Putnam
High Yield
Municipal
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's manager discusses performance for the
period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam High
Yield Municipal Trust that I will be signing. After more than 30 years
as Chairman of the Trustees and President of the Putnam Funds, the time
has come for me to step aside. In June, John Hill will become Chairman.
John is currently an independent Trustee and has served on the board for
the past 14 years. In addition, my son, George Putnam, III, will take on
the role of President. I am confident that the leadership of the funds
will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/ GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the Fund Manager
Blake E. Anderson
Reeling from a year of steady interest-rate increases, the municipal
bond market may finally be approaching the point at which the news gets
better. It may not seem like good news, but a responsible Federal
Reserve Board, such as the one we have, is good for bond investors. To
be sure, Fed policy and rising interest rates have had a negative effect
on bond prices as evidenced by the performance of Putnam High Yield
Municipal Trust for this fiscal year. However, in the longer run, these
increases should keep inflation, the bond market's worst enemy, under
control.
Total return for 12 months ended 3/31/00
NAV Market price
- ------------------------------------------------------------------------
-3.80% -28.75%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* INVERTED YIELD CURVE OFFERS CLUES TO POSITIVE CHANGE
The yield curve, generally an indicator of economic trends, gives some
clue as to why bond investors may soon begin to see better returns. The
yield curve graphs yields on Treasury bonds at different maturity dates;
usually it slopes upward with long-term bonds yielding more than
short-term bonds. In the past two months, the yield curve has inverted
so that 30-year yields are lower than 2-year yields, a rarely seen
phenomenon.
Here is the reason for the inversion: when interest rates moved up in
February and March, the bond markets rallied and yields actually fell.
This is not a normal reaction to tighter Fed monetary policy, but it is
a reaction that acknowledges that the Fed's actions combined with the
Treasury's buyback program may be making an impact on the strong
economy. This uncommon market behavior creates the inverted yield curve,
which usually signals lower interest rates over the long run and better
returns from bonds and bond fund investments.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 34.8%
Aa/AA -- 0.7%
A -- 3.5%
Baa/BBB -- 25.9%
Ba/BB -- 16.5%
B -- 16.5%
Other -- 2.1%
Footnote reads:
* As a percentage of market value as of 3/31/00. A bond rated Baa/BBB
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.
* HIGH LEVELS OF TAX-FREE INCOME SHOULD COMFORT INVESTORS
While insured municipal bonds have historically yielded about 85% of
comparable U.S. Treasury bonds, that ratio is now approximately 95%.
That close relationship translates into a very high level of tax-free
income for most municipal bond funds, including your fund.
We are working hard to maintain this high level of tax-free income. One
way we seek to do this is by looking for slight inefficiencies as the
bond market moves up and down. For example, just when the
intermediate-term maturities (10-year bonds) were performing unusually
well, he sold a portion of them and bought longer-term maturities (20-
to 30-year bonds) that were facing some difficulties at the time. Using
this strategy, we were able to purchase longer-term bonds when they were
priced at cheaper levels.
In most cases, we are compensated to take on more credit risk with bonds
from the lower end of the credit rating spectrum. Therefore, we will
pursue the lowering of the portfolio's credit quality as opportunities
appear, drawing on our in-depth credit research and remaining extremely
selective in our purchases of lower-rated bonds.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Iowa Financing Authority Health Care Facility
9.25% 7/1/25
Los Angeles, California, Regional Airport Improvement Corp.
9.25% 8/1/24
Delaware Valley Regional Finance 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
Massachusetts State Port Authority
10.00% 3/1/26
Texas Sate Housing and Community Affairs Home Mortgage
9.41% 7/2/24
Hodge County, Louisiana, Combined Utility
9.00% 3/1/10
California Statewide Community Development Authority
6.02% 1/1/22
Massachusetts State Industrial Financing Agency
9.00% 5/1/22
These holdings represent 27.7% of the fund's net assets as of 3/31/00.
Portfolio holdings will vary over time.
One holding that has had a negative impact on performance is the fund's
position in bonds issued by Carbon County, Utah, on behalf of Laidlaw
Solid Waste Disposal. As the result of discrepancies in Laidlaw's
presentation of its financial statements, outside auditors are reviewing
the financials, a situation that is causing some nervousness and
uncertainty among bondholders of the Carbon County bonds. Consequently
these bonds, making up about 1.5% of the net assets, have experienced a
price decline during this reporting period.
* LONG-TERM OUTLOOK IMPROVING
When interest rates are rising, it can be a natural reaction among
investors to choose guaranteed certificates of deposit over bond fund
investments because the income from CDs seems more appealing. However,
in such an environment, investors may find they are left with only one
to two years of attractive income and are then out of the bond market
during the period of its strongest returns. Although the principal value
on CDs is generally insured and their rate of return is fixed while a
fund investment's value and return will continually fluctuate, CDs may
be subject to penalties for early withdrawals and the income they
provide is fully taxable.
We believe that municipal bonds are attractively priced at current
levels. We do not anticipate major moves, either up or down, in
long-term interest rates over the next few months. It is apparent from
the inverted yield curve that the bond market has already begun to act
positively. Other economic reports are emerging that indicate the Fed's
tighter policies may be slowing economic growth, and bond markets,
including the municipal bond market, should respond accordingly.
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 3/31/00, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00
Lehman
Market Brothers Municipal Consumer
NAV price Bond Index price index
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year -3.80% -28.75% -0.08% 3.69%
- -----------------------------------------------------------------------------
5 years 29.36 8.97 34.30 13.15
Annual average 5.28 1.73 6.07 2.50
- -----------------------------------------------------------------------------
10 years 91.17 69.99 99.60 33.02
Annual average 6.69 5.45 7.15 2.89
- -----------------------------------------------------------------------------
Life of fund
(since 5/25/89) 104.09 65.27 111.16 38.29
Annual average 6.80 4.74 7.14 3.04
- -----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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.
</TABLE>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 3/31/00
- ---------------------------------------------------------------------
Distributions (common shares)
- ---------------------------------------------------------------------
Number 12
- ---------------------------------------------------------------------
Income 1 $0.624
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Capital gains 1 --
- ---------------------------------------------------------------------
Total $0.624
- ---------------------------------------------------------------------
Preferred Shares Series A (900 shares)
- ---------------------------------------------------------------------
Income 1 $1,789.95
- ---------------------------------------------------------------------
Capital gains 1 --
- ---------------------------------------------------------------------
Total $1,789.95
- ---------------------------------------------------------------------
Share value (common shares) NAV Market price
- ---------------------------------------------------------------------
3/31/99 $9.14 $10.938
- ---------------------------------------------------------------------
3/31/00 8.18 7.250
- ---------------------------------------------------------------------
Current return (common shares/end of period)
- ---------------------------------------------------------------------
Current dividend rate 2 7.04% 7.94%
- ---------------------------------------------------------------------
Taxable equivalent 3 11.66 13.15
- ---------------------------------------------------------------------
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 income tax. 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 net assets allocated to 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 assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
Report of independent accountants
For the fiscal year ended March 31, 2000
To the Trustees and Shareholders of Putnam High Yield Municipal Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (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, 2000, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States. 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 auditing standards
generally accepted in the United States, 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, 2000 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 9, 2000
The fund's portfolio
March 31, 2000
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (97.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C> <C>
Alabama (2.8%)
- ----------------------------------------------------------------------------------------------------------------------------
$ 5,750,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB $ 6,224,375
Arizona (2.5%)
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tucson/Navajo Elec. Pwr.), Ser. A,
7 1/8s, 10/1/32 Ba3 2,571,875
3,000,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 Baa3 3,094,020
----------------
5,665,895
Arkansas (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
2,000,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 2,095,000
California (8.5%)
- ----------------------------------------------------------------------------------------------------------------------------
3,500,000 CA Hlth. Fac. Auth. Rev. Bonds (Cedar-Sinai
Med. Ctr.), MBIA, 5 1/8s, 8/1/27 Aaa 3,171,875
5,700,000 CA Statewide Cmnty. Dev. Auth. IF COP
(Motion Picture & TV Fund), AMBAC,
6.018s, 1/1/22 Aaa 4,994,625
4,000,000 Foothill/Eastern Corridor Agcy. CA Toll
Road Rev. Bonds, 5 3/4s, 1/15/40 BBB- 3,735,000
6,320,000 Los Angeles, Regl. Arpt. Impt. Corp Rev. Bonds
(Continental Airlines), 9 1/4s, 8/1/24 BB+/P 7,125,800
1,650,000 San Joaquin Hills, Trans. Corridor Agcy. Toll
Road Rev. Bonds, Ser. A, MBIA, zero %, 1/15/32 AAA 251,625
----------------
19,278,925
Colorado (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
3,670,000 8 3/4s, 11/15/23 Baa1 3,926,900
1,330,000 8 3/4s, 11/15/23, Prerefunded Aaa 1,436,400
----------------
5,363,300
Delaware (2.8%)
- ----------------------------------------------------------------------------------------------------------------------------
5,000,000 Delaware Valley, Regl. Fin. Auth. Govt. Rev. Bonds,
Ser. C, AMBAC, 7 3/4s, 7/1/27 Aaa 6,287,500
Florida (1.4%)
- ----------------------------------------------------------------------------------------------------------------------------
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 1,286,250
2,000,000 St. Johns Cnty., FL Hlth. Care Indl. Dev. Auth. Rev.
Bonds (Glenmoor St. Johns Project), Ser. A,
8s, 1/1/30 B+/P 1,992,500
----------------
3,278,750
Georgia (4.2%)
- ----------------------------------------------------------------------------------------------------------------------------
3,025,000 De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.), Ser. B, 10s, 4/1/17 AAA/P 3,418,250
2,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds
(Baptist Hlthcare Sys), 6 1/4s, 10/1/18 B/P 1,722,500
GA Med. Ctr. Hosp. Auth. IFB, MBIA
1,200,000 9.054s, 8/1/10 AAA 1,308,000
2,700,000 9.054s, 8/1/10, Prerefunded AAA 2,990,250
----------------
9,439,000
Illinois (6.1%)
- ----------------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
2,213,000 (United Airlines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,314,864
1,670,000 (United Airlines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,745,952
4,250,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 4,643,125
2,680,000 East Chicago, Ind. Exempt Fac Rev. Bonds
(Ispat Inland, Inc.), 7s, 1/1/14 B+ 2,519,200
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.), Ser. A
905,000 7 7/8s, 7/1/20 (acquired 1/25/96,
cost $905,000) (RES) D/P 1,036,225
1,260,000 7 7/8s, 7/1/20, Prerefunded AAA/P 1,445,850
----------------
13,705,216
Indiana (3.1%)
- ----------------------------------------------------------------------------------------------------------------------------
3,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds
(Parkview Hlth. Syst., Inc.), MBIA,
4 3/4s, 11/15/28 Aaa 2,433,750
4,500,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev.
Bonds (Federal Express Corp.), 7.1s, 1/15/17 Baa2 4,651,875
----------------
7,085,625
Iowa (5.0%)
- ----------------------------------------------------------------------------------------------------------------------------
2,000,000 Des Moines, Hosp. Rev. Bonds (Des Moines
Genl. Hosp), Ser. B, 8 1/4s, 11/15/11
(acquired 11/5/97, cost $2,203,935) [DBL. DAGGER] Aa1 992,500
8,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 10,412,500
----------------
11,405,000
Kentucky (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
4,000,000 Boone Cnty., Poll. Control Rev. Bonds
(Dayton Pwr. & Lt. Co.), Ser. A, 6 1/2s, 11/15/22 A2 4,085,000
1,415,000 Jefferson Cnty., 1st Mtge. Rev. Bonds
(AHF/KY-IOWA, Inc.), 10 1/4s, 1/1/20 B-/P 1,422,075
----------------
5,507,075
Louisiana (4.4%)
- ----------------------------------------------------------------------------------------------------------------------------
5,000,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 5,150,250
2,150,000 LA Local Govt. Env. Facs. Cmnty. Dev. Auth.
Rev. Bonds (St. James Place), Ser. A, 8s, 11/1/25 B-/P 2,160,750
2,500,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,740,625
----------------
10,051,625
Massachusetts (16.9%)
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Atlas Boston Tax Exempt Rev. Bonds
2,000,000 Ser. 99-1, 7 1/4s, 1/1/35 (acquired 11/18/99,
cost $2,000,000) (RES) B/P 1,997,500
1,000,000 Ser. 1, 6.65s, 1/1/35 (acquired 11/18/99,
cost $1,000,000) (RES) BBB/P 1,000,000
MA State Hlth. & Edl. Fac. Auth. IFB
3,000,000 (St. Elizabeth Hosp.), Ser. E, FSA,
10.523s, 8/12/21 Aaa 3,225,000
2,000,000 (New England Medical Ctr.), MBIA,
6.40s, 7/1/18 Aaa 1,865,000
4,500,000 MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. 53,
MBIA, 6.15s, 12/1/29 (SEG) Aaa 4,500,000
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
1,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 1,603,125
3,500,000 Ser. A, 9s, 7/1/15 BB-/P 3,736,250
MA State Indl. Fin. Agcy. Rev. Bonds
4,500,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 4,989,375
2,340,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,433,530
4,250,000 (Emerson College), 8.9s, 1/1/18 BBB-/P 4,473,550
3,220,000 (Evanswood Bethzatha), 7.85s, 1/15/17
(acquired 12/13/96, cost $3,220,000) (RES) CCC/P 2,479,400
5,800,000 MA State Port Auth. Rev. Bonds
(Harborside Hyatt), 10s, 3/1/26 B/P 6,015,354
----------------
38,318,084
Michigan (4.4%)
- ----------------------------------------------------------------------------------------------------------------------------
2,545,000 Detroit, Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 2,875,850
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 913,750
6,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 6,164,820
----------------
9,954,420
Nebraska (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.132s, 11/15/16 Aaa 1,085,000
Nevada (2.9%)
- ----------------------------------------------------------------------------------------------------------------------------
3,500,000 Clark Cnty. G.O. Bonds (Pk. & Regl. Justice Ctr.),
FGIC, 5 5/8s, 11/1/19 AAA 3,465,000
3,000,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 3,142,500
----------------
6,607,500
New Hampshire (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(NH College), 6 3/8s, 1/1/27 BBB- 962,500
1,000,000 NH State Bus. Fin. Auth. Rev. Bonds
(Franklin Regl. Hosp. Assn. PJ), Ser. A,
6.05s, 9/1/29 BBB/P 826,250
1,500,000 NH State Bus. Fin. Auth. Swr. & Solid Waste
Rev. Bonds (Crown Paper), 7 7/8s,
7/1/26 (In default) (NON) D 1,230,000
----------------
3,018,750
New Jersey (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 2,515,625
New York (5.9%)
- ----------------------------------------------------------------------------------------------------------------------------
2,350,000 NY State Energy Res. & Dev. Auth. Poll. Control
IFB, FGIC, 9.398s, 7/1/29 (acquired 12/19/94,
cost $2,435,729) (RES) Aaa 2,743,625
3,000,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig. Rev.
Bonds, Ser. A, 7 3/8s, 9/15/21 AAA 3,206,250
NY State Local Govt. Assistance Corp. Rev. Bonds
1,500,000 Ser. A, 7s, 4/1/16 Aaa 1,566,810
2,000,000 Ser. D, 6 3/4s, 4/1/21 Aaa 2,115,000
1,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 1,485,000
2,160,000 Port Auth. NY & NJ Special Oblig. Rev. Bonds
(Continental/Eastern LaGuardia), 9 1/8s, 12/1/15 Ba2 2,250,439
----------------
13,367,124
North Dakota (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
2,000,000 Grand Forks, Hlth. Care Syst. Rev. Bonds
(Altru Hlth. Syst. Oblig. Group), 7 1/8s, 8/15/24 Baa1 2,012,500
Ohio (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
1,500,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s, 4/1/22 BBB+ 1,426,875
Oklahoma (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 OK Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A,
5 3/4s, 8/15/29 AAA 970,000
Oregon (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 866,250
Pennsylvania (5.7%)
- ----------------------------------------------------------------------------------------------------------------------------
280,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special
Fac. Rev. Bonds (U.S. Air, Inc.), Ser. A,
8 7/8s, 3/1/21 B 296,100
3,250,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 A2 3,684,688
2,500,000 PA State Higher Ed. Assistance Agcy. Student
Loan IFB, AMBAC, 9.18s, 9/1/26 Aaa 2,956,250
2,100,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. C,
8 5/8s, 11/15/16 Aaa 2,268,000
3,400,000 Philadelphia, Regl. Port Auth. Lease IFB
(Kidder Peabody), MBIA, 8.182s, 9/1/13 Aaa 3,629,500
----------------
12,834,538
South Carolina (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
600,000 SC State Jobs Econ. Dev. Auth. Hosp. Fac. Rev.
Bonds (Palmetto Hlth. Alliance), Ser. A,
7 3/8s, 12/15/21 Baa1 595,500
Tennessee (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Johnson City, Hlth. & Edl. Facs. Rev. Bonds
(Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 AAA 2,471,875
Texas (5.1%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds
(Sears Methodist Retirement), 5 7/8s, 11/15/18 BB+/P 818,750
2,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 2,562,500
675,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 751,781
2,500,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa2 2,100,000
4,800,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 9.409s, 7/2/24 AAA 5,310,000
----------------
11,543,031
Utah (2.0%)
- ----------------------------------------------------------------------------------------------------------------------------
3,300,000 Carbon Cnty., Util. Rev. Bonds (Laidlaw Solid
Waste Disp.), Ser. A, 7 1/2s, 2/1/10 BB+ 3,436,125
4,000,000 Tooele Cnty., Poll. Control Rev. Bonds
(Laidlaw Enviromental), Ser. A, 7.55s, 7/1/27 B+/P 1,000,000
----------------
4,436,125
West Virginia (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Princeton, Hosp. Rev. Bonds
(Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 BBB 2,171,875
Wisconsin (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
430,000 WI Hsg. & Econ. Dev. Auth. IFB
(Home Ownership Dev.), 9.763s, 10/25/22 Aa3 443,755
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $224,928,085) (b) $ 220,026,113
- ----------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $226,361,553.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at March 31, 2000 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, 2000. 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 $224,928,085,
resulting in gross unrealized appreciation and depreciation of
$7,493,751 and $12,395,723, respectively, or net unrealized depreciation
of $4,901,972.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public
resale. The total market value of restricted securities held at March
31, 2000 was $10,249,250 or 4.5% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at March
31, 2000.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates are the current interest rates at March 31, 2000.
The fund had the following industry group concentrations greater
than 10% at March 31, 2000 (as a percentage of net assets):
Health care 25.5%
Transportation 23.1
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2000
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond Index
(Long) $4,290,468 $4,161,265 Jun-00 $129,203
U.S. Treasury Bond
(Short) 1,758,375 1,710,478 Jun-00 (47,897)
- ---------------------------------------------------------------------------
$81,306
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------
Investment in securities at value
(identified cost $224,928,085) (Note 1) $220,026,113
- ----------------------------------------------------------------------------------------------
Cash 3,580,652
- ----------------------------------------------------------------------------------------------
Interest receivable 4,174,982
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 100,000
- ----------------------------------------------------------------------------------------------
Receivable for variation margin 6,469
- ----------------------------------------------------------------------------------------------
Total assets 227,888,216
Liabilities
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,063,724
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 394,065
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 14,236
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,485
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,506
- ----------------------------------------------------------------------------------------------
Other accrued expenses 39,647
- ----------------------------------------------------------------------------------------------
Total liabilities 1,526,663
- ----------------------------------------------------------------------------------------------
Net assets $226,361,553
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) 204,806,601
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (652,424)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (17,971,958)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (4,820,666)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $226,361,553
Computation of net asset value
- ----------------------------------------------------------------------------------------------
Series A remarketed preferred shares $ 45,000,000
- ----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on Series A
remarketed preferred shares 9,987
- ----------------------------------------------------------------------------------------------
Net assets allocated to Series A remarketed
preferred shares-liquidation preference $ 45,009,987
- ----------------------------------------------------------------------------------------------
Net assets available to common shares $181,351,566
- ----------------------------------------------------------------------------------------------
Net assets per common share
($181,351,566 divided by 22,161,672 shares) $8.18
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended March 31, 2000
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------------
Tax exempt interest income: $ 17,324,698
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,650,944
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 226,344
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,427
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,383
- ----------------------------------------------------------------------------------------------
Reports to shareholders 19,504
- ----------------------------------------------------------------------------------------------
Registration fees 75
- ----------------------------------------------------------------------------------------------
Auditing 115,295
- ----------------------------------------------------------------------------------------------
Legal 10,535
- ----------------------------------------------------------------------------------------------
Postage 13,267
- ----------------------------------------------------------------------------------------------
Exchange listing fees 32,954
- ----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 149,750
- ----------------------------------------------------------------------------------------------
Other 28,555
- ----------------------------------------------------------------------------------------------
Total expenses 2,267,033
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (77,660)
- ----------------------------------------------------------------------------------------------
Net expenses 2,189,373
- ----------------------------------------------------------------------------------------------
Net investment income 15,135,325
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (255,494)
- ----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (457,679)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (20,305,634)
- ----------------------------------------------------------------------------------------------
Net loss on investments (21,018,807)
- ----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (5,883,482)
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended March 31
------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 15,135,325 $ 15,567,072
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (713,173) (1,467,406)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (20,305,634) (585,911)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,883,482) 13,513,755
- -------------------------------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income: (1,610,955) (1,590,816)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders
(excluding cumulative undeclared dividends on remarketed
preferred shares of $9,987 and $4,056, respectively) (7,494,437) 11,922,939
- -------------------------------------------------------------------------------------------------------
Distributions to common shareholders
- -------------------------------------------------------------------------------------------------------
From net investment income: (13,800,296) (15,168,137)
- -------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 973,394 1,864,602
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (20,321,339) (1,380,596)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 246,682,892 248,063,488
- -------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $652,424 and
$378,232, respectively) $226,361,553 $246,682,892
- -------------------------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 22,063,316 21,882,030
- -------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 98,356 181,286
- -------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 22,161,672 22,063,316
- -------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.14 $9.28 $9.12 $9.16 $9.03
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income .68 .71 .75 .80 .80
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (.09) .18 (.08) .13
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations (.27) .62 .93 .72 .93
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income:
- --------------------------------------------------------------------------------------------------------------
To preferred shareholders (.07) (.07) (.08) (.07) (.08)
- --------------------------------------------------------------------------------------------------------------
To common shareholders (.62) (.69) (.69) (.69) (.72)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.69) (.76) (.77) (.76) (.80)
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $8.18 $9.14 $9.28 $9.12 $9.16
- --------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $7.25 $10.94 $10.50 $10.25 $10.00
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Total return at
market value (%)
(common shares)(a) (28.75) 11.35 9.67 10.26 13.60
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $226,362 $246,683 $248,063 $242,836 $241,599
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.19 1.14 1.15 1.15 1.17
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 7.09 6.90 7.27 8.05 7.79
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.17 6.92 16.78 9.30 34.45
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment.
(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 includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
Notes to financial statements
March 31, 2000
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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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.
Restricted securities are stated at fair value following procedures
approved by the Trustees. 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). Gains or losses on securities sold are determined
on the identified cost basis.
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
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At March 31, 2000, the fund had a capital loss carryover of
approximately $17,728,000 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
1,445,000 March 31, 2008
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. 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, 2000 was 4.05%. 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 and permanent
differences of post-October loss deferrals, dividends payable,
unrealized gains and losses on certain futures contracts, defaulted bond
interest and current year straddle loss deferral. 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, 2000, the fund
reclassified $1,734 to decrease distributions in excess of net
investment income and $1,734 to decrease paid-in-capital. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.
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, 2000, fund expenses were reduced by $77,660
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 $606
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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
Purchases and sales of securities
During the year ended March 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $37,135,781 and $38,957,612, respectively. Purchases and
sales of short-term municipal obligations aggregated $66,520,000 and
$67,320,000 respectively.
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, 2000, 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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
Results of October 7, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
1999. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 18,275,849 327,041
Hans H. Estin 18,259,118 343,772
Ronald J. Jackson 18,268,542 334,348
Paul L. Joskow 18,278,442 324,448
Elizabeth T. Kennan 18,261,896 340,994
Lawrence J. Lasser 18,276,949 325,941
John H. Mullin III 18,273,053 329,837
William F. Pounds 18,258,865 344,025
George Putnam 18,281,925 320,965
George Putnam, III 18,276,500 326,390
A.J.C. Smith 18,273,893 328,997
W. Thomas Stephens 18,272,228 330,662
W. Nicholas Thorndike 18,268,468 334,422
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows:
Common Shares --
18,191,758 votes for, and 115,295 votes against, with 295,837 abstentions.
A proposal to elect John A. Hill and Robert E. Patterson as Trustees by
the holders of the preferred shares of your fund was approved as
follows:
Preferred shares --
836 votes for, 8 votes against, with 56 abstentions.
Fund information
WEB SITE
www.putnam.com
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
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
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
60360 054 5/00
