<PAGE>
PUTNAM
INVESTMENT
GRADE
MUNICIPAL TRUST
SEMIANNUAL REPORT
May 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"If you're bullish on bonds, probably the best place to be now is in
the municipal bond market . . . munis are trading at their most
attractive levels against Treasuries in nearly a decade."
--Barron's, July 1995
Performance should always be considered in light of a fund's
investment strategy. Putnam Investment Grade Municipal Trust is
designed for investors seeking as high a level of current income, free
from federal income tax, as is consistent with the preservation of
capital.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C>
TOTAL RETURN NAV MARKET PRICE
----------------------------------------------------------------------
--
(change in value during
period plus reinvested
distributions)
6 months ended 5/31/95 12.04% 11.73%
----------------------------------------------------------------------
--
SHARE VALUE NAV MARKET PRICE
----------------------------------------------------------------------
--
11/30/94 $11.22 $11.875
5/31/95 12.08 12.750
----------------------------------------------------------------------
--
DISTRIBUTIONS NO. INCOME TOTAL
----------------------------------------------------------------------
--
Common shares 6 $0.48 $0.48
Preferred shares
Series A (1,400 shares) 2,095.06 2,095.06
----------------------------------------------------------------------
--
CURRENT RETURN: (common shares) NAV MARKET PRICE
----------------------------------------------------------------------
--
End of period
Current dividend rate(1) 7.95% 7.53%
Taxable equivalent(2) 13.16 12.47
----------------------------------------------------------------------
--
<FN>
Performance data represent past results and is no indication of future
results. For performance over longer periods, see page 8. (1) Income
portion of most recent distribution, annualized and divided by NAV or
market price at end of period. (2) Assumes maximum 39.6% federal tax
rate. Results for investors subject to lower tax rates would not be as
advantageous. Capital gains, if any, are taxable for federal and, in
most cases, state tax purposes. For some investors, investment income
may also be subject to the federal alternative minimum tax. Investment
income may be subject to state and local taxes.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
PUTNAM INVESTMENT GRADE MUNICIPAL TRUST'S MANAGER, MICHAEL BOUSCAREN,
COULDN'T BE MORE PLEASED WITH THE MUNICIPAL BOND MARKET'S IMPRESSIVE
COMEBACK FROM THE SUSTAINED DECLINE OF 1994. MINDFUL OF THE
UNCERTAINTIES STILL HOVERING IN THE BACKGROUND, HOWEVER, HE HAS BEGUN
TAKING STEPS AIMED AT PRESERVING SOME OF THE FUND'S GAINS ACHIEVED
DURING THE FIRST HALF OF THE FISCAL YEAR, THE SIX MONTHS ENDED MAY 31,
1995.
AT THE SAME TIME, MIKE IS OPTIMISTIC ABOUT PROSPECTS FOR THE SECOND
HALF. THE RECOVERY IN THE TAX-EXEMPT BOND MARKET, WHILE SUBSTANTIAL,
HAS LAGGED THAT OF OTHER FIXED-INCOME MARKETS, LEADING HIM TO BELIEVE
THE RALLY MAY HAVE SOME STAYING POWER.
MUNICIPAL BOND INVESTORS ALREADY HAVE SHAKEN OFF THE JITTERS IGNITED
BY A FLAT-TAX PROPOSAL RECENTLY THROWN INTO THE LEGISLATIVE HOPPER. IN
ITS PUREST FORM, A FLAT TAX WOULD ELIMINATE THE FEDERAL INCOME TAX
ADVANTAGE OF MUNICIPAL BONDS. WE DO NOT BELIEVE CONGRESS WOULD ENACT
ANY SUCH RESTRICTIVE PROVISION.
MIKE PROVIDES MORE DISCUSSION OF THESE AND OTHER ISSUES IN THE REPORT
THAT FOLLOWS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JULY 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL F. BOUSCAREN
After weathering one of the most volatile bond markets in recent
memory, municipal bond investors were finally rewarded with strong
gains during the first few months of 1995. The entire bond market
staged a strong rally in January, with municipal bonds quickly moving
into the lead. As the economy continued to march at a brisk stride,
investors took this as a sign that the Federal Reserve Board's
strategy of raising short-term rates to rein in growth was effectively
holding inflation in check.
Putnam Investment Grade Municipal Trust has shared in the solid
performance of municipal bonds over the period. For the six months
ended May 31, 1995, the fund had a total return of 12.04% at net asset
value (11.73% at market price). With taxable-equivalent yields in
double digits, your fund's current dividend rate of 7.95% at NAV would
translate into a yield of 13.16% for a taxable investment, assuming
the maximum 39.6% federal tax rate. Most investors in lower brackets
would also enjoy tax advantages, though not necessarily to the same
extent.
MARKET RETAINS STRONG FUNDAMENTALS
A sharp decline in new issues that market watchers foresaw as a spur
to higher prices added fuel to the recent bond market rally. So did
the attractiveness of tax-free yields relative to taxable Treasuries.
Putnam Management continues to believe that the municipal bond market
retains strong fundamentals, even with the recent tax-reform
discussions. In late April, municipal bond market investors' concern
about the possible effects of the flat-tax proposal now being
considered by Congress spooked the $1.2 trillion market out of a
dramatic recovery. The current proposal by Representative Dick Armey
would exempt individuals from paying tax on any dividends or capital
gains. If the measure should become law, municipal bonds, now prized
for their tax exemption, would lose their edge over other types of
bonds. However, it is important to keep in mind that
this flat tax plan is only one of many tax-reform proposals that will
be discussed, dissected, and debated in Washington before any
legislation is passed, if any.
While it is, of course, impossible to predict the course of political
events, it appears that public support exists for a revision of the
current income-tax code. However, this will likely not occur until
after the 1996 presidential elections. If history is any guide, we
believe it is too early to jump to conclusions. However, we will
monitor any developments on all tax-reform proposals and their
potential effects on the securities markets and on your fund.
POSITIONING WAS DESIGNED TO MAXIMIZE PARTICIPATION IN RALLY
Our management efforts remain focused on the fund's primary objective
-- pursuing as high a level of current income free from federal income
tax as is consistent with the preservation of capital. Because we
wanted the fund to generate as much income as possible while
benefiting from potentially higher bond prices, we employed a
barbelled formation in selecting bonds for the portfolio. About half
of the portfolio was invested in higher-yielding bonds with shorter
maturities, which are less sensitive to market movements. The higher
income stream on these bonds represents the greatest portion of their
return.
[BAR CHART]
TOP INDUSTRY SECTORS*
----------------------------------------------------------------------
--
Utilities 24.3%
Hospitals/Health Care 20.6%
Transportation 12.7%
Housing 11.5%
* Based on net assets on 5/31/95. Industry sectors will vary over
time.
<PAGE>
We invested the other half of the portfolio in bonds that were likely
to perform closely in line with market trends, expecting a certain
amount of volatility but also substantial potential benefits.
The fund also continues to employ leverage. In order to take advantage
of yield differentials between short- and long-term interest rates, a
leveraged closed-end fund will issue preferred shares with dividends
based on short-term interest rates and invest the proceeds in longer-
term bonds paying higher rates. During the period, the use of leverage
had a positive effect on the portfolio's yield. Our stress tests
indicated that leverage continues to be desirable even if municipal
short-term rates rise unexpectedly. For a long-term investor, leverage
may offer added upside potential and can potentially outperform
unleveraged funds.
SEVERAL KEY INDUSTRIES TARGETED FOR GROWTH
We believe the municipal bond issuers in key industries such as the
health-care, utilities, and airline industries hold particular promise
for growth. Our extensive research in these areas has already produced
new investment prospects for your fund. One example was the fund's
investment in Denver International Airport bonds. Problems with the
facility's automated baggage system, as well as various other delays,
caused many investors to ignore what we believe is a valuable project
for a major Western air-traffic hub. Denver Airport bonds have been
among the best performers in the fund during the period.
NEAR-TERM OUTLOOK IS CAUTIOUSLY OPTIMISTIC
The municipal bond market's landscape has certainly changed from the
difficult times we reported at the end of fiscal 1994. Trends we began
to spot a year ago are now being backed up by hard data and, so far,
the market has responded accordingly.
<PAGE>
[BAR CHART]
CONCENTRATION OF HOLDINGS BY STATE
----------------------------------------------------------------------
--
Massachusetts 12.6%
Colorado 8.7%
Texas 8.1%
New York 7.7%
California 6.9%
Geographically, the fund is diversified among 27 states. The top five
states represent 44% of the portfolio, based on net assets as of
5/31/95. Concentration of holdings by state will vary over time.
As it appears that the Federal Reserve Board may be near the end of
its short-term interest-rate tightening cycle, we continue to have a
positive outlook on the municipal bond market through the end of
calendar 1995. We will, however, monitor the economic and political
landscape for anything that may affect your fund. And, of course, we
will continue to rely on our extensive in-house research capabilities
to identify the bonds that we believe hold the most long-term
potential.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings were viewed favorably as of 5/31/95, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. 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 back into the fund. We show
total return in two ways: on a cumulative long-term basis and on
average how the fund might have grown each year over varying periods.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
LEHMAN BROS.
MUNICIPAL
NAV Market price Bond Index CPI
----------------------------------------------------------------------
--
6 months 12.04% 11.73% 13.05% 1.67%
----------------------------------------------------------------------
--
1 year 6.69 6.20 9.11 3.19
----------------------------------------------------------------------
--
5 years 64.55 75.04 51.33 17.80
Annual average 10.47 11.85 8.64 3.33
----------------------------------------------------------------------
--
Life of fund
(since 10/26/89) 68.81 64.97 58.18 21.18
----------------------------------------------------------------------
--
Annual average 9.80 9.35 8.53 3.49
----------------------------------------------------------------------
--
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C>
NAV MARKET PRICE
----------------------------------------------------------------------
--
6 months 7.76% 12.04%
----------------------------------------------------------------------
--
1 year 5.91 5.54
----------------------------------------------------------------------
--
5 years 60.54 67.85
Annual average 9.93 10.91
----------------------------------------------------------------------
--
Life of fund
(since 10/26/89) 66.86 66.58
----------------------------------------------------------------------
--
Annual average 9.43 9.40
----------------------------------------------------------------------
--
<FN>
Performance data represent past results and is no indication of future
results. Investment returns, net asset value and market value will
fluctuate so an investor's shares, when sold, may be worth more or
less than their original cost. Fund performance data do not take into
account any adjustment for taxes payable on reinvested distributions.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, the par value of the preferred shares and cumulative
undeclared dividends paid on the remarketed preferred shares, divided
by the number of outstanding common shares.
MARKET PRICE is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
the New York Stock Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed- rate investment-grade tax-exempt bonds representative of the
municipal bond market.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees or
taxes. Securities in the fund do not match those in the indexes and
performance of the fund will differ.
<PAGE>
A PUTNAM PERSPECTIVE ON RISK AND REWARD
YouOve probably been told how important it is to understand the
relationship between an investmentOs potential rewards and its
accompanying risks. Given the cautionary nature of such instructions,
it may take most investors a while to realize that risk has a positive
side.
EVERY RISK SIGNALS A POTENTIAL REWARD. Selecting only those
investments that offer the greatest degree of security generally leads
to only modest rewards. Furthermore, even insured or guaranteed
investments may be subject to changes in their rates of return or, in
some cases, in their principal values. Experienced investors know that
no investment is truly risk free and are therefore willing to take on
some measure of risk in order to increase their potential gains.
THE GREATER THE RISK, THE GREATER THE POTENTIAL REWARD. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to
A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fundOs holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income investors.
However, interest-rate increases can also have a substantial negative
effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation,
your money will begin to lose its purchasing power. Stock investments
are generally considered among the best ways of addressing inflation
risk over the long term.
<PAGE>
maximize your investmentOs return. How much risk? Your financial
advisorOs feedback and your time horizon can make all the difference
in determining how much risk is compatible with your investment goals
and your peace of mind.
FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? ItOs helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And
all income-oriented investors should consider interest-rate, credit,
and prepayment risks carefully.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
securityOs issuer will not be able to meet its payment, while
prepayment risk involves the premature payoff of a loan,
with a resulting loss of interest income. Professional management and
in-depth research are invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash
at their perceived market values. Liquidity risk can affect the price
of securities held in the fundOs portfolio and, thus, the fundOs share
prices.
THIS LIST COVERS ONLY THE MOST GENERAL TYPES OF RISKS; HOWEVER, EACH
INVESTMENT WILL ALSO HAVE ITS OWN SPECIFIC RISKS.
<PAGE>
Key to Abbrevations
COP--Certificate of Participation
IFB--Inverse Floating Rate Bonds
GO Bonds--General Obligation Bonds
VRB--Variable Rate Bond
VRDN--Variable Rate Demand Notes
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Corporation
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corporation
<TABLE><CAPTION>
<C> <S> <C> <C>
MUNICIPAL BONDS AND NOTES (97.4%)*
PRINCIPAL AMOUNT RATINGS** VALUE
ALABAMA (2.5%)
----------------------------------------------------------------------
--
$3,300,000 Alabama Agric. & Mechanical U.
Rev. Bonds AAA $ 3,180,000
MBIA, 6 1/2s, 11/1/25
5,500,000 Gadsden East, Med. Clinic Board
Rev. Bonds (Baptist Hosp. of Gadsden
Inc.), Ser. A, 7.8s, 11/1/21 BBB 6,483,125
------------
9,663,125
ARIZONA (1.1%)
----------------------------------------------------------------------
--
4,000,000 Gila Cnty., Indl. Dev. Auth. Rev.
Bonds (Asarco Inc. Project)
8.9s, 7/1/06 Baa 4,370,000
ARKANSAS (1.2%)
----------------------------------------------------------------------
--
4,285,000 Pope Cnty., Poll. Control Rev. Bonds
(Arkansas Pwr. & Lt. Co. Project),
11s, 12/1/15 Baa 4,483,181
CALIFORNIA (6.9%)
----------------------------------------------------------------------
--
9,300,000 CA State U. Rev. Bonds (Auxiliary
Facs.), Ser. C, 7s, 11/1/21 AAA 9,997,500
6,500,000 Los Angeles Cnty. COP (Correctional
Facs. Project), MBIA, 6 1/2s, 9/1/13 AAA 6,841,250
1,580,000 Los Angeles, Regl. Arpts. Impt. Corp.
Lease Rev. Bonds (Western Air Lines,
Inc.--Delta Air Lines, Inc.),
11 1/4s, 11/1/25 Ba 1,662,950
2,550,000 Orange Cnty. Pub. Fac. Corp. COP
7 7/8s, 12/1/13 (in default)+ BBB 2,610,563
5,000,000 U. of CA Rev. Bonds (USCD Med. Ctr.
Satellite Med. Fac.), 7.9s, 12/1/19 Baa 5,381,250
------------
26,493,513
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
COLORADO (8.7%)
----------------------------------------------------------------------
--
Denver, City & Cnty. Arpt. Rev. Bonds
$1,000,000 Ser. A, 8 3/4s, 11/15/23 Baa $ 1,152,500
4,775,000 Ser. A, 8 1/2s, 11/15/23 Baa 5,365,906
4,900,000 Ser. A, 8 1/4s, 11/15/12 Baa 5,451,250
5,200,000 Ser. A, 8s, 11/15/25 Baa 5,707,000
7,000,000 Ser. D, 7 3/4s, 11/15/21 Baa 7,507,500
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 3,397,500
4,800,000 Ser. D, 7s, 11/15/25 Baa 4,884,000
------------
33,465,656
FLORIDA (0.6%)
----------------------------------------------------------------------
--
2,000,000 Hernando Cnty., Indl. Dev. Rev.
Bonds (FL Crushed Stone Co.),
8 1/2s, 12/1/14 B/P 2,140,000
GEORGIA (1.3%)
----------------------------------------------------------------------
--
4,800,000 De Kalb Cnty., Muni. Hsg. Auth. Rev.
Bonds (Briarcliff Park Apts. Project),
Ser. A, 7 1/2s, 4/1/17 A/P 4,932,000
HAWAII (1.3%)
----------------------------------------------------------------------
--
4,500,000 HI State Dept. of Budget & Fin. Special
Purpose Mtge. IFB, 8 5/8s, 11/1/21 AAA 4,876,875
INDIANA (4.4%)
----------------------------------------------------------------------
--
1,000,000 Indiana Bond Bank Note (Special Loan
Program), Ser. B, 8 1/2s, 2/1/18 A 1,097,500
15,000,000 Marion Cnty., Ind. Hosp. Fac. Auth. Rev.
Bonds (St. Vincent Hosp.),
10 1/8s, 11/1/15 Aa 15,637,500
------------
16,735,000
LOUISIANA (6.0%)
----------------------------------------------------------------------
--
2,400,000 LA State Recvy. Dist. Sales Tax,
VRDN MBIA, 4 1/4s, 7/1/98 VMIGI 2,400,000
3,000,000 W. Feliciana Parish, Poll. Control
Variable Rate Rev. Bonds (Gulf States
Utils. Co.), Ser. D, 5.87s, 12/1/15 Aa 3,000,000
W. Feliciana Parish, Poll. Control Rev. Bonds
2,500,000 (Gulf States Utils. Co.), 8s, 12/1/24 Baa 2,656,250
3,000,000 (Gulf States Utils. Co.),
Ser. III, 7.7s, 12/1/14 Baa 3,195,000
5,100,000 (Gulf States Utils. Co.),
Ser. II, 7.7s, 12/1/14 BBB 5,431,500
6,000,000 (Gulf States Utils. Co.),
Ser. A, 7 1/2s, 5/1/15 BB 6,292,500
------------
22,975,250
MARYLAND (0.6%)
----------------------------------------------------------------------
--
2,000,000 MD State, Hlth. & Higher Edl. Facs.
Prerefunded Auth. Rev. Bonds
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12AAA 2,400,000
MASSACHUSETTS (12.6%)
----------------------------------------------------------------------
--
6,030,000 MA Muni Whls. Electric Co. Pwr.
Syst. Rev. Bonds Ser. B, 6 3/4s, 7/1/17 A 6,361,650
1,100,000 MA State VRDN Ser. A, 5.15s, 12/1/97VMIG1 1,100,000
16,500,000 MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds AMBAC, 6.55s, 6/23/22 AAA 17,737,500
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (continued)
----------------------------------------------------------------------
--
$5,000,000 MA State Indl. Fin. Agcy.
Prerefunded Rev. Bonds (Cape Cod
Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa $ 6,000,000
15,000,000 MA State Wtr. Resource Auth.
Prerefunded Rev. Bonds
Ser. A, 7 5/8s, 4/1/14 AAA 17,175,000
------------
48,374,150
MICHIGAN (4.1%)
----------------------------------------------------------------------
--
1,775,000 Detroit, Local Dev. Fin. Auth.
Rev Bonds Ser. A, 9 1/2s, 5/1/21 BBB/P 2,209,875
1,690,000 Highland Park, Fin. Auth. Hosp.
Fac. Rev. Bonds (MI Hlth. Care Corp.
Project), Ser. A, 9 3/4s, 12/1/06
(in default)+ B 676,000
3,000,000 MI State Strategic Fund Ltd. Oblig.
Rev. Bonds (Mercy Svcs. for Aging
Project), 9.4s, 5/15/20 BBB/P 3,210,000
6,635,000 Monroe Cnty., Poll. Control Rev.
Bonds (Detroit Edison Co.), Ser. A,
10 1/2s, 12/1/16 Baa 7,016,513
3,000,000 Pontiac, Hosp. Fin. Auth. Hosp. Rev.
Bonds (NOMC Obligation Group),
6s, 8/1/18 Baa 2,531,250
------------
15,643,638
MISSISSIPPI (1.5%)
----------------------------------------------------------------------
--
4,950,000 Claiborne Cnty., Poll. Control Rev.
Bonds (Middle South Energy, Inc.),
Ser. C, 9 7/8s, 12/1/14 BBB/P 5,680,125
MISSOURI (3.1%)
----------------------------------------------------------------------
--
2,500,000 MO State Hlth. & Edl. Fac. Rev.
Bonds (BJC Hlth. Syst.),
Ser. A, 6 1/2s, 5/15/20 AA 2,653,125
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge.
Rev. Bonds Rcpt. A-11, FSA,
7.1s, 1/1/30 AAA 9,311,625
------------
11,964,750
NEBRASKA (3.0%)
----------------------------------------------------------------------
--
2,600,000 NE Investment Fin. Auth. Single Fam.
Mtge. IFB Ser. B, GNMA Collateral,
10.557s, 3/15/22# AAA 2,941,250
8,090,000 NE Investment Fin. Auth. Single Fam.
Mtge. Rev. Bonds Ser. 1, MBIA,
8 1/8s, 8/15/38 AAA 8,494,500
------------
11,435,750
NEVADA (1.8%)
----------------------------------------------------------------------
--
6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds BB
(NV Pwr. Co. Project), 7.8s, 6/1/20 Baa 6,914,375
NEW YORK (7.7%)
----------------------------------------------------------------------
--
NY City, G.O. Bonds,
8,000,000 Ser. B, 7s, 6/1/16 A 8,420,000
6,150,000 Ser. B, 7s, 2/1/16 A 6,388,313
2,500,000 6.4s, 8/1/03 A 2,581,250
3,375,000 Ser. B, 7s, 10/1/13 A 3,514,219
1,865,000 NY City, Hsg. Dev. Corp. Multi-Fam.
Rev. Bonds Ser. 85-1, FHA insd.,
9 1/2s, 10/1/00 AA 1,927,944
NY City, VRDN
1,200,000 Sub. Ser. B4, 4 3/4s, 8/15/23 VMIG1 1,200,000
1,000,000 Ser. B, FGIC, 4 3/4s, 10/1/21 VMIGI 1,000,000
2,500,000 Ser. B, FGIC, 4 3/4s, 10/1/20 AAA/VMIGI 2,500,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW YORK (continued)
----------------------------------------------------------------------
--
$1,120,000 Riverton Hsg. Corp. Mtge. Rev.
Bonds (Conifer Genesee Apts.
Sect. 8), FHA insd., 10 1/2s, 1/15/25 A $ 1,177,400
1,000,000 United Nations Dev. Corp. Rev.
Bonds Ser. A, 6s, 7/1/26 A 1,010,000
------------
29,719,126
NORTH CAROLINA (0.8%)
----------------------------------------------------------------------
--
3,000,000 NC Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.), 7 1/2s, 1/1/17 A 3,165,000
OHIO (2.9%)
----------------------------------------------------------------------
--
OH State Air Quality Dev. Auth. Rev. Bonds
3,600,000 (Cincinnati Gas & Elec.),
10 1/8s, 12/1/15 Baa 3,784,500
5,000,000 (Cleveland Co. Project),
FGIC, 8s, 12/1/13 AAA 5,893,750
1,575,000 OH State Wtr. Dev. Auth. Poll.
Control Facs. Rev. Bonds (OH
Edison Co. Project), 10 5/8s, 7/1/15 Baa 1,628,156
------------
11,306,406
OKLAHOMA (0.9%)
----------------------------------------------------------------------
--
3,500,000 Tulsa, Muni. Arpt. Rev. Bonds
(American Airlines, Inc.),
7 3/8s, 12/1/20 Baa 3,626,875
PENNSYLVANIA (4.6%)
----------------------------------------------------------------------
--
3,615,000 Alleghney Cnty. Resc. Fin. Auth.
Mtge. Rev. Bonds (Single Fam.-GNMA
Mtge. Backed Secs.), GNMA Collateral,
Ser. M, 7.9s, 6/1/11 Aaa 3,822,863
5,000,000 Montgomery Cnty., Indl. Dev. Auth.
Rev. Bonds 7 1/2s, 1/1/12 A 5,293,750
7,600,000 PA State Higher Ed. Assistance Agcy.
IFB Ser. B, MBIA, 10.342s, 3/1/20 AAA 8,597,500
------------
17,714,113
SOUTH CAROLINA (1.9%)
----------------------------------------------------------------------
--
7,600,000 SC State Pub. Svcs. Auth. Rev. Bonds
Ser. A, MBIA, 5 1/2s, 7/1/21 AAA 7,258,000
TENNESSEE (3.0%)
----------------------------------------------------------------------
--
10,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge.
Rev. Bonds Rcpt. (Knoxville Hlth. &
Edl. Hsg.) A-10, FSA, 7 1/8s, 1/1/30 AAA 11,404,125
TEXAS (8.1%)
----------------------------------------------------------------------
--
2,000,000 Alliance Arpt. Auth. Inc. Texas
Special Fac. Rev. Bonds (American
Airlines, Inc. Project),
7 1/2s, 12/1/29 Baa 2,085,000
2,500,000 Bexar Cnty., Hlth. Fac. Dev. Corp.
Prefunded Rev. Bonds (St. Luke's
Lutheran Hospital Project),
7.9s, 5/1/11 AAA/P 2,987,500
2,300,000 Dallas Waterwks. & Swr. Syst. Rev.
Bonds 4 1/2s, 4/1/14 AA 1,978,000
5,250,000 Dallas-Fort Worth, Intl. Arpt.
Fac. Impt. Corp. Rev. Bonds
(American Airlines, Inc.)
7 1/2s, 11/1/25 Baa 5,519,061
16,000,000 North Central TX Hlth. Fac. Dev.
Corp. Rev. Bonds, MBIA,
6.547s, 6/15/21 AAA 16,640,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
TEXAS (continued)
----------------------------------------------------------------------
--
$2,000,000 Northeast Hosp. Auth. Rev. Bonds
(Northeast Med. Ctr. Hosp.),
Ser. B, 7 1/4s, 7/1/22 Baa $ 2,042,500
-------------
31,252,061
WASHINGTON (6.3%)
----------------------------------------------------------------------
--
16,325,000 King Cnty., G.O. Bonds MBIA,
6 1/8s, 1/1/33 AAA 16,467,844
1,000,000 Port Longview, Indl. Dev. Corp.
Rev. Bonds (Atlantic Richfield Co.),
10 3/4s, 9/1/12 A 1,028,750
6,075,000 WA State Pub. Pwr. Supply Syst. Rev.
Bonds (Nuclear Project No. 1),
Ser. A, 7 1/2s, 7/1/15 AA 6,583,781
------------
24,080,375
WEST VIRGINIA (0.5%)
----------------------------------------------------------------------
--
2,000,000 Marion Cnty., Cmnty. Solid Waste Disp.
Fac. Rev. Bonds (American Pwr. Paper
Recycling Project), 8 1/4s, 12/1/11 B/P 1,917,500
----------------------------------------------------------------------
--
TOTAL INVESTMENTS (cost $356,627,650)*** $373,990,969
----------------------------------------------------------------------
--
<FN>
* Percentages indicated are based on net assets of $383,514,242.
Net assets available to common shareholders are $243,450,570,
which correspond to a net asset value per common share of $12.08.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at May 31, 1995 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 May 31, 1995. Securities rated by
Putnam are indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax cost basis is
$356,866,566, resulting in gross unrealized appreciation and
depreciation of $19,809,759and $2,685,356, respectively, or net
unrealized appreciation of $17,124,403.
+ Non-income producing.
# This security was pledged to cover margin requirements for
futures contracts May 31, 1995. The market value of the
segregated security with the custodian for transactions on future
contracts is $2,941,250 or 0.7% of net assets.
The fund had the following insurance concentration greater than
10% of net assets at May 31,1995:
MBIA 18.2%
The fund had the following industry group concentrations greater
than 10% of net assets at May 31,1995:
Utilities 24.3%
Hospitals/Health Care 20.6
Transportation 12.7
Housing 11.5
The rates shown on IFBs, which are securities paying variable
interest rates that vary inversely to changes in the market
interest rates, VRBs and VRDN are the current interest rates at
May 31,1995 which are subject to change based on the terms of the
security.
</TABLE>
FUTURES CONTRACTS OUTSTANDING
AT MAY 31, 1995
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
TOTAL AGGREGATE EXPIRATION UNREALIZED
VALUE FACE VALUE DATE DEPRECIATION
----------------------------------------------------------------------
--
U.S. Treasury
Bond Futures
(Sell) $34,813,625 $32,862,000 June 95 ($1,951,625)
----------------------------------------------------------------------
--
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995 (Unaudited)
</TABLE>
<TABLE>
<S> <C>
ASSETS
----------------------------------------------------------------------
--
Investments in securities (identified cost
$356,627,650) (Note 1) $373,990,969
----------------------------------------------------------------------
--
Cash 4,177,747
----------------------------------------------------------------------
--
Receivable for securities sold 3,952,227
----------------------------------------------------------------------
--
Interest and other receivables 6,892,854
----------------------------------------------------------------------
--
TOTAL ASSETS 389,013,797
LIABILITIES
----------------------------------------------------------------------
--
Distributions payable to common shareholders 1,612,667
----------------------------------------------------------------------
--
Payable for securities purchased 3,088,229
----------------------------------------------------------------------
--
Payable for compensation of Manager (Note 3) 675,487
----------------------------------------------------------------------
--
Payable for administrative services (Note 3) 1,638
----------------------------------------------------------------------
--
Payable for compensation of Trustees (Note 3) 272
----------------------------------------------------------------------
--
Payable for investor servicing and custodian fees(Note 3) 40,875
----------------------------------------------------------------------
--
Payable for variation margin on short futures 28,875
----------------------------------------------------------------------
--
Other accrued expenses 51,512
----------------------------------------------------------------------
--
TOTAL LIABILITIES 5,499,555
----------------------------------------------------------------------
--
NET ASSETS $383,514,242
----------------------------------------------------------------------
--
REPRESENTED BY
----------------------------------------------------------------------
--
Series A remarketed preferred shares, without par
value; 2,000 shares authorized (1,400 shares issued
at $100,000 per share) (Note 2) $140,000,000
----------------------------------------------------------------------
--
Common shares, without par value; unlimited shares
authorized; 20,158,365 shares outstanding (Note 1) 222,419,556
----------------------------------------------------------------------
--
Undistributed net investment income (Note 1) 11,653,176
----------------------------------------------------------------------
--
Accumulated net realized loss on investments (Note 1) (5,970,184)
----------------------------------------------------------------------
--
Net unrealized appreciation of investments and
futures contracts 15,411,694
----------------------------------------------------------------------
--
NET ASSETS $383,514,242
----------------------------------------------------------------------
--
COMPUTATION OF NET ASSET VALUE
----------------------------------------------------------------------
--
Series A remarketed preferred shares $140,000,000
----------------------------------------------------------------------
--
Cumulative undeclared income dividends on Series A
remarketed preferred shares 63,672
----------------------------------------------------------------------
--
Net assets allocated to Series A remarketed preferred
shares at liquidation preference 140,063,672
----------------------------------------------------------------------
--
Net assets available to common shares: Net asset value
per share $12.08 ($243,450,570 divided by 20,158,365) 243,450,570
----------------------------------------------------------------------
--
NET ASSETS $383,514,242
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Six months ended May 31 1995 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $13,491,804
----------------------------------------------------------------------
--
EXPENSES:
----------------------------------------------------------------------
--
Compensation of Manager (Note 3) 1,304,418
----------------------------------------------------------------------
--
Investor servicing and custodian fees (Note 3) 82,411
----------------------------------------------------------------------
--
Compensation of Trustees (Note 3) 7,255
----------------------------------------------------------------------
--
Reports to shareholders 34,235
----------------------------------------------------------------------
--
Auditing 34,032
----------------------------------------------------------------------
--
Legal 8,444
----------------------------------------------------------------------
--
Postage 20,153
----------------------------------------------------------------------
--
Administrative services (Note 3) 5,483
----------------------------------------------------------------------
--
Preferred share remarketing agent fees 166,334
----------------------------------------------------------------------
--
Exchange listing fees 36,783
----------------------------------------------------------------------
--
Other expenses 3,502
----------------------------------------------------------------------
--
TOTAL EXPENSES 1,703,050
----------------------------------------------------------------------
--
NET INVESTMENT INCOME 11,788,754
----------------------------------------------------------------------
--
Net realized loss on investments (Notes 1 and 4) (852,809)
----------------------------------------------------------------------
--
Net realized loss on options written (Notes 1 and 4) (1,611,916)
----------------------------------------------------------------------
--
Net realized loss on future contracts (Notes 1 and 4) (1,806,983)
----------------------------------------------------------------------
--
Net unrealized appreciation of investments and futures contracts
during the period 22,349,380
----------------------------------------------------------------------
--
NET GAIN ON INVESTMENT TRANSACTIONS 18,077,672
----------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,866,426
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
MAY 31 NOVEMBER 30
--------------- ---------------
1995* 1994
----------------------------------------------------------------------
--
INCREASE (DECREASE) IN NET ASSETS
----------------------------------------------------------------------
--
Operations:
----------------------------------------------------------------------
--
Net investment income $11,788,754 $23,946,570
----------------------------------------------------------------------
--
Net realized loss on investments,
futures contracts and written options (4,271,708) (1,187,312)
----------------------------------------------------------------------
--
Net unrealized appreciation
(depreciation) of investments and
futures contracts during the period 22,349,380 (39,271,513)
----------------------------------------------------------------------
--
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 29,866,426 (16,512,255)
----------------------------------------------------------------------
--
Distributions to remarketed preferred shareholders:
----------------------------------------------------------------------
--
From net investment income (2,933,084) (3,886,607)
----------------------------------------------------------------------
--
From net realized gain on investments -- (79,242)
----------------------------------------------------------------------
--
In excess of realized gain -- (8,311)
----------------------------------------------------------------------
--
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS APPLICABLE
TO COMMON SHAREHOLDERS (excluding
cumulative undeclared income dividends
on remarketed preferred shares of
$63,672 and $29,535, respectively) 26,933,342 (20,486,415)
----------------------------------------------------------------------
--
Distributions to common shareholders:
----------------------------------------------------------------------
--
From net investment income (9,650,330) (19,335,095)
----------------------------------------------------------------------
--
From net realized gain on investments -- (4,109,912)
----------------------------------------------------------------------
--
In excess of realized gain -- (431,033)
----------------------------------------------------------------------
--
Increase from capital share transactions from issuance
of common shares 1,417,562 3,505,942
----------------------------------------------------------------------
--
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,700,574 (40,856,513)
NET ASSETS
----------------------------------------------------------------------
--
Beginning of period 364,813,668 405,670,181
----------------------------------------------------------------------
--
END OF PERIOD (including undistributed
net investment income of $11,653,176
and $12,447,836, respectively) $383,514,242 $364,813,668
----------------------------------------------------------------------
--
NUMBER OF FUND SHARES
----------------------------------------------------------------------
--
Common shares outstanding at
beginning of period 20,039,145 19,764,439
----------------------------------------------------------------------
--
Common shares issued in connection with
reinvestment of distributions 119,220 274,706
----------------------------------------------------------------------
--
COMMON SHARES OUSTANDING AT
END OF PERIOD 20,158,365 20,039,145
----------------------------------------------------------------------
--
REMARKETED PREFERRED SHARES OUTSTANDING
AT THE BEGINNING AND END OF PERIOD 1,400 1,400
----------------------------------------------------------------------
--
<FN>
* Unaudited.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
MAY 31 NOVEMBER 30
--------------- --------------
1995* 1994
----------------------------------------------------------------------
--
NET ASSET VALUE, BEGINNING OF PERIOD
(COMMON SHARES) $11.22 $13.44
----------------------------------------------------------------------
--
INVESTMENT OPERATIONS
Net investment income .59 1.20
----------------------------------------------------------------------
--
Net realized and unrealized gain
(loss) on investments .90 2.03
----------------------------------------------------------------------
--
TOTAL FROM INVESTMENT OPERATIONS 1.49 (.83)
----------------------------------------------------------------------
--
LESS DISTRIBUTIONS:
----------------------------------------------------------------------
--
From net investment income:
----------------------------------------------------------------------
--
to Common Shareholders (.48) (.97)
----------------------------------------------------------------------
--
to Preferred Shareholders (.15) (.19)
----------------------------------------------------------------------
--
From net realized gain on investments
----------------------------------------------------------------------
--
to Common Shareholders -- (.21)
----------------------------------------------------------------------
--
to Preferred Shareholders -- --
----------------------------------------------------------------------
--
In excess of realized gains
----------------------------------------------------------------------
--
to Common Shareholders -- (.02)
----------------------------------------------------------------------
--
to Preferred Shareholders -- --
----------------------------------------------------------------------
--
TOTAL DISTRIBUTIONS (.63) (1.39)
----------------------------------------------------------------------
--
Preferred shares offering costs -- --
----------------------------------------------------------------------
--
NET ASSET VALUE, END OF PERIOD
(common shares) $12.08 $11.22
----------------------------------------------------------------------
--
MARKET VALUE, END OF PERIOD
(common shares) $12.75 $11.88
----------------------------------------------------------------------
--
TOTAL INVESTMENT RETURN AT MARKET PRICE
(common shares) (%)(a) 11.73(c) (6.74)
----------------------------------------------------------------------
--
NET ASSETS, END OF PERIOD
(total fund) (in thousands) $383,514 $364,814
----------------------------------------------------------------------
--
Ratio of expenses to average
net assets (%)(b) .72(c) 1.45
----------------------------------------------------------------------
--
Ratio of net investment income to
average net assets (%)(b) 3.72(c) 8.07
----------------------------------------------------------------------
--
Portfolio turnover (%) 73.44(c) 78.97
----------------------------------------------------------------------
--
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
YEAR ENDED NOVEMBER 30
----------------------------------------------------------------------
--
1993 1992 1991 1990
----------------------------------------------------------------------
--
$12.36 $11.51 $11.03 $11.19
----------------------------------------------------------------------
--
1.32 1.35 1.27 1.14
----------------------------------------------------------------------
--
.91 .65 .43 (.08)
----------------------------------------------------------------------
--
2.23 2.00 1.70 1.06
----------------------------------------------------------------------
--
----------------------------------------------------------------------
--
----------------------------------------------------------------------
--
(.96) (.91) (.89) (.87)
----------------------------------------------------------------------
--
(.16) (.24) (.29) (.23)
----------------------------------------------------------------------
--
----------------------------------------------------------------------
--
-- -- -- (.01)
----------------------------------------------------------------------
--
(.03) -- -- --
----------------------------------------------------------------------
--
----------------------------------------------------------------------
--
-- -- -- --
----------------------------------------------------------------------
--
-- -- -- --
----------------------------------------------------------------------
--
(1.15) (1.15) (1.18) (1.11)
----------------------------------------------------------------------
--
-- -- (.04) (.11)
----------------------------------------------------------------------
--
$13.44 $12.36 $11.51 $11.03
----------------------------------------------------------------------
--
$14.00 $13.25 $11.88 $11.25
----------------------------------------------------------------------
--
13.54 20.24 14.23 2.58
----------------------------------------------------------------------
--
$405,670 $381,681 $362,974 $311,731
----------------------------------------------------------------------
--
1.40 1.45 1.46 1.21
----------------------------------------------------------------------
--
8.59 9.20 8.70 8.29
----------------------------------------------------------------------
--
33.73 44.39 72.49 89.65
----------------------------------------------------------------------
--
<FN>
* Unaudited.
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for distributions
to preferred shareholders.
(c) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company.
The fund's investment objective is to provide as high a level of
current income exempt from federal income tax as is believed to be
consistent with preservation of capital. The fund intends to achieve
its objective by investing in a diversified portfolio of tax-exempt
municipal securities that Putnam Investment Management, Inc., ("Putnam
Management") the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc., believes do not involve undue risk to income or
principal. Under normal market conditions, the fund will invest at
least 80% of its total assets in tax-exempt municipal securities rated
"investment grade" at the time of investment or, if not rated,
determined by the fund's Manager to be of comparable quality.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value.
Short term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market value, and
other investments including restricted securities are stated at fair
market value following procedures approved by the Trustees.
B DETERMINATION OF NET ASSET VALUE Net asset value of the common
shares is determined by dividing the value of all assets of the fund
(including accrued interest and dividends), less all liabilities
(including accrued expenses), and the liquidation value of any
outstanding remarketed preferred shares, by the total number of common
shares outstanding.
C SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis.
D FUTURES The fund may purchase and sell financial futures contracts
to hedge against changes in the values of tax-exempt municipal
securities the fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of a U.S. Government
security at a set price on a future date.
Upon entering into such a contract the fund is required to pledge to
the broker an amount of cash or securities equal to the minimum
"initial margin" requirements of the futures. Pursuant to the
contract, the fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as "variation margin"
and are recorded by the fund as unrealized gains or
<PAGE>
losses. 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.
The potential risk to the fund is that the change in value of futures
contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in value of the
hedged instruments. In addition, there is a risk that the fund may not
be able to close out its futures positions due to an illiquid
secondary market.
E OPTION ACCOUNTING PRINCIPLES The fund may, to the extent
consistent with its investment objective and policies, seek to
increase its current returns by writing covered call and put options
on securities it owns or in which it may invest. When a fund writes a
call or put option, an amount equal to the premium received by the
fund is included in the fund's "Statement of assets and liabilities"
as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to- market" to reflect the current market
value of an option written. The current market value of an option is
the last sale price or, in the absence of a sale, the last offering
price. If an option expires on its stipulated expiration date, or if
the fund enters into a closing purchase transaction, the fund realizes
a gain (or loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written call option is
exercised, the fund realizes a gain or loss from the sale of the
underlying security and the proceeds of the sale are increased by the
premium originally received. If a written put option is exercised, the
amount of the premium originally received reduces the cost of the
security that the fund purchases upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the
opportunity to profit if the market price of the underlying security
increases and the option is exercised. In writing a put option, the
fund assumes the risk of incurring a loss if the market price of the
underlying security decreases and the option is exercised. In
addition, there is the risk the fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment
objectives and policies, buy put options to protect its portfolio
holdings in an underlying security against a decline in market value.
The fund may buy call options to hedge against an increase in the
price of the securities that the fund ultimately wants to buy. These
funds may also buy and sell combinations of put and call options on
the same underlying security to earn additional income. The premium
paid by a fund for the purchase of a put or call option is included in
the
<PAGE>
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of
the option. If an option the fund has purchased expires on the
stipulated expiration date, the fund realizes a loss in the amount of
the cost of the option. If the fund enters into a closing sale
transaction, the fund realizes a gain or loss, depending on whether
proceeds from the closing sale transaction are greater or less than
the cost of the option. If the fund exercises a call option, the cost
of securities acquired by exercising the call is increased by the
premium paid to buy the call. If the fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security and
the proceeds from such sale are decreased by the premium originally
paid. The risk associated with purchasing options is limited to the
premium originally paid.
F FEDERAL TAXES It is the policy of the fund to distribute all of
its income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation of securities held and excise tax on income
and capital gains.
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to common and
preferred shareholders are recorded by the fund on the ex-dividend
date. Dividends on remarketed preferred shares become payable, when,
as and if declared by the Trustees. Each dividend period for the
remarketed preferred shares is generally a 7-day period. The
applicable dividend rate for the remarketed preferred shares on May
31, 1995 was 2.32%.
The 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 may include market
discount and amortization of organization costs. 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.
H AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting
from the purchase of securities in excess of maturity value is
amortized on a yield-to maturity basis. Discount on zero-coupon bonds
is accreted according to the effective yield method.
<PAGE>
NOTE 2
REMARKETED PREFERRED SHARES
The Series A Remarketed Preferred ("RP") shares are redeemable at the
option of the fund on any dividend payment date at a redemption price
of $100,000 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. Additionally, the fund has authorized a
separate series of 2,000 Serial Remarketed Preferred shares, which are
issuable only under certain conditions in exchange for Series
A RP shares. No Serial Remarketed Preferred shares are currently
outstanding.
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, as amended. To the extent that the fund
earned taxable income and taxable gains by the conclusion of a fiscal
year, it is required to apportion to holders
of the remarketed preferred shares throughout the year additional
dividends as necessary to result in an after-tax yield 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 the
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 May 31, 1995, there were no such restrictions on
the fund.
<PAGE>
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average net assets of
the fund, including those allocated to the remarketed preferred
shares. Such fee is based on the annual rate of 0.70% of the 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 net 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 also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $860 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Manager and who serve on committees of
the Trustees receive additional fees for attendance at certain
committee meetings.
Custodial functions are provided to the fund by Putnam Fiduciary Trust
Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions for the fund's common shares are
being provided by PFTC.
Investor servicing and custodian fees reported in the Statement of
operations have been reduced by credits allowed by PFTC.
<PAGE>
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the six months ended May 31, 1995, purchases and sales of
investment securities other than short- term municipal obligations
aggregated $261,923,644 and $273,356,309, respectively. In determining
the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
The following is a summary of written options activity during the
period:
<TABLE><CAPTION>
<S> <C> <C>
CONTRACT PREMIUM
AMOUNT RECEIVED
----------------------------------------------------------------------
--
Contracts open at beginning of period $ -- $ --
Options written 322,700,000 6,313,744
----------------------------------------------------------------------
--
Options expired (322,700,000) (6,313,744)
----------------------------------------------------------------------
--
OPTIONS OUTSTANDING AT END OF PERIOD $ -- $ --
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
SELECTED QUARTERLY DATA
(Unaudited)
<TABLE><CAPTION>
AVAILABLE FOR COMMON SHAREHOLDERS
----------------------------------------------------------------------
--
INVESTMENT INCOME NET INVESTMENT INCOME
----------------------------------------------------------------------
--
QUARTER ENDED TOTAL PER SHARE TOTAL PER SHARE
----------------------------------------------------------------------
--
2/28/93 $7,410,737 $.38 $5,637,773 $.29
5/31/93 $7,460,790 $.37 $5,679,969 $.28
8/31/93 $7,412,198 $.38 $5,650,335 $.29
11/30/93 $7,299,845 $.37 $5,266,270 $.27
2/28/94 $7,111,996 $.35 $5,495,212 $.27
5/31/94 $6,855,768 $.35 $5,062,217 $.26
8/31/94 $6,585,179 $.34 $4,650,396 $.24
11/30/94 $6,977,508 $.33 $4,852,138 $.24
2/28/95 $6,674,323 $.33 $4,383,933 $.22
5/31/95 $6,817,481 $.34 $4,437,600 $.22
----------------------------------------------------------------------
--
<PAGE>
SELECTED QUARTERLY DATA (continued)
<C> <C> <C> <C> <C> <C>
AVAILABLE FOR COMMON SHAREHOLDERS
----------------------------------------------------------------------
--
NET REALIZED NET INCREASE
AND UNREALIZED (DECREASE) NET ASSETS
GAIN (LOSS) IN NET ASSETS AT END OF
ON INVESTMENTS FROM OPERATIONS PERIOD
----------------------------------------------------------------------
--
TOTAL PER SHARE TOTALPER SHARE TOTAL PER SHARE
----------------------------------------------------------------------
--
$16,683,112 $.84 $22,320,885 $1.13 $259,927,102 $13.25
$(4,510,500) $(.22) $1,169,469 $.06 $257,065,067 $13.07
$9,372,959 $.48 $15,023,294 $.77 $268,053,202 $13.60
$(3,629,890) $(.19) $1,636,380 $.08 $265,629,948 $13.44
$(3,137,847) $(.15) $2,357,365 $.12 $259,982,643 $13.08
$(16,604,981) $(.84)$(11,630,317) $(.58) $244,275,694 $12.26
$616,807 $.02 $5,267,203 $.26 $245,458,624 $12.28
$(21,330,357) $(1.06)$(16,480,666) $(.82) $224,784,133 $11.22
$15,132,946 $.75 $19,516,879 $.97 $240,190,811 $11.95
$2,944,726 $.15 $7,382,326 $.37 $243,450,570 $12.08
----------------------------------------------------------------------
--
</TABLE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary Coburn
Vice President
James E. Erickson
Vice President
Michael F. Bouscaren
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
<PAGE>
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m., Eastern Time for
up-to-date information about the fund's NAV or to request Putnam's
quarterly Closed-End Fund Commentary.
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
18993-058
<PAGE>
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numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
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