Putnam
Investment
Grade
Municipal
Trust
SEMIANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The $1.3 trillion municipal bond market has become especially attractively
priced relative to the Treasury market -- a condition that has not occurred
since the flat-tax scare of 1996. Municipal bonds (as represented by 30-year
insured municipals) are now offering almost 90% of the yield of long-term
Treasury bonds. Since the typical level is 84%, this makes their current
prices remarkably low.
During the year, the Federal Reserve Board has remained on the sidelines in
deference to the noninflationary economic environment and fears of the
eventual impact of Asia's troubles on the United States. Within this
relatively tranquil, yet cautious environment, Putnam Investment Grade
Municipal Trust delivered what we promised: a steady stream of income exempt
from federal taxes along with relatively low share price volatility. Your fund
produced returns of 3.46% at net asset value and -2.09% at market price for
the six months ended May 31, 1998. Please see pages 5 and 6 for more
information.
The first half of 1998 was also notable for its huge incremental supply,
including the sale of the largest municipal bond issue in history -- $3.4
billion by the Long Island Power Authority (LIPA). Before the bonds were sold
in May, investors worried that the increased supply would drag down prices;
but because of the ongoing demand and prevailing attractive prices, the market
easily absorbed this huge issue and the all-important supply/demand ratios
have remained in balance. We were pleased to purchase $4 million of the LIPA
bonds for your fund's portfolio.
Your fund's significant position in the transportation industry has been
bolstered by positive earnings that stem from strong passenger demand and low
fuel prices, particularly in the airline sector. Standard & Poor's has raised
the credit outlook for American Airlines to positive from stable. Other
airline-related bonds in the portfolio include those backed by United Airlines
and Continental Airlines. These bonds already carry positive credit outlooks,
reflecting the industry's and each company's good health. While these holdings
were viewed favorably at the end of the period, all holdings are subject to
review and adjustment in accordance with the fund's investment strategy and
may well vary in the future.
The demand for cheaper electricity, combined with new power plant technology
and federal legislation, set the stage for the deregulation of utilities
several years ago. Since then, the restructuring of the utility industry has
created some dynamic investment opportunities for the fund. For example, one
of the fund's utility holdings, Nevada Power, has proposed a merger with
Sierra Pacific Resources, which holds a higher credit rating from Moody's and
S&P. This merger should help the lower-rated Nevada Power reduce costs and
improve cash flow with the overall impact of enhancing investor security in
its bonds.
Also noteworthy is the unusually flat tax-exempt yield curve. The current
spread between long-term and short-term yields is remarkably small. With
30-year bonds paying only a modest 30 to 40 basis points over 10-year bonds,
investors are not sufficiently compensated for taking on the higher risk. For
this reason, we have found the best value (attractive yield with minimal
volatility) in the intermediate range of the yield curve -- anywhere from 8
to 15 years.
Your fund's manager, Richard Wyke, remains focused on sustaining the fund's
dividend level in a market in which higher yielding bonds are steadily called
away. As he replaces the called bonds, his goal is to acquire bonds with at
least four years of call protection. This strategy should help maintain a
certain level of income even if interest rates continue to stay low or fall.
[GRAPHIC OMITTED: PIE CHART OF CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
B -- 2.7%
Ba -- 5.2%
Baa -- 30.1%
A -- 12.0%
VMIGI -- 0.5%
Aaa -- 46.9%
Aa -- 2.6%
Footnote reads:
* As a percentage of market value as of 5/31/98. A bond rated Baa or higher is
considered investment grade. All ratings relfect 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.
While interest rates may remain low, we believe that the inflation rate is the
key economic variable to watch in the second half of 1998. Because we expect
continued U.S. economic growth to be supported by consumer demand, low
interest rates, and the wealth effect of a bull market, there is the potential
for a rise in inflation. Consequently, this is not a good time to expose the
portfolio to bonds with longer maturities and higher interest-rate risk. We
believe that a cautious strategy will produce the best returns in the months
ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 5/31/98
Lehman Bros.
Municipal
Market Bond Consumer
NAV price Index Price Index
- ------------------------------------------------------------------------------
6 months 3.46% -2.09% 3.78% 0.80%
- ------------------------------------------------------------------------------
1 year 10.31 6.79 9.39 1.69
- ------------------------------------------------------------------------------
5 years 35.82 49.57 38.53 12.90
Annual average 6.31 8.38 6.74 2.46
- ------------------------------------------------------------------------------
Life of fund (10/26/89) 109.29 124.48 96.00 29.62
Annual average 8.98 9.87 8.16 3.07
- ------------------------------------------------------------------------------
All returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/98
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.48
- ------------------------------------------------------------------------------
Total $0.48
- ------------------------------------------------------------------------------
Preferred shares Series A (1,400 shares)
- ------------------------------------------------------------------------------
Income $1,875.71
- ------------------------------------------------------------------------------
Total $1,875.71
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
11/30/97 $12.05 $14.750
- ------------------------------------------------------------------------------
5/31/98 12.03 13.937
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 7.98% 6.89%
- ------------------------------------------------------------------------------
Taxable equivalent2 13.21 11.40
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 6/30/98
(most recent calendar quarter)
NAV Market price
- ------------------------------------------------------------------------------
6 months 2.20% 1.00%
- ------------------------------------------------------------------------------
1 year 9.09 8.64
- ------------------------------------------------------------------------------
5 years 33.13 51.41
Annual average 5.89 8.65
- ------------------------------------------------------------------------------
Life of fund (10/26/89) 109.99 134.84
Annual average 8.92 10.34
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. Investment returns and principal value will fluctuate so that
an investor's shares, when sold, may be worth more or less than their
original cost. See first page of performance section for performance
calculation method.
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 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 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. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
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.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31, 1998 (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
MUNICIPAL BONDS AND NOTES (98.5%) (a)
PRINCIPAL AMOUNT RATINGS (RAT) VALUE
<S> <C> <C> <C> <C>
Alabama (1.6%)
- -------------------------------------------------------------------------------------------------------------------------------
$ 5,500,000 Gadsden East, Med. Clinic Board Rev. Bonds
(Baptist Hosp. of Gadsden Inc.),
Ser. A, 7.8s, 11/1/21 BBB $ 6,235,625
California (9.1%)
- -------------------------------------------------------------------------------------------------------------------------------
2,000,000 Anaheim, Pub. Fin. Auth. Tax Allocation Rev. Bonds
MBIA, 8.95s, 12/28/18 Aaa 2,570,000
1,800,000 CA State, Econ. Dev. Fin. Auth. Rev. Bonds
(Volk Enterprises, Inc.) 3.75s, 6/1/21 A-1+ 1,800,000
4,650,000 CA State U. IFB, AMBAC, 9.71s, 11/1/21
(acquired various dates from 8/5/91 to 8/31/94,
cost $4,659,603) (RES) Aaa 5,440,500
5,200,000 Central Valley Fin. Auth. Rev. Bonds (Carson Ice),
6s, 7/1/09 BBB- 5,505,500
Los Angeles Cnty., Metro. Trans. Auth. Sales Tax
Rev. Bonds, MBIA
3,235,000 1st Tier Lien, Ser. A, 5 3/4s, 7/1/11 Aaa 3,509,975
3,030,000 2nd Tier Lien, 5 5/8s, 7/1/11 Aaa 3,261,038
4,425,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds (Continental Airlines), 9s, 8/1/17 B+ 4,543,856
1,400,000 Orange Cnty., Local Trans. Auth. IFB, FGIC,
7.911s, 2/14/11 (acquired 2/6/96,
cost $1,474,153) (RES) Aaa 1,641,500
2,550,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 Baa 2,652,765
4,625,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 4,497,813
------------
35,422,947
Colorado (8.7%)
- -------------------------------------------------------------------------------------------------------------------------------
CO Hsg. Fin. Auth. Rev. Bonds (Single Fam.)
2,000,000 Ser. B-2, 7s, 5/1/26 Aa2 2,272,500
1,000,000 Ser. B-3, 6.8s, 11/1/28 Aa2 1,135,000
Denver, City & Cnty. Arpt. Rev. Bonds
265,000 Prerefunded, Ser. A, 8 3/4s, 11/15/23 Aaa 308,394
735,000 Ser. A, 8 3/4s, 11/15/23 Baa1 846,169
410,000 Prerefunded, Ser. A, 8 1/2s, 11/15/23 Aaa 459,200
4,365,000 Ser. A, 8 1/2s, 11/15/23 Baa1 4,839,694
420,000 Prerefunded, Ser. A, 8 1/4s, 11/15/12 Aaa 467,775
4,480,000 Ser. A, 8 1/4s, 11/15/12 Baa1 4,956,000
1,380,000 Prerefunded, Ser. A, 8s, 11/15/25 Aaa 1,549,050
3,820,000 Ser. A, 8s, 11/15/25 Baa1 4,240,200
1,670,000 Prerefunded, Ser. D, 7 3/4s, 11/15/21 Aaa 1,891,275
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 3,802,500
6,330,000 Ser. D, 7 3/4s, 11/15/21 Baa1 7,073,775
------------
33,841,532
Connecticut (1.8%)
- -------------------------------------------------------------------------------------------------------------------------------
4,825,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(New England Power Co.), 7 1/4s, 10/15/15 A+ 5,114,500
2,000,000 CT State Res. Recvy. Auth. Muni. Rev. Bonds
(Bridgeport Service Fee), Ser. A, 7 1/2s, 1/1/09 A- 2,071,780
------------
7,186,280
District of Columbia (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
2,500,000 DC Rev. Bonds (Georgetown U.), Ser. B,
7.15s, 4/1/21 A1 2,605,375
Florida (3.7%)
- -------------------------------------------------------------------------------------------------------------------------------
11,065,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 11,936,369
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 2,335,000
------------
14,271,369
Georgia (2.9%)
- -------------------------------------------------------------------------------------------------------------------------------
4,000,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co.), MBIA, 8s, 1/1/22 Aaa 4,725,000
4,800,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 BBB+/P 5,226,000
1,000,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 8.698s, 8/1/10 Aaa 1,182,500
------------
11,133,500
Hawaii (1.7%)
- -------------------------------------------------------------------------------------------------------------------------------
5,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 9.081s, 11/1/21 Aaa 6,441,875
Illinois (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
2,385,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,671,200
Indiana (1.2%)
- -------------------------------------------------------------------------------------------------------------------------------
465,000 Indiana Bond Bank Note (Special Loan Program),
Ser. B, 8 1/2s, 2/1/18 A+ 477,127
3,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa2 3,258,750
1,000,000 Rockport, Indl. Poll. Control Rev. Bonds (Indiana-
Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,102,500
------------
4,838,377
Kansas (1.3%)
- -------------------------------------------------------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds (Kansas Gas &
Electric Co.), MBIA, 7s, 6/1/31 Aaa 4,933,125
Louisiana (7.3%)
- -------------------------------------------------------------------------------------------------------------------------------
9,250,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 9,943,750
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
2,500,000 8s, 12/1/24 Ba1 2,671,875
5,100,000 Ser. II, 7.7s, 12/1/14 Ba1 5,712,000
3,000,000 Ser. III, 7.7s, 12/1/14 Ba1 3,360,000
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB+ 6,712,500
------------
28,400,125
Maine (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
5,000,000 ME Fin. Auth. Solid Waste Recycling Fac.
Rev. Bonds (Great Northern Paper-Bowater),
7 3/4s, 10/1/22 Baa1 5,600,000
Maryland (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
3,035,000 MD Econ. Dev. Corp. Hlth. Care Facs. Rev. Bonds
(Crescent Cities), Ser. A, GNMA Coll.,
5.45s, 12/20/37 AAA 3,072,938
2,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 2,227,500
------------
5,300,438
Massachusetts (5.4%)
- -------------------------------------------------------------------------------------------------------------------------------
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB (Med. Ctr. of
Central MA), Ser. B, AMBAC, 8.82s, 6/23/22 Aaa 11,254,688
4,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 4,255,000
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Cape Cod
Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,618,750
------------
21,128,438
Michigan (2.0%)
- -------------------------------------------------------------------------------------------------------------------------------
1,715,000 Detroit, Dev. Fin. Auth. Tax Increment G.O. Bonds
Ser. A, 9 1/2s, 5/1/21 BBB+/P 2,128,744
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 8.613s, 7/1/22 Aaa 2,574,000
2,900,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 AAA/P 3,219,000
------------
7,921,744
Mississippi (2.1%)
- -------------------------------------------------------------------------------------------------------------------------------
7,950,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. C, 9 7/8s, 12/1/14 Ba1 8,380,970
Missouri (3.2%)
- -------------------------------------------------------------------------------------------------------------------------------
2,500,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 2,784,375
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Whispering Lake), Ser. A-11, FSA, 7.1s, 1/1/30 Aaa 9,689,875
------------
12,474,250
Nebraska (1.8%)
- -------------------------------------------------------------------------------------------------------------------------------
1,900,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA Coll., 11.14s, 3/15/22 Aaa 2,116,125
4,875,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, GNMA Coll, 8 1/8s, 8/15/38 Aaa 4,992,390
------------
7,108,515
Nevada (1.9%)
- -------------------------------------------------------------------------------------------------------------------------------
6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Nevada Power
Co.), 7.8s, 6/1/20 Baa3 6,995,625
500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest Gas
Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 555,625
------------
7,551,250
New York (7.2%)
- -------------------------------------------------------------------------------------------------------------------------------
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 3,955,000
2,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Brooklyn Navy
Yard Cogen. Partners), Ser. G, 5 3/4s, 10/1/36 Baa3 2,040,000
4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. B, 5 3/4s, 6/15/26 A2 4,346,000
NY State Dorm. Auth. Rev. Bonds
4,500,000 (City U. Syst.), Ser. F, 7 7/8s, 7/1/17 Aaa 4,933,125
6,250,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 AAA 6,812,500
2,000,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/20 Aaa 2,185,000
3,780,000 Triborough Bridge & Tunnel Auth. Gen. Purpose
Rev. Bonds, Ser. A, 5s, 1/1/24 Aa 3,690,225
------------
27,961,850
Ohio (1.5%)
- -------------------------------------------------------------------------------------------------------------------------------
5,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 5,781,250
Pennsylvania (4.3%)
- -------------------------------------------------------------------------------------------------------------------------------
2,690,000 Allegheny Cnty., Res. Fin. Auth. Mtge. Rev. Bonds
(Single Fam.) Ser. M, GNMA Coll., 7.9s, 6/1/11 Aaa 2,831,225
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Resource Recvy.
Rev. Bonds, 7 1/2s, 1/1/12 A 5,250,000
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.717s, 3/1/20 Aaa 8,654,500
------------
16,735,725
Puerto Rico (1.7%)
- -------------------------------------------------------------------------------------------------------------------------------
7,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. Rev. Bonds,
Ser. A, 5s, 7/1/38 A 6,746,250
Tennessee (3.9%)
- -------------------------------------------------------------------------------------------------------------------------------
2,600,000 Metropolitan Govt. Nashville & Davidson Cnty.
Tenn. Wtr. & Swr. IFB, AMBAC, 8.114s, 1/1/22 Aaa 3,029,000
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 12,167,125
------------
15,196,125
Texas (11.7%)
- -------------------------------------------------------------------------------------------------------------------------------
11,500,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express
Corp.), 6 3/8s, 4/1/21 Baa2 12,448,750
2,770,000 Austin, Indpt. School Dist. G.O. Bonds, 5 3/4s,
8/1/15 Aaa 2,932,738
2,500,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 2,900,000
5,000,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.) Ser. A, 7 7/8s, 3/1/21 Baa1 5,475,000
2,500,000 Dallas Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.),
7 1/2s, 11/1/25 Baa2 2,700,000
4,390,000 Matagorda Cnty., Poll. Control Rev. Bonds
(Houston Pwr. & Lt. Co.), Ser. D, FGIC,
7.6s, 10/1/19 Aaa 4,680,838
8,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C,
MBIA, 9.265s, 6/22/21 Aaa 9,440,000
4,500,000 TX State G.O. Bonds (Nat'l. Research Lab.
Communication Superconductor),
7 1/8s, 4/1/20 Aaa 4,831,870
------------
45,409,196
Utah (4.6%)
- -------------------------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. (Laidlaw Env.),
Ser. A, 7.45s, 7/1/17 B-/P 3,341,250
13,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 AAA 14,397,500
------------
17,738,750
Vermont (1.3%)
- -------------------------------------------------------------------------------------------------------------------------------
4,765,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB 5,175,981
Wisconsin (2.4%)
- -------------------------------------------------------------------------------------------------------------------------------
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds,
Ser. B, 7.05s, 11/1/22 A1 3,650,750
5,600,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(United Hlth. Group, Inc.), Ser. B, MBIA,
5 1/2s, 2020 Aaa 5,747,000
------------
9,397,750
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $361,160,149) (b) $ 383,589,812
- -------------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $389,523,726.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at May 31, 1998
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, 1998. Securities rated by Putnam are indicated by "/P" and
are not publicly rated.
(b) The aggregate identified cost on a tax basis is $361,160,940, resulting in gross unrealized appreciation and depreciation
of $24,320,266 and $1,891,394, respectively, or net unrealized appreciation of $22,428,872.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
May 31, 1998 was $7,082,000 or 1.8% of net assets.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the market interest
rates, and VRDN's are the current interest rates at May 31, 1998.
The fund had the following industry group concentrations greater than 10% at May 31, 1998 (as a percentage of net assets):
Utilities 24.6%
Transportation 19.8
Hospitals/Health care 16.2
Housing 11.3
The fund had the following insurance concentration greater than 10% at May 31, 1998
(as a percentage of net assets):
MBIA 15.0%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998 (Unaudited)
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $361,160,149) (Note 1) $383,589,812
- -------------------------------------------------------------------------------------------------
Cash 1,537,122
- -------------------------------------------------------------------------------------------------
Interest receivable 6,729,133
- -------------------------------------------------------------------------------------------------
Receivable for securities sold 185,000
- -------------------------------------------------------------------------------------------------
Total assets 392,041,067
Liabilities
- -------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,746,921
- -------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 678,543
- -------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 49,223
- -------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,170
- -------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,100
- -------------------------------------------------------------------------------------------------
Other accrued expenses 31,384
- -------------------------------------------------------------------------------------------------
Total liabilities 2,517,341
- -------------------------------------------------------------------------------------------------
Net assets $389,523,726
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) 230,042,753
- -------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,922,155
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,870,845)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 22,429,663
- -------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $389,523,726
Computation of net asset value
- -------------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- -------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on
remarketed preferred shares 29,916
- -------------------------------------------------------------------------------------------------
Net assets allocated to remarketed
preferred shares -- liquidation preference $140,029,916
- -------------------------------------------------------------------------------------------------
Net assets available to common shares $249,493,810
- -------------------------------------------------------------------------------------------------
Net asset value per common share
($249,493,810 divided by 20,743,267 shares) $12.03
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $12,760,746
- -------------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,345,385
- -------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 181,023
- -------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,336
- -------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,273
- -------------------------------------------------------------------------------------------------
Reports to shareholders 8,621
- -------------------------------------------------------------------------------------------------
Auditing 31,682
- -------------------------------------------------------------------------------------------------
Legal 17,427
- -------------------------------------------------------------------------------------------------
Exchange listing fees 23,991
- -------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 211,554
- -------------------------------------------------------------------------------------------------
Other 3,663
- -------------------------------------------------------------------------------------------------
Total expenses 1,833,955
- -------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (16,205)
- -------------------------------------------------------------------------------------------------
Net expenses 1,817,750
- -------------------------------------------------------------------------------------------------
Net investment income 10,942,996
- -------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (853,243)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 1,852,575
- -------------------------------------------------------------------------------------------------
Net gain on investments 999,332
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,942,328
- -------------------------------------------------------------------------------------------------
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
1998* 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 10,942,996 $ 22,541,282
- -------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (853,243) 1,176,166
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,852,575 3,151,505
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,942,328 26,868,953
- -------------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- -------------------------------------------------------------------------------------------------------------------
From net investment income (2,625,996) (5,144,062)
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $29,916
and $29,536 respectively) 9,316,332 21,724,891
- -------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- -------------------------------------------------------------------------------------------------------------------
From net investment income (9,935,967) (19,741,555)
- -------------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 1,312,301 2,357,814
- -------------------------------------------------------------------------------------------------------------------
Total increase in net assets 692,666 4,341,150
Net assets
- -------------------------------------------------------------------------------------------------------------------
Beginning of period 388,831,060 384,489,910
- -------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $4,922,155 and $6,541,122, respectively) $389,523,726 $388,831,060
- -------------------------------------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 20,646,799 20,470,991
- -------------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 96,468 175,808
- -------------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 20,743,267 20,646,799
- -------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year
(common shares) $12.05 $11.94 $12.37 $11.22 $13.44 $12.36
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .53 1.09 1.06 1.17 1.20 1.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .23 (.28) 1.23 (2.03) .91
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .59 1.32 .78 2.40 (.83) 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders (.48) (.96) (.96) (.94) (.97) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.13) (.25) (.25) (.28) (.19) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
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 (.61) (1.21) (1.21) (1.25) (1.39) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year
(common shares) $12.03 $12.05 $11.94 $12.37 $11.22 $13.44
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of year
(common shares) $13.937 $14.750 $13.625 $13.500 $11.880 $14.000
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market price
(common shares) (%)(a) (2.09)* 16.25 8.65 22.95 (6.74) 13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $389,524 $388,831 $384,490 $391,003 $364,814 $405,670
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .73* 1.43 1.49 1.50 1.45 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.32* 7.13 6.84 7.50 8.07 8.59
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 15.36* 26.91 146.43 122.65 78.97 33.73
- ------------------------------------------------------------------------------------------------------------------------------------
(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, 1998 (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.
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) 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.
C) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, 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, 1997, the fund had a capital loss carryover of approximately
$2,632,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- -----------------
$1,985,000 November 30, 2004
647,000 November 30, 2005
D) 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, 1998 was 3.90%. 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.
E) Determination of net asset value Net asset value of the common shares is
determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
F) 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 original issue discount
bonds are accreted according to the yield-to-maturity basis.
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 gross income attributable to the proceeds of
the remarketed preferred shares during that period, then the fee payable to
Putnam Management for that period will be reduced by the amount of the excess
(but not more than 0.70% of the liquidation preference of the remarketed
preferred shares outstanding during the period).
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended May 31, 1998, fund expenses were reduced by $16,205
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.
Each Trustee of the fund receives an annual Trustee fee, of which $540 has
been allocated to the fund, 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 "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
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 Tustees in the Statement of operations. Accrued pension
liability is included n 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, 1998, purchases and sales of investment
securities other than short-term investments aggregated $29,856,895 and
$36,262,890, 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. 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, 1998, no such restrictions have been placed on the fund.
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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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
43768-058 7/98
