Putnam
High Yield
Municipal
Trust
Item 1. Report to Stockholders:
- -------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-04
[GRAPHIC OMITTED: WATCH]
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam introduced a number of reforms for
the benefit of shareholders, including increasing the amount of disclosure
for our funds. Beginning with this month's reports, we inform you of any
changes during the prior year among the Portfolio Leader and Portfolio
Members of your fund's management team. Additionally, we list the other fund
management responsibilities of your fund's Portfolio Leader and Portfolio
Members. You can find this new information following the Outlook for Your
Fund.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the investment
management industry. Myra R. Drucker is a Vice Chair of the Board of
Trustees of Sarah Lawrence College and serves as Chair of the New York Stock
Exchange (NYSE) Pension Managers Advisory Committee and as a Trustee of
Commonfund, a not-for-profit asset management firm. Richard B. Worley is
Managing Partner of Permit Capital LLC, an investment management firm. Both
Ms. Drucker and Mr. Worley are independent Trustees (i.e., Trustees who are
not "interested persons" of your fund or its investment advisor). Charles E.
Haldeman, Jr., the third new Trustee, is President and Chief Executive
Officer of Putnam Investments.
During the period covered by the following report, Putnam High Yield
Municipal Trust delivered respectable results. In the following pages,
the fund managers discuss fund performance, strategy, and their outlook
for the rest of the fund's
fiscal year.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 17, 2004
Report from Fund Management
Fund highlights
* For the six months ended September 30, 2004, common shares of Putnam
High Yield Municipal Trust had a total return of 1.91% at net asset
value and -2.32% at market price.
* The fund's benchmark, the Lehman Municipal Bond Index, returned 1.42%.
* The average return for the Lipper High Yield Municipal Debt Funds
(closed-end) category, was 2.46%.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
- --------------------------------------------------
TOTAL RETURN FOR
PERIODS ENDED 9/30/04
- --------------------------------------------------
Market
(inception 5/25/89) NAV price
- --------------------------------------------------
6 months 1.91% -2.32%
- --------------------------------------------------
1 year 6.48 3.87
- --------------------------------------------------
5 years 24.68 18.82
Annual average 4.51 3.51
- --------------------------------------------------
10 years 72.37 41.21
Annual average 5.60 3.51
- --------------------------------------------------
Annual average
(life of fund) 6.38 4.80
- --------------------------------------------------
Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Invest ment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Performance does not
reflect taxes on reinvested distributions.
Performance commentary
High-yield bonds outperformed high-quality bonds during the six months ended
September 30, 2004, which is reflected in the fact that the fund's results
at net asset value were slightly stronger than the Lehman Municipal Bond
Index. The fund's portfolio has a greater emphasis on higher-yielding,
lower-rated bonds than the benchmark, and its use of leverage tends to
magnify the effects of its performance, boosting it in a favorable
environment or dampening it under less hospitable conditions. However, the
fund lagged the average for its Lipper category, partly because the overall
quality of its portfolio was higher than other funds in the group. Poor
performance from a distressed holding and the fund's emphasis on tobacco
settlement bonds also affected results during this period. It is important
to note that a fund's performance at market price may differ from its
results at NAV. Although market price performance generally reflects
investment results, it may also be influenced by several other factors,
including changes in investor perceptions of the fund or its investment
advisor, market conditions, fluctuations in supply and demand for the fund's
shares, and changes in fund distributions.
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
Over the past six months, which constitute the first half of your fund's
2005 fiscal year, the yield on the 10-year Treasury bond fell, and bond
prices, which move in the opposite direction of yields, rose. In mid-March,
just before the fiscal year began, the bond market had begun to anticipate a
change in the Federal Reserve Board's monetary policy. Treasury bonds sold
off sharply as strong economic growth and corporate profitability increased
the likelihood that the Fed would raise short-term interest rates at its
June 30 meeting. Interestingly, when the Fed announced what had been a
widely anticipated 25-basis-point increase, the bond market reversed course
and yields have since trended downward, despite two subsequent rate
increases of 25 basis points each. Since July, long-term bond yields have
fallen while, at the same time, short-term rates have risen. This has
resulted in a flattening of the yield curve.
- -------------------------------------------------------------------------------
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 9/30/04
- -------------------------------------------------------------------------------
Bonds
- -------------------------------------------------------------------------------
Lehman Municipal Bond Index (tax-exempt bonds) 1.42%
- -------------------------------------------------------------------------------
Lehman Aggregate Bond Index (broad bond market) 0.68%
- -------------------------------------------------------------------------------
Lehman Government Bond Index (U.S Treasury and agency
securities) 0.04%
- -------------------------------------------------------------------------------
Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) -0.18%
- -------------------------------------------------------------------------------
Equities
- -------------------------------------------------------------------------------
S&P 500 Index (broad stock market) -0.18%
- -------------------------------------------------------------------------------
S&P Utilities Index (utilities stocks) 5.35%
- -------------------------------------------------------------------------------
Russell 2000 Growth Index (small-company growth stocks) -5.92%
- -------------------------------------------------------------------------------
These indexes provide an overview of performance in different market
sectors for the six months ended 9/30/04.
- -------------------------------------------------------------------------------
Strategy overview
Because we believe that the Federal Reserve Board is likely to continue to
raise short-term interest rates through mid-2005, the team is positioning
the portfolio more defensively. This involves shortening the fund's
duration, which means reducing its sensitivity to changes in interest rates.
To accomplish this, we began the process of selling longer-term bonds and
replacing them with bonds with a shorter duration. Meanwhile, we continued
to trim and diversify the fund's positions in uninsured bonds and bonds
rated A and below (credit sectors), which have performed strongly. We
maintained a neutral position in California municipal bonds, which were in
high demand as that state got its fiscal house in order and its debt quality
was upgraded by the major bond-rating agencies. The fund maintained its
overweight position in tobacco settlement bonds. We sold some bonds while
closely monitoring developments in that sector. The fund had less exposure
to airline-related industrial development bonds (IDBs) than did its peers.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
3/31/04 9/30/04
Average effective
maturity in years 8.0 7.6
Duration in years 6.4 6.1
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
During the reporting period, upgrades to the State of California's
credit rating had a powerful effect on the price of all bonds issued
within the state. Bonds in many different categories benefited as the
upgrades improved investors' perception of California debt in general.
Among the beneficiaries was the fund's position in Certificates of
Participation issued by Vallejo, California, for Marine World. These
bonds, which were originally issued to help build the theme park, have
been held by the fund for some time. Although the project's financial
strength changed little during the period, the bonds rose in value as a
result of increased investor demand for California bonds.
The position that had the greatest positive effect on the fund during
the past six months was in bonds issued by the Philadelphia,
Pennsylvania, School District. These General Obligation bonds were
pre-refunded in July. In a prerefunding, new bonds are issued at current
lower interest rates in order to pay off older, higher-coupon debt.
Money raised from the new issue is used to buy Treasury securities,
which are kept in escrow to pay off the old debt at its next call date.
Because the older bonds are now secured by the Treasuries, their rating
generally improves, which can boost their prices. This was the case with
the School District bonds.
Diversification remains an important theme for the fund. As we trimmed
large, older holdings, we have been establishing smaller positions in a
variety of holdings in different sectors. Real estate is one sector we have
favored, and we have been purchasing bonds associated with projects in a
variety of geographic areas. Examples include real estate projects in Chula
Vista, California; Las Vegas, Nevada; and Lee County, Florida. The projects
have been performing well and our overall projections are for continued
economic growth with low inflation, so we expect continued strength,
especially from projects in these rapidly growing areas.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa -- 17.8%
Aa -- 1.7%
A -- 12.4%
Baa -- 34.3%
Ba -- 19.2%
B -- 6.3%
Other -- 8.3%
Footnote reads:
As a percentage of market value as of 9/30/04. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's
ratings; percentages may include bonds not rated by Moody's but
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Although they served the fund well in previous months, tobacco settlement
bonds performed poorly during the reporting period, due to a recent weakness
in investor demand. The payments from these high-yielding bonds are secured
by income promised to various states through settlements from tobacco
companies. This income could be jeopardized as a result of
multibillion-dollar judgments against the companies, and the market has been
shifting as optimism was overshadowed by concern about litigation. We remain
watchful of the situation.
Against a backdrop of generally good conditions for high-yield municipal
debt, there were a few individual securities that had a negative impact
on the fund's performance during the period. For example, Louisiana
Local Government Environmental Facilities Community Development
Authority Revenue Bonds for St. James Place declined in value. St. James
Place is a continuing-care retirement community that suffered from some
overly optimistic revenue projections and marketing difficulties. We
bought these bonds originally in the late 1990s and until recently,
remained hopeful that a turnaround was possible. However, the fund has
now joined the remaining bondholders in a tentative agreement to tender
its bonds back to the issuer in exchange for a position in a newer bond
that more closely reflects the issuer's current income.
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.
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.
In an environment of rising short-term interest rates, yields on
long-term bonds have fallen, and judging from the flattening yield
curve, the bond market appears to have largely shrugged off the recent
Fed rate hikes. However, we believe that interest rates all along the
yield curve are more likely to rise than fall. We anticipate greater
yield increases for shorter-maturity bonds because we believe the Fed
will continue to raise short-term rates incrementally through mid-2005.
This also suggests that further flattening of the yield curve may take
place. At this point, we plan to monitor the fund's shorter duration and
position the fund defensively. We believe inflation will remain low,
despite the threat posed by high oil prices. We also anticipate the GDP
growth rate will slow during the next two quarters, as the effects of
the Fed's tightening policy are felt.
In general, these signs indicate that we are headed into a more challenging
environment for bond investing. Our task will be to continue to search for
the most attractive opportunities among tax-exempt securities, and to
balance the pursuit of attractive current income with prudent risk
management.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. 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. Mutual funds that invest in bonds are
subject to certain risks, including interest-rate risk, credit risk, and
inflation risk. As interest rates rise, the prices of bonds fall.
Long-term bonds are more exposed to interest-rate risk than short-term
bonds. Unlike bonds, bond funds have ongoing fees and expenses.
Lower-rated bonds may offer higher yields in return for more risk.
Your fund's management
Your fund is managed by the members of the Putnam Tax Exempt
Fixed-Income Team. David Hamlin is the Portfolio Leader, and Paul Drury,
Susan McCormack, and James St. John are Portfolio Members of your fund.
The Portfolio Leader and Portfolio Members coordinate the team's
management of the fund.
For a complete listing of the members of the Putnam Tax Exempt
Fixed-Income Team, including those who are not Portfolio Leaders or
Portfolio Members of your fund, visit Putnam's Individual Investor Web
site at www.putnaminvestments.com.
Other funds managed by the Portfolio Leader and Portfolio Members
David Hamlin is the Portfolio Leader and Paul Drury, Susan McCormack,
and James St. John are Portfolio Members for Putnam's tax-exempt funds
for the following states: Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania.
Additionally, the same group manages Putnam California Investment Grade
Municipal Trust, Putnam Investment Grade Municipal Trust, Putnam Managed
Municipal Income Trust, Putnam Municipal Bond Fund, Putnam Municipal
Income Fund, Putnam Municipal Opportunities Trust, Putnam New York
Investment Grade Municipal Trust, Putnam Tax Exempt Income Fund, Putnam
Tax-Free Health Care Fund, Putnam Tax-Free High Yield Fund, and Putnam
Tax-Free Insured Fund.
David Hamlin, Paul Drury, Susan McCormack, and James St. John may also
manage other accounts advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the fiscal year ended September 30, 2004, Portfolio Member
Richard Wyke left your fund's management team, and Portfolio Member
James St. John joined your fund's management team.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended September 30, 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.
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/04
- ------------------------------------------------------------------------------
Lipper
High Yield
Lehman Municipal
Municipal Debt Funds
Market Bond (closed-end)
NAV price Index category average*
- ------------------------------------------------------------------------------
6 months 1.91% -2.32% 1.42% 2.46%
- ------------------------------------------------------------------------------
1 year 6.48 3.87 4.59 8.53
- ------------------------------------------------------------------------------
5 years 24.68 18.82 38.75 29.44
Annual average 4.51 3.51 6.77 5.26
- ------------------------------------------------------------------------------
10 years 72.37 41.21 92.53 78.66
Annual average 5.60 3.51 6.77 5.94
- ------------------------------------------------------------------------------
Annual average
Life of fund
(since 5/25/89) 6.38 4.80 7.11 6.16
- ------------------------------------------------------------------------------
Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 9/30/04, there
were 14, 13, 12, and 12 funds, respectively, in this Lipper category.
- -----------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 9/30/04
- -----------------------------------------------------------------------------
Putnam High Yield Municipal Trust
- -----------------------------------------------------------------------------
Distributions from common shares
- -----------------------------------------------------------------------------
Number 6
- -----------------------------------------------------------------------------
Income 1 $0.201
- -----------------------------------------------------------------------------
Capital gains 1 --
- -----------------------------------------------------------------------------
Total $0.201
- -----------------------------------------------------------------------------
Preferred shares Series A (900 shares)
- -----------------------------------------------------------------------------
Income 1 $283.34
- -----------------------------------------------------------------------------
Capital gains 1 --
- -----------------------------------------------------------------------------
Total $283.34
- -----------------------------------------------------------------------------
Share value: NAV Market price
- -----------------------------------------------------------------------------
3/31/04 $7.76 $7.04
- -----------------------------------------------------------------------------
9/30/04 7.67 6.67
- -----------------------------------------------------------------------------
Current return (common shares, end of period)
- -----------------------------------------------------------------------------
Current dividend rate 2 5.24% 6.03%
- -----------------------------------------------------------------------------
Taxable equivalent 3 8.06 9.28
- -----------------------------------------------------------------------------
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.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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 period.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, 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.
The fund's portfolio
September 30, 2004 (Unaudited)
Key to Abbreviations
- -------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FSA Financial Security Assurance
GNMA 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 Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (99.9%) (a)
Principal amount Rating (RAT) Value
Alabama (0.7%)
- -------------------------------------------------------------------------------
$1,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River
Corp.), 8s, 9/1/28 BB+ $1,028,490
500,000 Phenix City, Indl. Dev. Board
Rev. Bonds (Mead Coated Board),
Ser. A, 5.3s, 4/1/27 Baa2 479,375
--------------
1,507,865
Arizona (2.2%)
- -------------------------------------------------------------------------------
500,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 521,250
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 1,040,000
750,000 Coconino Cnty., Poll. Control
Rev. Bonds (Tuscon/Navajo Elec.
Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 778,125
800,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village 1st.
Mtge.), Ser. A, U.S. Govt. Coll.,
8 1/4s, 6/1/15 AAA/P 849,976
500,000 Tempe, Indl. Dev. Auth. Sr. Living
Rev. Bonds (Friendship Village),
Ser. A, 5 3/8s, 12/1/13 BB- 505,625
1,000,000 Yavapai Cnty., Indl. Dev. Auth.
Solid Waste Disposal Rev. Bonds
(Waste Management, Inc.), 4 5/8s,
6/1/27 BBB 1,011,410
--------------
4,706,386
Arkansas (1.4%)
- -------------------------------------------------------------------------------
1,800,000 AR Dev. Fin. Auth. Rev. Bonds,
Ser. D, GNMA/FNMA Coll., 3s, 1/1/24 AAA 1,833,750
1,000,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 1,080,000
--------------
2,913,750
California (7.7%)
- -------------------------------------------------------------------------------
1,500,000 CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A, 5 1/4s, 5/1/20 A2 1,612,500
875,000 CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt.
Cmntys.), Ser. A-3, 5.1s, 5/15/25 Baa2 919,844
250,000 Chula Vista, Cmnty. Fac. Dist.
Special Tax (No 07-I-Otay Ranch
Village Eleven), 5 7/8s, 9/1/34 BB-/P 256,250
Chula Vista, Cmnty. Fac. Dist.
Special Tax Rev. Bonds
1,000,000 (No. 06-1 Eastlake Woods Area),
6.1s, 9/1/21 BB/P 1,043,750
500,000 (No. 08-1 Otay Ranch Village Six),
6s, 9/1/33 BB-/P 503,125
350,000 Folsom, Special Tax Rev. Bonds
(Cmnty. Facs. Dist. No. 10), 5 7/8s,
9/1/28 BB 355,250
2,000,000 Foothill/Eastern Corridor Agcy.
Rev. Bonds (CA Toll Roads), 5 3/4s,
1/15/40 Baa3 2,015,000
985,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 D/P 695,656
1,000,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 A- 1,043,750
500,000 Irvine, Impt. Board Act of 1915
Special Assmt. Bonds (Assmt. Dist.
No. 00-18-GRP 3), 5.55s, 9/2/26 BB+/P 503,750
1,425,000 Los Angeles Cnty., Metro. Trans.
Auth. Rev. Bonds (First Tier), FSA,
5s, 7/1/11 Aaa 1,583,531
250,000 Murrieta, Cmnty. Fac. Dist. Special
Tax (No. 2 The Oaks Impt. Area A),
6s, 9/1/34 BB- 254,375
1,000,000 Orange Cnty., Cmnty. Fac. Dist.
Rev. Bonds (Ladera Ranch - No. 1),
6s, 8/15/25 BB/P 1,036,250
250,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Ladera
Ranch - No. 02-1), Ser. A, 5.55s,
8/15/33 BB+/P 251,250
745,000 Santaluz Cmnty., Facs. Dist. No. 2
Special Tax Rev. Bonds (Impt. Area
No. 1), Ser. B, 6 3/8s, 9/1/30 BB+/P 763,625
835,000 Sunnyvale, Special Tax Rev. Bonds
(Cmnty. Fac. Dist. No. 1), 7 3/4s,
8/1/32 BB-/P 849,613
1,500,000 Thousand Oaks, Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Marketplace
94-1), zero %, 9/1/14 B/P 738,750
2,000,000 Vallejo, COP (Marine World
Foundation), 7.2s, 2/1/26 BBB-/P 2,017,500
--------------
16,443,769
Colorado (0.7%)
- -------------------------------------------------------------------------------
1,000,000 CO. Hlth. Fac. Auth.
Rev. Bonds (Evangelical Lutheran),
Ser. B, 3 3/4s, 6/1/34 A3 1,005,000
500,000 Montrose, Memorial Hosp. Rev. Bonds,
6 3/8s, 12/1/23 BBB- 525,625
--------------
1,530,625
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+ 775,313
Florida (5.4%)
- -------------------------------------------------------------------------------
500,000 Cap. Trust Agcy. Multi-Fam.
Rev. Bonds
(American Opportunity-Senior),
Ser. A, 5 7/8s, 6/1/38 Baa1 480,000
500,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 B/P 599,375
750,000 CFM Cmnty. Dev. Dist. Rev. Bonds
(Cap. Impt.), Ser. B, 5 7/8s, 5/1/14 BB-/P 763,125
1,000,000 Double Branch Cmnty. Dev. Dist.
Rev. Bonds, Ser. A, 6.7s, 5/1/34 BB-/P 1,072,500
550,000 Fishhawk, Cmnty. Dev. Dist. II
Rev. Bonds, Ser. B, 5s, 11/1/07 BB-/P 554,125
770,000 FL State Mid-Bay Bridge Auth.
Rev. Bonds, Ser. A, 6.05s, 10/1/22 BBB/P 794,063
250,000 Fleming Island, Plantation Cmnty.
Dev. Dist. Special Assmt.
Rev. Bonds, Ser. B, 7 3/8s, 5/1/31 BB/P 270,000
575,000 Heritage Isle at Viera, Cmnty. Dev.
Dist. Special Assmt., Ser. B, 5s,
11/1/09 BB/P 577,875
500,000 Islands at Doral III, Cmnty. Dev.
Dist. Special Assmt. Rev. Bonds,
Ser. 04-A, 5.9s, 5/1/35 BB 503,125
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 1,098,625
1,075,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 1,033,344
600,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.8s, 11/15/31 BB 621,750
500,000 Orange Cnty., Hlth. Fac. Auth.
Rev. Bonds (Orlando Regl. Hlth.
Care), 5 3/4s, 12/1/32 A2 525,625
750,000 Reunion West, Cmnty. Dev. Dist.
Special Assmt., 6 1/4s, 5/1/36 BB-/P 760,313
800,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B-/P 825,000
495,000 Verandah, West Cmnty. Dev. Dist.
Rev. Bonds (Cap. Impt.), Ser. A,
6 5/8s, 5/1/33 BB-/P 512,325
500,000 World Commerce Cmnty. Dev. Dist.
Special Assmt., Ser. A-1, 6 1/2s,
5/1/36 BB-/P 506,250
--------------
11,497,420
Georgia (6.4%)
- -------------------------------------------------------------------------------
5,000,000 Atlanta, Waste Wtr. VRDN, Ser. C,
FSA, 1.73s, 11/1/41 VMIG1 5,000,000
2,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 12/1/08 A2 2,102,500
2,000,000 Forsyth Cnty., Hosp. Auth.
Rev. Bonds (Baptist Hlth. Care
Syst.), U.S. Govt. Coll., 6 1/4s,
10/1/18 AAA 2,387,500
175,000 Fulton Cnty., Res. Care Fac.
Rev. Bonds (Canterbury Court), Class
A, 6 1/8s, 2/15/34 B+/P 175,219
1,200,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
11.03s, 8/1/10 Aaa 1,207,644
1,750,000 Muni. Elec. Auth. Rev. Bonds, AMBAC,
5s, 1/1/26 AAA 1,903,125
830,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay
Paper, Inc.), 7.4s, 1/1/16 BB+/P 859,531
--------------
13,635,519
Illinois (1.7%)
- -------------------------------------------------------------------------------
1,245,000 Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 Caa2 918,188
750,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 776,250
IL Hlth. Fac. Auth. Rev. Bonds
1,115,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 (Prerefunded) AAA/P 1,188,010
225,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 D/P 181,125
500,000 (Elmhurst Memorial Hlth. Care),
5 5/8s, 1/1/28 A2 516,875
--------------
3,580,448
Indiana (2.4%)
- -------------------------------------------------------------------------------
2,500,000 Indianapolis, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 5.1s,
1/15/17 Baa2 2,603,125
500,000 Jasper Hosp. Auth. Rev. Bonds
(Memorial Hosp. Project), 5 1/2s,
11/1/32 AA 516,250
2,000,000 Rockport, Poll. Control
Rev. Bonds (Indiana-Michigan Pwr.),
Ser. A, 4.9s, 6/1/25 Baa2 2,087,500
--------------
5,206,875
Iowa (1.4%)
- -------------------------------------------------------------------------------
2,430,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives),
9 1/4s, 7/1/25 BBB-/P 2,943,338
Kentucky (1.4%)
- -------------------------------------------------------------------------------
2,250,000 Boone Cnty., Poll. Control
Rev. Bonds (Dayton Pwr. & Lt. Co.),
Ser. A, 6 1/2s, 11/15/22 Baa3 2,264,693
710,000 Kentucky Econ. Dev. Fin. Auth.
Rev. Bonds (First Mtg.), Ser. IA,
6 1/2s, 1/1/29 B-/P 650,538
--------------
2,915,231
Louisiana (1.4%)
- -------------------------------------------------------------------------------
500,000 Desoto Parish, Rev. Bonds (Intl.
Paper Co. Project), Ser. A, 5s,
10/1/12 Baa2 530,625
2,150,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/25 B-/P 1,443,188
1,000,000 St. Charles Parish, Poll. Control
Rev. Bonds, Ser. A, 4.9s, 6/1/30 Baa2 1,016,130
--------------
2,989,943
Maine (1.0%)
- -------------------------------------------------------------------------------
985,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 1,037,944
1,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba2 1,036,250
--------------
2,074,194
Maryland (0.6%)
- -------------------------------------------------------------------------------
500,000 MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds (Medstar Hlth.),
5 3/4s, 8/15/15 Baa2 547,500
600,000 Westminster, Econ. Dev Rev. Bonds
(Carroll Lutheran Village), Ser. A,
6 1/4s, 5/1/34 BB/P 611,250
150,000 Westminster, Econ. Dev. Rev. Bonds
(Carroll Lutheran Village), Ser. A,
5 7/8s, 5/1/21 BB/P 152,063
--------------
1,310,813
Massachusetts (6.5%)
- -------------------------------------------------------------------------------
1,000,000 Boston, Indl. Dev. Fin. Auth.
Rev. Bonds (Springhouse, Inc.), 6s,
7/1/28 BB-/P 931,250
870,000 MA State Dev. Fin. Agcy. Rev. Bonds
(Beverly Enterprises, Inc.), 7 3/8s,
4/1/09 B+/P 880,875
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
750,000 (Civic Investments), Ser. A, 9s,
12/15/15 BB/P 860,625
350,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 365,312
1,575,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,687,219
1,350,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 1,409,062
1,000,000 (Baystate Med. Ctr.), Ser. F, 5.7s,
7/1/27 A1 1,041,250
500,000 (Caritas Christi Oblig. Group),
Ser. A, 5 1/4s, 7/1/08 BBB 530,625
1,470,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 1,519,612
MA State Indl. Fin. Agcy. Rev. Bonds
250,000 (1st Mtge. Stone Institution &
Newton), 7.9s, 1/1/24 BB-/P 255,613
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/Fitch 513,750
750,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/09 BBB/P 775,312
600,000 (1st Mtge. Berkshire Retirement),
Ser. A, 6 5/8s, 7/1/16 BBB- 608,250
500,000 (1st Mtge. Brookhaven), Ser. B,
5 1/4s, 1/1/17 BBB/P 500,000
2,000,000 MA State Wtr. Resource Auth. VRDN
(Multi-Modal), Ser. C, 1.8s, 8/1/20 VMIG1 2,000,000
--------------
13,880,669
Michigan (4.2%)
- -------------------------------------------------------------------------------
4,000,000 Detroit, Swr. Disp. VRDN, Ser. B,
FSA, 1.73s, 7/1/33 VMIG1 4,000,000
900,000 Dickinson Cnty., Econ. Dev. Corp.
Poll. Control Rev. Bonds (Intl.
Paper Co.), Ser. A, 4.8s, 11/1/18 Baa2 904,500
175,000 Garden City, Hosp. Fin. Auth.
Rev. Bonds (Garden City Hosp. OB
Group), Ser. A, 5 3/4s, 9/1/17 Ba2 164,500
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 1,037,500
600,000 MI State Strategic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr.
Station), 7 1/2s, 1/1/21 B/P 530,250
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 1,532,250
Midland Cnty., Econ. Dev. Corp.
Rev. Bonds
500,000 6 7/8s, 7/23/09 Ba3 520,625
250,000 6 3/4s, 7/23/09 Ba3 260,625
--------------
8,950,250
Minnesota (1.6%)
- -------------------------------------------------------------------------------
300,000 Duluth, Econ. Dev. Auth. Hlth. Care
Fac. Rev. Ser. A, x(BSM Properties,
Inc.), AMBAC, 5 7/8s, 12/1/28 BB/P 292,125
250,000 Minneapolis, Rev. Bonds (Walker
Methodist Sr. Svcs.), Ser. C, 6s,
11/15/28 B+/P 194,375
1,000,000 MN State Higher Ed. Fac. Auth.
Rev. Bonds (The College of St.
Catherine), 5s, 10/1/18 Baa1 1,036,250
900,000 Northfield, Hlth. Care Fac.
Rev. Bonds (Retirement Ctr.),
Ser. A , 6s, 5/1/28 B/P 900,000
1,000,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. B,
6 5/8s, 11/1/17 Ba2 1,007,780
--------------
3,430,530
Mississippi (0.8%)
- -------------------------------------------------------------------------------
1,000,000 Lowndes Cnty., Solid Waste Disp. &
Poll. Control Rev. Bonds
(Weyerhaeuser Co.), Ser. B, 6.7s,
4/1/22 Baa2 1,176,250
500,000 MS Bus. Fin. Corp. Poll. Control
Rev. Bonds (Syst. Energy Resources,
Inc.), 5 7/8s, 4/1/22 BBB 503,115
--------------
1,679,365
Missouri (1.7%)
- -------------------------------------------------------------------------------
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 1,067,500
500,000 Kansas City, Indl. Dev. Auth. Hlth.
Fac. Rev. Bonds (First Mtg. Bishop
Spencer), Ser. A, 6 1/2s, 1/1/35 BB- 507,500
1,980,000 MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership), GNMA/FNMA Coll., 5.55s,
9/1/34 AAA 2,165,625
--------------
3,740,625
Montana (0.5%)
- -------------------------------------------------------------------------------
700,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
12/30/08 Aaa 753,375
250,000 MT State Board Inv. Exempt Fac.
Rev. Bonds (Still Water Mining
Project), 8s, 7/1/20 Ba3 261,563
--------------
1,014,938
Nevada (3.2%)
- -------------------------------------------------------------------------------
3,500,000 Clark Cnty., G.O. Bonds (Pk. & Regl.
Justice Ctr.), FGIC, 5 5/8s,
11/1/19 Aaa 3,876,250
250,000 Clark Cnty., Local Impt. Dist.
Special Assmt. Bonds (No. 142),
6.1s, 8/1/18 BB- 254,063
Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14)
250,000 5.8s, 3/1/23 BB-/P 255,938
850,000 5.55s, 3/1/17 BB-/P 871,250
325,000 Las Vegas, Local Impt. Board Special
Assmt. (Dist. No. 607), 5.9s, 6/1/18 BB-/P 333,938
250,000 Las Vegas, Special Impt. Dist.
Rev. Bonds (No. 809 - Summerlin
Area), 5.65s, 6/1/23 BB/P 249,688
1,000,000 Washoe Cnty., Wtr. Fac. Mandatory
Put Bonds (Sierra Pacific Pwr. Co.),
5s, 7/1/09 Ba2 1,006,250
--------------
6,847,377
New Hampshire (1.6%)
- -------------------------------------------------------------------------------
1,000,000 NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds (NH College), 6 3/8s,
1/1/27 BBB- 1,035,000
NH Hlth. & Ed. Fac. Auth. Rev. Bonds
600,000 (Huntington at Nashua), Ser. A,
6 7/8s, 5/1/33 B/P 608,250
600,000 (Kendal at Hanover), Ser. A, 5s,
10/1/18 BBB 601,500
490,000 NH State Bus. Fin. Auth. Rev. Bonds
(Franklin Regl. Hosp. Assn.),
Ser. A, 6.05s, 9/1/29 BB-/P 462,438
650,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds, 3 1/2s, 7/1/27 Baa2 652,438
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
--------------
3,361,369
New Jersey (2.3%)
- -------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
600,000 (Cranes Mill), Ser. A, 7 1/2s,
2/1/27 BB-/P 627,000
500,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 515,000
1,000,000 (United Methodist Homes), Ser. A-1,
6 1/4s, 7/1/33 BB+ 1,003,750
500,000 NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds (Trinitas Hosp. Oblig.
Group), 7 1/2s, 7/1/30 Baa3 561,875
250,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C,
5 1/8s, 7/1/22 BBB+ 259,375
2,000,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 3/8s, 6/1/32 BBB 1,860,000
--------------
4,827,000
New Mexico (2.1%)
- -------------------------------------------------------------------------------
700,000 Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan),
Class B, 2.1s, 4/1/06 Baa2 696,500
3,900,000 Farmington, Poll. Control VRDN (AZ
Pub. Service Co.), Ser. B, 1.73s,
9/1/24 VMIG1 3,900,000
--------------
4,596,500
New York (9.6%)
- -------------------------------------------------------------------------------
750,000 Huntington, Hsg. Auth. Sr. Hsg. Fac.
Rev. Bonds (Gurwin Jewish Sr.
Residence), Ser. A, 6s, 5/1/29 B+/P 696,563
1,400,000 Long Island, Pwr. Auth. NY Elec.
Syst. Rev. Bonds, Ser. A, 5 3/4s,
12/1/24 A- 1,501,500
1,000,000 Metro. Trans. Auth. Svc. Contract
Rev. Bonds, Ser. A , MBIA, 5 1/2s,
1/1/20 Aaa 1,117,500
775,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (Keyspan-Glenwood),
5 1/4s, 6/1/27 A 787,594
1,000,000 NY City, G.O. Bonds, Ser. C, 5 1/4s,
8/1/11 A2 1,107,500
800,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper, Inc.), 7.95s, 1/1/28 B+/P 836,000
NY City, Indl. Dev. Agcy. Civic Fac.
Rev. Bonds
1,230,000 (Staten Island U. Hosp.), Ser. A,
6 3/8s, 7/1/31 Ba3 1,166,962
200,000 (Brooklyn Polytech. U. Project J),
6 1/8s, 11/1/30 BB+ 183,500
1,300,000 NY City, Indl. Dev. Agcy. Special
Arpt. Fac. Rev. Bonds (Airis JFK I
LLC), Ser. A, 5 1/2s, 7/1/28 Baa3 1,280,500
1,500,000 NY City, Indl. Dev. Agcy. Special
Fac. Rev. Bonds (British Airways),
5 1/4s, 12/1/32 BB+ 1,104,375
NY State Dorm. Auth. Rev. Bonds
1,000,000 (NY U.), Ser. B, MBIA, 5s, 7/1/11 Aaa 1,116,250
4,385,000 (School Dist. Fin. Project), Ser. D,
MBIA, 5s, 10/1/10 Aaa 4,867,350
1,200,000 Onondaga Cnty., Indl. Dev. Agcy.
Rev. Bonds (Solvay Paperboard, LLC),
7s, 11/1/30 (acquired 12/9/98, cost
$1,1500,000) (RES) BB-/P 1,266,000
500,000 Port Auth. NY & NJ Rev. Bonds
(Kennedy Intl. Arpt. - 4th
Installment), 6 3/4s, 10/1/11 BB+/P 528,125
1,000,000 Suffolk Cnty., Indl. Dev. Agcy.
Rev. Bonds (Peconic Landing),
Ser. A, 8s, 10/1/30 B+/P 1,053,750
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 1,060,000
800,000 Syracuse, Indl. Dev. Agcy.
Rev. Bonds (1st Mtge. - Jewish
Home), Ser. A, 7 3/8s, 3/1/21 BB-/P 836,000
--------------
20,509,469
North Carolina (2.3%)
- -------------------------------------------------------------------------------
1,500,000 NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. C, 5.3s, 1/1/15 Baa2 1,606,875
250,000 NC Med. Care Cmnty. Healthcare Fac.
Rev. Bonds (Deerfield), Ser. A, 5s,
11/1/23 A-/P 250,625
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 769,687
NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.)
1,000,000 Ser. B, 6 1/2s, 1/1/20 Baa1 1,123,750
1,000,000 Ser. A, 5 1/2s, 1/1/13 Baa1 1,103,750
--------------
4,854,687
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 Baa2 1,088,750
Ohio (3.4%)
- -------------------------------------------------------------------------------
1,000,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/32 A1 1,080,000
665,000 Marion Cnty., Hlth. Care Fac.
Rev. Bonds (United Church Homes),
6 3/8s, 11/15/10 BBB- 675,805
1,500,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s,
4/1/22 A3 1,625,625
1,000,000 OH State Higher Edl. Fac. Rev. Bonds
(Kenyon College Project), 4.85s,
7/1/37 A2 1,057,500
1,000,000 OH State Poll. Control Rev. Bonds
(General Motors Corp.), 5 5/8s,
3/1/15 Baa1 1,081,250
1,250,000 OH State Wtr. Dev. Auth. Poll.
Control Fac. Mandatory Put Bonds
(Cleveland Elec.), Class A, 1.69s,
10/1/08 Baa2 1,254,687
500,000 Toledo-Lucas Cnty., Port Auth.
Rev. Bonds (CSX Transn, Inc.),
6.45s, 12/15/21 Baa2 575,000
--------------
7,349,867
Oklahoma (0.5%)
- -------------------------------------------------------------------------------
1,000,000 OK State Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst. - Oblig. Group),
Ser. A, MBIA, 5 3/4s, 8/15/29 Aaa 1,078,750
Oregon (1.0%)
- -------------------------------------------------------------------------------
1,000,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza
Project), 6 1/2s, 12/1/29 BB-/P 1,021,250
1,000,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds (Single Family Mtg.),
Ser. K, 5 5/8s, 7/1/29 Aa2 1,077,500
--------------
2,098,750
Pennsylvania (7.3%)
- -------------------------------------------------------------------------------
750,000 Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Env. Impt. - USX
Corp.), 6s, 1/15/14 Baa1 806,250
200,000 Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A,
6 1/2s, 11/15/08 Baa3 202,215
885,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek
Partners), 6.65s, 5/1/10 BBB- 958,012
250,000 Lancaster Cnty., Hosp. Auth.
Rev. Bonds (Gen. Hosp.), 5 1/2s,
3/15/26 A- 254,688
750,000 PA Convention Ctr. Auth. Rev. Bonds,
Ser. A, 6 3/4s, 9/1/19 Baa2 769,425
PA Econ. Dev. Fin. Auth. Rev. Bonds
3,250,000 (MacMillan Ltd. Partnership), 7.6s,
12/1/20 Baa2 3,522,187
500,000 (Amtrak), Ser. A, 6 3/8s, 11/1/41 A3 520,625
350,000 PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver), Ser. D,
7.15s, 12/1/18 BBB- 359,604
PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 769,485
2,000,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BBB- 2,025,000
1,280,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Philadelphia College of
Osteopathic Medicine), 5s, 12/1/12 A 1,385,600
750,000 Philadelphia, Indl. Dev. Auth. Arpt.
Rev. Bonds (Aero Philadelphia, LLC),
5 1/2s, 1/1/24 BB/P 690,000
2,000,000 Philadelphia, School Dist. G.O.
Bonds, Ser. A, FSA, 5 1/2s, 2/1/31 Aaa 2,290,000
750,000 Scranton, G.O. Bonds, Ser. C, 7.1s,
9/1/31 AAA/P 932,812
--------------
15,485,903
Puerto Rico (0.5%)
- -------------------------------------------------------------------------------
1,000,000 PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES), 6 5/8s, 6/1/26 Baa3 1,075,000
South Carolina (1.5%)
- -------------------------------------------------------------------------------
1,250,000 Lexington Cnty. Hlth. Svcs. Dist.
Inc. Hosp. Rev. Bonds, 5 1/2s,
5/1/37 A2 1,276,562
SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth. Alliance)
600,000 Ser. A, 7 3/8s, 12/15/21 Baa2 743,250
1,000,000 Ser. C, 6s, 8/1/20 Baa2 1,073,750
--------------
3,093,562
South Dakota (1.1%)
- -------------------------------------------------------------------------------
1,250,000 SD Hlth. & Ed. Fac. Auth. Rev. Bonds
(Prairie Lakes), 5.65s, 4/1/22 Baa2 1,259,375
990,000 SD Hsg. Dev. Auth. Rev. Bonds (Home
Ownership Mtg.), Ser. H, 5s, 5/1/28 AAA 1,045,687
--------------
2,305,062
Tennessee (1.4%)
- -------------------------------------------------------------------------------
1,500,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 BBB+ 1,753,125
1,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac.
Board Rev. Bonds (Methodist
Healthcare), 6 1/2s, 9/1/26 A- 1,188,750
--------------
2,941,875
Texas (5.5%)
- -------------------------------------------------------------------------------
1,000,000 Abilene, Hlth. Fac. Dev. Corp.
Rev. Bonds (Sears Methodist
Retirement), 5 7/8s, 11/15/18 BB/P 992,500
1,000,000 Gulf Coast, Waste Disp. Auth.
Mandatory Put Bonds (Amoco Oil), 2s,
10/1/06 Aa1 1,002,500
1,000,000 Gulf Coast, Waste Disp. Auth.
Rev. Bonds, Ser. A, 6.1s, 8/1/24 Baa2 1,050,000
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 742,875
Houston, Arpt. Syst. Rev. Bonds
1,450,000 (Continental Airlines, Inc.),
Ser. E, 6 3/4s, 7/1/29 B- 1,145,500
1,800,000 Ser. B, FSA, 5 1/2s, 7/1/30 Aaa 1,905,750
250,000 Lufkin, Hlth. Fac. Dev. Corp.
Rev. Bonds (Memorial Hlth. Syst. of
East TX), 5.7s, 2/15/28 BBB 252,812
2,150,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa3 2,117,750
2,400,000 TX State Dept. of Hsg. & Cmnty.
Affairs Rev. Bonds, Ser. C,
GNMA/FNMA Coll., 6.9s, 7/2/24 (SEG) AAA 2,427,000
--------------
11,636,687
Utah (1.9%)
- -------------------------------------------------------------------------------
1,550,000 Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A,
7 1/2s, 2/1/10 BB- 1,586,858
1,700,000 Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union
Pacific), Ser. A, 5.7s, 11/1/26 Baa2 1,723,375
750,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil), 5.05s, 11/1/17 Baa1 822,187
--------------
4,132,420
Vermont (1.0%)
- -------------------------------------------------------------------------------
2,000,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 2,095,000
Virginia (1.2%)
- -------------------------------------------------------------------------------
Henrico Cnty. Econ. Dev. Auth.
Rev. Bonds (United Methodist),
Ser. A
$400,000 6.7s, 6/1/27 BB+/P $410,000
600,000 6 1/2s, 6/1/22 BB+/P 610,500
500,000 James Cnty., Indl. Dev. Auth.
Rev. Bonds (Williamsburg), Ser. A,
6 1/8s, 3/1/32 BB-/P 508,125
1,000,000 Prince William Cnty., Indl. Dev.
Auth. Hosp. Rev. Bonds (Potomac
Hosp. Corp.), 5.35s, 10/1/36 A3 1,021,250
--------------
2,549,875
Washington (0.2%)
- -------------------------------------------------------------------------------
500,000 Tobacco Settlement Auth. of WA
Rev. Bonds, 6 1/2s, 6/1/26 BBB 485,625
West Virginia (0.3%)
- -------------------------------------------------------------------------------
825,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 B2 610,500
Wisconsin (1.4%)
- -------------------------------------------------------------------------------
1,500,000 Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds, 6 3/8s, 6/1/32 BBB 1,378,125
1,600,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 1,676,000
--------------
3,054,125
--------------
Total Municipal bonds and notes
(cost $208,168,936) $212,806,019
Common stocks (0.1%) (a) (cost $1,428,766)
Number of shares Value
- -------------------------------------------------------------------------------
29,974 Tembec, Inc. (Canada) $197,805
- -------------------------------------------------------------------------------
Total Investments
(cost $209,597,702) $213,003,824
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value of
$213,003,824.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September30, 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 September 30, 2004. Securities rated by Putnam are
indicated by "/P".
(NON) Non-income producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2004
was $1,266,000 or 0.6% of portfolio market value.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
September 30, 2004.
The rates shown on VRDNs and mandatory put bonds are the current
interest rates at September 30, 2004.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at September 30, 2004.
The fund had the following industry group concentrations greater than
10% at September 30, 2004 as a percentage of portfolio market value:
Health care 33.7%
Utilities 21.8
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
Futures contracts outstanding at September 30, 2004 (Unaudited)
Aggregate Expiration Unrealized
Value face value date depreciation
- ----------------------------------------------------------------------------------------
U.S. Treasury Note
10 yr (Short) $6,532,250 $6,465,484 Dec-04 $(66,766)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
September 30, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$209,597,702) (Note 1) $213,003,824
- -------------------------------------------------------------------------------
Cash 1,926,061
- -------------------------------------------------------------------------------
Interest and other receivables 3,404,057
- -------------------------------------------------------------------------------
Receivable for securities sold 428,444
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 9,063
- -------------------------------------------------------------------------------
Total assets 218,771,449
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 746,668
- -------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 14,914
- -------------------------------------------------------------------------------
Payable for securities purchased 1,784,022
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 381,428
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,519
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 33,166
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,519
- -------------------------------------------------------------------------------
Other accrued expenses 58,036
- -------------------------------------------------------------------------------
Total liabilities 3,051,272
- -------------------------------------------------------------------------------
Series A remarketed preferred shares: (8,000 shares
authorized; 900 shares issued at $50,000 per share) (Note 4) 45,000,000
- -------------------------------------------------------------------------------
Net assets $170,720,177
Represented by
- -------------------------------------------------------------------------------
Paid-in capital -- common shares (Note 1) $201,220,227
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (177,013)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (33,662,393)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,339,356
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $170,720,177
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per common share ($170,720,177 divided by
22,267,310 shares) $7.67
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended September 30, 2004 (Unaudited)
Interest income: $5,854,873
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 749,491
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 43,664
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 50,555
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 7,520
- -------------------------------------------------------------------------------
Administrative services (Note 2) 4,519
- -------------------------------------------------------------------------------
Preferred share remarketing agent fees 63,768
- -------------------------------------------------------------------------------
Other 91,909
- -------------------------------------------------------------------------------
Total expenses 1,011,426
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (14,781)
- -------------------------------------------------------------------------------
Net expenses 996,645
- -------------------------------------------------------------------------------
Net investment income 4,858,228
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (3,491,940)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (267,517)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the period 1,536,558
- -------------------------------------------------------------------------------
Net loss on investments (2,222,899)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,635,329
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (255,007)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) $2,380,322
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
September 30 March 31
Increase (decrease) in net assets 2004* 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $4,858,228 $10,414,954
- -------------------------------------------------------------------------------
Net realized loss on investments (3,759,457) (10,581,441)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,536,558 15,434,320
- -------------------------------------------------------------------------------
Distributions to Series A remarketed
preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (255,007) (456,178)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations applicable to common shareholders 2,380,322 14,811,655
- -------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (4,475,499) (9,730,776)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (2,095,177) 5,080,879
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of period 172,815,354 167,734,475
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of $177,013
and $304,735, respectively) $170,720,177 $172,815,354
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Common shares outstanding at beginning and
end of period 22,267,310 22,267,310
- -------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of period 900 900
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
Sept. 30
Per-share (Unaudited) Year ended March 31
operating performance 2004 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $7.76 $7.53 $7.79 $8.22 $8.18 $9.14
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .47 .55 .61 .63 .68
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) .22 (.26) (.46) .06 (.95)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations: .12 .69 .29 .15 .69 (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.01) (.02) (.03) (.04) (.08) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations:
(applicable to common shareholders) .11 .67 .26 .11 .61 (.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.20) (.44) (.52) (.54) (.57) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.44) (.52) (.54) (.57) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $7.67 $7.76 $7.53 $7.79 $8.22 $8.18
- ---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $6.67 $7.04 $6.97 $7.59 $8.22 $7.25
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%)
(common shares) (a) (2.32)* 7.54 (1.55) (1.23) 21.63 (28.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)
(in thousands) $170,720 $172,815 $167,734 $173,406 $182,614 $181,352
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .60* 1.16 1.17 1.15 1.14 1.19
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 2.73* 5.84 6.70 7.04 6.74 7.09
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.52* 36.95 34.56 18.38 12.30 16.17
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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
September 30, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Municipal Trust (the "fund"), a Massachusetts business
trust, 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. 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. If a written call option is exercised, the premium
originally received is recorded as an addition to sales proceeds. If a
written put option is exercised, the premium originally received is recorded
as an addition to the cost of investments.
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 of 1986 (the "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 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.
The aggregate identified cost on a tax basis is $209,562,983, resulting
in gross unrealized appreciation and depreciation of $9,061,123 and
$5,620,282, respectively, or net unrealized appreciation of $3,440,841.
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 September 30, 2004 was 1.60%. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding 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 following annual rates of 70% of average weekly net
assets.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to
the proceeds of the remarketed preferred shares during that period, then
the fee payable to Putnam Management for that period will be reduced by
the amount of the excess (but not more than 0.70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended September 30, 2004,
the fund paid PFTC $94, 219 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 six months ended September 30,
2004, the fund's expenses were reduced by $14,781 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $701, 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. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
Note 3
Purchases and sales of securities
During the period ended September 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $23,117,835 and $22,490,053, respectively.
There were no purchases and sales of U.S. government securities.
Purchases and sales of short-term municipal obligations aggregated
$20,120,000 and $22,295,000, 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 September 30, 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 ("SEC") 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.
Results of October 14, 2004 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 14,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
- ----------------------------------------------------------------
Jameson Adkins Baxter 17,835,451 795,554
Charles B. Curtis 17,844,050 786,955
Myra R. Drucker 17,811,699 819,306
Charles E. Haldeman, Jr. 17,805,054 825,951
Ronald J. Jackson 17,848,098 782,907
Paul L. Joskow 17,821,118 809,887
Elizabeth T. Kennan 17,834,361 796,644
John H. Mullin III 17,843,060 787,945
George Putnam, III 17,831,126 799,879
A.J.C. Smith 17,825,639 805,366
W. Thomas Stephens 17,834,713 787,292
Richard B. Worley 17,813,718 817,287
Preferred Shares
Votes
Votes for withheld
- ----------------------------------------------------------------
Jameson Adkins Baxter 870 30
Charles B. Curtis 870 30
Myra R. Drucker 870 30
Charles E. Haldeman, Jr. 870 30
John A. Hill 870 30
Ronald J. Jackson 870 30
Paul L. Joskow 870 30
Elizabeth T. Kennan 870 30
John H. Mullin III 870 30
Robert E. Patterson 870 30
George Putnam, III 870 30
A.J.C. Smith 870 30
W. Thomas Stephens 870 30
Richard B. Worley 870 30
All tabulations are rounded to nearest whole number.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product, call
your financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
Asset Allocation Portfolios
Putnam Asset Allocation Portfolios--three investment
portfolios that spread your money across
a variety of stocks, bonds, and money
market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged between 6 and
90 days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
With the exception of money market funds, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance
at www.putnaminvestments.com.
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
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
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
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Do you want to save paper and receive this document faster?
Shareholders can sign up for email delivery of shareholder reports on
www.putnaminvestments.com.
216519 11/04
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(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: November 30, 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: November 30, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: November 30, 2004