Putnam
Investment
Grade Municipal
Trust
ANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Municipals' main draw, the tax-exempt interest, won't find much
competition from the new law's tax-free alternatives such as Roth
IRAs and the $250,000 exemption on home profits."
-- The Orange County (California) Register,
September 7, 1997
* "For investors in higher tax brackets, say 31% or greater,
municipal bonds are almost always a better choice. At these tax rates,
taxable bonds' after-tax yields can't compare to municipal bonds, even
though munis' stated yields generally are lower."
-- The (New Orleans) Times-Picayune,
September 30, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The global flight to the relative safety of bonds in the aftermath of the
Southeast Asian currency crisis in late October provided a dramatic and
positive finale to Putnam Investment Grade Municipal Trust's fiscal year.
In the 11 months prior to that occasion, the U.S. municipal bond market
had demonstrated solid, albeit tenuous, strength as many investors
cautiously set aside their lingering concerns about the economy,
interest rates, and renewed inflation.
Recognizing the fragility of the generally positive environment both
prior to and following the disruption in global markets, Fund Manager
Richard Wyke had pursued a slightly defensive policy in managing the fund.
As the year unfolded, however, he concluded that a somewhat more dynamic
strategy was in order and began adjusting the portfolio accordingly.
In the report that follows, Rick provides the specifics of his strategic
shift as well as details about the fiscal year's performance. Then he
offers some insights into what he believes is in store for the
months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Richard P. Wyke
An atmosphere of low volatility and narrow trading ranges characterized the
fixed-income markets for most of the year, influencing Putnam Investment Grade
Municipal Trust's strategy and performance. This lack of direction stemmed
from an ongoing tug of war between high economic growth (negative for the bond
market) and favorable low inflation news (positive for the bond market).
But the Pacific Rim crisis and subsequent worldwide equity market correction
in October changed all that. For a short time afterward, the municipal market,
normally somewhat removed from such events, became caught up in the worldwide
volatility. By the end of November, however, things had begun to settle down
and your fund turned in a respectable performance for the fiscal year ended
November 30, 1997, returning 8.37% at net asset value and 16.25% at market
price. This performance surpassed the fund's benchmark, the Lehman Brothers
Municipal Bond Index, which posted a 7.18% return. Please see pages 8 and 9
for additional performance information.
* TAKING ADVANTAGE OF QUALITY SPREAD COMPRESSION
During the period, the gap between yields of lower-rated investment grade
bonds versus higher-rated securities narrowed dramatically. When interest
rates are low and bond investors' confidence level is strong, as both have
been recently, investors are usually more comfortable with an increased level
of credit risk. As a result, demand for bonds in the lower tiers of the sector
has increased, and these bonds have outperformed higher-quality bonds for much
of the period.
As prices for these lower-rated bonds rise, however, their yields approach
those of higher-rated issues. Given this quality spread compression, we are
taking profits on selected lower-rated investment-grade bonds as their
valuations peak and expect the tighter spreads to continue as long as economic
growth remains strong. At the end of the period, approximately 23% of the
portfolio's market value was invested in Baa-rated bonds, while 47.6% of the
portfolio's market value was securities of the highest credit quality, rated
Aaa/VMIG1.
* HEALTH CARE, UTILITIES, TRANSPORTATION REMAIN TOP SECTORS
Another way we seek to improve returns is through careful security selection
and in-depth credit research. This entails choosing the right issues within
each sector and is especially important when reviewing higher-risk bond
issuers. Utilities, transportation, and health care were the portfolio's top
three sectors on November 30, 1997. With careful selection and intensive
credit research, we have been able to take advantage of opportunities in these
sectors to provide shareholders with an attractive level of monthly income.
In an era of cost cutting and reform, the health-care industry was inundated
with consolidations between nonprofit and for-profit institutions during much
of the year. The Justice Department's recent investigation of Columbia
Healthcare, a publicly traded company and an active buyer of hospitals, has
slowed acquisition activity, thereby eliminating a valuable catalyst for
credit upgrades. However, new issuance in this sector has been low, providing
a natural price support for existing bonds. Your fund's position in hospital
bonds has benefited from this trend, appreciating substantially while
continuing to provide attractive levels of income. While these holdings, as
well as others discussed in this report, were viewed favorably at the end of
the period, all portfolio holdings are subject to review and change in
accordance with the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 25.3%
Transportation 19.6%
Hospitals/Health care 15.2%
Housing 11.6%
Education 7.8%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
Investor-owned and municipal utility bonds have always played a significant
role in the fund's income strategy, and this is evidenced by the fact that
some of the portfolio's highest-yielding bonds come from this sector. Public
utility bonds are a type of revenue bond that is self-funding; that is, user
fees paid for services become the source of the bonds' payments to investors.
Since the issuers have the ability to set user fees, income from these bonds
is relatively stable and they carry a lower risk of default than other types
of municipal bonds. The economic health and potential growth of each utility's
service area are important variables when evaluating the credit risk of public
utility bond issuers.
* CONSOLIDATIONS, COST CUTTING, STRONG ECONOMY HELP AIRLINES
The transportation sector is mainly composed of airline and airport bonds.
This industry is benefiting from years of cost cutting and industry
consolidation, which has created healthier, more stable airline companies.
Furthermore, a strong economy coupled with steady capacity and strong consumer
demand is also boosting profits. Increased passenger capacity on the airlines
also brings increased fees and cash flow to airport operations and associated
facilities such as restaurants, parking, hotels, and retail stores.
One way your fund's management team seeks to provide high and durable returns
is by improving call risk within the fund. Our goal is to enhance the
durability of the income stream by extending call dates on holdings. Callable
bonds carry the option of being redeemed, or called away, by the issuer at a
certain future date. Bonds are normally called away if interest rates are
lower than when the bonds were originally issued. By avoiding callable bonds,
the portfolio has a better chance of maintaining a stable level of income.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa 47.2%
Aa 7.9%
A 11.0%
Baa 22.7%
Ba 7.9%
B 2.6%
VMIGI 0.4%
Other 0.3%
Footnote reads:
*As a percentage of market value as of 11/30/97. 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.
* CAUTIOUS OUTLOOK: MUNICIPAL MARKET SETTLING DOWN
Although worldwide markets remain focused on the Pacific Rim crisis and its
repercussions, U.S. economic growth is still robust and supported by favorable
labor conditions. While the municipal market seems to be settling down, there
still may be periods of moderate volatility caused by the uncertainty
surrounding the impact of Asia's debacle. It is quite possible that the Asian
crisis will aid the Federal Reserve Board's efforts to keep inflation at bay.
We realize that volatility can be unsettling for investors, but as
professional money managers, we can take advantage of short-term volatility
and improve the fund's return over time.
As time goes on, we still believe that there will be a moderate upward drift
in interest rates driven by healthy employment and the strong economy in the
United States. Our focus on key strategies such as reducing call risk and
careful security selection should serve your fund very well as we move into
1998.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 11/30/97, 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 11/30/97
(common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
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1 year 8.37% 16.25% 7.18% 1.83%
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5 years 44.00 64.44 42.06 13.73
Annual average 7.57 10.46 7.27 2.61
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Life of fund (10/26/89) 102.30 129.26 88.86 28.58
Annual average 9.09 10.79 8.18 3.16
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/97
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Distributions (common shares)
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Number 12
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Income $0.960
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Total $0.960
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Preferred shares Series A (1,400 shares) --
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Income $3,674.33
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Capital gains --
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Total $3,674.33
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Share value (common shares): NAV Market price
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11/30/96 $11.94 $13.625
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11/30/97 12.05 14.750
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Current return (common shares): NAV Market price
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Current dividend rate1 7.97% 6.51%
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Taxable equivalent2 13.20 10.78
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1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
2 Assumes maximum 39.6% federal tax rate at end-of-period dividend rate.
Results for investors subject to lower tax rates would not be as
advantageous.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
(common shares)
NAV Market price
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1 year 10.02% 19.34%
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5 years 43.73 65.72
Annual average 7.53 10.63
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Life of fund (10/26/89) 105.47 132.50
Annual average 9.20 10.87
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
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
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.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Investment Grade Municipal Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam Investment Grade Municipal Trust (the "fund") at November
30, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at November 30,
1997 by correspondence with the custodian and the application of alternative
auditing procedures where investments purchased were not yet received by the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 9, 1998
Portfolio of investments owned
November 30, 1997
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 (101.3%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Alabama (1.6%)
<S> <C> <C> <C>
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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 $ 6,276,875
Arizona (0.7%)
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1,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Asarco, Inc.), Ser. 87, 8.9s, 7/1/06 BBB 1,034,510
1,700,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Co.-Irvington), Ser. A, 3.9s, 10/1/22 VMIG1 1,700,000
--------------
2,734,510
California (9.5%)
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4,650,000 CA State U. IFB, AMBAC, 10.224s, 11/1/21
(acquired various dates from 8/5/91 to 8/31/94,
cost $4,659,603) [DBL. DAGGERS] Aaa 5,533,500
5,200,000 Central Valley Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration), 6s, 7/1/09 BBB- 5,466,500
3,000,000 Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G,
MBIA, 5s, 10/1/24 Aaa 2,880,000
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 3,425,056
3,030,000 2nd Tier Lien, 5 5/8s, 7/1/11 Aaa 3,181,500
4,425,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds (Continental Airlines), 9s, 8/1/17 B+ 4,633,019
2,800,000 Orange Cnty., Local Trans. Auth. Sales Tax
Rev. Bonds, FGIC, 6.1s, 2/14/11 Aaa 3,038,000
2,550,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management), 7 7/8s, 12/1/13 Baa 2,664,725
4,625,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 4,440,000
1,800,000 Stockton, Multi-Fam. Hsg. VRDN
(Mariners Pointe Assn.), Ser. A, 3.7s, 9/1/18 A-1+ 1,800,000
--------------
37,062,300
Colorado (10.6%)
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CO Hsg. Fin. Auth. Rev. Bonds (Single Fam.), Ser. B-2
2,000,000 7s, 5/1/26 Aa2 2,257,500
1,000,000 6.8s, 11/1/28 Aa2 1,126,250
Denver, City & Cnty. Arpt. Rev. Bonds
735,000 Ser. A, 8 3/4s, 11/15/23 Baa1 862,706
265,000 Prerefunded, Ser. A, 8 3/4s, 11/15/23 Aaa 310,713
4,365,000 Ser. A, 8 1/2s, 11/15/23 Baa1 4,905,169
410,000 Prerefunded, Ser. A, 8 1/2s, 11/15/23 Aaa 463,300
4,480,000 Ser. A, 8 1/4s, 11/15/12 Baa1 5,006,400
420,000 Prerefunded, Ser. A, 8 1/4s, 11/15/12 Aaa 471,450
3,820,000 Ser. A, 8s, 11/15/25 Baa1 4,264,075
1,380,000 Prerefunded, Ser. A, 8s, 11/15/25 Aaa 1,555,950
6,330,000 Ser. A, 7 3/4s, 11/15/21 Baa1 7,105,425
1,670,000 Prerefunded, Ser. A, 7 3/4s, 11/15/21 Aaa 1,895,450
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 3,750,000
7,000,000 Ser. A, MBIA, 5 1/2s, 11/15/25 Aaa 7,070,000
--------------
41,044,388
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 A1 5,168,781
2,000,000 CT State Resource Recvy. Auth. Muni. Rev. Bonds
(Bridgeport Service Fee), Ser. A, 7 1/2s, 1/1/09 Baa1 2,094,600
--------------
7,263,381
District of Columbia (0.7%)
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2,500,000 DC Rev. Bonds (Georgetown U.), Ser. B,
7.15s, 4/1/21 A1 2,634,375
Florida (3.7%)
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11,065,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 12,047,019
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 2,305,000
--------------
14,352,019
Georgia (2.6%)
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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 4,745,000
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
--------------
9,971,000
Hawaii (1.3%)
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4,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 9.132s, 11/1/21 A 5,090,625
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 Baa2 2,758,050
Indiana (0.5%)
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1,000,000 Indiana Bond Bank Rev. Bonds (Special Loan
Program), Ser. B, 8 1/2s, 2/1/18 A+ 1,026,500
1,000,000 Rockport, Indl. Poll. Control Rev. Bonds
(Indiana-Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,110,000
--------------
2,136,500
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 4,950,000
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 Baa3 10,047,813
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Utils. Co.)
2,500,000 8s, 12/1/24 Ba1 2,687,500
5,100,000 Ser. II, 7.7s, 12/1/14 Ba1 5,782,125
3,000,000 Ser. III, 7.7s, 12/1/14 Ba1 3,401,250
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB+ 6,757,500
--------------
28,676,188
Maine (1.4%)
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5,000,000 ME Fin. Auth. Solid Waste Recycling Fac. Rev. Bonds
(Great Northern Paper-Bowater), 7 3/4s, 10/1/22 Baa1 5,606,250
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 2,257,500
Massachusetts (5.7%)
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8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB (Med. Ctr. of
Central MA), Ser. B, AMBAC, 8.97s, 6/23/22 Aaa 10,970,313
4,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 4,205,000
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Cape Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,687,500
1,100,000 MA State Wtr. Poll. Auth. Rev. Bonds, Ser. B,
5 1/4s, 8/1/14 Aa2 1,120,625
--------------
21,983,438
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 2,183,931
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 8.765s, 7/1/22 Aaa 2,546,500
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 AAA/P 3,393,750
--------------
8,428,381
Mississippi (2.2%)
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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 Ba1 8,591,645
Missouri (3.8%)
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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 2,803,125
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Whispering Lake), Ser. A-11, FSA, 7.1s, 1/1/30 Aaa 9,656,500
2,000,000 Sikeston, Elec. Auth. Rev. Bonds, MBIA, 6s, 6/1/13 Aaa 2,227,500
--------------
14,687,125
Nebraska (2.0%)
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2,000,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA Coll., 11.155s, 3/15/22 Aaa 2,240,000
5,405,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, GNMA Coll, MBIA,
8 1/8s, 8/15/38 Aaa 5,591,959
--------------
7,831,959
Nevada (1.8%)
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6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (NV Pwr. Co.),
7.8s, 6/1/20 Baa3 7,052,500
New York (7.9%)
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4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. B, 5 3/4s, 6/15/26 A2 4,212,750
NY State Dorm. Auth. Rev. Bonds
4,500,000 (City U. Syst.), Ser. F, 7 7/8s, 7/1/17 Aaa 4,989,375
6,250,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 6,882,813
2,000,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/20 Aaa 2,205,000
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 A1 2,493,610
1,535,000 NY State Urban Dev. Corp. Rev. Bonds
(Syracuse U. Ctr.), 6s, 1/1/08 Baa1 1,659,719
8,780,000 Triborough Bridge & Tunnel Auth. Gen. Purpose
Rev. Bonds, Ser. A, 5s, 1/1/24 Aa 8,362,950
--------------
30,806,217
Ohio (1.5%)
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5,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 5,806,250
Pennsylvania (4.3%)
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2,875,000 Allegheny Cnty., Res. Fin. Auth. Mtge. Rev. Bonds
(Single Fam.), Ser. M, GNMA Coll., 7.9s, 6/1/11 Aaa 3,040,313
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Resource Recvy.
Rev. Bonds, 7 1/2s, 1/1/12 A 5,337,500
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.919s, 3/1/20 Aaa 8,531,000
--------------
16,908,813
Tennessee (3.9%)
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2,600,000 Metropolitan Govt. Nashville & Davidson Cnty.
Tenn. Wtr. & Swr. IFB, AMBAC, 8.266s, 1/1/22 Aaa 2,928,250
10,900,000 SCA Tax Exempt Trust Multi-Family Mtge.
Rev. Bonds (Steeplechase Falls), Ser. A-10,
FSA, 7 1/8s, 1/1/30 Aaa 12,153,500
--------------
15,081,750
Texas (9.6%)
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6,500,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 6,971,250
2,770,000 Austin, School Dist. G.O. Bonds, PSFG,
5 3/4s, 8/1/15 Aaa 2,877,338
2,500,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 2,909,375
5,000,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa1 5,512,500
4,390,000 Matagorda Cnty., Poll. Control Rev. Bonds
(Houston Lt. & Pwr.), Ser. D, FGIC, 7.6s, 10/1/19 Aaa 4,724,738
8,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
9.425s, 6/15/21 Aaa 9,550,000
4,500,000 TX State National Research Lab Communication
Superconductor G.O. Bonds, 7 1/8s, 4/1/20 Aa2 4,876,875
--------------
37,422,076
Utah (5.3%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. Rev. Bonds
(Laidlaw Env.), Ser. A, 7.45s, 7/1/17 B-/P 3,198,750
16,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 Aaa 17,460,000
--------------
20,658,750
Vermont (1.3%)
- ------------------------------------------------------------------------------------------------------------
4,830,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB 5,210,363
Virginia (2.7%)
- ------------------------------------------------------------------------------------------------------------
10,085,000 VA Port Auth. Cmnwlth. Port Rev. Bonds,
5 1/2s, 7/1/08 Aa2 10,501,002
West Virginia (0.2%)
- ------------------------------------------------------------------------------------------------------------
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%)
- ------------------------------------------------------------------------------------------------------------
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B,
7.05s, 11/1/22 A1 3,655,000
5,600,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(United Hlth. Group, Inc.), Ser. B, MBIA,
5 1/2 s, 12/15/20 Aaa 5,635,000
--------------
9,290,000
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $373,197,142) *** $ 393,774,230
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $388,831,060.
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
November 30, 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 November 30, 1997.
Securities rated by Putnam are indicated by "/P" and are
not publicly rated. Ratings are not covered by the Report
of independent accountants.
*** The aggregate identified cost on a tax basis is $373,197,933,
resulting in gross unrealized appreciation and depreciation
of $24,002,530 and $3,426,233, respectively, or net
unrealized appreciation of $20,576,297.
+ Non-income-producing security.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
November 30, 1997, was $5,533,500 or 1.4% of net assets.
The rates shown on IFBs, which are securities paying interest
rates that vary inversely to changes in the market interest
rates, and VRDNs are the current interest rates at
November 30, 1997.
The fund had the following industry group concentrations
greater than 10% at November 30, 1997 (as a percentage of
net assets:)
Utilities 25.3%
Transportation 19.6
Hospitals/Health care 15.2
Housing 11.6
The fund had the following insurance concentrations greater
than 10% at November 30, 1997 (as a percentage of net assets:)
MBIA 19.4%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $373,197,142) (Note 1) $393,774,230
- ---------------------------------------------------------------------------------------------------
Cash 330,580
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,146,662
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 575,000
- ---------------------------------------------------------------------------------------------------
Total assets 401,826,472
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,752,394
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 10,448,314
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 675,794
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 43,195
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,885
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,155
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 65,675
- ---------------------------------------------------------------------------------------------------
Total liabilities 12,995,412
- ---------------------------------------------------------------------------------------------------
Net assets $388,831,060
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) 228,730,452
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 6,541,122
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,017,602)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 20,577,088
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $388,831,060
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 29,536
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed
preferred shares -- liquidation preference $140,029,536
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $248,801,524
- ---------------------------------------------------------------------------------------------------
Net asset value per common share
($248,801,524 divided by 20,646,799 outstanding shares) $12.05
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1997
<S> <C>
Tax exempt interest income: $25,981,015
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 2,686,847
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 269,382
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,080
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,116
- --------------------------------------------------------------------------------------------------
Reports to shareholders 24,954
- --------------------------------------------------------------------------------------------------
Auditing 56,141
- --------------------------------------------------------------------------------------------------
Legal 29,881
- --------------------------------------------------------------------------------------------------
Exchange listing fees 30,261
- --------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 359,889
- --------------------------------------------------------------------------------------------------
Other 7,754
- --------------------------------------------------------------------------------------------------
Total expenses 3,486,305
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (46,572)
- --------------------------------------------------------------------------------------------------
Net expenses 3,439,733
- --------------------------------------------------------------------------------------------------
Net investment income 22,541,282
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 564,856
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 611,310
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 3,151,505
- --------------------------------------------------------------------------------------------------
Net gain on investments 4,327,671
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $26,868,953
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
--------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment income $ 22,541,282 $ 21,874,192
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 1,176,166 17,036
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 3,151,505 (6,157,973)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,868,953 15,733,255
- --------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income (5,144,062) (5,200,089)
- --------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- (45,038)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed
preferred shares of $29,536 and $13,080, respectively 21,724,891 10,488,128
- --------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income (19,741,555) (19,568,069)
- --------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 2,357,814 2,567,091
- --------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,341,150 (6,512,850)
- --------------------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------------------
Beginning of year 384,489,910 391,002,760
- --------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $6,541,122 and $8,901,036, respectively) $388,831,060 $384,489,910
- --------------------------------------------------------------------------------------------------
Number of fund shares
- --------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 20,470,991 20,272,824
- --------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 175,808 198,167
- --------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 20,646,799 20,470,991
- --------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of year 1,400 1,400
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year
(common shares) $11.94 $12.37 $11.22 $13.44 $12.36
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.09 1.06 1.17 1.20 1.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 (.28) 1.23 (2.03) .91
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.32 .78 2.40 (.83) 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders (.96) (.96) (.94) (.97) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.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 (1.21) (1.21) (1.25) (1.39) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year
(common shares) $12.05 $11.94 $12.37 $11.22 $13.44
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of year
(common shares) $14.750 $13.625 $13.500 $11.880 $14.000
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market price
(common shares) (%)(a) 16.25 8.65 22.95 (6.74) 13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $388,831 $384,490 $391,003 $364,814 $405,670
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.43 1.49 1.50 1.45 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 7.13 6.84 7.50 8.07 8.59
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
November 30, 1997
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) 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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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.
D) 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, 1997, the fund had a capital loss carryover of approximately
$2,632,000 available to offset future net capital gain, 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
E) 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 November 30, 1997 was 3.85%. The amount and character of
income and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences include treatment of realized and unrealized
gains and losses on certain futures contracts, dividends payable, and
defaulted bond interest. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year ended
November 30, 1997, the fund reclassified $15,579 to decrease undistributed net
investment income and $3,034 to increase paid-in-capital, with a decrease to
accumulated net realized loss on investments of $12,545. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
F) Determination of net asset value Net asset value of the common shares is
determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
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. The premium in excess of the call
price, if any, is amortized to the call date; thereafter, the remaining excess
premium is amortized to maturity. Discounts on zero coupon bonds and original
issue discount 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 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 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 year ended November 30, 1997, fund expenses were reduced by $46,572
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 Trustees fee, of which $628 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 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 year ended November 30, 1997, purchases and sales of investment
securities other than short-term investments aggregated $117,846,707 and
$102,252,364, 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
November 30, 1997, no such restrictions have been placed on the fund.
Federal tax information
(Unaudited)
The fund has designated 91% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
<TABLE>
<CAPTION>
Results of October 9, 1997 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on October 9, 1997. At the
meeting, each of the nominees for Trustees was elected, as follows:
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
<S> <C> <C> <C> <C>
Jameson Adkins Baxter 18,726,006 274,043 1,134 15
Hans H. Estin 18,725,126 274,923 1,134 15
John A. Hill not applicable not applicable 1,134 15
R.J. Jackson 18,744,521 255,528 1,134 15
Elizabeth T. Kennan 18,734,783 265,266 1,134 15
Lawrence J. Lasser 18,744,627 255,422 1,134 15
Robert E. Patterson not applicable not applicable 1,134 15
Donald S. Perkins 18,729,581 270,468 1,134 15
William F. Pounds 18,729,180 270,869 1,134 15
George Putnam 18,731,299 268,750 1,134 15
George Putnam, III 18,734,547 265,502 1,134 15
A.J.C. Smith 18,743,414 256,635 1,134 15
W. Nicholas Thorndike 18,740,567 259,482 1,134 15
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows:
Common Shares -- 18,698,641 votes for, and 60,606 votes against,
with 240,802 abstentions and non-broker votes.
Preferred Shares -- 1,134 votes for, and 15 votes against,
with 0 abstentions and non-broker votes.
All tabulations are rounded to nearest whole number.
</TABLE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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
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 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
- --------------------
36870 1/98
