Putnam
High Yield
Municipal
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Although generally benign, recent conditions in financial markets have
hardly been predictable. Over the past 12 months, massive stimulus from
the 2003 tax cuts and from the Federal Reserve Board's low interest-rate
policy has vanquished recessionary forces, restored economic growth, and
recharged corporate earnings. In this environment, bonds have generally
performed well but have been negatively influenced by an
uncharacteristic lack of job growth that has kept bond yields near their
lowest levels in 40 years. However, in months when job creation has
surged, concerns about higher interest rates have caused bond prices to
fall. In addition to these issues, terrorism and geopolitical
uncertainty remain factors that occasionally influence markets, as when
stocks slid and bonds rallied following the March terrorist bombings in
Spain.
Putnam's portfolio management teams have vigilantly monitored all of
these factors and know there are opportunities and risks in any
environment. They consistently adjust fund portfolios to pursue the
opportunities their research identifies while seeking to manage risk
exposure. We are pleased to report strong absolute returns for Putnam
High Yield Municipal Trust during the 12 months ended March 31, 2004.
Your fund's performance at net asset value surpassed that of its
benchmark but trailed the fund's Lipper category average. You will find
details on the facing page.
During the annual period, the fund benefited from its emphasis on
higher-yielding, lower-rated bonds in an environment that favored this
segment of the market. Your fund's leverage strategy also worked to its
benefit during the fiscal year, magnifying the benefits of its
strong-performing holdings. Several distressed credits weighed on the
fund's performance, accounting for its relative underperformance versus
its Lipper category. At the conclusion of the following report, your
fund management team offers its view of prospects for the municipal bond
market in the months ahead.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 19, 2004
Report from Fund Management
Fund highlights
* Putnam High Yield Municipal Trust recorded a solid gain for the 12
months ended March 31, 2004, with common shares returning 9.72% at net
asset value (NAV) and 7.54% at market price.
* An emphasis on higher-yielding, lower-quality credits as well as its
use of leverage helped the fund's NAV results exceed those of its more
broadly diversified benchmark, the Lehman Municipal Bond Index, which
returned 5.86% for the period.
* Some distressed credits held by the fund caused its performance at NAV
to slightly lag the 10.18% average return of the funds in the Lipper
High Yield Municipal Debt Funds (closed-end) category.
* Declining yields across all fixed-income sectors prompted management
to recommend a reduction in the fund's dividend, which occurred in
November 2003.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Against a backdrop of improving economic growth, falling default rates,
rising credit quality, and demand from yield-hungry investors,
higher-yielding, lower-rated municipal bonds generally outperformed
their higher-quality counterparts during your fund's fiscal year. Since
Putnam High Yield Municipal Trust invests in this segment of the
municipal bond market, the fund turned in strong absolute performance
and outpaced its more broadly diversified benchmark, the Lehman
Municipal Bond Index. The fund's use of leverage benefited results as it
magnified the success of its strong-performing holdings. Differences in
portfolio composition, particularly exposure to several struggling
lower-rated credits, caused the fund's performance to lag its Lipper
peer group. Although returns at market price were lower than those at
NAV, the gap narrowed substantially toward period-end, after widening
significantly following the fund's dividend cut in November.
FUND PROFILE
Putnam High Yield Municipal Trust seeks to provide high current income
free from federal income tax by investing in higher-yielding lower-rated
municipal securities. The fund invests in a nationally diversified
portfolio and draws on Putnam's extensive research capabilities to help
manage the additional risk associated with high-yield bonds. The fund
may be suitable for investors seeking tax-exempt income who are willing
to accept the risks associated with below-investment-grade bonds.
Market overview
Municipal bond yields -- which move in the opposite direction of their
prices -- were volatile during the fiscal year ended March 31, 2004.
Concern about deflation led to falling yields through mid June. After
rising through August, yields receded again in September on unfavorable
housing and unemployment data. Through the remainder of the year, yields
drifted and ended slightly higher. The ratio between yields of 10-year
municipal bonds and 10-year Treasuries fluctuated, as municipals yielded
about 80% of comparable Treasury yields at the end of December, then
jumped back to about 90% by the end of March. Overall, the yield curve
- -- which shows the difference in yields between shorter- and
longer-maturity bonds -- flattened somewhat, and credit spreads -- the
difference in yields between higher- and lower-rated bonds -- generally
narrowed. The economy continued to improve on nearly all fronts, yet a
lack of job growth continued to cause uncertainty. The Federal Reserve
Board held the federal funds rate steady at 1%. The dollar weakened
during the period. Municipal bond issuance remained strong. California
residents approved $15 billion in deficit financing to help alleviate
the state's budget crisis. Although ongoing tobacco litigation continued
to make headlines, the municipal bond market largely discounted the
news. Airline-related industrial development bonds continued to perform
well.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 3/31/04
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 5.86%
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Lehman Aggregate Bond Index (broad bond market) 5.40%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 4.24%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 3.48%
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Equities
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S&P 500 Index (broad stock market) 35.12%
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S&P Utilities Index (utilities stocks) 37.06%
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Russell 2000 Growth Index (small-company growth stocks) 63.16%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 3/31/04.
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Strategy overview
We shortened the fund's duration (a measure of a fund's sensitivity to
changes in interest rates) during the period, as in a strengthening
economy it appears likely that interest rates would rise at some point.
At the start of October the fund was slightly defensive. In January 2004
we shortened the duration further. This did not help the fund's
performance until later in the period.
We took the opportunity afforded by strong demand for higher-yielding
municipal bonds to take profits where appropriate. We also continued to
diversify the portfolio across multiple sectors and issuers. In line
with the fund's objective, the portfolio remains overweight in
lower-rated, higher yielding bonds, relative to its benchmark.
We carefully monitored developments in the tobacco industry,
particularly with regard to ongoing litigation and other factors
affecting demand for tobacco settlement bonds, which are secured by the
income stream from tobacco companies' settlement obligations to the
states. The municipal bond market has largely ignored recent unfavorable
headlines and the downgrading of some New York tobacco settlement bonds
by Moody's rating service. In our view, the backdrop for the tobacco
industry remains fundamentally positive. When values in this sector
seemed attractive, we increased exposure and the fund remains
overweighted in this sector of the market.
As airline-related industrial development bonds continued to do well
during the period, we sold some of the fund's holdings. We also looked
for opportunities to swap into bonds that we considered undervalued due
to differences in coupons and maturity. We carefully considered the
individual issues to determine which airlines and debt structures best
complemented the fund's portfolio.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
3/31/03 9/30/03 3/31/04
Average effective
maturity in years 11.6 9.3 8.0
Duration in years 8.3 7.4 6.4
Footnote reads:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
How fund holdings affected performance
Airline-related industrial development bonds (IDBs) had a significant
impact on performance during the year. IDBs are municipal bonds issued
to encourage local expansion by various businesses. Typically, they are
backed only by the credit of the company benefiting from the financing,
not by the issuing municipality. So, investor perceptions about the
backing company's health, or that of its industry group as a whole,
affect the prices of these bonds. Early in the fiscal year, the airline
industry continued to feel the effects of declining air traffic, high
fixed costs, and high-profile bankruptcies. However, as geopolitical
tensions eased following what appeared to be the end of full-scale
conflict in Iraq and as the global economy began to show signs of
increased growth, investors began to be more optimistic about the
prospects for increased travel and improving airline industry
fundamentals. This led to a sharp rise in the price of airline-backed
IDBs as many of these bonds recovered from distressed price levels.
The fund held IDBs backed by Continental Airlines, United Airlines,
American Airlines, and Northwest Airlines and issued to fund airport
facility improvements in California, Illinois, Texas, and Minnesota. We
took advantage of price appreciation in this sector to selectively trim
the fund's exposure. Since all of these holdings had been in the
portfolio for some time, none of the sales resulted in a profit based on
the acquisition cost, but the fund was able to sell on strength rather
than in distress. We sought to focus the fund's airline exposure in
issues backed by airlines such as British Airways or Northwest Airlines,
which in our opinion have demonstrated more effective management than
their competitors.
Tobacco settlement bonds also generated strong results during the latter
half of the period as they recovered from investor concerns about pending
litigation -- some involving multibillion dollar judgments -- against
tobacco companies. Investors worried that these potential liabilities would
affect tobacco companies' ability to meet their settlement payment
obligations to the states. This would have a negative impact on tobacco
settlement bonds, which are secured by this promised income stream.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (21.5%)
Aa/AA (1.7%)
A (12.2%)
Baa/BBB (32.2%)
Ba/BB (16.0%)
B and below (8.5%)
VMIG1 (7.9%)
Footnote reads:
As a percentage of market value as of 3/31/04. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
During the period, the litigation environment remained mixed. However,
we believed investors had overreacted to adverse litigation headlines,
driving down prices and making the sector attractive from a valuation
perspective. Beginning in September, we increased the fund's exposure,
moving the portfolio from an underweight to an overweight position
relative to the benchmark. We purchased $2 million of revenue bonds
issued by the Tobacco Settlement Financing Authority of New Jersey, for
example, with a coupon of 6.375%, maturity date of 6/1/2032, and ratings
of Baa2 from Moody's and BBB from Standard & Poor's.
Against a backdrop of generally good conditions for high-yield municipal
debt, there were a few securities that had a negative impact on
performance during the period. The fund's exposure to revenue bonds
issued by the California municipality of Gilroy for the amusement park,
Bonfante Gardens Park, detracted from results during the period. Park
attendance was lower than projections and investors began to question
the park's ability to service its debt, sending the bond's price down
sharply. The fund's management team is part of a group of investors
working with the issuer to restructure the debt, including selling some
park property and taking out a mortgage secured by the remaining
property.
The fund's investment in Atlas Boston Tax Exempt Trust also dampened
results for the fiscal year. The Atlas Trust is a portfolio of municipal
bonds issued to fund several apartment building projects. We viewed the
investment as an effective way for the fund to gain diversified exposure
to the real estate sector. The underlying projects did not meet their
projections, sending the bonds into default. When measured at par value,
this holding represented 0.51% of the fund's diversified portfolio.
Another meaningful detractor was a revenue bond issued by the Michigan
State Strategic Fund Solid Waste Disposal for the Genesee Power Station.
In this instance we sought to reduce the fund's exposure to this weaker
credit and needed to offer these bonds at an attractive price, which was
lower than the fund's purchase price, to entice a buyer.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Yields have declined significantly across all fixed-income sectors over
the course of the prolonged bond-market rally. In addition, many issuers
called their bonds, refinancing debt at lower rates. These factors
required the fund management team to reinvest at lower prevailing rates.
These forces prompted a reduction of the fund's monthly distribution
from $0.0385 to $0.0335 per share in November 2003.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are David Hamlin (Portfolio Leader), Paul Drury
(Portfolio Member), Susan McCormack (Portfolio Member), James St. John
(Portfolio Member), Richard Wyke (Portfolio Member), and Kevin Cronin.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Lingering unemployment had been an anomaly in an otherwise robust
economic recovery. However, in early April 2004, after the fiscal period
ended, employment data at last showed improvement. We believe the
underlying strength in the economy will foster higher interest rates in
the future. In keeping with our views, the fund's duration is now
relatively short to keep the portfolio defensively positioned. We
believe that the credit quality of general obligation municipal bonds
will remain under pressure, partly because tax revenues cannot be
expected to grow significantly until taxpayers begin to report improved
earnings. Although yield spreads between high- and low-quality municipal
bonds have narrowed somewhat, we believe they could narrow further as
credit fundamentals continue to improve. As a result, we may see more
opportunity for potential gain in this area because if the yields
required to attract buyers to lower-quality bonds continue to fall,
prices on the portfolio's existing higher-yielding holdings would rise.
We plan to sustain the fund's higher credit risk profile while
maintaining a diversified portfolio. We will continue to monitor market
conditions as we pursue a high level of tax-free income and manage the
fund's risk exposures.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended March 31, 2004. Performance should always be considered in light
of a fund's investment strategy. Data represents past performance. Past
performance does not guarantee future results. More recent returns may
be less or more than those shown. Investment return, net asset value,
and market price will fluctuate and you may have a gain or a loss when
you sell your shares.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04
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Lipper
High Yield
Lehman Municipal
Municipal Debt Funds
Market Bond (closed-end)
NAV price Index category average*
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1 year 9.72% 7.54% 5.86% 10.18%
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5 years 19.52 -9.38 33.85 22.92
Annual average 3.63 -1.95 6.01 4.16
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10 years 70.71 54.53 93.24 77.36
Annual average 5.49 4.45 6.81 5.87
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Annual average
Life of fund
(since 5/25/89) 6.47 5.13 7.26 6.20
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 3/31/04, there were 12, 12,
and 12 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 3/31/04
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Distributions from common shares
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Number 12
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Income $0.437
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Capital gains 1 --
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Total $0.437
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Preferred shares Series A (900 shares)
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Income $506.86
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Capital gains 1 --
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Total $506.86
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Share value: NAV Market price
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3/31/03 $7.53 $6.97
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3/31/04 7.76 7.04
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Current return (common shares, end of period)
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Current dividend rate 2 5.18% 5.71%
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Taxable equivalent 3 7.97 8.78
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 35% federal tax rate for 2004. 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
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman Intermediate Treasury Bond Index is an unmanaged index of
Treasury bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
S&P Utilities Index is an unmanaged index of common stock issued by
utilities companies.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, 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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
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.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam High Yield Municipal Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Municipal Trust, including the fund's portfolio, as of
March 31, 2004, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of March 31, 2004 by correspondence with the custodian and brokers or by
other appropriate auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Municipal Trust as of March 31,
2004, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period
then ended in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Boston, Massachusetts
May 3, 2004
The fund's portfolio
March 31, 2004
Key to Abbreviations
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AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FRB Floating Rate Bonds
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
U.S. Govt. Coll. U.S. Government Securities Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (99.9%) (a)
Principal amount Rating (RAT) Value
Alabama (0.7%)
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$1,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River
Corp.), 8s, 9/1/28 BB+ $1,028,250
500,000 Phenix City, Indl. Dev. Board
Rev. Bonds (Mead Coated Board),
Ser. A, 5.3s, 4/1/27 Baa2 480,000
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1,508,250
Arizona (2.0%)
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500,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 525,000
1,000,000 Casa Grande, Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 7 1/4s, 12/1/19 B-/P 1,042,500
750,000 Coconino Cnty., Poll. Control
Rev. Bonds (Tuscon/Navajo Elec.
Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 779,063
800,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village 1st.
Mtge.), Ser. A, 8 1/4s, 6/1/15 BB-/P 881,000
1,000,000 Yavapai Cnty., Indl. Dev. Auth.
Solid Waste Disposal Rev. Bonds
(Waste Management, Inc. Project),
4 5/8s, 6/1/27 BBB 1,031,250
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4,258,813
Arkansas (1.5%)
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2,110,000 AR Dev. Fin. Auth. Rev. Bonds,
Ser. D, GNMA/FNMA Coll., 3s, 1/1/24 AAA 2,160,113
1,000,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 1,092,500
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3,252,613
California (7.2%)
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1,500,000 CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A, 5 1/4s, 5/1/20 A3 1,591,875
875,000 CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt.
Cmntys.), Ser. A-3, 5.1s, 5/15/25 Baa2 922,031
Chula Vista, Cmnty. Fac. Dist.
Special Tax Rev. Bonds
500,000 (No. 08-1 Otay Ranch Village Six),
6s, 9/1/33 BB-/P 503,125
1,000,000 (No. 06-1 Eastlake Woods Area),
6.1s, 9/1/21 BB/P 1,023,750
350,000 Folsom, Special Tax (Cmnty. Facs.
Dist. No. 10), 5 7/8s, 9/1/28 BB/P 353,938
2,000,000 Foothill/Eastern Corridor Agcy.
Rev. Bonds (CA Toll Roads), 5 3/4s,
1/15/40 Baa3 2,070,000
985,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 D/P 637,788
1,000,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 Baa2 1,020,000
500,000 Irvine, Impt. Board Act of 1915
Special Assmt. Bonds (Assmt. Dist.
No. 00-18-GRP 3), 5.55s, 9/2/26 BB+ 506,250
1,425,000 Los Angeles Cnty., Metro. Trans.
Auth. Rev. Bonds (First Tier), FSA,
5s, 7/1/11 Aaa 1,615,594
750,000 Los Angeles, Regl. Arpt. Impt. Corp.
Lease Rev. Bonds (Continental
Airlines, Inc.), 9 1/4s, 8/1/24 B 771,728
1,000,000 Orange Cnty., Cmnty. Fac. Dist.
Rev. Bonds (Ladera Ranch - No. 1),
6s, 8/15/25 BB/P 1,032,500
250,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Bonds (Ladera Ranch -
No. 02-1), Ser. A, 5.55s, 8/15/33 BB+/P 251,250
500,000 Santaluz, Special Tax (Cmnty. Fac.
Dist. No. 2 - Impt. Area No. 1),
6 3/8s, 9/1/30 BB/P 513,125
835,000 Sunnyvale, Special Tax Rev. Bonds
(Cmnty. Fac. Dist. No. 1), 7 3/4s,
8/1/32 BB-/P 846,481
2,000,000 Vallejo, COP (Marine World
Foundation), 7.2s, 2/1/26 BBB-/P 1,990,000
--------------
15,649,435
Colorado (0.2%)
- -------------------------------------------------------------------------------
500,000 Montrose, Memorial Hosp. Rev. Bonds,
6 3/8s, 12/1/23 BBB- 529,375
Connecticut (0.4%)
- -------------------------------------------------------------------------------
750,000 CT State Dev. Auth. 1st. Mtg. Gross
Rev. Hlth. Care Rev. Bonds (The Elm
Street Park Baptist, Inc. Project),
5.85s, 12/1/33 BBB+ 780,938
Florida (4.0%)
- -------------------------------------------------------------------------------
500,000 Cap. Trust Agcy. Multi-Fam.
Rev. Bonds
(American Opportunity-Senior),
Ser. A, 5 7/8s, 12/1/38 Baa1 483,125
500,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 (acquired 4/23/02, cost
$500,000) (RES) B/P 620,000
1,000,000 Double Branch Cmnty. Dev. Dist.
Rev. Bonds, Ser. A, 6.7s, 5/1/34 BB-/P 1,062,500
500,000 Fishhawk, Cmnty. Dev. Dist. II
Rev. Bonds, Ser. B, 5s, 11/1/07 BB-/P 508,125
770,000 FL State Mid-Bay Bridge Auth.
Rev. Bonds (Exchangeable), Ser. A,
6.05s, 10/1/22 BBB/P 803,688
250,000 Fleming Island, Plantation Cmnty.
Dev. Dist. Special Assmt.
Rev. Bonds, Ser. B, 7 3/8s, 5/1/31 BB/P 271,250
1,100,000 Lee Cnty., Indl. Dev. Auth. Hlth.
Care Fac. Rev. Bonds (Cypress Cove
Hlth. Pk.), Ser. A, 6 3/8s, 10/1/25 BB-/P 1,101,375
1,075,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 1,049,469
600,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.8s, 11/15/31 Ba2 606,750
500,000 Orange Cnty., Hlth. Fac. Auth.
Rev. Bonds (Orlando Regl. Hlth.
Care), 5 3/4s, 12/1/32 A2 523,750
1,050,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B-/P 1,027,688
500,000 Verandah, West Cmnty. Dev. Dist.
Rev. Bonds (Cap. Impt.), Ser. A,
6 5/8s, 5/1/33 BB-/P 510,000
--------------
8,567,720
Georgia (4.0%)
- -------------------------------------------------------------------------------
2,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 1/1/32 A2 2,127,500
2,000,000 Forsyth Cnty., Hosp. Auth.
Rev. Bonds (Baptist Hlth. Care
Syst.), U.S. Govt. Coll., 6 1/4s,
10/1/18 AAA 2,420,000
175,000 Fulton Cnty., Res. Care Fac.
Rev. Bonds (Canterbury Court), Class
A, 6 1/8s, 2/15/34 B+/P 170,625
1,200,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
11.507s, 8/1/10 Aaa 1,232,460
1,750,000 Muni. Elec. Auth. Rev. Bonds, AMBAC,
5s, 1/1/26 Aaa 1,933,750
855,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay Paper,
Inc.), 7.4s, 1/1/16 BB+/P 869,963
--------------
8,754,298
Idaho (0.4%)
- -------------------------------------------------------------------------------
955,000 ID Hlth. Fac. Auth. VRDN (St. Lukes
Med. Ctr.), FSA, 1.05s, 7/1/30 VMIG1 955,000
Illinois (2.1%)
- -------------------------------------------------------------------------------
1,750,000 Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 Caa2 1,500,625
750,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 775,313
IL Hlth. Fac. Auth. Rev. Bonds
1,175,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 (Prerefunded) AAA/P 1,295,438
890,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 (In default)
(NON) D/P 456,125
500,000 (Elmhurst Memorial Hlth. Care),
5 5/8s, 1/1/28 A2 520,000
--------------
4,547,501
Indiana (2.4%)
- -------------------------------------------------------------------------------
2,500,000 Indianapolis, Arpt. Auth. Special
Fac. Rev. Bonds (Federal Express
Corp.), 7.1s, 1/15/17 Baa2 2,590,450
500,000 Jasper Hosp. Auth. Rev. Bonds
(Memorial Hosp. Project), 5 1/2s,
11/1/32 AA 523,750
2,000,000 Rockport, Poll. Control
Rev. Bonds (Indiana-Michigan Pwr.),
Ser. A, 4.9s, 6/1/25 Baa2 2,115,000
--------------
5,229,200
Iowa (1.3%)
- -------------------------------------------------------------------------------
2,460,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives),
9 1/4s, 7/1/25 BBB-/P 2,933,550
Kentucky (1.5%)
- -------------------------------------------------------------------------------
2,250,000 Boone Cnty., Poll. Control
Rev. Bonds (Dayton Pwr. & Lt. Co.),
Ser. A, 6 1/2s, 11/15/22 Baa3 2,298,780
500,000 Kenton Cnty., Arpt. Board Rev. Bonds
(Special. Fac. Delta Airlines),
Ser. A, 6 1/8s, 2/1/22 Caa2 400,625
710,000 Kentucky Econ. Dev. Fin. Auth.
Rev. Bonds (First Mtg.), Ser. IA,
6 1/2s, 1/1/29 CCC/P 650,538
--------------
3,349,943
Louisiana (1.6%)
- -------------------------------------------------------------------------------
500,000 Desoto Parish, Rev. Bonds (Intl.
Paper Co. Project), Ser. A, 5s,
10/1/12 Baa2 545,625
2,150,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/25 B-/P 1,881,250
1,000,000 St. Charles Parish, Poll. Control
Rev. Bonds, Ser. A, 4.9s, 6/1/30 Baa3 1,028,750
--------------
3,455,625
Maine (1.0%)
- -------------------------------------------------------------------------------
1,000,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 1,060,000
1,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba2 1,033,750
--------------
2,093,750
Maryland (0.3%)
- -------------------------------------------------------------------------------
500,000 MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds (Medstar Hlth.),
5 3/4s, 8/15/15 Baa2 545,000
Massachusetts (7.8%)
- -------------------------------------------------------------------------------
Atlas Boston Tax Exempt Rev. Bonds
735,000 Ser. 99-1, 7 1/4s, 1/1/35 (In
default) (NON) D/P 3,675
375,000 Ser. 1, 6.65s, 1/1/35 (In default)
(NON) D/P 131,250
1,000,000 Boston, Indl. Dev. Fin. Auth.
Rev. Bonds (Springhouse, Inc.), 6s,
7/1/28 BB-/P 936,250
870,000 MA State Dev. Fin. Agcy. Rev. Bonds
(Beverly Enterprises, Inc.), 7 3/8s,
4/1/09 B+/P 884,138
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
750,000 (Civic Investments), Ser. A, 9s,
12/15/15 BB/P 868,125
350,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 357,000
1,575,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,665,563
1,350,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 1,417,500
1,000,000 (Baystate Med. Ctr.), Ser. F, 5.7s,
7/1/27 A1 1,048,750
500,000 (Caritas Christi Oblig. Group),
Ser. A, 5 1/4s, 7/1/08 BBB 532,500
1,980,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 2,051,775
MA State Indl. Fin. Agcy. Rev. Bonds
1,531,530 (Evanswood Bethzatha),
7.85s, 1/15/17 (In default) (NON) D/P 1,914
500,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/15 BBB/P 517,500
250,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/09 BBB/P 258,395
6,200,000 MA State Wtr. Resource Auth. VRDN
(Multi-Modal), Ser. C, 1.10s, 8/1/20 VMIG1 6,200,000
--------------
16,874,335
Michigan (2.5%)
- -------------------------------------------------------------------------------
2,020,000 Detroit, Swr. Disp. VRDN, Ser. B,
FSA, 1.10s, 7/1/33 VMIG1 2,020,000
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 1,040,000
600,000 MI State Strategic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr.
Station), 7 1/2s, 1/1/21 B/P 522,000
1,350,000 MI State Strategic Fund, Ltd.
Rev. Bonds (Worthington Armstrong
Venture), U.S. Govt. Coll., 5 3/4s,
10/1/22 AAA/P 1,550,813
250,000 Midland Cnty., Econ. Dev. Corp.
Rev. Bonds, 6 3/4s, 7/23/09 Ba3 262,188
--------------
5,395,001
Minnesota (3.2%)
- -------------------------------------------------------------------------------
300,000 Duluth, Econ. Dev. Auth. Hlth. Care
Fac. Rev. Bonds (BSM Properties,
Inc. Project), AMBAC, 5 7/8s,
12/1/28 BB/P 294,000
1,490,000 Minneapolis & St. Paul, Metropolitan
Arpt. Comm. Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), Ser. A,
7s, 4/1/25 B+/P 1,395,013
1,000,000 MN State Higher Ed. Fac. Auth.
Rev. Bonds (The College of St.
Catherine), 5s, 10/1/18 Baa1 1,038,750
900,000 Northfield, Healthcare Fac.
Rev. Bonds (Retirement Ctr.), Ser. A,
6s, 5/1/28 B/P 888,750
2,000,000 Southern MN Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. A, AMBAC, 5 1/4s,
1/1/16 Aaa 2,282,500
1,000,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. B,
6 5/8s, 11/1/17 Ba2 1,002,500
--------------
6,901,513
Mississippi (0.2%)
- -------------------------------------------------------------------------------
500,000 Mississippi Bus. Fin. Corp.
Rev. Bonds (Syst. Energy Resources,
Inc.), 5 7/8s, 4/1/22 BBB- 506,250
Missouri (1.5%)
- -------------------------------------------------------------------------------
1,000,000 Cape Girardeau Cnty., Indl. Dev.
Auth. Hlth. Care Fac. Rev. Bonds
(St. Francis Med. Ctr.),
Ser. A, 5 1/2s, 6/1/16 A 1,073,750
2,000,000 MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership), GNMA/FNMA Coll., 5.55s,
9/1/34 AAA 2,202,500
--------------
3,276,250
Montana (0.6%)
- -------------------------------------------------------------------------------
700,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 Aaa 765,625
500,000 MT State Board Inv. Exempt Fac.
Rev. Bonds (Still Water Mining
Project), 8s, 7/1/20 Ba3 518,125
--------------
1,283,750
Nevada (2.4%)
- -------------------------------------------------------------------------------
3,500,000 Clark Cnty., G.O. Bonds (Pk. & Regl.
Justice Ctr.), FGIC, 5 5/8s,
11/1/19 Aaa 3,946,250
250,000 Clark Cnty., Local Impt. Dist.
Special Assmt. Bonds (No. 142),
6.1s, 8/1/18 BB-/P 253,750
850,000 Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14), 5.55s,
3/1/17 BB-/P 872,313
250,000 Las Vegas, Special Impt. Dist.
Rev. Bonds (No. 809- Summerlin
Area), 5.65s, 6/1/23 BB/P 245,313
--------------
5,317,626
New Hampshire (1.5%)
- -------------------------------------------------------------------------------
1,000,000 NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds (NH College), 6 3/8s,
1/1/27 BBB- 1,040,000
600,000 NH Hlth. & Ed. Fac. Auth. Rev. Bonds
(Huntington at Nashua), Ser. A,
6 7/8s, 5/1/33 B/P 593,250
1,000,000 NH State Bus. Fin. Auth. Rev. Bonds
(Franklin Regl. Hosp. Assn.),
Ser. A, 6.05s, 9/1/29 BB-/P 886,250
650,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds, 3 1/2s, 7/1/27 A3 650,000
1,394,189 NH State Bus. Fin. Auth. Swr. &
Solid Waste Rev. Bonds (Crown Paper
Co.), 7 7/8s, 7/1/26 (In default)
(NON) D/P 1,743
--------------
3,171,243
New Jersey (3.1%)
- -------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
500,000 (1st Mtge.-Cranes Mill), Ser. A,
7 1/2s, 2/1/27 BB-/P 523,750
500,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 508,750
1,000,000 (United Methodist Homes), Ser. A-1,
6 1/4s, 7/1/33 BB+ 1,007,500
NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
1,700,000 (Trinitas Hosp. Oblig. Group),
7 1/2s, 7/1/30 Baa3 1,901,875
395,000 (Columbus Regl. Hosp.), Ser. A,
7 1/2s, 7/1/21 B2 361,919
500,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C,
5 1/8s, 7/1/22 A- 507,500
2,000,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 3/8s, 6/1/32 Baa2 1,947,500
--------------
6,758,794
New Mexico (1.6%)
- -------------------------------------------------------------------------------
700,000 Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan),
Class B, 2.1s, 4/1/33 Baa2 698,250
2,700,000 Farmington, Poll. Control VRDN (AZ
Pub. Svc. Co.), Ser. B, 1.10s,
9/1/24 VMIG1 2,700,000
--------------
3,398,250
New York (10.7%)
- -------------------------------------------------------------------------------
750,000 Huntington, Hsg. Auth. Sr. Hsg. Fac.
Rev. Bonds (Gurwin Jewish Sr.
Residence), Ser. A, 6s, 5/1/29 B+/P 702,188
700,000 Long Island, Pwr. Auth. NY Elec.
Syst. IFB, 9.318s, 12/1/24 (acquired
10/20/03, cost $700,462) (RES) BBB+/P 805,000
1,000,000 Metro. Trans. Auth. Rev. Bonds,
Ser. A, AMBAC, 5 1/2s, 11/15/13 Aaa 1,172,500
1,000,000 Metro. Trans. Auth. Svc. Contract
Rev. Bonds, Ser. A , MBIA, 5 1/2s,
1/1/20 Aaa 1,121,250
775,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (Keyspan-Glenwood),
5 1/4s, 6/1/27 A 790,500
1,000,000 NY City, G.O. Bonds, Ser. C, 5 1/4s,
8/1/11 A2 1,111,250
800,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper, Inc.), 7.95s, 1/1/28 B+/P 840,000
NY City, Indl. Dev. Agcy. Civic Fac.
Rev. Bonds
1,985,000 (Staten Island U. Hosp.), Ser. A,
6 3/8s, 7/1/31 Baa3 2,004,850
200,000 (Brooklyn Polytech. U. Project J),
6 1/8s, 11/1/30 BB+ 174,000
300,000 NY City, Indl. Dev. Agcy. Special
Arpt. Fac. Rev. Bonds (Airis JFK I
LLC), Ser. A, 5 1/2s, 7/1/28 Baa3 296,250
1,500,000 NY City, Indl. Dev. Agcy. Special
Fac. Rev. Bonds (British Airways),
5 1/4s, 12/1/32 BB+ 1,117,500
NY State Dorm. Auth. Rev. Bonds
1,000,000 (NY U.), Ser. B, MBIA, 5s, 7/1/11 Aaa 1,127,500
4,385,000 (School Dist. Fin. Project), Ser. D,
MBIA, 5s, 10/1/10 Aaa 4,933,125
2,350,000 NY State Energy Resource & Dev.
Auth. Poll. Control IFB, FGIC,
12.948s, 7/1/29 (acquired 12/19/94,
cost $2,453,729) (RES) Aaa 2,511,351
1,500,000 Onondaga Cnty., Indl. Dev. Agcy.
Rev. Bonds (Solvay Paperboard, LLC),
7s, 11/1/30 (acquired 12/9/98, cost
$1,500,000) (RES) BB-/P 1,597,500
1,000,000 Suffolk Cnty., Indl. Dev. Agcy.
Rev. Bonds (Peconic Landing),
Ser. A, 8s, 10/1/30 B+/P 1,023,750
1,000,000 Suffolk Cnty., Indl. Dev. Agcy.
Cont. Care Retirement Rev. Bonds
(Jefferson's Ferry), Ser. A, 7 1/4s,
11/1/28 BB-/P 1,056,250
800,000 Syracuse, Indl. Dev. Agcy.
Rev. Bonds (1st Mtge. - Jewish
Home), Ser. A, 7 3/8s, 3/1/21 BB-/P 842,000
--------------
23,226,764
North Carolina (2.3%)
- -------------------------------------------------------------------------------
1,500,000 NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. C, 5.3s, 1/1/15 BBB 1,614,375
250,000 NC Med. Care Cmnty. Healthcare Fac.
Rev. Bonds (1st Mtge. - Deerfield),
Ser. A, 5s, 11/1/23 A-/P 249,688
750,000 NC Med. Care Comm. Retirement Fac.
Rev. Bonds (1st Mtge. - Givens
Estates Project), Ser. A,
6 1/2s, 7/1/32 BB-/P 773,438
NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.)
1,000,000 Ser. B, 6 1/2s, 1/1/20 Baa1 1,125,000
1,000,000 Ser. A, 5 1/2s, 1/1/13 Baa1 1,117,500
--------------
4,880,001
North Dakota (0.5%)
- -------------------------------------------------------------------------------
1,000,000 Grand Forks, Hlth. Care Syst.
Rev. Bonds (Altru Hlth. Syst. Oblig.
Group), 7 1/8s, 8/15/24 Baa1 1,101,250
Ohio (4.1%)
- -------------------------------------------------------------------------------
1,000,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/32 A1 1,083,750
250,000 Dayton, Fac. Rev. Bonds (Emery Air
Freight), Ser. A, 5 5/8s, 2/1/18 BB+ 229,688
1,240,000 Erie Cnty., Ohio Hosp. Fac.
Rev. Bonds (Firelands Regl. Med.
Ctr.), 5 5/8s, 8/15/32 A2 1,295,800
665,000 Marion Cnty., Hlth. Care Fac.
Rev. Bonds (United Church Homes),
6 3/8s, 11/15/10 BBB- 681,625
1,500,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s,
4/1/22 A3 1,642,500
1,000,000 OH State Higher Edl. Fac. FRB
(Kenyon College Project), 4.85s,
7/1/37 A2 1,062,500
1,000,000 OH State Poll. Control Rev. Bonds
(General Motors Corp.), 5 5/8s,
3/1/15 Baa1 1,083,750
1,250,000 OH State Wtr. Dev. Auth. Poll.
Control Fac. Mandatory Put Bonds
(Cleveland Elec.), Class A, 3.75s,
10/1/30 Baa2 1,278,125
500,000 Toledo-Lucas Cnty., Port Auth.
Rev. Bonds (CSX Transn, Inc.),
6.45s, 12/15/21 Baa2 565,625
--------------
8,923,363
Oklahoma (0.6%)
- -------------------------------------------------------------------------------
280,000 OK Dev. Fin. Auth. Rev. Bonds
(Continuing Care Retirement),
Ser. A, 8s, 2/1/32 B/P 273,350
1,000,000 OK State Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A,
MBIA, 5 3/4s, 8/15/29 Aaa 1,107,500
--------------
1,380,850
Oregon (1.0%)
- -------------------------------------------------------------------------------
1,000,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza
Project), 6 1/2s, 12/1/29 BB-/P 1,005,000
1,000,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds (Single Family Mtg.),
Ser. K, 5 5/8s, 7/1/29 Aa2 1,086,250
--------------
2,091,250
Pennsylvania (6.9%)
- -------------------------------------------------------------------------------
750,000 Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Env. Impt. - USX
Corp.), 6s, 1/15/14 Baa1 808,125
200,000 Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A,
6 1/2s, 11/15/08 Baa3 203,000
885,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek Partners),
6.65s, 5/1/10 BBB- 970,181
250,000 Lancaster Cnty., Hosp. Auth.
Rev. Bonds (Gen. Hosp.), 5 1/2s,
3/15/26 A- 256,563
750,000 PA Convention Ctr. Auth. Rev. Bonds,
Ser. A, 6 3/4s, 9/1/19 Baa2 776,348
PA Econ. Dev. Fin. Auth. Rev. Bonds
3,250,000 (MacMillan Ltd. Partnership), 7.6s,
12/1/20 Baa2 3,644,063
500,000 (Amtrak Project), Ser. A, 6 3/8s,
11/1/41 A3 514,375
350,000 PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. D, 7.15s, 12/1/18 BBB- 363,556
PA State Econ. Dev. Fin. Auth. Res.
Recvy. Rev. Bonds
750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 784,118
2,000,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BBB- 2,035,000
1,280,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Philadelphia College of
Osteopathic Medicine), 5s, 12/1/12 A 1,401,600
2,000,000 Philadelphia, School Dist. G.O.
Bonds, Ser. A, FSA, 5 1/2s, 2/1/31 Aaa 2,165,000
750,000 Scranton, G.O. Bonds, Ser. C, 7.1s,
9/1/31 AAA/P 948,750
--------------
14,870,679
Puerto Rico (2.9%)
- -------------------------------------------------------------------------------
5,200,000 Cmnwlth. of PR, Govt. Dev. Bank
VRDN, MBIA, 0.92s, 12/1/15 VMIG1 5,200,000
1,000,000 PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES PR), 6 5/8s, 6/1/26 Baa3 1,060,000
--------------
6,260,000
South Carolina (1.3%)
- -------------------------------------------------------------------------------
1,000,000 SC Jobs Econ. Dev. Auth.
Rev. Bonds (Palmetto Hlth.
Alliance), Ser. C, 6s, 8/1/20 Baa2 1,050,000
600,000 SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth.
Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 767,250
1,000,000 Spartanburg Cnty., Solid Waste Disp.
Rev. Bonds (BMW Project), 7.55s,
11/1/24 A1 1,063,090
--------------
2,880,340
South Dakota (1.1%)
- -------------------------------------------------------------------------------
1,250,000 SD Hlth. & Ed. Fac. Auth.
Rev. Bonds (Prairie Lakes), 5.65s,
4/1/22 Baa2 1,267,188
995,000 SD Hsg. Dev. Auth. Rev. Bonds (Home
Ownership Mtg.), Ser. H, 5s, 5/1/28 AAA 1,067,138
--------------
2,334,326
Tennessee (1.3%)
- -------------------------------------------------------------------------------
1,500,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 BBB+ 1,738,125
1,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac.
Board Rev. Bonds (Methodist
Healthcare), 6 1/2s, 9/1/26 A- 1,106,250
--------------
2,844,375
Texas (5.5%)
- -------------------------------------------------------------------------------
1,000,000 Abilene, Hlth. Fac. Dev. Corp.
Rev. Bonds (Sears Methodist
Retirement), 5 7/8s, 11/15/18 BB+/P 975,000
1,000,000 Gulf Coast, Waste Disp. Rev. Bonds,
Ser. A, 6.1s, 8/1/24 Baa2 1,057,500
1,000,000 Gulf Coast, Waste Disp. Auth.
Mandatory Put Bonds (Amoco Oil), 2s,
10/1/17 Aa1 1,002,500
700,000 Harris Cnty., Hlth. Fac. Dev. Corp.
Hosp. Rev. Bonds (Memorial Hermann
Hlth. Care Syst.), Class A, 5 1/4s,
12/1/18 A2 749,000
300,000 Houston Hlth. Fac. Dev. Corp.
Retirement Rev. Bonds (Buckingham
Sr. Living Cmnty), Class A, 7 1/8s,
2/15/34 B/P 303,000
Houston, Arpt. Syst. Rev. Bonds
700,000 (Continental Airlines, Inc.),
Ser. E, 6 3/4s, 7/1/29 B- 591,500
1,800,000 Ser. B, FSA, 5 1/2s, 7/1/30 Aaa 1,944,000
250,000 Lufkin, Hlth. Fac. Dev. Corp.
Rev. Bonds (Memorial Hlth. Syst. of
East TX), 5.7s, 2/15/28 BBB- 231,250
2,150,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa2 2,201,046
2,850,000 TX State Dept. of Hsg. & Cmnty.
Affairs Rev. Bonds, Ser. C,
GNMA/FNMA Coll., 6.9s, 7/2/24 AAA 2,953,313
--------------
12,008,109
Utah (1.9%)
- -------------------------------------------------------------------------------
1,550,000 Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A,
7 1/2s, 2/1/10 BB- 1,592,920
1,700,000 Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union
Pacific), Ser. A, 5.7s, 11/1/26 Baa2 1,738,250
750,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil Project), 5.05s,
11/1/17 Baa1 837,188
--------------
4,168,358
Vermont (1.0%)
- -------------------------------------------------------------------------------
2,000,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 2,107,500
Virginia (1.6%)
- -------------------------------------------------------------------------------
Henrico Cnty. Econ. Dev. Auth.
Rev. Bonds (United Methodist),
Ser. A
400,000 6.7s, 6/1/27 BB+/P 412,000
600,000 6 1/2s, 6/1/22 BB+/P 614,250
500,000 James Cnty., Indl. Dev. Auth.
Rev. Bonds (1st. Mtge.
Williamsburg), Ser. A, 6 1/8s,
3/1/32 BB-/P 510,000
1,000,000 Pocahontas Parkway Assn. Toll Rd.
Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 BB 837,500
1,000,000 Prince William Cnty., Indl. Dev.
Auth. Hosp. Rev. Bonds (Potomac
Hosp. Corp.), 5.35s, 10/1/36 A3 1,023,750
--------------
3,397,500
Washington (0.5%)
- -------------------------------------------------------------------------------
995,000 Tobacco Settlement Auth. of WA
Rev. Bonds, 6 1/2s, 6/1/26 Baa2 978,831
West Virginia (0.3%)
- -------------------------------------------------------------------------------
825,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 B2 592,969
Wisconsin (1.4%)
- -------------------------------------------------------------------------------
1,500,000 Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds, 6 3/8s, 6/1/32 Baa2 1,421,250
1,600,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 1,694,000
--------------
3,115,250
--------------
Total Municipal bonds and notes
(cost $213,463,218) $216,455,738
Common stocks (0.1%) (a) (cost $1,428,766)
Number of shares Value
- -------------------------------------------------------------------------------
29,974 Tembec, Inc. (Canada) (NON) $239,044
- -------------------------------------------------------------------------------
Total Investments
(cost $214,891,984) $216,694,782
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value of
$216,694,782.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at March 31, 2004 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, 2004. Securities rated by Putnam are indicated
by "/P" and are not publicly rated. Ratings are not covered by the
Independent auditors' report.
(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, 2004 was
$5,533,851 or 2.6% of portfolio market value.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, VRDN, mandatory
put bonds and Floating Rate Bonds (FRB) are the current interest rates
at March 31, 2004.
The fund had the following industry group concentrations greater than
10% at March 31, 2004 (as a percentage of portfolio market value):
Health care 33.1%
Utilities 16.9
Transportation 11.5
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
March 31, 2004
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$214,891,984) (Note 1) $216,694,782
- -------------------------------------------------------------------------------
Cash 157,511
- -------------------------------------------------------------------------------
Interest and other receivables 3,547,184
- -------------------------------------------------------------------------------
Receivable for securities sold 160,000
- -------------------------------------------------------------------------------
Total assets 220,559,477
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to common shareholders 746,648
- -------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 8,460
- -------------------------------------------------------------------------------
Payable for securities purchased 1,456,910
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 374,355
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 40,889
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 29,573
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,215
- -------------------------------------------------------------------------------
Other accrued expenses 85,073
- -------------------------------------------------------------------------------
Total liabilities 2,744,123
- -------------------------------------------------------------------------------
Series A remarketed preferred shares: (8,000 shares
authorized; 900 shares issued at $50,000 per share) (Note 4) 45,000,000
- -------------------------------------------------------------------------------
Net assets $172,815,354
Represented by
- -------------------------------------------------------------------------------
Paid-in capital -- common shares (Note 1) $201,220,227
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (304,735)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (29,902,936)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,802,798
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $172,815,354
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per common share ($172,815,354 divided by
22,267,310 shares) $7.76
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended March 31, 2004
Interest income: $12,368,236
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,505,464
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 185,374
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,477
- -------------------------------------------------------------------------------
Administrative services (Note 2) 7,206
- -------------------------------------------------------------------------------
Preferred share remarketing agent fees 104,755
- -------------------------------------------------------------------------------
Other 155,866
- -------------------------------------------------------------------------------
Total expenses 1,973,142
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (19,860)
- -------------------------------------------------------------------------------
Net expenses 1,953,282
- -------------------------------------------------------------------------------
Net investment income 10,414,954
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (11,189,175)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 607,734
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the year 15,434,320
- -------------------------------------------------------------------------------
Net gain on investments 4,852,879
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,267,833
- -------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (456,178)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) $14,811,655
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended March 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $10,414,954 $12,159,817
- -------------------------------------------------------------------------------
Net realized loss on investments (10,581,441) (2,875,748)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 15,434,320 (2,874,667)
- -------------------------------------------------------------------------------
Distributions to Series A remarketed
preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (456,178) (614,056)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations applicable to common shareholders 14,811,655 5,795,346
- -------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (9,730,776) (11,609,228)
- -------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions -- 141,946
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,080,879 (5,671,936)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 167,734,475 173,406,411
- -------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of $304,735
and $516,712, respectively) $172,815,354 $167,734,475
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Common shares outstanding at beginning of
year 22,267,310 22,249,306
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 18,004
- -------------------------------------------------------------------------------
Common shares outstanding at end of year 22,267,310 22,267,310
- -------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of year 900 900
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended March 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $7.53 $7.79 $8.22 $8.18 $9.14
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .55 .61 .63 .68
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .22 (.26) (.46) .06 (.95)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations: .69 .29 .15 .69 (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.02) (.03) (.04) (.08) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations:
(applicable to common shareholders) .67 .26 .11 .61 (.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.52) (.54) (.57) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.52) (.54) (.57) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $7.76 $7.53 $7.79 $8.22 $8.18
- ---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $7.04 $6.97 $7.59 $8.22 $7.25
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%)
(common shares) (a) 7.54 (1.55) (1.23) 21.63 (28.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares) (in thousands) $172,815 $167,734 $173,406 $182,614 $181,352
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.16 1.17 1.15 1.14 1.19
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 5.84 6.70 7.04 6.74 7.09
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.95 34.56 18.38 12.30 16.17
- ---------------------------------------------------------------------------------------------------------------------------------
(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).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
March 31, 2004
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, LLC, ("Putnam Management"), an
indirect wholly owned subsidiary of Putnam, LLC, believes to be
consistent with prudent investment management. The fund invests in
higher yielding, lower rated bonds that have a higher rate of default
due to the nature of the investments.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued at fair
value on the basis of valuations provided by an independent pricing
service, approved by the Trustees. Such services use information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Investments for which market quotations
are readily available are valued at the last reported sales price on
their principal exchange, or official closing price for certain markets.
If no sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Other investments including restricted securities are valued 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 recorded 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. Dividend income, net
of applicable withholding taxes, is recognized on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis. The premium in excess of the call price, if any, is amortized to
the call date; thereafter, any remaining premium is amortized to
maturity.
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.
Risks may exceed amounts recognized on the statement of assets and
liabilities. 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. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." 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.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
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 (the "Code"), 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, 2004, the fund had a capital loss carryover of $28,898,149
available to the extent allowed by tax law to offset future capital
gains, if any. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
- -----------------------------------
$7,978,665 March 31, 2006
3,861,203 March 31, 2007
1,445,345 March 31, 2008
1,742,951 March 31, 2009
865,353 March 31, 2010
678,750 March 31, 2011
12,325,882 March 31, 2012
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending March 31, 2005, $439,133 of losses recognized during the period
November 1, 2003 to March 31, 2004.
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Distributions from 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, 2004 was 0.98%. 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, the expiration of
a capital loss carryover, dividends payable, defaulted bond interest,
realized gains and losses on certain futures contracts, market discount,
and straddle loss deferrals. 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, 2004, the fund reclassified $16,023 to increase
distributions in excess of net investment income and $1,308,752 to
decrease paid-in-capital, with a decrease to accumulated net realized
losses of $1,324,775.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $9,919,216
Unrealized depreciation (8,081,699)
------------
Net unrealized appreciation 1,837,517
Undistributed tax-exempt
income 512,376
Undistributed ordinary income 6,841
Capital loss carryforward (28,898,149)
Post October loss (439,133)
Cost for federal income
tax purposes $214,857,265
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 as of
period end.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the annual rate of 0.70% of average weekly net assets.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to
the proceeds of the remarketed preferred shares during that period, then
the fee payable to Putnam Management for that period will be reduced by
the amount of the excess (but not more than .70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor serving agent
functions to the fund. During the year ended March 31, 2004, the fund
paid PFTC $185,374 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended March 31, 2004, the
fund's expenses were reduced by $19,860 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $699 as a quarterly retainer, 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the year ended March 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $74,334,951 and $88,161,803, respectively. There were no
purchases and sales of U.S. government securities. Purchases and sales
of short-term municipal obligations aggregated $68,110,000 and
$53,035,000, 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 may 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, 2004, no such
restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
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 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure) as well as a
Director of Transcanada Corporation (a gas transmission and power
company). He also serves on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company) and prior to March 2000 he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner in Cambus-Kenneth Farm, LLC (cattle and
thoroughbred horses). She is President Emeritus of Mount Holyoke
College.
Dr. Kennan serves as Lead Director (formerly Chairman) of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life
Insurance. She is a Trustee of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations
and a Trustee of the National Trust for Historic Preservation. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University, and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light), and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of Washington & Lee
University, where he served as Chairman of the Investment Committee.
Prior to May 2001, he was a Director of Graphic Packaging International
Corp. Prior to February 2004, he was a Director of Alex Brown Realty,
Inc.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer). He is also a Trustee of Northeastern University and an
honorary Trustee of Massachusetts General Hospital, where he previously
served as Chairman and President. Prior to December 2003, he was a
Director of The Providence Journal Co. (a newspaper publisher). Prior to
September 2000, he was a Director of Bradley Real Estate, Inc.; prior to
April 2000, he was a Trustee of Eastern Utilities Associates; and prior
to December 2001, he was a Trustee of Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of March 31, 2004, there were 101 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments
and Putnam Management
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments
and Putnam Management
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Auditors
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal
Executive Officer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Beth S. Mazor
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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213210 054 5/04
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
March 31, 2003 $28,300 $17,250 $3,400 $--
March 31, 2004 $30,000 $18,516 $3,600 $31
For the fiscal years ended March 31, 2004 and March 31, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $ 22,147 and $ 20,650 , respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees represent fees billed for services relating interfund
trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
March 31, 2003 $-- $-- $-- $--
March 31, 2004 $-- $-- $-- $--
Item 5. Audit Committee
- ------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
W. Nicholas Thorndike
(b) Not applicable
Item 6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
- -------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
- ---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
- ---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
- -------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
- -----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
- ---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
- -------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
- -------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
- -------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
- -------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
- -------------------------------------------
The Role of the Funds' Trustees
- -------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
- ------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
- ---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
- ------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
- ---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: May 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: May 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: May 27, 2004