<PAGE> 1
PUTNAM
HIGH YIELD
MUNICIPAL
TRUST
SEMIANNUAL REPORT
September 30, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
- As of September 30, 1994, the fund has maintained its
Morningstar rating of four stars out of a possible five.*
- "The long-term case for buying munis and muni funds is
becoming stronger. Even as tax shelters have fallen by the
wayside, federal tax rates have climbed."
-- Barron's, October 10, 1994
- Performance should always be considered in light of a fund's
investment strategy. Putnam High Yield Municipal Trust is
designed for investors seeking high current income free from
federal income tax through higher-yielding, lower-rated
municipal securities.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SEMIANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
TOTAL RETURN: NAV MARKET PRICE
---------------------------------------------------------------------------
<S> <C> <C>
6 months ended 9/30/94
(change in value during period
plus reinvested distributions) 0.93% 6.90%
SHARE VALUE: NAV MARKET PRICE
---------------------------------------------------------------------------
3/31/94 $9.23 $9.25
9/30/94 8.95 9.50
</TABLE>
<TABLE>
CAPITAL GAINS1
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common shares 6 $0.375 $0.00 $0.00 $0.375
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SERIES INCOME TOTAL
Preferred shares A $738.75 - - $738.75
---------------------------------------------------------------------------
CURRENT RETURN: NAV MARKET PRICE
End of period
Current dividend rate2 8.38% 7.89%
Taxable equivalent3 13.87 13.06
<FN>
Performance data represent past results. For performance over longer
periods, see page 8. 1Capital gains are taxable for federal and, in
most cases, state tax purposes. For some investors, investment
income may also be subject to the federal Alternative Minimum Tax.
Investment income may be subject to state and local taxes. 2Income
portion of most recent distribution, annualized and divided by NAV or
market price at end of period. 3Assumes maximum 39.6% federal tax rate.
Results for investors subject to lower tax rates would not be as
advantageous.
* Morningstar is an independent research firm that rates funds relative
to funds with similar objectives, based on risk-adjusted medium- and
long-term performance, as applicable, and adjusted for sales charges.
A four-star rating puts the fund in the top 32.5% of rated funds.
Ratings are updated monthly. Past performance is no assurance of
future results.
</TABLE>
2
<PAGE> 3
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
MUNICIPAL BOND INVESTORS HAVE EXPERIENCED MORE THAN THEIR SHARE OF
FRUSTRATION OVER THE PAST SEVERAL MONTHS AS THE FIXED-INCOME MARKETS
ENDURE A PROLONGED PERIOD OF VOLATILITY. PUTNAM HIGH YIELD MUNICIPAL
TRUST'S PERFORMANCE DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1994,
REFLECTS THIS UNSETTLED ENVIRONMENT.
DESPITE THE LACKLUSTER PERFORMANCE, SOME SIGNS OF
ENCOURAGEMENT ARE BEGINNING TO APPEAR FOR INVESTORS IN TAX-EXEMPT
SECURITIES. SUPPLIES MAY BECOME TIGHTER AS MORE INVESTORS SEEK
TAX RELIEF; AS WITH ANY COMMODITY, MORE DOLLARS CHASING FEWER
GOODS SHOULD TRANSLATE INTO HIGHER PRICES, A BOON TO INVESTORS. MANY
SECTORS OF THE TAX-EXEMPT MARKET, INCLUDING HEALTH CARE, EDUCATION,
AND RESOURCE RECOVERY, ARE POISED FOR GROWTH, WHICH SHOULD BODE WELL
OVER THE LONG TERM FOR INVESTMENTS IN THOSE AREAS.
WITH CONSIDERABLE CREDIT RESEARCH AND ANALYSIS CAPABILITIES BEHIND HIM,
FUND MANAGER TRIET NGUYEN WILL CONTINUE SEEKING OUT THE MOST PROMISING
TAX-EXEMPT INVESTMENTS FOR YOUR FUND. HIS REPORT ON FISCAL '94
PERFORMANCE AND WHAT HE SEES IN STORE FOR FISCAL '95 FOLLOWS.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
OCTOBER 19, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
TRIET NGUYEN
Putnam High Yield Municipal Trust's emphasis on higher-yielding
tax-exempt securities proved particularly valuable during the six
months ended September 30, 1994. This focus made your fund less
sensitive to recent interest rate increases than most
investment-grade municipal bond funds. As the performance table on page
8 shows, the decline in the fund's shares at net asset value
was less severe than that of the Lehman Brothers Municipal Bond
Index, a widely used gauge of the tax-exempt bond market. The
fund's performance over longer periods was roughly in line with that of
the index.
The economy, however, has been more resilient than generally
expected. This has been a plus for high-yield municipal bonds, whose
prices, like their corporate high-yield counterparts, are influenced
by the pace of the economy, as well as interest rate trends.
- STATE AND SECTOR STRATEGIES
We have made no significant changes in your fund's portfolio
structure during this semiannual period. The fund remains well
diversified throughout the country, with a greater emphasis on the
higher-tax states. These include Massachusetts, New York,
Pennsylvania, and, especially, California, where we have begun
building up assets. While the California economy has suffered its
share of difficulties in recent years, the tide now appears to
have turned. Major economic indicators have stabilized and the state's
overall business climate is improving. Furthermore, we believe
California, with one of the world's largest economies, stands to
benefit from any positive global economic forces or developments such
as the General Agreement on Tariffs and Trade (GATT) and the North
American Free Trade Agreement (NAFTA) treaties.
4
<PAGE> 5
Although overall allocations may not have changed much, we continue
to re-evaluate the fund's sector strategy in light of current economic
trends. For example, we have begun to de-emphasize early cyclical
industries such as housing and transportation. However, we believe
late cyclicals still offer potential in today's economic
environment. These sectors, which include paper and environmental
services, currently appear poised for growth and we are
positioning the fund to benefit from their strength in the future.
We continued to add to the resource recovery sector of the
portfolio. Over time, we believe these facilities devoted to
recycling and converting trash into fuel will gain a broader
acceptability and, therefore, receive higher credit ratings. This is
likely to contribute to higher prices down the road.
- SUPPLY/DEMAND UPDATE
While perhaps not apparent to most investors, an environment of
decreased supply and increased demand has helped insulate the
municipal bond market from excess volatility. In comparison to 1993's
record new issuance, 1994's crop of new-issue municipal bonds is down
by more than 40%. This reflects the fact that of the $290
billion worth of new issues that came to market in 1993, nearly 70%
were issued to prerefund older higher-coupon bonds destined to be
called in long before maturity. Thus, the bond supply was
contracting at a time when investors' demand for tax relief remained
strong.
<TABLE>
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TOP INDUSTRY SECTORS*
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<S> <C>
Hospitals/Health Care 27.1%
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Transportation 23.4%
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Utilities 7.0%
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Energy 4.8%
-----------------------------------------------------
Housing 4.5%
<FN>
* Based on net assets on 9/30/94.
</TABLE>
5
<PAGE> 6
We believe investors have come to realize that tax-free bonds
will be in short supply going forward. Meanwhile, demand for this
dwindling avenue of tax relief remains poised to outpace supply as
individuals seek shelter from higher taxes. Apparently, our view is
shared by others. A recent BusinessWeek article, "Why munis could
lift your bond market blues," (October 10, 1994) states: "Yields on
long-term munis currently equal about 80% of the yields on taxable
treasury securities. That means anyone above the 15% bracket is
better served in tax-frees." While investors must keep in mind that
municipal bonds carry greater levels of credit and liquidity risks than
some other fixed income securities, such as Treasuries, in our
opinion municipal bonds are now among the few fixed-income
investments that appear well on their way to a solid recovery.
- LEVERAGING UPDATE
Your fund has the ability to use leveraging to enhance the return
to common shareholders. Leveraging allows Putnam Management to
issue preferred shares with dividends based on short-term
interest rates and invest the proceeds in longer-term bonds, which pay
interest at a higher rate. Consequently, interest income over and
beyond that needed to pay dividends on the preferred stock can be
passed on to the common shareholders. Because of the currently
steep yield curve in municipal bonds, leveraging continues to make
sense in this interest rate environment and is an important tool
in achieving the fund's objective of high current income. At the
end of the period, approximately 19.3% of the portfolio was leveraged
in this fashion.
- OVERALL MARKET OUTLOOK
While municipal bond fund investors have had to endure a rather
volatile market this year, we believe your fund has shown its
strength -- even within a market sector that, over time, has
outperformed most other municipal bond investments. Although we
continue to be optimistic, we expect that the current pace of
economic growth cannot continue indefinitely. We expect no
significant changes in the economy for the rest of the fiscal year
and into fiscal 1995, but looking further ahead, it appears likely
that the pace will slow to some extent.
6
<PAGE> 7
-------------------------------------------------------------
TOP 10 ISSUERS (9/30/94)
-------------------------------------------------------------
DENVER, COLORADO,
City and County Airport revenue bonds
-------------------------------------------------------------
PORT CORPUS CHRISTI, TEXAS,
Industrial Development Corp. revenue bonds
-------------------------------------------------------------
CHICAGO, ILLINOIS,
O'Hare International Airport Special Facility revenue bonds
-------------------------------------------------------------
GILA COUNTY, ARIZONA,
Industrial Development, Pollution Control revenue bonds
-------------------------------------------------------------
IOWA FINANCIAL AUTHORITY,
Health Care Facility revenue bonds
-------------------------------------------------------------
MASSACHUSETTS PORT AUTHORITY,
Special project revenue bonds
-------------------------------------------------------------
CLAIBORNE COUNTY, MISSISSIPPI,
Pollution Control revenue bonds
-------------------------------------------------------------
MASSACHUSETTS STATE INDUSTRIAL FINANCIAL AGENCY,
Resource Recovery revenue bonds
-------------------------------------------------------------
HAMMOND, INDIANA,
Port Authority certificate of participation
-------------------------------------------------------------
CALIFORNIA HEALTH FACILITY AUTHORITY
revenue bonds
These holdings represent 39.5% of the fund's net assets. Portfolio
holdings are subject to change.
In considering current and future market trends, it is important for
investors to keep in mind that every market shift carries some
opportunities with it. We will continue working to position your
fund to benefit from upcoming developments in the months ahead.
The views expressed here are exclusively those of Putnam
Management. They are not meant as investment advice. Although the described
holdings were viewed favorably as of September 30, 1994, there is
no guarantee the fund will continue to hold these securities in the future.
7
<PAGE> 8
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show total
return in two ways: on a cumulative long-term basis and on average how
the fund might have grown each year over varying periods. For comparative
purposes, we show how the fund performed relative to appropriate indexes
and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
<CAPTION>
Lehman Bros.
Municipal
NAV Market price Bond Index CPI
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year -1.64% -4.43% -2.44% 2.96%
------------------------------------------------------------------------
5 years 46.09 46.03 46.85 19.52
Annual average 7.88 7.87 7.99 3.63
------------------------------------------------------------------------
Life of fund 49.77 47.21 48.95 20.68
(since 5/25/89)
Annual average 7.84 7.50 7.73 3.58
------------------------------------------------------------------------
</TABLE>
Performance data represent past results. Investment returns and net
asset value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost. Fund performance
data do not take into account any adjustment for taxes payable on
reinvested distributions.
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, the liquidation preference and cumulative undeclared
dividends on the remarketed preferred shares, divided by the number of
outstanding common shares.
MARKET PRICE is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index may include bonds different from
those in the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
8
<PAGE> 9
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994 (Unaudited)
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
ARIZONA (5.1%)
- -------------------------------------------------------------------------------------------
$ 1,450,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hosp. Syst.), Ser. A, 101\8s, 11/1/15 Ba $ 1,517,062
6,235,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds, Ser. 85, 8.9s, 7/1/06 Baa 6,889,675
3,000,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A 3,390,000
-----------
11,796,737
CALIFORNIA (9.7%)
- -------------------------------------------------------------------------------------------
CA Hlth. Fac. Auth. Rev. Bonds
1,800,000 (Summit Med. Ctr.), Ser. 85A, 9s, 5/1/15 Ba 1,833,750
4,030,000 (Valley Presbyterian Hosp. Project),
Ser. A, 9s, 5/1/12 B 4,070,300
2,215,000 CA State Pub. Works Board Lease Rev. Bonds
(Dept. of Corrections-State Prisons), Ser. A,
American Municipal Bond Assurance Corp.
(AMBAC), 5s, 12/1/19 AAA 1,785,843
5,700,000 CA Statewide Cmntys., Dev. Auth. Inverse
Floating Rate Note (I/F), Certif. of Participation
(COP) (Motion Picture & TV Fund), AMBAC,
5.35s, 1/1/22 (c) AAA 3,940,125
2,000,000 La Habra, COP (Friendly Hills Hlth. Care
Foundation), Ser. A, 7.15s, 7/1/23 BB/P 2,000,000
2,500,000 Los Angeles Cnty., Metro. Trans. Auth. Sales
Tax Rev. Bonds, Ser. B, AMBAC, 43\4s, 7/1/18 AAA 1,925,000
1,320,000 Los Angeles, Wastewtr. Syst. Rev. Bonds, Ser. B,
Municipal Bond Insurance Association (MBIA),
5.7s, 6/1/23 AAA 1,189,650
1,000,000 Orange Cnty., Sanitation Dists. COP Variable
Rate Demand Note (VRDN), Ser. C, Financial
Guaranty Insurance Corp. (FGIC), 3.45s, 8/1/17 VMIG1 1,000,000
450,000 San Bernardino, Hosp. Rev. Bonds (San
Bernardino Cmnty. Hosp.), 77\8s, 12/1/19 Ba 434,250
2,000,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev. Project), MBIA, 5s, 8/1/20 AAA 1,602,500
3,000,000 Santa Margarita/Dana Point, Auth. Rev. Bonds,
Ser. B, MBIA, 53\4s, 8/1/20 AAA 2,745,000
-----------
22,526,418
COLORADO (7.1%)
- -------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds
5,000,000 Ser. A, 83\4s, 11/15/23 Baa 5,275,000
3,350,000 Ser. A, 81\2s, 11/15/23 Baa 3,471,438
1,350,000 Ser. A, 71\2s, 11/15/23 Baa 1,290,937
4,200,000 Ser. B, 71\4s, 11/15/23 Baa 3,937,500
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
COLORADO (continued)
- -------------------------------------------------------------------------------------------
$ 3,000,000 Denver, City & Cnty. Special Fac. Arpt. Rev.
Bonds (United Air Lines, Inc. Project), Ser. A,
67\8s, 10/1/32 Baa $ 2,670,000
-----------
16,644,875
CONNECTICUT (1.2%)
- -------------------------------------------------------------------------------------------
1,850,000 CT State Dev. Auth. 1st. Mtge. Rev. Bonds
(East Hill Woods Project), 83\4s, 7/1/19 B/P 1,887,000
1,000,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(AHF/Windsor Inc. Project), Ser. A, 91\2s, 1/1/22 B/P 1,026,250
-----------
2,913,250
FLORIDA (1.6%)
- -------------------------------------------------------------------------------------------
3,965,000 Levy Cnty., Indl. Dev. Rev. Bonds (National Med.
Assn. Inc. Project), 10s, 7/1/19 B/P 3,746,925
GEORGIA (2.3%)
- -------------------------------------------------------------------------------------------
2,175,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 2,202,187
3,025,000 De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts. Project), Ser. B, 10s, 4/1/17 BB/P 3,115,750
-----------
5,317,937
ILLINOIS (7.8%)
- -------------------------------------------------------------------------------------------
3,250,000 Chicago, O'Hare Intl. Arpt. Rev. Bonds, Ser. A,
105\8s, 1/1/15 A 3,392,187
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
1,463,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa 1,605,642
1,900,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 2,075,750
3,845,000 (United Air Lines, Inc.), Ser. C, 8.2s, 5/1/18 Baa 4,056,475
3,000,000 (American Airlines, Inc. Project), Ser. A,
77\8s, 11/1/25 Baa 3,097,500
1,835,000 IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.), 83\4s, 3/1/10 BBB/P 1,867,113
2,015,000 IL Edl. Fac. Auth. Rev. Bonds (Steppenwolf
Theatre Project), 9.65s, 7/1/19 BB/P 2,085,525
-----------
18,180,192
INDIANA (2.6%)
- -------------------------------------------------------------------------------------------
5,820,842 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB/P 5,973,639
IOWA (2.8%)
- -------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Mercy Hlth. Initiatives Project), 9.95s, 7/1/19 B/P 6,500,000
KENTUCKY (1.5%)
- -------------------------------------------------------------------------------------------
1,500,000 Jefferson Cnty., 1st Mtge. Rev. Bonds
(AHF/KY-IOWA Inc. Project), 101\4s, 1/1/20 B/P 1,543,125
1,675,000 Louisville & Jefferson Cnty., Regl. Arpt. Syst. Rev.
Bonds, Ser. A, MBIA, 81\2s, 7/1/17 AAA 1,825,750
-----------
3,368,875
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
LOUISIANA (5.3%)
- -------------------------------------------------------------------------------------------
$ 2,875,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P $ 2,997,188
LA Pub. Fac. Auth. 1st. Mtge. Rev. Bonds
1,953,099 (Emily Morten Foundation), 101\4s, 5/1/19 B/P 2,060,519
2,500,000 (St. James Place Project), 10s, 11/1/21 B/P 2,678,125
1,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project), 141\2s, 1/1/02 BB 1,133,750
3,440,000 St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum Project), 73\4s, 8/1/22 B/P 3,530,300
-----------
12,399,882
MASSACHUSETTS (9.0%)
- -------------------------------------------------------------------------------------------
2,000,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds (Rehab.
Hosp. Cape & Islands), Ser. A, 77\8s, 8/15/24 BB/P 1,965,000
5,800,000 MA Port Auth. Special Project Rev. Bonds
(Harborside Hyatt), 10s, 3/1/26 B/P 6,242,250
2,000,000 MA State Hlth. & Edl. Fac. Auth. Residual Interest
Bonds (RIBS) (St. Elizabeth Hosp.), Ser. E,
Financial Security Assurance (FSA), 9.97s, 8/15/21 AAA 2,052,500
1,390,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(St. Joseph's Hosp.), Ser. C, 91\2s, 10/1/20 AAA 1,671,475
MA State Indl. Fin. Agcy. Resource Recvy.
Rev. Bonds (Southeastern MA Project)
2,000,000 Ser. B, 91\4s, 7/1/15 BB/P 2,225,000
3,500,000 Ser. A, 9s, 7/1/15 BB/P 3,876,250
MA State Indl. Fin. Agcy. Rev. Bonds
1,000,000 (Oddfellows Home of MA), 9.6s, 1/1/15 BB/P 1,052,500
2,000,000 (Evanswood Bethzatha), Ser. A, 77\8s, 1/15/20 BB/P 1,960,000
-----------
21,044,975
MICHIGAN (3.7%)
- -------------------------------------------------------------------------------------------
2,788,000 Detroit, Hosp. Fin. Auth. Hosp. Fac. Rev. Bonds
(MI Hlth. Care Corp. Project), 10s, 12/1/20 B 2,889,065
2,815,000 Detroit, Local Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 91\2s, 5/1/21 BBB/P 3,437,819
990,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(MI Hlth. Care Corp. Project), 9.1s, 12/1/14 B/P 968,963
1,250,000 Wayne Charter Cnty., Special Arpt. Fac. Rev.
Bonds (Republic Air Lines Inc. Project), Ser. C,
103\8s, 12/1/15 B/P 1,325,000
-----------
8,620,847
MISSISSIPPI (2.6%)
- -------------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
2,500,000 (Syst. Energy Resources Inc.), 121\2s, 6/15/15 Baa 2,690,625
3,000,000 (Middle South Energy Inc.), Ser. C, 97\8s, 12/1/14 BBB/P 3,450,000
-----------
6,140,625
MISSOURI (2.3%)
- -------------------------------------------------------------------------------------------
5,000,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev.
Bonds (Park Lane Med. Ctr. Project), 83\4s, 1/1/15 BBB/P 5,400,000
NEBRASKA (0.4%)
- -------------------------------------------------------------------------------------------
1,000,000 NE Investment Fin. Auth. Hosp. Rev. RIBS,
MBIA, 9.64s, 11/15/16 AAA 1,012,500
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
NEW HAMPSHIRE (2.6%)
- -------------------------------------------------------------------------------------------
$ 1,955,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
(Havenwood/Heritage Heights), 93\4s, 12/1/19 B/P $ 2,086,963
3,500,000 NH State Indl. Dev. Auth. Poll. Control Rev. Bonds
(United Illuminating Co.), Ser. B, 103\4s, 10/1/12 Baa 4,033,750
-----------
6,120,713
NEW JERSEY (2.8%)
- -------------------------------------------------------------------------------------------
5,000,000 Camden Cnty., Impt. Auth. Hsg. Dev. Rev. Bonds
(Chestbury Apts. Project), 83\4s, 12/15/16 BB/P 4,475,000
2,000,000 NJ State Hsg. & Mtge. Fin. Agcy. RIBS, Ser. 1,
8.594s, 11/1/07 (acquired 6/23/93, cost
$2,120,500)(d) A 1,972,500
-----------
6,447,500
NEW YORK (5.0%)
- -------------------------------------------------------------------------------------------
3,000,000 Metro. Trans. Auth. of NY Rev. Bonds
(Trans. Fac.), Ser. O, 53\4s, 7/1/13 Baa 2,715,000
900,000 NY City, Muni. Wtr. Fin. Auth. VRDN,
Ser. G, FGIC, 3.6s, 6/15/24 VMIG1 900,000
900,000 NY City, VRDN, Ser. B, FGIC, 3.3s, 10/1/22 VMIG1 900,000
3,000,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig.
Rev. Bonds, Ser. A, 73\8s, 9/15/21 AAA 3,408,750
NY State Local Govt. Assistance Corp. Rev. Bonds
1,500,000 Ser. A, 7s, 4/1/16 AAA 1,665,000
2,000,000 Ser. D, 63\4s, 4/1/21 AAA 2,197,500
-----------
11,786,250
OHIO (4.7%)
- -------------------------------------------------------------------------------------------
1,500,000 Clermont Cnty., Hosp. Facs., I/F, AMBAC,
9.641s, 9/1/21 (c) AAA 1,537,500
4,550,000 Dayton, Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 121\2s, 10/1/09 B/P 5,295,063
3,000,000 Lorain Cnty., Fac. Rev. Bonds (Laurel Lake
Project), 71\8s, 12/15/18 BB/P 2,906,250
1,185,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Dayton Pwr. & Lt. Co. Project), 91\2s, 12/1/15 AA 1,272,394
-----------
11,011,207
PENNSYLVANIA (7.7%)
- -------------------------------------------------------------------------------------------
1,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special
Fac. Rev. Bonds (USAir, Inc. Project), Ser. A,
87\8s, 3/1/21 B 1,006,250
3,500,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Cleveland Elec. Illuminating Co.), 101\2s, 9/1/15 Ba 3,696,875
1,000,000 Langhorne, St. Mary Hosp. Auth. Rev. Bonds
(Francisan Hlth. Syst.) Ser. C, VRDN, 3.6s, 12/1/24 VMIG1 1,000,000
Montgomery Cnty., Higher Edl. & Hlth.
Auth. Hosp. Rev. Bonds
1,940,000 (United Hospital Inc.-St. Christopher), 81\2s, 11/1/17 Ba 2,007,900
2,000,000 (United Hospital Inc.), Ser. A, 83\8s, 11/1/11 Ba 2,077,500
2,500,000 PA Higher Edl. Assistance Agcy. Student Loan
RIBS, AMBAC, 10.12s, 9/3/26 AAA 2,487,500
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
PENNSYLVANIA (continued)
- -------------------------------------------------------------------------------------------
$ 2,100,000 Philadelphia, Muni. Auth. Rev. Bonds (Justice
Lease), Ser. C, 85\8s, 11/15/16 AAA $ 2,527,875
3,400,000 Philadelphia, Regl. Port Auth. Lease I/F,
MBIA, 8.87s, 9/1/13 AAA 3,247,000
-----------
18,050,900
PUERTO RICO (0.4%)
- -------------------------------------------------------------------------------------------
1,000,000 Cmnwlth. of Puerto Rico, Tel. Auth. RIBS, MBIA,
6.792s, 1/1/05 (acquired 4/23/93, cost $1,043,660)(d) A 918,750
SOUTH CAROLINA (0.3%)
- -------------------------------------------------------------------------------------------
1,000,000 Charleston Cnty., Hosp. Fac.
I/F (Bon Secours Hlth. Ctr.),
Ser. B, FSA 7.979s, 8/15/13 AAA 770,000
TEXAS (8.2%)
- -------------------------------------------------------------------------------------------
1,000,000 Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Adv. Living Tech. Inc. Project), Ser. A,
101\2s, 6/15/18 B/P 920,000
2,705,000 Calhoun Cnty., West Side Navy Dist. Solid
Waste Disp. Rev. Bonds (Union Carbide
Chemicals Project), 6.4s, 5/1/23 Baa 2,468,313
765,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Hosp.
Rev. Bonds (Nancy Travis Memorial Hosp.
Project), 10s, 5/15/13 B/P 808,031
3,105,059 Maverick Cnty., COP (Jail Facility), 9.1s, 6/15/10 CCC/P 1,863,035
Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.)
5,500,000 Ser. B, 105\8s, 6/1/08 Baa 6,194,375
4,480,000 Ser. A, 101\4s, 6/1/17 Baa 5,000,800
1,800,000 Rio Grande Valley, Hlth. Fac. Dev. Corp.
Retirement Fac. I/F, (Golden Palms), Ser. D,
MBIA, 7.646s, 8/1/06 AAA 1,836,000
-----------
19,090,554
VIRGINIA (1.1%)
- -------------------------------------------------------------------------------------------
2,505,000 Hopewell, Indl. Dev. Auth. Resource Recvy. Rev.
Bonds (Stone Container Corp. Project), 81\4s, 6/1/16 B/P 2,592,675
WISCONSIN (0.4%)
- -------------------------------------------------------------------------------------------
900,000 WI Hsg. & Econ. Dev. Auth. RIBS
(Homeownership Dev. Program), 10.291s, 10/25/22 AA 900,000
------------
TOTAL INVESTMENTS
(cost $231,739,212)(e) $229,276,226
============
<FN>
NOTES
- -------------------------------------------------------------------------------------------
(a) Percentages indicated are based on total net assets of $233,522,114. Net
assets available to common shareholders are $188,513,114, which correspond
to a net asset value per common share of $8.95.
</TABLE>
13
<PAGE> 14
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at September 30, 1994 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do
not necessarily represent ratings which the agencies would ascribe to these
securities at September 30, 1994. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(c) These securities were pledged to cover margin requirements for
futures contracts at September 30, 1994. The market value of
segregated securities with the custodian for transactions on futures
contracts is $5,477,625 or 2.3% of net assets.
(d) Restricted as to public resale excluding 144A Securities. At the date of
acquisition these securities were valued at cost. There were no
outstanding unrestricted securities of the same class as those held.
Total market value of restricted securities owned at September
30, 1994 was $2,891,250 or 1.2% of net assets.
(e) The aggregate identified cost on a tax basis is $231,739,212
resulting in gross unrealized appreciation and depreciation of $6,844,456
and $9,307,442 respectively, or net unrealized depreciation of $2,462,986.
The rates shown on Residual Interest Bonds (RIBS) and Inverse Floating
Rate Notes (I/F) which are securities paying variable interest rates that
vary inversely to changes in market interest rates, and Variable Rate
Demand Notes (VRDN) are the current interest rates at September 30,
1994, which are subject to change based on the terms of the security.
The fund had the following industry group concentrations greater than 10%
on September 30, 1994 (as a percentage of net assets):
Hospitals/Healthcare 27.1%
Transportation 23.4
<TABLE>
The table below shows the percentages of the fund's investments on
September 30, 1994 in securities assigned to the various rating categories
by Moody's and Standard & Poor's and in unrated securities determined
by Putnam Management to be of comparable quality:
<CAPTION>
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY,
AS A PERCENTAGE OF AS A PERCENTAGE OF
RATING FUND'S NET ASSETS FUND'S NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------------------
"AAA"/"Aaa" 16.9% --
- ----------------------------------------------------------------------------
"AA"/"Aa" 0.9 --
- ----------------------------------------------------------------------------
"A"/"A" 4.1 --
- ----------------------------------------------------------------------------
"BBB"/"Baa" 24.6 6.1%
- ----------------------------------------------------------------------------
"BB"/"Ba" 6.4 13.6
- ----------------------------------------------------------------------------
"B"/"B" 3.4 19.8
- ----------------------------------------------------------------------------
"CCC"/"Caa" -- 0.8
- ----------------------------------------------------------------------------
"VMIG1" 1.6 --
- ----------------------------------------------------------------------------
57.9% 40.3%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
U.S. TREASURY FUTURES OUTSTANDING at September 30, 1994
<CAPTION>
AGGREGATE EXPIRATION UNREALIZED
TOTAL VALUE FACE VALUE DATE APPRECIATION
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Sell) $4,946,875 $4,953,125 Dec. 94 $6,250
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994 (Unaudited)
<S> <C>
ASSETS
- --------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $231,739,212)(Note 1) $229,276,226
- --------------------------------------------------------------------------------------------
Cash 348,967
- --------------------------------------------------------------------------------------------
Receivable for securities sold 113,207
- --------------------------------------------------------------------------------------------
Interest receivable 5,630,376
- --------------------------------------------------------------------------------------------
Receivable for variation margin on open futures contracts 6,250
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 235,375,026
LIABILITIES
- --------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,316,475
- --------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 414,943
- --------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 1,686
- --------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 55,440
- --------------------------------------------------------------------------------------------
Payable for administrative services (Note 3) 3,546
- --------------------------------------------------------------------------------------------
Other accrued expenses 60,822
- --------------------------------------------------------------------------------------------
Total liabilities 1,852,912
- --------------------------------------------------------------------------------------------
Net assets $233,522,114
- --------------------------------------------------------------------------------------------
REPRESENTED BY
- --------------------------------------------------------------------------------------------
Series A remarketed preferred shares, without par value;
8,000 shares authorized (900 shares issued at $50,000 per
share liquidation preference) (Note 2) $ 45,000,000
Common shares, without par value; unlimited shares
authorized; 21,063,733 shares outstanding (Note 1) 194,237,641
Undistributed net investment income (Note 1) 272,706
Accumulated net realized loss on investments and futures transactions (3,531,497)
Net unrealized depreciation of investments and futures contracts (2,456,736)
- --------------------------------------------------------------------------------------------
NET ASSETS $233,522,114
- --------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $ 45,000,000
Cumulative undeclared dividends on remarketed preferred shares 9,000
- --------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares at liquidation preference 45,009,000
- --------------------------------------------------------------------------------------------
Net assets available to common shares:
Net asset value per share $8.95 ($188,513,114 divided by
21,063,733 shares) 188,513,114
- --------------------------------------------------------------------------------------------
NET ASSETS $233,522,114
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
<TABLE>
STATEMENT OF OPERATIONS
Six months ended September 30, 1994 (Unaudited)
<S> <C>
- --------------------------------------------------------------------------
TAX EXEMPT INTEREST INCOME $9,621,116
EXPENSES:
- --------------------------------------------------------------------------
Compensation of Manager (Note 3) 819,528
- --------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 111,397
- --------------------------------------------------------------------------
Compensation of Trustees (Note 3) 7,480
- --------------------------------------------------------------------------
Reports to shareholders 30,840
- --------------------------------------------------------------------------
Auditing 31,413
- --------------------------------------------------------------------------
Legal 12,465
- --------------------------------------------------------------------------
Postage 28,309
- --------------------------------------------------------------------------
Administrative services (Note 3) 5,984
- --------------------------------------------------------------------------
Exchange listing fees 15,998
- --------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,668
- --------------------------------------------------------------------------
Preferred share remarketing agent fees 64,021
- --------------------------------------------------------------------------
Registration fee 472
- --------------------------------------------------------------------------
Other 3,297
- --------------------------------------------------------------------------
TOTAL EXPENSES 1,132,872
- --------------------------------------------------------------------------
NET INVESTMENT INCOME 8,488,244
- --------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 4) (691,661)
- --------------------------------------------------------------------------
Net realized gain on futures (Notes 1 and 4) 95,575
- --------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (5,283,264)
- --------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (5,879,350)
- --------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,608,894
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Six months Year
ended ended
September 30 March 31
-----------------------------
1994* 1994
DECREASE IN NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- --------------------------------------------------------------------------------------------
Net investment income $ 8,488,244 $ 17,122,427
- --------------------------------------------------------------------------------------------
Net realized loss on investments (691,661) (2,667,449)
- --------------------------------------------------------------------------------------------
Net realized gain on futures 95,575 -
- --------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,283,264) (3,312,231)
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2,608,894 11,142,747
- --------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders
from net investment income (662,040) (1,078,561)
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
APPLICABLE TO COMMON SHAREHOLDERS (EXCLUDING
CUMULATIVE UNDECLARED DIVIDENDS ON REMARKETED
PREFERRED SHARES OF $9,000 AND $6,165, RESPECTIVELY) 1,946,854 10,064,186
- --------------------------------------------------------------------------------------------
Distributions to common shareholders from net
investment income (7,878,419) (15,599,309)
- --------------------------------------------------------------------------------------------
Issuance of common shares 1,305,317 2,496,418
- --------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (4,626,248) (3,038,705)
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of period 238,148,362 241,187,067
- --------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of $272,706
and $324,921, respectively) $233,522,114 $238,148,362
- --------------------------------------------------------------------------------------------
NUMBER OF FUND SHARES
- --------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 20,924,115 20,673,143
- --------------------------------------------------------------------------------------------
Common shares issued in connection with
reinvestment of distributions 139,618 250,972
- --------------------------------------------------------------------------------------------
Common shares outstanding at end of period 21,063,733 20,924,115
- --------------------------------------------------------------------------------------------
Remarketed preferred shares at beginning of period 900 900
- --------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding
at end of period 900 900
- --------------------------------------------------------------------------------------------
<FN>
* Unaudited.
</TABLE>
The accompanying notes are an integral part of these financial statements
17
<PAGE> 18
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30
-------------------------------------------------------------------
1994* 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD (COMMON SHARES) $ 9.23 $ 9.49 $ 8.99
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .40 .81 .86
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.27) (.27) .51
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .13 .54 1.37
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions
From net investment income:
to preferred shareholders (.03) (.05) (.06)
to common sharholders (.38) (.75) (.81)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.41) (.80) (.87)
- ---------------------------------------------------------------------------------------------------------------------------
Preferred share offering costs - - -
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD (common shares) $ 8.95 $ 9.23 $ 9.49
- ---------------------------------------------------------------------------------------------------------------------------
Market value, end of period (common shares) $ 9.50 $ 9.25 $ 10.50
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%) (common shares)(b) 6.90(a) (4.99) 15.48
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (total fund) (in thousands) $233,522 $238,148 $241,187
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) .59(a) 1.17 1.17
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets(%) (c) 4.10(a) 7.97 8.58
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 18.09 28.55 53.89
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 25, 1989
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED MARCH 31 TO MARCH 31
-----------------------------------------------------
1992 1991 1990
-----------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD (COMMON SHARES) $ 8.85 $ 9.28 $ 9.26+
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income .84 .78 .66
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .22 (.40) (.05)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.06 .38 .61
- -----------------------------------------------------------------------------------------------------------------------
Less distributions
From net investment income:
to preferred shareholders (.06)++ - -
to common sharholders (.81) (.81) (.59)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.87) (.81) (.59)
- -----------------------------------------------------------------------------------------------------------------------
Preferred share offering costs (.05) - -
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD (common shares) $ 8.99 $ 8.85 $ 9.28
- -----------------------------------------------------------------------------------------------------------------------
Market value, end of period (common shares) $ 9.88 $ 9.13 $ 9.25
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%) (common shares) (b) 18.15 7.92 (1.56)(a)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (TOTAL FUND) (in thousands) $228,735 $178,871 $186,520
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) 1.13 .90 .70(a)
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (c) 8.77 8.55 7.08(a)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62.28 19.69 48.90(a)
- -----------------------------------------------------------------------------------------------------------------------
<FN>
* Unaudited.
+ Represents initial net asset value of $9.30 less offering expenses of approximately $0.04.
++ Preferred shares were issued on July 22, 1991.
(a) Not annualized.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction
for dividend payments to preferred shareholders.
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end management investment company. The fund's investment
objective is to seek high current income exempt from federal income tax. The
fund intends to achieve its objective by investing in high yielding tax-exempt
municipal securities constituting a portfolio that the fund's manager, Putnam
Investment management, Inc., ("Putnam Management") a wholly-owned subsidiary of
Putnam Investments, Inc. believes to be consistent with prudent investment
management.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities in determining value. The fair values of restricted
securities are determined by the Manager following procedures approved by the
Trustees, and such valuations and procedures are reviewed periodically by the
Trustees.
B 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.
C FUTURES A futures contract is an agreement between two parties to buy and sell
a security at a set price on a future date. Upon entering into such a contract,
the fund is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange. Pursuant to
the contract, the fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin," and are recorded by the fund as
unrealized gains or losses. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. The
potential risk to the fund is that the change in value of the underlying
securities may not correspond to the change in value of the futures contracts.
D DETERMINATION OF NET ASSET VALUE Net asset value of the common shares is
determined by dividing the value of all assets of the fund (including
20
<PAGE> 21
accrued interest and dividends), less all liabilities (including accrued
expenses), undeclared dividends on remarketed preferred shares and the
liquidation value of any outstanding remarketed preferred shares, by the total
number of common shares outstanding.
E FEDERAL TAXES It is the policy of the fund to distribute all of its 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. Therefore, no provision has been made for federal taxes on income, capital
gains or unrealized appreciation of securities held and excise tax on income
and capital gains.
At March 31, 1994, the fund had a capital loss carryover of approximately
$293,000 available to offset future realized capital gains, if any, to the
extent provided by regulations. Of this amount, $229,000 and $64,000 will expire
March 31, 1999 and 2002, respectively. To the extent that capital loss
carryovers are used to offset realized capital gains, it is unlikely that
gains so offset will be distributed to shareholders since any such distribution
might be taxable as ordinary income.
F DISTRIBUTIONS TO SHAREHOLDERS Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends on
remarketed preferred shares become payable when, as and if declared by the
Trustees. Each dividend period for the remarketed preferred shares is generally
a 7-day period. The applicable dividend rate for the remarketed preferred
shares on September 30, 1994 was 3.65%.
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. These differences include realized and
unrealized gains and losses on futures and defaulted interest income.
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 AMORTIZATION OF BOND PREMIUM Any premium resulting from the purchase of
securities in excess of maturity value is amortized on a yield-to- maturity
basis.
H UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in
connection with its organization aggregated $55,380. These expenses were
amortized on a straight-line basis over a five-year period, which concluded
during the six months ended September 30, 1994.
NOTE 2
REMARKETED PREFERRED SHARES
On July 22, 1991, the fund issued 900 Remarketed Preferred Shares (Series A).
The Series A remarketed preferred shares are redeemable at the option of
the fund on any dividend payment date at a redemption price of $50,000 per
share, plus an amount equal to any dividends accumulated on a daily basis but
unpaid through the redemption date (whether or not
21
<PAGE> 22
such dividends have been declared) and, in certain circumstances, a call
premium.
Under the Investment Company Act of 1940, the fund is required to maintain asset
coverage of at least 200% with respect to the remarketed preferred shares as of
the last business day of each month in which any such shares are outstanding.
Additionally, the fund is required to meet more stringent asset coverage
requirements under the terms of the remarketed preferred shares and the shares'
rating agencies. Should these requirements not be met, or should dividends
accrued on the remarketed preferred shares not be paid, the fund may be
restricted in its ability to declare dividends to common shareholders or may be
required to redeem certain of the remarketed preferred shares. At September 30,
1994, there were no such restrictions on the fund.
NOTE 3
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 annual rate of 0.7% of average weekly net assets.
The fund also reimburses the Manager 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. For the six months ended September 30, 1994
the fund paid $5,984 for these services.
Trustees of the fund receive an annual Trustee's fee of $810 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings. Custodial functions for the
fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a
subsidiary of Putnam Investments, Inc. Investor servicing agent functions are
provided by Putnam Investor Services, a division of PFTC. Fees paid for
these investor servicing and custodial functions for the six months ended
September 30, 1994 amounted to $111,397.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended September 30, 1994 have been reduced by credits
allowed by PFTC.
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the six months ended September 30, 1994, purchases and sales of
investment securities other than short-term investments aggregated
$43,541,114 and $41,129,524, respectively. Purchases and sales of short-term
municipal obligations aggregated
22
<PAGE> 23
$21,100,000 and $24,250,000, respectively. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis. Transactions in futures contracts during the period
are summarized as follows:
<TABLE>
SALES OF FUTURES CONTRACTS
- ------------------------------------------------------
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
- ------------------------------------------------------
<S> <C> <C>
Contracts opened 150 $ 14,962,500
Contracts closed (100) (10,009,375)
- ------------------------------------------------------
OPEN AT END OF PERIOD 50 $ 4,953,125
- ------------------------------------------------------
</TABLE>
23
<PAGE> 24
<TABLE>
SELECTED QUARTERLY DATA
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 4,820,132 $ 4,800,984 $ 4,849,865 $ 5,209,897 $ 4,924,600
Per share* $ .22 $ .23 $ .22 $ .26 $ .23
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME AVAILABLE
TO COMMON SHAREHOLDERS
Total $ 3,908,019 $ 3,918,185 $ 4,024,772 $ 4,322,207 $ 4,056,742
Per share* $ .18 $ .18 $ .18 $ .21 $ .19
- --------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Total $ (1,792,719) $ (4,086,631) $(11,569,251) $ (1,686,445) $ 3,798,438
Per share* $ (.08) $ (.19) $ (.54) $ (.08) $ .18
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS RESULTING FROM
OPERATIONS
Total $ 2,115,300 $ (168,446) $ (7,544,479) $ 2,635,762 $ 7,855,180
Per share* $ .10 $ (.01) $ (.36) $ .12 $ .38
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS AT END OF PERIOD
Total $188,513,114 $189,691,675 $193,142,197 $203,952,500 $204,589,727
Per share* $ 8.95 $ 9.04 $ 9.23 $ 9.78 $ 9.84
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
- --------------------------------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 4,489,459 $ 4,964,013 $ 4,957,169 $ 5,034,710 $ 4,971,251
Per share* $ .22 $ .24 $ .24 $ .25 $ .24
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME AVAILABLE
TO COMMON SHAREHOLDERS
Total $ 3,640,145 $ 4,113,19 $ 4,063,674 $ 4,184,292 $ 4,003,243
Per share* $ .18 $ .20 $ .20 $ .21 $ .19
- --------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Total $ 3,477,578 $ 3,361,672 $ 592,883 $ 3,052,467 $ 3,340,306
Per share* $ .17 $ .16 $ .03 $ .15 $ .17
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS RESULTING FROM
OPERATIONS
Total $ 7,117,723 $ 7,474,864 $ 4,656,557 $ 7,236,759 $ 7,433,549
Per share* $ .35 $ .36 $ .23 $ .36 $ .36
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS AT END OF PERIOD
Total $200,026,144 $196,187,067 $192,274,787 $191,224,748 $187,582,781
Per share* $ 9.65 $ 9.49 $ 9.33 $ 9.30 $ 9.15
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Per common share.
25
<PAGE> 26
<TABLE>
FUND INFORMATION
<S> <C>
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109
Charles E. Porter
MARKETING SERVICES Executive Vice President
Putnam Mutual Funds Corp.
One Post Office Square Patricia C. Flaherty
Boston, MA 02109 Senior Vice President
CUSTODIAN John R. Verani
Putnam Fiduciary Trust Company Vice President
LEGAL COUNSEL Lawrence J. Lasser
Ropes & Gray Vice President
TRUSTEES Gordon H. Silver
George Putnam, Chairman Vice President
William F. Pounds, Vice Chairman Gary N. Coburn
Vice President
Jameson Adkins Baxter
James Erickson
Hans H. Estin Vice President
John A. Hill Triet Nguyen
Vice President and Fund Manager
Elizabeth T. Kennan
William N. Shiebler
Lawrence J. Lasser Vice President
Robert E. Patterson Paul M. O'Neil
Vice President
Donald S. Perkins
John D. Hughes
George Putnam, III Vice President and Treasurer
A.J.C. Smith Beverly Marcus
Clerk and Assistant Treasurer
W. Nicholas Thorndike
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Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time
for up-to-date information about the fund's NAV or to request
Putnam's quarterly Closed-End Fund Commentary.
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PUTNAM INVESTMENTS BULK RATE
U.S. POSTAGE
THE PUTNAM FUNDS PAID
One Post Office Square PUTNAM
Boston, Massachusetts 02109 INVESTMENTS
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014/324-14803
