Putnam
Investment Grade
Municipal Trust II
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
If history tells us anything about bond investing, it is this: buying a
bond fund after a bad year is often a smart thing to do. The bond market
has endured its toughest year since 1994 and the second-worst year on
record, the result of three moves by the Federal Reserve Board to raise
interest rates. Within this challenging market environment, Putnam
Investment Grade Municipal Trust II met its goals of seeking high current
tax-exempt income by investing primarily in investment-grade municipal
bonds. Not surprisingly, though, along with higher interest rates came
falling bond prices and the fund's performance reflects this unavoidable
relationship.
Total return for 6 months ended 10/31/99
Net asset value Market price
- ------------------------------------------------------------------
-6.11% -25.43%
- ------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* MANAGEMENT MAINTAINS CONFIDENCE IN MUNI BONDS
Those who remember history of bond markets will recall that following the
bear markets of 1989 and 1994 considerable buying opportunities were
available to investors. Your fund's manager, Richard Wyke, believes that
similar opportunities are present now for several reasons. The first is
that a 30-year AAA-rated municipal bond currently offers a 6% yield, an
extremely high level for the tax-free sector, registering almost 97% of
the yield on a 30-year taxable Treasury bond. With inflation still
remarkably low at 3% or less, real (after-inflation) returns are the
highest that investors have seen in years and are especially favorable
when compared to the real after-tax returns on taxable bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/
health care 18.7%
Utilities 18.5%
Transportation 17.7%
Water and
sewer 14.3%
Education 6.7%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
In addition, after two interest-rate increases by the Fed during the
period and another quarter-point rise shortly after the period ended, most
of the potentially negative developments have already been priced into the
market. Rick does not expect that substantial inflation will materialize
over the next several months. In his opinion, most of the damage has been
done and the worst is over for the bond markets.
* SECTOR POSITIONING PROVES EFFECTIVE
The transportation industry is one of your fund's top sectors and includes
both airline and toll road bonds. A relatively new issue, The
Foothill/Eastern Transit Corridor Agency Toll Road revenue bonds in
California, performed well, especially in light of a prerefunding that
took place in the spring. As a result of the prerefunding, the bonds were
upgraded to carry the highest credit rating (AAA/Aaa), which was good news
for investors. Since then and during this reporting period, we have sold
these bonds.
The health-care industry continued to be an important contributor to your
fund's performance. Selectivity is crucial because hospitals are going
through some difficult times as a result of legislation enacted several
years ago. For this reason, many of the fund's health-care holdings are
insured and carry the highest credit ratings. The health-care bonds from
the lower end of the investment-grade spectrum (BBB/Baa) are important too
because they offer a healthy injection of higher yields into the
portfolio.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 7.6%
A -- 19.4%
Baa/BBB -- 24.1%
Ba/BB and below -- 1.2%
Aaa/AAA -- 47.7%
Footnote reads:
*As a percentage of market value as of 10/31/99. 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.
One other important strategy involves investing in intermediate to
long/intermediate maturities of 15 to 20 years. As interest rates have
fallen, the yield curve has steepened, and longer intermediate bonds have
outperformed other maturity ranges. Within each maturity range, Rick
relies heavily on credit analysis to evaluate investments for the fund.
* STRONGER POTENTIAL FOR BONDS SEEN IN NEAR FUTURE
The threat of inflation remains the primary force driving volatility in
both the bond and stock markets. The historical connection between
prolonged growth and inflation haunts the markets, even as actual reported
inflation lies dormant. Fortunately it seems that the most recent
interest-rate increase has already been priced into the bond market's
adverse behavior, clearing the way for better performance in the months
ahead.
Furthermore, with equities beginning to look vulnerable and with concern
over Y2K likely to grow in the last months of the year, bonds may gain
appeal as safe-haven assets in the fourth quarter.
With this sentiment and the belief that bonds are fairly valued as of this
writing, Rick is inclined to take slightly more risk in the fund's
portfolio now, extending maturities as opportunities arise. It has long
been management's belief that choppy markets provide the opportunity to
add yield, find exceptional credits, and improve call protection --
strategies that can be extremely rewarding for shareholders over time.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
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 10/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Investment
Grade Municipal Trust II is designed for investors seeking high current income
free from federal income tax consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 10/31/99
Lehman Brothers
Market Municipal Consumer
(common shares) NAV price Bond Index price index
- ---------------------------------------------------------------------------
6 months -6.11% -25.43% -3.46% 1.20%
- ---------------------------------------------------------------------------
1 year -4.78 -21.44 -1.78 2.69
- ---------------------------------------------------------------------------
5 years 32.10 34.40 39.77 12.51
Annual average 5.73 6.09 6.93 2.39
- ---------------------------------------------------------------------------
Life of fund (11/27/92) 45.91 18.50 49.85 18.45
Annual average 5.61 2.48 6.02 2.48
- ---------------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 10/31/99
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------------
Income $0.4520
- ------------------------------------------------------------------------------
Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.4520
- ------------------------------------------------------------------------------
Preferred shares Series A Series B
(630 shares) (630 shares)
- ------------------------------------------------------------------------------
Income $913.27 $774.03
- ------------------------------------------------------------------------------
Capital gains -- --
- ------------------------------------------------------------------------------
Total $913.27 $774.03
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
4/30/99 $13.94 $15.250
- ------------------------------------------------------------------------------
10/31/99 12.65 11.000
- ------------------------------------------------------------------------------
Current return (common shares/end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 6.26% 7.20%
- ------------------------------------------------------------------------------
Taxable equivalent3 10.36 11.92
- ------------------------------------------------------------------------------
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 POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Market
(common shares) NAV price
- ------------------------------------------------------------------------------
6 months -3.90% -21.87%
- ------------------------------------------------------------------------------
1 year -3.49 -20.02
- ------------------------------------------------------------------------------
5 years 31.72 30.57
Annual average 5.66 5.48
- ------------------------------------------------------------------------------
Life of fund (11/27/92) 48.71 20.46
Annual average 5.97 2.76
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
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 shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Comparative benchmarks
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the indexes and
performance of the fund will differ. It is not possible to invest directly
in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report 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
October 31, 1999 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
MUNICIPAL BONDS AND NOTES (97.5%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,500,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. A,
FGIC, 5s, 2/1/33 Aaa $ 1,245,000
Alaska (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ 2,135,000
Arkansas (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 Baxter Cnty., Hosp. Rev. Bonds, Ser. B,
5 5/8s, 9/1/28 Baa2 1,368,000
California (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 CA Hlth. Fac. Fin. Auth. IFB (Catholic Healthcare
West), AMBAC, 6.706s, 7/1/17 Aaa 4,393,750
2,500,000 CA State U. IFB, AMBAC, 8.443s, 11/1/21
(acquired 9/2/94, cost $2,681,272) (RES) Aaa 2,745,975
1,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,042,188
--------------
8,181,913
Colorado (7.6%)
- --------------------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds
3,675,000 Ser. A, 8 3/4s, 11/15/23 Baa1 3,978,188
1,325,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 1,460,813
2,285,000 Ser. A, 8 1/2s, 11/15/23 Baa1 2,407,933
215,000 Ser. A, 8 1/2s, 11/15/23, Prerefunded Aaa 228,708
1,525,000 Ser. A, 8s, 11/15/25 Baa1 1,599,146
735,000 Ser. A, 8s, 11/15/25 Baa1 770,831
265,000 Ser. A, 8s, 11/15/25, Prerefunded Aaa 283,550
145,000 Ser. A, 8s, 11/15/25, Prerefunded Aaa 153,519
1,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 1,166,250
5,250,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Newport Village), Ser. A-8, FSA, 7.1s, 1/1/30 Aaa 5,604,375
--------------
17,653,313
Florida (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
Broward Cnty., Resource Recvy. Rev. Bonds
9,650,000 (SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 9,960,827
1,045,000 (Waste-Energy LP North), 7.95s, 12/1/08 A+ 1,078,659
1,000,000 FL State Board of Ed. Cap. Outlay G.O. Bonds,
Ser. A, 7 1/4s, 6/1/23 AA+ 1,038,940
5,000,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 8.867s, 3/26/20 Aaa 5,162,500
1,625,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration), Ser. A, 7 7/8s, 12/15/25 Baa3 1,645,313
2,500,000 Orange Cnty., Hlth. Facs. Auth. Rev. Bonds
(Regl. Hlth. Care Syst.), Ser. E, 6s, 10/1/26 A2 2,384,375
--------------
21,270,614
Georgia (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,340,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), MBIA, 8s, 1/1/22(SEG) Aaa 7,132,500
Hawaii (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
HI State Arpt. Syst. Rev. Bonds
2,000,000 AMBAC, 7.3s, 7/1/20 Aaa 2,076,220
4,000,000 FGIC, 7s, 7/1/10 Aaa 4,240,000
--------------
6,316,220
Illinois (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
7,750,000 Central Lake Cnty., Joint Action Wtr. Agcy.
G.O. Bonds, 6s, 2/1/19 Aa2 7,817,813
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(American Airlines, Inc.)
2,000,000 8.2s, 12/1/24 Baa1 2,245,000
2,250,000 Ser. A, 7 7/8s, 11/1/25 Baa1 2,344,320
1,500,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt Obligation),
5.65s, 11/15/24 A- 1,286,250
--------------
13,693,383
Indiana (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Marion Cnty., Ind. Convention & Recreation
Fac. Auth. Rev. Bonds (Excise Tax Rev.
Lease Rental), Ser. A, AMBAC, 7s, 6/1/21 Aaa 2,092,500
Kansas (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,600,000 Burlington, Poll. Control Rev. Bonds
(Kansas Gas & Electric Co.), MBIA, 7s, 6/1/31 Aaa 2,730,000
Kentucky (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,030,000 Jefferson Cnty., Cap. Corp. Rev. Bonds,
MBIA, 5 1/2s, 6/1/28 Aaa 4,684,188
2,200,000 Jefferson Cnty., Hosp. Rev. Bonds, MBIA,
6.436s, 10/1/14 Aaa 2,293,500
4,000,000 Kenton Cnty., Special Fac. Arpt. Rev. Bonds
(Delta Airlines), Ser. A, 7 1/2s, 2/1/12 Baa3 4,230,000
--------------
11,207,688
Louisiana (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Beauregard, Parish Rev. Bonds
(Boise Cascade Corp.), 7 3/4s, 6/1/21 Baa3 2,095,000
Massachusetts (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,750,000 MA State Hlth. & Ed. Fac. Auth. Rev. Bonds
(Caritas Christian Oblig. Group),
Ser. A, 5 5/8s, 7/1/20 Baa2 2,310,000
MA State Hlth. & Ed. Fac. Auth. IFB
2,000,000 (Boston University), MBIA, 9.335s, 10/1/31 Aaa 2,147,500
5,500,000 (Med. Ctr. of Central MA), Ser. B,
AMBAC, 9.07s, 6/23/22 Aaa 5,940,000
3,000,000 MA State Port Auth. Rev. Bonds, 13s, 7/1/13 Aaa 4,612,500
1,500,000 MA State Tpk. Auth. Hwy. Syst. Rev. Bonds, Ser. A,
AMBAC, 5s, 1/1/39 Aaa 1,245,000
--------------
16,255,000
Michigan (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 9.729s, 7/1/22 Aaa 2,067,500
Mississippi (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 BBB- 1,320,000
Nevada (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
3,000,000 (Southwest Gas Corp.) Ser. B, 7 1/2s, 9/1/32 Baa2 3,176,250
3,000,000 (Southwest Gas Corp.) Ser. A, AMBAC,
6.1s, 12/1/38 Aaa 2,921,250
2,000,000 (NV Pwr. Co.), Ser. C, 5 1/2s, 10/1/30 BBB- 1,747,500
--------------
7,845,000
New Jersey (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 NJ Hlth. Care Facs. Fin. Auth. Rev. Bonds, AMBAC,
6 3/4s, 7/1/19 Aaa 2,160,000
New York (14.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 1,740,000
NY City, G.O. Bonds
2,900,000 Ser. B, 7 1/2s, 2/1/06 A3 3,117,500
1,100,000 Ser. B, 7 1/2s, 2/1/06, Prerefunded A3 1,186,625
5,000,000 Ser. D, 5 1/4s, 8/1/21 A3 4,431,250
6,250,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. C, 7 3/4s, 6/15/20 Aaa 6,679,688
NY State Dorm. Auth. Rev. Bonds
(State U. Edl. Fac.), Ser. A
6,500,000 7.7s, 5/15/12 Aaa 6,758,115
5,000,000 5 7/8s, 5/15/17 A3 4,950,000
5,000,000 NY State Energy Res. & Dev. Auth. Elec. Fac.
Rev. Bonds (Cons. Edison Co. of NY, Inc.),
Ser. A, 7 1/2s, 1/1/26 A1 5,076,800
--------------
33,939,978
North Carolina (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Rev. Bonds (Pwr. Syst.)
1,500,000 Ser. A, 5 3/4s, 1/1/26 BBB 1,329,375
500,000 Ser. B, 5.65s, 1/1/16 BBB 458,125
3,000,000 N.C. Muni. Pwr. Agcy. (No. 1 Catawba Elec.),
Ser. B, 6 1/2s, 1/1/20 BBB+ 2,940,000
--------------
4,727,500
Ohio (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 OH State Env. Impt. Rev. Bonds (USX Corp.),
5 5/8s, 5/1/29 Baa2 1,408,000
Oklahoma (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
800,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Healthcare), Ser. A, 5 5/8s, 8/15/29 BBB+ 651,000
Pennsylvania (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Magee-Womens Hosp.), FGIC, 6s, 10/1/13 Aaa 3,056,250
2,000,000 Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds,
Ser. A, 6.7s, 12/1/20 Baa2 2,070,000
5,000,000 Dauphin Cnty., Auth. Hosp. Rev. Bonds
(Hapsco-Western PA Hosp.), Ser. A, MBIA,
6 1/2s, 7/1/12 Aaa 5,300,000
2,000,000 Delaware Cnty., Indl. Dev. Auth. Rev. Bonds,
Ser. A, 6.2s, 7/1/19 BB- 1,860,000
2,700,000 PA State Higher Ed. Assistance Agcy. Rev. Bonds
(Student Loan IFB), Ser. A, 6 1/4s, 7/1/13
(In default) (NON) B2 891,000
--------------
13,177,250
South Carolina (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 5,450,000
Tennessee (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,300,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 8.317s, 1/1/22 Aaa 9,171,500
Texas (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,700,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 1,678,750
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
1,250,000 7 1/2s, 11/1/25 Baa1 1,302,134
2,500,000 6 3/8s, 5/1/35 Baa1 2,396,875
1,750,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C,
MBIA, 10.595s, 6/22/21 Aaa 1,942,500
3,000,000 Nueces Cnty., Port of Corpus Christi Rev. Bonds
(Union Pacific), 5.65s, 12/1/22 Baa3 2,730,000
3,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1 Poll.
Rev. Bonds (Southwestern Elec. Pwr. Co.),
Ser. A, 8.2s, 8/1/11 A1 3,236,250
1,100,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 BBB/P 990,000
--------------
14,276,509
Utah (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 UT, State Board Regents Student Loan Rev. Bonds,
Ser. H, AMBAC, 6.7s, 11/1/15 Aaa 5,225,000
Washington (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 6,075,000
2,000,000 Tacoma, Elec. Syst. IFB, AMBAC, 8.942s, 1/2/15 Aaa 2,180,000
--------------
8,255,000
West Virginia (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Mason Cnty., Poll. Ctrl. Rev. Bonds
(Appalachian Pwr. Co.), Ser. I, 6.85s, 6/1/22 Baa1 3,146,250
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $233,682,315)(b) $ 226,196,618
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $232,032,938.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
October 31, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at October 31, 1999. Securities
rated by Putnam are indicated by "/P" are not publicly rated.
(b) The aggregate identified cost on a tax basis is $233,682,315, resulting in gross unrealized appreciation and
depreciation of $3,914,708 and $11,400,405, respectively, or net unrealized depreciation of $7,485,697.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
October 31, 1999 was $2,745,975 or 1.2% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at October 31, 1999.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the market
interest rates, are the current interest rates at October 31, 1999.
The fund had the following industry group concentrations greater than 10% at October 31, 1999 (as a percentage of
net assets):
Health care 18.7%
Utilities 18.5
Transportation 17.7
Water and sewer 14.3
The fund had the following insurance concentrations greater than 10% at October 31, 1999 (as a percentage of net
assets):
AMBAC 17.3%
MBIA 13.5
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond
Index (Long) $30,353,125 $30,950,320 Dec-99 $(597,195)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $233,682,315) (Note 1) $226,196,618
- -----------------------------------------------------------------------------------------------
Cash 5,099,855
- -----------------------------------------------------------------------------------------------
Interest receivable 4,769,946
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 275,000
- -----------------------------------------------------------------------------------------------
Total assets 236,341,419
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 881,493
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 2,929,035
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 418,102
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 16,041
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,978
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 549
- -----------------------------------------------------------------------------------------------
Other accrued expenses 50,283
- -----------------------------------------------------------------------------------------------
Total liabilities 4,308,481
- -----------------------------------------------------------------------------------------------
Net assets $232,032,938
Represented by
- -----------------------------------------------------------------------------------------------
Series A and B remarketed preferred shares, (1,260 shares
issued and outstanding at $50,000 per share) (Note 4) $ 63,000,000
- -----------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized) (Note 1) 186,297,703
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,733,253)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,448,620)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,082,892)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $232,032,938
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A and B remarketed preferred shares 63,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 84,312
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares -- liquidation preference 63,084,312
- -----------------------------------------------------------------------------------------------
Net assets available to common shares 168,948,626
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($168,948,626 divided by 13,357,092 shares) $12.65
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended October 31, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $7,643,956
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 846,120
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 102,385
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,190
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,387
- -----------------------------------------------------------------------------------------------
Reports to shareholders 11,094
- -----------------------------------------------------------------------------------------------
Auditing 46,175
- -----------------------------------------------------------------------------------------------
Legal 3,704
- -----------------------------------------------------------------------------------------------
Postage 6,415
- -----------------------------------------------------------------------------------------------
Exchange listing fees 28,532
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 60,861
- -----------------------------------------------------------------------------------------------
Other 10,122
- -----------------------------------------------------------------------------------------------
Total expenses 1,124,985
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (22,667)
- -----------------------------------------------------------------------------------------------
Net expenses 1,102,318
- -----------------------------------------------------------------------------------------------
Net investment income 6,541,638
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 857,053
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,300,207)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and futures contracts during the period (16,229,868)
- -----------------------------------------------------------------------------------------------
Net loss on investments (16,673,022)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(10,131,384)
- -----------------------------------------------------------------------------------------------
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
October 31 April 30
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 6,541,638 $13,412,496
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (443,154) (1,214,742)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (16,229,868) 220,454
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (10,131,384) 12,418,208
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (1,062,999) (2,196,948)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $84,312 and $69,043, respectively) (11,194,383) 10,221,260
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (6,036,680) (12,821,751)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (17,231,063) (2,600,491)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 249,264,001 251,864,492
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $1,733,253 and
$1,175,212, respectively) $232,032,938 $249,264,001
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning
and end of period 13,357,092 13,357,092
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning
and end of period 1,260 1,260
- ---------------------------------------------------------------------------------------------------------------
*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 October 31
operating performance (Unaudited) Year ended April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares $13.94 $14.13 $13.70 $13.79 $13.94 $14.30
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .49 1.00 1.06 1.07 1.09 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.25) (.07) .50 (.03) (.10) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.76) .93 1.56 1.04 .99 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.08) (.16) (.17) (.17) (.18) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.45) (.96) (.96) (.96) (.96) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders -- -- -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.53) (1.12) (1.13) (1.13) (1.14) (1.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.65 $13.94 $14.13 $13.70 $13.79 $13.94
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) 11.000 15.250 $14.125 $14.250 $13.875 $12.750
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at market
value (common shares) (%)(a) (25.43)* 15.08 5.63 9.86 16.62 5.39
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $232,033 $249,264 $251,864 $246,028 $247,234 $249,223
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .64* 1.23 1.26 1.26 1.24 1.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.08* 5.93 6.26 6.51 6.41 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 11.89* 17.07 25.71 45.48 160.28 85.63
- ------------------------------------------------------------------------------------------------------------------------------------
* 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) The ratio of expenses to average net assets for the period ended April 30, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
October 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Investment Grade Municipal Trust II (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 Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc. 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
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.
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
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 April 30, 1999, the fund had a capital loss carryover of approximately
$5,130,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- --------------
$2,203,000 April 30, 2004
2,651,000 April 30, 2005
243,000 April 30, 2006
33,000 April 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. 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 rate for the remarketed preferred shares on October 31, 1999 was
Series A-3.86%, Series B-3.50%. 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 original issue
discount 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.
Such fee is based on the following annual rates: 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, 0.50% of any amount thereafter.
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 October 31, 1999, fund expenses were reduced by
$22,667 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 $594 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
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended October 31, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $28,022,595 and $30,772,330, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Remarketed preferred shares
The Series A (630 shares) and B (630 shares) 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 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 October 31, 1999, no
such restrictions have been placed on the fund.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
56820 183 12/99
