Putnam
Investment
Grade
Municipal
Trust II
ANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In our opinion, investors' anxieties concerning an
overheating economy are premature. We anticipate the remainder of 1996
to be marked by steady but manageable economic growth and foresee only
limited risk of a sharp increase in inflationary pressures."
-- Michael F. Bouscaren, manager,
Putnam Investment Grade Municipal Trust II
* "[G]iven that 1996 is an election year, the popularity of
tax deductions and complexity of implementing any substantial changes to
the tax codes help make the outlook for the muni market optimistic."
-- The Value Line Mutual Fund Survey, March 19, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
17 Financial statements
[GRAPHIC OMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The tax-exempt bond market provided quite a ride for shareholders of
Putnam Investment Grade Municipal Trust II during the fiscal year ended
April 30, 1996. The year got off to a solid start as the U.S. bond
market enjoyed what would become one of the strongest advances in recent
memory. The euphoria proved short-lived for municipal bond investors,
however, as talk of a flat tax gave rise to concern over the continued
viability of tax-exempt securities.
Once raised, the flat-tax worries provided a negative undercurrent
throughout much of the remainder of the year. It subsided just in time
to temper the decline in tax-exempt securities when the entire bond
market suddenly plunged in March. Through all these market gyrations,
your fund was able to close fiscal 1996 solidly in the black.
As Fund Manager Michael Bouscaren explains in the report that follows,
he believes the continuing demand for tax-free investments, coupled with
a relatively subdued pace in new issuance, bodes well for your fund in
the fiscal year that has just begun.
Respectfully yours,
/S/ George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Manager
Michael F. Bouscaren
For most of Putnam Investment Grade Municipal Trust II's fiscal year,
which ended April 30, 1996, bonds enjoyed one of the most vibrant
markets in recent memory. However, calendar 1996 has not been very
favorable for bonds overall. The bond market began the year both
overbought and overvalued -- primarily the result of investors'
overreaction to the backdrop of benign inflation, slow economic growth,
and an easing Federal Reserve Board policy. Toward the end of the report
period, interest rates rose dramatically, bringing the 10-month rally to
an abrupt halt. Thanks in large part to advantageous sector and security
selection, your fund finished the fiscal year with respectable returns:
6.02% at net asset value and 16.62% at market value.
* MARKET SLIDE MAY BE OVERDONE
Calendar 1995's bond market performance will no doubt go down as one of
the most stellar in recent memory. Although this positive momentum
continued into February 1996, the tide quickly turned in March. The
catalyst for the change in bond prices was the government's announcement
that 705,000 new jobs had been created in February 1996. The bond market
rally had been driven by expectations of a weak, possibly recessionary
economy. The evidence of rapid employment growth fueled fears of
inflation and a possible end to the Federal Reserve's program of
lowering short-term interest rates. A resulting panic in the bond market
on March 8, 1996, drove down the price of the benchmark 30-year Treasuries
by a staggering 3.5% and shaved more than $30 from each $1,000 of the
bonds' face value (their value at time of issue).
In our opinion, investors' anxieties concerning an overheating economy
are premature. We anticipate the remainder of 1996 to be marked by
steady but manageable economic growth and foresee only limited risk of a
sharp increase in inflationary pressures. Such an environment, in
contrast with last year's slowing economy, is unlikely to lead to
falling interest rates and price appreciation for the bond market.
Rather, we believe coupon income will provide the bulk of total return
for fixed-income investors for the remainder of 1996.
The flat tax, which in its purest form would jeopardize the tax
advantages enjoyed by these bonds, no longer seems to be a hot topic in
Washington. Although we expect discussions of broader tax reform to
reappear this fall as the presidential election nears, our current
assessment is that any radical changes to the tax code appear less
likely than they did a few months ago.
We believe this development, along with the recent market correction,
may offer investors who have shied away from municipals an attractive
opportunity to retest the waters. Furthermore, municipal yields remain
generous on a taxable equivalent basis, providing an attractive
alternative to Treasuries and investment grade corporate bonds.
* A FOCUS ON SHORTER DURATIONS
Your fund's portfolio was positioned with a relatively long duration for
most of the first half of fiscal 1996. Duration is a measure of
sensitivity to interest rate changes. A longer duration can mean a more
volatile portfolio if rates increase -- but also one more likely to
appreciate substantially if rates decline. Conversely a shorter duration
can help preserve portfolio value as interest rates rise.
At the start of calendar 1996, we began to shorten the fund's duration,
significantly adding to the portfolio's short- to intermediate-term
holdings. The fund's average duration went from approximately 10 years
in late 1995 to roughly 7.5 years at the end of April 1996. The shift
was made in the expectation that the Federal Reserve Board might respond
to a pickup in inflation and a faster-paced economy by increasing short-
term interest rates.
[HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*]
Chart reads:
Transportation 13.1%
Utilities 12.8%
Hospitals and
health care 10.5%
*Based on net assets as of 4/30/96. Holdings will vary over time.
During the period, we also began lowering the fund's sensitivity to
interest rate swings by swapping AA-rated and A-rated bonds for higher-
coupon, less rate-sensitive BBB-rated bonds. While our efforts to reduce
rate-related volatility adds some credit risk to the portfolio, the
fund's main strength -- its income stream -- remains intact.
* DEMAND FOR MUNICIPALS REMAINS STRONG
The traditional buyers of municipal bonds -- insurance companies and
other institutional buyers -- have been strong buyers during the period
and continue to drive demand in the market. According to data from the
Fed, professionally managed municipal portfolios, either via mutual
funds or trust accounts, became the biggest owners of municipal bonds in
the fourth quarter of 1995, surpassing direct holdings by households for
the first time. Fund and trust portfolios totaled $507.6 billion, making
up 39% of the municipal market at the end of 1995, topping households'
holdings of $435 billion, equal to 33.4% of municipal debt outstanding.
Closed-end municipal bond fund assets grew 10.7%, to $57.1 billion, last
year.
Individual retail investors have been avoiding municipal bonds,
especially those with intermediate and long maturities, during most of
the period. Should individual investors begin to recognize the value
offered by municipals and become a significant part of the demand
component, we believe bond prices would be likely to improve, assuming
everything else remains the same.
* OUTLOOK CAUTIOUS, BUT CONSTRUCTIVE
We expect municipal new-issue supply for 1996 to remain even with last
year's pace and insurance company interest to stay firm. As the flat-tax
issue wanes, record levels of cash in tax-exempt money market funds
could further buoy the market, should these investors venture back to
municipal bond mutual funds.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
New York City General Obligation Bonds,
Series E, 61/2s, 2/15/05
Broward County Resource Recovery Revenue Bonds (Florida),
7.95s, 12/1/08
Metro Government Nashville and Davidson County
Tennessee Water and Sewer,
Inverse floating bonds, AMBAC, 8.371s,1/1/22
New York State Energy Research and Development Authority
Pollution Control,
Variable rate demand notes, Series D, 3.85s, 10/1/29
Central Lake County, Joint Action Water Agency
Revenue Bonds (Illinois),
6s, 2/1/19
Burke County Development Authority Control Revenue
Bonds (Georgia)
Municipal Bond Investors Assurance Corporation 8s, 1/1/22
Los Angeles County, Metro Transportation Authority
Sales Tax Revenue Bonds,
Series A, Financial Guaranty Insurance Company 5s, 7/1/21
New York City Municipal Association Corp.,
Series E, 4.8s, 7/1/03
Babylon Industrial Development Agency Resource Recovery
Revenue Bonds (New York),
Series A, 8 1/2s, 1/1/19
Claiborne County Pollution Control Revenue Bonds (Mississippi)
Series C 9 7/8s, 12/1/14
These holdings represent 34.5% of the fund's assets as of 4/30/96.
Portfolio holdings will vary over time.
A climate of steadier economic growth clearly requires a more cautious
approach to fixed-income investing. Greater emphasis will be placed on
coupon income, stressing the importance of astute credit analysis. As
more weight is placed on enhancing the price stability and liquidity of
the portfolio, careful maturity selection and a focus toward larger,
well-known municipal names will play an increasingly vital role in your
fund's strategy over the next six months.
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 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Investment Grade Municipal Trust II is designed for
investors seeking high current income free from federal income tax,
consistent with preservation of capital.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's common
shares changed over time, assuming you held the shares through the
entire period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
Lehman Bros. Consumer
Municipal Price
NAV Market price Bond Index Index
- ------------------------------------------------------------------------
1 year 6.02% 16.62% 7.95% 2.50%
- ------------------------------------------------------------------------
Life (11/27/92) 26.17 19.00 22.14 9.65
Annual average 7.01 5.20 6.03 2.72
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------
1 year 6.84% 18.78%
- ------------------------------------------------------------------------
Life (11/27/92) 27.09 20.45
Annual average 7.44 5.73
- ------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns 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
Year ended 4/30/96
- ------------------------------------------------------------------------
Distributions (number) 12
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Common shares --
- ------------------------------------------------------------------------
Income $0.9600
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Capital gains1 --
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Total $0.9600
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Preferred shares Series A (630 shares) Series B (630 shares)
- ------------------------------------------------------------------------
Income $1,884.79 $1,906.95
- ------------------------------------------------------------------------
Capital gains1 -- --
- ------------------------------------------------------------------------
Total $1,884.79 $1,906.95
- ------------------------------------------------------------------------
Share value
(common shares): NAV Market price
- ------------------------------------------------------------------------
4/30/95 $13.94 $12.750
- ------------------------------------------------------------------------
4/30/96 $13.79 $13.875
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Current return (common shares):
- ------------------------------------------------------------------------
As of 4/30/96
- ------------------------------------------------------------------------
Current dividend rate2 6.96% 6.92%
- ------------------------------------------------------------------------
Taxable equivalent3 11.53 11.46
- ------------------------------------------------------------------------
1Capital gains 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. 2Income portion of most recent distribution,
annualized and divided by NAV or market price at end of period. 3Assumes
maximum 39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus
liabilities, the liquidation preference and cumulative undeclared
dividends on the remarketed preferred shares, divided by the number of
outstanding common shares.
Market price is the current trading price of one common share of the
fund. Market prices are set by transactions between buyers and sellers
on the New York Stock Exchange.
COMPARATIVE BENCHMARKS
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund. 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 of the fund will differ. It is
not possible to invest directly in an index.
Report of Independent Accountants
For the fiscal year ended April 30, 1996
To the Trustees and Shareholders of
Putnam Investment Grade Municipal Trust II
We have audited the accompanying statement of assets and liabilities of
Putnam Investment Grade Municipal Trust II, including the portfolio of
investments owned, as of April 30, 1996, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free from 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 April 30, 1996, 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 audits provide 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 II as of
April 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 18, 1996
<TABLE>
<PORTFOLIO>
Portfolio of investments owned
April 30, 1996
Key to Abreviations
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
IFB -- Inverse Floating Bonds
G.O. Bonds -- General Obligation Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (108.1%) *
PRINCIPAL AMOUNT RATING ** VALUE
Arizona (1.0%)
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<S> <C> <C> <C>
$2,235,000 Gila Cnty., Indl. Dev. Auth. Poll Control Rev. Bonds,
Ser. 85, 8.9s, 7/1/06 Baa $2,388,656
California (15.7%)
- ---------------------------------------------------------------------------------------------------------------------
1,200,000 CA Hlth. Fac. Fin. Auth. VRDN (Sutter Hlth.),
Ser. A, 3.6s, 3/1/20 VMIGI 1,200,000
CA State G.O. Bonds
3,315,000 5 1/2s, 3/1/10 A 3,244,556
1,000,000 5.1s, 10/1/08 A 967,500
6,000,000 CA State G.O. Bonds, FGIC, 6 1/4s, 9/1/08 A 6,472,500
2,500,000 CA State U. IFB, AMBAC, 9.860s, 11/1/21
(acquired 9/2/94, cost $2,681,272)++ AAA 2,875,000
1,465,000 Fountain Valley, Agcy. for Cmnty. Dev. Tax Alloc.
Rev. Bonds (Indl. Area Redev. Project),
9.1s, 1/1/16 BBB 1,489,011
1,600,000 Irvine, Impt. VRDN 3.60s, 9/2/15 VMIGI 1,600,000
Los Angeles Cnty., Metro. Trans. Auth.
Sales Tax Rev. Bonds, Ser. A
1,000,000 MBIA, 5s, 7/1/25 AAA 863,750
8,415,000 FGIC, 5s, 7/1/21 AAA 7,289,494
3,600,000 Los Angeles, Regl. Arpts. Impt. Corp. Rev. Bonds,
VRDN, 4.05s, 12/1/25 A-1+ 3,600,000
5,875,000 Los Angeles, Regl. Arpts. Impt. Corp. Lease
Rev. Bonds (Western Air Lines, Inc. -
Delta Air Lines, Inc.), 11 1/4s, 11/1/25 Ba 6,185,376
3,000,000 W Riverside Cnty., Regl. Wastewtr.
Trtmnt. Auth. VRDN, 2.8s, 4/1/28 VMIGI 3,000,000
------------
38,787,187
Colorado (9.2%)
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Denver City & Cnty. Arpt. Rev. Bonds
5,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 5,906,250
2,500,000 Ser. A, 8 1/2s, 11/15/23 Baa 2,871,875
1,670,000 Ser. A, 8s, 11/15/25 Baa 1,885,012
1,000,000 Ser. A, 8s, 11/15/25 Baa 1,122,500
2,175,000 Ser. A, 8s, 11/15/17 Baa 2,321,813
1,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 1,158,750
Highlands Ranch, Dist. No. 2 , FSA
1,000,000 6 1/2s, 6/15/09 AAA 1,088,750
780,000 6 1/4s, 6/15/08 AAA 835,575
5,250,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev.
Bonds (Newport Village Project), Ser. A-8,
FSA, 7.1s, 1/1/30 AAA 5,656,875
------------
22,847,400
Delaware (2.1%)
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5,300,000 Wilmington Hosp. VRDN (Franciscan Hlth. Syst.),
Ser. A, 4.05s, 7/1/11 VMIGI 5,300,000
District of Columbia (0.6%)
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1,500,000 District of Colombia, G.O. Bonds, Ser. E, FGIC,
5s, 6/1/01 AAA 1,498,125
Florida (6.6%)
- ---------------------------------------------------------------------------------------------------------------------
11,000,000 Broward Cnty. Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South Project),
7.95s, 12/1/08 A 12,127,500
5,000,000 Port Everglades Auth. Port Impt. Rev. Bonds,
Ser. A, 5s, 9/1/16 BBB 4,218,750
-------------
16,346,250
Georgia (3.0%)
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6,340,000 Burke Cnty., Dev. Auth. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle Proj.), MBIA,
8s, 1/1/22# AAA 7,457,425
Illinois (6.0%)
- ---------------------------------------------------------------------------------------------------------------------
7,750,000 Central Lake Cnty., Joint Action Wtr. Agcy.
Rev. Bonds, 6s, 2/1/19 A 7,604,688
5,000,000 Chicago, Edl. Fing. Auth. Rev. Bonds Ser. A,
MBIA, 4 1/2s, 6/1/01 AAA 4,931,250
2,090,000 Chicago, O'Hare Intl. Arpt. Special Fac.
Rev. Bonds (United Air Lines, Inc.),
Ser. C, 8.2s, 5/1/18 Baa 2,251,975
-------------
14,787,913
Indiana (0.9%)
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2,000,000 Marion Cnty., Ind. Convention & Rectl. Facs.
Auth. Rev. Bonds (Excise Tax Rev. Lease Rental),
Ser. A, AMBAC, 7s, 6/1/21 AAA 2,165,000
Kansas (1.1%)
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$2,600,000 Burlington, Poll. Control Rev. Bonds (Kansas Gas &
Electric Co. Project), MBIA, 7s, 6/1/31 AAA 2,834,000
Louisiana (5.8%)
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2,000,000 Beauregard Parish Rev. Bonds (Boise Cascade
Corp. Project), 7 3/4s, 6/1/21 Baa 2,140,000
LA State Recvy. Dist.
1,600,000 Sales Tax, VRDN, 4.05s, 7/1/98 VMIGI 1,600,000
6,000,000 Sales Tax, VRDN, FGIC, 4.20s, 7/1/97 VMIGI 6,000,000
500,000 St. Charles Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 546,250
W Feliciana Parish Poll. Control VRDN
(Gulf States Utilites Co.)
3,000,000 4.15s, 4/1/16 A-1+ 3,000,000
1,000,000 4.15s, 12/1/15 A-1+ 1,000,000
------------
14,286,250
Massachusetts (6.1%)
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1,900,000 MA State VRDN, Ser. B, 3.90s, 12/1/97 VMIGI 1,900,000
5,500,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Med. Ctr. of Central MA), Ser. B, AMBAC,
8.820s, 6/23/22 AAA 6,070,625
2,000,000 MA State Hlth. & Edl. Facs. Auth. IFB (Boston U.),
Ser. L, MBIA, 9.436s, 10/1/31 AAA 2,220,000
3,000,000 MA State Port Auth. Rev. Bonds, 13s, 7/1/13 AAA 4,837,500
------------
15,028,125
Michigan (2.9%)
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2,000,000 Detroit Wtr. Supply Sys. Rev. IFB, FGIC,
8.791s, 7/1/22 AAA 2,102,500
4,950,000 Grand Rapids Wtr. Supply Syst. VRDN, FGIC,
4.1s, 1/1/20 VMIGI 4,950,000
-----------
7,052,500
Minnesota (3.6%)
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5,500,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds
(Healtheast Project), Ser. B, 9 3/4s, 11/1/17 Baa 5,891,875
3,000,000 Western MN Muni. Pwr. Agcy. Supply Rev. Bonds,
Ser. A, 7s, 1/1/13 A 3,098,910
-----------
8,990,785
Mississippi (2.7%)
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6,000,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.),
Ser. C, 9 7/8s, 12/1/14 Ba 6,757,500
New York (20.3%)
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6,370,000 Babylon, Indl. Dev. Agcy. Resource Recvy.
Rev. Bonds (Ogden Martin Syst.),
Ser. A, 8 1/2s, 1/1/19 AAA 7,094,588
7,135,000 NY City Muni. Asst. Corp., Ser. E, 4.8s, 7/1/03## AA 7,108,244
13,000,000 NY City G.O. Bonds, Ser. E, 6 1/2s, 2/15/05 Baa 13,568,750
3,000,000 NY City, Muni. Wtr. Fin. Auth. VRDN,
Ser. G, FGIC, 4.10s, 6/15/24 VMIG1 3,000,000
2,000,000 NY State Energy Resh. & Dev. Auth. Elec. Facs.
Rev. Bonds (Cons. Edison Co. Project),
Ser. A, 7 3/4s, 1/1/24 A 2,110,000
NY State Energy Resh. & Dev. Auth. Poll.
Control VRDN
2,000,000 (Niagara Mohawk Power Project),
Ser. A, 4.05s, 7/1/15 A-1+ 2,000,000
8,000,000 (NY Elec. Gas), Ser. D, 3.85s, 10/1/29 VMIGI 8,000,000
NY State Urban Dev. Corp. Rev. Bonds
(Syracuse University)
1,440,000 6s, 1/1/07 Baa 1,431,000
1,360,000 6s, 1/1/06 Baa 1,356,600
4,000,000 NY State Environmental Facs. Corp. Rev. Bonds
(Jamaica Wtr. Supply), AMBAC, 7 5/8s, 4/1/29 AAA 4,330,000
-----------
49,999,182
North Carolina (2.6%)
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6,000,000 Foothill Valley, Agcy., Rev. Bonds, Ser. A, 7s, 1/1/08 Baa 3,547,500
2,800,000 NC Muni Pwr. Agcy., Rev. Bonds, MBIA,
5 1/4s, 1/1/07 AAA 2,814,000
-----------
6,361,500
Oklahoma (2.5%)
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5,800,000 Grand River Dam Auth. Rev. Bonds, 5 3/4s, 6/1/06 A 6,068,250
Pennsylvania (4.1%)
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3,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Magee-Womens Hosp.), FGIC, 6s, 10/1/13 AAA 3,033,750
5,000,000 Dauphin Cnty., Auth. Hosp. Rev. Bonds
(Hapsco-Western PA Hosp. Project),
Ser. A, MBIA, 6 1/2s, 7/1/12 AAA 5,237,500
1,800,000 Lehigh Cnty. Gen. Purp. Auth. Rev. Bonds
(Hosp. Healtheast Inc.), Ser. A, 9s, 7/1/15 A 1,937,250
-----------
10,208,500
Puerto Rico (2.0%)
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4,500,000 Puerto Rico Indl. Environmental Poll. Control
Fing. Auth. Rev. Bonds (Baxter Travenol Labs),
8s, 9/1/12 A 4,921,875
South Carolina (0.7%)
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1,800,000 Charleston Cnty., Indl. Dev. VRDN, 4.1s, 1/1/07 A-1+ 1,800,000
South Dakota (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 SD Hsg. Dev. Auth. Rev. Bonds, Ser. A, 5.1s, 5/1/02 AAA 2,500,000
Tennessee (4.0%)
- ---------------------------------------------------------------------------------------------------------------------
8,300,000 Metro. Gov't Nashville & Davidson Cnty. Tenn.
Wtr. & Swr. IFB AMBAC, 8.371s, 1/1/22 AAA 8,403,750
1,400,000 Metro. Arpt. Auth. Spl. Facs. (American Airlines),
VRDN, 3 1/2s, 10/1/12 A-1+ 1,400,000
-----------
9,803,750
Texas (2.3%)
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3,815,000 Dallas Independent Schl. Dist Rev. Bonds,
zero%, 8/15/07 AAA 2,055,331
3,500,000 North Central TX Hlth. Fac. Dev. Corp.
Rev. Bonds (Presbyterian Hlth. Sys.),
MBIA, 6.685s, 6/22/21 AAA 3,666,250
------------
5,721,581
Utah (0.8%)
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2,800,000 Salt Lake Cnty. Wtr. Rev. Bonds, AMBAC,
6.55s, 10/1/02 AAA 2,026,500
Washington (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
1,300,000 WA State Hlth. Care Fac. Auth. VRDN
(Sisters of Providence), Ser. C, 4.10s, 10/1/05 VMIGI 1,300,000
------------
Total Investments (cost $266,814,664)*** $267,238,254
- ---------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $247,234,126
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
April 30, 1996 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 April 30, 1996.
Ratings are not covered by the Report of Independent Accountants.
*** The aggregate identified cost on a tax basis is $266,814,664, resulting in gross unrealized appreciation and
depreciation of $4,433,478 and $4,009,888, respectively, or net unrealized appreciation of $423,590.
++ Restricted, excluding 144A securities, as to public resale. There were no outstanding securities of the same
class as those held. The total market value of restricted securities held at April 30, 1996 was $2,875,000
or 1.2% of net assets.
# A portion of this security was pledged to cover margin requirements for futures contracts at April 30, 1996.
The market value of segregated securities with the custodian for transactions in futures contracts is $43,521
or less than 1% of net assets.
## When-issued securities (See Note 1).
The rates shown on Inverse Floating Rate Bonds (IFB), which are securities paying interest rates that vary
inversely to changes in the market interest rates, and Variable Rate Demand Notes (VRDN's), are the current
interest rates at April 30, 1996.
The fund had the following industry group concentrations greater than 10% on April 30, 1996 (based on
net assets):
Transportation 13.1
Utilities 12.8
Hospitals/Healthcare 10.5
-----------------------------------------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1996
Aggregate
Total Face Expiration Unrealized
Value Value Date Appreciation
-----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond
(Short) $9,278,281 $9,347,344 Jun-96 $69,063
-----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1996
Assets
- ---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $266,814,664) (Note 1) $267,238,254
- ---------------------------------------------------------------------------------------------
Cash 61,215
- ---------------------------------------------------------------------------------------------
Interest receivable 4,798,483
- ---------------------------------------------------------------------------------------------
Receivable for securities sold 5,254,425
- ---------------------------------------------------------------------------------------------
Receivable for variation margin 58,438
- ---------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 8,366
- ---------------------------------------------------------------------------------------------
Total assets 277,419,181
Liabilities
- ---------------------------------------------------------------------------------------------
Distributions payable to shareholders $1,068,516
- ---------------------------------------------------------------------------------------------
Payable for securities purchased 28,592,846
- ---------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 432,698
- ---------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 24,662
- ---------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 103
- ---------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 669
- ---------------------------------------------------------------------------------------------
Payable for remarketed preferred shares 24,500
- ---------------------------------------------------------------------------------------------
Other accrued expenses 41,061
- ---------------------------------------------------------------------------------------------
Total liabilities 30,185,055
- ---------------------------------------------------------------------------------------------
Net assets $247,234,126
Represented by
- ---------------------------------------------------------------------------------------------
Series A and B remarketed preferred shares (1,260 shares issued at
$50,000 per share liquidation preference) (Note 4) $63,000,000
- ---------------------------------------------------------------------------------------------
Paid in capital -- common shares (Note 1) 186,297,698
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,139,933
- ---------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (4,696,158)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 492,653
- ---------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $247,234,126
Net assets available to:
- ---------------------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $63,000,000
- ---------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 57,495
- ---------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares: 63,057,495
- ---------------------------------------------------------------------------------------------
Net assets available to common shares $184,176,631
- ---------------------------------------------------------------------------------------------
Net assets $247,234,126
- ---------------------------------------------------------------------------------------------
Net asset value per common shares
($184,176,631 divided by 13,357,092 shares) $13.79
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended April 30, 1996
<S> <C>
Tax exempt interest income $16,737,758
- --------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) $1,770,325
- --------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 223,427
- --------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,346
- --------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,395
- --------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 5,303
- --------------------------------------------------------------------------------------------
Reports to shareholders 28,471
- --------------------------------------------------------------------------------------------
Registration fees 2,399
- --------------------------------------------------------------------------------------------
Auditing 56,056
- --------------------------------------------------------------------------------------------
Legal 9,634
- --------------------------------------------------------------------------------------------
Postage 28,662
- --------------------------------------------------------------------------------------------
Exchange listing fees 22,324
- --------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 163,656
- --------------------------------------------------------------------------------------------
Other 17,040
- --------------------------------------------------------------------------------------------
Total expenses 2,348,038
- --------------------------------------------------------------------------------------------
Expense reduction (Note 2) (124,612)
- --------------------------------------------------------------------------------------------
Net expenses 2,223,426
- --------------------------------------------------------------------------------------------
Net investment income 14,514,332
- --------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 469,801
- --------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (1,652,378)
- --------------------------------------------------------------------------------------------
Net unrealized depreciation on investments during the year (153,702)
- --------------------------------------------------------------------------------------------
Net loss on investments (1,336,279)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $13,178,053
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended April 30
-----------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income $14,514,332 $15,230,626
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (1,182,577) 40,442
- ------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (153,702) (2,106,063)
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,178,053 13,165,005
- ------------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (2,344,964) (1,993,465)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gains -- (422,307)
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $57,495 and $13,661, respectively) 10,833,089 10,749,233
- ------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders from:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (12,822,245) (12,828,891)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gains -- (2,722,091)
- ------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (1,989,156) (4,801,749)
- ------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------
Beginning of year 249,223,282 254,025,031
- ------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $2,139,933 and $2,572,511, respectively) $247,234,126 $249,223,282
- ------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ------------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning and end of year 13,357,092 13,357,092
- ------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of year 1,260 1,260
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the Period
November 27, 1992
(commencement of
operations) to
Year ended April 30 April 30, 1996
---------------------------------------------------------------
1996 1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $13.94 $14.30 $15.00 $14.06 *
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income 1.09 1.14 1.16 .44(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.10) (.16) (.66) .95
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .99 .98 .50 1.39
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income
- --------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.18) (.15) (.15) (.03)**
- --------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.96) (.96) (.96) (.32)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments
- --------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- (.08) --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments
- --------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders -- (.03) -- --
- --------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- (.20) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (1.34) (1.20) (.35)
- --------------------------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- -- (.10)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $13.79 $13.94 $14.30 $15.00
- --------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $13.875 $12.75 $13.25 14.63
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return at
market value (common
shares) (%)(b) 16.62 5.39 (2.81) (.88)(d)
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $247,234 $249,223 $254,025 $263,388
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c)(e) 1.24 1.28 1.14 .27(a)(d)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (c) 6.41 7.10 6.66 2.89(a)(d)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 160.28 85.63 32.27 4.65(d)
- --------------------------------------------------------------------------------------------------------------------------------
* Represents initial net asset value of $14.10 less offering expenses of approximately $0.04.
** Preferred shares were issued on February 18, 1993.
(a) Reflects a waiver of the management fee for the period November 27, 1992 to February 19, 1993. As a result of the waiver,
expenses of the fund for the period ended April 30, 1993 reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for
dividend payments to preferred shareholders.
(d) Not annualized.
(e) The ratio of expenses to average net assets for the period ended April 30, 1996 includes amounts paid through expense
offset arrangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
April 30, 1996
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 portfolio of investment grade municipal securities
that the fund's Manager believes does not involve undue risk to income
or principal.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The fair
value of restricted securities is determined by the Manager following
procedures approved by the Trustees, and such valuations and procedures
are reviewed periodically by the Trustees.
Securities purchased or sold on a when-issued or delay delivery basis
may be settled a month or more after the trade date; interest income is
not accrued until settlement date. The fund instructs the custodian to
segregate assets in a separate account with a current value at least
equal to the amount of its when-issued purchase commitment. Losses may
arise due to changes in the market value of the underlying securities or
if the counterparty does not perform under the contract.
B) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and undeclared dividends on remarketed preferred shares) and
the liquidation value of any outstanding remarketed preferred shares, by
the total number of common shares outstanding.
C) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
D) 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.
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.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At April 30, 1996 the fund had a capital loss carryover of approximately
$2,578,000 available to offset future net capital gains, if any, which
will expire on April 30, 2004.
F) Distributions to shareholders Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends
on remarketed preferred shares become payable when, as and if declared
by the Trustees. Each dividend period for the remarketed preferred
shares is generally a 28 day period. The applicable dividend rates for
the remarketed preferred shares on April 30, 1996 were: Series A-3.665%,
Series B-3.520%. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include treatment of capital loss carryover, post-October
loss deferrals, realized and unrealized losses on certain futures and
options contracts and market discount. 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 April 30, 1996, the fund reclassified
$220,299 to increase undistributed net investment income and $13,674 to
decrease paid-in-capital, with an increase to accumulated net realized
losses of $206,625. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
G) Amortization of bond premium and discount Any premium resulting from
the purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discounts on zero coupon bonds and original
issue are accreted according to the effective yield method.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $26,528. These expenses are being amortized
on straight line basis over a five-year period.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Investment Management, Inc. (Putnam Management),
the fund's Manager, a wholly-owned subsidiary of Putnam Investments,
Inc., for management and investment advisory services is paid quarterly
based on the average net assets of the fund. Such fees are based on the
annual rate of 0.70% of the first $500 million of the average net asset
value of the fund, 0.60% of the next $500 million, 0.55% of the next
$500 million, and 0.50% of any excess over $1.5 billion of such average
net asset value.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for the period exceed the fund's net income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by an
agreed upon formula, pursuant to the "Administration Services Contract."
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $790 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended April 30, 1996, fund expenses were reduced by
$124,612 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.
Note 3
Purchases and sales of securities
During the period ended April 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$365,921,992 and $379,577,927, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Remarketed preferred shares
The Series A and B shares are redeemable at the option of the fund on
any dividend payment date at a redemption price of $50,000 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.
It is anticipated that approximately 100% of total distributions and
dividends paid during fiscal 1996 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 April 30, 1996, no such
restrictions have been placed on the fund.
<TABLE>
Selected quarterly data
(Unaudited)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Net realiz Net increase
Net and unrealized (decrease) in
Investment investment gain (loss) on net assets
income income* investments* from operations*
- -------------------------------------------------------------------------------------------------
Per Per Per Per
Quarter Common Common Common Common
Ended Total Share Total Share Total Share Total Share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7-31-94 $4,416,081 $.33 $3,238,692 $.24 $1,251,989 $.10 $4,490,681 $.34
10-31-94 4,350,562 .33 3,139,962 .24 (9,964,779) (.75) (6,824,817) (.51)
1-31-95 4,413,648 .33 3,556,470 .26 2,384,896 .18 5,941,366 .44
4-30-95 4,427,510 .33 3,288,376 .25 3,839,966 .28 7,128,342 .53
7-31-95 4,440,157 .33 3,257,869 .24 176,731 .01 3,434,600 .25
10-31-95 4,301,942 .32 3,132,120 .24 3,858,522 .29 6,990,642 .53
1-31-96 4,081,861 .31 2,918,646 .22 4,613,247 .34 7,531,893 .56
4-30-96 3,913,798 .29 2,816,899 .21 (9,984,779) (.74) (7,167,880) (.53)
- -------------------------------------------------------------------------------------------------
* Available to common shareholders
>/TABLE>
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 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
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
James E. Erickson
Vice President
Blake E. Anderson
Vice President
Michael F. Bouscaren
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for
up-to-date information about the fund's net asset value.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ------------------
25110-183 6/96
</TABLE>
