Putnam
High Yield
Municipal
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Throughout the period ended March 31, 2005, the Federal Reserve Board's
series of gradual increases in the federal funds rate occupied much of
investors' attention. However, these increases did not begin to have a
significant impact on stock and bond prices until approximately March
2005. Also in March, we began to see a measurable increase in longer-term
interest rates, which, along with continued record-high energy prices, has
slowed the stock market's momentum. Concerns about inflation have also
begun to influence the markets once again and may affect bond prices going
forward. In such an environment, security selection takes on even greater
importance and the in-depth, professional research and active management
mutual funds can provide makes them an even more intelligent choice for
today's investors.
Given these trends, we want you to know that Putnam Investments'
management team, under the leadership of Chief Executive Officer Ed
Haldeman, continues to focus on improving investment performance and
remains committed to putting the interests of shareholders first. In
keeping with these goals, we are including additional disclosure about
your fund's management team in this report. Following the Outlook for
Your Fund, we provide manager compensation information that pertains to
your fund, list any changes in your fund's Portfolio Leader and
Portfolio Members during the prior year, and disclose these individuals'
other fund management responsibilities at Putnam. We also show how much
these individuals, as well as the members of Putnam's Executive Board,
have invested in the fund (in dollar ranges). Furthermore, on page 14,
we provide information about the most recent approval by the Trustees of
your fund's management contract with Putnam.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
objective during the reporting period, and the team's plan for
responding to recent changes in the market climate.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 18, 2005
Report from Fund Management
Fund highlights
* For the fiscal year ended March 31, 2005, Putnam High Yield Municipal
Trust had a total return of 5.53% at net asset value (NAV) and 0.50% at
market price.
* During the same period, the fund's benchmark, the Lehman Municipal
Bond Index, returned 2.67%.
* The average return for the Lipper High Yield Municipal Debt Funds
(closed-end) category was 7.79%.
* The fund's dividend was reduced to $0.0314 per share in October 2004.
Please see page 6 for details.
* See the Performance Summary beginning on page 11 for additional fund
performance, comparative performance, and Lipper data.
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TOTAL RETURN FOR
PERIODS ENDED 3/31/05
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Market
(inception 5/25/89) NAV price
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1 year 5.53% 0.50%
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5 years 31.11 27.82
Annual average 5.57 5.03
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10 years 69.60 39.28
Annual average 5.42 3.37
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Annual average
(life of fund) 6.41 4.83
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Data is historical. 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. Performance assumes
reinvestment of distributions and does not account for taxes.
Performance commentary
Relatively low interest rates and an improving economy throughout most of
the fiscal year ended March 31, 2005, intensified demand for
lower-quality, higher-yielding bonds; drove up prices for these bonds; and
caused them to outperform higher-quality, lower-yielding bonds. In this
environment, based on results at NAV, your fund outperformed its
benchmark, the Lehman Municipal Bond Index, which is composed of
higher-quality bonds. However, the fund's performance was below the
average for its Lipper peer group, primarily because its overall portfolio
quality was higher. This higher quality reflects our efforts to increase
the fund's diversification and reduce the risks of maintaining larger
positions in more volatile issues. It is also 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 of
the underlying portfolio, it may also be influenced by 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 is a leveraged fund that 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 and the use of leverage.
Market overview
Early in the fiscal year, signs of solid economic growth and rising
corporate profits heightened investor concerns about potential
interest-rate increases by the Federal Reserve Board (the Fed). This
concern helped drive bond yields sharply higher and bond prices, which
move in the opposite direction of yields, lower. After the Fed announced
the first of what would be seven 0.25% increases in the federal funds
rate during the fiscal year, bond market investors seemed relieved and,
initially, rates trended downward modestly. This gradual approach to
reining in economic growth may have helped allay investor fears of
higher longer-term rates, as long-term bond yields remained virtually
unchanged despite rising short-term rates. As shorter- and longer-term
interest rates began to converge, the yield curve flattened.
The same conditions that led to rising interest rates -- an improving
economy and rising corporate earnings -- were particularly favorable for
lower-rated bonds. Among uninsured bonds and bonds rated BBB and below,
yield spreads tightened, and bond prices rose. Bonds at the lower end of
the credit spectrum, including BB- and B-rated bonds, turned in the
strongest performance. Municipal bonds issued by the State of California
also strengthened as the economy improved and rating agencies upgraded
the state's credit rating from BBB to A during the year. Puerto Rico
municipal bonds, which often trade in line with the top-performing state
since these bonds are tax-exempt in all states, were also standout
performers. Based on continued favorable legal rulings, yields on
tobacco settlement bonds declined overall for the year, and their prices
rose accordingly. After underperforming for most of the year,
airline-related industrial development bonds (IDBs) staged a comeback
from distressed levels and outperformed over the trailing one-year
period. Callable bonds (which can be redeemed by their issuers before
maturity) outperformed non-callable bonds in this environment.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 3/31/05
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 2.67%
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Lehman Aggregate Bond Index (broad bond market) 1.15%
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Lehman Government Bond Index (U.S Treasury and agency
securities) 0.11%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) -0.87%
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Equities
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S&P 500 Index (broad stock market) 6.69%
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S&P Utilities Index (utilities stocks) 24.60%
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Russell 2000 Growth Index (small-company growth stocks) 0.87%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 3/31/05.
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Strategy overview
Given our expectation for rising interest rates, your portfolio's duration
was relatively short, or defensive, at the beginning of the fund's fiscal
year and we continued to shorten it further as the year progressed.
Duration is a measure of a fund's sensitivity to changes in interest
rates. A short duration may help protect principal when interest rates are
rising, but it can reduce the fund's appreciation potential when rates
fall. Although the Fed adjusted interest rates upward during the period,
as we had expected, rates on long-term bonds trended downward for much of
the period, limiting the fund's participation in the price rally. However,
there were signs at the end of the period that the effects of the Fed's
tightening policy were beginning to be felt at the long end of the curve
as well.
Because we believed short-term rates would continue to rise, we began to
reduce the fund's positions in inverse floating-rate securities during
the period. Inverse floating-rate securities pay additional interest
income when short rates fall and less interest income when short rates
rise. By decreasing the fund's exposure to them, we took a defensive
position against rising short-term rates.
We took advantage of continued price strength on higher-yielding bonds
to reduce our position in this area, as we believe the high-yield rally
has nearly run its course. In selling, we targeted issuers that we
viewed least favorably and bonds that we felt had become overvalued.
Among sectors, we added to the fund's position in land-secured bonds
based on our favorable view of this sector and on the availability of
attractive yields in this market segment. As conditions in the housing
market are beginning to change and yield spreads have compressed, we
expect to slow our pace of acquisitions in this sector. We reduced the
fund's exposure to airline-related IDBs because we believe that their
long-term fundamentals are no longer attractive.
[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 3/31/05
Average effective
maturity in years 8.0 7.6 7.0
Duration in years 6.4 6.1 6.0
Footnotes read:
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
Early in the fiscal year, upgrades to the State of California's credit
rating had a positive effect on the demand for all categories of the
state's bonds. This, in turn, boosted the prices of California issues
such as the fund's holdings in all bonds issued within the state,
including the fund's holdings in certificates of participation issued by
Vallejo, California for Marine World. The fund also benefited when bonds
issued by the Philadelphia, Pennsylvania, School District were
pre-refunded in July. Pre-refunding occurs when an issuer raises the
money to refinance an older, higher-coupon bond by issuing new bonds at
current lower interest rates. This money is then invested in a secure
investment, usually U.S. Treasury securities, that matures at the older
bond's first call date, when it is used to pay off the old bonds. This
added security is often perceived as a credit upgrade by the market, and
can boost the price of the older bonds, resulting in capital
appreciation for bondholders, as occurred in this case. We sold the
position and took profits in November.
The fund's positions in tobacco settlement bonds were generally rewarding,
although it was a volatile period for this sector. High-yielding tobacco
settlement bonds are secured by income promised to various states from
settlements with tobacco companies. In what amounted to a threat to the
stability of this income stream, the Department of Justice (DOJ) initiated
a lawsuit against the major tobacco companies seeking billions of dollars
that the DOJ claimed had been obtained fraudulently from the sale of
cigarettes. In February 2005, the United States Court of Appeals
effectively eliminated the claim and the price of tobacco settlement bonds
rebounded. The fund owns tobacco settlement bonds issued in five states:
New Jersey, Rhode Island, Washington, California, and Wisconsin. However,
we remain watchful of the situation, since this market has been buffeted
by conflicting emotions, as optimism over the bonds' high yields is
periodically overshadowed by concerns about ongoing legal challenges.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa (17.1%)
Aa (1.4%)
A (13.0%)
Baa (34.9%)
Ba (20.6%)
B and below (7.2%)
VMIG1 (5.8%)
Footnote reads:
As a percentage of market value as of 3/31/05. 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.
There have been recent instances where we sold a bond because we felt it
was at risk of credit distress and, following the sale, the bond
appreciated in value. One example is Pocahontas Parkway Association Toll
Road revenue bonds. This Virginia toll road's debt service costs have
risen every year, but its revenue from tolls has been disappointing and
there is widespread agreement within the investment community that the
Parkway is at risk of default within the next few years. Some investors
believe the state of Virginia will come to the rescue if default seems
imminent, but we felt the risks were too great and sold off the issue in
pieces in September. Although yield-hungry investors continued to bid up
the price of the bonds after we sold them, we believe our decision will
ultimately benefit the fund.
Similarly, we eliminated the fund's position in industrial development
bonds (IDBs) issued for Delta Airlines and Northwest Airlines. IDBs are
issued by municipalities but backed by the credit of the company
benefiting from the financing. Investor perceptions about the backing
company's health, or that of its industry group, affect the prices of
these bonds more than the rating of the issuing municipality. The
airline industry has been experiencing falling ticket prices coupled
with soaring fuel costs. While some carriers have been able to reduce
their labor costs, many are struggling or failing. The fund continues to
hold small positions in IDBs issued for British Airways and Continental
Airlines, but we have been selling off other, older positions in this
sector in stages. Even though the yields on airline-related bonds
continued to attract investors, lifting the price of the bonds, we do
not believe the potential rewards in this situation justify the risks
involved.
We have been continuing our strategy of selling non-callable bonds and
buying callable bonds, as well as reducing the portfolio's duration in
an effort to help preserve principal as short-term interest rates
continued to rise while long rates remained relatively stable,
flattening the yield curve.
Most of our recent acquisitions focused on land-secured bonds because we
believe it is one of the few sectors that combines attractive yields and
financial strength. Areas we like the most include California, Florida,
and Nevada -- all states that are experiencing strong population growth.
Our targets generally were large master-planned communities, where
developers have thousands of homes in various phases of development. In
these deals, developers typically purchase a large tract of land and use
the proceeds of the initial bond offering for such municipal improvements
as roads, sewer systems, and street lighting. Taxes paid by the developers
are used to pay the interest on the bonds. The developers then sell large
chunks of land to contractors who create developments that include homes,
retail, and office properties. As builders acquire tracts, their taxes
fund the issues. As people buy the new homes, their taxes pay the interest
on the bonds, spreading out bondholders' risks still further. Since these
issues are not rated, we are careful about which developments we choose,
often dealing with developers we know from past experience.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Fund's dividend reduced
The management team's efforts to upgrade the quality of the portfolio
and increase its diversification have resulted in a lower income stream
for the fund. Additionally, several older holdings were called or
matured during the period, requiring reinvestment of the assets at
current lower interest rates. To reflect this reduction in earnings, the
fund's dividend was reduced from $0.0335 to $0.0314, effective with the
November 2004 distribution.
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.
Economic growth has continued to be stronger than expected and the
impact of the Fed's seven 0.25% short-term rate increases since June 30,
2004, has only recently begun to ripple out across the yield curve.
Based on sustained solid economic growth and continued robust corporate
earnings, we expect the Fed to maintain its policy of increasing rates
through 2005. Fed actions are likely to cause rising yields among bonds
with shorter maturities and further flattening of the yield curve as
short-term rates rise faster than long-term rates. We also expect more
Fed tightening than is currently anticipated by the market, which means
that we believe that bond yields may begin to rise more quickly as other
investors come to the same conclusion. In light of that, we have
positioned the fund defensively from a duration standpoint and are
increasing its exposure to callable bonds, which are likely to
outperform in a rising-rate cycle.
Among municipal bond sectors, we plan to selectively increase holdings
in the single-family housing sector. We believe that the market has
over-discounted the impact of mortgage prepayments on this sector,
particularly in light of rising interest rates, which are likely to slow
prepayments. We believe that the dramatic outperformance of lower-rated,
higher-yielding bonds is now slowing and we plan to reduce our exposure
to this area of the credit spectrum in favor of higher-quality issues.
Despite recent outperformance, we remain bearish on airline-related IDBs
in light of continued fundamental weakness in this sector. Our view on
tobacco settlement bonds is positive and we are seeking to increase the
fund's exposure opportunistically. In general, we believe 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 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. The
fund's shares trade on a stock exchange at market prices, which may be
lower than the fund's net asset value. The fund uses leverage, which
involves risk and may increase the volatility of the fund's net asset
value.
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.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for March 31, 2005, and March 31, 2004.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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David Hamlin 2005 *
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Portfolio Leader 2004 *
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Paul Drury 2005 *
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Portfolio Member 2004 *
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Susan McCormack 2005 *
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Portfolio Member 2004 *
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James St. John 2005 *
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Portfolio Member 2004 *
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Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $____. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. These percentages are determined as of the fund's fiscal
period-end. For personnel who joined Putnam Management during or after
2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
Other Putnam 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. The
same group also manages Putnam AMT-Free Insured Municipal Fund*, Putnam
California Investment Grade Municipal Trust, Putnam Investment Grade
Municipal Trust, Putnam Managed Municipal Income Trust, Putnam Municipal
Bond Fund, Putnam Municipal Opportunities Trust, Putnam New York
Investment Grade Municipal Trust, Putnam Tax Exempt Income Fund, Putnam
Tax-Free Health Care Fund, and Putnam Tax-Free High Yield Fund.
David Hamlin, Paul Drury, Susan McCormack, and James St. John may also
manage other accounts and variable trust funds advised by Putnam
Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended March 31, 2005, Portfolio Member Richard Wyke left
your fund's management team.
* Formerly Putnam Tax-Free Insured Fund.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
March 31, 2005, and March 31, 2004.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001 - $100,001
Year $0 $10,000 $50,000 $100,000 $500,000
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks 2005 *
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Deputy Head of Investments N/A
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Kevin Cronin 2005 *
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Head of Investments N/A
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer 2004 *
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Steven Krichmar 2005 *
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Chief of Operations N/A
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Francis McNamara, III 2005 *
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General Counsel N/A
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer 2004 *
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Edward Shadek 2005 *
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Deputy Head of Investments N/A
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N/A indicates the individual was not a member of Putnam's Executive Board as of 3/31/04.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended March 31, 2005. Performance should always be considered in light
of a fund's investment strategy. Data represents past performance. Past
performance does not guarantee future results. More recent returns may
be less or more than those shown. Investment return, net asset value,
and market price will fluctuate and you may have a gain or a loss when
you sell your shares.
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TOTAL RETURN AND COMPARATIVE INDEX RESULTS FOR PERIODS ENDED 3/31/05
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Lipper
High Yield
Lehman Municipal
Municipal Debt Funds
Market Bond (closed-end)
NAV price Index category average*
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1 year 5.53% 0.50% 2.67% 7.79%
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5 years 31.11 27.82 37.53 36.53
Annual average 5.57 5.03 6.58 6.40
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10 years 69.60 39.28 84.66 76.86
Annual average 5.42 3.37 6.33 5.84
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Annual average
Life of fund
(since 5/25/89) 6.41 4.83 6.96 6.22
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Performance assumes reinvestment of distributions and does not account
for taxes.
Index and Lipper results should be compared to fund performance at net
asset value. Lipper calculations for reinvested dividends may differ
from actual performance.
* Over the 1-, 5-, and 10-year periods ended 3/31/05, there were 15, 12,
and 12 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 3/31/05
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Putnam High Yield Municipal Trust
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Distributions -- common shares
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Number 12
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Income 1 $0.3932
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Capital gains 1 --
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Total $0.3932
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Distributions -- preferred shares Series A (900 shares)
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Income 1 $717.93
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Capital gains 1 --
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Total $717.93
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Share value: NAV Market price
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3/31/04 $7.76 $7.04
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3/31/05 7.72 6.67
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Current return (common shares, end of period)
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Current dividend rate 2 4.88% 5.65%
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Taxable equivalent 3 7.51 8.69
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1 Capital gains, if any, are taxable for federal and, in most cases, state
purposes. For some investors, investment income may be subject to the
federal alternative minimum tax. Income from federally exempt funds may be
subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 35% federal tax rate for 2005. 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 common 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 of U.S.
investment-grade 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 U.S.
Treasury securities 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 small-cap 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
utility 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.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each
fund and, as required by law, determines annually whether to approve the
continuance of each fund's management contract with Putnam Management. In
this regard the Board of Trustees, with the assistance of its Contract
Committee consisting solely of Independent Trustees, requests and
evaluates all information it deems reasonably necessary in the
circumstances. Over the course of several months beginning in March and
ending in June of 2004, the Contract Committee reviewed the information
provided by Putnam Management and other information developed with the
assistance of the Board's independent counsel and independent staff. The
Contract Committee reviewed and discussed key aspects of this information
with all of the Independent Trustees. Upon completion of this review, the
Contract Committee recommended and the Independent Trustees approved the
continuance of your fund's contract, effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain funds
in recent years and continued to discuss with senior management of Putnam
Management the factors contributing to such under-performance and actions
being taken to improve performance. The Trustees recognized that, in
recent years, Putnam Management has made significant changes in its
investment personnel and processes and in the fund product line in an
effort to address areas of underperformance. The Trustees indicated their
intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional remedial
changes are warranted. As a general matter, the Trustees concluded that
consultation between the Trustees and Putnam Management represents the
most effective way to address investment performance problems. The
Trustees believe that investors in the Putnam funds and their financial
advisors have, as a general matter, effectively placed their trust in the
Putnam organization, under the supervision of the funds' Trustees, to make
appropriate decisions regarding the management of the funds. The Trustees
believe that the termination of the Management Contract and engagement of
a new investment adviser for under-performing funds, with all the
attendant disruptions, would not serve the interests of fund shareholders
at this time and would not necessarily provide any greater assurance of
improved investment performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management
may receive in connection with the services it provides under the
Management Contract with your fund. These include principally benefits
related to brokerage and soft-dollar allocations, which pertain mainly to
funds investing in equity securities. The Trustees believe that
soft-dollar credits and other potential benefits associated with the
allocation of fund brokerage represent assets of the funds that should be
used for the benefit of fund shareholders. The Trustees noted recent
trends in the allocation of fund brokerage, including commission costs,
the allocation of brokerage to firms that provide research services to
Putnam Management, and the sources and application of available
soft-dollar credits. Effective December 31, 2003, reflecting a decision
made by the Trustees earlier that year, Putnam Management ceased
allocating brokerage in connection with the sale of fund shares. In
addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual fund
industry, the Trustees concluded that this practice should be further
curtailed and possibly eliminated in the near future. The Trustees
indicated that they would continue to monitor the allocation of the funds'
brokerage to ensure that the principle of "best price and execution"
remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone
numbers, Social Security numbers, and the names of their financial
advisors. We use this information to assign an account number and to help
us maintain accurate records of transactions and account balances. It is
our policy to protect the confidentiality of your information, whether or
not you currently own shares of our funds, and in particular, not to sell
information about you or your accounts to outside marketing firms. We have
safeguards in place designed to prevent unauthorized access to our
computer systems and procedures to protect personal information from
unauthorized use. Under certain circumstances, we share this information
with outside vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share account
information with your financial advisor, if you've listed one on your
Putnam account. If you would like clarification about our confidentiality
policies or have any questions or concerns, please don't hesitate to
contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00
p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
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.
Report of Independent Registered
Public Accounting Firm
The Board of Trustees and Shareholders Putnam High Yield Municipal
Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Municipal Trust, including the fund's portfolio, as of
March 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 2005 by correspondence
with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Municipal Trust as of March 31,
2005, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period
then ended in conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
May 6, 2005
The fund's portfolio
March 31, 2005
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
Q-SBLF Qualified School Board Loan Fund
U.S. Govt. Coll. U.S. Government Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (126.2%) (a)
Principal amount Rating (RAT) Value
Alabama (0.6%)
- -------------------------------------------------------------------------------
$550,000 Butler, Indl. Dev. Board Solid Waste
Disp. Rev. Bonds (GA. Pacific
Corp.), 5 3/4s, 9/1/28 BB+ $550,836
500,000 Phenix City, Indl. Dev. Board
Rev. Bonds (Mead Coated Board),
Ser. A, 5.3s, 4/1/27 Baa2 487,950
--------------
1,038,786
Arizona (2.9%)
- -------------------------------------------------------------------------------
500,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 539,720
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 1,047,180
750,000 Coconino Cnty., Poll. Control
Rev. Bonds (Tuscon/Navajo Elec.
Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 782,003
325,000 Pima Cnty., Indl Dev. Auth.
Rev. Bonds (Horizon Cmnty. Learning
Ctr.), 5.05s, 6/1/25 BBB- 320,132
800,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village 1st.
Mtg.), Ser. A, U.S. Govt. Coll.,
8 1/4s, 6/1/15 AAA/P 823,304
500,000 Tempe, Indl. Dev. Auth. Sr. Living
Rev. Bonds (Friendship Village),
Ser. A, 5 3/8s, 12/1/13 BB- 507,740
1,000,000 Yavapai Cnty., Indl. Dev. Auth.
Solid Waste Disposal Rev. Bonds
(Waste Management, Inc.), 4 5/8s,
6/1/27 BBB 1,002,160
--------------
5,022,239
Arkansas (1.8%)
- -------------------------------------------------------------------------------
1,475,000 AR Dev. Fin. Auth. Rev. Bonds,
Ser. D, GNMA/FNMA Coll., 3s, 1/1/24 AAA 1,484,440
400,000 Independence Cnty., Poll. Control
Rev. Bonds (Entergy, Inc.), 5s,
1/1/21 A- 403,820
1,000,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 1,134,970
--------------
3,023,230
California (11.5%)
- -------------------------------------------------------------------------------
560,000 CA Poll. Control Fin. Auth. Solid
Waste Disp. Rev. Bonds (Waste
Management, Inc.), Ser. A-2, 5.4s,
4/1/25 BBB 568,394
1,500,000 CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A, 5 1/4s, 5/1/20 A2 1,585,785
2,500,000 CA State Public Wks. Board (Dept.
Mental Hlth.), Ser. A, MBIA, 5s,
6/1/25 AAA 2,577,650
875,000 CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt.
Cmntys.), Ser. A-3, 5.1s, 5/15/25 Baa2 913,019
1,500,000 CA Statewide Cmnty. Dev. Auth.
Rev. Bonds (Daughters of Charity
Hlth.), 5 1/4s, 7/1/25 BBB+ 1,553,985
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 1,039,890
500,000 (No. 08-1 Otay Ranch Village Six),
6s, 9/1/33 BB-/P 501,810
250,000 (No 07-I-Otay Ranch Village Eleven),
5 7/8s, 9/1/34 BB-/P 255,143
350,000 Folsom, Special Tax Rev. Bonds
(Cmnty. Facs. Dist. No. 10), 5 7/8s,
9/1/28 BB 353,955
2,000,000 Foothill/Eastern Corridor Agcy.
Rev. Bonds (CA Toll Roads), 5 3/4s,
1/15/40 Baa3 2,024,060
985,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 D/P 738,750
1,000,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 A- 1,071,090
500,000 Irvine, Impt. Board Act of 1915
Special Assmt. Bonds (Assmt. Dist.
No. 00-18-GRP 3), 5.55s, 9/2/26 BBB-/P 501,635
250,000 Murrieta, Cmnty. Fac. Dist. Special
Tax (No. 2 The Oaks Impt. Area A),
6s, 9/1/34 BB- 254,840
1,000,000 Orange Cnty., Cmnty. Fac. Dist.
Rev. Bonds (Ladera Ranch - No. 1),
6s, 8/15/25 BBB 1,056,540
250,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Rev. Bonds (No. 02-1
Ladera Ranch), Ser. A, 5.55s,
8/15/33 BBB 254,208
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 759,960
835,000 Sunnyvale, Special Tax Rev. Bonds
(Cmnty. Fac. Dist. No. 1), 7 3/4s,
8/1/32 BB-/P 873,919
1,500,000 Thousand Oaks, Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Marketplace
94-1), zero %, 9/1/14 B/P 758,235
2,000,000 Vallejo, COP (Marine World
Foundation), 7.2s, 2/1/26 BBB-/P 2,103,840
--------------
19,746,708
Colorado (0.9%)
- -------------------------------------------------------------------------------
1,000,000 CO. Hlth. Fac. Auth.
Rev. Bonds (Evangelical Lutheran),
Ser. B, 3 3/4s, 6/1/34 A3 990,850
500,000 Montrose, Memorial Hosp. Rev. Bonds,
6 3/8s, 12/1/23 BBB- 529,500
--------------
1,520,350
Connecticut (0.5%)
- -------------------------------------------------------------------------------
750,000 CT State Dev. Auth. 1st. Mtg. Gross
Rev. Hlth. Care Rev. Bonds (Elim
Street Park Baptist, Inc.), 5.85s,
12/1/33 BBB+ 780,923
Delaware (0.6%)
- -------------------------------------------------------------------------------
1,000,000 GMAC Muni. Mtge. Trust 144A sub.
notes, Ser. A1-2, 4.9s, 10/31/39 A3 989,430
District of Columbia (0.6%)
- -------------------------------------------------------------------------------
1,000,000 DC G.O. Bonds, Ser. A, 5s, 6/1/27 Aaa 1,032,100
Florida (7.3%)
- -------------------------------------------------------------------------------
500,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 (acquired 04/23/02,
cost $500,000) (RES) B/P 561,150
750,000 CFM Cmnty. Dev. Dist. Rev. Bonds
(Cap. Impt.), Ser. B, 5 7/8s, 5/1/14 BB-/P 766,080
1,000,000 Double Branch Cmnty. Dev. Dist.
Rev. Bonds, Ser. A, 6.7s, 5/1/34 BB/P 1,076,330
495,000 Fishhawk, Cmnty. Dev. Dist. II
Rev. Bonds, Ser. B, 5s, 11/1/07 BB-/P 498,351
770,000 FL State Mid-Bay Bridge Auth.
Rev. Bonds, Ser. A, 6.05s, 10/1/22 BBB/P 794,679
250,000 Fleming Island, Plantation Cmnty.
Dev. Dist. Special Assmt.
Rev. Bonds, Ser. B, 7 3/8s, 5/1/31 BB/P 269,515
575,000 Heritage Isle at Viera, Cmnty. Dev.
Dist. Special Assmt., Ser. B, 5s,
11/1/09 BB/P 574,281
500,000 Islands at Doral III, Cmnty. Dev.
Dist. Special Assmt. Bonds, Ser.
04-A, 5.9s, 5/1/35 BB/P 509,285
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 1,106,578
1,075,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 1,057,843
600,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.8s, 11/15/31 BB+ 643,788
500,000 Old Palm, Cmnty. Dev. Dist. Special
Assmt. Bonds (Palm Beach Gardens),
Ser. A, 5.9s, 5/1/35 BB 507,280
500,000 Orange Cnty., Hlth. Fac. Auth.
Rev. Bonds (Orlando Regl. Hlth.
Care), 5 3/4s, 12/1/32 A2 532,735
750,000 Reunion West, Cmnty. Dev. Dist.
Special Assmt., 6 1/4s, 5/1/36 BB-/P 779,790
750,000 South Bay Community Dev. Dist.
Rev. Bonds, 5 3/8s, 5/1/13 BB- 749,528
500,000 South Village Cmnty. Dev. Dist.
Rev. Bonds, Ser. A, 5.7s, 5/1/35 BB-/P 501,225
600,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B-/P 631,698
495,000 Verandah, West Cmnty. Dev. Dist.
Rev. Bonds (Cap. Impt.), Ser. A,
6 5/8s, 5/1/33 BB 513,919
500,000 World Commerce Cmnty. Dev. Dist.
Special Assmt., Ser. A-1, 6 1/2s,
5/1/36 BB-/P 511,010
--------------
12,585,065
Georgia (7.4%)
- -------------------------------------------------------------------------------
3,550,000 Atlanta, Waste Wtr. VRDN, Ser. C,
FSA, 2.28s, 11/1/41 VMIG1 3,550,000
2,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 12/01/08 A2 2,071,540
2,000,000 Forsyth Cnty., Hosp. Auth.
Rev. Bonds (Baptist Hlth. Care
Syst.), U.S. Govt. Coll., 6 1/4s,
10/1/18 AAA 2,324,780
175,000 Fulton Cnty., Res. Care Fac.
Rev. Bonds (Canterbury Court), Class
A, 6 1/8s, 2/15/34 B+/P 174,396
1,200,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
10.574s, 8/1/10 Aaa 1,206,408
800,000 GA Med. Ctr. Hosp. Auth. VRDN,
1.636s, 8/1/10 Aaa 800,000
1,750,000 Muni. Elec. Auth. Rev. Bonds, AMBAC,
5s, 1/1/26 Aaa 1,842,418
805,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay Paper,
Inc.), 7.4s, 1/1/16 B+ 819,973
--------------
12,789,515
Illinois (2.1%)
- -------------------------------------------------------------------------------
1,245,000 Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 Caa2 1,031,532
750,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 782,708
IL Hlth. Fac. Auth. Rev. Bonds
225,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 D/P 182,378
1,115,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, U.S. Govt. Coll., 7 7/8s,
7/1/20 (Prerefunded) AAA/P 1,151,684
500,000 (Elmhurst Memorial Hlth. Care),
5 5/8s, 1/1/28 A2 520,135
--------------
3,668,437
Indiana (3.0%)
- -------------------------------------------------------------------------------
2,500,000 Indianapolis, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 5.1s,
1/15/17 Baa2 2,584,900
500,000 Jasper Hosp. Auth. Rev. Bonds
(Memorial Hosp. Project), 5 1/2s,
11/1/32 AA 520,050
2,000,000 Rockport, Poll. Control
Rev. Bonds (Indiana-Michigan Pwr.),
Ser. A, 4.9s, 6/1/25 Baa2 2,050,860
--------------
5,155,810
Iowa (2.0%)
- -------------------------------------------------------------------------------
2,430,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives),
9 1/4s, 7/1/25 BBB-/P 2,936,169
550,000 IA Fin. Auth. Retirement Cmnty.
Rev. Bonds (Friendship Haven),
Ser. A, 6 1/8s, 11/15/32 BB/P 541,679
--------------
3,477,848
Kentucky (0.2%)
- -------------------------------------------------------------------------------
305,000 Kentucky Econ. Dev. Fin. Auth.
Rev. Bonds (First Mtg.), Ser. IA,
6 1/2s, 1/1/29 B- 299,226
Louisiana (1.8%)
- -------------------------------------------------------------------------------
500,000 Desoto Parish, Rev. Bonds (Intl.
Paper Co. Project), Ser. A, 5s,
10/1/12 Baa2 523,510
1,720,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (Hlth. Care - St.
James Place), Ser. A, 7s, 11/1/26 B-/P 1,646,281
1,000,000 St. Charles Parish, Poll. Control
Rev. Bonds, Ser. A, 4.9s, 6/1/30 Baa2 1,002,470
--------------
3,172,261
Maine (1.2%)
- -------------------------------------------------------------------------------
940,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 974,658
1,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba1 1,057,090
--------------
2,031,748
Maryland (0.8%)
- -------------------------------------------------------------------------------
500,000 MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds (Medstar Hlth.),
5 3/4s, 8/15/15 Baa1 548,890
600,000 Westminster, Econ. Dev Rev. Bonds
(Carroll Lutheran Village), Ser. A,
6 1/4s, 5/1/34 BB/P 617,952
150,000 Westminster, Econ. Dev. Rev. Bonds
(Carroll Lutheran Village), Ser. A,
5 7/8s, 5/1/21 BB/P 153,645
--------------
1,320,487
Massachusetts (7.4%)
- -------------------------------------------------------------------------------
1,000,000 Boston, Indl. Dev. Fin. Auth.
Rev. Bonds (Springhouse, Inc.), 6s,
7/1/28 BB-/P 979,050
MA State Dev. Fin. Agcy. Rev. Bonds
755,000 (Beverly Enterprises, Inc.), 7 3/8s,
4/1/09 B+/P 784,755
1,000,000 (Boston Biomedical Research),
5 3/4s, 2/1/29 Baa3 1,017,700
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
750,000 (Civic Investments), Ser. A, 9s,
12/15/15 BBB- 854,970
350,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 372,281
1,575,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,711,553
1,350,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 1,416,231
1,000,000 (Baystate Med. Ctr.), Ser. F, 5.7s,
7/1/27 A1 1,045,700
500,000 (Caritas Christi Oblig. Group),
Ser. A, 5 1/4s, 7/1/08 BBB 520,320
1,355,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 1,406,341
MA State Indl. Fin. Agcy. Rev. Bonds
250,000 (1st Mtge. Stone Institution &
Newton), 7.9s, 1/1/24 BB-/P 255,693
1,531,530 (Evanswood Bethzatha),
7.85s, 1/15/17 (In default) (NON) D/P 1,914
500,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/15 BBB/P 510,390
620,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/09 BBB/P 632,884
600,000 (1st Mtge. Berkshire Retirement),
Ser. A, 6 5/8s, 7/1/16 BBB- 606,834
500,000 (1st Mtge. Brookhaven), Ser. B,
5 1/4s, 1/1/17 BBB/P 511,430
--------------
12,628,046
Michigan (4.9%)
- -------------------------------------------------------------------------------
900,000 Dickinson Cnty., Econ. Dev. Corp.
Poll. Control Rev. Bonds (Intl.
Paper Co.), Ser. A, 4.8s, 11/1/18 Baa2 898,191
500,000 Garden City, Hosp. Fin. Auth.
Rev. Bonds (Garden City Hosp. OB
Group), Ser. A, 5 3/4s, 9/1/17 Ba2 469,580
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 1,043,540
600,000 MI State Strategic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr.
Station), 7 1/2s, 1/1/21 B/P 550,620
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 1,521,207
Midland Cnty., Econ. Dev. Corp.
Rev. Bonds
500,000 6 7/8s, 7/23/09 Ba3 516,625
250,000 6 3/4s, 7/23/09 Ba3 258,468
3,000,000 Whitmore Lake, Pub. School Dist.
G.O. Bonds, FGIC, Q-SBLF, 5s, 5/1/28 Aaa 3,100,500
--------------
8,358,731
Minnesota (2.5%)
- -------------------------------------------------------------------------------
1,500,000 Cohasset, Poll. Control Rev. Bonds
(Allete, Inc.), 4.95s, 7/1/22 A 1,521,000
300,000 Duluth, Econ. Dev. Auth. Hlth. Care
Fac. Rev. Bonds (BSM Properties,
Inc.), Ser. A, AMBAC, 5 7/8s,
12/1/28 BB/P 297,513
250,000 Minneapolis, Rev. Bonds (Walker
Methodist Sr. Svcs.), Ser. C, 6s,
11/15/28 B+/P 201,303
1,000,000 MN State Higher Ed. Fac. Auth.
Rev. Bonds (The College of St.
Catherine), Ser. 5-N1, 5s, 10/1/18 Baa1 1,031,490
955,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. B,
6 5/8s, 11/1/17 Ba1 960,654
250,000 St. Paul, Hsg. & Redev. Auth. Hosp.
Rev. Bonds (Healtheast), Ser. B,
5.85s, 11/1/17 Ba1 250,185
--------------
4,262,145
Mississippi (0.7%)
- -------------------------------------------------------------------------------
1,000,000 Lowndes Cnty., Solid Waste Disp. &
Poll. Control Rev. Bonds
(Weyerhaeuser Co.), Ser. B, 6.7s,
4/1/22 Baa2 1,189,240
Missouri (2.1%)
- -------------------------------------------------------------------------------
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 1,063,360
500,000 Kansas City, Indl. Dev. Auth. Hlth.
Fac. Rev. Bonds (First Mtg. Bishop
Spencer), Ser. A, 6 1/2s, 1/1/35 BB-/P 513,725
1,870,000 MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership), GNMA/FNMA Coll., 5.55s,
9/1/34 AAA 1,965,669
--------------
3,542,754
Montana (2.4%)
- -------------------------------------------------------------------------------
700,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
12/30/08 Aaa 732,935
3,045,000 Forsyth, Poll. Control VRDN (Pacific
Corp.), 2.33s, 1/1/18 VMIG1 3,045,000
250,000 MT State Board Inv. Exempt Fac.
Rev. Bonds (Still Water Mining
Project), 8s, 7/1/20 B1 265,438
--------------
4,043,373
Nevada (3.9%)
- -------------------------------------------------------------------------------
3,500,000 Clark Cnty., G.O. Bonds (Pk. & Regl.
Justice Ctr.), FGIC, 5 5/8s, 11/1/19 Aaa 3,802,400
250,000 Clark Cnty., Local Impt. Dist.
Special Assmt. Bonds (No. 142),
6.1s, 8/1/18 BB-/P 254,890
Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14)
245,000 5.8s, 3/1/23 BB-/P 252,960
845,000 5.55s, 3/1/17 BB-/P 867,807
325,000 Las Vegas, Local Impt. Board Special
Assmt. (Dist. No. 607), 5.9s,
6/1/18 BB-/P 334,792
250,000 Las Vegas, Special Impt. Dist.
Rev. Bonds (No. 809 - Summerlin
Area), 5.65s, 6/1/23 BB/P 250,973
1,000,000 Washoe Cnty., Wtr. Fac. Mandatory
Put Bonds (Sierra Pacific Pwr. Co.),
5s, 7/1/09 Ba2 1,001,370
--------------
6,765,192
New Hampshire (2.3%)
- -------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds
1,000,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,033,530
670,000 (Riverwoods at Exeter), Ser. A,
6 3/8s, 3/1/13 BB+/P 683,715
NH Hlth. & Ed. Fac. Auth. Rev. Bonds
600,000 (Huntington at Nashua), Ser. A,
6 7/8s, 5/1/33 B/P 616,188
600,000 (Kendal at Hanover), Ser. A, 5s,
10/1/18 BBB 602,700
490,000 NH State Bus. Fin. Auth. Rev. Bonds
(Franklin Regl. Hosp. Assn.),
Ser. A, 6.05s, 9/1/29 BB-/P 457,498
650,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds, 3 1/2s, 7/1/27 Baa2 635,577
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 14
--------------
4,029,222
New Jersey (5.0%)
- -------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
600,000 (Cranes Mill), Ser. A, 7 1/2s,
2/1/27 BB-/P 632,904
1,500,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 1,567,365
1,000,000 (United Methodist Homes), Ser. A-1,
6 1/4s, 7/1/33 BB+ 1,029,180
1,000,000 (Cigarette Tax), 5 3/4s, 6/15/29 Baa2 1,041,190
500,000 NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds (Trinitas Hosp. Oblig.
Group), 7 1/2s, 7/1/30 Baa3 560,550
250,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C,
5 1/8s, 7/1/22 Baa1 258,205
3,410,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 3/8s, 6/1/32 BBB 3,495,591
--------------
8,584,985
New Mexico (3.3%)
- -------------------------------------------------------------------------------
700,000 Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan),
Class B, 2.1s, 4/1/06 Baa2 691,894
4,900,000 Farmington, Poll. Control VRDN (AZ
Pub. Service Co.), Ser. B, 2.28s,
9/1/24 VMIG1 4,900,000
--------------
5,591,894
New York (8.9%)
- -------------------------------------------------------------------------------
750,000 Huntington, Hsg. Auth. Sr. Hsg. Fac.
Rev. Bonds (Gurwin Jewish Sr.
Residence), Ser. A, 6s, 5/1/29 B+/P 715,133
1,000,000 Metro. Trans. Auth. Svc. Contract
Rev. Bonds, Ser. A , MBIA, 5 1/2s,
1/1/20 Aaa 1,101,990
775,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (Keyspan-Glenwood),
5 1/4s, 6/1/27 A 791,957
1,000,000 NY City, G.O. Bonds, Ser. C, 5 1/4s,
8/1/11 A1 1,080,760
NY City, Indl. Dev. Agcy. Rev. Bonds
800,000 (Visy Paper, Inc.), 7.95s, 1/1/28 B- 835,392
600,000 (Liberty-7 World Trade Ctr.),
Ser. A, 6 1/4s, 3/1/15 B-/P 606,414
NY City, Indl. Dev. Agcy. Civic Fac.
Rev. Bonds
730,000 (Staten Island U. Hosp.), Ser. A,
6 3/8s, 7/1/31 Ba3 718,488
200,000 (Brooklyn Polytech. U. Project J),
6 1/8s, 11/1/30 BB+ 191,176
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 1,298,700
1,500,000 NY City, Indl. Dev. Agcy. Special
Fac. Rev. Bonds (British Airways),
5 1/4s, 12/1/32 BB+ 1,227,690
1,400,000 NY State Energy Research & Dev.
Auth. Gas Fac. Rev. Bonds (Brooklyn
Union Gas), 6.952s, 7/1/26 A+ 1,491,434
1,200,000 Onondaga Cnty., Indl. Dev. Agcy.
Rev. Bonds (Solvay Paperboard, LLC),
7s, 11/1/30 F261) BB-/P 1,266,552
Port Auth. NY & NJ Rev. Bonds
(acquired 12/9/98, cost $1,200,000)
(RES)
200,000 (Kennedy Intl. Arpt. - 5th
Installment), 6 3/4s, 10/1/19 BB+/P 211,614
500,000 (Kennedy Intl. Arpt. - 4th
Installment), 6 3/4s, 10/1/11 BB+/P 529,110
300,000 Port. Auth. NY & NJ Special
Obligation Rev. Bonds, 7s, 10/1/07 BB+/P 309,858
1,000,000 Suffolk Cnty., Indl. Dev. Agcy.
Rev. Bonds (Peconic Landing),
Ser. A, 8s, 10/1/30 B+/P 1,067,110
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 1,079,120
800,000 Syracuse, Indl. Dev. Agcy.
Rev. Bonds (1st Mtge. - Jewish
Home), Ser. A, 7 3/8s, 3/1/21 BB-/P 841,160
--------------
15,363,658
North Carolina (3.3%)
- -------------------------------------------------------------------------------
1,500,000 NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. C, 5.3s, 1/1/15 Baa2 1,572,585
250,000 NC Med. Care Cmnty. Healthcare Fac.
Rev. Bonds (Deerfield), Ser. A, 5s,
11/1/23 A- 254,560
NC Med. Care Comm. Retirement Fac.
Rev. Bonds
750,000 (1st Mtge. -Givens Estates Project),
Ser. A, 6 1/2s, 7/1/32 BB-/P 778,364
690,000 (First Mtg.), Ser. A-05, 5 1/2s,
10/1/35 BB+ 679,960
100,000 (First Mtg.), Ser. A-05, 5 1/4s,
10/1/25 BB+ 98,274
NC State Muni. Pwr. Agcy. Rev. Bonds
1,000,000 (No. 1, Catawba Elec.), Ser. B,
6 1/2s, 1/1/20 A3 1,117,000
1,000,000 Ser. A, FGIC, 5 1/2s, 1/1/13 AAA 1,110,870
--------------
5,611,613
North Dakota (0.6%)
- -------------------------------------------------------------------------------
1,000,000 Grand Forks, Hlth. Care Syst.
Rev. Bonds (Altru Hlth. Syst. Oblig.
Group), 7 1/8s, 8/15/24 A3 1,087,770
Ohio (3.2%)
- -------------------------------------------------------------------------------
1,000,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/32 A1 1,087,870
1,500,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s,
4/1/22 A3 1,627,740
1,000,000 OH State Higher Edl. Fac. Mandatory
Put Bonds (Kenyon College Project),
4.85s, 7/1/14 A2 1,035,330
1,250,000 OH State Wtr. Dev. Auth. Poll.
Control Fac. Mandatory Put Bonds
(Cleveland Elec.), Class A, 3 3/4s,
10/1/08 Baa2 1,248,775
500,000 Toledo-Lucas Cnty., Port Auth.
Rev. Bonds (CSX Transn, Inc.),
6.45s, 12/15/21 Baa2 570,945
--------------
5,570,660
Oklahoma (0.6%)
- -------------------------------------------------------------------------------
1,000,000 OK State Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A,
MBIA, 5 3/4s, 8/15/29 Aaa 1,083,190
Oregon (1.2%)
- -------------------------------------------------------------------------------
1,000,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza),
6 1/2s, 12/1/29 BB-/P 1,009,550
985,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds (Single Family Mtg.),
Ser. K, 5 5/8s, 7/1/29 Aa2 1,041,106
--------------
2,050,656
Pennsylvania (8.0%)
- -------------------------------------------------------------------------------
750,000 Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Env. Impt. - USX
Corp.), 6s, 1/15/14 Baa1 797,984
800,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek
Partners), 6.65s, 5/1/10 BBB- 860,623
615,000 Erie-Western PA Port Auth.
Rev. Bonds, 6 1/4s, 6/15/10 BBB 643,818
250,000 Lancaster Cnty., Hosp. Auth.
Rev. Bonds (Gen. Hosp.), 5 1/2s,
3/15/26 A 260,262
400,000 Montgomery Cnty., Indl. Auth.
Resource Recvy. Rev. Bonds
(Whitemarsh Cont Care), 6 1/4s,
2/1/35 B/P 407,300
750,000 PA Convention Ctr. Auth. Rev. Bonds,
Ser. A, 6 3/4s, 9/1/19 Baa2 767,872
PA Econ. Dev. Fin. Auth. Rev. Bonds
3,250,000 (MacMillan Ltd. Partnership), 7.6s,
12/1/20 Baa2 3,418,674
500,000 (Amtrak), Ser. A, 6 3/8s, 11/1/41 A3 519,394
PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 768,134
350,000 (Colver), Ser. D, 7.15s, 12/1/18 BBB- 357,916
2,000,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BBB- 2,010,440
1,280,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Philadelphia College of
Osteopathic Medicine), 5s, 12/1/12 A 1,341,247
750,000 Philadelphia, Indl. Dev. Auth. Arpt.
Rev. Bonds (Aero Philadelphia, LLC),
5 1/2s, 1/1/24 BB/P 712,920
750,000 Scranton, G.O. Bonds, Ser. C, 7.1s,
9/1/31 AAA/P 898,942
--------------
13,765,526
Puerto Rico (0.6%)
- -------------------------------------------------------------------------------
1,000,000 PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES), 6 5/8s, 6/1/26 Baa3 1,083,090
Rhode Island (1.2%)
- -------------------------------------------------------------------------------
2,025,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, Ser. A, 6 1/8s, 6/1/32 BBB 2,032,351
South Carolina (1.8%)
- -------------------------------------------------------------------------------
1,250,000 Lexington Cnty. Hlth. Svcs. Dist.
Inc. Hosp. Rev. Bonds, 5 1/2s,
5/1/37 A2 1,309,950
SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth. Alliance)
600,000 Ser. A, 7 3/8s, 12/15/21 Baa2 725,082
1,000,000 Ser. C, 6s, 8/1/20 Baa1 1,080,030
--------------
3,115,062
South Dakota (1.3%)
- -------------------------------------------------------------------------------
1,250,000 SD Hlth. & Ed. Fac. Auth.
Rev. Bonds (Prairie Lakes), 5.65s,
4/1/22 Baa1 1,294,950
960,000 SD Hsg. Dev. Auth. Rev. Bonds (Home
Ownership Mtg.), Ser. H, 5s, 5/1/28 AAA 999,341
--------------
2,294,291
Tennessee (1.9%)
- -------------------------------------------------------------------------------
1,500,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 BBB+ 1,770,870
400,000 Johnson City, Hlth. & Edl. Facs.
Board Retirement Fac. Rev. Bonds
(Appalachian Christian
Village), Ser. A, 6 1/4s, 2/15/32 BB-/P 401,392
Shelby Cnty., Hlth. Edl. & Hsg. Fac.
Hosp. Board Rev. Bonds (Methodist
Hlth. Care)
625,000 6 1/2s, 9/1/26 A3 737,875
375,000 6 1/2s, 9/1/26 A3 436,125
--------------
3,346,262
Texas (6.1%)
- -------------------------------------------------------------------------------
1,000,000 Abilene, Hlth. Fac. Dev. Corp.
Rev. Bonds (Sears Methodist
Retirement), 5 7/8s, 11/15/18 BB/P 1,003,740
1,000,000 Gulf Coast, Waste Disp. Auth.
Rev. Bonds, Ser. A, 6.1s, 8/1/24 Baa2 1,053,520
700,000 Harris Cnty., Hlth. Fac. Dev. Corp.
Hosp. Rev. Bonds (Memorial Hermann
Hlth. Care Syst.), Ser. A, 5 1/4s,
12/1/18 A2 742,959
Houston, Arpt. Syst. Rev. Bonds
1,450,000 (Continental Airlines, Inc.),
Ser. E, 6 3/4s, 7/1/29 B- 1,210,156
1,800,000 Ser. B, FSA, 5 1/2s, 7/1/30 Aaa 1,925,478
250,000 Lufkin, Hlth. Fac. Dev. Corp.
Rev. Bonds (Memorial Hlth. Syst. of
East TX), 5.7s, 2/15/28 BBB 255,290
2,150,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa3 2,150,860
2,150,000 TX State Dept. of Hsg. & Cmnty.
Affairs Rev. Bonds, Ser. C,
GNMA/FNMA Coll., 6.9s, 7/2/24 (SEG) AAA 2,155,332
--------------
10,497,335
Utah (1.9%)
- -------------------------------------------------------------------------------
800,000 Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A,
7 1/2s, 2/1/10 BB- 820,088
1,500,000 Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union
Pacific), Ser. A, 5.7s, 11/1/26 Baa2 1,556,955
750,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil), 5.05s, 11/1/17 Baa1 803,318
--------------
3,180,361
Vermont (1.2%)
- -------------------------------------------------------------------------------
2,000,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 2,028,700
Virginia (1.5%)
- -------------------------------------------------------------------------------
Henrico Cnty. Econ. Dev. Auth.
Rev. Bonds (United Methodist),
Ser. A
400,000 6.7s, 6/1/27 BB+/P 420,036
600,000 6 1/2s, 6/1/22 BB+/P 635,046
500,000 James Cnty., Indl. Dev. Auth.
Rev. Bonds (Williamsburg), Ser. A,
6 1/8s, 3/1/32 BB-/P 520,435
1,000,000 Prince William Cnty., Indl. Dev.
Auth. Hosp. Rev. Bonds (Potomac
Hosp. Corp.), 5.35s, 10/1/36 A3 1,025,830
--------------
2,601,347
Washington (0.3%)
- -------------------------------------------------------------------------------
500,000 Tobacco Settlement Auth. of WA
Rev. Bonds, 6 1/2s, 6/1/26 BBB 521,285
West Virginia (1.0%)
- -------------------------------------------------------------------------------
1,000,000 Marshall Cnty., Poll. Control VRDN
(OH Pwr. Co.), Ser. E, 2.31s, 6/1/22 VMIG1 1,000,000
825,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 B2 644,185
--------------
1,644,185
Wisconsin (1.9%)
- -------------------------------------------------------------------------------
1,500,000 Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds, 6 3/8s, 6/1/32 BBB 1,525,215
1,600,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 1,683,472
--------------
3,208,687
--------------
Total Municipal bonds and notes
(cost $210,596,275) $216,735,774
Common stocks (0.1%) (a) (cost $1,428,766)
Number of shares Value
- -------------------------------------------------------------------------------
29,974 Tembec, Inc. (Canada) (NON) $143,725
- -------------------------------------------------------------------------------
Total Investments
(cost $212,025,041) $216,879,499
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $171,803,689.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at March 31, 2005 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at March 31, 2005. Securities rated by Putnam are indicated
by "/P". Ratings are not covered by the Report of Independent Registered
Public Accounting Firm. Security ratings are defined in the Statement of
Additional Information.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 2005 was
$1,827,702 or 1.1% of net asset value.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for future contracts at March 31,
2005.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on VRDN and Mandatory Put Bonds are the current interest
rates at March 31, 2005.
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 March 31, 2005.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
The fund had the following industry group concentrations greater than
10% at March 31, 2005 (as a percentage of net asset value):
Health care 43.1%
Utilities 21.2
Transportation 10.4
Futures contracts outstanding at March 31, 2005
Number of Expiration Unrealized
Contracts Value date appreciation
- ------------------------------------------------------------------------------
U.S. Treasury Note
10 yr (Short) 109 $11,909,950 Jun-05 $142,739
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
March 31, 2005
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value (identified cost
$212,025,041) (Note 1): $216,879,499
- -------------------------------------------------------------------------------
Cash 633,801
- -------------------------------------------------------------------------------
Interest and other receivables 3,506,279
- -------------------------------------------------------------------------------
Receivable for securities sold 710,864
- -------------------------------------------------------------------------------
Total assets 221,730,443
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 56,203
- -------------------------------------------------------------------------------
Distributions payable to shareholders 699,970
- -------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 3,020
- -------------------------------------------------------------------------------
Payable for securities purchased 3,678,810
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 371,077
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 20,347
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 34,928
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,249
- -------------------------------------------------------------------------------
Other accrued expenses 61,150
- -------------------------------------------------------------------------------
Total liabilities 4,926,754
- -------------------------------------------------------------------------------
Series A remarketed preferred shares: (8,000 shares
authorized; 900 shares issued at $50,000 per share (Note 4) 45,000,000
- -------------------------------------------------------------------------------
Net assets $171,803,689
Represented by
- -------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares
authorized) (Note 1) $201,220,227
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (123,427)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (34,290,308)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,997,197
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $171,803,689
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per common share ($171,803,689 divided by
22,267,310 shares) $7.72
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended March 31, 2005
Interest income: $11,634,067
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,510,039
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 87,001
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 100,990
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 15,289
- -------------------------------------------------------------------------------
Administrative services (Note 2) 18,729
- -------------------------------------------------------------------------------
Preferred share remarketing agent fees 122,617
- -------------------------------------------------------------------------------
Other 181,339
- -------------------------------------------------------------------------------
Total expenses 2,036,004
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (24,952)
- -------------------------------------------------------------------------------
Net expenses 2,011,052
- -------------------------------------------------------------------------------
Net investment income 9,623,015
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (4,062,883)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (364,971)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the year 3,194,399
- -------------------------------------------------------------------------------
Net loss on investments (1,233,455)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $8,389,560
- -------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (644,013)
- -------------------------------------------------------------------------------
From ordinary income (2,126)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) $7,743,421
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended March 31
Increase (decrease) in net assets 2005 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $9,623,015 $10,414,954
- -------------------------------------------------------------------------------
Net realized loss on investments (4,427,854) (10,581,441)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,194,399 15,434,320
- -------------------------------------------------------------------------------
Distributions to Series A remarketed
preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (644,013) (456,178)
- -------------------------------------------------------------------------------
From ordinary income (2,126) --
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations (applicable to common
shareholders) 7,743,421 14,811,655
- -------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (8,717,234) (9,730,776)
- -------------------------------------------------------------------------------
From ordinary income (37,852) --
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,011,665) 5,080,879
Net assets
- -------------------------------------------------------------------------------
Beginning of year 172,815,354 167,734,475
- -------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of $123,427
and $304,735, respectively) $171,803,689 $172,815,354
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Common shares outstanding at beginning and
end of year 22,267,310 22,267,310
- -------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of year 900 900
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended March 31
operating performance 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $7.76 $7.53 $7.79 $8.22 $8.18
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income .43 .47 .55 .61 .63
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.05) .22 (.26) (.46) .06
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .38 .69 .29 .15 .69
- -----------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.03) (.02) (.03) (.04) (.08)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations:
(applicable to common shareholders) .35 .67 .26 .11 .61
- -----------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.39) (.44) (.52) (.54) (.57)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.44) (.52) (.54) (.57)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period (common shares) $7.72 $7.76 $7.53 $7.79 $8.22
- -----------------------------------------------------------------------------------------------------------------------
Market value,
end of period (common shares) $6.67 $7.04 $6.97 $7.59 $8.22
- -----------------------------------------------------------------------------------------------------------------------
Total return at market value (%)
(common shares) (a) 0.50 7.54 (1.55) (1.23) 21.63
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares) (in thousands) $171,804 $172,815 $167,734 $173,406 $182,614
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.19 1.16 1.17 1.15 1.14
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 5.26 5.84 6.70 7.04 6.74
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 24.67 36.95 34.56 18.38 12.30
- -----------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment.
(b) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
March 31, 2005
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 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. 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 a reduction 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, 2005, the fund had a capital loss carryover of $32,983,001
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
12,315,216 March 31, 2012
4,095,518 March 31, 2013
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending March 31, 2006, $570,356 of losses recognized during the period
November 1, 2004 to March 31, 2005.
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Distributions from capital gains, if any, are recorded
on the ex-dividend date and paid at least annually. Dividends on
remarketed preferred shares become payable when, as and if declared by
the Trustees. Each dividend period for the remarketed preferred shares
is generally a seven day period. The applicable dividend rate for the
remarketed preferred shares on March 31, 2005 was 2.45%. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences include temporary and
permanent differences of post-October loss deferrals, dividends payable,
defaulted bond interest, realized and unrealized gains and losses on
certain futures contracts, market discount, and straddle loss deferrals.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended March 31,
2005, the fund reclassified $40,482 to increase distributions in excess
of net investment income with a decrease to accumulated net realized
losses of $40,482.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $9,253,811
Unrealized depreciation (4,391,051)
------------
Net unrealized appreciation 4,862,760
Undistributed tax-exempt
income 680,217
Capital loss carryforward (32,983,001)
Post October loss (570,356)
Cost for federal income
tax purposes $212,016,739
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding as of
period end.
Note 2
Management fee, administrative services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the annual rate of 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 year ended March 31, 2005, the fund
paid PFTC $187,991 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended March 31, 2005, the
fund's expenses were reduced by $24,952 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 year ended March 31, 2005, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $54,655,794 and $48,459,272, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Remarketed preferred shares
The Series A shares are redeemable at the option of the fund on any
dividend payment date at a redemption price of $50,000 per share, plus
an amount equal to any dividends accumulated on a daily basis but unpaid
through the redemption date (whether or not such dividends have been
declared) and, in certain circumstances, a call premium.
It is anticipated that dividends paid to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal
Revenue Code of 1986. To the extent that the fund earns taxable income
and capital gains by the conclusion of a fiscal year, it may be required
to apportion to the holders of the remarketed preferred shares
throughout that year additional dividends as necessary to result in an
after-tax equivalent to the applicable dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to
maintain asset coverage of at least 200% with respect to the remarketed
preferred shares as of the last business day of each month in which any
such shares are outstanding. Additionally, the fund is required to meet
more stringent asset coverage requirements under terms of the remarketed
preferred shares and the shares' rating agencies. Should these
requirements not be met, or should dividends accrued on the remarketed
preferred shares not be paid, the fund may be restricted in its ability
to declare dividends to common shareholders or may be required to redeem
certain of the remarketed preferred shares. At March 31, 2005, no such
restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected 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.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders currently expected
by the end of the summer.
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 will bear any costs incurred by Putnam funds in
connection with these lawsuits. 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.
- ---------------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 99.58% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2006 will show the tax status of
all distributions paid to your account in calendar 2005.
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:
Preferred Shares
Votes
Votes For Withheld
- ----------------------------------------------------------------
John A. Hill 870 30
Robert E. Patterson 870 30
Common and Preferred Shares
Votes
Votes For Withheld
- ----------------------------------------------------------------
Jameson Adkins Baxter 17,835,451 795,553
Charles B. Curtis 17,844,050 786,954
Myra R. Drucker 17,811,699 819,305
Charles E Haldeman, Jr. 17,805,054 825,950
Ronald J. Jackson 17,848,098 782,906
Paul L. Joskow 17,821,118 809,886
Elizabeth T. Kennan 17,834,361 796,643
John H. Mullin III 17,843,060 787,944
George Putnam, III 17,831,126 799,878
A.J.C. Smith* 17,825,639 805,365
W. Thomas Stephens 17,834,713 787,291
Richard B. Worley 17,813,718 817,286
* Mr. Smith resigned from the Board of Trustees on January 14, 2005.
All tabulations are rounded to nearest whole number.
Compliance certifications
(Unaudited)
On November 11, 2004, your fund submitted a CEO annual certification to
the New York Stock Exchange ("NYSE") on which the fund's principal
executive officer certified that he was not aware, as of that date, of any
violation by the fund of the NYSE's Corporate Governance listing
standards. In addition, as required by Section 302 of the Sarbanes-Oxley
Act of 2002 and related SEC rules, the fund's principal executive and
principal financial officers have made quarterly certifications, included
in filings with the SEC on Forms N-CSR and N-Q, relating to, among other
things the fund's disclosure controls and procedures and internal control
over financial reporting.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), the Mutual Fund Directors Forum, Advocate
Health Care and BoardSource, formerly the National Center for Nonprofit
Boards. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke
College, having served as Chairman for five years and as a board member
for thirteen years. Until 2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48), Trustee since 2004
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also an ex-officio member of the New York
Stock Exchange (NYSE) Pension Managers Advisory Committee, having served
as Chair for seven years and a member of the Executive Committee of the
Committee on Investment of Employee Benefit Assets. She is Chair of the
Advisory Board of Hamilton Lane Advisors (an investment management firm)
and a member of the Advisory Board of RCM (an investment management
firm). Until August 31, 2004, Ms. Drucker was Managing Director and a
member of the Board of Directors of General Motors Asset Management and
Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also
served as a member of the NYSE Corporate Accountability and Listing
Standards Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) and was,
through 2004, a member of the Board of Overseers of the Peabody Essex
Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). Prior to February 2005, he served on the board of the
Whitehead Institute for Biomedical Research (a non-profit research
institution) and has been President of the Yale University Council
since 1993. Prior to February 2002, he was a Director of State Farm
Indemnity Company (an automobile insurance company), and, prior to March
2000, he was a Director of New England Electric System (a public utility
holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin
Diabetes Center and as a Director of Brandywine Trust Group, LLC. Prior
to June 2003, he was a Trustee of Sea Education Association. Prior to
December 2001, he was President and Trustee of Cabot Industrial Trust (a
publicly traded real estate investment trust). Prior to February 1998,
he was Executive Vice President and Director of Acquisitions of Cabot
Partners Limited Partnership (a registered investment adviser involved
in institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of March 31, 2005, there were 108 Putnam Funds. All Trustees serve as
Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman and Putnam III are deemed "interested persons" by
virtue of their positions as officers of the fund, Putnam Management or
Putnam Retail Management and as shareholders of Marsh & McLennan
Companies, Inc. Mr. Putnam, III is the President of your fund and each
of the other Putnam funds. Mr. Haldeman is President and Chief Executive
Officer of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Senior Vice President,
Compliance Liaison and Staff Counsel
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. During 2002, Chief
Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Vice President, Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG 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
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
Beth S. Mazor
Vice President
Daniel T. Gallagher
Senior Vice President,
Compliance Liaison
and Staff Counsel
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
Vice President, 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
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223899 5/05
Item 2. Code of Ethics:
- -----------------------
(a) All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
(c) In July 2004, Putnam Investment Management, LLC, the Fund's investment
manager, Putnam Retail Management Limited Partnership, the Fund's principal
underwriter, and Putnam Investments Limited, the sub-manager for a portion
of the assets of certain funds as determined by Putnam Management from time
to time, adopted several amendments to their Code of Ethics. Some of these
amendments were adopted as a result of Putnam Investment Management's
partial settlement order with the SEC on November 13, 2003. Insofar as such
Code of Ethics applies to the Fund's principal executive officer, principal
financial officer and principal accounting officer, the amendments provided
for the following: (i) a 90-day blackout period for all shares of Putnam
open-end funds (except for money market funds) purchased or sold (including
exchanges into or out of a fund) by Putnam employees and certain family
members; (ii) a one-year holding period for all access persons that operates
in the same manner as the 90-day rule; (iii) delivery by Putnam employees to
the Code of Ethics Administrator of both quarterly account statements for
all brokerage accounts (irrespective of activity in the accounts) and
account statements for any Putnam funds not held at Putnam or for any funds
sub-advised by Putnam; (iv) a prohibition of Putnam employees from making
more than 25 trades in individual securities in their personal accounts in
any given quarter; (v) the extension of the existing prohibition of access
persons from a purchase and sale or sale and purchase of an individual
security within 60 days to include trading based on tax-lot election; (vi)
the inclusion of trades in Marsh & McLennan Companies, Inc. (ultimate parent
company of Putnam Investment Management) securities in pre-clearance and
reporting requirements; (vii) a prohibition of limit and good-until-canceled
orders as inconsistent with the requirements of daily pre-clearance; (viii)
new limits and procedures for accounts managed by outside managers and
brokers, in order for trading in such accounts to be exempt from
pre-clearance requirements; (ix) a new gift and entertainment policy that
imposes a reporting obligation on all meals and entertainment and new limits
on non-meal entertainment; (x) a number of alternatives for the reporting of
irregular activity.
In December 2004, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for the following: (i) implementation of minimum
monetary sanctions for violations of the Code; (ii) expansion of the
definition of "access person" under the Code to include all Putnam employees
with access to non-public information regarding Putnam-managed mutual fund
portfolio holdings; (iii) lengthening the period during which access persons
are required to complete quarterly reports; (iv) reducing the maximum number
of trades than can be made by Putnam employees in their personal accounts in
any calendar quarter from 25 trades to 10 trades; and (v) lengthening the
required holding period for securities by access persons from 60 days to 90
days.
In March 2005, additional amendments to the Code of Ethics were adopted,
that went into effect on April 1, 2005. Insofar as such Code of Ethics
applies to the Fund's principal executive officer, principal financial
officer and principal accounting officer, the amendments (i) prohibit Putnam
employees and their immediate family members from having any direct or
indirect personal financial interest in companies that do business with
Putnam (excluding investment holdings in public companies that are not
material to the employee), unless such interest is disclosed and approved by
the Code of Ethics Officer; (ii) prohibit Putnam employees from using Putnam
assets, letterhead or other resources in making political or campaign
contributions, solicitations or endorsements;(iii) require Putnam employees
to obtain pre-clearance of personal political or campaign contributions or
other gifts to government officials or political candidates in certain
jurisdictions and to officials or candidates with whom Putnam has or is
seeking to establish a business relationship and (iv) require Putnam
employees to obtain pre-approval from Putnam's Director of Government
Relations prior to engaging in lobbying activities.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person
as an audit committee financial expert pursuant to this Item 3 of Form
N-CSR does not impose on such person any duties, obligations or liability
that are greater than the duties, obligations and liability imposed on
such person as a member of the Audit and Pricing Committee and the Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two fiscal
years for services rendered to the fund by the fund's independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
March 31, 2005 $34,550 $20,900 $4,150 $--
March 31, 2004 $30,000 $18,516 $3,600 $31
For the fiscal years ended March 31, 2005 and March 31, 2004, the fund's
independent auditors billed aggregate non-audit fees in the amounts of $
25,050 and $ 22,147 respectively, to the fund, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal years.
Audit-Related Fees represents fees billed in the fund's last two fiscal
years for services traditionally performed by the fund's auditor, including
accounting consultation for proposed transactions or concerning financial
accounting and reporting standards and other audit or attest services not
required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years for tax
compliance, tax planning and tax advice services. Tax planning and tax
advice services include assistance with tax audits, employee benefit plans
and requests for rulings or technical advice from taxing authorities.
All Other Fees Fees represent fees billed for services relating to interfund
trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit and
Pricing Committee of the Putnam funds has determined that, as a matter of
policy, all work performed for the funds by the funds' independent auditors
will be pre-approved by the Committee and will generally not be subject to
pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee believes that
it may be appropriate for Putnam Investment Management, LLC ("Putnam
Management") and certain of its affiliates to engage the services of the
funds' independent auditors, but only after prior approval by the Committee.
Such requests are required to be submitted in writing to the Committee and
explain, among other things, the nature of the proposed engagement, the
estimated fees, and why this work must be performed by that particular audit
firm. The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors for the
funds, Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services to the
fund was pre-approved by the Committee or a member of the Committee pursuant
to the pre-approval policies discussed above. Prior to that date, the
Committee had a general policy to pre-approve the independent auditor's
engagements for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal auditor for
services required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
March 31, 2005 $-- $-- $-- $--
March 31, 2004 $-- $-- $-- $--
Item 5. Audit Committee
- ------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Myra R. Drucker
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Richard B. Worley
(b) Not applicable
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy voting guidelines of the Putnam funds
- -------------------------------------------
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general
indication of how fund portfolio securities will be voted on
proposals dealing with particular issues. The funds' proxy voting
service is instructed to vote all proxies relating to fund portfolio
securities in accordance with these guidelines, except as otherwise
instructed by the Proxy Coordinator, a member of the Office of the
Trustees who is appointed to assist in the coordination and voting
of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The
guidelines are not exhaustive and do not include all potential
voting issues. Because proxy issues and the circumstances of
individual companies are so varied, there may be instances when the
funds may not vote in strict adherence to these guidelines. For
example, the proxy voting service is expected to bring to the Proxy
Coordinator's attention proxy questions that are company-specific
and of a non-routine nature and that, even if covered by the
guidelines, may be more appropriately handled on a case-by-case
basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings,
are responsible for monitoring significant corporate developments,
including proxy proposals submitted to shareholders, and notifying
the Proxy Coordinator of circumstances where the interests of fund
shareholders may warrant a vote contrary to these guidelines. In
such instances, the investment professionals will submit a written
recommendation to the Proxy Coordinator and the person or persons
designated by Putnam Management's Legal and Compliance Department to
assist in processing referral items pursuant to the funds' "Proxy
Voting Procedures." The Proxy Coordinator, in consultation with the
funds' Senior Vice President, Executive Vice President, and/or the
Chair of the Board Policy and Nominating Committee, as appropriate,
will determine how the funds' proxies will be voted. When
indicated, the Chair of the Board Policy and Nominating Committee
may consult with other members of the Committee or the full Board of
Trustees.
The following guidelines are grouped according to the types of
proposals generally presented to shareholders. Part I deals with
proposals that have been put forth by management and approved and
recommended by a company's board of directors. Part II deals with
proposals submitted by shareholders for inclusion in proxy
statements. Part III addresses unique considerations pertaining to
non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with
the timetable established by SEC rules (i.e., not later than August
31 of each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
- ----------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by
its board of directors. In view of the enhanced corporate
governance practices currently being implemented in public companies
and of the funds' intent to hold corporate boards accountable for
their actions in promoting shareholder interests, the funds' proxies
generally will be voted for the decisions reached by majority
independent boards of directors, except as otherwise indicated in
these guidelines. Accordingly, the funds' proxies will be voted for
board-approved proposals, except as follows:
Matters relating to the Board of Directors
- ------------------------------------------
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees,
* the board has more than 19 members or fewer than five members,
absent special circumstances,
* the board has not acted to implement a policy requested in a
shareholder proposal that received the support of a majority of the
shares of the company at its previous two annual meetings, or
* the board has adopted or renewed a shareholder rights plan
(commonly referred to as a "poison pill") without shareholder
approval during the current or prior calendar year.
The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without
valid reasons for the absences (e.g., illness, personal emergency,
etc.),
* as a director of a public company (Company A), is employed as a
senior executive of another public company (Company B) if a director
of Company B serves as a senior executive of Company A (commonly
referred to as an "interlocking directorate"), or
* serves on more than five unaffiliated public company boards (for
the purpose of this guideline, boards of affiliated registered
investment companies will count as one board).
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors
and independent nominating, audit, and compensation committees, an
"independent director" is a director who (1) meets all requirements
to serve as an independent director of a company under the final
NYSE Corporate Governance Rules (e.g., no material business
relationships with the company and no present or recent employment
relationship with the company (including employment of an immediate
family member as an executive officer)), and (2) has not accepted
directly or indirectly any consulting, advisory, or other
compensatory fee from the company other than in his or her capacity
as a member of the board of directors or any board committee. The
funds' Trustees believe that the receipt of compensation for
services other than service as a director raises significant
independence issues.
Board size: The funds' Trustees believe that the size of the board
of directors can have a direct impact on the ability of the board to
govern effectively. Boards that have too many members can be
unwieldy and ultimately inhibit their ability to oversee management
performance. Boards that have too few members can stifle innovation
and lead to excessive influence by management.
Time commitment: Being a director of a company requires a
significant time commitment to adequately prepare for and attend the
company's board and committee meetings. Directors must be able to
commit the time and attention necessary to perform their fiduciary
duties in proper fashion, particularly in times of crisis. The
funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a
meaningful contribution. This may be particularly true for senior
executives of public companies (or other directors with
substantially full-time employment) who serve on more than a few
outside boards. The funds may withhold votes from such directors on
a case-by-case basis where it appears that they may be unable to
discharge their duties properly because of excessive commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only
on its members' individual relationships, but also on the board's
overall attitude toward management. Independent boards are
committed to good corporate governance practices and, by providing
objective independent judgment, enhancing shareholder value. The
funds may withhold votes on a case-by-case basis from some or all
directors who, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
Contested Elections of Directors
The funds will vote on a case-by-case basis in contested elections
of directors.
Classified Boards
The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the
directors are divided into three classes, with each class serving a
three-year term. The classified board structure results in
directors serving staggered terms, with usually only a third of the
directors up for re-election at any given annual meeting. The
funds' Trustees generally believe that it is appropriate for
directors to stand for election each year, but recognize that, in
special circumstances, shareholder interests may be better served
under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of
independent directors and independent nominating, audit, and
compensation committees).
Executive Compensation
- ----------------------
The funds generally favor compensation programs that relate
executive compensation to a company's long-term performance. The
funds will vote on a case-by-case basis on board-approved proposals
relating to executive compensation, except as follows:
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for stock option and
restricted stock plans that will result in an average annual
dilution of 1.67% or less (based on the disclosed term of the plan
and including all equity-based plans).
The funds will vote against stock option and restricted stock
plans that will result in an average annual dilution of greater than
1.67% (based on the disclosed term of the plan and including all
equity-based plans).
The funds will vote against any stock option or restricted stock
plan where the company's actual grants of stock options and
restricted stock under all equity-based compensation plans during
the prior three (3) fiscal years have resulted in an average annual
dilution of greater than 1.67%.
The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any
proposal to authorize such replacement or repricing of underwater
options).
The funds will vote against stock option plans that permit
issuance of options with an exercise price below the stock's current
market price.
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for an employee stock
purchase plan that has the following features: (1) the shares
purchased under the plan are acquired for no less than 85% of their
market value; (2) the offering period under the plan is 27 months or
less; and (3) dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over
the longer term. Further, disclosure of compensation programs
should provide absolute transparency to shareholders regarding the
sources and amounts of, and the factors influencing, executive
compensation. Appropriately designed equity-based compensation
plans can be an effective way to align the interests of long-term
shareholders with the interests of management. The funds may vote
against executive compensation proposals on a case-by-case basis
where compensation is excessive by reasonable corporate standards,
or where a company fails to provide transparent disclosure of
executive compensation. In voting on a proposal relating to
executive compensation, the funds will consider whether the proposal
has been approved by an independent compensation committee of the
board.
Capitalization
- --------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of
stock, the repurchase of outstanding stock, or the approval of a
stock split. The management of a company's capital structure
involves a number of important issues, including cash flow,
financing needs, and market conditions that are unique to the
circumstances of the company. As a result, the funds will vote on a
case-by-case basis on board-approved proposals involving changes to
a company's capitalization, except that where the funds are not
otherwise withholding votes from the entire board of directors:
The funds will vote for proposals relating to the authorization
and issuance of additional common stock (except where such proposals
relate to a specific transaction).
The funds will vote for proposals to effect stock splits
(excluding reverse stock splits).
The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are
best left to the board of directors and senior management. The
funds will vote on a case-by-case basis, however, on other proposals
to change a company's capitalization, including the authorization of
common stock with special voting rights, the authorization or
issuance of common stock in connection with a specific transaction
(e.g., an acquisition, merger or reorganization), or the
authorization or issuance of preferred stock. Actions such as these
involve a number of considerations that may affect a shareholder's
investment and that warrant a case-by-case determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
- ------------------------------------------------------------------
Transactions
- ------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations
involving business combinations, liquidations, and the sale of all
or substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a
case-by-case basis on board-approved proposals to effect these types
of transactions, except as follows:
The funds will vote for mergers and reorganizations involving
business combinations designed solely to reincorporate a company in
Delaware.
Commentary: A company may reincorporate into another state through
a merger or reorganization by setting up a "shell" company in a
different state and then merging the company into the new company.
While reincorporation into states with extensive and established
corporate laws - notably Delaware - provides companies and
shareholders with a more well-defined legal framework, shareholders
must carefully consider the reasons for a reincorporation into
another jurisdiction, including especially an offshore jurisdiction.
Anti-Takeover Measures
- ----------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company
without the approval of the company's board of directors. These
include the adoption of a shareholder rights plan, requiring
supermajority voting on particular issues, the adoption of fair
price provisions, the issuance of blank check preferred stock, and
the creation of a separate class of stock with disparate voting
rights. Such proposals may adversely affect shareholder rights,
lead to management entrenchment, or create conflicts of interest.
As a result, the funds will vote against board-approved proposals to
adopt such anti-takeover measures, except as follows:
The funds will vote on a case-by-case basis on proposals to ratify
or approve shareholder rights plans; and
The funds will vote on a case-by-case basis on proposals to adopt
fair price provisions.
Commentary: The funds' Trustees recognize that poison pills and
fair price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
- ----------------------
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors,
and procedural matters relating to the shareholder meeting. For the
most part, these routine matters do not materially affect
shareholder interests and are best left to the board of directors
and senior management of the company. The funds will vote for
board-approved proposals approving such matters, except as follows:
The funds will vote on a case-by-case basis on proposals to amend
a company's charter or bylaws (except for charter amendments
necessary or to effect stock splits to change a company's name or to
authorize additional shares of common stock).
The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
The funds will vote on a case-by-case basis on other business
matters where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: Charter and bylaw amendments and the transaction of
other unidentified, substantive business at a shareholder meeting
may directly affect shareholder rights and have a significant impact
on shareholder value. As a result, the funds do not view such items
as routine business matters. Putnam Management's investment
professionals and the funds' proxy voting service may also bring to
the Proxy Coordinator's attention company-specific items that they
believe to be non-routine and warranting special consideration.
Under these circumstances, the funds will vote on a case-by-case
basis.
II. SHAREHOLDER PROPOSALS
- --------------------------
SEC regulations permit shareholders to submit proposals for
inclusion in a company's proxy statement. These proposals generally
seek to change some aspect of the company's corporate governance
structure or to change some aspect of its business operations. The
funds generally will vote in accordance with the recommendation of
the company's board of directors on all shareholder proposals,
except as follows:
The funds will vote for shareholder proposals to declassify a
board, absent special circumstances which would indicate that
shareholder interests are better served by a classified board
structure.
The funds will vote for shareholder proposals to require
shareholder approval of shareholder rights plans.
The funds will vote for shareholder proposals that are consistent
with the funds' proxy voting guidelines for board-approved
proposals.
The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: In light of the substantial reforms in corporate
governance that are currently underway, the funds' Trustees believe
that effective corporate reforms should be promoted by holding
boards of directors - and in particular their independent directors
- - accountable for their actions, rather than imposing additional
legal restrictions on board governance through piecemeal proposals.
Generally speaking, shareholder proposals relating to business
operations are often motivated primarily by political or social
concerns, rather than the interests of shareholders as investors in
an economic enterprise. As stated above, the funds' Trustees
believe that boards of directors and management are responsible for
ensuring that their businesses are operating in accordance with high
legal and ethical standards and should be held accountable for
resulting corporate behavior. Accordingly, the funds will generally
support the recommendations of boards that meet the basic
independence and governance standards established in these
guidelines. Where boards fail to meet these standards, the funds
will generally evaluate shareholder proposals on a case-by-case
basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
- ---------------------------------------
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign
jurisdictions and that are not listed on a U.S. securities exchange
or the NASDAQ stock market. Because non-U.S. issuers are
incorporated under the laws of countries and jurisdictions outside
the U.S., protection for shareholders may vary significantly from
jurisdiction to jurisdiction. Laws governing non-U.S. issuers may,
in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are
premised on the existence of a sound corporate governance and
disclosure framework, may not be appropriate under some
circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a
non-U.S. issuer are not able to trade in that company's stock on or
around the shareholder meeting date. This practice is known as
"share blocking." In countries where share blocking is practiced,
the funds will vote proxies only with direction from Putnam
Management's investment professionals.
In addition, some non-U.S. markets require that a company's shares
be re-registered out of the name of the local custodian or nominee
into the name of the shareholder for the meeting. This practice is
known as "share re-registration." As a result, shareholders,
including the funds, are not able to trade in that company's stock
until the shares are re-registered back in the name of the local
custodian or nominee. In countries where share re-registration is
practiced, the funds will generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with
the foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
- ---------------------------------
Japan
For companies that have established a U.S.-style corporate
structure, the funds will withhold votes for the entire board of
directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation
committees composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members
of the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code
give companies the option to adopt a U.S.-style corporate structure
(i.e., a board of directors and audit, nominating, and compensation
committees). The funds will vote for proposals to amend a company's
articles of incorporation to adopt the U.S.-style corporate
structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between
outside directors and independent directors. Under these
principles, an outside director is a director who is not and has
never been a director, executive, or employee of the company or its
parent company, subsidiaries or affiliates. An outside director is
"independent" if that person can make decisions completely
independent from the managers of the company, its parent,
subsidiaries, or affiliates and does not have a material
relationship with the company (i.e., major client, trading partner,
or other business relationship; familial relationship with current
director or executive; etc.). The guidelines have incorporated
these definitions in applying the board independence standards
above.
Korea
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of
at least a majority of outside directors, or
* the board has not established an audit committee composed of at
least three members and in which at least two-thirds of its members
are outside directors.
Commentary: For purposes of these guideline, an "outside director"
is a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might
impair performing his or her duties impartially from the company,
management or controlling shareholder. In determining whether a
director is an outside director, the funds will also apply the
standards included in Article 415-2(2) of the Korean Commercial Code
(i.e., no employment relationship with the company for a period of
two years before serving on the committee, no director or employment
relationship with the company's largest shareholder, etc.) and may
consider other business relationships that would affect the
independence of an outside director.
United Kingdom
The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent
non-executive directors.
The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees
believe that the guidelines discussed above with respect to board
independence standards are integral to the protection of investors
in U.K. companies. As a result, these guidelines will be applied in
a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the
director meets the independence standards in section A.3.1 of the
Combined Code (i.e., no material business or employment
relationships with the company, no remuneration from the company for
non-board services, no close family ties with senior employees or
directors of the company, etc.), except that the funds do not view
service on the board for more than nine years as affecting a
director's independence.
Smaller companies: A smaller company is one that is below the FTSE
350 throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed
policies that would impose new corporate governance requirements on
Canadian public companies. The recommended practices contained in
these new corporate governance requirements mirror corporate
governance reforms that have been adopted by the NYSE and other U.S.
national securities exchanges and stock markets. As a result, the
funds will vote on matters relating to the board of directors of
Canadian issuers in accordance with the guidelines applicable to
U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody
the "comply and explain" approach to corporate governance. Because
the funds' Trustees believe that the board independence standards
contained in the proxy voting guidelines are integral to the
protection of investors in Canadian companies, these standards will
be applied in a prescriptive manner.
Other Matters
- -------------
The funds will vote for shareholder proposals calling for a
majority of a company's directors to be independent of management.
The funds will vote for shareholder proposals seeking to increase
the independence of board nominating, audit, and compensation
committees.
The funds will vote for shareholder proposals that implement
corporate governance standards similar to those established under
U.S. federal law and the listing requirements of U.S. stock
exchanges, and that do not otherwise violate the laws of the
jurisdiction under which the company is incorporated.
The funds will vote on a case-by-case basis on proposals relating
to (1) the issuance of common stock in excess of 20% of the
company's outstanding common stock where shareholders do not have
preemptive rights, or (2) the issuance of common stock in excess of
100% of the company's outstanding common stock where shareholders
have preemptive rights.
As adopted December 10, 2004
Proxy Voting Procedures of the Putnam Funds
- -------------------------------------------
The proxy voting procedures below explain the role of the funds' Trustees,
the proxy voting service and the Proxy Coordinator, as well as how the
process will work when a proxy question needs to be handled on a
case-by-case basis, or when there may be a conflict of interest.
The role of the funds' Trustees
- -------------------------------------------
The Trustees of the Putnam funds exercise control of the voting of proxies
through their Board Policy and Nominating Committee, which is composed
entirely of independent Trustees. The Board Policy and Nominating Committee
oversees the proxy voting process and participates, as needed, in the
resolution of issues that need to be handled on a case-by-case basis. The
Committee annually reviews and recommends, for Trustee approval, guidelines
governing the funds' proxy votes, including how the funds vote on specific
proposals and which matters are to be considered on a case-by-case basis.
The Trustees are assisted in this process by their independent
administrative staff ("Office of the Trustees"), independent legal counsel,
and an independent proxy voting service. The Trustees also receive
assistance from Putnam Investment Management, LLC ("Putnam Management"), the
funds' investment advisor, on matters involving investment judgments. In
all cases, the ultimate decision on voting proxies rests with the Trustees,
acting as fiduciaries on behalf of the shareholders of the funds.
The role of the proxy voting service
- -------------------------------------------
The funds have engaged an independent proxy voting service to assist in the
voting of proxies. The proxy voting service is responsible for coordinating
with the funds' custodians to ensure that all proxy materials received by
the custodians relating to the funds' portfolio securities are processed in
a timely fashion. To the extent applicable, the proxy voting service votes
all proxies in accordance with the proxy voting guidelines established by
the Trustees. The proxy voting service will refer proxy questions to the
Proxy Coordinator (described below) for instructions under circumstances
where: (1) the application of the proxy voting guidelines is unclear; (2) a
particular proxy question is not covered by the guidelines; or (3) the
guidelines call for specific instructions on a case-by-case basis. The
proxy voting service is also requested to call to the Proxy Coordinator's
attention specific proxy questions that, while governed by a guideline,
appear to involve unusual or controversial issues. The funds also utilize
research services relating to proxy questions provided by the proxy voting
service and by other firms.
The role of the Proxy Coordinator
- -------------------------------------------
Each year, a member of the Office of the Trustees is appointed Proxy
Coordinator to assist in the coordination and voting of the funds' proxies.
The Proxy Coordinator will deal directly with the proxy voting service and,
in the case of proxy questions referred by the proxy voting service, will
solicit voting recommendations and instructions from the Office of the
Trustees, the Chair of the Board Policy and Nominating Committee, and Putnam
Management's investment professionals, as appropriate. The Proxy
Coordinator is responsible for ensuring that these questions and referrals
are responded to in a timely fashion and for transmitting appropriate voting
instructions to the proxy voting service.
Voting procedures for referral items
- -------------------------------------------
As discussed above, the proxy voting service will refer proxy questions to
the Proxy Coordinator under certain circumstances. When the application of
the proxy voting guidelines is unclear or a particular proxy question is not
covered by the guidelines (and does not involve investment considerations),
the Proxy Coordinator will assist in interpreting the guidelines and, as
appropriate, consult with one of more senior staff members of the Office of
the Trustees and the Chair of the Board Policy and Nominating Committee on
how the funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve investment
considerations, the Proxy Coordinator will refer such questions, through a
written request, to Putnam Management's investment professionals for a
voting recommendation. Such referrals will be made in cooperation with the
person or persons designated by Putnam Management's Legal and Compliance
Department to assist in processing such referral items. In connection with
each such referral item, the Legal and Compliance Department will conduct a
conflicts of interest review, as described below under "Conflicts of
Interest," and provide a conflicts of interest report (the "Conflicts
Report") to the Proxy Coordinator describing the results of such review.
After receiving a referral item from the Proxy Coordinator, Putnam
Management's investment professionals will provide a written recommendation
to the Proxy Coordinator and the person or persons designated by the Legal
and Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2) the
basis and rationale for such recommendation; and (3) any contacts the
investment professionals have had with respect to the referral item with
non-investment personnel of Putnam Management or with outside parties
(except for routine communications from proxy solicitors). The Proxy
Coordinator will then review the investment professionals' recommendation
and the Conflicts Report with one of more senior staff members of the Office
of the Trustees in determining how to vote the funds' proxies. The Proxy
Coordinator will maintain a record of all proxy questions that have been
referred to Putnam Management's investment professionals, the voting
recommendation, and the Conflicts Report.
In some situations, the Proxy Coordinator and/or one of more senior staff
members of the Office of the Trustees may determine that a particular proxy
question raises policy issues requiring consultation with the Chair of the
Board Policy and Nominating Committee, who, in turn, may decide to bring the
particular proxy question to the Committee or the full Board of Trustees for
consideration.
Conflicts of interest
- -------------------------------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest may
exist, for example, if Putnam Management has a business relationship with
(or is actively soliciting business from) either the company soliciting the
proxy or a third party that has a material interest in the outcome of a
proxy vote or that is actively lobbying for a particular outcome of a proxy
vote. Any individual with knowledge of a personal conflict of interest
(e.g., familial relationship with company management) relating to a
particular referral item shall disclose that conflict to the Proxy
Coordinator and the Legal and Compliance Department and otherwise remove
himself or herself from the proxy voting process. The Legal and Compliance
Department will review each item referred to Putnam Management's investment
professionals to determine if a conflict of interest exists and will provide
the Proxy Coordinator with a Conflicts Report for each referral item that
(1) describes any conflict of interest; (2) discusses the procedures used to
address such conflict of interest; and (3) discloses any contacts from
parties outside Putnam Management (other than routine communications from
proxy solicitors) with respect to the referral item not otherwise reported
in an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an investment
professional provided under circumstances where a conflict of interest
exists was made solely on the investment merits and without regard to any
other consideration.
As adopted March 11, 2005
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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report 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) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: May 27, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: May 27, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: May 27, 2005