PUTNAM
INVESTMENT
GRADE
MUNICIPAL TRUST
ANNUAL REPORT
November 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
FUND HIGHLIGHTS
"Munis offer unusually attractive yields right now because of
unwarranted fears that a flat-rate income tax will end the tax
advantage they have over taxable bonds."
-- Kiplinger's Personal Finance Magazine, December 1995
"The bond market rally has been surprisingly strong, particularly when
you take into account the psychological and market conditions that
existed just one year ago. Shareholders have benefited from the rally
and from our ability to seize market opportunities."
-- Michael F. Bouscaren, Fund Manager,
Putnam Investment Grade Municipal Trust
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
11 Portfolio holdings
17 Financial statements
<PAGE>
FROM THE CHAIRMAN:
DEAR SHAREHOLDER:
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
TAX-EXEMPT BOND INVESTORS WILL LONG REMEMBER 1995 AS A YEAR OF HIGHS
AND LOWS IN THE MARKET. THE YEAR BEGAN AS THE BOND MARKET WAS COMING
OFF ONE OF ITS WORST PERIODS IN RECENT MEMORY. JUST AS THINGS BEGAN TO
LOOK BRIGHTER FOR TAX-EXEMPT BONDS, TALK IN WASHINGTON ABOUT A FLAT
TAX SPARKED A WAVE OF UNCERTAINTY AMONG INVESTORS.
CONCERNED THAT SUCH A TAX WOULD ELIMINATE THE FEDERAL INCOME TAX
ADVANTAGE OF MUNICIPAL BONDS, THEY STAYED AWAY FROM THE MARKET IN
DROVES. INSTEAD, MICHAEL BOUSCAREN, PUTNAM INVESTMENT GRADE MUNICIPAL
TRUST'S MANAGER, TOOK ADVANTAGE OF IT BY LOCKING IN GAINS AND
ACQUIRING NEW HOLDINGS AT ATTRACTIVE PRICES.
BY SPRING, INVESTORS HAD BEGUN TO REGAIN THEIR COMPOSURE AS THEY
REALIZED HOW REMOTE PASSAGE OF ANY TAX-REFORM LEGISLATION ACTUALLY WAS
DURING AN ELECTION YEAR. AS THE FUND CLOSED ITS FISCAL YEAR ON
NOVEMBER 30, 1995, THE MARKET WAS ON A SOLID UPWARD PATH AGAIN.
HOWEVER, BECAUSE OF THE INTERRUPTION OVER THE FLAT-TAX PROPOSALS, MIKE
BELIEVES FURTHER GROUND WILL BE REGAINED IN FISCAL 1996. HIS REPORT,
WHICH FOLLOWS, PROVIDES MORE DETAILS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 17, 1996
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL F. BOUSCAREN
Over the 12-month period encompassing Putnam Investment Grade
Municipal Trust's fiscal year, the bond market experienced both
historic highs and historic lows. In fact, one of the most severe
market downturns on record and one of the strongest rallies ever both
took place in the first six months of fiscal 1995. For the 12-month
period ended November 30, 1995, the fund's common shares provided a
total return of 19.23% at net asset value (NAV), or 22.95% at market
price.
RELATIVE VALUE IN THE MUNICIPAL-BOND MARKET
This year's municipal-bond market strength was sparked mainly by an
increase in demand for municipal-bond mutual funds. Mutual funds,
which are considered to be the fastest-growing segment of the
municipal-bond market, controlled more than 17% of existing municipal
bonds at the end of the fiscal period. This increase in demand was
complemented by what continues to be the ongoing decline in municipal-
bond issuance; as of November 30, 1995, it was down 22% from 1994
levels.
Municipal bonds continue to offer attractive relative value. Most high-
grade bonds currently yield about 90% of comparable U.S. Treasury
bonds. Municipal bonds are generally considered attractive when they
yield above 82% of taxable securities with similar duration.
FLAT-TAX CONCERNS CREATE OPPORTUNITIES
Investors' fears of the effects of the flat-tax proposal being
considered by certain members of Congress jarred the municipal-bond
market out of its dramatic recovery. After an eye-popping rally in the
first quarter of calendar 1995, municipal-bond performance began to
diverge sharply from the performance of other fixed-income securities.
A flat tax in its purest form would deprive municipal bonds of their
advantage as tax-exempt investments.
In our opinion, the market reacted to the perceived effects of the
flat-tax rhetoric and not to hard facts. By May, investors
<PAGE>
were starting to look beyond the flat tax to the likelihood of a more
broad-based income tax revision in the distant future. In fact, we
believe the short-term downturn in the market was not grounded in
reality and that it actually created opportunities.
We believe, moving into the presidential election year of 1996, the
flat-tax proposals cannot garner enough popular appeal to become a
crucial issue in the election.
Flat-tax rhetoric may continue to hinder the market's progress over
the near term. Looking farther ahead, however, we believe investors
will recognize the relative value of municipal bonds, especially as
alternative investments become regarded as overvalued and if the
economic environment remains favorable for bonds.
SHREWD SECTOR SELECTION: AIRLINES SOAR
Many of the sectors that suffered most during the poor market
conditions of 1994 recovered dramatically during calendar 1995. Thanks
to our intensive credit research, the fund was able to benefit from a
sharp rebound in the airline and airport sectors. Contrary to popular
opinion at the time, our analysis indicated that by late 1994, years
of cost cutting and industry consolidation had sown the seeds for
improved stability and healthier financial conditions among airline
companies.
TOP INDUSTRY SECTORS*
[BAR CHART]
- ----------------------------------------------------------------------
Utilities 20.6%
Hospitals/Health care 15.8%
Transportation 13.6%
Housing 10.8%
- ----------------------------------------------------------------------
*Based on net assets as of 11/30/95. Holdings will vary over time.
<PAGE>
Consequently, despite the market's less-than-favorable perceptions of
this sector, we selectively added to the fund's holdings of municipal
bonds issued on behalf of airlines.
The strategy proved worthwhile. As investors recognized the improving
fundamentals of the airline business, demand for these high-yielding,
relatively liquid issues soared. Prices on airline-backed bonds have
appreciated dramatically since the beginning of calendar 1995,
producing double-digit returns for the fund.
The generous income and favorable call protection offered by the bonds
of Denver International Airport explain why it remains a holding of
your fund. After the facility opened last February, these bonds
continued their price appreciation. As an added bonus, Denver
International Airport bonds were recently upgraded by Standard &
Poor's, a nationally recognized rating agency.
We also expect to make gradual shifts in emphasis to bonds in states
that show more robust economic activity. We are looking for
opportunities to increase exposure to general obligation bonds in
California, where the economy is recovering faster than nearly
anywhere else, as well as in Texas and Florida.
OUTLOOK FOR MUNICIPALS CONSTRUCTIVE
Moderate but stable economic growth and relatively low inflation bode
well for fixed-income investing. Careful bond selection and credit
analysis will remain of supreme importance as we continue our efforts
to seek to provide shareholders with attractive tax-free income and
favorable total returns.
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 11/30/95, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
PERFORMANCE SHOULD ALWAYS BE CONSIDERED IN LIGHT OF A FUND'S
INVESTMENT STRATEGY. PUTNAM INVESTMENT GRADE MUNICIPAL TRUST IS
DESIGNED FOR INVESTORS SEEKING HIGH CURRENT INCOME, FREE FROM FEDERAL
INCOME TAX AND CONSISTENT WITH PRESERVATION OF CAPITAL.
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 in 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 11/30/95
<TABLE><CAPTION>
<S> <C> <C>
NAV MARKET PRICE
- ----------------------------------------------------------------------
1 year 19.23% 22.95%
- ----------------------------------------------------------------------
5 years 67.12 78.82
Annual average 10.82 12.33
- ----------------------------------------------------------------------
Life of fund
(since 10/26/89) 79.65 81.53
Annual average 10.08 10.27
- ----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/95
LEHMAN BROS.
MUNICIPAL CONSUMER
BOND INDEX PRICE INDEX
- ----------------------------------------------------------------------
1 year 18.90% 2.61%
- ----------------------------------------------------------------------
5 years 51.82 14.80
Annual average 8.71 2.80
- ----------------------------------------------------------------------
Life of fund
(since 10/26/89) 66.37 22.29
Annual average 8.70 3.35
- ----------------------------------------------------------------------
<FN>
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset
value and market price will fluctuate so that an investor's shares,
when sold, may be worth more or less than their original cost.
</TABLE>
<PAGE>
PRICE AND DISTRIBUTION INFORMATION
(12 months ended 11/30/95)
<TABLE><CAPTION>
<S> <C> <C>
NAV
- ----------------------------------------------------------------------
Distributions (number) 12
- ----------------------------------------------------------------------
(Common shares)
Income $0.96
- ----------------------------------------------------------------------
TOTAL $0.96
- ----------------------------------------------------------------------
(Preferred shares) Series A (1,400 shares)
- ----------------------------------------------------------------------
Income $3,931.82
- ----------------------------------------------------------------------
Capital gains(1)
Long-term --
Short-term $76.83
- ----------------------------------------------------------------------
TOTAL $76.83
- ----------------------------------------------------------------------
SHARE VALUE: (COMMON SHARES) NAV MARKET PRICE
- ----------------------------------------------------------------------
11/30/94 $11.22 $11.875
- ----------------------------------------------------------------------
11/30/95 12.37 13.500
- ----------------------------------------------------------------------
CURRENT RETURN: (Common shares)
End of period
- ----------------------------------------------------------------------
Current dividend rate(2) 7.76% 7.11%
Taxable equivalent(3) 12.85 11.77
- ----------------------------------------------------------------------
<FN>
(1)Capital gains are taxable for federal and, in most cases, state tax
purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject
to state and local taxes. (2)Income portion of most recent
distribution, annualized and divided by NAV or market price at end of
period. (3)Assumes maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
NAV MARKET PRICE
- ----------------------------------------------------------------------
1 year 16.78% 23.22%
- ----------------------------------------------------------------------
5 years 68.15 83.34
Annual average 10.95 12.89
- ----------------------------------------------------------------------
Life of fund
(since 10/26/89) 80.81 83.21
Annual average 10.06 10.29
- ----------------------------------------------------------------------
<FN>
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset
value and market price will fluctuate so that an investor's shares,
when sold, may be worth more or less than their original cost.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of the fund's assets, minus any
liabilities, the liquidation preference 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. The index is not leveraged and does not take
into account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks than
the fund. It is not possible to invest directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended November 30, 1995
To the Trustees and Shareholders of
Putnam Investment Grade Municipal Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related
statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Putnam Investment Grade Municipal Trust ("the
fund") at November 30, 1995, and the results of its operations, the
changes in its net assets, and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
November 30, 1995 by correspondence with the custodian and brokers and
the application of alternative auditing procedures where confirmations
from brokers were not received, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 16, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1995
KEY TO ABBREVIATIONS
AMBAC -AMBAC Indemnity Corporation
COP -Certificate of Participation
FGIC -Federal Guaranty Insurance Company
FHA Insd. -Federal Housing Administration Insured
FSA -Financial Security Assurance
GNMA Coll. -Government National Mortgage Association Collateralized
G.O. Bonds -General Obligation Bonds
IFB -Inverse Floating Rate Bonds
MBIA -Municipal Bond Investors Assurance Corporation
VRDN -Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (97.9%)*
PRINCIPAL AMOUNT RATINGS **VALUE
<TABLE><CAPTION>
<C> <S> <C> <C>
ALABAMA (2.5%)
- ----------------------------------------------------------------------
$3,000,000 Alabama Agric. & Mechanical U. Rev.
Bonds, MBIA, 6 1/2s, 11/1/25 AAA $3,255,000
5,500,000 Gadsden East, Med. Clinic Board
Rev. Bonds (Baptist Hosp. of Gadsden Inc.),
Ser. A, 7.8s, 11/1/21 AAA 6,531,250
ARIZONA (1.1%)
- ----------------------------------------------------------------------
4,000,000 Gila Cnty., Indl. Dev. Auth. Poll
Control Rev. Bonds (Asarco Inc. Project),
Ser. 85, 8.9s, 7/1/06 Baa 4,355,000
----------
9,786,250
ARKANSAS (1.1%)
- ----------------------------------------------------------------------
4,285,000 Pope Cnty., Poll. Control Rev. Bonds
(Arkansas Pwr. & Lt. Co. Project), 11s,
12/1/15 Baa 4,370,700
CALIFORNIA (5.5%)
- ----------------------------------------------------------------------
1,000,000 CA Poll. Control Fin. Auth. VRDN
(Shell Oil Co. Project), Ser. C, 3.45s,
11/1/00 VMIGI 1,000,000
4,650,000 CA State U. IFB, AMBAC, 9.419s,
11/1/21 (aquired from 8/5/91 to 8/31/94,
cost $4,659,603)++ AAA 5,754,375
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 1,666,331
2,550,000 Orange Cnty., Pub. Fac. Corp.
COP (Solid Waste Management), 7 7/8s,
12/1/13 (Chapter 9) BBB 2,610,562
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS **VALUE
CALIFORNIA (continued)
- ----------------------------------------------------------------------
$5,000,000 Orange Cnty., Recv. Rev. Bonds,
Ser. A, MBIA, 5 3/4s, 6/1/15 AAA $5,050,000
5,000,000 U. of CA Rev. Bonds (USCD Med. Ctr.
Satellite Med. Fac.), 7.9s, 12/1/19
(aquired 3/2/92, cost $5,229,150)++ Baa 5,443,750
----------
21,525,018
COLORADO (9.6%)
- ----------------------------------------------------------------------
3,000,000 Arapahoe Cnty., Cap. Impt Tr. Fund
Hwy. Rev. Bonds, Ser E-470, 7s, 8/31/26 Baa 3,236,250
Denver, City & Cnty. Arpt. Rev. Bonds
1,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 1,172,500
4,775,000 Ser. A, 8 1/2s, 11/15/23 Baa 5,443,500
4,900,000 Ser. A, 8 1/4s, 11/15/12 Baa 5,530,875
5,200,000 Ser. A, 8s, 11/15/25 Baa 5,824,000
7,000,000 Ser. D, 7 3/4s, 11/15/21 Baa 7,822,500
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 3,652,500
4,800,000 Ser. D, 7s, 11/15/25 Baa 5,004,000
----------
37,686,125
CONNECTICUT (1.9%)
- ----------------------------------------------------------------------
5,100,000 CT State Hlth. & Edl. Facs.
Auth. IFB (Yale U.), 7.671s, 6/10/30 AAA 5,399,625
2,000,000 CT State Res. Recv. Auth. Muni.
Rev. Bonds (Bridgeport Service Fee),
Ser. A, 7 1/2s, 1/1/09 A 2,140,380
----------
7,540,005
FLORIDA (0.6%)
- ----------------------------------------------------------------------
2,000,000 Hernando Cnty., Indl. Dev. Rev.
Bonds (FL Crushed Stone Co.), 8 1/2s,
12/1/14 B/P 2,210,000
GEORGIA (2.5%)
- ----------------------------------------------------------------------
4,000,000 Burke Cnty., Dev. Auth. Control Rev.
Bonds (Oglethorpe Pwr. Co. Vogtle Proj.),
MBIA, 8s, 1/1/22 AAA 4,830,000
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 4,980,000
----------
9,810,000
HAWAII (1.3%)
- ----------------------------------------------------------------------
4,500,000 HI State Dept. of Budget & Fin. Special
Purpose Mtge. IFB, 9.031s, 11/1/21 AAA 5,011,875
INDIANA (0.3%)
- ----------------------------------------------------------------------
1,000,000 Indiana Bond Bank Note (Special Loan Program),
Ser. B, 8 1/2s, 2/1/18 A 1,090,000
KANSAS (1.5%)
- ----------------------------------------------------------------------
5,000,000 Burlington Poll. Control Rev. Bonds
(Kansas Gas & Electric Co. Project),
MBIA, 7s, 6/1/31 AAA 5,631,250
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS **VALUE
LOUISIANA (7.2%)
- ----------------------------------------------------------------------
$1,000,000 LA State Recvy. Dist. Sales Tax, VRDN,
FGIC, 3.85s, 7/1/97 VMIGI $1,000,000
3,400,000 New Orleans G.O. Bonds, AMBAC, 6 1/8s,
10/1/16 AAA 3,565,750
5,000,000 St. Charles Parish, Poll. Control Rev.
Bonds (LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 5,543,750
W. Feliciana Parish, Poll. Control Rev.
Bonds (Gulf States Utils. Co.)
2,500,000 8s, 12/1/24 Ba 2,715,625
3,000,000 Ser. III, 7.7s, 12/1/14 Ba 3,300,000
5,100,000 7.7s, 12/1/14 BB 5,610,000
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB 6,525,000
------------
28,260,125
MARYLAND (0.6%)
- ----------------------------------------------------------------------
2,000,000 MD State, Hlth. & Higher Edl. Facs.
Auth. Rev. Bonds (Doctors Cmnty. Hosp.),
8 3/4s, 7/1/12 AAA 2,400,000
MASSACHUSETTS (10.8%)
- ----------------------------------------------------------------------
1,000,000 MA State G.O. VRDN, Ser. E, 3 3/4s,
12/1/97 VMIGI 1,000,000
16,500,000 MA State Hlth. & Edl. Fac. Auth. Rev.
Bonds, AMBAC, 6.55s, 6/23/22 AAA 18,026,250
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Cape Cod Hlth. Syst. Issue), 8 1/2s,
11/15/20 Aaa 6,012,500
15,000,000 MA State Wtr. Resource Auth. Rev. Bonds,
Ser. A, 7 5/8s, 4/1/14 AAA 17,231,250
------------
42,270,000
MICHIGAN (3.2%)
- ----------------------------------------------------------------------
1,000,000 Cornell Township, Econ. Dev. Corp. VRDN
(Escabana Paper Co.), 3.8s, 11/1/16 A 1,000,000
1,775,000 Detroit, Loc. Dev. Fin. Auth. Tax
Increment Rev. Bonds, Ser. A, 9 1/2s,
5/1/21 BBB/P 2,218,750
2,250,000 Greater Detroit Resource Recvy. Auth.
Rev. Bonds, Ser. G, 9 1/4s, 12/13/08 BBB 2,319,345
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)+ Caa 642,200
3,000,000 MI State Strategic Fund Ltd. Oblig.
Rev. Bonds (Mercy Svcs. for Aging Project),
9.4s, 5/15/20 BBB/P 3,360,000
3,000,000 MI, Strategic Fund Poll. Control Rev. Bonds
(General Motors Corp.), 6.2s, 9/1/20 A 3,101,250
------------
12,641,545
MISSISSIPPI (4.1%)
- ----------------------------------------------------------------------
4,950,000 Claiborne Cnty., Poll. Control Rev.
Bonds (Middle South Energy, Inc.), Ser. C,
9 7/8s, 12/1/14 BBB/P 5,742,000
10,000,000 Jackson Cnty. Poll. Control Rev. Bonds
(Gulf Pwr. Co. Project), 7 1/8s, 4/1/21 A 10,271,700
------------
16,013,700
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MISSOURI (0.7%)
- ----------------------------------------------------------------------
$2,500,000 MO State Hlth. & Edl. Fac. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 AA$2,715,625
MONTANA (2.4%)
- ----------------------------------------------------------------------
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge.
Rev. Bonds (Whispering Lake Project),
Ser. A-11, FSA,
7.1s, 1/1/30 AAA 9,422,875
NEBRASKA (2.8%)
- ----------------------------------------------------------------------
2,500,000 NE Investment Fin. Auth. Single Fam.
Mtge. IFB Ser. B, GNMA Coll., 10.892s,
3/15/22 AAA 2,909,375
7,665,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, MBIA, 8 1/8s, 8/15/38 AAA 8,048,250
------------
10,957,625
NEVADA (5.8%)
- ----------------------------------------------------------------------
6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds
(NV Pwr. Co. Project), 7.8s, 6/1/20 Baa 7,003,750
16,000,000 Nevada State #49 & 50 G.O. Bonds, FGIC,
5 1/2s, 11/1/25 AAA 15,800,000
------------
22,803,750
NEW YORK (3.2%)
- ----------------------------------------------------------------------
2,000,000 NY City, Muni. Wtr. Fin. Auth. VRDN,
Ser. G, FGIC, 3.7s, 6/15/24 A 2,000,000
5,720,000 NY State Dorm. Auth. Rev. Bonds
(U. Syst. Construction), Ser. A,
5 5/8s, 7/1/16 BBB 5,648,500
2,450,000 NY State Energy Research. & Dev. Auth.
Elec. Facs. Rev. Bonds (Cons. Edison Co.
Project), Ser. A, 7 3/4s, 1/1/24 A 2,642,938
1,120,000 Riverton Hsg. Corp. Mtge. Rev. Bonds
(Conifer Genesee Apts. Sect. 8), FHA Insd.,
10 1/2s, 1/15/25 A 1,167,477
1,000,000 United Nations Dev. Corp. Rev. Bonds,
Ser. A, 6s, 7/1/26 A 1,036,250
------------
12,495,165
OHIO (2.4%)
- ----------------------------------------------------------------------
5,000,000 OH State Air Quality Dev. Auth. Rev.
Bonds (Cleveland Co. Project), FGIC,
8s, 12/1/13 AAA 6,056,250
3,330,000 Ohio Muni Elec. Generation Agcy. COP,
AMBAC, 5 3/8s, 2/15/13 AAA 3,346,650
------------
9,402,900
OKLAHOMA (1.0%)
- ----------------------------------------------------------------------
3,500,000 Tulsa, Muni. Arpt. Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa 3,727,500
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (6.3%)
- ----------------------------------------------------------------------
$3,390,000 Allegheny Cnty. Resc. Fin. Auth. Mtge.
Rev. Bonds (Single Fam.-GNMA Mtge.
Backed Secs.), GNMA Coll., Ser.M, 7.9s,
6/1/11 Aaa $3,601,875
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Rev.
Bonds, 7 1/2s, 1/1/12 A 5,456,250
7,600,000 PA State Higher Ed. Assistance Agcy. IFB,
Ser. B, MBIA, 10.515s, 3/1/20 AAA 8,626,000
6,850,000 Philadelphia School Dist. Rev. Bonds,
Ser. B, AMBAC, 5 1/2s, 9/1/25 AAA 6,764,375
------------
24,448,500
PUERTO RICO (1.5%)
- ----------------------------------------------------------------------
6,000,000 Puerto Rico Elec Pwr. Auth. Rev. Bonds,
Ser. Z, 5 1/4s, 7/1/21 A 5,707,500
SOUTH DAKOTA (3.5%)
- ----------------------------------------------------------------------
13,100,000 SD State Bldg. Auth. COP (Building Authority),
Ser. A, 7 1/2s, 12/1/16 A13,782,772
TENNESSEE (3.8%)
- ----------------------------------------------------------------------
2,600,000 Metro. Nashville & Davidson Cnty., Tenn.
Wtr. & Swr. IFB, AMBAC, 7.973s, 1/1/22 AAA 2,782,000
10,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev.
Bonds (Steeplechase Falls Project),
Ser. A-10, FSA, 7 1/8s, 1/1/30 AAA 11,949,125
------------
14,731,125
TEXAS (8.1%)
- ----------------------------------------------------------------------
2,000,000 Alliance Arpt. Auth. Special. Fac. Rev.
Bonds (American Airlines, Inc. Project),
7 1/2s, 12/1/29 Baa 2,150,000
2,500,000 Bexar Cnty., Hlth.Fac. Dev.Corp. Rev.
Bonds (St. Luke's Lutheran Hosp. Project),
7.9s, 5/1/11 AAA/P 3,003,125
2,300,000 Dallas Waterwks. & Swr. Syst. Rev.
Bonds, 4 1/2s, 4/1/14 AA 2,064,250
5,250,000 Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 11/1/25 Baa 5,630,625
16,000,000 North Cent. TX Hlth. Fac. Dev.
Corp. Rev. Bonds (Presbyterian Hlth.
Sys.), MBIA, 6.685s, 6/22/21 AAA 16,920,000
2,000,000 Northeast Hosp. Auth. Rev. Bonds
(Northeast Med. Ctr. Hosp.), Ser. B,
7 1/4s, 7/1/22 Baa 2,085,000
------------
31,853,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
WASHINGTON (2.3%)
- ----------------------------------------------------------------------
$1,000,000 Port Longview, Indl. Dev. Corp. Rev.
Bonds (Atlantic Richfield Co.), 10 3/4s,
9/1/12 A $1,030,360
1,200,000 WA State Hlth. Care Facs. Auth. VRDN
(Sisters of Providence), Ser. B, 3.7s,
10/1/05 VMIGI 1,200,000
6,075,000 WA State Pub. Pwr. Supply Syst. Rev.
Bonds (Nuclear Project No. 1), Ser. A,
7 1/2s, 7/1/15 AA 6,636,938
------------
8,867,298
WEST VIRGINIA (0.3%)
- ----------------------------------------------------------------------
1,400,000 Marion Cnty., Cmnty. Solid Waste Disp. Fac.
Rev. Bonds (American Pwr. Paper Recycling
Project), 8 1/4s, 12/1/11 B/P 1,309,000
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (cost $359,242,672)*** $382,826,228
- ----------------------------------------------------------------------
<FN>
* Percentages indicated are based on net assets of $391,002,760.
Net assets available to common shareholders are $250,841,340.
*** The aggregate identified cost for Federal tax purposes is
$359,480,796, resulting in gross unrealized appreciation and
depreciation of $24,900,330 and $1,554,898, respectively, or net
unrealized appreciation of $23,345,432.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at November 30, 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 November 30, 1995.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated. Ratings are not covered by the Report of
Independent Accountants.
+ Non-income-producing security.
++ Restricted as to public resale. At the date of acquisition these
securities were valued at cost. There were no outstanding
securities of the same class as those held. Total market value of
restricted securities owned at November 30, 1995 was $ 11,198,125
or 2.9% of net assets.
The fund had the following insurance concentrations each greater
than 10% of net assets at November 30, 1995:
MBIA 13.4%
AMBAC 10.3
The fund had the following industry group concentrations each
greater than 10 % of net assets at November 30, 1995:
Utilities 20.6%
Hospitals/Health Care 15.8
Transportation 13.6
Housing 10.8
The rates shown on IFBs which are securities paying variable
interest rates that vary inversely to changes in the market
interest rates and VRDNs are the current interest rates at
November 30, 1995, and are subject to change based on the terms
of the security.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
</TABLE>
<TABLE>
<S><C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities (identified cost
$359,242,672) (Note 1) $382,826,228
- ----------------------------------------------------------------------
Cash 663,055
- ----------------------------------------------------------------------
Receivable for securities sold 10,609,050
- ----------------------------------------------------------------------
Interest receivables 7,126,424
- ----------------------------------------------------------------------
TOTAL ASSETS 401,224,757
LIABILITIES
- ----------------------------------------------------------------------
Distributions payable to shareholders 1,621,815
- ----------------------------------------------------------------------
Payable for securities purchased 7,799,150
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 672,053
- ----------------------------------------------------------------------
Payable for administrative services (Note 3) 1,497
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 179
- ----------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 60,118
- ----------------------------------------------------------------------
Other accrued expenses 67,185
- ----------------------------------------------------------------------
TOTAL LIABILITIES 10,221,997
- ----------------------------------------------------------------------
NET ASSETS $391,002,760
- ----------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------
Series A remarketed preferred shares, without par value;
2,000 shares authorized (1,400 shares issued at $100,000
per share liquidation preference) (Note 2) $140,000,000
- ----------------------------------------------------------------------
Common shares, without par value; unlimited shares
authorized; 20,272,824 shares outstanding (Note 1) 223,798,179
- ----------------------------------------------------------------------
Undistributed net investment income (Note 1) 11,316,328
- ----------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,695,303)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 23,583,556
- ----------------------------------------------------------------------
NET ASSETS $391,002,760
- ----------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- ----------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- ----------------------------------------------------------------------
Cumulative undeclared dividends on Series A remarketed
preferred shares 161,420
- ----------------------------------------------------------------------
Net assets allocated to Series A remarketed preferred
shares at liquidation preference 140,161,420
- ----------------------------------------------------------------------
Net assets available to common shares: Net asset value
per share $12.37 ($250,841,340 divided by 20,272,824) 250,841,340
- ----------------------------------------------------------------------
NET ASSETS $391,002,760
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended November 30, 1995
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $27,117,975
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 3) 2,662,878
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 309,111
- ----------------------------------------------------------------------
Compensation of Trustees (Note 3) 14,391
- ----------------------------------------------------------------------
Registration fees 453
- ----------------------------------------------------------------------
Reports to shareholders 66,388
- ----------------------------------------------------------------------
Auditing 79,673
- ----------------------------------------------------------------------
Legal 19,844
- ----------------------------------------------------------------------
Postage 60,331
- ----------------------------------------------------------------------
Administrative services (Note 3) 9,962
- ----------------------------------------------------------------------
Preferred share remarketing agent fees 338,667
- ----------------------------------------------------------------------
Exchange listing fees 27,685
- ----------------------------------------------------------------------
Other expenses 22,954
- ----------------------------------------------------------------------
TOTAL EXPENSES 3,612,337
- ----------------------------------------------------------------------
Expense reduction (Note 3) (146,855)
- ----------------------------------------------------------------------
NET EXPENSES 3,465,482
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 23,652,493
- ----------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 4) (1,552,505)
- ----------------------------------------------------------------------
Net realized loss on options written (Notes 1 and 4) (1,611,916)
- ----------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 4) (2,673,156)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments, during the year 30,521,242
- ----------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 24,683,665
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,336,158
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED NOVEMBER 30
- ----------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $23,652,493 $23,946,570
- ----------------------------------------------------------------------
Net realized loss on investment
transactions (5,837,577) (1,187,312)
- ----------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 30,521,242 (39,271,513)
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM OPERATIONS 48,336,158 (16,512,255)
- ----------------------------------------------------------------------
Distributions to remarketed preferred
shareholders:
- ----------------------------------------------------------------------
From net investment income (5,504,552) (3,886,607)
- ----------------------------------------------------------------------
From net realized gain on investments -- (79,242)
- ----------------------------------------------------------------------
In excess of realized gain (107,562) (8,311)
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS (EXCLUDING CUMULATIVE
UNDECLARED DIVIDENDS ON REMARKETED
PREFERRED SHARES OF $161,420 AND
$29,535, RESPECTIVELY) 42,724,044 (20,486,415)
- ----------------------------------------------------------------------
Distributions to common shareholders:
- ----------------------------------------------------------------------
From net investment income (19,361,148) (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 2,826,196 3,505,942
- ----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 26,189,092 (40,856,513)
NET ASSETS
- ----------------------------------------------------------------------
Beginning of year 364,813,668 405,670,181
- ----------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of $11,316,328
and $12,447,836, respectively) $391,002,760 $364,813,668
- ----------------------------------------------------------------------
NUMBER OF FUND SHARES
- ----------------------------------------------------------------------
Common shares outstanding at beginning
of year 20,039,145 19,764,439
- ----------------------------------------------------------------------
Common shares issued in connection with
reinvestment of distributions 233,679 274,706
- ----------------------------------------------------------------------
COMMON SHARES OUSTANDING AT END OF YEAR 20,272,824 20,039,145
- ----------------------------------------------------------------------
REMARKETED PREFERRED SHARES OUTSTANDING
AT THE BEGINNING AND END OF YEAR 1,400 1,400
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(for a common share outstanding throughout the year)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30
- ----------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR
(common shares) $11.22 $13.44 $12.36 $11.51 $11.03
- ----------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income 1.17 1.20 1.32 1.35 1.27
Net realized and
unrealized gain
(loss) on investments 1.23 (2.03) .91 .65 .43
- ----------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.40 (.83) 2.23 2.00 1.70
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment
income:
to Common Shareholders (.96) (.97) (.96) (.91) (.89)
to Preferred Shareholders(.28) (.19) (.16) (.24) (.29)
- ----------------------------------------------------------------------
From net realized gain
on investments
to Common Shareholders -- (.21) -- -- --
to Preferred Shareholders -- -- (.03) -- --
- ----------------------------------------------------------------------
In excess of realized gains
to Common Shareholders -- (.02) -- -- --
to Preferred Shareholders(.01) -- -- -- --
- ----------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.25) (1.39) (1.15) (1.15) (1.18)
- ----------------------------------------------------------------------
Preferred shares
offering costs -- -- -- -- (.04)
- ----------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR
(common shares) $12.37 $11.22 $13.44 $12.36 $11.51
- ----------------------------------------------------------------------
MARKET VALUE,
END OF YEAR
(common shares) $13.50 $11.88 $14.00 $13.25 $11.88
- ----------------------------------------------------------------------
TOTAL INVESTMENT
RETURN AT MARKET PRICE
(common shares)(%)(a) 22.95 (6.74) 13.54 20.24 14.23
- ----------------------------------------------------------------------
NET ASSETS, END OF YEAR
(total fund)
(in thousands) $391,003 $364,814 $405,670 $381,681 $362,974
- ----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)
(b)(c) 1.50 1.45 1.40 1.45 1.46
- ----------------------------------------------------------------------
Ratio of net investment
income to average net
assets (%)(b) 7.50 8.07 8.59 9.20 8.70
- ----------------------------------------------------------------------
Portfolio turnover (%) 122.65 78.97 33.73 44.39 72.49
- ----------------------------------------------------------------------
<FN>
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charge.
(b) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for distributions to
preferred shareholders.
(c) The ratio of expenses to average net assets for the year ended
November 30, 1995 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts (See Note 3).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Nobember 30, 1995
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 the fund's Manager 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 AND OPTIONS CONTRACT 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 which it invests 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.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded
options are valued at the last sale price, or if no sales are
reported, the last bid price for
<PAGE>
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
E FEDERAL TAXES It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held and for excise tax on
income and capital gains.
F 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 November 30, 1995 was
3.85%. 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 market discount, realized and unrealized gains and
losses on certain futures contracts and losses on wash sales
transactions. 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 November 30, 1995 the fund reclassified $81,699 to
increase undistributed net investment income, $51,688 to increase
accumulated net realized loss and $30,011 to decrease paid-in capital.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
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 and original
issues are accreted according to the effective yield method.
NOTE 2
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 $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
shares. No Serial Remarketed Preferred shares are currently
outstanding.
It is anticipated that approximately 98% of total distributions paid
during fiscal 1995 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 year. For the
year ended November 30, 1995, additional dividends of $70,518 will be
paid to preferred shareholders, subsequent to year end.
<PAGE>
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 November 30, 1995, no such restrictions have been
placed on the fund.
NOTE 3 MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc. (Putnam
Management), the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc., 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 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 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 Trustees fee of $860 and an
additional fee for each Trustee's meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
During the year ended November 30, 1995, the fund adopted a Trustee
Fee Deferral Plan (the "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 in the fund and are invested in the
fund or in other Putnam funds until distribution in accordance with
the Plan.
<PAGE>
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended November 30, 1995, fund expenses were reduced by
$146,855 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported
in the Statement of operations exclude these credits. The fund could
have invested the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
NOTE 4
PURCHASES AND SALES OF SECURITIES During the year ended November 30,
1995, purchases and sales of investment securities other than short-
term municipal obligations aggregated $437,636,576 and $464,612,408,
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
AMOUNTS RECEIVED
- ----------------------------------------------------------------------
Contracts outstanding
at the beginning of year $-- $--
- ----------------------------------------------------------------------
OPTIONS OPENED 322,700,000 6,313,744
- ----------------------------------------------------------------------
Options closed (322,700,000) (6,313,744)
- ----------------------------------------------------------------------
WRITTEN OPTIONS
OUTSTANDING AT END OF YEAR $-- $--
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
SELECTED QUARTERLY DATA
(unaudited)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR COMMON SHAREHOLDERS
- --------------------------------------------------------------------------------
- -------------
NET INCREASE
NET REALIZED (DECREASE) IN
AND UNREALIZED NET ASSETS
INVESTMENT NET INVEST- GAIN (LOSS) ON RESULTING FROM
INCOME MENT INCOME INVESTMENTS OPERATIONS
QUARTER PER PER PER PER
ENDED TOTAL SHARE+ TOTAL SHARE+ TOTAL SHARE+ TOTAL SHARE+
- --------------------------------------------------------------------------------
- -------------
2/28/94 $7,111,996 $.35 $5,495,212 $.27 $(3,137,847) $(.15) $2,357,365 $.12
- --------------------------------------------------------------------------------
- -------------
5/31/94 $6,855,768 $.35 $5,062,217 $.26 $(16,604,981) $(.84) $(11,630,317) $(.58)
- --------------------------------------------------------------------------------
- -------------
8/31/94 $6,585,179 $.34 $4,650,396 $.24 $616,807 $.02 $5,267,203 $.26
- --------------------------------------------------------------------------------
- -------------
11/30/94 $6,977,508 $.33 $4,852,138 $.24 $(21,330,357) $(1.06) $(16,480,666) $(.82)
- --------------------------------------------------------------------------------
- -------------
2/28/95 $6,674,323 $.33 $4,383,933 $.22 $15,132,946 $.75 $19,516,879 $.97
- --------------------------------------------------------------------------------
- -------------
5/31/95 $6,817,481 $.34 $4,437,600 $.22 $2,944,726 $.15 $7,382,326 $.37
- --------------------------------------------------------------------------------
- -------------
8/31/95 $6,665,460 $.33 $4,454,620 $.22 $(1,310,532) $(.07) $3,144,088 $.15
- --------------------------------------------------------------------------------
- -------------
11/30/95 $6,960,711 $.35 $4,784,941 $.23 $7,763,925 $.39 $12,574,346 $.63
- --------------------------------------------------------------------------------
- -------------
<FN>
+ Per common shares.
</TABLE>
<PAGE>
RESULTS OF OCTOBER 5, SHAREHOLDER MEETING
(unaudited)
An annual meeting of shareholders of the fund was held on October 5,
1995. At the meeting, each nominee for Trustee was elected, as
follows:
VOTES FOR VOTES WITHHELD
- ----------------------------------------------------------------------
Jameson Adkins Baxter 18,203,808 278,086
- ----------------------------------------------------------------------
Hans H. Estin 18,207,252 274,644
- ----------------------------------------------------------------------
Elizabeth T. Kennan 18,202,618 279,277
- ----------------------------------------------------------------------
Lawrence J. Lasser 18,213,116 268,780
- ----------------------------------------------------------------------
Donald S. Perkins 18,202,372 279,523
- ----------------------------------------------------------------------
William F. Pounds 18,203,235 278,657
- ----------------------------------------------------------------------
George Putnam 18,212,828 269,067
- ----------------------------------------------------------------------
George Putnam, III 18,211,670 270,225
- ----------------------------------------------------------------------
E. Shapiro 18,158,647 323,248
- ----------------------------------------------------------------------
A.J.C. Smith 18,213,232 268,663
- ----------------------------------------------------------------------
W. Nicholas Thorndike 18,200,754 281,142
- ----------------------------------------------------------------------
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 18,091,487 votes for, and 94,165
votes against, with 296,243 abstentions and broker non-votes. All
tabulations have been rounded to the nearest whole number.
<PAGE>
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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
Senior Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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
22179 1/96
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
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.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
