Putnam
Investment Grade
Municipal
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal 1999. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Investment Grade Municipal Trust that I will be signing. After more than
30 years as Chairman of the Trustees and President of the Putnam Funds,
the time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Manager
Richard P. Wyke
If history tells us anything about bond investing, it is this: buying a
bond fund after a bad year is often a smart thing to do. The bond market
has endured its toughest year since 1994 and the second-worst year on
record, the result of three moves by the Federal Reserve Board to raise
interest rates. Within this challenging market environment, Putnam
Investment Grade Municipal Trust met its goals of seeking high current
tax-exempt income by investing primarily in investment-grade municipal
bonds. Not surprisingly though, along with higher interest rates came
falling bond prices and the fund's 12-month performance reflects this
unavoidable relationship.
Total return for 12 months ended 11/30/99
NAV Market price
- ----------------------------------------------------------------------
-2.78% -13.96%
- ----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* MANAGEMENT MAINTAINS CONFIDENCE IN MUNICIPAL BONDS
After the bond bear markets of 1989 and 1994, considerable buying
opportunities were available to investors. We believe that similar
opportunities are present now for several reasons. The first is that a
long-term municipal bond currently offers a 6% yield, an extremely high
level for the tax-free sector, registering almost 100% of the yield on a
30-year taxable Treasury bond. With inflation still remarkably low at 3%
or less, after-tax, after-inflation income levels are the highest
investors have seen in years.
In addition, after three interest-rate increases by the Fed and the
approaching end of the Y2K uncertainty, it seems that most of the damage
has been done and the worst is over for the bond markets. Given this
environment, we do not expect substantial inflation to materialize over
the next several months.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 25.9%
Transportation 22.0%
Health care 17.6%
Housing 10.6%
Waste
management 5.8%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
* TRANSPORTATION AND HEALTH-CARE SECTORS REMAIN AMONG TOP SECTORS
Transportation remains the second largest sector in your fund's portfolio
with an emphasis on airport and airline revenue bonds. The Denver City and
County Airport revenue bonds continue to provide the fund with a high
level of income, even though some of the bonds have been prerefunded and
subsequently were upgraded to the highest-possible Aaa rating. The fund
continues to hold the Northwest Regional Airport Authority revenue bonds
in Arkansas and the Dallas-Fort Worth International Airport (American
Airlines, Inc.) revenue bonds, which add attractive 7.00% and 7.50%
coupons, respectively. While these holdings and others discussed in this
report were viewed favorably at the end of the period, all are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The health-care industry remained an important contributor to your fund's
performance. Selectivity is crucial in this sector because hospitals are
going though some difficult times as a result of legislation enacted
several years ago. For this reason, many of the health-care holdings we've
chosen are insured and carry the highest AAA/Aaa ratings. Insurance
reduces risk by assuring the timely payment of principal and interest of
the bonds. The Massachusetts State Health & Educational Facility Authority
bonds (for the Medical Center of Central Massachusetts) are typical of the
fund's insured holdings.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 10.3%
Baa/BBB -- 31.8%
Ba/BB and under -- 11.1%
Aaa/AAA -- 44.8%
Aa/AA -- 2.0%
Footnote reads:
*As a percentage of market value as of 11/30/99. A bond rated Baa/BBB or
higher is considered investment grade. All ratings reflect Moody's and
Standard & Poor's descriptions unless noted otherwise; percentages may
include unrated bonds considered by Putnam Management to be of comparable
quality. Ratings will vary over time.
However, the uninsured health-care bonds from the lower end of the
investment-grade spectrum (BBB/Baa) are important too because they offer a
healthy injection of higher yields into the portfolio. The Gadsden East,
Medical Clinic Board revenue bonds (for the Baptist Hospital of Gadsden
Inc. in Alabama), rated BBB by Standard & Poor's Corporation with a 7.8%
coupon, are an example of an uninsured investment-grade bond.
One other important strategy involves investing in longer maturities in
order to lock in higher yields. As interest rates have fallen and the
yield curve has steepened, longer-intermediate bonds (10- to 20- year
maturities) have outperformed other maturity ranges. A steeper yield curve
means that the difference between shorter-term and longer-term rates is
considerable. Hence, the reward for extending maturities is greater as
well. Additionally, within each maturity range, we rely heavily on credit
analysis as an additional tool to evaluate investments for the fund.
* STRONGER POTENTIAL FOR BONDS SEEN IN NEAR FUTURE
With the Fed's third and much anticipated move to increase interest rates
in November, it declared a neutral bias. For now, inflation seems to be
under control. However, the threat of inflation and the strong economy
will be the primary force driving volatility in both the bond and stock
markets in the months ahead. Even with an official neutral bias by the
Fed, there could be another interest-rate increase if the economy doesn't
begin to slow down. But as this report was being written, it seems as if
the worst may be behind us.
Expecting a more hospitable climate for municipal bonds in the months
ahead, we are now inclined to take slightly more risk in the portfolio
while concentrating on enhancing monthly income levels. Please remember
that volatile markets, though unpleasant, provide the opportunity to add
yield, find exceptional credits, and improve call protection in your fund
- -- strategies that are very rewarding for shareholders over time.
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 11/30/99, 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 11/30/99
Market Lehman Brothers Consumer
NAV price Municipal Bond Index price index
- ------------------------------------------------------------------------------
1 year -2.78% -13.96% -1.08% 2.68%
- ------------------------------------------------------------------------------
5 years 39.64 45.26 43.85 12.49
Annual average 6.91 7.75 7.54 2.38
- ------------------------------------------------------------------------------
10 years 108.89 116.72 97.86 33.76
Annual average 7.64 8.04 7.06 2.95
- ------------------------------------------------------------------------------
Life of fund (10/26/89) 110.40 114.46 101.32 34.08
Annual average 7.65 7.85 7.19 2.95
- ------------------------------------------------------------------------------
Past performance is no assurance 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.
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Market
NAV price
- -----------------------------------------------------------------------------
1 year -4.29% -21.13%
- -----------------------------------------------------------------------------
5 years 34.23 34.66
Annual average 6.06 6.13
- -----------------------------------------------------------------------------
10 years 105.07 124.71
Annual average 7.45 8.43
- -----------------------------------------------------------------------------
Life of fund (10/26/89) 107.84 100.21
Annual average 7.45 7.06
- -----------------------------------------------------------------------------
Past performance is no assurance 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 and principal value 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 11/30/99
- -----------------------------------------------------------------------------
Distributions (common shares)
- -----------------------------------------------------------------------------
Number 12
- -----------------------------------------------------------------------------
Income $0.961
- -----------------------------------------------------------------------------
Capital gains1 --
- -----------------------------------------------------------------------------
Total $0.961
- -----------------------------------------------------------------------------
Preferred shares Series A (1400 shares)
- -----------------------------------------------------------------------------
Income $3,422.50
- -----------------------------------------------------------------------------
Capital gains1 --
- -----------------------------------------------------------------------------
Total $3,422.50
- -----------------------------------------------------------------------------
Share value (common shares) NAV Market price
- -----------------------------------------------------------------------------
11/30/98 $11.98 $14.937
- -----------------------------------------------------------------------------
11/30/99 10.71 11.938
- -----------------------------------------------------------------------------
Current return (common shares/end of period)
- -----------------------------------------------------------------------------
Current dividend rate2 8.96% 8.04%
- -----------------------------------------------------------------------------
Taxable equivalent3 14.83 13.31
- -----------------------------------------------------------------------------
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 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.
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 assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders
Putnam Investment Grade Municipal Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Investment Grade Municipal Trust, including the fund's portfolio,
as of November 30, 1999, and the related statement of operations,
statement of changes in net assets and financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended
November 30, 1998 and the financial highlights for each of the years in
the four-year period ended November 30, 1998 were audited by other
auditors whose report dated January 8, 1999 expressed an unqualified
opinion on that financial statement and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1999 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Investment Grade Municipal Trust as of November 30, 1999, the
results of its operations, changes in its net assets and financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
January 3, 2000
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999
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
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (97.2%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Alabama (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,500,000 Gadsden East, Med. Clinic Board Rev. Bonds
(Baptist Hosp. of Gadsden Inc.), Ser. A,
7.8s, 11/1/21 BBB $ 5,946,875
Arkansas (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Northwest Regl. Arpt. Auth. Rev. Bonds, 7s, 2/1/10 BB/P 4,170,000
California (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA,
9.17s, 12/28/18 (SEG) Aaa 2,247,500
4,650,000 CA State U. IFB, AMBAC, 9.75s, 11/1/21
(acquired various dates from 8/5/91 to
8/31/94, cost $4,659,603) (RES) Aaa 5,080,451
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,461,250
5,200,000 Central Valley Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration), 6s, 7/1/09 BBB 5,336,500
1,400,000 Orange Cnty., Local Trans. Auth. IFB, FGIC, 7.84s,
2/14/11 (acquired 2/6/96, cost $1,474,153) (RES) Aaa 1,562,750
--------------
15,688,451
Colorado (8.7%)
- --------------------------------------------------------------------------------------------------------------------------
CO Hsg. Fin. Auth. Rev. Bonds (Single Fam.), Ser. B-2
1,865,000 7s, 5/1/26 A2 2,002,544
930,000 6.8s, 11/1/28 Aa2 998,588
Denver, City & Cnty. Arpt. Rev. Bonds
735,000 Ser. A, 8 3/4s, 11/15/23 Baa1 798,394
265,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 291,169
4,365,000 Ser. A, 8 1/2s, 11/15/23 Baa1 4,594,817
410,000 Ser. A, 8 1/2s, 11/15/23, Prerefunded Aaa 434,555
4,480,000 Ser. A, 8 1/4s, 11/15/12 Baa1 4,716,813
420,000 Ser. A, 8 1/4s, 11/15/12, Prerefunded Aaa 444,188
Denver, City & Cnty. Arpt. Rev. Bonds
3,820,000 Ser. A, 8s, 11/15/25 Baa1 4,011,000
1,380,000 Ser. A, 8s, 11/15/25, Prerefunded Aaa 1,471,425
6,330,000 Ser. A, 7 3/4s, 11/15/21 Baa1 6,733,538
1,670,000 Ser. A, 7 3/4s, 11/15/21, Prerefunded Aaa 1,803,600
3,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 3,517,500
--------------
31,818,131
Connecticut (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 CT State Resource Recvy. Auth. Muni. Rev. Bonds
(Bridgeport Service Fee), Ser. A, 7 1/2s, 1/1/09 A- 2,022,000
District of Columbia (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 DC G.O. Bonds, Ser. B, FSA, 5 1/4s, 6/1/26 AAA 3,982,500
Florida (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,925,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 10,247,563
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 2,210,000
--------------
12,457,563
Georgia (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), MBIA, 8s, 1/1/22 Aaa 4,495,000
4,800,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 AAA/P 5,214,000
1,000,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 9.307s, 8/1/10 Aaa 1,095,000
--------------
10,804,000
Hawaii (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 8.585s, 11/1/21 Aaa 5,836,875
Illinois (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Chicago, Board of Ed. G.O. Bonds (School Reform),
Ser. A, AMBAC, 5 1/4s, 12/1/27 Aaa 2,225,000
8,405,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 7,091,719
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
2,335,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,479,466
6,500,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 7,304,375
2,500,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist
Hlth. Syst./Sunbelt Obligation), 5.65s, 11/15/24 A- 2,159,375
--------------
21,259,935
Indiana (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 4,306,250
215,000 Indiana Bond Bank Rev. Bonds (Special Loan
Program), Ser. B, 8 1/2s, 2/1/18 A1 216,172
3,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev.
Bonds (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 2,880,000
1,000,000 Rockport, Indl. Poll. Ctrl. Rev. Bonds (Indiana-
Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,052,500
--------------
8,454,922
Kansas (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds (Kansas Gas &
Electric Co.), MBIA, 7s, 6/1/31 Aaa 4,730,625
Kentucky (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Kenton Cnty., Special Fac. Arpt. Rev. Bonds
(Delta Airlines), Ser. A, 7 1/2s, 2/1/12 Baa3 4,230,000
Louisiana (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
5,100,000 Ser. II, 7.7s, 12/1/14 Ba1 5,437,875
3,000,000 Ser. III, 7.7s, 12/1/14 Ba1 3,198,750
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB+ 6,397,500
--------------
15,034,125
Maine (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 ME Fin. Auth. Solid Waste Recycling Fac. Rev. Bonds
(Great Northern Paper-Bowater), 7 3/4s, 10/1/22 Baa2 5,350,000
Maryland (0.6%)
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2,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds,
Prerefunded (Doctors Cmnty. Hosp.),
8 3/4s, 7/1/12 Aaa 2,094,020
Massachusetts (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB (Med. Ctr. of
Central MA), Ser. B, AMBAC, 10.47s, 6/23/22 Aaa 9,515,625
4,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 4,260,000
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Cape Cod
Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,309,150
--------------
19,084,775
Michigan (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,695,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 1,945,013
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 8.613s, 7/1/22 Aaa 2,293,500
2,800,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 2,921,352
--------------
7,159,865
Missouri (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 2,721,875
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Whispering Lake), Ser. A-11, FSA, 7.1s, 1/1/30 Aaa 9,278,250
--------------
12,000,125
Nebraska (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,300,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA Coll., 11.267s, 3/15/22 Aaa 1,360,970
Nevada (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
6,500,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa2 6,701,370
3,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 3,176,250
--------------
9,877,620
New York (6.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 3,555,000
3,000,000 NY City, G.O. Bonds, Ser. H, 5s, 8/1/22 A3 2,571,150
2,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Brooklyn Navy Yard Cogen. Partners), Ser. G,
5 3/4s, 10/1/36 Baa3 1,815,000
4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. C, 5 3/4s, 6/15/26 A2 3,930,875
NY State Dorm. Auth. Rev. Bonds
4,500,000 (City U. Syst.), Ser. F, 7 7/8s, 7/1/17 Aaa 4,689,270
6,250,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 6,480,625
2,000,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/20 Aaa 2,081,300
--------------
25,123,220
North Carolina (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
11,000,000 NC Muni. Pwr. Agcy. Syst. Rev. Bonds (No. 1
Catawba Elec.), Ser. B, 6 1/2s, 1/1/20 BBB+ 10,876,250
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds,
1,000,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,007,500
2,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 1,777,500
--------------
13,661,250
Ohio (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 5,493,750
Pennsylvania (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,750,000 Allegheny Cnty., Res. Fin. Auth. Rev. Bonds, Ser. M,
GNMA Coll., 7.9s, 6/1/11 Aaa 1,802,304
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Resource
Recvy. Rev. Bonds, 7 1/2s, 1/1/12 A+ 5,137,500
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.99s, 3/1/20 Aaa 8,759,000
--------------
15,698,804
Tennessee (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,600,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 7.506s, 1/1/22 Aaa 2,866,500
10,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Steeplechase Falls), Ser. A-10, FSA, 7 1/8s, 1/1/30 Aaa 11,635,750
--------------
14,502,250
Texas (12.6%)
- --------------------------------------------------------------------------------------------------------------------------
11,500,000 Alliance, Arpt. Auth. Rev. Bonds (Federal
Express Corp.), 6 3/8s, 4/1/21 Baa2 11,255,625
2,500,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 2,759,375
5,000,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 5,243,750
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines Inc.),
2,500,000 7 1/2s, 11/1/25 Baa1 2,601,025
4,500,000 6 3/8s, 5/1/35 Baa1 4,348,125
4,000,000 Harris Cnty., Hlth. Facs. Dev. Corp. VRDN (St. Lukes
Episcopal Hosp.), Ser. B, 3.90s, 2/15/27 VMIG1 4,000,000
3,000,000 Houston, Arpt. Syst. Rev. Bonds (Continental),
Ser. B, 5.7s, 7/15/29 Ba1 2,557,500
8,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
9.295, 6/22/21 Aaa 8,840,000
4,500,000 TX State G.O. Bonds (Nat'l. Research Lab.
Communication Superconductor), 7 1/8s, 4/1/20 Aaa 4,636,035
--------------
46,241,435
Utah (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. Rev. Bonds
(Ladilaw Env.), Ser. A, 7.45s, 7/1/17 B/P 3,150,000
13,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 AAA 13,682,500
--------------
16,832,500
Vermont (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,700,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB+ 5,070,125
Wisconsin (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B,
7.05s, 11/1/22 AA 3,553,000
5,600,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds (United
Hlth. Group, Inc.), Ser. B, MBIA, 5 1/2s, 2020 Aaa 5,341,000
--------------
8,894,000
--------------
Total Municipal Bonds and Notes
(cost $353,543,171) $ 354,880,711
PREFERRED STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Charter Mac Equity 144A Ser. A, 6.625%, cum. pfd. (NON) BB/P $ 1,960,000
2,000,000 MuniMae TE Bond Subsidiary, LLC 144A , Ser. A,
6.875%, cum. pfd. (NON) BB/P 1,982,500
--------------
Total Preferred Stocks (cost $4,000,000) $ 3,942,500
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $357,543,171) (b) $ 358,823,211
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $365,236,869.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1999 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, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of
independent accountants.
Moody's Investor Service, Inc. and Standard & Poor's Corp. are the leading independent rating agencies for debt
securities. Moody's uses the designation "Moody's Investment Grade", or "MIG",for most short-term municipal
obligations, adding a "V" ("VMIG") for bonds with a demand or variable feature; the designation "P" is used for tax
exempt commercial paper. Standard & Poor's uses "SP" for notes maturing in three years or less, "A" for bonds with a
demand or variable feature.
Moody's Investor Service, Inc.
MIGI/VMIGI = Best quality; strong protection of cash flows, superior liquidity and broad access to refinancing
MIG2/VMIG2 = High quality; ample protection of cash flows, liquidity support and ability to refinance
Aaa = Extremely strong capacity to pay interest and repay principal
Aa = Strong capacity to pay interest and repay principal and differs from the higher rated issues only in a small
degree
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
Standard & Poor's Corp.
SP-1+ = Very strong capacity to pay principal and interest
SP-1 = Strong capacity to pay principal and interest
SP-2 = Satisfactory capacity to pay principal and interest
A-1+ = Extremely strong degree of safety
A-1 = Strong degree of safety
A-2 = Satisfactory capacity for timely repayment
(b) The aggregate identified cost on a tax basis is $357,543,171, resulting in gross unrealized appreciation and
depreciation of $11,533,867 and $10,253,827, respectively, or net unrealized appreciation of $1,280,040.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held
at November 30, 1999 was $6,643,201 or 1.8% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at November 30, 1999.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the market
interest rates, and VRDN's are the current interest rates at November 30, 1999.
The fund had the following industry group concentrations greater than 10% at November 30, 1999 (as a percentage of net
assets):
Utilities 25.9%
Transportation 22.0
Health care 17.6
Housing 10.6
The fund had the following insurance concentration greater than 10% at November 30, 1999 (as a percentage of net
assets):
MBIA 15.4%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond Index
(Long) $38,500,000 $39,483,564 Dec-99 $(983,564)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $357,543,171 (Note 1) $358,823,211
- -----------------------------------------------------------------------------------------------
Cash 4,066,590
- -----------------------------------------------------------------------------------------------
Interest receivable 6,382,840
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 4,850,000
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 131,250
- -----------------------------------------------------------------------------------------------
Total assets 374,253,891
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,681,205
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 6,633,235
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 643,959
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 707
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,392
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,118
- -----------------------------------------------------------------------------------------------
Other accrued expenses 43,406
- -----------------------------------------------------------------------------------------------
Total liabilities 9,017,022
- -----------------------------------------------------------------------------------------------
Net assets $365,236,869
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) 233,688,794
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,019,675
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (9,768,076)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 296,476
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $365,236,869
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 64,440
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $140,064,440
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $225,172,429
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($225,172,429 divided by 21,015,824 shares) $10.71
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1999
<S> <C>
Tax exempt interest income: $25,662,969
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,661,101
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 282,584
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,738
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,572
- -----------------------------------------------------------------------------------------------
Reports to shareholders 24,682
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 52,128
- -----------------------------------------------------------------------------------------------
Legal 10,655
- -----------------------------------------------------------------------------------------------
Postage 21,452
- -----------------------------------------------------------------------------------------------
Exchange listing fees 30,258
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 374,888
- -----------------------------------------------------------------------------------------------
Other 26,513
- -----------------------------------------------------------------------------------------------
Total expenses 3,502,646
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (58,945)
- -----------------------------------------------------------------------------------------------
Net expenses 3,443,701
- -----------------------------------------------------------------------------------------------
Net investment income 22,219,268
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 145,126
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,490,973)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (22,705,968)
- -----------------------------------------------------------------------------------------------
Net loss on investments (24,051,815)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (1,832,547)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 22,219,268 $ 22,137,047
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,345,847) (1,368,499)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (22,705,968) 2,425,356
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,832,547) 23,193,904
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (4,791,500) (5,081,552)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders
(excluding cumulative undeclared dividends on remarketed
preferred shares of $64,440 and $36,822 respectively) (6,624,047) 18,112,352
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (20,121,422) (19,919,416)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 2,360,789 2,597,553
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (24,384,680) 790,489
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 389,621,549 388,831,060
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,019,675 and $3,713,329 respectively) $365,236,869 $389,621,549
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 20,838,596 20,646,799
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 177,228 191,797
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 21,015,824 20,838,596
- ---------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period (common shares) $11.98 $12.05 $11.94 $12.37 $11.22
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.06 1.07 1.09 1.06 1.17
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.14) .06 .23 (.28) 1.23
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.08) 1.13 1.32 .78 2.40
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders (.96) (.96) (.96) (.96) (.94)
- --------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.23) (.24) (.25) (.25) (.28)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments
- --------------------------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- -- -- (.02)
- --------------------------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- -- --(d) (.01)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.20) (1.21) (1.21) (1.25)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $10.71 $11.98 $12.05 $11.94 $12.37
- --------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $11.938 $14.937 $14.750 $13.625 $13.500
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total return at market price
(common shares) (%)(a) (13.96) 8.73 16.25 8.65 22.95
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $365,237 $389,622 $388,831 $384,490 $391,003
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.46 1.47 1.43 1.49 1.50
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 7.24 6.82 7.13 6.84 7.50
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.92 14.44 26.91 146.43 122.65
- --------------------------------------------------------------------------------------------------------------------------------
(a) Total 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) Includes amounts paid through expense offset arrangements (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, 1999
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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. Restricted
securities are stated at fair value following procedures approved by the
Trustees. Such valuations and procedures are reviewed periodically by the
Trustees.
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). Gains or losses on securities sold are determined on
the identified cost basis.
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, 1999, the fund had a capital loss carryover of
approximately $7,227,000 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
2,968,000 November 30, 2007
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Capital gains distributions, if any, are recorded on the
ex-dividend date and paid at least annually. 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, 1999 was 3.90%. The amount and character
of income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of dividends payable, unrealized gains and losses on certain futures
contracts 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, 1999, the fund required no
such reclassifications.
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. 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 gross income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than 0.70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended November 30, 1999, fund expenses were reduced by
$58,945 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 $602 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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
Purchases and sales of securities
During the year ended November 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $63,380,724 and
$55,563,875, respectively. There were no purchases and sales of U.S.
government obligations.
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, 1999, no such restrictions have been
placed on the fund.
Note 5
Change in Independent
Accountants (Unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this funds' independent accountant and voted to appoint KPMG LLP for the
fund's fiscal year ended November 30, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of October 7, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7, 1999.
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 17,485,999 180,651 -- --
Hans H. Estin 17,474,780 191,870 -- --
John A. Hill -- -- 1,087 77
Ronald J. Jackson 17,487,421 179,229 -- --
Paul L. Joskow 17,493,310 173,340 -- --
Elizabeth T. Kennan 17,475,638 191,012 -- --
Lawrence J. Lasser 17,486,971 179,679 -- --
John H. Mullin III 17,492,866 173,784 -- --
Robert E. Patterson -- -- 1,087 77
William F. Pounds 17,475,293 191,357 -- --
George Putnam 17,482,667 183,983 -- --
George Putnam, III 17,490,757 175,893 -- --
A.J.C. Smith 17,476,442 190,208 -- --
W. Thomas Stephens 17,490,502 176,148 -- --
W. Nicholas Thorndike 17,476,511 190,139 -- --
A proposal to ratify the selection of KPMG LLP as the independent auditors
of your fund was approved as follows: Common Shares -- 17,363,653 votes
for, and 80,761 votes against, with 222,235 abstentions and broker
non-votes.
All tabulations are rounded to nearest whole number.
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Fund information
WEB SITE
www.putnaminv.com
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
KPMG 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
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
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
57659 058 1/00
