Putnam
Investment Grade
Municipal
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "It is reassuring to know that we have a Federal Reserve Board that is
prepared to step in to stabilize the markets when a crisis occurs."
-- Richard P. Wyke
Putnam Investment Grade Municipal Trust
* "We're at historical highs in terms of muni yields relative to
Treasuries. They represent an unprecedented bargain and opportunity."
-- Money, Year End, 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
17 Financial statements
26 Results of October 1, 1998 shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The rush of foreign investors to the safety of U.S. Treasury bonds in
recent months has driven prices on these securities markedly higher.
Because of the inverse relationship of yields to prices, yields on 30-year
Treasuries have declined to virtually the same level as those on long-term
municipals. This near parity has made tax-exempt bonds unusually
attractive for U.S. investors.
The increased demand for tax-exempt bonds, however, is not likely to be
matched by a new supply; most issuers have already refinanced outstanding
bonds at lower rates and the flow of refundings has fallen off markedly.
Thus one of the greatest challenges for Fund Manager Richard Wyke may
continue to be that of finding securities that meet Putnam Investment
Grade Municipal Trust's strict selection criteria.
In the following report from Rick, you will find details of these
developments and other aspects of the fund's performance during the fiscal
year that closed on November 30, 1998. He also offers his views on
prospects for the fiscal year that just began.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
Report from the Fund Manager
Richard P. Wyke
After a turbulent autumn, the municipal bond market has calmed down and
even slightly outperformed the Treasury market. Long-term municipal bond
yields are approximately the same as the 30-year Treasury bond yield --
exhibiting a remarkable level of cheapness against Treasuries. This ratio
dropped to 97% during November, but by the end of the month, it had
returned to 100%. Considering that this ratio stood between 85% and 95%
for most of the 1990s, today's relationship is quite unusual and, in our
opinion, indicates a buying opportunity.
It is within this environment that Putnam Investment Grade Municipal Trust
continued to produce high current income exempt from federal taxes as well
as a solid total return. For the 12 months ended November 30, 1998, the
fund's common shares earned total returns of 6.98% at net asset value and
8.73% at market price. For complete performance information, please see
pages 8 and 9.
* FLIGHT TO QUALITY DRIVES TREASURY YIELDS DOWN
Municipal bonds arrived at these unprecedented yield ratios after a string
of international problems set off the stock market volatility and the bond
market rallies. As foreign investors and hedge fund investors panicked
about plummeting stock markets, they began the flight to quality --
selling hedge funds and emerging-markets funds in favor of the safety of
U.S. Treasury bonds. This buying drove up the prices of Treasuries while
pushing down their yields. Since foreign investors do not benefit from the
tax advantages of municipal bonds, prices in this market did not rise as
much as those of Treasuries. For the past few months, municipal bond
yields have been extremely close or equal to Treasury yields, making
municipal bonds an exceptional investment choice for U.S. investors.
* REFUNDINGS SLOW; MUNICIPAL SUPPLY BEGINS TO MODERATE
Normally, when interest rates fall, refundings boost the bond supply. But
rates have been low for some time; most issuers have already completed
their refundings and we expect that the supply of new issues will slow --
a positive factor for municipal bond prices. The calendar of municipal
bond sales usually slows during the holiday season as well.
The yield relationship of Treasury and municipal securities is also
contributing to the decline in supply. Since Treasury yields fell so
dramatically relative to municipal yields, the Treasury escrows used in
prerefundings are not adequate to pay off the municipal issues.
* SEARCHING FOR INCOME OPPORTUNITIES
Since last spring, one of our challenges has been to deliver an attractive
level of income in a market in which yields have fallen. We have tried to
meet this challenge by exploring attractive opportunities in key industry
sectors, including utilities, transportation and health care.
Transportation issues have fared well over the past year, since capacity
has remained steady and fuel costs have been low. This combination of
factors has enabled airlines to increase prices and helped support airport
revenues. For example, Denver (Colorado) City and County Airport revenue
bonds with a Baa1 rating have generated steady income for some time. As
the economy slows down, however, this sector may need closer scrutiny.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 22.4%
Transportation 19.1%
Hospitals/health care 10.8%
Housing 9.9%
Education 8.6%
Footnote reads:
*Based on net assets as of 11/30/98. Holdings will vary over time.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 9.2%
Baa -- 31.2%
Ba and below -- 8.8%
VMIGI -- 1.2%
Aaa -- 45.2%
Aa -- 4.4%
Footnote reads:
*As a percentage of market value as of 11/30/98. 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.
Another strategy we have used has been to extend call protection as we
make new investments. This is done by purchasing noncallable bonds or
bonds with distant call dates. 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 they were when
the bonds were originally issued. By avoiding callable bonds, the
portfolio has a better chance of maintaining a certain level of income.
The potential for declining income may be offset in part by leveraging, a
strategy that has been useful in enhancing the trust's income. The fund
issues preferred shares to institutional short-term investors at low rates
and reinvests the proceeds in higher-paying longer-term bonds. The effect
is a more positive cash flow for the fund's common shareholders.
* INTEREST-RATE CUTS SEND POSITIVE MESSAGE
It is reassuring to know that we have a Federal Reserve Board that is
prepared to step in to stabilize the markets when a crisis occurs. As of
period's end, the Fed has cut interest rates three times -- totaling 75
basis points -- sending a positive message to the world and Wall Street.
With the Fed's encouragement, we anticipate a slowing, but still strong
U.S. economy supported by consumers' willingness to spend. And on the
local level, cities and towns are still enjoying increases in tax
collections, always a positive aspect of the municipal bond market.
Looking ahead, the municipal bond market appears stable, offering superb
value for tax-conscious investors.
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 11/30/98, there is no guarantee the fund will
continue to hold these securities in the future.
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 high
current income free from federal income tax, consistent with preservation
of capital.
TOTAL RETURN FOR PERIODS ENDED 11/30/98
(common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- ---------------------------------------------------------------------
1 year 6.98% 8.73% 7.77% 1.55%
- ---------------------------------------------------------------------
5 years 31.85 57.47 37.81 12.48
Annual average 5.69 9.51 6.63 2.38
- ---------------------------------------------------------------------
Life of Fund (10/26/89) 116.42 149.27 103.52 30.57
Annual average 8.85 10.56 8.14 2.98
- ---------------------------------------------------------------------
Past performance is not indicative of future results. More recent returns
may be more or less than those shown. 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 11/30/98
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 12
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Income $0.96
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Capital gains1 --
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Total $0.96
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Preferred shares Series A (1400 shares)
- ------------------------------------------------------------------------------
Income $3,629.68
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Capital gains1 --
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Total $3,629.68
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Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
11/30/97 $12.05 $14.750
- ------------------------------------------------------------------------------
11/30/98 11.98 14.937
- ------------------------------------------------------------------------------
Current return (common shares end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 8.01% 6.43%
- ------------------------------------------------------------------------------
Taxable equivalent3 13.26 10.65
- ------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price of common shares at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(most recent calendar quarter)
(common shares)
NAV Market price
- ------------------------------------------------------------------------------
1 year 5.69% 9.15%
- ------------------------------------------------------------------------------
5 years 29.20 56.55
Annual average 5.26 9.38
- ------------------------------------------------------------------------------
Life of fund (10/26/89) 117.17 153.78
Annual average 8.81 10.68
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's common 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 one common
share. 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 assumes reinvestment of all distributions
and interest payments and does not take in account brokerage fees or
taxes. 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
For the fiscal year ended November 30, 1998
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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 8, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1998
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
MUNICIPAL BONDS AND NOTES (95.9%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C> <C> <C>
Alabama (1.6%)
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$ 5,500,000 Gadsden East, Med. Clinic Board Rev. Bonds
(Baptist Hosp. of Gadsden Inc.), Ser. A, 7.8s,
11/1/21 BBB $ 6,215,000
Arkansas (1.1%)
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4,000,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7s, 2/1/10 B+/P 4,305,000
California (8.3%)
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2,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA, 9.12s, 12/28/18 Aaa 2,592,500
4,650,000 CA State U. IFB, AMBAC, 9.959s, 11/1/21
(acquired 3/2/92, cost $19,013,580) (RES) Aaa 5,411,438
5,200,000 Central Valley Fin. Auth. Rev. Bonds (Carson Ice-
Cogeneration), 6s, 7/1/09 BBB- 5,583,500
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 3,598,938
3,030,000 2nd Tier Lien, 5 5/8s, 7/1/11 Aaa 3,325,425
4,425,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds (Continental Airlines), 9s, 8/1/17 BB+/P 4,543,723
1,000,000 Los Angeles, School Dist. COP VRDN
(Belmont Learning Complex), Ser. A,
3.05s, 12/1/17 VMIG1 1,000,000
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 1,657,250
4,625,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 4,625,000
--------------
32,337,774
Colorado (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
CO Hsg. Fin. Auth. Rev. Bonds (Single Fam.), Ser. B-2
2,000,000 7s, 5/1/26 AA+/P 2,232,500
1,000,000 6.8s, 11/1/28 AA+/P 1,127,500
Denver, City & Cnty. Arpt. Rev. Bonds
735,000 Ser. A, 8 3/4s, 11/15/23 Baa1 834,225
265,000 Prerefunded, Ser. A, 8 3/4s, 11/15/23 Aaa 306,406
4,365,000 Ser. A, 8 1/2s, 11/15/23 Baa1 4,779,675
410,000 Prerefunded, Ser.A, 8 1/2s, 11/15/23 Aaa 455,613
4,480,000 Ser. A, 8 1/4s, 11/15/12 Baa1 4,877,600
420,000 Prerefunded, Ser. A, 8 1/4s, 11/15/12 Aaa 464,625
3,820,000 Ser. A, 8s, 11/15/25 Baa1 4,192,450
1,380,000 Prerefunded, Ser.A, 8s, 11/15/25 Aaa 1,542,150
6,330,000 Ser. A, 7 3/4s, 11/15/21 Baa1 7,002,563
1,670,000 Prerefunded, Ser.A, 7 3/4s, 11/15/21 Aaa 1,885,013
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 3,843,750
--------------
33,544,070
Connecticut (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,825,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(New England Power Co.), 7 1/4s, 10/15/15 A1 5,066,347
2,000,000 CT State Resource Recvy. Auth. Muni. Rev. Bonds
(Bridgeport Service Fee), Ser. A, 7 1/2s, 1/1/09 A2 2,044,360
--------------
7,110,707
District of Columbia (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 DC Rev. Bonds (Georgetown U.), Ser. B, 7.15s,
4/1/21 A1 2,573,425
Florida (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,525,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 11,194,495
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 2,310,000
--------------
13,504,495
Georgia (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), 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 5,352,000
1,000,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 8.901s, 8/1/10 Aaa 1,185,000
--------------
11,262,000
Hawaii (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 9.386s, 11/1/21 Aa1 6,366,250
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 2,638,406
Indiana (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Indiana Bond Bank Rev. Bonds (Special Loan
Program), Ser. B, 8 1/2s, 2/1/18 A 314,163
3,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev.
Bonds (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa2 3,217,500
1,000,000 Rockport, Indl. Poll. Ctrl. Rev. Bonds
(Indiana-Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,097,500
--------------
4,629,163
Kansas (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds (Kansas Gas
& Electric Co.), MBIA, 7s, 6/1/31 Aaa 4,921,875
Louisiana (7.2%)
- --------------------------------------------------------------------------------------------------------------------------
9,250,000 St. Charles, Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 9,817,488
W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
2,500,000 8s, 12/1/24 Ba1 2,631,000
5,100,000 Ser. II, 7.7s, 12/1/14 Ba1 5,648,250
3,000,000 Ser. III, 7.7s, 12/1/14 Ba1 3,322,500
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB+ 6,652,500
--------------
28,071,738
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 5,568,750
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 3,103,288
2,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds,
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 2,200,000
--------------
5,303,288
Massachusetts (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB (Med. Ctr. of
Central MA), Ser. B, AMBAC, 9.19s, 6/23/22 Aaa 11,484,375
4,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 4,435,000
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Cape
Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,568,750
--------------
21,488,125
Michigan (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,715,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 2,105,163
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 9.221s, 7/1/22 Aaa 2,557,500
2,900,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 3,161,000
--------------
7,823,663
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 Aa2 2,856,250
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Whispering Lake), Ser. A-11, FSA, 7.1s, 1/1/30 Aaa 9,701,000
--------------
12,557,250
Nebraska (0.5%)
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1,700,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA Coll., 11.419s, 3/15/22 Aaa 1,861,500
Nevada (2.6%)
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Clark Cnty., Indl. Dev. Rev. Bonds
6,500,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa3 6,922,500
3,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa 3,322,500
--------------
10,245,000
New York (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 Baa1 4,030,000
1,900,000 Long Island, Pwr. Auth. NY Elec. Syst. VRDN,
Ser. 1, 3.25s, 5/1/33 VMIG1 1,900,000
400,000 NY City, Hsg. Dev. Corp. Mtge. VRDN
(Multi-Fam. James Twr.), Ser. A, 3.3s, 7/1/05 A-1+ 400,000
2,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Brooklyn Navy Yard Cogen. Partners),
Ser. G, 5 3/4s, 10/1/36 Baa3 2,050,000
4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. C, 5 3/4s, 6/15/26 A1 4,397,250
NY State Dorm. Auth. Rev. Bonds
4,500,000 (City U. Syst.), Ser. F, 7 7/8s, 7/1/17 Aaa 4,893,750
6,250,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 6,757,813
2,000,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/20 Aaa 2,167,500
1,200,000 Suffolk Cnty., Indl. Dev. Agcy. VRDN
(Cold Spring Harbor Lab), 3.3s, 7/1/23 A-1+ 1,200,000
3,780,000 Triborough Bridge & Tunnel Auth. Gen. Purpose
Rev. Bonds, Ser. A, 5s, 1/1/24 Aa 3,780,000
--------------
31,576,313
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 5,787,500
Pennsylvania (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,430,000 Allegheny Cnty., Res. Fin. Auth. Rev. Bonds,
Ser. M, GNMA Coll., 7.9s, 6/1/11 Aaa 2,542,382
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Resource
Recvy. Rev. Bonds, 7 1/2s, 1/1/12 A 5,300,000
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 11.041s, 3/1/20 Aaa 8,540,500
--------------
16,382,882
Puerto Rico (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. Rev. Bonds,
Ser. A, 5s, 7/1/38 Baa1 3,940,000
Tennessee (3.9%)
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2,600,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 8.57s, 1/1/22 Aaa 3,045,250
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
--------------
15,212,375
Texas (11.6%)
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11,500,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 12,376,875
2,770,000 Austin, School Dist. G.O. Bonds, PSFG,
5 3/4s, 8/1/15 Aaa 2,970,825
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 5,425,000
2,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.), 7 1/2s,
11/1/25 Baa2 2,678,125
4,390,000 Matagorda Cnty., Poll. Control Rev. Bonds
(Houston Pwr. & Lt. Co.), Ser. D, FGIC, 7.6s,
10/1/19 Aaa 4,620,212
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 4,809,375
--------------
45,220,412
Utah (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. Rev. Bonds
(Ladilaw Env.), Ser. A, 7.45s, 7/1/17 B/P 3,330,000
13,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 Aaa 14,690,000
--------------
18,020,000
Vermont (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,765,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB+ 5,444,013
Wisconsin (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds,
Ser. B, 7.05s, 11/1/22 A1 3,646,500
5,600,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(United Hlth. Group, Inc.), Ser. B, MBIA,
5 1/2s, 12/15/20 Aaa 5,894,000
--------------
9,540,500
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $350,449,030) (b) $ 373,451,474
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $389,621,549.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 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 November 30, 1998. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of
independent accountants.
(b) The aggregate identified cost on a tax basis is $350,449,030, resulting in gross unrealized appreciation and
depreciation of $24,935,278 and $1,932,834, respectively, or net unrealized appreciation of $23,002,444.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at November 30, 1998 was $7,068,688 or 1.8% of net assets.
The rates shown on IFB's, 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 November 30, 1998.
The fund had the following industry group concentrations greater than 10% at November 30, 1998 (as a
percentage of net assets):
Utilities 22.4%
Transportation 19.1
Hospitals/Health care 10.8
The fund had the following insurance concentration greater than 10% at November 30, 1998 (as a percentage of net assets)
MBIA 15.1%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $350,449,030) (Note 1) $373,451,474
- -----------------------------------------------------------------------------------------------
Cash 145,376
- -----------------------------------------------------------------------------------------------
Interest receivable 6,937,120
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 11,589,500
- -----------------------------------------------------------------------------------------------
Total assets 392,123,470
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,667,038
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 682,828
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,538
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,519
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,094
- -----------------------------------------------------------------------------------------------
Other accrued expenses 106,904
- -----------------------------------------------------------------------------------------------
Total liabilities 2,501,921
- -----------------------------------------------------------------------------------------------
Net assets $389,621,549
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) 231,328,005
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,713,329
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,422,229)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 23,002,444
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $389,621,549
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 36,822
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $140,036,822
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $249,584,727
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($249,584,727 divided by 20,838,596 shares) $11.98
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1998
<S> <C>
Tax exempt interest income: $25,790,168
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,733,391
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 337,530
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,844
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,551
- -----------------------------------------------------------------------------------------------
Reports to shareholders 19,409
- -----------------------------------------------------------------------------------------------
Auditing 60,398
- -----------------------------------------------------------------------------------------------
Legal 15,410
- -----------------------------------------------------------------------------------------------
Exchange listing fees 45,220
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 389,888
- -----------------------------------------------------------------------------------------------
Other 60,533
- -----------------------------------------------------------------------------------------------
Total expenses 3,683,174
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (30,053)
- -----------------------------------------------------------------------------------------------
Net expenses 3,653,121
- -----------------------------------------------------------------------------------------------
Net investment income 22,137,047
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,368,499)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 2,425,356
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,056,857
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $23,193,904
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 22,137,047 $ 22,541,282
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,368,499) 1,176,166
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,425,356 3,151,505
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,193,904 26,868,953
- ---------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (5,081,552) (5,144,062)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares of
$36,822 and $29,536 respectively) 18,112,352 21,724,891
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (19,919,416) (19,741,555)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 2,597,553 2,357,814
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 790,489 4,341,150
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 388,831,060 384,489,910
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $3,713,329 and $6,541,122, respectively) $389,621,549 $388,831,060
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 20,646,799 20,470,991
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 191,797 175,808
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 20,838,596 20,646,799
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Net asset value, beginning
of year (common shares) $12.05 $11.94 $12.37 $11.22 $13.44
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.07 1.09 1.06 1.17 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .23 (.28) 1.23 (2.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.13 1.32 .78 2.40 (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders (.96) (.96) (.96) (.94) (.97)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.24) (.25) (.25) (.28) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- -- -- (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments
- ------------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- -- (.02) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- --(d) (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.21) (1.21) (1.25) (1.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year
(common shares) $11.98 $12.05 $11.94 $12.37 $11.22
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of year
(common shares) $14.937 $14.750 $13.625 $13.500 $11.880
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at market price
(common shares) (%)(a) 8.73 16.25 8.65 22.95 (6.74)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $389,622 $388,831 $384,490 $391,003 $364,814
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.47 1.43 1.49 1.50 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.82 7.13 6.84 7.50 8.07
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.44 26.91 146.43 122.65 78.97
- ------------------------------------------------------------------------------------------------------------------------------------
(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, 1998
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The
fund's investment objective is to provide as high a level of current
income exempt from federal income tax as is believed to be consistent with
preservation of capital. The fund intends to achieve its objective by
investing in a diversified portfolio of tax-exempt municipal securities
that Putnam Investment Management Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments Inc., believes do
not involve undue risk to income or principal. Under normal market
conditions, the fund will invest at least 80% of its total assets in
tax-exempt municipal securities rated "investment grade" at the time of
investment or, if not rated, determined by 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. Therefore, no provision has been made for federal
taxes on income, capital gains or unrealized appreciation on securities
held and for excise tax on income and capital gains.
At November 30, 1998, the fund had a capital loss carryover of
approximately $4,259,000 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
612,000 November 30, 2005
1,662,000 November 30, 2006
D) Distributions to shareholders Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. If the
market price of your fund's shares is equal to or exceeds their net asset
value on the payment date, you will be issued shares of the fund at a
value equal to the higher of the net asset value or 95% of the market
price on that 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, 1998 was 3.20%. 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 temporary and permanent differences of dividends
payable, defaulted bond interest, market discount, and prior year straddle
loss deferrals. 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, 1998, the fund reclassified $36,128 to increase undistributed
net investment income and $36,128 to decrease accumulated net realized
losses. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
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 (including
accrued interest) less all liabilities (including accrued expenses and
undeclared dividends on remarketed preferred shares) and the liquidation
value of any outstanding remarketed preferred shares, by the total number
of common shares outstanding.
F) Amortization of bond premium and discount Any premium resulting from
the purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discounts on zero coupon bonds and original issue
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 net income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam for that period will be reduced by the amount of the
excess (but not more than 0.70% of the liquidation preference of the
remarketed preferred shares outstanding during the period).
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
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, 1998, fund expenses were reduced by
$30,053 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 $550 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 adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable
on or after July 1, 1995. The deferred fees remain invested in certain
Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended November 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $55,521,330 and
$58,622,225, 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 remarketed preferred 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, 1998, no such restrictions have been
placed on the fund.
Federal Tax Information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
Results of October 1, 1998 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 1, 1998.
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
Jameson Adkins Baxter 15,356,377 321,614 978 7
Hans H. Estin 15,364,103 313,888 978 7
Ronald J. Jackson 15,373,891 304,100 978 7
Paul L. Joskow 15,377,427 300,564 978 7
Elizabeth T. Kennan 15,364,953 313,038 978 7
Lawrence J. Lasser 15,381,168 296,823 978 7
John H. Mullin III 15,376,253 301,738 978 7
Donald S. Perkins 15,355,372 322,619 978 7
William F. Pounds 15,354,752 323,239 978 7
George Putnam 15,358,719 319,272 978 7
George Putnam, III 15,355,174 322,817 978 7
A.J.C. Smith 15,364,216 313,775 978 7
W. Thomas Stephens 15,363,304 314,687 978 7
W. Nicholas Thorndike 15,351,139 326,852 978 7
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows: Common Shares
- -- 15,272,545 votes for, and 79,918 votes against, with 325,528
abstentions and broker non-votes. Preferred Shares -965 votes for, and 13
votes against, with 7 abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was approved as follows: Common
Shares -- 11,596,586 votes for, and 1,176,371 votes against, with
2,905,034 abstentions and broker non-votes. Preferred Shares -- 780 votes
for, and 117 votes against, with 88 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Brett C. Browchuk
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. Eastern Time, or visit our
website (www.putnaminv.com) any 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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
48650 058 1/99
