would decline, but this decline might be offset in whole or in part by an increase in the value of the futures contracts. The fund may also purchase and sell call and put options on futures contracts or on securities the fund is permitted to purchase directly, in addition to or as an alternative to purchasing and selling futures contracts. The fund may also buy and sell combinations of put and call options on the same underlying security. The fund may also engage in futures and options transactions for nonhedging purposes, such as to substitute for direct investment or to manage the effective duration. Duration is a commonly used measure of the longevity of the fund's debt instruments. Options and futures transactions involve costs and may result in losses. The effective use of options and futures strategies depends on the fund's ability to terminate options and futures positions at times when Putnam Management deems it desirable to do so. Options on certain U.S. government securities are traded in significant volume on securities exchanges. However, other options which the fund may purchase or sell are traded in the "over-the-counter" market rather than on an exchange. This means that the fund will enter into such option contracts with particular securities dealers who make markets in these options. The fund's ability to terminate options positions in the over- the-counter market may be more limited than for exchange-traded options and may also involve the risk that securities dealers participating in such transactions might fail to meet their obligations to the fund. The use of options and futures strategies for hedging purposes also involves the risk of imperfect correlation among movements in the prices of the securities underlying the futures and options purchased and sold by the fund, of the options and futures contracts themselves, and, in the case of hedging transactions, the securities which are the subject of a hedge. The fund's ability to engage in options and futures transactions and to sell related securities may be limited by tax considerations and by certain regulatory requirements. See the SAI. Foreign investments To the extent the fund invests in foreign securities denominated and traded in foreign currencies, the values of fund assets may be affected favorably or unfavorably by currency exchange rates relative to the U.S. dollar. As a way of seeking to reduce this risk, the fund will not invest more than 25% of its assets in securities denominated in currencies other than the U.S. dollar. There may be less information publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to accounting standards 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 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 limited. 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, including the risks of nationalization and expropriation of assets, are typically increased to the extent that the fund invests in issuers located in emerging market countries (as described above). Investments in securities located in such countries are speculative and subject to certain special risks. Political and economic structures in many of these countries may be in their infancy and developing rapidly, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private companies. The currencies of certain emerging market countries have experienced a steady devaluation relative to the U.S. dollar, and continued devaluations may adversely affect the value of the fund's assets denominated in such currencies. Many emerging market companies have experienced substantial, and in some periods extremely high, rates of inflation for many years, and continued inflation may adversely affect the economies and securities markets of such countries. In addition, unanticipated political or social developments may affect the values of the fund's investments in these countries and the availability to the fund of additional investments in these countries. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make the fund's investments in such countries illiquid and more volatile than investments in more developed countries, and the fund may be required to establish special custodial or other arrangements before making investments in these countries. There may be little financial or accounting information available with respect to issuers located in these countries, and it may difficult as a result to assess the value or prospects of an investment in such issuers. The fund's investments may include securities issued by foreign governmental issuers through the exchange of existing commercial bank loans to such countries for new bonds in connection with debt restructuring, including Brady Bonds, which are issued under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. These securities may have no (or only limited) collateralization, and the payment of interest and principal may be dependent on the willingness and the ability of the foreign governmental issuer to make payment in accordance with the terms of the security. The fund may engage in a variety of foreign currency exchange transactions in connection with its foreign investments, including transactions involving futures contracts, forward contracts and options. For a further discussion of the risks associated with purchasing and selling futures contracts and options, see "Options and futures portfolio strategies." The SAI also contains information concerning these transactions. The decision as to whether and to what extent the fund will engage in foreign currency exchange transactions will depend on a number of factors, including prevailing market conditions, the composition of the fund's portfolio and the availability of suitable transactions. Accordingly, there can be no assurance that the fund will engage in foreign currency exchange transactions at any given time or from time to time. A more detailed explanation of foreign investments, and the risks and special tax considerations associated with them, is included in the SAI. 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 if the other party should default on its obligation and the fund is delayed or prevented from recovering the collateral or completing the transaction. Diversification The fund is a "diversified" investment company under the Investment Company Act of 1940. This means that with respect to 75% of its total assets, the fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. government securities). The remaining 25% of its total assets is not subject to this restriction. To the extent the fund invests a significant portion of its assets in the securities of a particular issuer, it will be subject to an increased risk of loss if the market value of such issuer's securities declines. Derivatives Certain of the instruments in which the fund may invest, such as futures contracts, options and 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 an index. 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 to limit investment risks for the fund's shareholders. These restrictions prohibit the fund, with respect to 75% of its total assets, from acquiring more than 10% of the voting securities of any one issuer. * They also prohibit the fund from investing more than: (a) (with respect to 75% of its total assets) 5% of its total assets in securities of any one issuer other than the U.S. government;* or (b) 25% of its total assets in any one industry (other than securities of the U.S. government, its agencies or instrumentalities);* or (c) 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 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 policy without shareholder approval. As a matter of policy, the Trustees would not materially change the fund's investment objective without shareholder approval. HOW PERFORMANCE IS SHOWN Fund advertisements may, from time to time, include performance information. "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 tax 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 net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "How the fund pursues its objective -- Investments in premium securities." Yield is based on the price of the shares, including the maximum initial sales charge in the case of class A and class M shares, but does not reflect any contingent deferred sales charge in the case of class B shares. "Total return" for the one-, five- and ten-year periods (or for the life 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 invested at the maximum public offering price (in the case of class A and class M 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. Any quotation of investment performance not reflecting the maximum initial sales charge or contingent deferred 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, portfolio composition, fund operating expenses and which class of shares the investor purchases. Investment performance also often reflects the risks associated with the fund's investment objective 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. Fund performance may be compared to that of various indexes. See the SAI. HOW THE FUND IS MANAGED The Trustees are responsible for generally overseeing the conduct of fund 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 average net assets. See "Expense summary" and the SAI. The following officers of Putnam Management have had primary responsibility for the day-to-day management of the fund's portfolio since the years stated below: Business experience Year (at least 5 years) ------- ------------------------- Gail S. Attridge 1997 Employed as an investment Vice President professional by Putnam Management since 1993. Prior to November, 1993, Ms. Attridge was an Analyst at Keystone Custody International. Jin W. Ho 1996 Employed as an investment Managing Director professional by Putnam Management since 1983. Charles G. Pohl 1996 Employed as an investment Vice President professional by Putnam Management since 1983 . The fund pays all expenses not assumed by Putnam Management, including Trustees' fees, and 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). Expenses of the Trust directly charged or attributable to a fund will be paid from the assets of that fund. General expenses of the Trust will be allocated among and charged to the assets of the funds and any other portfolio of the Trust on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of the funds or the nature of the services performed and relative applicability to each fund. The fund also reimburses Putnam Management for the compensation and related expenses of certain fund officers and their staff who provide administrative services. The total reimbursement is determined annually by the Trustees. Putnam Management places all orders for purchases and sales of fund 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 fund shares (and, if permitted by law, shares of the other Putnam funds) as a factor in the selection of broker-dealers. The fund pays a quarterly fee to Putnam Management based on the average net assets of the fund, as determined at the close of each business day during the quarter, at the following annual rates, expressed as a percentage of the fund's average net assets: 0.80% of the first $500 million of average net assets, 0.70% of the next $500 million, 0.65% of the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion; and 0.53% of any amount over $21.5 billion. In order to limit the fund's expenses during its start-up period, Putnam Management has agreed to limit its compensation (and, to the extent necessary, bear other expenses) through December 31 , 1997, to the extent that expenses of the fund (exclusive of brokerage, interest, taxes, deferred organizational and extraordinary expense, and payments under the fund's distribution plans) would exceed 1.25% of the fund's average net assets. For the purpose of determining any such limitation on Putnam Management's compensation, fund expenses shall not reflect the application of commissions or cash management credits that may reduce designated fund expenses. With Trustee approval, this expense limitation may be terminated earlier, in which event shareholders would be notified and this prospectus would be revised. ORGANIZATION AND HISTORY Putnam Funds Trust is a Massachusetts business trust organized on January 22, 1996. 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 Trust is an open-end, diversified management investment company with an unlimited number of authorized shares of beneficial interest. The Trustees may, without shareholder approval , create two or more series of shares representing separate investment portfolios. The Trust is currently divided into two series of shares representing separate investment portfolios. Only shares of Putnam High Yield Total Return Fund are offered by this prospectus. Any such series of shares 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 currently divided into three classes. Only class A, B and M shares are offered by this prospectus. The fund may also offer 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 all classes will vote together as a single class without regard to series or classes of shares on all matters except, (i) when required by the Investment Company Act of 1940 or when the Trustees have determined that the matter affects the interests of one or more series or classes materially differently, shares will be voted by individual series or class; and (ii) when the Trustees have determined that the matter affects only the interest of one or more series or classes, only shareholders of that series or class shall be entitled to vote thereon. 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 Trust 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 the 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 Trust'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 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.; 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 ALTERNATIVE SALES ARRANGEMENTS 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 certain sales at net asset value that are subject to a contingent deferred sales charge ("CDSC"). Certain purchases of class A shares qualify for reduced sales charges. Class A shares bear a lower 12b-1 fee than class B and class M shares. See "How to buy shares -- Class A shares" and "Distribution plans." Class B shares. Class B shares are sold without an initial sales charge, but are subject to a CDSC if redeemed within a specified period after purchase. Class B shares also bear a higher 12b-1 fee than class A and class M shares. Class B shares automatically convert into class A shares, based on relative net asset value, approximately eight years after purchase. For more information about the conversion of class B shares, see the SAI. This discussion includes information about how shares acquired through reinvestment of distributions are treated for conversion purposes. The discussion also notes certain circumstances under which a conversion may not occur. 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. Until conversion, class B shares will have a higher expense ratio and pay lower dividends than class A and class M shares because of the higher 12b-1 fee. See "How to buy shares - -- Class B shares" and "Distribution plans." Class M shares. An investor who purchases class M shares pays a sales charge at the time of purchase that is lower than the sales charge applicable to class A shares. Certain purchases of class M shares qualify for reduced sales charges. Class M shares bear a 12b-1 fee that is lower than class B shares but higher than class A shares. Class M shares are not subject to any CDSC and do not convert into any other class of shares. See "How to buy shares -- Class M shares" and "Distribution plans." Which arrangement is best 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 or class M 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. Shares may only be exchanged for shares of the same class of another Putnam fund. See "How to exchange shares." HOW TO BUY 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 shares through Putnam Mutual Funds. Complete an order form and write a check for the amount you wish to invest, payable to the fund. Return the completed form and check to Putnam Mutual Funds, which will act as your agent in purchasing shares through your designated investment dealer. Buying shares through systematic investing. You can make regular investments of $25 or more per month through automatic deductions from your bank checking or savings account. Application forms are available from your investment dealer or through Putnam Investor Services. Shares are sold at the public offering price based on the net asset value next determined after Putnam Investor Services receives your order. In most cases, in order to receive that day's public offering price, Putnam Investor Services must receive your order before the close of regular trading on the New York Stock Exchange. If you buy shares through your investment dealer, the dealer must receive your order before the close of regular trading on the New York Stock Exchange to receive that day's public offering price. Class A shares The public offering price of class A shares is the net asset value plus a sales charge that varies depending on the size of your purchase. The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, in its discretion, allocates the entire amount to your investment dealer. Sales charge Amount of as a percentage of: sales charge ------------------- reallowed to Net dealers as a Amount of transaction amount Offering percentage of at offering price ($) invested price offering price - ----------------------------------------------------------------- Under 50,000 4.99% 4.75% 4.25% 50,000 but under 100,000 4.71 4.50 4.00 100,000 but under 250,000 3.63 3.50 3.00 250,000 but under 500,000 2.56 2.50 2.25 500,000 but under 1,000,000 2.04 2.00 1.75 - ----------------------------------------------------------------- No initial sales charge applies to purchases of class A shares of $1 million or more , or to purchases by employer-sponsored retirement plans that have at least 200 eligible employees. However, a CDSC of 1.00% or 0.50%, respectively, is imposed on redemptions of these shares within the first or second year after purchase , unless the dealer of record waived its commission with Putnam Mutual Funds' approval, or unless the purchaser is a class A qualified benefit plan (a retirement plan for which Putnam Fiduciary Trust Company provides recordkeeping or other services in connection with the purchase of class A shares ). Class A qualified benefit plans may purchase class A shares with no initial sales charge. However, a CDSC of 1.00% is imposed on redemptions of these shares if, within two years of the plan's initial purchase of class A shares, it redeems 90% or more of its cumulative purchases. Thereafter, such a plan is no longer liable for any CDSC. Class A qualified benefit plans that initially invest at least $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates pursuant to a proposal made by Putnam Mutual Funds on or before April 15, 1997 are not subject to any CDSC. A class A qualified benefit plan 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. These investments will also be included for purposes of the discount privileges and programs described elsewhere in this prospectus and in the SAI. As described in the SAI, Putnam Mutual Funds pays the dealer of record a commission of up to 1% on sales to class A qualified benefit plans. Putnam Mutual Funds pays investment dealers of record commissions on sales of class A shares of $1 million or more and sales of class A shares to employer-sponsored retirement plans that have at least 200 eligible employees and that are not class A qualified benefit plans based on an investor's cumulative purchases during the one-year period beginning with the date of the initial purchase at net asset value. Each subsequent one- year measuring period for these purposes will begin with the first net asset value purchase 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 $47 million and 0.25% thereafter. Class B shares Class B shares are sold without an initial sales charge, although a CDSC will be imposed if you redeem shares within a specified period after purchase, as shown in the table below. Year 1 2 3 4 5 6 7+ - ------------------------------------------------------------- Charge 5% 4% 3% 3% 2% 1% 0% Putnam Mutual Funds pays a sales commission equal to 4.00% of the amount invested to dealers who sell class B shares. These commissions are not paid on exchanges from other Putnam funds or on sales to investors exempt from the CDSC. Class M shares The public offering price of class M shares is the net asset value plus a sales charge that varies depending on the size of your purchase. The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, at its discretion, allocates the entire amount to your investment dealer. Sales charge Amount of as a percentage of: sales charge ------------------- reallowed to Net dealers as a Amount of transaction amount Offering percentage of at offering price ($) invested price offering price - ----------------------------------------------------------------- Under 50,000 3.36% 3.25% 3.00% 50,000 but under 100,000 2.30 2.25 2.00 100,000 but under 250,000 1.52 1.50 1.25 250,000 but under 500,000 1.01 1.00 1.00 500,000 and above NONE NONE NONE Sales charges will not apply to class M shares purchased with redemption proceeds received within the prior 90 days from non- Putnam mutual funds on which the investor paid a front-end or a contingent deferred sales charge. Class M qualified retirement plans (retirement plans for which Putnam Fiduciary Trust Company provides recordkeeping or other services in connection with the purchase of class M shares) and members of qualified groups may also purchase class M shares without a sales charge. General You may be eligible to buy fund shares at reduced sales charges or to sell fund shares without a CDSC . 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, qualified benefit plans , and other plans. Descriptions are also included in the order form and in the SAI. The fund may sell class A, class B and class M shares at net asset value without an initial sales charge or a CDSC to 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, 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. The CDSC will be waived on redemptions of shares arising out of the death or post-purchase disability of a shareholder or settlor of a living trust account, and on redemptions in connection with certain withdrawals from IRA or other retirement plans. Up to 12% of the value of shares subject to a systematic withdrawal plan may also be redeemed each year without a CDSC. The SAI contains additional information about purchasing shares at reduced sales charges. Shareholders of other Putnam funds may be entitled to exchange their shares for, or reinvest distributions from their funds in, fund shares at net asset value. If you are considering redeeming 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 or transfer. Otherwise, payment may be delayed 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, certificates will not be issued for your shares unless you request them. In determining whether a CDSC is payable on any redemption, shares not subject to any charge will be redeemed first, followed by shares held longest during the CDSC period. Any CDSC will be based on the lower of the shares' cost and net asset value. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from the CDSC. Thus, when you redeem a share that has appreciated in value during the CDSC period, a CDSC is assessed on its initial purchase price. Any shares acquired by reinvestment of distributions will be redeemed without a CDSC. For information on how sales charges are calculated if you exchange your shares, see "How to exchange shares." Putnam Mutual Funds receives the entire amount of any CDSC you pay. See the SAI for more information about the CDSC. 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 PLANS The fund has adopted distribution plans to compensate Putnam Mutual Funds for services provided and expenses incurred by it as principal underwriter of fund shares, including the payments to dealers described below and in the SAI. The plans provide for payments by the fund to Putnam Mutual Funds at annual rates (expressed as a percentage of average net assets ) of up to 0.35% on class A shares and 1.00% on class B and class M shares. The Trustees currently limit payments on class A and class M shares to 0.25% and 0.50% of average net assets, respectively. Putnam Mutual Funds compensates qualifying dealers (including, for this purpose, certain financial institutions) for sales of shares and the maintenance of shareholder accounts. Putnam Mutual Funds makes quarterly payments to dealers at the annual rate of up to 0.25% of the average net asset value of class A shares (including shares acquired through reinvestment of distributions) for which such dealers are designated as the dealer of record. The payments to dealers for shares held by class A qualified benefit plans are made at reduced rates, as described in the SAI. No payments are made during the first year after purchase on shares purchased at net asset value by shareholders investing $1 million or more or by employer-sponsored retirement plans that have at least 200 eligible employees or that are class A qualified benefit plans, unless the shareholder has made arrangements with Putnam Mutual Funds and the dealer of record has waived the sales commission. Putnam Mutual Funds makes quarterly payments to dealers at the annual rates of 0.25% and 0.40% of the average net asset value of class B and class M shares for which such dealers are designated as the dealer of record , respectively . Putnam Mutual Funds may suspend or modify its payments to dealers. The payments are also subject to the continuation of the relevant 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 You can sell your 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 redeem shares for which it has received payment. Selling shares directly to your 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 SAI 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. Your fund generally sends you payment for your shares the business day after your 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. You may use Putnam's Telephone Redemption Privilege to redeem shares valued up to $100,000 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 this event, 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 shares that remain outstanding. The Telephone Redemption Privilege may be modified or terminated without notice. Selling 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 you for its services. HOW TO EXCHANGE SHARES You can exchange your shares for shares of the same class of certain other Putnam funds at net asset value. Not all Putnam funds offer all classes of shares. 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. The CDSC will be computed 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. The form is available from 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 shares." The Telephone Exchange Privilege is not available if you were issued certificates for shares that 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 Putnam Management or the Trustees believe doing so would be in the best interests of your fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. 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. 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. Securities quoted in foreign currencies are translated into U.S. dollars at current exchange rates or at such other rates as the Trustees may determine in computing net asset value. As a result, fluctuations in the value of such currencies in relation to the U.S. dollar may affect the net asset value of fund shares even though there has not been any change in the values of such securities as quoted in such foreign currencies. HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION The fund distributes any net investment income at least monthly and any net realized capital gains at least annually. Distributions paid on class A shares will generally be greater than those paid on class B and class M shares because expenses attributable to class B and class M shares will generally be higher. You can choose from three distribution options: - - Reinvest all distributions in additional shares without a sales charge; - - Receive distributions from net investment income in cash while reinvesting capital gains distributions in additional shares without a sales charge; or - - 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 class on which the distributions are paid. You will receive a statement confirming reinvestment of distributions in additional 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 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. Fund distributions will be taxable to you as ordinary income, except that any distributions of net long-term capital gains will be taxable 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. Fund investments in foreign securities may be subject to withholding taxes at the source on dividend or interest payments. In that case, the fund's yield on those securities would be decreased. If at the end of the fund's fiscal year more than 50% of the value of its total assets represents securities of foreign corporations, the fund intends to make an election permitted by the Internal Revenue Code to treat any foreign taxes paid by it as paid by its shareholders. In this case, shareholders who are U.S. citizens, U.S. corporations and, in some cases, U.S. residents generally will be required to include in U.S. taxable income their pro rata share of such taxes, but may then generally be entitled to claim a foreign tax credit or deduction (but not both) for their share of such taxes. Fund transactions in foreign currencies and hedging activities may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in value of the foreign currency concerned. In addition, such activities will likely produce a difference between book income and taxable income. This difference may cause a portion of the fund's income distributions to constitute a return of capital for tax purposes or require the fund to make distributions exceeding book income to qualify as a regulated investment company for tax purposes. Investment in an entity that qualifies as a "passive foreign investment company" under the Code could subject the fund to a U.S. federal income tax or other charge on certain "excess distributions" with respect to the investment, and on the proceeds from disposition of the investment. Early in each year Putnam Investor Services will notify you of the amount and tax status of distributions paid to you 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 custodian of the fund. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the investor servicing and transfer agent for the fund. 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. SECURITIES RATINGS The following rating services describe rated securities as follows: 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. 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 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. Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 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 higher 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. 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 in higher rated categories. BB-B-CCC-CC-C -- Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. 'BB' indicates the lowest 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 a bankruptcy petition has been filed, but debt service payments are continued. D -- Bonds rated 'D' are in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used on the filing of a bankruptcy petition if debt service payments are jeopardized. Duff & Phelps Corporation Long-Term Debt AAA -- Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A+, A, A- -- Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress. BBB+, BBB, BBB- -- Below-average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles. BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+, B, B- -- Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade. CCC -- Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Fitch Investors Service, Inc. AAA -- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA -- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. A -- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB -- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB -- Bonds considered to be speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B -- Bonds are considered highly speculative. Bonds in this class are lightly protected as to the obligor's ability to pay interest over the life of the issue and repay principal when due. CCC -- Bonds have certain characteristics which, with passing of time, could lead to the possibility of default on either principal or interest payments. CC -- Bonds are minimally protected. Default in payment of interest and/or principal seems probable. C -- Bonds are in actual or imminent default in payment of interest or principal. DDD -- Bonds are in default and in arrears in interest and/or principal payments. Such bonds are extremely speculative and should be valued only on the basis of their value in liquidation or reorganization of the obligor. PUTNAM HIGH YIELD TOTAL RETURN FUND 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 L.L.P. One Post Office Square Boston, MA 02109 PUTNAMINVESTMENTS One Post Office Square Boston, Massachusetts 02109 Toll-free 1-800-225-1581 PUTNAM HIGH YIELD TOTAL RETURN FUND FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION ("SAI") July 30 , 1997 This SAI is not a prospectus and is only authorized for distribution when accompanied or preceded by the prospectus of the fund dated July 30 , 1997, as revised from time to time. This SAI contains information which may be useful to investors but which is not included in the prospectus. If the fund has more than one form of current prospectus, each reference to the prospectus in this SAI shall include all of the fund's prospectuses, unless otherwise noted. The SAI should be read together with the applicable prospectus. Investors may obtain a free copy of the applicable prospectus from Putnam Investor Services, Mailing address: P.O. Box 41203, Providence, RI 02940-1203. Part I of this SAI contains specific information about the fund. Part II includes information about the fund and the other Putnam funds. Table of Contents Part I INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . I- 3 CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . .I-5 INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . . I- 8 ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . . I- 9 INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . . I- 9 Part II MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-29 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-34 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-44 HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-45 DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-57 INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-58 SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-64 SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-64 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-64 STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-65 COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-66 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-71 INVESTMENT RESTRICTIONS As fundamental investment restrictions, which may not be changed without a vote of a majority of the outstanding voting securities, the fund may not and will not: (1) Borrow money in excess of 10% of the value (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) at the time the borrowing is made, and then only from banks as a temporary measure to facilitate the meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. Such borrowings will be repaid before any additional investments are purchased. (2) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under certain federal securities laws. (3) Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. (4) Purchase or sell commodities or commodity contracts, except that the fund may purchase and sell financial futures contracts and options and may enter into foreign exchange contracts and other financial transactions not involving physical commodities. (5) Make loans, except by purchase of debt obligations in which the fund may invest consistent with its investment policies, by entering into repurchase agreements, or by lending its portfolio securities. (6) With respect to 75% of its total assets, invest in the securities of any issuer if, immediately after such investment, more than 5% of the total assets of the fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities. (7) With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer. (8) Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities) if, as a result of such purchase, more than 25% of the fund's total assets would be invested in any one industry. (9) Issue any class of securities which is senior to the fund's shares of beneficial interest, except for permitted borrowings. Although certain of the fund's fundamental investment restrictions permit it to borrow money to a limited extent, the fund does not currently intend to do so and has not done so since its inception . The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of the fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding fund shares, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding fund shares are represented at the meeting in person or by proxy. It is contrary to the fund's present policy, which may be changed without shareholder approval, to: Invest in (a) securities which are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the Trust (or the person designated by the Trustees of the Trust to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of the fund's net assets (taken at current value) would be invested in securities described in (a), (b) and (c) above. ---------------------------- All percentage limitations on investments (other than pursuant to the non-fundamental restriction above) will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. ---------------------------- CHARGES AND EXPENSES Trustee fees Each Trustee receives a fee for his or her services. Each Trustee also receives fees for serving as Trustee of other Putnam funds. The Trustees periodically review their fees to assure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Trustees meet monthly over a two-day period, except in August. The Compensation Committee, which consists solely of Trustees not affiliated with Putnam Management and is responsible for recommending Trustee compensation, estimates that Committee and Trustee meeting time together with the appropriate preparation requires the equivalent of at least three business days per Trustee meeting. The following table shows the year each Trustee was first elected a Trustee of the Putnam funds, the estimated fees to be paid to each Trustee by the fund for fiscal 1997 and the fees paid to each Trustee by all of the Putnam funds during calendar 1996: COMPENSATION TABLE Pension or Estimated Total Estimated retirement annual benefits compensation compensation benefits accrued from all from all from the as part of Putnam funds Putnam Trustees/Year fund(1) fund expenses(2) upon retirement(3)funds(4) Jameson A. Baxter/1994 $62 $0 $85,646 $172,291(5) Hans H. Estin/1972 $62 $0 85,646 171,291 John A. Hill/1985 $62 $0 85,646 170,791(5) Ronald J. Jackson/1996(6) $62 $0 85,646 94,807(5) Elizabeth T. Kennan/1992 $62 $0 85,646 171,291 Lawrence J. Lasser/1992 $62 $0 85,646 169,791 Robert E. Patterson/1984 $62 $0 85,646 182,291 Donald S. Perkins/1982 $62 $0 85,646 170,291 William F. Pounds/1971(7) $63 $0 98,146 197,291 George Putnam/1957 $62 $0 85,646 171,291 George Putnam, III/1984 $62 $0 85,646 171,291 A.J.C. Smith/1986 $62 $0 85,646 169,791 W. Nicholas Thorndike/1992 $62 $0 85,646 181,291 (1) Includes an annual retainer and an attendance fee for each meeting attended. (2) The Trustees approved a Retirement Plan for Trustees of the Putnam funds on certain retired Trustees. (3) Assumes that each Trustee retires at the normal retirement date. Estimated benefits for each Trustee are based on Trustee fee rates in effect during calendar 1996. (4) As of December 31, 1996, there were 96 funds in the Putnam family. (5) Includes compensation deferred pursuant to a Trustee Compensation Deferral Plan. (6) Elected as a Trustee in May 1996. (7) Includes additional compensation for service as Vice Chairman of the Putnam funds. Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"), each Trustee who retires with at least five years of service as a Trustee of the funds is entitled to receive an annual retirement benefit equal to one-half of the average annual compensation paid to such Trustee for the last three years of service prior to retirement. This retirement benefit is payable during a Trustee's lifetime, beginning the year following retirement, for a number of years equal to such Trustee's years of service. A death benefit is also available under the Plan which assures that the Trustee and his or her beneficiaries will receive benefit payments for the lesser of an aggregate period of (i) ten years or (ii) such Trustee's total years of service. The Plan Administrator (a committee comprised of Trustees that are not "interested persons" of the fund, as defined in the Investment Company Act of 1940) may terminate or amend the Plan at any time, but no termination or amendment will result in a reduction in the amount of benefits (i) currently being paid to a Trustee at the time of such termination or amendment, or (ii) to which a current Trustee would have been entitled had he or she retired immediately prior to such termination or amendment. For additional information concerning the Trustees, see "Management" in Part II of this SAI. Share ownership As of May 31, 1997, the officers and Trustees of the Trust as a group own 1.81% of the outstanding class A shares and less than 1% of the outstanding class B and class M shares , and, except as noted below, to the knowledge of the fund, no person owned of record or beneficially 5% or more of any class of shares of the fund: Shareholder name Percentage Class and address owned ----- -------------------- -------- M Donaldson, Lufkin, Jenrette, Inc. 11.10% P.O. Box 2052 Jersey City, NJ 07303-2052 M Carl J. Fink 6.90% 4017 S.E. Vineyard Rd. Apt. 337 Portland, OR 97267 M Merril Lynch, Pierce Fenner & Smith 6.89% 4800 Deer Lake Dr. E. Fl. 3 Jacksonville, FL 32246 M Sarah S. Grey 5.50% 816 W. Summit Street Lead, SD 57754 INVESTMENT PERFORMANCE Standard performance measures (for periods ended April 30, 1997) Class A Class B Class M Inception date: 1/2/97 1/2/97 1/2/97 Annualized total return+ Life of class* -5.76 -6.25% -4.41% Yield++ 30-day Yield 6.78% 6.43% 6.64% * Represents cumulative, rather than average annual, total return + Reflects an expense limitation in effect, in the absence of the expense limitation, total return would have been lower. ++ Reflecting an expense limitation then in effect. In the absence of the expense limitation, the fund's yield for class A, class B and class M shares would have been 6.80%, 5.56% and 6.20% , respectively. Data represent past performance and are not indicative of future results. Total return and yield for class A and class M shares reflect the deduction of the maximum sales charge of 4.75% and 3.25%, respectively. Total return for class B shares reflects the deduction of the applicable contingent deferred sales charge ("CDSC"). The maximum class B CDSC is 5.0%. See "Standard performance measures" in Part II of this SAI for information on how performance is calculated. Past performance is no guarantee of future results. ADDITIONAL OFFICERS In addition to the persons listed as officers of the Trust in Part II of this SAI, each of the following persons is also a Vice President of the Trust and certain of the other Putnam funds, the total number of which is noted parenthetically. Officers of Putnam Management hold the same offices in Putnam Management's parent company, Putnam Investments, Inc. Officer Name (Age) (Number of funds) Jin W. Ho (39) (3 funds). Managing Director of Putnam Management. Edward H. D'Alelio (44) (4 funds). Managing Director of Putnam Management. Charles G. Pohl (35) (3 funds). Senior Vice President of Putnam Management. Gail S. Attridge (36) (9 funds). Vice President of Putnam Management. Prior to November 1993, Ms. Attridge was an Analyst at Keystone Custody International. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Coopers & Lybrand, L.L.P., are the fund's independent accountants, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The following are the fund's unaudited financial statements for the period January 2, 1997 (commencement of operations) to April 30, 1997. 6 Putnam High Yield Total Return Fund Portfolio of investment s owned April 30, 1997 (Unaudited ) Corporate Bonds and Notes (60.1%) (a) PRINCIPAL VALUE AMOUNT Advertising (0.3%) $ Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 50,000 49,860 Aerospace and Defense (0.1%) 15,000 L-3 Communications Corp. 144A sr. sub. notes 10 15,450 3/8s, 2007 10,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 9,800 Agriculture (1.8%) 25,250 299,734 Premium Standard Farms, Inc. sr. secd. notes 11s, 319,217 2003 (PIK) Apparel (0.1%) 25,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 24,750 Automotive (2.4%) 200,000 A.P.S Inc. company guaranty 11 7/8s, 2006 200,000 25,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 25,625 75,000 Exide Corp. sr. notes 10s, 2005 75,938 50,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 22,500 80,000 Hawk Corp. sr. notes 10 1/4s, 2003 80,600 15,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 15,150 2007 419,813 Broadcasting (4.0%) 50,000 Capstar Broadcasting 144A sr. disc. notes stepped- 27,875 coupon zero % (12 3/4s, 2/1/02), 2009 (STP) 150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero % 103,500 (11.2s, 11/15/00), 2007(Bermuda) (STP) 272,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon 173,400 zero % (13 1/4s, 5/15/01), 2008(Mexico) (STP) 150,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes 124,125 stepped-coupon zero % (13 1/2s, 8/1/99), 2004 (STP) 10,000 RBS Participacoes S.A. 144A company guaranty 11s, 10,098 2007(Brazil) 25,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 26,188 3/4s, 2006 15,000 Spanish Broadcasting Systems 144A sr. notes 11s, 15,075 2004 125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 125,000 10,000 TCI Satellite Entertainment 144A sr. sub. notes 10 9,500 7/8s, 2007 50,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 49,188 2007(Mexico) 50,000 Young Broadcasting Inc. company guaranty Ser. B, 47,250 9s, 2006 711,199 Building and Construction (3.0%) 100,000 Consumers International 144A sr. notes 10 1/4s, 103,000 2005 5,000 Continental Homes Holding Corp. sr. notes 10s, 2006 4,925 75,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 74,250 125,000 Presley Cos. sr. notes 12 1/2s, 2001 120,938 100,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 105,000 50,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 54,938 75,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 78,750 541,801 Cable Television (1.5%) 60,000 Adelphia Communications Corp. 144A sr. notes 9 56,700 7/8s, 2007 50,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 48,750 2005 125,000 Diamond Cable Communication Co. sr. disc. notes 86,563 stepped-coupon zero % (11 3/4s, 12/15/00), 2005(United Kingdom) (STP) 115,000 Diamond Cable Communications Co. 144A sr. disc. 68,425 notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (STP) 260,438 Chemicals (0.8%) 25,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 24,750 120,000 NL Industries, Inc. sr. notes stepped-coupon zero % 110,850 (13s, 10/15/98), 2005 (STP) 135,600 Connecticut (0.4%) 50,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 65,500 1/2s, 2002 Consumer Products (0.4%) 100,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 65,500 2001 Consumer Services (2.6%) 25,000 Affinity Group Holdings 144A sr. notes 11s, 2007 25,625 20,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 19,800 2009 50,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 55,000 26,375 Falcon Holdings Group, Inc. sr. sub. notes 11s, 22,946 2003 (PIK) 125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 129,375 10,000 Hollinger International Publishing, Inc. company 9,875 guaranty 8 5/8s, 2005 200,000 Sun International Hotels Ltd. 144A sr. sub. notes 197,500 9s, 2007 460,121 Electronics and Electrical Equipment (1.0%) 20,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 17,666 11.74s, 2008 165,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 166,650 10 1/8s, 2007 184,316 Entertainment (1.2%) 50,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 47,500 2004 Food (0.3%) 50,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 49,000 45,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 46,575 50,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 50,625 75,000 Trump A.C. 1st mtge. 11 1/4s, 2006 72,938 219,138 Food and Beverage (0.9%) 50,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 53,125 Forest Products (0.3%) 5,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 5,150 150,000 Doane Products Co. sr. notes 10 5/8s, 2006 156,000 161,150 Health Care (2.1%) 50,000 Gaylord Container Corp. sr. sub. disc. deb. 12 53,750 3/4s, 2005 (STP) Insurance and Finance (3.5%) 10,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 10,000 150,000 Integrated Health Services sr. sub. notes 10 3/4s, 160,500 2004 150,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 141,750 55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 54,725 366,975 Insurance and Finance (3.5%) 225,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 209,250 10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 10,000 2027 150,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 150,000 2003 125,000 Imperial Credit Industries, Inc. 144A sr. notes 9 115,000 7/8s, 2007 25,000 Provident Capital Trust company guaranty 8.6s, 2026 24,125 50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 36,000 50,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 51,375 2003 10,000 Sovereign Capital Trust 144A company guaranty 9s, 9,750 2027 10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 10,206 615,706 Medical Supplies and Devices (0.4%) 75,000 Wright Medical Technology, Inc. sr. secd. notes 75,750 Ser. B, 10 3/4s, 2000 Metals and Mining (1.7%) 10,000 Acindar Industria Argentina de Aceros S.A. bonds 11 10,150 1/4s, 2004(Argentina) 10,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 10,125 2004(Mexico) 15,000 Continental Global Group 144A sr. notes Ser. A, 15,450 11s, 2007 10,000 Echo Bay Mines jr. sub. deb. 11s, 2027(Canada) 9,850 50,000 Maxxam Group Holdings sr. nores Ser. B, 12s, 2003 50,500 150,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 150,750 2006(Canada) 50,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 50,500 297,325 Oil and Gas (6.1%) 125,000 Cliffs Drilling Co. company guaranty Ser. B, 10 129,688 1/4s, 2003 100,000 Falcon Drilling Co., Inc. sr. notes Ser. B, 9 3/4s, 102,000 2001 50,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 58,125 50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 51,750 5,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 4,750 50,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 53,250 50,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 51,375 2006 25,000 Transamerican Refining 144A 15s, 1998 25,000 600,000 Transamerican Refining Corp. var. rate 1st mtge. 556,500 zero % (18.5s 2/15/98), 2002 (STP) 50,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 55,625 1,088,06 3 Packaging and Containers (0.5%) 15,000 Innova S De R.L. 144A sr. notes 12 7/8s, 14,775 2007(Mexico) 75,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 81,469 96,244 Paper and Forest Products (1.0%) 50,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 51,000 50,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 48,000 2003 50,000 Repap New Brunswick sr. notes 10 5/8s, 2005(Canada) 47,000 25,000 Riverwood International Corp. company guaranty 10 23,500 1/4s, 2006 169,500 Publishing (0%) 5,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 4,825 2007(Canada) Real Estate (0.1%) 20,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 20,400 2007 Recreation (3.3%) 50,000 Alliance Gaming Corp. 12 7/8s, 2003 53,938 150,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 134,250 100,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 99,000 2003 (PIK) 150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 153,750 150,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 150,000 590,938 Retail (1.6%) 100,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 97,000 50,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 52,000 10,000 Quality Food Centers, Inc. 144A sr. sub. notes 9,850 8.7s, 2007 125,000 Supermercados Norte 144A bonds 10 7/8s, 2004 125,000 (Argentina) 10,000 William Carter Co. 144A sr. sub. notes 12s, 2008 10,200 294,050 Telecommunications (10.3%) 125,000 Arch Communications Group sr. disc. notes stepped- 56,875 coupon zero % (10 7/8s, 3/15/01), 2008 (STP) 50,000 Brooks Fiber Properties, Inc. sr. disc. notes 32,750 stepped-coupon zero % (10 7/8s, 3/1/01), 2006 (STP) 225,000 Cencall Communications Corp. sr. disc. notes 166,500 stepped-coupon zero % (10 1/8s, 1/15/99), 2004 (STP) 75,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 75,656 25,000 Charter Communications International, Inc. sr. 25,813 notes Ser. B, 11 1/4s, 2006 10,000 Consorcio Ecuatoriano 144A notes 14s, 2002 10,100 (Ecuador) 150,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 144,000 2007 25,000 Frontiervision Operating Partners L.P. sr. sub. 25,063 notes 11s, 2006 150,000 GST Telecommunications, Inc. company guaranty 93,000 stepped-coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 25,000 Hyperion Telecommunication Corp. sr. disc. notes 12,750 stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 275,000 Intelcom Group (USA), Inc. company guaranty stepped- 163,625 coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 100,000 Intermedia Communications, Inc. sr. disc. notes 64,500 stepped-coupon zero % (12 1/2s, 5/15/01), 2006 (STP) 150,000 International Cabletel, Inc. sr. notes stepped- 98,250 coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 40,000 International Cabletel, Inc. 144A sr. notes 10s, 39,100 2007 85,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon 48,663 zero % (10 1/2s, 3/1/02), 2007 (STP) 50,000 MFS Communications sr. disc. notes stepped-coupon 37,927 zero % (8 7/8s, 1/1/01), 2006 (STP) 275,000 Millicom International Cellular S.A. sr. disc. 192,500 notes stepped-coupon zero % (13 1/2s, 6/1/01), 2006(Luxembourg) (STP) 100,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 99,000 2002 50,000 NEXTEL Communications, Inc. sr. disc. notes stepped- 36,375 coupon zero % (9 3/4s, 2/15/99), 2004 (STP) 150,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 117,000 25,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 19,500 50,000 Paging Network, Inc. sr. sub. notes 10s, 2008 44,500 75,000 Pricellular Wireless Corp. sr. disc. notes stepped- 77,250 coupon Ser. B, zero % (14s, 11/15/97), 2001 (STP) 50,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008(Canada) 51,375 125,000 Teleport Communications Group Inc. sr. disc. notes 85,938 stepped-coupon zero % (11 1/8s, 7/1/01), 2007 (STP) 15,000 Winstar Equipment Corp. 144A company guaranty 12 14,363 1/2s, 2004 1,832,37 3 Textiles (1.2%) 50,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped- 44,000 coupon Ser. B, zero % (14s, 7/1/99), 2004 (STP) 60,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 60,600 100,000 Polysindo International Finance company guaranty 11 105,000 3/8s, 2006(Indonesia) 209,600 Transportation (1.0%) 50,000 Atlantic Express, Inc. 144A company guaranty 10 51,250 3/4s, 2004 125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 122,500 2003(Greece) 173,750 Utilities (5.9%) 325,000 AES China Generating Co. sr. notes 10 1/8s, 333,531 2006(China) 300,000 Calpine Corp. sr. notes 10 1/2s, 2006 320,250 50,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 51,365 17-A, 9 3/8s, 2017 100,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 106,996 B, 9 1/2s, 2005 150,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 153,933 E, 9s, 2023 50,000 Niagara Mohawk Power Corp. mtge. 9 1/2s, 2000 51,793 25,000 Toledo Edison Co. med. term notes 9.22s, 2021 25,570 1,043,43 8 Total Corporate Bonds and Notes (cost $10,903,400) 10,676,96 5 Brady Bonds (11.0%) (a) PRINCIPAL VALUE AMOUNT $ 567,450 Argentina (Republic of) deb. 6.75s, 2005 $ 520,635 135,000 Argentina (Republic of) FRN Ser. L-GP, 5 1/4s, 2023 87,919 35,000 Bulgaria (Republic of) deb. Ser. PDI, 6.5625s, 2011 21,919 451,621 Brazil (Republic of) FRB 8s, 2014 (POR) 342,667 87,000 Ecuador (Government of) bonds 6.4375s, 2025 58,073 90,000 Poland (Government of) bonds 6.9375s, 2024 87,413 560,000 United Mexican States deb. Ser. A, 6 1/4s, 2019 406,700 250,000 United Mexican States FRB Ser. D, 6.35156s, 2019 221,406 238,095 Venezuela (Government of)deb. Ser. B, 6.75s, 2007 213,095 Total Brady Bonds (cost $1,973,487) 1,959,82 7 Convertible Bonds and Notes (7.6%) (a) PRINCIPAL VALUE AMOUNT Automotive (0.2%) $ Magna International cv. sub. deb. 5s, 2002 $ 23,000 25,013 Basic Industrial Products (0%) 7,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 7,770 Broadcasting (0.2%) 22,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 21,148 2005 48,000 Jacor Communications, Inc. cv. sr. notes zero %, 22,320 2011 43,468 Business Equipment and Services (0.6%) 100,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 84,250 28,000 U.S. Office Products Co. 144A cv. sub. notes 5 23,485 1/2s, 2003 107,735 Cellular Broadcasting (0.2%) 55,000 Comcast Corp. cv. notes 1 1/8s, 2007 28,050 Chemicals (0.1%) 9,000 Hercules, Inc. cv. deb. 8s, 2010 23,929 Computer Services and Software (0.1%) 25,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 21,125 Computers (0.3%) 25,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 22,719 28,000 Softkey International, Inc. 144A cv. sr. notes 5 20,825 1/2s, 2000 20,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 17,475 1/4s, 2003 61,019 Conglomerates (0.3%) 18,000 Hexcel Corp. cv. sub. notes 7s, 2003 23,490 20,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 21,575 2003 45,065 Consumer Non Durables (0.3%) 74,000 Coleman Worldwide Corp. cv. sr. sec. notes Liquid Yeild Option Note ( LYON) zero %, 2013 22,385 24,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 21,660 2007 (NON) 44,045 Consumer Services (0.5%) 60,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 14,775 20,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 21,650 55,000 Hollinger, Inc. cv. LYON zero %, 2013 20,075 22,000 Pharmaceutical Marketing Services Inc. 144A cv. 18,040 deb. 6 1/4s, 2003 16,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 15,220 2003 89,760 Electronics and Electrical Equipment (1.4%) 9,000 Diagnostic Retrieval Systems cv. sr. sub. deb. 9s, 2003 11,070 29,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 23,345 2004 29,000 Integrated Device Technology, Inc. cv. sub. notes 5 24,469 1/2s, 2002 30,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 22,275 14,000 Plasma & Materials Technologies, Inc. 144A cv. notes 9,520 7 1/8s, 2001 27,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 22,343 20,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 27,525 10,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 21,538 20,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 18,750 1/2s, 2003 23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 23,230 21,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 21,000 20,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 22,900 247,96 5 Environmental Control (0.1%) 12,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 11,850 14,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 12,110 23,960 Health Care (0.9%) 50,000 Alza Corp. cv. sub. LYON zero %, 2014 21,938 30,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 27,188 30,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 24,525 20,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 18,100 2006 18,000 Rotech Medical Corp. cv. sub. deb. 5 1/4s, 2003 15,390 22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. 21,120 deb. 9s, 2003 23,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 21,936 150,19 7 Hospital Management and Medical Services (0.1%) 19,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 20,235 2003 Insurance and Finance (0.5%) 24,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 23,010 22,000 Mitsubishi Bank Ltd. International Finance cv. trust 22,358 guaranteed notes 3s, 2002(Bermuda) 17,000 Pioneer Financial Services, Inc. cv. sub. notes 6 24,544 1/2s, 2003 40,000 USF&G Corp. cv. sub. notes zero %, 2009 26,200 96,112 Medical Supplies and Devices (0.1%) 25,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 15,031 Metals and Mining (0.1%) 20,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 20,300 Oil and Gas (0.3%) 21,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 23,730 3,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 4,361 1/4s, 2006 16,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 14,840 42,931 Paper and Forest Products (0.1%) 24,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 25,500 2000 Pharmaceuticals (0.2%) 16,000 North American Vaccine, Inc. 144A cv. sub. notes 6 15,420 1/2s, 2003 40,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 18,400 2010(Switzerland) 33,820 Pharmaceuticals and Biotechnology (0.1%) 23,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 18,113 4,000 North American Vaccine, Inc. 144A cv. sub. notes 6 3,855 1/2s, 2003 21,968 Recreation (0.4%) 100,000 Argosy Gaming cv. sub. notes 12s, 2001 71,000 Retail (0.5%) 20,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 20,425 26,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 22,653 20,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 24,325 25,000 Rite Aid Corp. cv. deb. zero %, 2006 18,375 85,778 Telecommunications (0%) 10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 8,300 1/4s, 2003 Total Convertible Bonds and Notes (cost $1,428,901) 1,360,07 6 Preferred Stocks (4.3%) (a) NUMBER OF VALUE SHARES 518 Alliance Gaming Corp. Ser. B, $15.00 pfd. (PIK) 51,800 1,159 American Radio Systems Corp. 144A $11.375 pfd. 114,451 1,798 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. 165,416 pfd.(PIK) 400 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 10,000 1,070 Chancellor Radio Broadcasting 144A $12.00 pfd. 105,930 1,500 Chevy Chase Capital Corp. Ser. A, $10.375 pfd. 72,750 127 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 115,888 25 ICG Holdings, Inc. 14.00% (Canada) 24,125 5 Intermedia Communications, Inc. 144A 13.50% pfd. 48,375 20 NTL Inc. 144A 13.00% pfd. (PIK) 19,400 800 Public Service Co. of New Hampshire $10.60 1st 18,000 mtge. pfd. 20 Spanish Broadcasting Systems 144A 14.25% pfd. 17,600 (PIK) Total Preferred Stocks (cost $795,863) 763,735 Convertible Preferred Stocks (3.6%) (a) NUMBER OF VALUE SHARES Automotive (0.1%) 170 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. 19,040 Banks (0.1%) 230 Sovereign Bancorp Inc. $3.13 cv. pfd. 17,020 Basic Industrial Products (0.1%) 170 Case Corp. $4.50 cv. pfd. ($4.50) 22,823 Broadcasting (0.2%) 342 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 18,212 360 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 16,200 34,412 Building and Construction (0.1%) 227 Greenfield Capital Trust $3.00 cv. pfd. 9,307 Business Equipment and Services (0.1%) 150 Ikon Office Solutions Inc. Ser. BB, $5.04 cv. pfd. 10,200 Computer Services and Software (0.1%) 240 Vanstar Corp. 144A $3.375 cv. pfd. 7,350 407 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 18,519 25,869 Consumer Non Durables (0.1%) 340 Corning Deleware(L.P.) $3.00 cv. pfd. 25,840 Consumer Services (0.1%) 220 Service Corp. $3.125 cv. pfd. 25,218 Food and Beverages (0.1%) 276 Chiquita Brands International, Inc. Ser. B, $3.75 16,146 cv. pfd. Insurance and Finance (1.1%) 285 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 22,515 251 American Bankers Insurance Group, Inc. Ser. B, 15,782 $3.125 cv. pfd. 575 American General Delaware Corp. $3.00 cv. pfd. 33,566 160 Devon Financing Trust $3.25 cv. pfd. 10,200 452 Finova Finance Trust $2.75 cv. pfd. 24,069 700 Matewan Bancshares, Inc. Ser. A, $3.75 cv. pfd. 16,975 385 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 22,426 120 Roosevelt Financial Group $3.25 cv. pfd. 10,230 340 St. Paul Capital LLC $3.00 cv. pfd. 20,910 400 Timet Capital Trust I 144A $3.3125 cv. pfd. 18,800 195,473 Metals and Mining (0.2%) 285 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 14,784 950 Freeport-McMoRan Copper Co., Inc. $1.25 cv. pfd. 25,650 ($1.75) 40,434 Oil and Gas (0.6%) 360 Neuvo Energy Ser. A, $2.875 cv. pfd. 16,425 435 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 23,816 360 Tejas Gas Corp. $2.65 cv. pfd. 19,260 380 Tosco Financing Trust 144A $2.875 cv. pfd. 20,995 500 Unocal Capital Trust $3.125 cv. pfd. 28,125 108,621 Real Estate (0.1%) 430 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 19,135 Retail (0.3%) 350 Ann Taylor Finance Trust $4.25 cv. pfd. 23,713 465 Kmart Financing I $3.875 cv. pfd. 26,796 50,509 Telecommunications (0.2%) 600 Airtouch Communications, Inc. Ser. C, $2.125 cv. 27,300 pfd. Total Convertible Preferred Stocks (cost $660,470) 647,347 Foreign Government Bonds and Notes (1.3%) (a) PRINCIPAL VALUE AMOUNT Bank of Foreign Economic Affairs of Russia USD (Vnesheconombank) principal loan 144A 8s, 2020 $ 305,000 (NON)(WIS)(PIK) 178,806 USD Morocco (Government of) bonds Ser. A, 6.375s, 2009 35,150 40,000 ZAR South Africa (Republic of) bonds Ser. 153, 13s, 9,980 50,000 2010 Total Foreign Government Bonds and Notes (cost 223,936 $219,478) Common Stocks (0.2%) (a) NUMBER OF VALUE UNITS 15 Advanced Radio Telecommunications units 14s, 2007 15,900 5 Anvil Holdings 144A units 13s, 2009 (PIK) 4,925 200 Colt Telecommunications Group PLC units stepped- 117,000 coupon zero % (12s, 12/15/01), 2006(United Kingdom) (STP) 25 Esat Holdings Ltd. 144A units stepped-coupon zero % 14,000 (12 1/2s, 2/1/02), 2007(Ireland) (STP) 110 Globalstar L.P. Capital units 11 3/8s, 2004 108,900 20 McCaw International Ltd. 144A units stepped-coupon 9,800 zero % (13s, 4/15/02), 2007 (STP) 50 Nextlink Communications 144A pfd. units zero % 2,350 (.14s,), 2009 (PIK)(STP) 50,000 Winstar Communications, Inc. 144A sr. disc. notes 26,000 stepped-coupon zero % (14s, 10/15/00), 2005 (STP) Total Units (cost $331,486) 298,875 Common Stocks (0.2%) (a) NUMBER OF VALUE SHARES 27,272 Capstar Broadcasting Partners (NON) 29,999 316 Catellus Development Corp. (NON) 4,661 Total Common Stocks (cost $34,711) 34,660 Warrants (0%) (a) NUMBER OF VALUE WARRANTS Expiration Date 25 Hyperion Telecommunications 144A 750 4/15/01 20 Spanish Broadcasting Systems 144A 2,200 6/30/99 Total Warrants (cost $2,700) 2,950 Short-Term Investments (8.0%) (a) PRINCIPAL VALUE AMOUNT MXP Mexican Treasury Bill zero %, April 2, 1998 $ 57,529 59,760 Interest in $473,073,000 joint repurchase agreement 1,367,000 dated April 30, 1997 with Merrill Lynch due May 1, 1997 with respect to various U.S. Treasury obligations -- maturity value of $1,367,205 for an effective yeild of 5.40%. 1,367,20 5 Total Short-Term Investments (cost $1,426,965) 1,426,96 5 total Investments (cost $17,777,461) (b) 17,395,33 6 FOOTNOTES NOTES (a) Percentages indicated are based on net assets of $17,762,038. (b) The aggregate identified cost on a tax basis is $17,777,461, resulting in gross unrealized appreciation and depreciation of $130,645 and $512,770, respectively, or net unrealized depreciation of $382,125. (NON) Non-income-producing security. (STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid and the date the fund will begin receiving interest or dividend income at this rate. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (WIS) When-issued securities (Note 1). The coupon rate will be LIBOR plus 13/16. (BRA) Brady bonds are foreign bonds collateralized by the U.S. Government. The rates are floating and are the current rates at April 30, 1997. 144A after the name of a security represents a security purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold only in transactions exempt from registration, normally to qualified institutional buyers. The accompanying notes are an integral part of these financial statements. Putnam High Yield Total Return Statement of assets and liabilities April 30,1997 (Unaudited) Assets Investments in securities, at value (identified cost $17,777,461) (Note 1) $17,395,33 6 Cash 107,295 Dividends, interest and other receivables 291,423 Receivable for shares of the fund sold 445,849 Receivable for securities sold 253,143 Receivable from Manager (Note 2) 33,864 Unamortized organization expenses (Note 1) 80,672 Total assets 18,607,582 Liabilities Payable for securities purchased 693,696 Payable for investor servicing and custodian fees 9,942 (Note 2) Payable for compensation of Trustees (Note 2) 4,000 Payable for administrative services (Note 2) 1,333 Payable for distribution fees (Note 2) 8,228 Payable for organization expenses (Note 1) 80,943 Other accrued expenses 45,893 Total liabilities 844,035 Net assets $17,763,54 7 Represented by Paid-in capital (Notes 1 and 4) $18,071,79 5 Undistributed net investment income (Note 1) 111,334 Accumulated net realized loss on investments (37,457) (Note 1) Net unrealized depreciation of investments (382,125) Total - Representing net assets applicable to capital shares outstanding $17,763,54 7 Computation of net asset value and offering price Net asset value and redemption price per class A share ($7,816,161 divided by 936,769 shares) $8.34 Offering price per class A share (100/95.25 of $8.76 $8.34)* Net asset value and offering price per class B share ($8,901,350 divided by 1,068,486 shares)** $8.33 Net asset value and redemption price per class M share ($1,044,527 divided by 125,260 shares) $8.34 Offering price per class M share (100/96.75 of $8.62 $8.34)* * On single sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements. Putnam High Yield Total Return Statement of operations Period January 2, 1997 (commencement of operations) to April 30,1997 (Unaudited) Investment income: Interest $233,411 Dividends 18,004 Total investment income 251,415 Expenses: Compensation of Manager (Note 2) 23,481 Investor servicing and custodian fees (Note 2) 19,408 Compensation of Trustees (Note 2) 4,000 Administrative services (Note 2) 1,333 Distribution fees -- Class A (Note 2) 3,185 Distribution fees -- Class B (Note 2) 15,015 Distribution fees -- Class M (Note 2) 775 Amortization of organization expenses (Note 1) 271 Reports to shareholders 6,333 Registration fees 5,456 Auditing 22,867 Legal 2,667 Postage 7,336 Other 1,703 Fees waived by Manager (Note 2) (57,345) Total expenses 56,485 Expense reduction (Note 2) (13,079) Net expenses 43,406 Net investment income 208,009 Net realized loss on investments (Notes 1 and 3) (37,457) Net unrealized depreciation of investments during (382,125 the period ) Net loss on investments (419,582) Net decrease in net assets resulting from $(211,57 operations 3) The accompanying notes are an integral part of these financial statements. Putnam High Yield Total Return Statement of changes in net assets For the period January 2, 1997 (commencement of operation) to April 30, 1997* Decrease in net assets Operations: Net investment income $208,009 Net realized loss on investments (37,457) Net unrealized depreciation of investments (382,125) Net decrease in assets resulting from operations (211,573) Distributions to shareholders: From net investment income Class A (46,942) Class B (44,326) Class M (5,407) Increase from capital share transactions (Note 4) 18,068,795 Total increase in net assets 17,760,547 Net Assets Beginning of period 3,000 End of period (including undistributed net investment income $17,763,54 of $109,825) 7 *Unaudited The accompanying notes are an integral part of these financial statements. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS A For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .20(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.09) Less distributions: From net investment income (.07) Net realized gain on investments -- Total distributions (.07) Net asset value, end of period $8.34 Total investment return at net asset value (%)(a) (1.10)* Net assets, end of period (in thousands) $7,817 Ratio of expenses to average net assets (%)(b) .50* Ratio of net investment income to average net assets (%) 2.41* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (Note 2) (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS B For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .18(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.11) Less distributions: From net investment income (.06) Net realized gain on investments -- Total distributions (.06) Net asset value, end of period $8.33 Total investment return at net asset value (%)(a) (1.35)* Net assets, end of period (in thousands) $8,902 Ratio of expenses to average net assets (%)(b) .75* Ratio of net investment income to average net assets (%) 2.21* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (Note 2) (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. Putnam High Yield Total Return Fund Financial highlights (For a share outstanding throughout the period) CLASS M For the period January 2, 1997+ Per share to April 30 operating performance (unaudited) ---------------- 1997 ---------------- Net asset value, beginning of period $8.50 Investment operations: Net investment income .19(c) Net realized and unrealized loss on investments (.29) Total from investment operations (.10) Less distributions: From net investment income (.06) Net realized gain on investments -- Total distributions (.06) Net asset value, end of period $8.34 Total investment return at net asset value (%)(a) (1.15)* Net assets, end of period (in thousands) $1,045 Ratio of expenses to average net assets (%)(b) .58* Ratio of net investment income to average net assets (%) 2.39* Portfolio turnover (%) 38.59* + Commencement of operations. * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets include amounts paid through brokerage service and expense offset arrangements. (Note 2) (c) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. Putnam High Yield Total Return Fund Notes to financial statements April 30, 1997 (Unaudited) Note 1 Significant accounting policies Putnam High Yield Total Return Fund (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks total return through high current income and capital appreciation by investing primarily in high-yielding, lower-rated fixed-income securities. The fund offers class A, class B and class M shares. Class A shares are sold with a maximum front-end sales charge of 4.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front-end sales charge of 3.25% and pay an ongoing distribution fee that is lower than class B shares and higher than class A shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported _ as in the case of some securities traded over-the-counter _ the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. . These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the effective yield method. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the security. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. E) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. F) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex- dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. G) Unamortized organization expenses Expenses incurred by the fund in connection with its organization, its registration with the Securities and Exchange Commission and with various states and the initial public offering of its shares were $80,943. These expenses are being amortized on projected net asset levels over a five-year period. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.80% of the first $500 million of the average net assets, 0.70% of the next $500 million, 0.65% of the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion, 0.53% of any amount over $21.5 billion. Putnam Management has agreed to limit its compensation (and, to the extent necessary, bear other expenses) through June 30, 1997, to the extent that expenses of the fund (exclusive of brokerage, interest, taxes, deferred organizational and extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. and payments under the Trust's distribution plan) would exceed an annual rate of 1.25% of the fund's average net assets. The fund 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 aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the period ended April 30, 1997, fund expenses were reduced by $13,079 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the fund receive an annual Trustees fee of $650 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Plan. The Fund has adopted an unfunded noncontributory defined benefit pension plan covering all Trustees of the Fund who have served as Trustee for at least five years. Benefits under the plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Trustee fees in the Statement of operations for the period ended April 30, 1997. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly- owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 0.25% and .050% of the average net assets attributable to class A, class B and class M shares respectively. Note 3 Purchase and sales of securities During the period ended April 30, 1997, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $20,253,306 and $3,911,133, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At April 30, 1997, there was an unlimited number of shares of beneficial interest authorized. For the period January 2, 1997 (commencement of operations) to April 30 1997 Class A Shares Amount Shares sold 980,136 $8,308,988 Shares issued in connection with 4,596 38,222 reinvestment of distributions 984,732 8,347,210 Shares repurchased (48,081) (406,686) Net increase 936,651 $7,940,524 For the period January 2, 1997 (commencement of operations) to April 30 1997 Class B Shares Amount Shares sold 1,153,33 $9,781,816 4 Shares issued in connection with 4,514 37,505 reinvestment of distributions 1,157,84 9,819,321 8 Shares repurchased (89,480) (749,928) Net increase 1,068,36 $9,069,393 8 For the period January 2, 1997 (commencement of operations) to April 30 1997 Class M Shares Amount Shares sold 126,277 $1,068,346 Shares issued in connection with 513 4,266 reinvestment of distributions 126,790 1,072,612 Shares repurchased (1,648) (13,734) Net increase 125,142 $1,058,878 Note 5 Initial capitalization and offering of shares The fund was established as a Massachusetts business trust on January 22, 1996. During the period January 22, 1996 to January 2, 1997, the fund had no operations other than those related to organizational matters, including the initial capital contribution of $1,000, $1,000 and $1,000 for class A, class B and class M, respectively, and $80,943 of initial organizational expenses, and the issuance of 118 shares for each class to Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc. PUTNAM FUNDS TRUST Putnam High Yield Total Return Fund FORM N-1A PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Index to Financial Statements and Supporting Schedules: (1) Statement of assets and liabilities -- April 30, 1997 (unaudited) (a)(c). Statement of operations -- For the period January 1, 1997 (commencement of operations) to April 30, 1997 (unaudited)(a)(c). Statement of changes in net assets -- For the period January 1, 1997 (commencement of operations) to April 30, 1997 (unaudited)(a)(c). Financial highlights (unaudited)(b)(c) . Notes to financial statements(a)(c). (2) Supporting Schedules: Schedule I -- Portfolio of investments owned -- April 30, 1997 (unaudited)(a)(c). Schedules II through IX omitted because the required matter is not present. (a) Incorporated by reference into Part A. (b) Included in Part A. (c) Included in Part B - ------------------ (b) Exhibits: 1. Agreement and Declaration of Trust dated January 22, 1996 -- Incorporated by reference to the Registrant's Initial Registration Statement. 2. By-Laws, as amended through January 22, 1996 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 3. Not applicable. 4a. Not applicable. 4b. Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights -- Incorporated by reference to the Registrant's Initial Registration Statement. 4c. Portions of By-Laws Relating to Shareholders' Rights -- Incorporated by reference to the Registrant's Initial Registration Statement. 5. Form of Management Contract dated June 7, 1996 as supplemented October 3, 1996 and November 1, 1996 -- Incorporated by reference to Post-Effective Amendment No. 2 to the Registrant's Registration Statement. 6a. Distributor's Contract for Class A, Class B and Class M shares dated June 7, 1996 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 6b. Copy of Specimen Dealer Sales Contract -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 6c. Copy of Specimen Financial Institution Sales Contract -- Incorporated by reference to Pre- Effective Amendment No. 2 to the Registrant's Registration Statement. 7. Trustee Retirement Plan dated October 4, 1996 -- Incorporated by reference to Post- Effective Amendment No. 4 to the Registrant's Registration Statement. 8. Copy of Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991 as amended July 13, 1992 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 9. Copy of Investor Servicing Agreement dated June 3, 1991 with Putnam Fiduciary Trust Company -- Incorporated by reference to Pre- Effective Amendment No. 2 to the Registrant's Registration Statement. 10. Opinion of Ropes & Gray, including consent -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 11. Not applicable. 12. Not applicable. 13. Investment Letter from Putnam Investments, Inc. to the Registrant -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 14a. Copy of Prototype Individual Retirement Account Plan -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 14b. Copy of Prototype Basic Plan Document and related Plan Agreements -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 15a. Class A Distribution Plan and Agreement dated June 7, 1996 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 15b. Class B Distribution Plan and Agreement dated June 7, 1996 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 15c. Class M Distribution Plan and Agreement dated June 7, 1996 -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 15d. Form of Specimen Dealer Service Agreement --Exhibit 1. 15e. Form of Specimen Financial Institution Service Agreement -- Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement. 16. Schedules for computation of performance quotations -- Exhibit 2. 17a. Financial Data Schedule for Class A shares -- Exhibit 3. 17b. Financial Data Schedule for Class B shares -- Exhibit 4. 17c. Financial Data Schedule for Class M shares -- Exhibit 5. 18. Rule 18f-3(d) Plan -- Incorporated by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement. Item 25. Persons Controlled by or under Common Control with Registrant None. Item 26. Number of Holders of Securities As of May 31, 1997, the number of record holders of each class of securities of the Registrant is as follows: Number of record holders ----------------------------------- Class A Class B Class M ------- ------- ------- 560 661 94 Item 27. Indemnification The information required by this item is incorporated herein by reference to the Registrant's Initial Registration Statement on Form N-1A under the Investment Company Act of 1940 (File No. 811-07513). Item 30. Location of Accounts and Records Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, Beverly Marcus; Registrant's investment adviser, Putnam Investment Management, Inc.; Registrant's principal underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing agent, Putnam Investor Services, a division of PFTC. The address of the Clerk, investment adviser, principal underwriter, custodian and transfer and dividend disbursing agent is One Post Office Square, Boston, Massachusetts 02109. Item 31. Management Services None. Item 32. Undertakings (a) Registrant hereby undertakes, if requested to do so by the holders of at least 10% of its outstanding shares, to call a meeting of shareholders for the purposes of voting upon the question of removal of a Trustee or Trustees and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. (b) The Registrant undertakes to furnish to each person to whom a prospectus of the Registrant is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. -------------------------- NOTICE A copy of the Agreement and Declaration of Trust of Putnam Funds Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the relevant series of the Registrant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and The Commonwealth of Massachusetts, on the 30th day of June, 1997. PUTNAM FUNDS TRUST By: Gordon H. Silver, Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement of Putnam Funds Trust has been signed below by the following persons in the capacities and on the dates indicated: Signature Title George Putnam President and Chairman of the Board; Principal Executive Officer; Trustee John D. Hughes Senior Vice President; Treasurer and Principal Financial Officer Paul G. Bucuvalas Assistant Treasurer and Principal Accounting Officer Jameson A. Baxter Trustee Hans H. Estin Trustee John A. Hill Trustee Ronald J. Jackson Trustee Elizabeth T. Kennan Trustee Lawrence J. Lasser Trustee Robert E. Patterson Trustee Donald S. Perkins Trustee William F. Pounds Trustee George Putnam, III Trustee A.J.C. Smith Trustee W. Nicholas Thorndike Trustee By: Gordon H. Silver, as Attorney-in-Fact June 30, 1997 Exhi bit Index 15d. Form of Dealer Service Agreement -- Exhibit 1. 16. Schedules for computation of performance quotations -- Exhibit 2. 17a. Financial Data Schedule for Class A shares -- Exhibit 3. 17b. Financial Data Schedule for Class B shares -- Exhibit 4. 17c. Financial Data Schedule for Class M shares -- Exhibit 5. EX-99.B1512B1PLAN 2 DEALER SERVICE AGREEMENT DEALER SERVICE AGREEMENT Between: and PUTNAM MUTUAL FUNDS CORP. General Distributor of The Putnam Family of Mutual Funds One Post Office Square Boston, MA 02109 We are pleased to inform you that, pursuant to the terms of this Dealer Service Agreement, we are authorized to pay you service fees in connection with the accounts of your customers that hold shares of certain Putnam Funds listed in SCHEDULE 1 that have adopted distribution plans pursuant to Rule 12b-1 (the "12b-1 Funds"). Payment of the service fees is subject to your initial and continuing satisfaction of the following terms and conditions which may be revised by us from time to time: 1. QUALIFICATION REQUIREMENTS (a) You have entered into a Sales Contract with us with respect to the Putnam Family of Mutual Funds (the "Putnam Funds"). (b) You are the dealer of record for accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS) during the period for which a service fee is to be paid. Putnam Fund accounts are accounts in any open-end Putnam Fund, but excluding any accounts for your firm's own retirement plans. (c) One or more of your current employees must be the designated registered representative(s) on accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE REQUIREMENTS) during the period for which a service fee is to be paid. (d) You will provide the following information and agree that we will be entitled to rely on the accuracy of such information in updating our records for determining the levels of service fees payable to you under the terms of this Agreement. You understand that such payments will be based solely on Putnam's records. For each Putnam Fund account registered in the name of one of your customers, you will advise us, preferably by electronic means, before the end of the second month in each calendar quarter, of the registered representative's name, identification number, branch number, and telephone number. 2. S ERVICE FEES (a) If you meet the qualification requirements set forth above in Paragraph 1, you will be paid a service fee on assets in the 12b-1 Funds for which you are the dealer of record and which are serviced by a registered representative of your firm meeting the Registered Representative Requirements, if any, at the annual rates specified (excluding any accounts for your firm's own retirement plans). (b) You understand and agree that: (i) all service fee payments are subject to the limitations contained in each 12b-1 Fund's Distribution Plan, which may be varied or discontinued at any time; (ii) you shall waive the right to receive service fee payments to the extent any 12b-1 Fund fails to make payments to us under its distribution plan with us; (iii) your failure to provide the services described in Paragraph 4 below as may be amended by us from time to time, or otherwise comply with the terms of this Agreement, will render you ineligible to receive service fees; and (iv) failure of an assigned registered representative to provide services required by this Agreement will render that representative's accounts ineligible as accounts on which service fees are paid. 3. P AYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES (a) You will pass through to your registered representatives a significant share of the service fees paid to you pursuant to this Agreement. (b) You will assist us in distributing to your registered representatives periodic statements which we will have prepared showing the aggregate average net asset value of shares in Putnam Funds with which they are credited on our records. 4. REQUIRED SERVICES (a) You will assign one of your registered representatives to each Putnam Fund account on your records and reassign the Putnam Fund account should that representative leave your firm. (b) You and your registered representatives will assist us and our affiliates in providing the following services to shareholders of the Putnam Funds: (i) Maintain regular contact with shareholders in assigned accounts and assist in answering inquiries concerning the Putnam Funds. (ii) Assist in distributing sales and service literature provided by us, particularly to the beneficial owners of accounts registered in your name (nominee name accounts). (iii)Assist us and our affiliates in the establishment and maintenance of shareholder accounts and records. (iv) Assist shareholders in effecting administrative changes, such as changing dividend options, account designations, address, automatic investment programs or systematic investment plans. (v) Assist in processing purchase and redemption transactions. (vi) Provide any other information or services as the customer or we may reasonably request. (c) You will support our marketing efforts by granting reasonable requests for visits to your offices by our wholesalers and by including all Putnam Funds on your "approved" list. (d) Your compliance with the service requirements set forth in this Agreement will be evaluated by us from time to time by surveying shareholder satisfaction with service, by monitoring redemption levels of shareholder accounts assigned to you and by such other methods as we deem appropriate. (e) The provisions of this Paragraph 4 may be amended by us from time to time upon notice to you. 5. AMENDMENT This Agreement, including any Schedule hereto, shall be deemed amended as provided in any written notice delivered by us to you. 6. EFFECTIVE PERIOD AND TERMINATION The provisions of this Agreement shall remain in effect for not more than one year from the date of its execution or adoption and thereafter for successive annual periods only so long as such continuance is specifically approved at least annually by the Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). This Agreement shall automatically terminate in the event of its assignment (as defined by the 1940 Act). In addition, this Agreement may be terminated at any time, without the payment of any penalty, by either party upon written notice delivered or mailed by registered mail, postage prepaid, to the other party, or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees of any 12b-1 Fund or by the vote of the holders of the outstanding voting securities of any 12b-1 Fund. 7. WRITTEN REPORTS Putnam Mutual Funds Corp. shall provide the Trustees of each of the 12b-1 Funds, and such Trustees shall review at least quarterly, a written report of the amounts paid to you under this Agreement and the purposes for which such expenditures were made. 8. MISCELLANEOUS (a) All communications mailed to us should be sent to the address listed below. Any notice to you shall be duly given if mailed or delivered to you at the address specified by you below. (b) The provisions of this Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Agreement as of the date set forth below. Dealer: ------------------------- By: ---------------------------- Authorized Signature, Title ------------------------------ ------------------------------ Address Dated: ------------------------- Please return the signed Putnam copy of this Agreement to Putnam Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203. SCHEDULE 1: THE 12B-1 FUNDS Service fees will be paid on the following Putnam Funds at the rates set forth in the Prospectus of that Fund: Putnam Adjustable Rate U.S. Government Fund Putnam American Government Income Fund Putnam Arizona Tax Exempt Income Fund Putnam Asia Pacific Growth Fund Putnam Asset Allocation Funds -Putnam Asset Allocation: Growth Portfolio -Putnam Asset Allocation: Balanced Portfolio -Putnam Asset Allocation: Conservative Portfolio Putnam Balanced Retirement Fund Putnam California Tax Exempt Income Trust -Putnam California Intermediate Tax Exempt Fund -Putnam California Tax Exempt Income Fund Putnam Capital Appreciation Fund Putnam Convertible Income-Growth Trust Putnam Diversified Equity Trust Putnam Diversified Income Trust Putnam Equity Income Fund Putnam Europe Growth Fund Putnam Federal Income Trust Putnam Florida Tax Exempt Income Fund The George Putnam Fund of Boston Putnam Global Governmental Income Trust Putnam Global Growth Fund The Putnam Fund for Growth and Income Putnam Growth and Income Fund II Putnam Health Sciences Trust Putnam High Yield Advantage Fund Putnam High Yield Trust Putnam Income Fund Putnam Intermediate Tax Exempt Fund Putnam Intermediate U.S. Government Fund Putnam Investment Funds -Putnam International New Opportunities Fund Putnam Investors Fund Putnam Massachusetts Tax Exempt Income Fund Putnam Michigan Tax Exempt Income Fund Putnam Minnesota Tax Exempt Income Fund Putnam Money Market Fund Putnam Municipal Income Fund Putnam Natural Resources Fund Putnam New Jersey Tax Exempt Income Fund Putnam New Opportunities Fund Putnam New York Tax Exempt Income Trust -Putnam New York Intermediate Tax Exempt Fund -Putnam New York Tax Exempt Income Fund Putnam New York Tax Exempt Opportunities Fund Putnam Ohio Tax Exempt Income Fund Putnam OTC Emerging Growth Fund Putnam Overseas Growth Fund Putnam Pennsylvania Tax Exempt Income Fund Putnam Preferred Income Trust Putnam Tax Exempt Income Fund Putnam Tax-Free Income Trust -Putnam Tax-Free High Yield Fund -Putnam Tax-Free Insured Fund Putnam U.S. Government Income Trust Putnam Utilities Growth and Income Fund Putnam Vista Fund Putnam Voyager Fund Putnam Voyager Fund II SCHEDULE 2: MINIMUM ASSETS DEALER FIRM REQUIREMENTS. The minimum aggregate average net asset value of all accounts in Putnam Funds specified by Paragraph 1(b) is $250,000. We will review this requirement prior to the start of each year and inform you of any changes. REGISTERED REPRESENTATIVE REQUIREMENTS. With respect to Paragraph 1(c), there is no minimum asset qualification requirement in the Putnam Funds applicable to each of your representatives. We will review this requirement prior to the start of each year and inform you of any changes. NF-57 2/7/97 EX-99.B16PERFQUOT 3 SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATION SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class A Shares Fiscal period ending: April 30, 1997 Inception date (if less than 10 years of performance): 1/1/97 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $ $ $1,000 ERV = Ending Redeemable Value $ $ $ 942.39 T = Average Annual Total Return % % -5.76%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $49,230 Expenses $ 7,512 Reimbursement $ 1,879 Average shares 855,048 NAV $ 8.34 Sales Charge 4.75% POP $ 8.76 Yield at POP 6.78% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class B Shares Fiscal period ending: April 30, 1997 Inception date (if less than 10 years of performance): 1/1/97 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $ $ $1,000 ERV = Ending Redeemable Value $ $ $ 937.48 T = Average Annual Total Return % % -6.25%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $54,745 Expenses $13,085 Reimbursement $ 5,557 Average shares 946,255 NAV $ 8.33 Maximum Contingent Deferred Sales Charge 5.0% Yield at NAV 6.43% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: PUTNAM HIGH YIELD TOTAL RETURN -- Class M Shares Fiscal period ending: April 30, 1997 Inception date (if less than 10 years of performance): 1/1/97 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $ $ $1,000 ERV = Ending Redeemable Value $ $ $ 955.82 T = Average Annual Total Return % % -4.41%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $6,144 Expenses $1,117 Reimbursement $ 483 Average shares 106,796 NAV $ 8.34 Sales Charge 3.25% POP $ 8.62 Yield at POP 6.64% EX-27.CLASSA 4 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 Putnam High Yield Total Return Fund 3 CLASS A OTHER JUN-30-1997 APR-30-1997 17,777,461 17,395,336 1,022,770 187,967 0 18,606,073 693,696 0 150,339 844,035 0 18,071,795 936,769 0 109,825 0 0 (37,457) (382,125) 17,762,038 18,004 233,411 0 44,915 206,500 (37,457) (382,125) (213,082) 0 (46,942) 0 0 980,136 (48,081) 4,596 17,759,038 0 0 0 0 23,481 0 57,994 3,961,693 8.50 .20 (.29) (.07) 0 0 8.34 .52 0 0
EX-27.CLASSB 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 Putnam High Yield Total Return Fund 3 CLASS B OTHER JUN-30-1997 APR-30-1997 17,777,461 17,395,336 1,022,770 187,967 0 18,606,073 693,696 0 150,339 844,035 0 18,071,795 1,068,486 0 109,825 0 0 (37,457) (382,125) 17,762,038 18,004 233,411 0 44,915 206,500 (37,457) (382,125) (213,082) 0 (44,326) 0 0 1,153,334 (89,480) 4,514 17,759,038 0 0 0 0 23,481 0 57,994 4,558,487 8.50 .18 (.29) (.06) 0 0 8.33 .77 0 0
EX-27.CLASSM 6
6 Putnam High Yield Total Return Fund 3 CLASS M OTHER JUN-30-1997 APR-30-1997 17,777,461 17,395,336 1,022,770 187,967 0 18,606,073 693,696 0 150,339 844,035 0 18,071,795 125,260 0 109,825 0 0 (37,457) (382,125) 17,762,038 18,004 233,411 0 44,915 206,500 (37,457) (382,125) (213,082) 0 (5,407) 0 0 126,277 (1,648) 513 17,759,038 0 0 0 0 23,481 0 57,994 482,381 8.50 .19 (.29) (.06) 0 0 8.34 .60 0 0
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