Putnam
Investment
Grade
Municipal
Trust
SEMIANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "When we evaluate the performance potential of a particular bond, we
heavily weigh its income capabilities, knowing full well that,
historically, income has been the major driver of total return. However,
in a market with downside risk, the need for income must be balanced with
the need for total-return strategies that build net asset value."
-- Richard P. Wyke, Fund Manager
* "Thirty-year munis rated AAA (the highest credit-quality rating)
recently yielded 5.9% -- or about 85% of the yield of a comparable
Treasury bond. By contrast, ten-year, triple-A munis offer only 75% of
the yield of a comparable Treasury -- still a bargain for people in the
28% tax-bracket or higher."
-- Kiplinger's Personal Finance Magazine, June 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Investment Grade Municipal Trust began fiscal 1997 on a hopeful, yet
cautious note in December 1996 after a somewhat tumultuous year for the
municipal bond market. The hope was well warranted, since the market was
firmly into a rally when the period began. The caution was well placed, for
the rally ended abruptly in late winter, cut short by investor worries that
inflation and interest rates would both rise in the wake of an economy still
growing too fast.
From the vantage point of the close of the first half of the fiscal year on
May 31, 1997, we can see that volatility during the period, while somewhat
nerve-racking for many investors, was low by historical standards. By spring,
even the Federal Reserve Board's increase in the federal funds rate in late
March, the source of considerable earlier anxiety, caused little stir.
It is in these contexts that Fund Manager Richard Wyke discusses your fund's
performance for the year's first half and his view of its prospects for the
remainder of the year. His report begins on the following page.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Richard P. Wyke
With the tightening yield spread between higher- and lower-quality bonds and
positive supply/demand dynamics supporting favorable market conditions during
the six months ended May 31, 1997, Putnam Investment Grade Municipal Trust
delivered competitive returns. The fund's results of 1.64% at net asset value
and 6.55% at market price for the period compare favorably with results for
the fund's competitive benchmark, the Lehman Municipal Bond Index, which
posted a 1.69% return. Performance for longer time periods can be found on
page 8.
* QUALITY SPREAD COMPRESSION FAVORS Baa-RATED BONDS
When interest rates are low, bond investors are more confident and often more
comfortable with higher-risk investments such as lower-rated bonds.
Consequently, in such an environment, the gap between yields of low-rated and
higher-rated securities often narrows. That explains why the continued
tightening of quality spreads between higher- and lower-quality bonds became
one of the defining events of your fund's semiannual period. In fact,
Baa-rated municipal bonds were the top-performing securities for the period,
followed by those rated A.
As more investors opt for higher-yielding bonds, the prices of these
securities appreciate. Conversely, demand for -- and prices of -- Aaa-rated
and insured bonds generally softens. The fund's A-rated and Baa-rated bonds
made up 39.2% of the fund's market value at period's end, up from 36.6% at the
end of fiscal 1996. On May 31, 1997, the portfolio had an average quality
rating of Aa, with approximately 46% of holdings rated Aaa.
* TIGHT SUPPLY A MAJOR FACTOR IN PERFORMANCE
The scarcity of municipal bonds has had a profoundly positive impact on the
performance of tax-free securities and enabled municipals to outperform
Treasuries during the period. This tight supply is the result of two factors:
the sharp decline in the number of new bonds coming to market and the
excessive demand in the secondary market by individual investors and insurance
companies. While a low supply can lead to price appreciation for existing
municipal bonds, it can also complicate our search for bonds with the right
balance of credit quality, yield, and relative price stability. In this
environment, special attention to credit and sector selection will remain
particularly important in the months ahead.
* FUND PURSUES SUSTAINABLE INCOME WHILE CONSIDERING FUTURE APPRECIATION
POTENTIAL
As always, we concentrate primarily on the fund's objective of providing
shareholders with attractive levels of tax-free income. Our overall focus is
consistently on top-quality bonds with solid income potential, but we may also
take advantage of income-producing bonds in lower-tier investment-grade
credits to help enhance returns. Industrial revenue bonds in two of the fund's
sectors, airlines and hospitals, exemplify this strategy, and holdings were
increased in both sectors during the period to enable the fund to lock in high
income and potential price appreciation through improving credit quality.
Airline-related holdings have climbed by 3.3% of net assets, primarily through
acquisitions in United Airlines and Continental Airlines. Encouraged by a
strengthening national economy, these holdings benefited from industry efforts
to reduce costs and the record earnings posted for the first quarter of
calendar 1997. This is a trend we expect to continue into the second half of
the fiscal year. Within the health-care sector, hospital holdings increased by
more than 1.5% during the period and at fiscal 1997's midpoint represented
more than 9.6% of net assets. The improving quality of hospital management is
increasing profitability, a point that is favorably coloring investors' view
of these bonds.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 22.0%
Transportation 16.8%
Hospitals/health care 15.3%
Housing 10.8%
Waste management 7.6%
Footnote reads:
* Based on net assets as of 5/31/97. Holdings will vary over time.
Another strategy we employ to help increase returns is buying inverse
floaters. Inverse floaters, also known as residual interest bonds (RIBs), are
variable-rate bonds whose yields move in the opposite direction of short-term
interest rates. Like all derivative products, these securities require careful
handling but can offer attractive benefits when used appropriately. In the
current environment's relatively low short-term interest rates, these
securities can help to increase your fund's yield and also provide
appreciation potential if long-term rates decline. By the end of the period,
inverse floaters had climbed by 2% and represented about 12% of net assets.
Prerefunded bonds delivered still more good news. Prerefunding takes place
when an issuer floats a second bond in order to raise funds to pay off an
older bond, generally at the first call date. The proceeds from the second
bond are invested in a top-quality instrument, usually U.S. Treasury
securities, that will mature close to the time that the older bond can be
called. The market often perceives the added safety as equal to a credit
upgrade, and the move can boost the bond's price and remove some risk from the
portfolio. Given our success in this area, we're scaling back holdings, taking
gains, and reinvesting the proceeds in municipal electric utilities.
From a state allocation perspective, the most noteworthy development was the
increased weighting of New York holdings (from 7.1% to 10.2% of net assets)
over the past six months. Given the yield-spread compression taking place in
the municipal market, positions in A-rated New York City water and general
obligation bonds provided a significant boost to the fund's performance.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A - 12.1%
Aa - 3.7%
Aaa - 47.6%
Ba - 10 %
Baa - 25.4%
C - 0.1%
D - 0.2%
VMIGI - 0.9%
Footnote reads:
* As a percentage of market value as of 5/31/97. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's descriptions,
unless noted otherwise; percentages may include unrated bonds considered
by Putnam Management to be of comparable quality. Ratings will vary over time.
The net effect of these sector strategies has been a gradual lengthening of
the fund's duration from 8.02 years at the start of the period to 8.63 years
by period's end. We believe this shift places the fund in good standing within
its competitive universe while positioning the portfolio for future income and
appreciation 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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
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 a high level of current income, free from federal income
tax, as is consistent with the preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
(common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
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6 months 1.64% 6.55% 1.69% 0.95%
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1 year 7.80 13.71 8.29 2.23
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5 years 44.77 64.17 41.80 14.60
Annual average 7.68 10.42 7.24 2.76
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Life of fund
(since 10/26/89) 89.74 110.21 79.18 27.47
Annual average 8.80 10.28 8.00 3.25
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TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
(common shares) Market
NAV price
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6 months 3.07% 10.91%
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1 year 8.31 16.21
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5 years 42.64 69.56
Annual average 7.36 11.14
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Life of fund
(since 10/26/89) 92.49 116.16
Annual average 8.90 10.56
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Performance data for common shares 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/97
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Distributions (common shares)
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Number 6
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Income $0.48
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Capital gains1 --
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Total $0.48
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Preferred shares Series A (1,400 shares)
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Income $1,827.52
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Capital gains --
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Total $1,827.52
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Share value:
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(common shares): NAV Market price
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11/30/96 $11.94 $13.625
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5/31/97 11.70 14.000
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Current return (end of period)
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(common shares): NAV Market price
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Current dividend rate2 8.21% 6.86%
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Taxable equivalent3 13.59 11.36
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1Capital 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.
2Income portion of most recent distribution, annualized and divided by NAV
or market price at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 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. The index assumes
reinvestment of all distributions and interest payments and does not take
into account brokerage fees or taxes. Securities in the fund do not match
those in the index and performance of the fund will differ. It is not
possible to invest directly in an index.
Portfolio of investments owned
May 31, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
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
PSFG -- Permanent School Fund Guaranteed
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.7%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Alabama (1.6%)
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$ 5,500,000 Gadsden East, Med. Clinic Board Rev. Bonds (Baptist
Hosp. of Gadsden Inc.), Ser. A, 7.8s, 11/1/21 AAA/P $ 6,290,625
Arizona (0.3%)
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1,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Asarco Inc.), Ser. 85, 8.9s, 7/1/06 Baa 1,033,080
California (9.1%)
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4,650,000 CA State U. IFB, AMBAC, 9.583s, 11/1/21 (acquired
from 8/5/91 to 8/31/94, cost $4,659,603) [DBL. DAGGER] Aaa 5,487,000
5,200,000 Central Valley Fin. Auth. Rev. Bonds (Carson
Ice-Cogeneration), 6s, 7/1/09 BBB 5,304,000
3,000,000 Contra Costa Wtr. Dist. Rev. Bonds, Ser. G,
MBIA, 5s, 10/1/24 Aaa 2,733,750
Los Angeles Cnty., Metro Transit Auth.
Sales Tax Rev. Bonds
3,235,000 Second Tier Lien, Ser. A, MBIA, 5 3/4s, 7/1/11 Aaa 3,360,356
3,030,000 5 5/8s, 7/1/11 Aaa 3,113,325
4,425,000 Los Angeles, Regl. Arpts. Impt. Corp. Lease
Rev. Bonds (Continental Airlines), 9s, 8/1/17 BB/P 4,701,563
2,800,000 Orange Cnty., Local Trans. Auth. Sales Tax
Rev. Bonds, FGIC, 6.1s, 2/14/11 Aaa 2,891,000
2,550,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 Baa 2,677,500
4,625,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 4,220,313
--------------
34,488,807
Colorado (7.9%)
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Denver, City & Cnty. Arpt. Rev. Bonds
1,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 1,170,000
4,775,000 Ser. A, 8 1/2s, 11/15/23 Baa 5,359,938
4,900,000 Ser. A, 8 1/4s, 11/15/12 Baa 5,463,500
5,200,000 Ser. A, 8s, 11/15/25 Baa 5,772,000
8,000,000 Ser. D, 7 3/4s, 11/15/21 Baa 8,830,000
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 3,656,250
--------------
30,251,688
Connecticut (1.9%)
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4,825,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(New England Power Co.), 7 1/4s, 10/15/15 A 5,144,656
2,000,000 CT State Res. Recv. Auth. Muni. Rev. Bonds
(Bridgeport Service Fee), Ser. A, 7 1/2s, 1/1/09 Baa 2,092,500
--------------
7,237,156
District of Columbia (0.7%)
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2,500,000 DC Rev. Bonds (Georgetown U.), Ser. B,
7.15s, 4/1/21 A 2,646,875
Florida (3.9%)
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11,555,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 12,594,950
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 2,225,000
--------------
14,819,950
Georgia (2.5%)
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4,000,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), MBIA, 8s, 1/1/22 Aaa 4,690,000
4,800,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 BBB/P 4,980,000
--------------
9,670,000
Hawaii (1.3%)
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4,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 8.909s, 11/1/21 AAA 4,910,625
Illinois (0.7%)
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2,430,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa 2,730,713
Indiana (0.6%)
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1,000,000 Indiana Bond Bank Note (Special Loan Program),
Ser. B, 8 1/2s, 2/1/18 A 1,041,370
1,000,000 Rockport, Indl. Poll. Ctrl. Rev. Bonds (Indiana-
Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,106,250
--------------
2,147,620
Kansas (1.3%)
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4,500,000 Burlington, Poll. Control Rev. Bonds (Kansas Gas &
Electric Co.), MBIA, 7s, 6/1/31 Aaa 4,921,875
Louisiana (7.4%)
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9,250,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 10,013,125
W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf States Utils. Co.)
2,500,000 8s, 12/1/24 Ba 2,671,875
5,100,000 7.7s, 12/1/14 Ba 5,597,250
3,000,000 Ser. III, 7.7s, 12/1/14 Ba 3,292,500
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB 6,442,500
--------------
28,017,250
Maine (1.4%)
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5,000,000 ME Fin. Auth. Solid Waste Recycling Fac. Rev. Bonds
(Great Northern Paper), 7 3/4s, 10/1/22 Baa 5,468,750
Maryland (0.6%)
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2,000,000 MD, State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 2,280,000
Massachusetts (5.7%)
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4,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba 4,065,000
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB (Med. Ctr. of
Central MA), Ser. B, AMBAC, 8.87s, 6/23/22 Aaa 9,942,188
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Cape Cod
Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,731,250
2,100,000 MA State Wtr. Poll. Auth. Rev. Bonds, Ser. B,
5 1/4s, 8/1/14 Aa 2,044,875
--------------
21,783,313
Michigan (2.2%)
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1,735,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 8.72s, 5/1/21 BBB/P 2,121,038
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 8.562s, 7/1/22 Aaa 2,381,500
1,690,000 Highland Park, Fin. Auth. Hosp. Fac. Rev. Bonds
(MI Hlth. Care Corp.), Ser. A, 9 3/4s, 12/1/06
(In Default) + C 304,200
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 BBB/P 3,393,750
--------------
8,200,488
Minnesota (0.9%)
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3,500,000 Duluth, Tax Increment VRDN (Lake Superior Paper),
3.85s, 9/1/10 VMIG1 3,500,000
Mississippi (2.3%)
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7,950,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy Inc.), Ser. C, 9 7/8s, 12/1/14 Ba 8,675,438
Missouri (3.9%)
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2,500,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 2,734,375
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Whispering Lake), Ser. A-11, FSA, 7.1s, 1/1/30 Aaa 9,356,125
2,500,000 Sikeston, Elec. Auth. Rev. Bonds, MBIA, 6s, 6/1/13 Aaa 2,662,500
--------------
14,753,000
Nebraska (2.2%)
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2,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA Coll., 10.882s, 3/15/22 Aaa 2,333,625
5,845,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, GNMA Coll, 8 1/8s, 8/15/38 Aaa 6,071,494
--------------
8,405,119
Nevada (1.8%)
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6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (NV Pwr. Co.),
7.8s, 6/1/20 Baa 6,979,375
New York (10.2%)
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NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds
4,100,000 Ser. B, 5 3/4s, 6/15/26 A 4,043,625
9,000,000 Ser. A, 5 1/2s, 6/15/24 A 8,617,500
NY State Dorm. Auth. Rev. Bonds
4,500,000 (City U. Syst.), Ser. F, 7 7/8s, 7/1/17 Aaa 5,017,500
6,250,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 6,929,688
2,000,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/20 Aaa 2,217,500
2,450,000 NY State Energy Research & Dev. Auth. Elec. Fac.
Rev. Bonds (Cons. Edison Co. of NY, Inc.), Ser. A,
7 3/4s, 1/1/24 A 2,531,365
1,535,000 NY State Urban Dev. Corp. Rev. Bonds
(Syracuse U. Ctr.), 6s, 1/1/08 Baa 1,607,913
8,780,000 Triborough Bridge & Tunnel Auth. General Purpose
Rev. Bonds, Ser. A, 5s, 1/1/24 Aa 7,989,800
--------------
38,954,891
Ohio (1.8%)
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1,000,000 Lucas Cnty., Hlth. Fac. VRDN (Lutheran Homes
Society), 3 1/2s, 11/1/19 Aa 1,000,000
5,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 5,787,500
--------------
6,787,500
Oklahoma (0.3%)
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1,000,000 Tulsa, Indl. Auth. Rev. Bonds (U. of Tulsa), Ser. A,
MBIA, 6s, 10/1/16 Aaa 1,058,750
Pennsylvania (4.4%)
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2,960,000 Allegheny Cnty., Resc. Fin. Auth. Mtge. Rev. Bonds
(Single Fam.), Ser. M, GNMA Coll., 7.9s, 6/1/11 Aaa 3,096,900
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Rev. Bonds,
7 1/2s, 1/1/12 A 5,256,250
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.828s, 3/1/20 Aaa 8,502,500
--------------
16,855,650
Tennessee (3.8%)
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2,600,000 Metropolitan Govt. Nashville & metropolitan Cnty.
Tenn. Wtr. & Swr. IFB, AMBAC, 8.124s, 1/1/22 Aaa 2,700,750
$10,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Steeplechase Falls), Ser. A-10, FSA, 7 1/8s, 1/1/30 Aaa 11,826,500
--------------
14,527,250
Texas (9.7%)
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6,500,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express
Corp.), 6 3/8s, 4/1/21 Baa 6,638,125
2,770,000 Austin, School Dist. G.O. Bonds, PSFG,
5 3/4s, 8/1/15 Aaa 2,811,550
2,500,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA 2,896,875
5,000,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa 5,468,750
4,390,000 Matagorda Cnty., Poll. Control Rev. Bonds
(Houston Lt. & Pwr.), Ser. D, FGIC, 7.6s, 10/1/19 Aaa 4,746,688
8,000,000 North Central TX Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
8.97s, 6/15/21 Aaa 9,420,000
4,500,000 TX State Nat'l. Research Lab. Communication
Superconductor G.O. Bonds, 7 1/8s, 4/1/20 Aaa 4,899,375
--------------
36,881,363
Utah (4.4%)
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16,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 Aaa 16,820,000
Vermont (1.3%)
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4,830,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB 4,884,338
West Virginia (0.2%)
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1,400,000 Marion Cnty., Cmnty. Solid Waste Disp. Fac.
Rev. Bonds (American Pwr. Paper Recycling),
8 1/4s, 12/1/11 (In Default) + D/P 700,000
Wisconsin (2.4%)
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3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B,
7.05s, 11/1/22 A 3,591,250
5,600,000 WI Hlth. & Edl. Fac. Auth. Rev Bonds (United Hlth.
Group, Inc.), Ser. B, MBIA 5 1/2s, 2020 Aaa 5,382,994
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8,974,244
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Total Investments (cost $362,747,513) *** $375,655,733
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $380,567,471.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1997 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, 1997. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $362,747,513, resulting in gross unrealized appreciation
and depreciation of $16,587,093 and $3,678,873, respectively, or net unrealized appreciation of
$12,908,220.
+ Non-income-producing security.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at May 31, 1997, was
$5,487,000 or 1.4% of net assets.
The rates shown on the 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 May 31, 1997, and are
subject to change based on the terms of the security.
The fund had the following industry group concentrations greater than
10% at May 31, 1997 (as a percentage of net assets):
Utilities 22.0%
Transportation 16.8
Hospitals/Health Care 15.3
Housing 10.8
The fund had the following insurance concentration greater than 10% at
May 31, 1997 (as a percentage of net assets):
MBIA 18.1%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $362,747,513) (Note 1) $ 375,655,733
- ---------------------------------------------------------------------------------------------------
Cash 149,948
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,070,969
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 165,000
- ---------------------------------------------------------------------------------------------------
Total assets 383,041,650
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,733,073
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 660,828
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 39,341
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,894
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,250
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 32,793
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,474,179
- ---------------------------------------------------------------------------------------------------
Net assets $380,567,471
Represented by
- ---------------------------------------------------------------------------------------------------
Series A remarketed preferred shares (1,400 shares authorized and
outstanding at $100,000 per share) (Note 4) $140,000,000
- ---------------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized) (Note 1) 227,482,750
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 7,746,208
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,569,707)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,908,220
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $380,567,471
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on
remarketed preferred shares 14,698
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed
preferred shares -- liquidation preference $140,014,698
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $240,552,773
- ---------------------------------------------------------------------------------------------------
Net asset value per common share
($240,552,773 divided by 20,556,231 shares) $ 11.70
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $ 12,955,797
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,322,755
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 130,000
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,735
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,708
- --------------------------------------------------------------------------------------------------
Reports to shareholders 7,843
- --------------------------------------------------------------------------------------------------
Auditing 25,955
- --------------------------------------------------------------------------------------------------
Legal 15,164
- --------------------------------------------------------------------------------------------------
Exchange listing fees 13,759
- --------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 184,333
- --------------------------------------------------------------------------------------------------
Other 13,988
- --------------------------------------------------------------------------------------------------
Total expenses 1,732,240
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (30,164)
- --------------------------------------------------------------------------------------------------
Net expenses 1,702,076
- --------------------------------------------------------------------------------------------------
Net investment income 11,253,721
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 25,296
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 611,310
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the period (4,517,363)
- --------------------------------------------------------------------------------------------------
Net loss on investments (3,880,757)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 7,372,964
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 11,253,721 $ 21,874,192
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 636,606 17,036
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (4,517,363) (6,157,973)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,372,964 15,733,255
- ----------------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (2,558,528) (5,200,089)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net realized gains -- (45,038)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $14,698
and $13,080, respectively) 4,814,436 10,488,128
- ----------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (9,850,021) (19,568,069)
- ----------------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 1,113,146 2,567,091
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (3,922,439) (6,512,850)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 384,489,910 391,002,760
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $7,746,208 and $8,901,036, respectively) $380,567,471 $384,489,910
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 20,470,991 20,272,824
- ----------------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 85,240 198,167
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 20,556,231 20,470,991
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding
at beginning and end of period 1,400 1,400
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $11.94 $12.37 $11.22 $13.44 $12.36 $11.51
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .55 1.06 1.17 1.20 1.32 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) (.28) 1.23 (2.03) .91 .65
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .36 .78 2.40 (.83) 2.23 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders (.48) (.96) (.94) (.97) (.96) (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.12) (.25) (.28) (.19) (.16) (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- -- (.21) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- (.02) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- (d) (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.60) (1.21) (1.25) (1.39) (1.15) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $11.70 $11.94 $12.37 $11.22 $13.44 $12.36
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $14.00 $13.625 $13.500 $11.880 $14.000 $13.250
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market price
(common shares) (%)(a) 6.55 * 8.65 22.95 (6.74) 13.54 20.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $380,567 $384,490 $391,003 $364,814 $405,670 $381,681
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .72 * 1.49 1.50 1.45 1.40 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.61 * 6.84 7.50 8.07 8.59 9.20
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 21.08 * 146.43 122.65 78.97 33.73 44.39
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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 dividend payments to preferred shareholders.
(c) The ratio of expenses to average net assets for the year ended November 30, 1995 and
thereafter, includes amounts paid through expense offset arrangements. Prior period
ratios exclude these amounts (Note 2).
(d) Distributions in excess of net realized gain to the preferred stockholders amounted to less than
$0.01 per common share.
</TABLE>
Notes to financial statements
May 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Investment Grade Municipal Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The fund's investment objective is to 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 ("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 Putnam Management 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
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. The fair value of
restricted securities is determined by the Manager following procedures
approved by the Trustees, and such valuations and procedures are reviewed
periodically 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 preference 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 contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
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 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At November 30, 1996, the fund had a capital loss carryover of approximately
$1,985,000 available to offset future net capital gains, if any, which will
expire on November 30, 2004.
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 seven day period. The applicable dividend rate for the remarketed
preferred shares on May 31, 1997 was 3.832%. The amount and character of
income and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis.
Discounts on zero coupon bonds and original issue discount are accreted
according to the effective yield method.
Note 2
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 .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.
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 six months ended May 31, 1997, fund expenses were reduced by $30,164
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $650 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.
The fund has 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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $83,608,499 and
$79,019,792, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Remarketed preferred shares
The Series A shares are redeemable at the option of the fund on any dividend
payment date at a redemption price of $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 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 earns taxable income and
capital gains by the conclusion of a fiscal year, it will be required to
apportion to the holders of the remarketed preferred shares throughout that
year additional dividends as necessary to result in an after-tax equivalent to
the applicable dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to maintain
asset coverage of at least 200% with respect to the remarketed preferred
shares as of the last business day of each month in which any such shares are
outstanding. Additionally, the fund is required to meet more stringent asset
coverage requirements under terms of the remarketed preferred shares and the
shares' rating agencies. Should these requirements not be met, or should
dividends accrued on the remarketed preferred shares not be paid, the fund may
be restricted in its ability to declare dividends to common shareholders or
may be required to redeem certain of the remarketed preferred shares. At May
31, 1997, no such restrictions have been placed on the fund.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weeekdays from 9 a.m. to 5 p.m. Eastern Time for
up-to-date information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
34400-058 7/97
