Putnam
Investment Grade
Municipal Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
Our municipal department continues to grow as well, boasting 21
municipal portfolio managers and research analysts. The combined efforts
of this highly experienced group have been especially valuable during
the past six months, during which the fund's manager has directed the
fund through a rapid succession of interest rate increases. It is true
that the Federal Reserve Board policy and rising interest rates have had
a negative effect on bond prices as evidenced by the performance of your
fund for the six months ended May 31, 2000. However, in the longer run,
short-term rate increases should keep inflation, the bond market's worst
enemy, under control.
Total return for 6 months ended 5/31/00
NAV Market price
----------------------------------------------
0.24% 6.07%
----------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and an explanation of calculation methods
begin on page 6.
* LOWER TIER OF INVESTMENT-GRADE SECTOR OFFERS OPPORTUNITY
Your fund manager, Richard P. Wyke, is working hard to maintain the
fund's relatively high level of tax-free income at a competitive level.
One way he seeks to do this is by looking for securities at the lower
end of the investment-grade spectrum, primarily Baa/BBB-rated credits.
Bonds rated Baa/BBB are on the border of what rating agencies consider
investment grade. This is the point at which he relies heavily on the
expertise of the analytical team because there is intense competition
for an extremely limited supply of lower-level investment-grade bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 21.4%
Utilities 20.6%
Health care 19.4%
Housing 11.7%
Water and sewer 7.0%
Footnote reads:
* Based on net assets as of 5/31/00. Holdings will vary over time.
Through in-depth research by the credit analysts, Rick was able to
uncover several bonds that fell in the lower investment-grade category
and carried attractive coupons. One example came from the transportation
sector, the portfolio's largest sector. The bond was issued by Connector
2000 Association, Inc., to build an eastern loop highway around
Greenville, South Carolina, and allow better access to the airport. This
project is ahead of its schedule and should be open to traffic in early
2001. The bond is rated BBB- by Standard & Poor's. While this holding,
and others discussed in this report, were viewed favorably as of May 31,
2000, all holdings are subject to review in accordance with the fund's
investment strategy and may vary in the future.
* BOND MARKETS CONTINUE TO FACE NEAR-TERM PRESSURE
When interest rates are rising, a natural reaction among investors can
be to buy guaranteed certificates of deposit in preference to tax-free
bond fund investments because the unchanging income from CDs seems more
appealing. In such an environment, however, investors may find they end
up with only one to two years of attractive income and are then out of
the bond market during the period of its strongest returns -- just when
the direction of interest rates turns around. The investment value and
return on bond funds, of course, will fluctuate with the market. On the
other hand, while the principal value of CDs does not fluctuate and
their rate of return is fixed, they may be subject to penalties for
early withdrawal and the income they provide is fully taxable.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 40.7%
Aa/AA -- 3.4%
A -- 20.7%
Baa/BBB -- 26.4%
Ba/BB -- 6.6%
Other -- 2.2%
Footnote reads:
* As a percentage of market value as of 5/31/00. A bond rated Baa/BBB or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
At the end of May, the Fed adopted a more aggressive stance in its fight
against inflation, pushing short-term interest rates up for the sixth
time in the past year, the last time by half a percentage point. This
was the first time the central bank raised rates to this degree in more
than five years. After this last increase, there were some reports that
the unemployment rate was up and wages were down slightly. However, many
investors remain cautious and are waiting for more definitive readings
on whether the economy is really slowing. Until then, Rick will focus on
meeting the objective of this fund -- delivering high current tax-exempt
income.
* A CONFIDENT LOOK AHEAD
As we assume our new positions in the supervision of the funds, we are
certain that many of the changes that lie ahead will be breathtaking in
their scope. What will not change is the Trustees' dedication to serving
the best interests of our shareholders.
We embark upon this new era of Putnam's rich heritage with confidence
and we look forward to the opportunity of continuing to help you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/00, 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 5/31/00
Lehman
Brothers
Market Municipal Consumer
NAV price Bond Index price index
----------------------------------------------------------------------
6 months 0.24% 6.07% 1.03% 1.72%
----------------------------------------------------------------------
1 year -4.16 -9.65 -0.86 3.07
----------------------------------------------------------------------
5 years 23.34 37.84 28.55 12.55
Annual average 4.28 6.63 5.15 2.39
----------------------------------------------------------------------
10 years 102.95 141.30 94.58 32.59
Annual average 7.33 9.21 6.88 2.86
----------------------------------------------------------------------
Life of fund
(since 10/26/89) 108.21 127.40 103.39 36.39
Annual average 7.16 8.06 6.94 2.98
----------------------------------------------------------------------
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 6/30/00 (most recent calendar quarter)
Market
NAV price
--------------------------------------------------
6 months 4.65% -3.37%
--------------------------------------------------
1 year 0.13 -20.89
--------------------------------------------------
5 years 27.84 15.35
Annual average 5.03 2.90
--------------------------------------------------
10 years 106.56 94.90
Annual average 7.52 6.90
--------------------------------------------------
Life of fund (since 10/26/89) 114.69 93.41
Annual average 7.42 6.37
--------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/00
----------------------------------------------------------
Distributions (common shares)
----------------------------------------------------------
Number 6
----------------------------------------------------------
Income $0.480
----------------------------------------------------------
Capital gains1 --
----------------------------------------------------------
Total $0.480
----------------------------------------------------------
Preferred shares Series A (1,400 shares)
----------------------------------------------------------
Income $2,135.13
----------------------------------------------------------
Capital gains1 --
----------------------------------------------------------
Total $2,135.13
----------------------------------------------------------
Share value (common shares) NAV Market price
----------------------------------------------------------
11/30/99 $10.71 $11.938
----------------------------------------------------------
5/31/00 10.28 12.125
----------------------------------------------------------
Current return (common shares/end of period)
----------------------------------------------------------
Current dividend rate2 9.34% 7.92%
----------------------------------------------------------
Taxable equivalent3 15.46 13.11
----------------------------------------------------------
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 index and performance 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 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.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
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 (98.8%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C> <C>
Alabama (1.6%)
-------------------------------------------------------------------------------------------------------------------
$ 5,500,000 Gadsden East, Med. Clinic Board Rev. Bonds
(Baptist Hosp. of Gadsden Inc.), Ser. A,
7.8s, 11/1/21 BBB $ 5,809,375
Arizona (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Co.-Irvington), Ser. A, 4.1s, 10/1/22 VMIG1 2,000,000
Arkansas (1.9%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(WA Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 2,913,750
4,000,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7s, 2/1/10 BB/P 4,035,000
----------------
6,948,750
California (2.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA,
7.96s, 12/28/18 (SEG) Aaa 2,217,500
5,000,000 CA Hlth. Facs. Fin. Auth. Rev. Bonds
(Sutter Health), Ser. A, 5 3/8s, 8/15/30 AAA 4,475,000
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,393,438
1,400,000 Orange Cnty., Local Trans. Auth. IFB, FGIC,
7.752s, 2/14/11 (acquired 2/6/96,
cost $1,474,153) (RES) Aaa 1,512,000
----------------
9,597,938
Colorado (8.1%)
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CO Hsg. Fin. Auth. Rev. Bonds (Single Fam.)
1,720,000 Ser. B-2, 7s, 5/1/26 A2 1,797,400
860,000 Ser. B-3, 6.8s, 11/1/28 Aa2 901,925
Denver, City & Cnty. Arpt. Rev. Bonds
735,000 Ser. A, 8 3/4s, 11/15/23 A2 780,019
265,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 283,219
4,365,000 Ser. A, 8 1/2s, 11/15/23 A2 4,504,986
4,480,000 Ser. A, 8 1/4s, 11/15/12 A2 4,630,707
420,000 Ser. A, 8 1/4s, 11/15/12, Prerefunded Aaa 434,490
3,820,000 Ser. A, 8s, 11/15/25 A2 3,944,150
6,330,000 Ser. A, 7 3/4s, 11/15/21 A2 6,638,588
1,670,000 Ser. A, 7 3/4s, 11/15/21, Prerefunded Aaa 1,763,938
3,000,000 Ser. D, 7 3/4s, 11/15/13 A 3,397,500
----------------
29,076,922
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- 2,013,920
District of Columbia (1.1%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 DC G.O. Bonds, Ser. B, FSA, 5 1/4s, 6/1/26 AAA 3,886,875
Florida (4.8%)
-------------------------------------------------------------------------------------------------------------------
9,925,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 10,235,648
4,895,000 Escambia Cnty., Hlth. Facs. Auth. Rev. Bonds
(Baptist Hosp. & Baptist Manor),
5 1/8s, 10/1/19 A3 3,873,169
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 2,157,500
1,000,000 St. Johns Cnty., FL Hlth. Care Indl. Dev. Auth. Rev.
Bonds (Glenmoor St. Johns Project),
Ser. A, 8s, 1/1/30 B+/P 977,500
----------------
17,243,817
Georgia (5.2%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), MBIA, 8s, 1/1/22 Aaa 4,375,000
4,800,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 AAA/P 5,112,000
4,000,000 Fulton Cnty., Hsg. Auth. VRDN (Spring Creek
Crossing), 4.3s, 10/1/24 A-1+ 4,000,000
GA Med. Ctr. Hosp. Auth. IFB, MBIA
300,000 6.367s, 8/1/10 AAA 320,250
700,000 6.367s, 8/1/10, Prerefunded AAA 764,750
4,000,000 Marietta, Hsg. Auth. Multi-Fam. VRDN
(Wood Pointe Apts.), 3.55s, 10/1/07 A-1 4,000,000
----------------
18,572,000
Hawaii (1.6%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 HI State Dept. of Budget & Fin. Special Purpose
Mtge. IFB, 6.66s, 11/1/21 Aaa 5,720,000
Illinois (6.6%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Chicago, Board of Ed. G.O. Bonds
(School Refrom Project), Ser. A, AMBAC,
5 1/4s, 12/1/27 Aaa 2,178,125
8,405,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 6,881,594
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
2,285,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 2,372,950
6,500,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 7,003,750
2,000,000 Huntley, Special Tax (Svc. Area No. 8), 7 3/4s, 3/1/29 BB/P 1,972,500
2,500,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt Obligation),
5.65s, 11/15/24 A- 2,071,875
1,145,000 Schaumburg, Indl. Dev. FRB (La Quinta Motor Inns),
3.3s, 8/1/01 Aa1 1,145,000
----------------
23,625,794
Indiana (2.2%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa1 4,150,000
3,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev.
Bonds (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 2,722,500
1,000,000 Rockport, Indl. Poll. Ctrl. Rev. Bonds
(Indiana-Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,037,200
----------------
7,909,700
Kansas (1.3%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds
(Kansas Gas & Electric Co.), MBIA, 7s, 6/1/31 Aaa 4,672,350
Kentucky (1.2%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Kenton Cnty., Special Fac. Arpt. Rev. Bonds
(Delta Airlines), Ser. A, 7 1/2s, 2/1/12 Baa3 4,120,000
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 5,367,750
3,000,000 Ser. III, 7.7s, 12/1/14 Ba1 3,157,500
6,000,000 Ser. A, 7 1/2s, 5/1/15 BB+ 6,262,500
----------------
14,787,750
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 Baa3 5,181,250
Maryland (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 2,045,520
Massachusetts (4.1%)
-------------------------------------------------------------------------------------------------------------------
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Med. Ctr. of Central MA), Ser. B, AMBAC,
8.32s, 6/23/22 Aaa 9,351,563
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Cape Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 5,181,300
----------------
14,532,863
Michigan (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,675,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+ 1,873,906
2,200,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 7.903s,
7/1/22 Aaa 2,252,250
----------------
4,126,156
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 2,659,375
8,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev.
Bonds (Whispering Lake), Ser. A-11, FSA,
7.1s, 1/1/30 Aaa 9,167,000
----------------
11,826,375
Nevada (2.7%)
-------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
6,500,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa2 6,679,140
3,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 3,120,000
----------------
9,799,140
New Jersey (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 1,977,500
New York (5.1%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 3,465,000
3,000,000 NY City, G.O. Bonds, Ser. H, 5s, 8/1/22 A3 2,546,250
2,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Brooklyn Navy Yard Cogen. Partners),
Ser. G, 5 3/4s, 10/1/36 Baa3 1,687,500
4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev.
Bonds, Ser. C, 5 3/4s, 6/15/26 AA 3,951,375
NY State Dorm. Auth. Rev. Bonds (City U. Syst.)
4,500,000 Ser. F, 7 7/8s, 7/1/17 Aaa 4,599,990
2,000,000 Ser. A, 7 5/8s, 7/1/20 Aaa 2,044,080
----------------
18,294,195
North Carolina (3.8%)
-------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
1,000,000 Ser. D, 6 3/4s, 1/1/26 Baa3 987,500
2,000,000 Ser. A, 5 3/4s, 1/1/26 Baa3 1,712,500
11,000,000 NC Muni. Pwr. Agcy. Syst. Rev. Bonds
(No. 1 Catawba Elec.), Ser. B, 6 1/2s, 1/1/20 BBB+ 10,835,000
----------------
13,535,000
Ohio (1.5%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 5,406,250
Pennsylvania (4.3%)
-------------------------------------------------------------------------------------------------------------------
1,750,000 Allegheny Cnty., Res. Fin. Auth. Rev. Bonds, Ser. M,
GNMA Coll., 7.9s, 6/1/11 Aaa 1,793,698
5,000,000 Montgomery Cnty., Indl. Dev. Auth. Resource
Recvy. Rev. Bonds, 7 1/2s, 1/1/12 A+ 5,081,250
7,600,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.027s, 3/1/20 Aaa 8,597,500
----------------
15,472,448
Puerto Rico (1.4%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 PR Comnwlth. Hwy. & Trans. Auth. Rev. Bonds,
Ser. B, 6s, 7/1/39 A 4,925,000
South Carolina (1.7%)
-------------------------------------------------------------------------------------------------------------------
600,000 SC State Jobs Econ. Dev. Auth. Hosp. Fac. Rev.
Bonds (Palmetto Hlth. Alliance), Ser. A,
7 3/8s, 12/15/21 Baa1 599,250
7,625,000 SC Toll Road Rev. Bonds (Southern Connector
Project), Ser. A, 5 3/8s, 1/1/38 BBB- 5,327,969
----------------
5,927,219
Tennessee (5.8%)
-------------------------------------------------------------------------------------------------------------------
3,500,000 Johnson City, Hlth. & Edl. Facs. Board 144A Rev.
Bonds, Ser. A2, MBIA, 8.2s, 7/1/21
(acquired 2/8/00, cost $3,296,650) (RES) Aaa 3,381,875
3,000,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board Rev.
Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/25 AAA 2,913,750
2,600,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 7.019s, 1/1/22 Aaa 2,772,250
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 11,472,250
----------------
20,540,125
Texas (9.5%)
-------------------------------------------------------------------------------------------------------------------
11,500,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 10,996,875
5,000,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 5,176,550
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
2,500,000 7 1/2s, 11/1/25 Baa1 2,540,625
4,500,000 6 3/8s, 5/1/35 Baa1 4,151,250
3,000,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines), Ser. B, 5.7s, 7/15/29 Ba1 2,392,500
8,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
6.685s, 6/22/21 Aaa 8,603,840
----------------
33,861,640
Utah (4.5%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. Rev. Bonds
(Ladilaw Env.), Ser. A, 7.45s, 7/1/17 CCC/P 2,610,000
13,000,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 AAA 13,373,750
----------------
15,983,750
Vermont (1.4%)
-------------------------------------------------------------------------------------------------------------------
4,625,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB+ 4,896,719
Wisconsin (2.4%)
-------------------------------------------------------------------------------------------------------------------
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B,
7.05s, 11/1/22 AA 3,506,250
5,600,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(United Hlth. Group, Inc.), Ser. B, MBIA,
5 1/2s, 2020 Aaa 5,194,000
----------------
8,700,250
----------------
Total Municipal Bonds and Notes
(cost $358,531,833) $ 353,016,591
PREFERRED STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,000,000 Charter Mac Equity 144A, Ser. A, 6.625% cum. pfd. (NON) $ 1,885,000
2,000,000 MuniMae TE Bond Subsidiary, LLC 144A, Ser. A, 6.875%
cum. pfd. (NON) 1,927,500
----------------
Total Preferred Stocks (cost $4,000,000) $ 3,812,500
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $362,531,833) (b) $ 356,829,091
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $357,144,125.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at May 31, 2000 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at May 31, 2000. Securities rated by Putnam are indicated by
"/P" and are not publicly rated.
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 $362,531,833,
resulting in gross unrealized appreciation and depreciation of
$7,706,913 and $13,409,655, respectively, or net unrealized
depreciation of $5,702,742.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2000 was
$4,893,875 or 1.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
May 31, 2000.
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 FRB and
VRDN's are the current interest rates at May 31, 2000.
The fund had the following industry group concentrations greater
than 10% at May 31, 2000 (as a percentage of net assets):
Transportation 21.4%
Utilities 20.6
Health care 19.4
Housing 11.7
The fund had the following insurance concentration greater than
10% at May 31, 2000 (as a percentage of net assets):
MBIA 16.4%
--------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
--------------------------------------------------------------------------
Muni Bond Index
(Long) $15,265,969 $15,070,710 Jun-00 $195,259
Muni Bond Index
(Long) 14,043,000 13,744,442 Sep-00 298,558
--------------------------------------------------------------------------
$493,817
--------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $362,531,833 (Note 1) $356,829,091
-------------------------------------------------------------------------------------------
Cash 470,985
-------------------------------------------------------------------------------------------
Interest receivable 6,833,832
-------------------------------------------------------------------------------------------
Receivable for variation margin 259,844
-------------------------------------------------------------------------------------------
Total assets 364,393,752
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,688,883
-------------------------------------------------------------------------------------------
Payable for securities purchased 4,851,117
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 637,849
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 16,490
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,630
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,001
-------------------------------------------------------------------------------------------
Other accrued expenses 39,657
-------------------------------------------------------------------------------------------
Total liabilities 7,249,627
-------------------------------------------------------------------------------------------
Net assets $357,144,125
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) 234,734,633
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,148,499)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (11,233,084)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,208,925)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $357,144,125
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A remarketed preferred shares $140,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 69,039
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $140,069,039
-------------------------------------------------------------------------------------------
Net assets available to common shares $217,075,086
-------------------------------------------------------------------------------------------
Net asset value per common share
($217,075,086 divided by 21,111,888 shares) $10.28
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended May 31, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $12,504,990
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,257,358
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 124,122
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,198
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,907
-------------------------------------------------------------------------------------------
Reports to shareholders 6,605
-------------------------------------------------------------------------------------------
Registration fees 75
-------------------------------------------------------------------------------------------
Auditing 25,863
-------------------------------------------------------------------------------------------
Legal 2,443
-------------------------------------------------------------------------------------------
Postage 5,089
-------------------------------------------------------------------------------------------
Exchange listing fees 16,487
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 196,556
-------------------------------------------------------------------------------------------
Other 5,645
-------------------------------------------------------------------------------------------
Total expenses 1,650,348
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (80,970)
-------------------------------------------------------------------------------------------
Net expenses 1,569,378
-------------------------------------------------------------------------------------------
Net investment income 10,935,612
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (182,906)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,282,102)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (5,505,401)
-------------------------------------------------------------------------------------------
Net loss on investments (6,970,409)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,965,203
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 10,935,612 $ 22,219,268
--------------------------------------------------------------------------------------------------
Net realized loss on investments (1,465,008) (1,345,847)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,505,401) (22,705,968)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 3,965,203 (1,832,547)
Distributions to remarketed preferred shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (2,989,181) (4,791,500)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $69,039 and $64,440, respectively) 976,022 (6,624,047)
--------------------------------------------------------------------------------------------------
Distributions to common shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (10,114,605) (20,121,422)
--------------------------------------------------------------------------------------------------
Issuance of common shares in connection with reinvestment
of distributions 1,045,839 2,360,789
--------------------------------------------------------------------------------------------------
Total decrease in net assets (8,092,744) (24,384,680)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 365,236,869 389,621,549
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net investment
income of $1,148,499 and $1,019,675, respectively) $357,144,125 $365,236,869
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 21,015,824 20,838,596
--------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 96,064 177,228
--------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 21,111,888 21,015,824
--------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning
and end of period 1,400 1,400
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period (common shares) $10.71 $11.98 $12.05 $11.94 $12.37 $11.22
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .52 1.06 1.07 1.09 1.06 1.17
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.33) (1.14) .06 .23 (.28) 1.23
-------------------------------------------------------------------------------------------------------------
Total from investment operations .19 (.08) 1.13 1.32 .78 2.40
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net investment income
-------------------------------------------------------------------------------------------------------------
to Common Shareholders (.48) (.96) (.96) (.96) (.96) (.94)
-------------------------------------------------------------------------------------------------------------
to Preferred Shareholders (.14) (.23) (.24) (.25) (.25) (.28)
-------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments
-------------------------------------------------------------------------------------------------------------
to Common Shareholders -- -- -- -- -- (.02)
-------------------------------------------------------------------------------------------------------------
to Preferred Shareholders -- -- -- -- --(d) (.01)
-------------------------------------------------------------------------------------------------------------
Total distributions (.62) (1.19) (1.20) (1.21) (1.21) (1.25)
-------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $10.28 $10.71 $11.98 $12.05 $11.94 $12.37
-------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $12.125 $11.938 $14.937 $14.750 $13.625 $13.500
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at market price
(common shares)(%)(a) 6.07* (13.96) 8.73 16.25 8.65 22.95
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $357,144 $365,237 $389,622 $388,831 $384,490 $391,003
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .75* 1.46 1.47 1.43 1.49 1.50
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.61* 7.24 6.82 7.13 6.84 7.50
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.35* 14.92 14.44 26.91 146.43 122.65
-------------------------------------------------------------------------------------------------------------
* Not annualized.
(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
May 31, 2000 (Unaudited)
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.
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). 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 May 31, 2000 was 4.50%. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
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 six months ended May 31, 2000, fund expenses were reduced by
$80,970 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 $606
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 six months ended May 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $32,894,399 and $34,700,789, 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 May 31, 2000, no such
restrictions have been placed on the fund.
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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 Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
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PUTNAM
INVESTMENTS
---------------------
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