Putnam
Investment Grade
Municipal Trust II
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's manager discusses performance for the
period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Investment Grade Municipal Trust II that I will be signing. After more
than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside. As of July 1, 2000, John
Hill will become Chairman. John is currently an independent Trustee and
has served on the board for the past 14 years. In addition, my son,
George Putnam, III, will take on the role of President. I am confident
that the leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGER
Richard P. Wyke
Although it is still wavering from a year of steady interest-rate
increases, the municipal bond market may slowly be approaching the point
at which the news gets better. It may not seem like good news, but a
responsible Federal Reserve Board, like the one we have, is positive for
bond investors. True, Fed policy and rising interest rates had a
negative effect on bond prices as evidenced by the performance of Putnam
Investment Grade Municipal Trust II for the 12 months ending April 30,
2000. However, in the longer run, short-term interest rate increases
should keep inflation, the bond market's worst enemy, under control.
Total return for 12 months ended 4/30/00
NAV Market price
-------------------------------
-3.66% -25.71%
-------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* HIGH LEVEL OF INCOME SHOULD COMFORT INVESTORS
While long-term insured municipal bonds have historically yielded about
85% of comparable 30-year U.S. Treasury bonds, that ratio is now above
95%. That close relationship translates into an attractive level of
tax-free income for most municipal bond funds, including your fund.
Here is the reason for this close relationship between Treasury bonds
and municipal bonds. The Treasury's highly publicized debt buyback
program has shrunk the supply of outstanding long-term bonds at the same
time that investors are demanding the relative safety of government
bonds. Consequently, because of the relationship of supply and demand,
Treasury bond prices have risen while yields have moved down, closer to
municipal bond yields.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/health care 21.9%
Transportation 20.9%
Utilities 14.5%
Water and sewer 11.5%
Education 7.8%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
We are working hard to maintain the fund's relatively high level of
tax-free income. One way we seek to do this is by looking for securities
at the lower end of the investment grade spectrum -- primarily
BBB/Baa-rated credits. Our selections rely heavily on the expertise of
our analytical team because there is intense competition for a limited
supply of lower-rated investment-grade bonds.
* LOWER TIER OF INVESTMENT-GRADE SECTOR OFFERS OPPORTUNITY
Through in-depth research by our credit analysts, we have been able to
uncover several bonds that fell into the lower investment-grade category
and carried attractive coupons. One issue came from the transportation
sector, the second largest sector in your fund. The E470 Public Highway
Authority in Colorado brought this appealing revenue bond to market. The
bonds were issued to build an extension to an existing toll road that
will loop around the eastern side of Denver, bringing better access to
the Denver Airport from the north. The bonds are rated BBB- by Standard
& Poor's and Baa3 by Moody's. Because the revenues pledged to repay this
bond appeared to be stable, we purchased this security for the
portfolio. While this holding and others were viewed favorably as of
April 30, 2000, all holdings are subject to review in accordance with
the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 46.4%
AA/Aa -- 6.8%
A -- 20.4%
BBB/Baa -- 24.7%
BB/Ba -- 1.3%
B -- 0.4%
Footnote reads:
*As a percentage of market value as of 4/30/00. A bond rated Baa/BBB or
higher is considered investment grade. All ratings reflect Moody's and
Standard & Poor's descriptions unless noted otherwise; percentages may
include unrated bonds considered by Putnam Management to be of comparable
quality. Ratings will vary over time.
* PROSPECTS SEEM BRIGHTER FOR TROUBLED HEALTH-CARE SECTOR
Another attractive purchase, Mountain States Health Alliance revenue
bonds (Tennessee), came from a sector that has been under considerable
pressure in recent months, the hospital/health-care sector. The pressure
began with the Balanced Budget Act of 1997 and has negatively affected
hospital revenues ever since. The situation grew worse with the excess
of hospitals and beds, the growth of managed care, and the many
unsuccessful acquisitions that took place in the past few years. Our
analysts now believe that there is justification for a more optimistic
outlook in the health-care sector because of rumblings of further relief
from Congress as well as signs of better management within the industry.
Because the health-care sector offers a great deal of lower-tier
investment-grade bonds with relatively high yields, it currently is the
largest industry sector in the portfolio. We believe that higher risk,
if selectively taken, can mean opportunity. During fiscal 2000, and
after our customary careful analysis, we purchased the Mountain States
bonds with an exceptional 7.50% coupon and maturity of 2033.
When interest rates are rising, a natural reaction among investors can
be to buy guaranteed certificates of deposit over bond fund investments
because the unchanging income from CDs seems more and more appealing. In
such an environment, however, investors may find they end up with only
one to two years of attractive income and then are out of the bond
market during the period of its strongest returns, when the direction of
interest rates turns around. Although the principal value on CDs is
generally insured and their rate of return is fixed, while a fund
investment's value and return will fluctuate, CDs may be subject to
penalties for early withdrawals and the income they provide is fully
taxable.
* BOND MARKETS CONTINUE TO FACE PRESSURE NEAR TERM
Since the Fed's monetary policy acts with a lag, we continue to believe
that inflation pressures remain tame and that the Fed rate increases
will eventually take hold and slow economic growth. But achieving the
right balance of slower growth is proving to be quite a challenge for
the Fed.
As of the writing of this report, the Fed has adopted a more aggressive
stance in its fight against inflation, pushing short-term interest rates
up for the sixth time in the past year -- by half a percentage point.
This was the first time in more than five years that the central bank
raised rates by that much. Surprisingly, throughout all of the Fed's
rate increases, the economic boom has continued, growth has accelerated,
and unemployment has fallen.
However, with more interest rate hikes to come if economic activity does
not slow, the markets are likely to be unstable in the near term. Once
economic data such as retail sales and housing sales reports reveal that
economic growth is finally slowing, bond markets, including the
municipal bond market, should perform better.
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 4/30/00, there is no guarantee the fund will
continue to hold these securities in the future.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Investment Grade Municipal Trust II is designed for investors seeking
high current income free from federal income tax consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Lehman Brothers
Market Municipal Consumer
(common shares) NAV price Bond Index price index
--------------------------------------------------------------------
1 year -3.66% -25.71% -0.92% 3.01%
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5 years 25.39 15.67 33.34 12.71
Annual average 4.63 2.95 5.92 2.42
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Life of fund
(since 11/27/92) 49.24 18.02 53.79 20.56
Annual average 5.54 2.26 5.98 2.55
--------------------------------------------------------------------
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 12 MONTHS ENDED 4/30/00
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Distributions (common shares)
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Number 12
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Income $0.8492
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Capital gains1 --
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Total $0.8492
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Series A Series B
Preferred shares (630 shares) (630 shares)
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Income $1,854.65 $1,807.36
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Capital gains1 -- --
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Total $1,854.65 $1,807.36
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Share value (common shares) NAV Market price
-------------------------------------------------------------------
4/30/99 $13.94 $15.250
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4/30/00 12.52 10.563
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Current return (common shares/end of period)
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Current dividend rate2 6.33% 7.50%
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Taxable equivalent3 10.48 12.42
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1Capital 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.
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Market
(common shares) NAV price
-------------------------------------------------------------------
1 year -2.58% -21.20%
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5 years 26.38 19.79
Annual average 4.79 3.68
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Life of fund (since 11/27/92) 50.35 21.46
Annual average 5.71 2.68
-------------------------------------------------------------------
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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, and the net assets allocated to remarketed preferred
shares, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. It is not possible to
invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended April 30, 2000
To the Trustees and Shareholders of
Putnam Investment Grade Municipal Trust II
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (except for bond ratings), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Putnam Investment Grade Municipal Trust II (the
"fund") at April 30, 2000, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments owned at April 30, 2000 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 8, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000
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 (99.4%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (0.6%)
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$1,500,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. A,
FGIC, 5s, 2/1/33 Aaa $ 1,276,875
Alaska (0.9%)
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2,000,000 Valdez, Marine Term. Rev. Bonds
(Sohio Pipeline), 7 1/8s, 12/1/25 Aa1 2,107,500
Arkansas (0.6%)
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1,600,000 Baxter Cnty., Hosp. Rev. Bonds, Ser. B,
5 5/8s, 9/1/28 Baa2 1,246,000
California (2.4%)
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5,000,000 CA Hlth. Fac. Fin. Auth. IFB
(Catholic Healthcare West), AMBAC,
6.306s, 7/1/17 Aaa 4,556,250
1,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,006,250
----------------
5,562,500
Colorado (8.6%)
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34,000,000 CO Pub. Hwy. Auth. Rev. Bonds (E-470 Pub. Hwy.),
Ser. B, zero %, 9/1/35 Baa3 2,295,000
Denver, City & Cnty. Arpt. Rev. Bonds
3,675,000 Ser. A, 8 3/4s, 11/15/23 Baa1 3,913,875
1,325,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 1,426,031
2,285,000 Ser. A, 8 1/2s, 11/15/23 Baa1 2,364,861
215,000 Ser. A, 8 1/2s, 11/15/23, Prereunded Aaa 223,733
1,525,000 Ser. A, 8s, 11/15/25 Baa1 1,574,425
735,000 Ser. A, 8s, 11/15/25 Baa1 761,644
265,000 Ser. A, 8s, 11/15/25, Prerefunded Aaa 277,588
145,000 Ser. A, 8s, 11/15/25, Prereunded Aaa 150,513
1,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 1,147,500
5,250,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev.
Bonds (Newport Village), Ser. A-8, FSA,
7.1s, 1/1/30 Aaa 5,565,000
----------------
19,700,170
Florida (9.9%)
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Broward Cnty., Resource Recvy. Rev. Bonds
9,100,000 (SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 9,391,200
990,000 (Waste-Energy LP North), 7.95s, 12/1/08 A+ 1,021,571
3,000,000 Escambia Cnty., Hlth. Facs. Auth. Rev. Bonds
(Baptist Hosp. & Baptist Manor),
5 1/8s, 10/1/19 A3 2,328,750
1,000,000 FL State Board of Ed. Cap. Outlay G.O. Bonds,
Ser. A, 7 1/4s, 6/1/23 Aa2 1,022,160
5,000,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 6.35s, 3/26/20 Aaa 5,200,000
1,625,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration), Ser. A, 7 7/8s, 12/15/25 Baa3 1,633,125
2,500,000 Orange Cnty., Hlth. Facs. Auth. Rev. Bonds
(Regl. Hlth. Care Syst.), Ser. E, 6s, 10/1/26 A2 2,293,750
----------------
22,890,556
Georgia (3.0%)
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6,340,000 Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
(Oglethorpe Pwr. Co. Vogtle), MBIA, 8s, 1/1/22 (SEG) Aaa 6,974,000
Hawaii (2.7%)
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HI State Arpt. Syst. Rev. Bonds
2,000,000 AMBAC, 7.3s, 7/1/20 Aaa 2,045,300
4,000,000 FGIC, 7s, 7/1/10 Aaa 4,180,000
----------------
6,225,300
Illinois (5.2%)
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6,250,000 Central Lake Cnty., Joint Action Wtr. Agcy.
G.O. Bonds, 6s, 2/1/19 Aa2 6,312,500
Chicago, O'Hare Intl. Arpt. Special Fac. Rev.
Bonds (American Airlines, Inc.)
2,000,000 8.2s, 12/1/24 Baa1 2,175,000
2,250,000 Ser. A, 7 7/8s, 11/1/25 Baa1 2,310,705
1,500,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt Obligation),
5.65s, 11/15/24 Baa1 1,231,875
----------------
12,030,080
Indiana (0.9%)
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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 2,078,420
Kansas (1.2%)
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2,600,000 Burlington, Poll. Control Rev. Bonds
(Kansas Gas & Electric Co.), MBIA, 7s, 6/1/31 Aaa 2,706,704
Kentucky (4.8%)
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5,030,000 Jefferson Cnty., Cap. Corp. Rev. Bonds, MBIA,
5 1/2s, 6/1/28 Aaa 4,715,625
2,200,000 Jefferson Cnty., Hosp. Rev. Bonds, MBIA, 6.436s,
10/1/14 Aaa 2,285,250
4,000,000 Kenton Cnty., Special Fac. Arpt. Rev. Bonds
(Delta Airlines), Ser. A, 7 1/2s, 2/1/12 Baa3 4,155,000
----------------
11,155,875
Louisiana (0.9%)
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2,000,000 Beauregard, Parish Rev. Bonds (Boise Cascade
Corp.), 7 3/4s, 6/1/21 Baa3 2,063,220
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 2,210,313
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
9.031s, 10/1/31 Aaa 2,132,500
5,500,000 (Med. Ctr. of Central MA), Ser. B, AMBAC,
8.62s, 6/23/22 Aaa 5,974,375
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 1,254,375
----------------
16,184,063
Michigan (0.9%)
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2,000,000 Detroit, Wtr. Supply Syst. IFB, FGIC, 8.207s,
7/1/22 Aaa 2,065,000
Mississippi (0.6%)
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1,500,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 Ba1 1,297,500
Nevada (4.1%)
-------------------------------------------------------------------------------------------------------------------
1,760,000 Clark Cnty., Dist. Impt. G.O. Bonds
(Special Assmt. Dist. No. 124), 7 1/4s, 2/1/20 BBB-/P 1,779,800
Clark Cnty., Indl. Dev. Rev. Bonds
3,000,000 (Southwest Gas Corp.) Ser. B, 7 1/2s, 9/1/32 Baa2 3,131,250
3,000,000 (Southwest Gas Corp.) Ser. A, AMBAC, 6.1s,
12/1/38 Aaa 2,966,250
2,000,000 (NV Pwr. Co.), Ser. C, 5 1/2s, 10/1/30 BBB- 1,645,000
----------------
9,522,300
New Jersey (0.9%)
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2,000,000 NJ Hlth. Care Facs. Fin. Auth. Rev. Bonds,
AMBAC, 6 3/4s, 7/1/19 Aaa 2,110,000
New York (14.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 1,755,000
NY City, G.O. Bonds
2,900,000 Ser. B, 7 1/2s, 2/1/06 A3 3,070,375
1,100,000 Ser. B, 7 1/2s, 2/1/06, Prerefunded A3 1,164,625
5,000,000 Ser. D, 5 1/4s, 8/1/21 A3 4,512,500
6,250,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. C, 7 3/4s, 6/15/20 Aaa 6,554,688
NY State Dorm. Auth. Rev. Bonds
(State U. Edl. Fac.), Ser. A
6,500,000 7.7s, 5/15/12 Aaa 6,637,084
5,000,000 5 7/8s, 5/15/17 A3 5,062,500
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 5,071,700
----------------
33,828,472
North Carolina (2.1%)
-------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds
3,000,000 (No. 1 Catawba Elec.), Ser. B, 6 1/2s, 1/1/20 BBB+ 2,992,500
1,500,000 Ser. A, 5 3/4s, 1/1/26 Baa3 1,303,125
500,000 Ser. B, 5.65s, 1/1/16 BBB 450,000
----------------
4,745,625
North Dakota (0.6%)
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1,500,000 Grand Forks, Hlth. Care Syst. Rev. Bonds
(Altru Hlth. Syst. Oblig. Group), 7 1/8s, 8/15/24 Baa1 1,494,375
Ohio (0.6%)
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1,600,000 OH State Env. Impt. Rev. Bonds (USX Corp.),
5 5/8s, 5/1/29 Baa2 1,366,000
Oklahoma (0.3%)
-------------------------------------------------------------------------------------------------------------------
800,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 Baa2 621,000
Pennsylvania (5.6%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Magee-Womens Hosp.), FGIC, 6s, 10/1/13 Aaa 3,052,500
2,000,000 Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds, Ser. A,
6.7s, 12/1/20 Baa2 2,000,000
5,000,000 Dauphin Cnty., Auth. Hosp. Rev. Bonds
(Hapsco-Western PA Hosp.), Ser. A, MBIA,
6 1/2s, 7/1/12 Aaa 5,250,000
2,000,000 Delaware Cnty., Indl. Dev. Auth. Rev. Bonds,
Ser. A, 6.2s, 7/1/19 BB- 1,770,000
2,700,000 PA State Higher Ed. Assistance Agcy. Rev. Bonds
(Student Loan IFB), Ser. A, 6 1/4s, 7/1/13
(acquired 5/1/96, cost $2,544,068)
(In default) (NON) (RES) B2 891,000
----------------
12,963,500
South Carolina (2.5%)
-------------------------------------------------------------------------------------------------------------------
400,000 SC State Jobs Econ. Dev. Auth. Hosp. Fac. Rev.
Bonds (Palmetto Hlth. Alliance), Ser. A,
7 3/8s, 12/15/21 Baa1 396,000
5,000,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 5,387,500
----------------
5,783,500
Tennessee (6.4%)
-------------------------------------------------------------------------------------------------------------------
3,300,000 Johnson City, Hlth. & Edl. Facs. Rev. Bonds
(Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 AAA 3,258,750
2,500,000 Johnson City, Hlth. & Edl. Facs. Board 144A
Rev. Bonds, Ser. A2, MBIA, 8.2s, 7/1/21
(acquired 2/8/00, cost $2,355,021) (RES) Aaa 2,475,000
8,300,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 7.628s, 1/1/22 Aaa 8,912,125
----------------
14,645,875
Texas (5.2%)
-------------------------------------------------------------------------------------------------------------------
1,700,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express
Corp.), 6 3/8s, 4/1/21 Baa2 1,646,875
2,500,000 Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines), 6 3/8s, 5/1/35 Baa1 2,350,000
1,250,000 Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.), 7 1/2s, 11/1/25 Baa1 1,275,000
3,000,000 Nueces Cnty., Port of Corpus Christi Rev. Bonds
(Union Pacific), 5.65s, 12/1/22 A- 2,565,000
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 3,180,000
1,100,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl.
Hosp.), 6s, 7/1/29 Baa2 910,250
----------------
11,927,125
Utah (2.3%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 UT, State Board Regents Student Loan Rev.
Bonds, Ser. H, AMBAC, 6.7s, 11/1/15 Aaa 5,193,750
Washington (2.6%)
-------------------------------------------------------------------------------------------------------------------
6,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 6,097,500
West Virginia (1.3%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Mason Cnty., Poll. Ctrl. Rev. Bonds
(Appalachian Pwr. Co.), Ser. I, 6.85s, 6/1/22 Baa1 3,093,750
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $238,251,715) (b) $ 228,956,535
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $230,267,979.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2000 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at April 30, 2000. Securities rated by Putnam are indicated
by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $238,251,715,
resulting in gross unrealized appreciation and depreciation of
$3,593,798 and $12,888,978, respectively, or net unrealized depreciation
of $9,295,180.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2000 was
$3,366,000 or 1.5% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2000.
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 April 30, 2000.
The fund had the following industry group concentrations greater
than 10% at April 30, 2000 (as a percentage of net assets):
Health care 21.9%
Transportation 20.9
Utilities 14.5
Water & sewer 11.5
The fund had the following insurance concentrations greater than
10% at April 30,2000 (as a percentage of net assets):
AMBAC 16.2%
MBIA 12.9
---------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
---------------------------------------------------------------------------
Muni Bond Future
(Long) $29,270,687 $29,079,341 June 00 $191,346
---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $238,251,715) (Note 1) $228,956,535
-------------------------------------------------------------------------------------------
Interest receivable 4,919,087
-------------------------------------------------------------------------------------------
Receivable for variation margin 39,250
-------------------------------------------------------------------------------------------
Total assets 233,914,872
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,678
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 881,490
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,320,160
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 397,032
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 23,657
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,188
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 498
-------------------------------------------------------------------------------------------
Other accrued expenses 7,190
-------------------------------------------------------------------------------------------
Total liabilities 3,646,893
-------------------------------------------------------------------------------------------
Net assets $230,267,979
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) 185,817,939
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,190,864)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,255,262)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,103,834)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $230,267,979
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A and B remarketed preferred shares 63,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 101,974
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares -- liquidation preferen 63,101,974
-------------------------------------------------------------------------------------------
Net assets available to common shares 167,166,005
-------------------------------------------------------------------------------------------
Net asset value per common share ($167,166,005 divided by 13,357,092 shares $12.52
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended April 30, 2000
<S> <C>
Tax exempt interest income: $ 15,297,849
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,649,027
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 196,536
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,013
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,335
-------------------------------------------------------------------------------------------
Reports to shareholders 16,598
-------------------------------------------------------------------------------------------
Registration fees 75
-------------------------------------------------------------------------------------------
Auditing 66,723
-------------------------------------------------------------------------------------------
Legal 5,988
-------------------------------------------------------------------------------------------
Postage 12,429
-------------------------------------------------------------------------------------------
Exchange listing fees 48,749
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 178,250
-------------------------------------------------------------------------------------------
Other 20,873
-------------------------------------------------------------------------------------------
Total expenses 2,214,596
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (70,033)
-------------------------------------------------------------------------------------------
Net expenses 2,144,563
-------------------------------------------------------------------------------------------
Net investment income 13,153,286
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 838,164
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,087,960)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and futures contracts during the period (17,250,810)
-------------------------------------------------------------------------------------------
Net loss on investments (18,500,606)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (5,347,320)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended April 30
-----------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 13,153,286 $ 13,412,496
--------------------------------------------------------------------------------------------------
Net realized loss on investments (1,249,796) (1,214,742)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (17,250,810) 220,454
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,347,320) 12,418,208
Distributions to remarketed preferred shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (2,307,070) (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 $101,974 and $69,043, respectively) (7,654,390) 10,221,260
--------------------------------------------------------------------------------------------------
Distributions to common shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (10,847,178) (12,821,751)
--------------------------------------------------------------------------------------------------
From in excess of net investment income (494,454) --
--------------------------------------------------------------------------------------------------
Total decrease in net assets (18,996,022) (2,600,491)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 249,264,001 251,864,492
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $1,190,864 and
$1,175,212, respectively) $230,267,979 $249,264,001
--------------------------------------------------------------------------------------------------
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)
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended April 30
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $13.94 $14.13 $13.70 $13.79 $13.94
------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------
Net investment income .98 1.00 1.06 1.07 1.09
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.37) (.07) .50 (.03) (.10)
------------------------------------------------------------------------------------------------
Total from investment operations (.39) .93 1.56 1.04 .99
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net investment income
------------------------------------------------------------------------------------------------
To preferred shareholders (.18) (.16) (.17) (.17) (.18)
------------------------------------------------------------------------------------------------
To common shareholders (.82) (.96) (.96) (.96) (.96)
------------------------------------------------------------------------------------------------
In excess of net investment income
------------------------------------------------------------------------------------------------
To common shareholders (.03)
------------------------------------------------------------------------------------------------
Total distributions (1.03) (1.12) (1.13) (1.13) (1.14)
------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.52 $13.94 $14.13 $13.70 $13.79
------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) 10.563 15.250 $14.125 $14.250 $13.875
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at market
value (common shares)(%)(a) (25.71) 15.08 5.63 9.86 16.62
------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $230,268 $249,264 $251,864 $246,028 $247,234
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.29 1.23 1.26 1.26 1.24
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.27 5.93 6.26 6.51 6.41
------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 17.71 17.07 25.71 45.48 160.28
------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(c) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
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, 2000, the fund had a capital loss carryover of
approximately $7,823,000 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
32,000 April 30, 2007
2,694,000 April 30, 2008
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. Dividends on remarketed preferred
shares become payable when, as and if declared by the Trustees. Each
dividend period for the remarketed preferred shares is generally a
28-day period. The applicable dividend rate for the remarketed preferred
shares on April 30, 2000 was Series A 4.12% and Series B 4.00%. The
amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences include
temporary and permanent differences of post-October loss deferrals,
dividends payable, defaulted bond interest, unrealized gains and losses
on certain futures contracts, capital loss carryover and straddle loss
deferral. 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, 2000, the fund reclassified $479,764 to decrease
distributions in excess of net investment income and $479,764 to
decrease paid-in-capital. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
G) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. Discounts on zero
coupon bonds, original issue discount, stepped-coupon bonds and payment
in kind 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.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At April 30, 2000, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended April 30, 2000, fund expenses were reduced by $70,033
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 $599
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended April 30, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $42,961,119 and $40,911,210, 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 April 30, 2000, no such
restrictions have been placed on the fund.
RESULTS OF OCTOBER 7, 1999 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
1999. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 12,071,285 151,396
Hans H. Estin 12,062,827 159,854
Ronald J. Jackson 12,072,687 149,994
Paul L. Joskow 12,073,677 149,004
Elizabeth T. Kennan 12,067,209 155,472
Lawrence J. Lasser 12,074,463 148,218
John H. Mullin III 12,075,448 147,233
William F. Pounds 12,062,666 160,015
George Putnam 12,065,112 157,569
George Putnam, III 12,070,463 152,218
A.J.C. Smith 12,073,620 149,061
W. Thomas Stephens 12,074,448 148,233
W. Nicholas Thorndike 12,073,220 149,461
Preferred Shares
Votes
Votes for withheld
John A. Hill 1,233 0
Robert E. Patterson 1,233 0
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows:
Common Shares --
12,104,550 votes for, and 23,297 votes against, with 94,734 abstentions.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 99.86% 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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminv.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
61434 183 6/00
