Putnam
High Yield
Municipal
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, has awarded Putnam High Yield
Municipal Trust 5 out of 5 stars as of March 31, 1999, for overall
risk-adjusted performance (based on 3-year and 5-year returns) within
Morningstar's Closed-End Municipal Bond fund category. Only 10% of the 193
funds rated received 5 stars.*
* "Putnam High Yield Municipal Trust's strategy is especially well
prepared for two types of macroeconomic scenarios -- stable growth with
stable interest rates and inflationary growth accompanied by rising rates.
At the moment, business data suggest that the U.S. economy is hovering
between these two scenarios, which is good news for this fund."
-- Blake E. Anderson, fund manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
19 Financial statements
29 Results of October 1, 1998 shareholder meeting
* Past performance is not indicative of future results. Morningstar
ratings reflect risk-adjusted performance through 3/31/99 and are
subject to change every month. Morningstar ratings are calculated from
a fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess
of 90-day Treasury bill returns and a risk factor that reflects
performance below 90-day Treasury bill returns. For 3-year performance
the fund received 5 stars and for 5-year performance the fund received
5 stars; there were 193 and 191 funds rated, respectively; 10% of the
funds in an investment category received 5 stars; the next 22.5%
received 4 stars. The fund was not ranked over longer periods.
Performance of other share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Municipal bonds have enjoyed a period of relative calm as most of the
world's other securities markets continued to experience varying degrees
of volatility. Of particular interest to shareholders of Putnam High Yield
Municipal Trust is the existence of a significant gap between the
attractive yields from the bonds in which the fund invests and the lower
yields on the bonds of more conservative funds.
The result has been a boost in the yields of your fund's holdings and thus
an increase in the amount of tax-free income they are able to generate.
This income compensates for the higher risk implied in the portfolio's
emphasis on lower-rated holdings. Because of the care with which these
holdings are researched, selected, and monitored, the fund's management
team believes the risks are reasonable, especially given the expectation
of continued economic strength accompanied by low inflation.
In the following report, Fund Manager Blake E. Anderson reviews
performance during the fiscal year just ended and takes a look at
prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 1999
Report from the Fund Manager
Blake E. Anderson
High current income, a broadly diversified, high-yield portfolio, and the
diligence of our credit research team helped Putnam High Yield Municipal
Trust deliver solid investment results for the 1999 fiscal year. Total
return for the 12 months ended March 31, 1999, was 5.82% at net asset
value and 11.19% at market price. Your fund's dividend rate of 7.55% at
net asset value and 6.31% at market price was well ahead of its investment
category's average yield of 4.64% at the end of March, according to
Lipper. For investors in the top federal income bracket, the returns were
equivalent to 12.50% and 10.45%, respectively, for fully taxable
investments. A complete presentation of your fund's investment performance
can be found on page 9 of this report.
Although the municipal markets have been calm relative to taxable
securities, the fiscal year brought dramatic changes in interest rates.
Last July, after narrowing for several months, the spread between high-
and low-quality bonds was as tight as it has ever been. After Russia
effectively defaulted in August, taxable spreads began to widen again
dramatically, as investors sold off lower quality bonds and bid up prices
of U.S. Treasuries. However, the pace of change in the municipal markets
was much slower. Spreads did not widen significantly until October. We
then became aggressive buyers seeking value opportunities while the market
was most favorable.
* FUND'S EMPHASIS ON HIGH CURRENT INCOME WELL SUITED TO DIFFERENT MARKETS
In a flat to declining interest-rate environment, when bond prices are
relatively stable, your fund's emphasis on high current income helps it
outperform the market. In a declining market, when prices are going down
and yields are going up, emphasizing high current income becomes a
defensive strategy. In such an environment, the higher income level may
partially offset the effect of declining prices on a total return basis.
Our search for high-yielding bonds during the past fiscal year faced a new
challenge: the decreasing supply of such bonds. After many years of
economic expansion many municipalities have earned higher credit ratings.
The use of insurance that protects issuing municipalities from the danger
of default has also increased, improving the credit quality of many bonds
and thereby diminishing their yields. Meanwhile, despite the widening of
spreads during the fall of 1998, demand for high-yield bonds has been
generally strong, forcing us to compete with many other buyers for a
limited supply. In this competitive environment, our challenge is to be
discriminating; we research many issues for each one we buy, using a
three-tiered investment approach to the selection process: income, total
return, and risk diversification.
* POLICY EMPHASIZES DIVERSIFICATION TO SPREAD CREDIT RISKS
The growing interdependence of world economies is making interest-rate
forecasting more difficult. Fortunately, the Federal Reserve Board has
been vigilant in maintaining order, and it has been successful in sending
signals that help the markets do their job. Despite periods of volatility,
we believe that, on the whole, the marketplace has remained in balance.
As a result, although we might do some portfolio restructuring if we
anticipate a period of exceptionally high market volatility, in general we
look for other sources of extra return that are more predictable. We use
diligence and old-fashioned hard work to build a portfolio that is
diversified by industry and geographic location. Selectivity is key. In a
portfolio comprising dozens of securities, an unpleasant surprise from an
individual holding would have a relatively minor impact on the fund.
* INDUSTRIAL DEVELOPMENT BONDS AND UNRATED BONDS OFFER OPPORTUNITY
One place we look for hidden value is in industrial development bonds
backed by out-of-favor industries. For example, when spreads started to
widen last fall, we turned to bonds issued for commodity producers.
Whenever market trends go against a particular sector for a time,
lower-coupon holdings are punished more severely than high-coupon bonds.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa 37.7%
Aa 2.0%
A 0.3%
BBB/Baa 20.4%
BB/Ba 22.6%
B 17.0%
Footnote reads:
* Based on a percentage of market value as of 3/31/99. A bond rated BBB/Baa
or higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
While we are cautious about commodities in general, we believe that when
issuers we have targeted begin to recover, their bonds will appreciate.
For example, a commodity-based operation with strong fundamentals is
Solvay Paper, which makes liner board for cardboard boxes. While these
holdings, as well as others discussed in this report, were viewed
favorably during the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
We have generally avoided electric utilities bonds, even though we like
the sector, because recent offerings have been structured with unusually
short call dates, which have the potential to interrupt a steady income
stream. We're also looking selectively at the solid waste industry, but
only at those bonds with the highest yields.
Unrated securities have also provided opportunities for your fund. Rating
agencies do not have the resources to rate every bond issue, and so many
smaller issues are not rated. Our research capabilities enable us to
perform our own analysis, identifying what we believe to be acceptable
risks. Franklin Regional Hospital in New Hampshire is a good example. It
came to market with new unrated bonds, which upon analysis we determined
were attractive, and so we purchased the offering.
[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 City & County Airport Revenue Bonds
8.50% 11/15/23
Massachusetts State Port Authority Special Projects
10.00%, 3/1/26
Texas State Housing and Community Affairs Home Mortgage
10.19%, 7/2/24
California Statewide Community Development Authority
5.35%, 1/1/22
Hammond (Indiana) Industrial Port Authority
9.65%, 6/1/14
Footnote reads:
These holdings represent 27.9% of the fund's net assets as of 3/31/99.
Portfolio holdings will vary over time.
Your fund continues to benefit from its substantial holdings in bonds
backed by airlines and air freight companies -- including American,
Continental, United, and Federal Express. A booming economy has filled
airline seats to capacity. Even first-class seats are in short supply. We
initiated positions in these securities some time ago with excellent
results, but we are not likely to add to them at current prices.
* LITTLE SIGN OF INFLATION SHOULD BENEFIT BOND INVESTORS
Despite strong economic growth and low unemployment, the core inflation
rate remains at historically low levels: between 0 and 2% for the past 12
months, depending on the measure used. This is giving rise to a new vision
- -- one in which strong growth does not necessarily translate to higher
prices or inflation. Since upward pressure on inflation is negative for
bonds, this new insight is positive for all fixed-income markets.
The relationship between supply and demand is currently also positive,
especially in the municipal markets. The recent slight rise in yields
caused the supply of new municipal bonds to taper off. The calendar of new
issues shows that about 20% to 30% fewer bonds are coming to market
compared to year-earlier levels. On the demand side, cash flow into
municipal bonds has increased, a by-product of a volatile stock market and
investors' need to rebalance their portfolios.
Concerns are gradually beginning to surface about the effects of the Year
2000 (Y2K) problem and Medicare reform proposals on certain sectors of the
municipal bond market. We believe that Putnam is well-prepared for the
risks associated with these issues because our analytical research
capabilities help us in identifying possible problems. Our investment
approach, after all, emphasizes this sort of awareness of the market. We
will continue to maintain broad diversification in the portfolio while
taking advantage of opportunities to achieve high current income.
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 3/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest.
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 3/31/99
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index price index
- --------------------------------------------------------------------------
1 year 5.82% 11.19% 6.20% 1.73%
- --------------------------------------------------------------------------
5 years 43.54 70.31 44.43 12.09
Annual average 7.50 11.24 7.63 2.31
- --------------------------------------------------------------------------
Life of fund (5/25/89) 113.23 131.63 111.33 33.28
Annual average 7.99 8.90 7.91 2.97
- --------------------------------------------------------------------------
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
12 months ended 3/31/99
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 12
- ------------------------------------------------------------------------------
Income1 $0.69
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Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.69
- ------------------------------------------------------------------------------
Preferred shares Series A (900 shares)
- ------------------------------------------------------------------------------
Income1 $1,767.57
- ------------------------------------------------------------------------------
Capital gains1 --
- ------------------------------------------------------------------------------
Total $1,767.57
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
3/31/98 $9.28 $10.50
- ------------------------------------------------------------------------------
3/31/99 9.14 10.94
- ------------------------------------------------------------------------------
Current return (common shares/end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 7.55% 6.31%
- ------------------------------------------------------------------------------
Taxable equivalent3 12.50 10.45
- ------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal 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 the
face amount of 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 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.
Report of independent accountants
For the fiscal year ended March 31, 1999
To the Trustees and Shareholders of
Putnam High Yield Municipal Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, (except for bond ratings),
and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the
financial position of Putnam High Yield Municipal Trust (the "fund") at
March 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at March 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 13, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999
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 Coll. -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
U.S. Govt. Coll. -- U.S. Government Collateralized
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.7%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C> <C>
Alabama (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
$5,750,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB- $ 6,547,813
Arizona (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tucson/Navajo Elec. Pwr.), Ser. A, 7 1/8s,
10/1/32 B2 2,787,500
3,000,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 Baa1 3,247,500
--------------
6,035,000
California (6.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 CA Hlth. Fac. Auth. Rev. Bonds (Cedar-Sinai
Med. Ctr.), MBIA, 5 1/8s, 8/1/27 Aaa 3,495,625
5,700,000 CA Statewide Cmnty. Dev. Auth. IF COP
(Motion Picture & TV Fund), AMBAC, 5.35s,
1/1/22 Aaa 5,792,625
6,415,000 Los Angeles, Regl. Arpt. Impt. Corp Rev. Bonds
(Continental Airlines), 9 1/4s, 8/1/24 BB+/P 7,609,794
--------------
16,898,044
Colorado (5.1%)
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Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
3,670,000 8 3/4s, 11/15/23 Baa1 4,101,225
1,330,000 Prerefunded, 8 3/4s, 11/15/23 Aaa 1,519,525
5,805,000 MBIA, 8 1/2s, 11/15/23 (SEG) Aaa 6,349,219
545,000 Prerefunded, MBIA, 8 1/2s, 11/15/23 (SEG) Aaa 597,456
--------------
12,567,425
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 7,031,250
Florida (0.6%)
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1,500,000 Lee Cnty., Indl. Dev. Auth. Hlth. Care Facs.
Rev. Bonds (Cypress Cove Hlth. Pk.), Ser. A,
6 3/8s, 10/1/25 BB/P 1,565,625
Georgia (4.5%)
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800,000 De Kalb Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Wood Hills Apt.), 3s, 12/1/07 A-1+ 800,000
3,025,000 De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.), Ser. B, 10s, 4/1/17 AAA 3,645,125
2,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds
(Baptist Hlthcare Sys.), 6 1/4s, 10/1/18 B/P 1,972,500
3,900,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 9.307s, 8/1/10 Aaa 4,616,625
--------------
11,034,250
Illinois (6.0%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
2,268,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,489,130
1,715,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,880,069
4,250,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 5,036,250
2,680,000 East Chicago, Ind. Exempt Fac. Rev. Bonds
(Ispat Inland, Inc.), 7s, 1/1/14 B1 2,693,400
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
930,000 Ser. A, 7 7/8s, 7/1/20 BB/P 1,050,900
1,280,000 Prerefunded Ser. A, 7 7/8s, 7/1/20 AAA/P 1,564,800
--------------
14,714,549
Indiana (5.4%)
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3,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 2,771,250
5,270,827 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB+/P 5,574,374
4,500,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 5,011,875
--------------
13,357,499
Iowa (5.6%)
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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 2,292,500
8,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 11,421,875
--------------
13,714,375
Kentucky (2.4%)
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4,000,000 Boone Cnty. Poll. Control Rev. Bonds (Dayton
Pwr. & Lt. Co.), Ser. A, 6 1/2s, 11/15/22 Aa3 4,400,000
1,435,000 Jefferson Cnty., 1st Mtge. Rev. Bonds
(AHF/KY-IOWA, Inc.), 10 1/4s, 1/1/20 B-/P 1,490,219
--------------
5,890,219
Louisiana (5.4%)
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5,000,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 5,252,300
2,500,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,796,875
2,000,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa3 2,071,040
3,000,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), 8s, 12/1/24 Ba1 3,124,620
--------------
13,244,835
Massachusetts (16.3%)
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MA State Hlth. & Edl. Fac. Auth. IFB
3,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.523s, 8/12/21 Aaa 3,487,500
2,000,000 (New England Medical Ctr.), MBIA, 6.68s, 7/1/18 Aaa 2,097,500
1,125,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 Ba2 1,148,760
4,500,000 MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. 53, MBIA,
6.15s, 12/1/29 (SEG) Aaa 4,736,250
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
1,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 1,668,750
3,500,000 Ser. A, 9s, 7/1/15 BB-/P 3,885,000
MA State Indl. Fin. Agcy. Rev. Bonds
900,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB-/P 938,268
4,500,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 5,293,125
2,380,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,612,050
4,250,000 (Emerson College), 8.9s, 1/1/18 BBB-/P 4,706,875
3,315,000 (Evanswood Bethzatha), 7.85s, 1/15/17 B/P 3,530,475
5,800,000 MA State Port Auth. Rev. Bonds
(Harborside Hyatt), 10s, 3/1/26 B/P 6,206,000
--------------
40,310,553
Michigan (6.4%)
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2,575,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 3,102,875
4,800,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 5,148,000
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 1,011,250
6,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 6,420,000
--------------
15,682,125
Missouri (1.9%)
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4,600,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 4,776,456
Nebraska (0.5%)
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1,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.791s, 11/15/16 Aaa 1,173,750
Nevada (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 3,296,250
New Hampshire (2.2%)
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NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
1,850,000 (Havenwood-Heritage Heights), U. S. Govt. Coll.,
9 3/4s, 12/1/19 AAA/P 1,982,516
1,000,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,047,500
1,000,000 NH State Bus. Fin. Auth. Rev. Bonds (Franklin Regl.
Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 996,250
1,500,000 NH State Bus. Fin. Auth. Swr. & Solid Waste Rev.
Bonds (Crown Paper), 7 7/8s, 7/1/26 BB- 1,507,500
--------------
5,533,766
New York (5.7%)
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2,350,000 NY State Energy Res. & Dev. Auth. Poll. Control IFB,
FGIC, 10.151s, 7/1/29 (acquired 12/19/94,
cost $2,453,729) (RES) Aaa 3,075,563
3,000,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig.
Rev. Bonds, Ser. A, 7 3/8s, 9/15/21 Aaa 3,360,000
NY State Local Govt. Assistance Corp. Rev. Bonds,
Prerefunded
1,500,000 Ser. A, 7s, 4/1/16 Aaa 1,625,625
2,000,000 Ser. D, 6 3/4s, 4/1/21 Aaa 2,205,000
1,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 1,560,000
2,160,000 Port Auth NY & NJ Special Oblig. Rev. Bonds
(Continental/Eastern Laguardia), 9 1/8s, 12/1/15 Ba2 2,346,300
--------------
14,172,488
Oregon (0.4%)
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1,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 1,000,000
Pennsylvania (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Spl. Facs.
Rev. Bonds, 8 7/8s, 3/1/21 B+ 310,100
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (United Hosp. Inc.), Ser. A,
8 3/8s, 11/1/11 AAA 2,098,920
3,250,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (MacMillan
Ltd. Partnership), 7.6s, 12/1/20 Baa2 3,928,438
2,500,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 10.149s, 9/1/26 Aaa 3,090,625
2,100,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. C,
8 5/8s, 11/15/16 Aaa 2,401,875
3,400,000 Philadelphia, Regl. Port Auth. Lease IFB (Kidder
Peabody), MBIA, 8.92s, 9/1/13 Aaa 4,071,500
--------------
15,901,458
Texas (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Abilene Hlth. Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Retirement), 5 7/8s, 11/15/18 BB+/P 992,500
2,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 2,665,625
695,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 824,441
4,800,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 10.190s, 7/2/24 AAA 5,958,000
--------------
10,440,566
Utah (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,300,000 Carbon Cnty., Util. Rev. Bonds (Laidlaw Solid
Waste Disp.), Ser. A, 7 1/2s, 2/1/10 BBB 3,708,375
4,000,000 Tooele Cnty., Poll. Control Rev. Bonds
(Laidlaw Environmental), Ser. A, 7.55s, 7/1/27 B/P 4,445,000
--------------
8,153,375
Wisconsin (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
430,000 WI Hsg. & Econ. Dev. Auth. IFB (Home Ownership
Dev.), 9.905s, 10/25/22 Aa3 477,300
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $228,046,797) (b) $ 243,518,971
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $246,682,892.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 1999 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 March 31, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $228,046,797, resulting in gross unrealized appreciation and
depreciation of $17,241,330 and $1,769,156, respectively, or net unrealized appreciation of $15,472,174.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at March 31, 1999 was $3,075,563 or 1.2% of net assets.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at March 31, 1999.
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 March 31, 1999.
The fund had the following industry group concentrations greater than 10% at March 31, 1999 (as a percentage
of net assets):
Transportation 25.0%
Health care 21.6
The fund had the following insurance concentration greater than 10% at March 31, 1999 (as a percentage of net
assets):
MBIA 12.1%
- ----------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ----------------------------------------------------------------------------
Municipal Bond
Index (long) $2,595,469 $2,582,675 Jun-99 $12,794
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investment in securities at value
(identified cost $228,046,797) (Note 1) $243,518,971
- -----------------------------------------------------------------------------------------------
Cash 269,754
- -----------------------------------------------------------------------------------------------
Interest receivable 4,561,203
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 95,000
- -----------------------------------------------------------------------------------------------
Total assets 248,444,928
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 9,844
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,296,848
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 419,389
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 14,315
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,912
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,537
- -----------------------------------------------------------------------------------------------
Other accrued expenses 9,191
- -----------------------------------------------------------------------------------------------
Total liabilities 1,762,036
- -----------------------------------------------------------------------------------------------
Net assets $246,682,892
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) 203,834,941
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (378,232)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (17,258,785)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 15,484,968
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $246,682,892
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A remarketed preferred shares $ 45,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on Series A
remarketed preferred shares 4,056
- -----------------------------------------------------------------------------------------------
Net assets allocated to Series A remarketed
preferred shares-liquidation preference $ 45,004,056
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $201,678,836
- -----------------------------------------------------------------------------------------------
Net assets per common share
($201,678,836 divided by 22,063,316 shares) $9.14
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended March 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Tax exempt interest income: $17,843,612
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,734,722
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 254,023
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,376
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,271
- -----------------------------------------------------------------------------------------------
Reports to shareholders 25,460
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 29,004
- -----------------------------------------------------------------------------------------------
Legal 8,353
- -----------------------------------------------------------------------------------------------
Postage 32,021
- -----------------------------------------------------------------------------------------------
Exchange listing fees 33,049
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 134,751
- -----------------------------------------------------------------------------------------------
Other 38,582
- -----------------------------------------------------------------------------------------------
Total expenses 2,307,687
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (31,147)
- -----------------------------------------------------------------------------------------------
Net expenses 2,276,540
- -----------------------------------------------------------------------------------------------
Net investment income 15,567,072
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,550,818)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 83,412
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (585,911)
- -----------------------------------------------------------------------------------------------
Net loss on investments (2,053,317)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $13,513,755
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended March 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 15,567,072 $ 16,309,455
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,467,406) (11,348,310)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (585,911) 14,919,515
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,513,755 19,880,660
- ---------------------------------------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income: (1,590,816) (1,652,706)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares
of $4,056 and $28,111, respectively) 11,922,939 18,227,954
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income: (15,168,137) (15,035,863)
- ---------------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of distributions 1,864,602 2,035,042
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,380,596) 5,227,133
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 248,063,488 242,836,355
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of and undistributed net investment income
of $378,232 and $813,649, respectively) $246,682,892 $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 181,286 202,212
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 22,063,316 21,882,030
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding
at beginning and end of year 900 900
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.28 $9.12 $9.16 $9.03 $9.23
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .71 .75 .80 .80 .81
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.09) .18 (.08) .13 (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .62 .93 .72 .93 .62
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income:
- ---------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.07) (.08) (.07) (.08) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.02) (.69) (.69) (.72) (.75)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income: (.67) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.76) (.77) (.76) (.80) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $9.14 $9.28 $9.12 $9.16 $9.03
- ---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $10.94 $10.50 $10.25 $10.00 $9.50
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)
(common shares)(a) 11.19 9.67 10.26 13.60 11.50
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $246,683 $248,063 $242,836 $241,599 $236,333
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.14 1.15 1.15 1.17 1.17
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.90 7.27 8.05 7.79 8.27
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.92 16.78 9.30 34.45 49.11
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Total 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
March 31, 1999
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, 1999, the fund had a capital loss carryover of approximately
$16,283,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- --------------
$3,134,000 March 31, 2003
1,309,000 March 31, 2004
7,979,000 March 31, 2006
3,861,000 March 31, 2007
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 March 31, 1999 was 3.27%. 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 temporary
differences of post-October loss deferrals and dividends payable.
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. For the year ended March 31,
1999, the fund required no such classifications.
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 zero coupon bonds,
original issue discount, stepped-coupon bonds and payment in kind 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 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 0.70% 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 0.70% 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 year ended March 31, 1999, fund expenses were reduced by $31,147
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 $480 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 year ended March 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $19,698,096 and
$16,718,522, respectively. Purchases and sales of short-term municipal
obligations aggregated $89,510,000 and $92,610,000 respectively. 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 March 31, 1999, no such restrictions have been placed
on the fund.
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
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So be sure to bookmark us at
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Results of October 1, 1998 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 1, 1998.
Certain issues were adjourned to November 5, 1998 and November 30, 1998
meetings. At the meeting, each of the nominees for Trustees was elected by
both common and preferred shareholders, as follows:
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
Jameson Adkins Baxter 15,952,192 379,001 392 0
Hans H. Estin 15,951,649 379,544 392 0
Ronald J. Jackson 15,962,379 368,814 392 0
Paul L. Joskow 15,953,115 378,078 392 0
Elizabeth T. Kennan 15,955,247 375,946 392 0
Lawrence J. Lasser 15,932,956 398,237 392 0
John H. Mullin III 15,955,598 375,595 392 0
Donald S. Perkins 15,949,169 382,024 392 0
William F. Pounds 15,946,647 384,546 392 0
George Putnam 15,968,200 362,993 392 0
George Putnam, III 15,945,248 385,945 392 0
A.J.C. Smith 15,944,755 386,438 392 0
W. Thomas Stephens 15,969,486 361,707 392 0
W. Nicholas Thorndike 15,946,134 385,059 392 0
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows:
Common Shares -- 15,916,703 votes for, and 133,276 votes against, with
281,214 abstentions.
Preferred Shares -- 392 votes for, and 0 votes against.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was not approved because it
failed to receive the affirmative vote of a majority of outstanding
preferred shares as follows:
Common Shares -- 11,832,006 votes for, and 1,210,481 votes against, with
1,069,112 abstentions.
Preferred Shares -- 354 votes for, and 222 votes against, with 40
abstentions.
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Richard A. Monaghan
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 Web site (www.putnaminv.com) 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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- ---------------------
51844 054 5/99
