Putnam
High Yield
Municipal
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Throughout the dramatic market shifts of August 1998, the municipal market
stood its ground. Yields on long-term municipal bonds fell slightly
compared with yields on Treasury bonds, which declined sharply as their
prices rose in response to demand fanned by global equity investors'
flight to quality. By September, municipal bond yields were approximately
97% of those on 30-year Treasuries, a remarkably close relationship.
Within this environment, I am pleased to report that Putnam High Yield
Municipal Trust continued to produce high tax-exempt income during the
1998 fiscal year. For the six months ended September 30, 1998, the fund
earned total returns of 3.60% at net asset value and 5.85% at market
price. For complete performance information, please see pages 8 and 9.
* DEMAND FOR BONDS TIED TO TURBULENT EQUITY MARKETS
The municipal bond market's performance tends to reflect trends in the
taxable bond market, which in turn is influenced by events in worldwide
equity markets. The unprecedented turbulence was set off by an
unprecedented string of international events: the unabated financial chaos
in the Pacific Rim, currency devaluations and defaults in Russia, and most
recently, plunging stock markets in Latin America. As foreign investors
panicked about plummeting stock markets, they began a flight to quality --
selling hedge funds and emerging-markets funds in favor of the safety of
U.S. Treasury bonds. This buying of Treasuries drove up their prices and
pushed down their yields. Since foreign investors do not benefit from the
tax advantages of municipal bonds, prices in this market were not driven
up by the increase in demand that drove Treasury bond prices higher. This
factor has made municipal bonds an exceptional investment choice for U.S.
fixed-income investors.
* CREDIT, SECTOR STRATEGIES HELP MAINTAIN INCOME
Since last spring, a key challenge for your fund's management team has
been to increase the fund's income in a market where fewer and fewer low
investment-grade bonds are available. Bonds in this tier of the
investment-grade sector are difficult to find not only because they are in
high demand but because the strong economy is enabling many municipalities
to gain higher credit ratings. Also, many Baa credits have been upgraded
through insurance that protects the holder in the event of default. Blake
Anderson, your fund's manager, met this challenge by looking for
opportunities in the upper tier of the high-yield market (Ba- and B-rated
bonds), where there is slightly more supply and where he believes the
additional income potential justified the additional risk.
Blake also favored issues in the health-care/hospital sector, in which
there have been many attractive credits in the past. This entire sector
has gone through many evolutions since the scrutiny of health care began
with the Clinton administration in 1992. Nonprofit hospitals throughout
the country have experienced a significant amount of merger activity in
recent months but this trend seems to be slowing. On the other hand,
for-profit hospital companies are beginning to sell off some units. Within
this sector, Blake relies heavily on Putnam's credit research to identify
the most promising securities.
Transportation issues have also fared well over the past year,
particularly industrial revenue bonds backed by major airlines. Passenger
volume has been up, while capacity remains steady and fuel costs are low.
This combination of factors has enabled airlines to increase prices and
help support airport revenues. Denver (Colorado) city and county airport
bonds remain among the fund's top 10 holdings and its strongest
performers. However, as oil prices inch up and the economy slows, this
sector may need closer scrutiny. While these holdings and others described
in this report were viewed favorably as of September 30, 1998, all
holdings are subject to review in accordance with the fund's investment
strategy and may vary in the future.
* WASHINGTON, DC, BONDS PREREFUNDED
Because of the economy's recent strength, many cities and towns have
experienced large budget surpluses from healthy levels of tax revenue.
Given this background, it makes sense that other high-performing bonds
come from the general obligation (GO) sector, in which the bond issues are
backed directly by taxes, not revenues or fees.
One example of this trend is Washington, DC, GO bonds, which had
experienced negative publicity and carried the relatively low Baa rating
from Moody's. Putnam's research department believed that the district's
general obligation bonds offered a more solid opportunity than the
negative publicity indicated. Our perseverance was rewarded when the bonds
were prerefunded during the period. In a prerefunding, the municipality
issues new bonds to pay off the original bond issue at the first call date
or maturity. Proceeds from the new issue in an amount sufficient to pay
off the entire original bond issue are invested in an escrow fund made up
of U.S. Treasury securities. Because of the safety of principal
represented by these Treasuries, the original bonds are considered more
creditworthy and an upgrade generally follows -- along with higher prices.
When this indeed occurred with the fund's Washington, DC, holdings, we
sold them at a profit.
It is also worth noting that we expect the supply of municipal bonds to
slow down. Normally, when interest rates fall, prerefundings boost the
bond supply. But rates have been low for some time and most issuers have
already completed their prerefundings. Perpetuating the slowdown in
refunding activity is the currently close relationship of Treasury yields
to municipal yields. Given the narrow spread between these yields, it is
possible that the Treasury escrows used in prerefundings may not be
adequate enough to pay off the municipal issues.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Ba and lower -- 37.6%
Baa -- 19.4%
A -- 1.4%
Aa -- 2.9%
Aaa -- 37.7%
VMIGI -- 1.0%
Footnote reads:
*As a percentage of market value as of 9/30/98. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's descriptions
unless noted otherwise; percentages may include unrated bonds considered
by Putnam Management to be of comparable quality. Ratings will vary over
time.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Iowa Financing Authority Health Care Facility
9.25%, 7/1/25
Los Angeles (California) Regional Airports Improvement Corp.
9.25%, 8/1/24
Delaware Valley Regional Financing Authority
7.75%, 7/1/27
Butler (Alabama) Industrial Development Board
8.00%, 9/1/28
Midland County (Michigan) Economic Development Corp.
9.50%, 7/23/09
Denver (Colorado) City & County Airport
8.50%, 11/15/23
Massachusetts State Port Authority Special Projects
10.00%, 3/1/26
Texas State Housing and Community Affairs Home Mortgage
9.663%, 7/2/24
Hammond (Indiana) Industrial Port Authority
9.65%, 6/1/14
California Statewide Community Development Authority
5.35%, 1/1/22
Footnote reads:
These holdings represent 28.1% of the fund's net assets as of 9/30/98.
Portfolio holdings will vary over time.
* LONG-TERM PERSPECTIVE REMAINS ESSENTIAL
This unusual bond market has been more focused on what the equity markets
will do than on what interest rates will do. Despite this atypical
behavior, today's troubles are being met by sound monetary and economic
policies in the United States. However, it is not unusual in times like
these that comparisons are made with other turbulent eras. We do not
believe the current conditions resemble those that prevailed in the 1930s
or in the 1970s. Inflation is at the lowest level in 40 years, interest
rates are the lowest since the 1960s, and we expect the eight-year
economic expansion to continue, albeit at a slower pace.
Although Blake expects bouts of market volatility to continue, these
factors provide reason for optimism about prospects for municipal bonds,
and the relative stability of the municipal bond market in comparison to
other capital markets may well begin to draw nervous investors in larger
numbers. Should this occur, the increased demand could well have a
favorable effect on bond prices and on your fund's performance.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 18, 1998
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, 1998, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 bonds.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
Lehman Bros
Market Municipal Consumer
Common shares NAV price Bond Index Price Index
- ----------------------------------------------------------------------
6 months 3.60% 5.85% 4.64% 0.74%
- ----------------------------------------------------------------------
1 year 7.60 8.18 8.72 1.36
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5 years 36.97 44.95 36.38 12.61
Annual average 6.49 7.71 6.40 2.40
- ----------------------------------------------------------------------
Life of fund (5/25/89) 108.76 120.51 108.23 31.99
Annual average 8.19 8.83 8.18 3.02
- ----------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 9/30/98
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------------
Income1 $0.345
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Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.345
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Preferred shares Series A (900 shares)
- ------------------------------------------------------------------------------
Income1 $946.91
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Capital gains1 --
- ------------------------------------------------------------------------------
Total $946.91
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Share value
(common shares): NAV Market price
- ------------------------------------------------------------------------------
3/31/98 $9.28 $10.50
- ------------------------------------------------------------------------------
9/30/98 9.29 10.75
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Current return
(common shares/end of period):
- ------------------------------------------------------------------------------
Current dividend rate2 7.43% 6.42%
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Taxable equivalent3 12.30 10.63
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1 Capital gains, if any, 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
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 in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the face amount of 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 does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. It is not possible to
invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1998 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Collateral -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (96.7%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Alabama (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$5,750,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB- $ 6,634,063
Arizona (2.5%)
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2,500,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A,
7 1/8s, 10/1/32 B2 2,818,750
3,000,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A3 3,318,750
--------------
6,137,500
California (6.8%)
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3,500,000 CA Hlth. Fac. Auth. Rev. Bonds (Cedar-Sinai
Med. Ctr.), MBIA, 5 1/8s, 8/1/27 Aaa 3,548,125
5,700,000 CA Statewide Cmnty. Dev. Auth. IF COP
(Motion Picture & TV Fund), AMBAC,
5.35s, 1/1/22 Aaa 5,714,250
6,415,000 Los Angeles, Regl. Arpt. Impt. Corp Rev. Bonds
(Continental Airlines), 9 1/4s, 8/1/24 BB+/P 7,730,075
--------------
16,992,450
Colorado (5.1%)
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Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
1,330,000 Prerefunded, 8 3/4s, 11/15/23 Aaa 1,542,800
3,670,000 8 3/4s, 11/15/23 Baa1 4,202,150
545,000 Prerefunded, MBIA, 8 1/2s, 11/15/23 (SEG) Aaa 606,994
5,805,000 MBIA, 8 1/2s, 11/15/23 (SEG) Aaa 6,472,575
--------------
12,824,519
Delaware (2.9%)
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5,000,000 Delaware Valley, Regl. Fin. Auth. Govt. Rev. Bonds,
Ser. C, AMBAC, 7 3/4s, 7/1/27 Aaa 7,225,000
Georgia (3.3%)
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3,025,000 De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.), Ser. B, 10s, 4/1/17 B+/P 3,418,250
3,900,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 8.597s, 8/1/10 Aaa 4,680,000
--------------
8,098,250
Illinois (5.0%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
2,318,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,587,468
1,760,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,960,200
4,250,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa2 5,153,125
IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.)
930,000 Ser. A, 7 7/8s, 7/1/20 BB/P 1,064,850
1,280,000 Prerefunded, Ser. A, 7 7/8s, 7/1/20 AAA/P 1,590,400
--------------
12,356,043
Indiana (4.3%)
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5,344,282 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB+/P 5,729,551
4,500,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 5,073,750
--------------
10,803,301
Iowa (6.3%)
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2,000,000 Des Moines, Hosp. Rev. Bonds (Des Moines
Genl. Hosp), Ser. B, 8 1/4s, 11/15/11 BB-/P 2,317,500
8,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 11,475,000
2,000,000 Polk Cnty., Rev. Bonds (Catholic Hlth. Initiatives),
Ser. A, 5s, 12/1/28 Aa2 1,977,500
--------------
15,770,000
Kentucky (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Boone Cnty. Poll. Control Rev. Bonds
(Dayton Pwr. & Lt. Co.), Ser. A, 6 1/2s, 11/15/22 Aa3 4,395,000
1,455,000 Jefferson Cnty., 1st Mtge. Rev. Bonds
(AHF/KY-IOWA, Inc.), 10 1/4s, 1/1/20 B-/P 1,520,475
--------------
5,915,475
Louisiana (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 5,343,750
2,500,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,846,875
2,000,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa3 2,107,880
3,000,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), 8s, 12/1/24 Ba1 3,183,750
--------------
13,482,255
Massachusetts (16.4%)
- --------------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. IFB
3,000,000 (St. Elizabeth Hosp.), Prerefunded, Ser. E, FSA,
9.82s, 8/12/21 Aaa 3,566,250
2,000,000 (New England Medical Ctr.), MBIA, 6.68s, 7/1/18 Aaa 2,150,000
1,125,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 Ba2 1,153,800
4,500,000 MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. 53, MBIA,
6.15s, 12/1/29 (SEG) Aaa 4,831,875
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
1,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 1,687,500
3,500,000 Ser. A, 9s, 7/1/15 BB-/P 3,928,750
MA State Indl. Fin. Agcy. Rev. Bonds
925,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB-/P 972,406
4,500,000 (Orchard Cove Inc.), Prerefunded, 9s, 5/1/22 AAA/P 5,383,125
2,380,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,662,625
4,250,000 (Emerson College), 8.9s, 1/1/18 BBB-/P 4,637,813
3,400,000 (Evanswood Bethzatha), 7.85s, 1/15/17 B+/P 3,655,000
5,800,000 MA State Port Auth. Rev. Bonds
(Harborside Hyatt), 10s, 3/1/26 B/P 6,293,000
--------------
40,922,144
Michigan (6.4%)
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2,575,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 3,183,344
4,800,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds,
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 5,274,000
1,000,000 MI State Strategic Fund Resource Recvy. Ltd.
Oblig. Rev. Bonds (Central Wayne Energy Rec.),
Ser. A, 7s, 7/1/27 B/P 1,020,000
6,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 6,532,500
--------------
16,009,844
Mississippi (1.3%)
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3,035,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.), Ser. C,
9 7/8s, 12/1/14 Ba1 3,151,756
Missouri (2.0%)
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4,700,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 4,940,875
Nebraska (0.5%)
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1,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.284s, 11/15/16 Aaa 1,193,750
New Hampshire (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
1,870,000 (Havenwood-Heritage Heights), 9 3/4s, 12/1/19 AAA/P 2,057,000
1,000,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,073,750
1,500,000 NH State Bus. Fin. Auth. Swr. & Solid Waste
Rev. Bonds (Crown Paper), 7 7/8s, 7/1/26 BB- 1,721,250
--------------
4,852,000
New York (7.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,350,000 NY State Energy Res. & Dev. Auth. Poll. Control
IFB, FGIC, 7.95s, 7/1/29 (acquired 12/1/94,
cost $2,453,729) (RES) Aaa 3,146,063
4,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Rochester Gas & Electric, Co.),
Ser. C, FSA, 8 1/8s, 12/1/28 Aaa 4,109,080
3,000,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig.
Rev. Bonds, Ser. A, 7 3/8s, 9/15/21 Aaa 3,401,250
1,800,000 NY State Hsg. Fin. Agcy. VRDN
(Normandie Court I), 3.30s, 5/15/15
(Landesbank Hessien (LOC)) VMIG1 1,800,000
NY State Local Govt. Assistance Corp. Rev. Bonds,
Prerefunded
1,500,000 Ser. A, 7s, 4/1/16 Aaa 1,646,250
2,000,000 Ser. D, 6 3/4s, 4/1/21 Aaa 2,225,000
700,000 NY State Local Govt. Assistance Corp. VRDN,
Ser. E, 3.25s, 4/1/25 VMIG1 700,000
2,160,000 Port Auth NY & NJ Special Oblig. Rev. Bonds
(Continental/Eastern Laguardia), 9 1/8s, 12/1/15 Ba2 2,392,200
--------------
19,419,843
Pennsylvania (6.3%)
- --------------------------------------------------------------------------------------------------------------------------
$280,000 Allegheny Cnty., Indl. Dev. Auth. Aprt. Spl. Facs.
Rev. Bonds, 8 7/8s, 3/1/2021 B+ 316,050
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (United Hosp. Inc.), Ser. A,
8 3/8s, 11/1/11 AAA 2,144,600
3,250,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 3,705,000
2,500,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 10.534s, 9/1/26 Aaa 2,893,750
2,100,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. C,
8 5/8s, 11/15/16 Aaa 2,436,000
3,400,000 Philadelphia, Regl. Port Auth. Lease IFB
(Kidder Peabody), MBIA, 8.52s, 9/1/13 Aaa 4,118,250
--------------
15,613,650
Texas (3.9%)
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2,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa2 2,696,875
695,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 847,900
4,800,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 9.663s, 7/2/24 AAA 6,156,000
--------------
9,700,775
Utah (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,300,000 Carbon Cnty., Util. Rev. Bonds
(Laidlaw Solid Waste Disp.), Ser. A, 7 1/2s, 2/1/10 BBB+ 3,786,750
4,000,000 Tooele Cnty., Poll. Control Rev. Bonds
(Laidlaw Environmental), Ser. A, 7.55s, 7/1/27 B/P 4,495,000
--------------
8,281,750
Wisconsin (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
530,000 WI Hsg. & Econ. Dev. Auth. IFB
(Home Ownership Dev.), 10.108s, 10/25/22 Aa3 600,223
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $223,284,433) (b) $ 240,925,466
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $249,150,937.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1998 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
do not necessarily represent what the agencies would ascribe to these securities at September 30, 1998. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $223,284,433, resulting in gross unrealized appreciation and
depreciation of $19,282,663 and $1,641,630, respectively, or net unrealized appreciation of $17,641,033.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at September 30, 1998 was $3,146,063 or 1.3% of net assets.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at September 30, 1998.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes
in the market interest rates, and VRDN's are the current interest rates at September 30, 1998.
The fund had the following industry group concentrations greater than 10% at September 30, 1998 (as a
percentage of net assets):
Transportation 25.2%
Healthcare 17.5
Utilities 11.3
The fund had the following insurance concentration greater than 10% at September 30, 1998 (as a percentage of
net assets):
MBIA 11.1%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1998 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
Municipal Bond
Index (long) $2,695,875 $2,638,918 Dec-98 $56,957
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investment in securities at value
(identified cost $223,284,433) (Note 1) $240,925,466
- -----------------------------------------------------------------------------------------------
Cash 250,920
- -----------------------------------------------------------------------------------------------
Interest receivable 4,785,846
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 5,018,328
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 21,000
- -----------------------------------------------------------------------------------------------
Total assets 251,001,560
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,327,553
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 439,344
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 29,272
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,588
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,603
- -----------------------------------------------------------------------------------------------
Other accrued expenses 42,263
- -----------------------------------------------------------------------------------------------
Total liabilities 1,850,623
- -----------------------------------------------------------------------------------------------
Net assets $249,150,937
Represented by
- -----------------------------------------------------------------------------------------------
Series A remarketed preferred shares, (8,000 shares authorized;
900 shares issued at $50,000 per share) (Note 4) $ 45,000,000
- -----------------------------------------------------------------------------------------------
Paid-in capital -- common shares (Note 1) 202,938,326
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 181,414
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (16,666,793)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 17,697,990
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $249,150,937
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net assets allocated to Series A remarketed preferred
shares-liquidation preference $ 45,000,000
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $204,150,937
- -----------------------------------------------------------------------------------------------
Net assets per common share
($204,150,937 divided by 21,977,203 shares) $9.29
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended September 30, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $8,954,793
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 872,810
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 142,585
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,301
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,190
- -----------------------------------------------------------------------------------------------
Reports to shareholders 13,974
- -----------------------------------------------------------------------------------------------
Auditing 33,796
- -----------------------------------------------------------------------------------------------
Legal 4,660
- -----------------------------------------------------------------------------------------------
Postage 17,707
- -----------------------------------------------------------------------------------------------
Exchange listing fees 12,400
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 67,250
- -----------------------------------------------------------------------------------------------
Other 5,446
- -----------------------------------------------------------------------------------------------
Total expenses 1,180,119
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (13,612)
- -----------------------------------------------------------------------------------------------
Net expenses 1,166,507
- -----------------------------------------------------------------------------------------------
Net investment income 7,788,286
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (987,806)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 112,392
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 1,627,111
- -----------------------------------------------------------------------------------------------
Net gain on investments 751,697
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $8,539,983
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
September 30 March 31
-------------------------------
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 7,788,286 $ 16,309,455
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (875,414) (11,348,310)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,627,111 14,919,515
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,539,983 19,880,660
- ---------------------------------------------------------------------------------------------------------------
Distributions to Series A remarketed preferred
shareholders from net investment income (852,219) (1,652,706)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares
of $0 and $28,111, respectively) 7,687,764 18,227,954
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders from
net investment income (7,568,302) (15,035,863)
- ---------------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of distributions 967,987 2,035,042
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,087,449 5,227,133
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 248,063,488 242,836,355
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $181,414 and $813,649, respectively) $249,150,937 $248,063,488
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 21,882,030 21,679,818
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 95,173 202,212
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 21,977,203 21,882,030
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding
at beginning and end of period 900 900
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share September 30
operating performance (Unaudited) Year ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.28 $9.12 $9.16 $9.03 $9.23 $9.49
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36 .75 .80 .80 .81 .81
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .18 (.08) .13 (.19) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .40 .93 .72 .93 .62 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.04) (.08) (.07) (.08) (.07) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.35) (.69) (.69) (.72) (.75) (.75)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.77) (.76) (.80) (.82) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $9.29 $9.28 $9.12 $9.16 $9.03 $9.23
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $10.75 $10.50 $10.25 $10.00 $9.50 $9.25
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at
market value (%)(common shares 5.85* 9.67 10.26 13.60 11.50 (4.99)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $249,151 $248,063 $242,836 $241,599 $236,333 $238,148
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .58* 1.15 1.15 1.17 1.17 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.43* 7.27 8.05 7.79 8.27 7.97
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 1.19* 16.78 9.30 34.45 49.11 28.55
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for dividend
payments to preferred shareholders.
(c) The ratio of expenses to average net assets for the year ended March 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2)
</TABLE>
Notes to financial statements
September 30, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Municipal Trust (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
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 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
value of restricted securities is determined by Putnam Management
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 and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. 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. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
D) 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, 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.
At March 31, 1998, the fund had a capital loss carryover of approximately
$12,422,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------ ------------------
$3,135,000 March 31, 2003
1,309,000 March 31, 2004
7,978,000 March 31, 2006
E) 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 seven day period. The applicable dividend rate for the
remarketed preferred shares on September 30, 1998 was 3.40%. 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.
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on original issue
discount bonds are accreted according to the yield-to-maturity basis.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management investment advisory, and
administrative services is paid quarterly based on the average net assets
of the fund. Such fee is based on the annual rate of 0.70% of average
weekly net assets.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than .70% of the liquidation preference
of the remarketed preferred shares outstanding during the period).
The fund reimburses Putnam Management an allocated amount 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended September 30, 1998 fund expenses were reduced by
13,612 under expense offset arrangements with PFTC. 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.
Each Trustee of the fund receives an annual Trustee fee, of which $490 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension 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 Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended September 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$2,875,360 and $5,076,372, 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
Remarketed preferred shares
The Series A 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 such dividends have been
declared) and, in certain circumstances, a call premium.
It is anticipated that dividends paid to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal Revenue
Code of 1986. To the extent that the fund earns taxable income and capital
gains by the conclusion of a fiscal year, it will be required to apportion
to the holders of the remarketed preferred shares throughout that year
additional dividends as necessary to result in an after-tax equivalent to
the applicable dividend rate for the period.
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 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, 1998, no such restrictions have been
placed on the fund.
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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
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our website (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
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