Putnam
Investment Grade
Municipal Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-03
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
We are pleased to report positive results for Putnam Investment Grade
Municipal Trust for the six months ended May 31, 2003. Your fund
significantly outperformed its benchmark index at net asset value and at
market price during the semiannual period but slightly lagged its Lipper
peer group category. Details of these results can be found on page 8.
As you will see in the accompanying report from the fund's management
team, their emphasis on bonds with longer maturities was a significant
contributor to performance during the period. On the other hand, the
fund's allocation to issues at the lower end of the investment-grade
spectrum proved a slight impediment to performance.
We would like you to know how much we appreciate your continued
confidence in Putnam. No one can say for certain, of course, how long
the current market uncertainties will last, but the management team
will continue to devote its full attention to maintaining the fund's
fine long-term record.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 16, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* For the six months ended May 31, 2003, Putnam Investment Grade
Municipal Trust returned 9.18% at net asset value and 10.66% at market
price.
* Due to its greater emphasis on longer-term maturities, the fund
significantly outperformed its benchmark, the Lehman Municipal Bond
Index, which returned 6.46% for the period.
* Due to differences in portfolio composition, the fund's performance
at net asset value slightly lagged the average return of 9.31%
recorded by its Lipper category, Closed-End General Municipal Debt
Funds (Leveraged).
* See the Performance Summary on page 8 for complete fund performance,
comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
With strong returns at both net asset value and market price, your fund
finished ahead of its benchmark index for the first half of fiscal 2003.
We attribute this to our emphasis on bonds with longer-term maturities,
a favorable market environment, and to the fund's use of leverage, a
strategy that can enhance income but exposes the fund to greater risk.
However, the fund's performance slightly lagged the average return of
its Lipper peer group due, in part, to its greater exposure to bonds at
the lower end of the investment-grade quality spectrum at a time when
investors favored higher- quality municipal bonds. Exposure to certain
types of industrial development bonds (IDBs) also negatively affected
the fund's relative performance.
Fund Profile
Putnam Investment Grade Municipal Trust seeks to maintain as high a
level of current income free from federal income tax as is consistent
with preservation of capital by investing primarily in investment-grade
municipal bonds. The fund may be suitable for conservative investors
seeking tax-exempt income.
The fund's robust performance at market price may reflect its attractive
income stream as well as investor preference for investment-grade
municipal securities during a time of market uncertainty.
* MARKET OVERVIEW
From December through April of the semiannual period, bond yields
trended downward. After May 6, 2003, when the Federal Reserve Board
changed its bias from "neutral" to "weakness," yields plummeted. During
the period, municipal bonds slightly outperformed Treasuries and
achieved positive returns overall.
Several factors contributed to a challenging investment environment. As
the war with Iraq ended, investors focused more on the sluggish economy.
State and local municipalities struggled with significant declines in
tax revenues and subsequent downgrades in credit quality. United
Airlines, which had provided credit backing for several municipal bond
issues, filed for bankruptcy in December, as had US Airways in the
months before. In late April, American Airlines narrowly avoided a
similar fate. Various segments of the electric power sector were under
duress as well. These difficulties dampened the performance of
industrial development bonds (IDBs), which are issued by municipalities
but backed by companies benefiting from the financing. Lastly, the
burgeoning supply of municipal bonds -- over $357 billion in municipal
debt was issued in 2002 -- broke the all-time record. Supply has
continued to swell in 2003 and is on track to exceed the previous year's
record. This has had a dampening effect on municipal bond price
appreciation.
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/03
Bonds
Lehman Municipal Bond Index 6.46%
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Lehman Aggregate Bond Index (taxable U.S. bonds) 6.29%
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Lehman Government Bond Index (taxable U.S. government
bonds) 6.70%
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Credit Suisse First Boston High Yield Index
(taxable U.S. below-investment-grade bonds) 15.38%
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Equities
S&P 500 Index (broad stock market) 3.87%
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Russell 1000 Growth Index (large-company growth stocks) 3.85%
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Russell 1000 Value Index (large-company value stocks) 5.40%
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These indexes provide an overview of performance in different market
sectors for the six months ended 5/31/03.
* STRATEGY OVERVIEW
Interest-rate sensitivity is an important consideration in the
management of bond portfolios. Duration, an investment term that
measures this sensitivity, can be calculated from bond coupon rates and
maturities. In anticipation of the October sell-off of Treasuries, we
had implemented a defensive strategy (shorter duration, less
sensitivity). When interest rates rose in October, we returned to a more
neutral duration as the outlook for growth in the economy was less
clear. We later returned to a modestly long duration stance and
maintained it by emphasizing discount coupon and non callable bonds.
This strategy contributed positively to results amid the May market
rally. As the period ended, we believed interest rates were
unsustainably low and began to shift back toward a more defensive
position.
In early 2003, tax-exempt municipal bonds offered investors almost the
same yield as comparable Treasury bonds. To take advantage of this, we
established a cross-market arbitrage position, in which we bought
municipal bonds and shorted 10-year Treasury futures contracts. Our
thesis was that if interest rates should rise (causing bond prices to
fall), the fund would have a loss on the bonds but potential gains on
the futures contracts could more than compensate for the loss. On the
other hand, if rates should fall (causing bond prices to rise), a loss
on the futures contracts could be mitigated by an even greater gain on
the bonds. We have seen the latter scenario begin to develop as
municipal bonds appreciated during the period.
[GRAPHIC OMITTED: vertical bar chart THE FUND'S MATURITY AND DURATION]
THE FUND'S MATURITY AND DURATION*
as of 11/30/02 as of 5/31/03
Average effective maturity in years 12.9 9.2
Duration 11.2 9.4
Footnote reads:
*Average effective maturity also takes into account put and call features,
where applicable, and reflects prepayments for mortgage-backed securities.
* HOW KEY ALLOCATIONS AND HOLDINGS AFFECTED PERFORMANCE
The fund maintained its exposure to higher-yielding securities within
the investment-grade spectrum to pursue the income and appreciation
potential we believed they were offering. However, this strategy
negatively affected performance during the period because investors
preferred the safety of higher-grade securities amid geopolitical
uncertainty.
The fund remains well diversified across the different industry sectors
of the municipal bond universe. However, given the fluid nature of all
sectors of the economy, some sectors represent better value at different
times. For example, as this report was being written, we believed that
an improving investment climate made the hospital sector attractive.
Given our expectation for improved overall economic growth in the months
ahead, we are also optimistic about the prospects for cyclical sectors,
such as airline- and paper-backed IDBs.
We've seen a large supply of uninsured investment-grade hospital bonds
coming to market in recent months. In addition to refinancing older,
more expensive debt at today's historically low interest rates,
hospitals in high-growth locations are requiring more resources to
finance their expansion to meet increasing patient demand. Furthermore,
hospitals are becoming more specialized and moving beyond their core
medical services by developing niches in such fields as cardiology or
oncology.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 45.0%
Aa/AA -- 2.1%
A -- 22.3%
Baa/BBB -- 18.3%
Ba/BB -- 4.2%
B -- 4.5%
Caa/CCC -- 1.2%
D -- 0.1%
VMIG1 -- 2.3%
Footnote reads:
* As a percentage of market value as of 5/31/03. A bond rated Baa or higher
is considered investment grade. The chart reflects Moody's and Standard &
Poor's ratings; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
We've found several holdings in the A to Baa/BBB credit quality range
that exemplify this strategy. Recent purchases include Mother Francis
Hospital bonds, which were issued by Tyler Health Facilities Corp. in
Texas. These bonds are helping to finance a new facility that will serve
a growing population and a large cardiac business, which we expect to
improve operating revenues. The fund also holds the A-rated Cleveland
Clinic Health System bonds, issued by Cuyahoga County. The Cleveland
Clinic, which serves northeast Ohio and southwest Florida, has a medical
and educational reputation on par with Johns Hopkins and the Mayo
Clinic. We believe the steady, high-quality delivery of Cleveland
Clinic's core health services in its target markets should eventually
restore its cash flow, which had been diminished by previous financial
difficulties.
Because industrial development bonds are backed by the credit of private
companies, their prices tend to reflect perceptions of these companies
and the industries in which they operate. The fund's exposure to IDBs
backed by the credit of airline companies hurt performance during the
period as the airline industry continued to struggle amid geopolitical
uncertainty, the outbreak of SARS, and slower economic growth. The value
of the fund's Chicago O'Hare International Airport Special Facilities
Revenue Bonds backed by United Airlines fell sharply when United was
forced into bankruptcy in December. Nevertheless, we expect the
performance of airline-backed IDBs to improve in the months ahead as
economic conditions improve and carriers emerge successfully from
bankruptcy.
The paper industry is another cyclical area of the economy that we
expect to do well as growth picks up. The fund recently increased its
exposure to this segment of the economy with the addition of an IDB
issued by the Gulf Coast Texas Waste Disposal Authority and backed by
International Paper Company.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are Richard Wyke (Portfolio Leader), Paul Drury
(Portfolio Member), David Hamlin (Portfolio Member), Susan McCormack
(Portfolio Member), Joyce Dragone, and Jerome Jacobs.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Our current outlook for the municipal bond market is cautiously
optimistic. The conflict with Iraq is largely over, and investors are
focused on economic concerns on the home front. While serious issues
remain, the level of uncertainty in the world seems to have eased a bit,
though we expect continued volatility.
Further, we believe that market yields may move higher in the near term
as a weakening dollar, Fed policy, the recently enacted tax cut package,
and growing federal budget deficits take effect. Accordingly, at the
very end of the period, we began the process of shifting back toward a
defensive duration.
Municipal budgets will continue to face significant pressures in the
months ahead. Governments will wrangle with how to implement costly
home-front protection measures while at the same time pushing tax cuts
to stimulate economic growth. Historically, improvement in the credit
quality of state and local governments has lagged a general economic
recovery by six to nine months, so we expect municipal credit quality to
remain fragile for some time to come.
Over the next few months, we believe the ratio of municipal bond yields
to comparable Treasury yields is likely to return to more normal levels.
Accordingly, we will look for opportunities to reduce our cross-market
arbitrage position and we expect the fund will profit from the
transactions.
In our opinion, the market continues to offer attractive value and
compelling risk/reward characteristics. With credit spreads remaining
very generous, we believe credit risk is worth taking in moderate
amounts. We believe municipal bonds could perform well relative to other
fixed-income sectors, because demand for the bonds is firm and supply
should moderate as rates move higher. We believe we have positioned your
fund to take advantage of the market's potential.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended May 31, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return, market price and principal value will
fluctuate and you may have a gain or a loss when you sell your shares.
Performance does not reflect taxes on reinvested distributions. A
profile of your fund's strategy appears on the first page of this
report. See page 9 for definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 5/31/03
Lipper Closed-
End General
Municipal
Lehman Debt Funds
Municipal (Leveraged)
NAV Market price Bond Index category average*
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6 months 9.18% 10.66% 6.46% 9.31%
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1 year 10.02 9.94 10.36 13.29
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5 years 30.86 18.24 36.79 37.00
Annual average 5.53 3.41 6.47 6.48
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10 years 77.73 76.77 89.42 92.00
Annual average 5.92 5.86 6.60 6.73
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Life of fund
(since 10/26/89)
Annual average 7.69 7.44 7.53 7.88
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*Index and Lipper results should be compared to fund performance at net asset
value. Over the 6-month and 1-, 5-, and 10-year periods ended 5/31/03, there
were 62, 58, 48, and 40 funds, respectively, in this Lipper category.
TOTAL RETURN FOR PERIODS ENDED 6/30/03 (most recent calendar quarter)
NAV Market price
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6 months 6.31% 12.96%
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1 year 9.10 9.46
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5 years 31.02 16.86
Annual average 5.55 3.17
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10 years 74.25 76.90
Annual average 5.71 5.87
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Life of fund
(since 10/26/89)
Annual average 7.67 7.66
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/03
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Distributions from common shares
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Number 6
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Income 1 $0.417
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Capital gains 1 --
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Total $0.417
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Preferred shares Series A (1,400 shares)
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Income 1 $587.51
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Capital gains 1 --
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Total $587.51
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Share value: NAV Market price
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11/30/02 $10.41 $10.75
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5/31/03 10.93 11.44
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Current return (common shares, end of period)
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Current
dividend
rate 2 7.63% 7.29%
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Taxable
equivalent 3 11.74 11.22
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 35.0% federal tax rate for 2003. Results for investors
subject to lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE INDEXES
Lehman Municipal Bond Index is an unmanaged index of long-term,
fixed-rate, investment-grade tax-exempt bonds.
Lehman Aggregate Bond Index is an unmanaged index of U.S. fixed-income
securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index
of high-yield debt securities.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their value orientation.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
May 31, 2003 (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 -- MBIA Insurance Company
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (100.0%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Arizona (0.9%)
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$500,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(John C. Lincoln Hlth. Network), 6 3/8s, 12/1/37 BBB $528,750
1,525,000 Casa Grande, Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.), Ser. A, 7 5/8s, 12/1/29 B-/P 1,612,688
1,000,000 Scottsdale, Indl. Dev. Hosp. Auth. Rev. Bonds
(Scottsdale Hlth. Care), 5.8s, 12/1/31 A3 1,047,500
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3,188,938
Arkansas (1.4%)
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3,000,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(WA Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 3,285,000
1,900,000 Northwest Regl. Arpt. Auth. Rev. Bonds, 7s, 2/1/10 BB/P 2,047,250
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5,332,250
California (8.2%)
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2,000,000 Anaheim, Pub. Fin. Auth. Tax Alloc. IFB, MBIA, 11.67s,
12/28/18 (SEG) Aaa 2,867,500
2,500,000 CA Hlth. Fac. Auth. Rev. Bonds (Sutter Hlth.),
Ser. A, MBIA, 5 3/8s, 8/15/30 Aaa 2,696,875
CA State Dept. of Wtr. Resources Rev. Bonds, Ser. A
1,500,000 6s, 5/1/15 A3 1,756,875
13,000,000 AMBAC, 5 1/2s, 5/1/13 Aaa 15,242,500
1,500,000 5 1/2s, 5/1/11 A3 1,706,250
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,747,813
1,475,000 Gilroy, Rev. Bonds (Bonfante Gardens Park), 8s, 11/1/25 B/P 1,344,094
3,000,000 Irvine Ranch, Wtr. Dist. VRDN, 1.25s, 4/1/33 VMIG1 3,000,000
450,000 Orange Cnty., Cmnty. Fac. Dist. Special Tax Bonds
(No. 02-1 Ladera Ranch), Ser. A, 5.55s, 8/15/33 BB+/P 450,000
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30,811,907
Colorado (3.8%)
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2,500,000 CO Hlth. Fac. Auth. Rev. Bonds
(Hlth. Fac. - Evangelical Lutheran), 3.35s, 10/1/06 A3 2,596,875
3,000,000 CO Springs, Hosp. Rev. Bonds, 6 3/8s, 12/15/30 A3 3,247,500
1,366,197 CO State Edl. Fac. Auth. Rev. Bonds
(Ocean Journey, Inc.), 8 3/8s, 12/1/26 (In default) (NON) D/P 47,817
CO State Hsg. Fin. Auth. Rev. Bonds (Single Fam.)
530,000 Ser. B-2 , 7s, 5/1/26 Aa2 541,263
265,000 Ser. B-3, 6.8s, 11/1/28 Aa2 270,639
Denver, City & Cnty. Arpt. Rev. Bonds
3,000,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 3,802,500
2,500,000 MBIA, 5 1/2s, 11/15/25 Aaa 2,668,750
1,000,000 Northwest Parkway Pub. Hwy. Auth. Rev. Bonds,
Ser. D, 7 1/8s, 6/15/41 Ba1 1,048,750
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14,224,094
District of Columbia (1.5%)
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4,000,000 DC G.O. Bonds, Ser. B, FSA, 5 1/4s, 6/1/26 Aaa 4,225,000
1,500,000 DC Tobacco Settlement Fin. Corp. Rev. Bonds,
6 3/4s, 5/15/40 A- 1,351,875
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5,576,875
Florida (5.5%)
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1,500,000 Capital Trust Agcy. Rev. Bonds (Seminole Tribe
Convention), Ser. A, 10s, 10/1/33 B/P 1,710,000
4,895,000 Escambia Cnty., Hlth. Fac. Auth. Rev. Bonds
(Baptist Hosp. & Baptist Manor), 5 1/8s, 10/1/19 A3 4,827,694
3,315,000 Florida State Dept. Gen. Svcs. Division Fac. Mgmt.
Rev. Bonds (FL Fac. Pool), Ser. A, FSA, 5 1/4s, 9/1/17 AAA 3,932,419
2,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 A-/P 2,081,100
1,000,000 Lee Cnty., Indl. Dev. Auth. Rev. Bonds (Alliance
Cmnty. Project), Ser. C, 5 1/2s, 11/15/29 BBB- 941,250
4,500,000 Miami - Dade Cnty., Aviation Rev. Bonds, Ser. A,
FGIC, 5s, 10/1/33 Aaa 4,578,750
2,000,000 Miami Beach, Hlth. Fac. Auth. Hosp. Rev. Bonds
(Mount Sinai Med. Ctr.), 5 3/8s, 11/15/28 BB 1,480,000
1,000,000 St. Johns Cnty., Hlth. Care Indl. Dev. Auth. Rev. Bonds
(Glenmoor St. Johns Project), Ser. A, 8s, 1/1/30 B/P 1,001,250
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20,552,463
Georgia (1.1%)
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1,045,000 Atlanta, Waste Wtr. Rev. Bonds, Ser. A, FGIC, 5s, 11/1/38 Aaa 1,210,894
2,300,000 Burke Cnty., Poll. Control Dev. Auth. Mandatory Put
Bonds (GA Power Co.), 4.45s, 1/1/32 A2 2,466,750
300,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA, 11.233s, 8/1/10 Aaa 313,941
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3,991,585
Hawaii (1.8%)
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1,605,000 HI Dept. of Trans. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 7s, 6/1/20 B 1,067,325
5,500,000 HI State Dept. of Budget & Fin. Rev. Bonds, 6.66s, 11/1/21 A- 5,502,640
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6,569,965
Illinois (5.6%)
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Chicago, Board of Ed. G.O. Bonds
2,500,000 (School Reform Project), Ser. A, AMBAC, 5 1/4s,
12/1/27 Aaa 2,640,625
3,830,000 (Chicago School Reform Board), Ser. A, FGIC,
5 1/4s, 12/1/17 Aaa 4,524,188
2,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Airlines, Inc.), Ser. C, 6.3s, 5/1/16 (In default) (NON) D/P 250,000
Cook Cnty., Cmnty. G.O. Bonds (Cons. School Dist.
No. 64 Pk. Ridge), FSA
1,580,000 5 1/2s, 12/1/16 Aaa 1,913,775
1,445,000 5 1/2s, 12/1/15 Aaa 1,739,419
1,600,000 IL Dev. Fin. Auth. Rev. Bonds (Midwestern U.), Ser. B,
6s, 5/15/26 BBB+ 1,736,000
2,500,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Obligation), 5.65s, 11/15/24 A3 2,590,625
1,000,000 IL State Sales Tax Rev. Bonds, Ser. I, FGIC, 6s, 6/15/27 Aaa 1,252,500
IL U. Rev. Bonds (Auxiliary Fac. Syst.), Ser. A, AMBAC
1,945,000 5 1/4s, 4/1/19 Aaa 2,265,925
1,850,000 5 1/4s, 4/1/18 Aaa 2,169,125
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21,082,182
Indiana (1.9%)
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5,000,000 IN State Dev. Fin. Auth. Env. Impt. Rev. Bonds
(USX Corp.), 5.6s, 12/1/32 Baa1 5,056,250
1,000,000 Rockport, Indl. Poll. Control Rev. Bonds
(Indiana-Michigan Pwr.), Ser. B, FGIC, 7.6s, 3/1/16 Aaa 1,013,210
1,000,000 Rockport, Poll. Control Rev. Bonds
(Indiana-Michigan Pwr.), Ser. A, 4.9s, 6/1/25 Baa2 1,037,500
-------------
7,106,960
Iowa (0.6%)
- -------------------------------------------------------------------------------------------------------------------
1,750,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BBB-/P 2,119,688
Kansas (1.6%)
- -------------------------------------------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds
(KS Gas & Elec. Co.), MBIA, 7s, 6/1/31 Aaa 4,744,800
1,400,000 Olathe, Hlth. Fac. VRDN (Olathe Med. Ctr.),
Ser. A, AMBAC, 1.35s, 9/1/32 A-1+ 1,400,000
-------------
6,144,800
Kentucky (0.7%)
- -------------------------------------------------------------------------------------------------------------------
3,000,000 Kenton Cnty., Arpt. Board Rev. Bonds
(Special Fac.-Delta Airlines, Inc.), Ser. A,
7 1/2s, 2/1/12 BB- 2,591,250
Louisiana (0.5%)
- -------------------------------------------------------------------------------------------------------------------
2,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds
(Lake Charles Memorial Hosp. Project),
8 5/8s, 12/1/30 CCC/P 1,800,000
Maine (0.5%)
- -------------------------------------------------------------------------------------------------------------------
2,000,000 Rumford, Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp.), 6 7/8s, 10/1/26 Baa3 2,052,500
Massachusetts (10.7%)
- -------------------------------------------------------------------------------------------------------------------
2,785,000 MA State Dev. Fin. Agcy. Rev. Bonds
(MA Biomedical Research), Ser. C, 6 3/8s, 8/1/17 A1 3,199,269
10,330,000 MA State G.O. Bonds, Ser. A, MBIA, 5 3/8s, 8/1/08 AAA 11,905,325
8,750,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Med. Ctr. of Central MA), Ser. B, AMBAC,
11.67s, 6/23/22 Aaa 11,407,813
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
1,000,000 (Civic Investments), Ser. A, 9s, 12/15/15 B+/P 1,111,250
1,450,000 (UMass Memorial), Ser. C, 6 5/8s, 7/1/32 Baa2 1,537,000
2,500,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Rental Mtge.),
Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 2,587,500
7,000,000 MA State Wtr. Resources Auth. Rev. Bonds, Ser. J, FSA,
5 1/4s, 8/1/17 Aaa 8,277,500
-------------
40,025,657
Michigan (2.2%)
- -------------------------------------------------------------------------------------------------------------------
1,500,000 Macomb Cnty., Hosp. Fin. Auth. Rev. Bonds
(Mt. Clemens Gen. Hosp.), Ser. B, 5 7/8s, 11/15/34 BBB- 1,490,625
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds (Oakwood Hosp.),
Ser. A, 5 3/4s, 4/1/32 A2 1,043,750
5,500,000 MI State Strategic Fund, Ltd. Rev. Bonds
(Detroit Edison Poll. Control), 5.65s, 9/1/29 AAA 5,726,875
-------------
8,261,250
Minnesota (1.2%)
- -------------------------------------------------------------------------------------------------------------------
750,000 Minneapolis & St. Paul Metropolitan Arpt. Comm.
Special Fac. Rev. Bonds (Northwest Airlines, Inc.),
Ser. A, 7s, 4/1/25 B+/P 540,000
2,000,000 Minneapolis & St. Paul, Hsg. & Redev. Auth. Hlth. Care
Syst. VRDN (Children's Hlth. Care Syst.), Ser. B,
FSA, 1.35s, 8/15/25 VMIG1 2,000,000
1,705,000 Minneapolis, Cmnty. Dev. Agcy. Rev. Bonds, Ser. G-3,
5.45s, 12/1/31 A- 1,805,169
-------------
4,345,169
Mississippi (0.9%)
- -------------------------------------------------------------------------------------------------------------------
MS Dev. Bk. Special Obligation Rev. Bonds
(Jackson MS Project), FSA
1,455,000 5 1/4s, 3/1/22 Aaa 1,664,156
1,385,000 5 1/4s, 3/1/21 Aaa 1,592,750
-------------
3,256,906
Missouri (3.5%)
- -------------------------------------------------------------------------------------------------------------------
1,250,000 Cape Girardeau Cnty., Indl. Dev. Auth. Hlth. Care Fac. Rev.
Bonds (St. Francis Med. Ctr.), Ser. A, 5 1/2s, 6/1/16 A 1,346,875
2,500,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 2,667,400
8,860,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds,
FSA, 7.1s, 1/1/30 Aaa 9,291,925
-------------
13,306,200
Nevada (0.3%)
- -------------------------------------------------------------------------------------------------------------------
1,205,000 Henderson, Loc. Impt. Dist. Special Assmt. Bonds
(No. T-14), 4 3/4s, 3/1/10 BB-/P 1,205,000
New Jersey (2.5%)
- -------------------------------------------------------------------------------------------------------------------
650,000 NJ Econ. Dev. Auth. Rev. Bonds (Cedar Crest Village
Inc. Fac.), Ser. A, 7 1/4s, 11/15/31 BB-/P 666,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
2,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 Baa3 2,230,000
675,000 (Somerset Med. Ctr.), 5 1/2s, 7/1/33 Baa2 678,375
1,000,000 NJ State Ed. Fac. Auth. Rev. Bonds (Drew U.), Ser. C,
FGIC, 5 1/4s, 7/1/18 Aaa 1,182,500
3,100,000 NJ State G.O. Bonds, Ser. F, MBIA, 5 1/2s, 8/1/11 AAA 3,677,375
1,000,000 Tobacco Settlement Fin. Corp. Rev. Bonds
(Asset Backed Bonds), 6s, 6/1/37 A- 848,750
-------------
9,283,250
New York (8.4%)
- -------------------------------------------------------------------------------------------------------------------
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, 5 1/4s, 12/1/26 A- 4,145,000
1,875,000 Nassau Cnty., Indl. Dev. Agcy. Rev. Bonds
(North Shore Hlth. Syst.), Ser. D, 5 1/2s, 11/1/08 BB+/P 1,973,438
7,780,000 NY City G.O. Bonds, Ser. B, 5 1/4s, 12/1/09 A2 8,752,500
2,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Brooklyn Navy
Yard Cogen. Partners), Ser. G, 5 3/4s, 10/1/36 BBB- 1,880,000
4,100,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
Ser. C, 5 3/4s, 6/15/26 AA 4,597,125
3,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. VRDN, Ser. A,
FGIC, 1.3s, 6/15/25 VMIG1 3,000,000
900,000 NY State Dorm. Auth. Rev. Bonds
(Winthrop-U. Hosp. Assn.), Ser. A, 5 1/2s, 7/1/32 Baa1 915,750
1,000,000 NY State Thruway Auth. Rev. Bonds, Ser. A, MBIA,
5 1/4s, 4/1/12 AAA 1,167,500
3,500,000 Port Auth. NY & NJ Special Obligation IFB, Ser. N18,
MBIA, 8.64s, 12/1/17 (acquired 7/19/00,
cost $3,664,115) (RES) Aaa 4,996,250
-------------
31,427,563
North Carolina (2.7%)
- -------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
1,000,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,125,000
2,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 2,097,500
6,000,000 NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.), Ser. B, 6 1/2s, 1/1/20 Baa1 6,757,500
-------------
9,980,000
Ohio (3.8%)
- -------------------------------------------------------------------------------------------------------------------
5,000,000 Cuyahoga Cnty., Rev. Bonds (Cleveland Clinic
Foundation), Ser. A, 6s, 1/1/16 A1 5,675,000
2,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Toledo Poll. Control), Ser. A, 6.1s, 8/1/27 Baa2 2,062,500
1,500,000 OH State Solid Waste Rev. Bonds (General Motors
Corp. Project), 6.3s, 12/1/32 A3 1,612,500
1,820,000 OH State Tpk. Comm. Rev. Bonds, Ser. A, FGIC,
5 1/2s, 2/15/18 Aaa 2,199,925
2,500,000 Rickenbacker Port Auth. Rev. Bonds (OASBO
Expanded Asset Pooled), Ser. A, 5 3/8s, 1/1/32 A2 2,790,625
-------------
14,340,550
Oklahoma (0.7%)
- -------------------------------------------------------------------------------------------------------------------
3,500,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Hlth. Care),
Ser. A, 5 5/8s, 8/15/29 B1 2,668,750
Pennsylvania (2.6%)
- -------------------------------------------------------------------------------------------------------------------
1,205,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panther Creek Partners), 6.65s, 5/1/10 BBB- 1,269,769
250,000 Lebanon Cnty., Hlth. Fac. Auth. Rev. Bonds
(Good Samaritan Hosp. Project), 6s, 11/15/35 Baa1 258,750
1,000,000 Lehigh Cnty., Gen. Purpose Auth. Rev. Bonds
(Lehigh Valley Hlth. Net), Ser. A, 5 1/4s, 7/1/32 A2 1,015,000
1,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (Amtrak Project),
Ser. A, 6 3/8s, 11/1/41 A3 917,500
1,500,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Northampton Generating), Ser. A, 6.6s, 1/1/19 BBB- 1,524,375
1,045,000 PA State Higher Edl. Fac. Auth. Rev. Bonds
(Philadelphia College of Osteopathic Med.),
5s, 12/1/08 A 1,176,931
3,696,472 Philadelphia, Indl. Dev. Auth. Special Fac. Rev. Bonds
(U.S. Airways, Inc.), 8 1/8s, 5/1/30 (In default) (NON) D/P 110,894
1,200,000 Sayre Hlth. Care Fac. Auth. Rev. Bonds (Guthrie Hlth.),
Ser. A, 5 7/8s, 12/1/31 A- 1,263,000
2,200,000 West Shore Area Hosp. Auth. Rev. Bonds
(Holy Spirit Hosp.), 6 1/4s, 1/1/32 BBB+ 2,299,000
-------------
9,835,219
Puerto Rico (1.6%)
- -------------------------------------------------------------------------------------------------------------------
5,000,000 Cmnwlth. of PR, Hwy & Trans. Auth. Rev. Bonds, Ser. B,
6s, 7/1/39 A 6,156,250
South Carolina (1.9%)
- -------------------------------------------------------------------------------------------------------------------
7,625,000 Connector 2000 Assn., Inc. SC Toll Road Rev. Bonds
(SR-Southern Connector), Ser. A, 5 3/8s, 1/1/38 B- 3,250,156
500,000 Lexington Cnty. Rev. Bonds (Refunding & Impt.),
5 3/4s, 11/1/28 A 530,625
1,000,000 SC Hosp. Auth. Rev. Bonds (Med. U.), Ser. A, 6 1/2s,
8/15/32 BBB+ 1,063,750
600,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds
(Palmetto Hlth. Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 686,250
1,750,000 SC Tobacco Settlement Rev. Mgt. Rev. Bonds, Ser. B,
6 3/8s, 5/15/28 A- 1,583,750
-------------
7,114,531
South Dakota (0.5%)
- -------------------------------------------------------------------------------------------------------------------
2,000,000 SD Edl. Enhancement Funding Corp. Rev. Bonds, Ser. B,
6 1/2s, 6/1/32 A 1,787,500
Tennessee (5.2%)
- -------------------------------------------------------------------------------------------------------------------
3,000,000 Johnson City, Hlth. & Edl. Fac. Hosp. Board Rev. Bonds
(Mountain States Hlth.), Ser. A, 7 1/2s, 7/1/25 Baa2 3,427,500
3,500,000 Johnson City, Hlth. & Edl. Hosp. Board IFB, Ser. A2,
MBIA, 10.445s, 7/1/21 (acquired 2/8/00,
cost $3,296,650) (RES) Aaa 4,676,875
10,900,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds
(Steeplechase Falls), Ser. A-10, FSA, 7 1/8s, 1/1/30 Aaa 11,499,500
-------------
19,603,875
Texas (5.2%)
- -------------------------------------------------------------------------------------------------------------------
6,500,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express Corp.),
6 3/8s, 4/1/21 Baa2 6,808,750
1,000,000 Comal Cnty. Hlth. Fac. Dev. Corp. Rev. Bonds
(Hlth. Care Syst.-McKenna Memorial Project),
Ser. A, 6 1/4s, 2/1/32 Baa2 1,033,750
7,000,000 Dallas - Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.), 6 3/8s, 5/1/35 Caa2 2,660,000
1,250,000 Gulf Coast Waste Disp. Rev. Bonds (International
Paper Co.), Ser. A, 6.1s, 8/1/24 Baa2 1,290,625
1,500,000 Harris Cnty., Hlth. Fac. Rev. Bonds (Memorial Hermann
Hlth. Care), Ser. A, 6 3/8s, 6/1/29 A 1,636,875
1,500,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.), Ser. E, 6 3/4s, 7/1/29 B 1,095,000
1,500,000 Sam Rayburn Muni. Pwr. Agcy. Rev. Bonds, 6s, 10/1/21 Baa2 1,599,375
Tomball, Hosp. Auth. Rev. Bonds
600,000 (Tomball Regl. Hosp.), 6s, 7/1/25 Baa2 623,250
1,700,000 (Tomball Regl. Hosp.), 6s, 7/1/19 Baa2 1,785,000
1,000,000 Tyler, Hlth. Fac. Dev. Corp. Rev. Bonds
(Mother Frances Hosp.), 5s, 7/1/07 Baa1 1,077,500
-------------
19,610,125
Utah (4.9%)
- -------------------------------------------------------------------------------------------------------------------
3,000,000 Carbon Cnty., Solid Waste Disp. Rev. Bonds
(Laidlaw Env.), Ser. A, 7.45s, 7/1/17 BB-/P 2,925,000
UT State Pwr. Supply Rev. Bonds
(Intermountain Pwr. Agcy.), Ser. A, MBIA
4,720,000 6.15s, 7/1/14 Aaa 5,404,400
8,280,000 6.15s, 7/1/14, Prerefunded Aaa 10,122,300
-------------
18,451,700
Vermont (1.2%)
- -------------------------------------------------------------------------------------------------------------------
4,370,000 VT State Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB+ 4,643,125
Virginia (0.4%)
- -------------------------------------------------------------------------------------------------------------------
2,300,000 Pocahontas Parkway Assn. Toll Rd. Rev. Bonds, Ser. A,
5 1/2s, 8/15/28 BB 1,566,875
Washington (1.2%)
- -------------------------------------------------------------------------------------------------------------------
1,800,000 Port of Seattle, Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), 7 1/8s, 4/1/20 B+/P 1,352,250
500,000 Port Vancouver, VRDN (United Grain Corp.),
Ser. 84A, 1.2s, 12/1/09 VMIG1 500,000
2,200,000 WA State G.O. Bonds (Vehicle Fuel), Ser. R-03,
FGIC, 5s, 9/1/08 AAA 2,508,000
-------------
4,360,250
Wisconsin (2.8%)
- -------------------------------------------------------------------------------------------------------------------
3,500,000 Badger Tobacco Settlement Asset Securitization Corp.
Rev. Bonds, 6 3/8s, 6/1/32 A- 3,132,500
WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,500,000 (Wheaton Franciscan), 5 3/4s, 8/15/30 A2 2,615,625
4,500,000 (United Hlth. Group, Inc.), Ser. B, MBIA, 5 1/2s,
12/15/20 Aaa 4,921,871
-------------
10,669,996
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $365,580,248) $375,045,198
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at May 31, 2003 for the
securities listed. Ratings are generally ascribed to securities
at the time of issuance. While the agencies may from time to time
revise such ratings, they undertake no obligation to do so, and the
ratings do not necessarily represent what the agencies would ascribe
to these securities at May 31, 2003. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2003
was $8,292,900 or 2.2% of portfolio market value.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
May 31, 2003.
The rates shown on IFB, which are securities paying interest rates
that vary inversely to changes in the market interest rates, and
VRDN are the current interest rates at May 31, 2003.
The fund had the following industry group concentrations greater than
10% at May 31, 2003 (as a percentage of market value):
Health care 26.1%
Utilities and power 20.6
Transportation 12.4
The fund had the following insurance concentrations greater than
10% at May 31, 2003 (as a percentage of net assets):
MBIA 16.0%
FSA 12.3
AMBAC 11.1
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2003 (Unaudited)
Market Aggregate Face Expiration Unrealized
Value Value Date Depreciation
- ------------------------------------------------------------------------------
U.S. Treasury Note
10 yr. (Short) $14,804,688 $14,725,745 Sep-03 $(78,943)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$365,580,248) (Note 1) $375,045,198
- -------------------------------------------------------------------------------------------
Cash 1,098,372
- -------------------------------------------------------------------------------------------
Interest and other receivables 6,560,897
- -------------------------------------------------------------------------------------------
Receivable for securities sold 5,508,495
- -------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 7,813
- -------------------------------------------------------------------------------------------
Total assets 388,220,775
Liabilities
- -------------------------------------------------------------------------------------------
Distributions payable to common shareholders 1,509,505
- -------------------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 4,334
- -------------------------------------------------------------------------------------------
Payable for securities purchased 12,900,207
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 598,689
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,589
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 25,558
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 770
- -------------------------------------------------------------------------------------------
Other accrued expenses 66,409
- -------------------------------------------------------------------------------------------
Total liabilities 15,128,061
- -------------------------------------------------------------------------------------------
Series A remarketed preferred shares: (1,400 shares
authorized and issued at $100,000 per share) (Note 4) 140,000,000
- -------------------------------------------------------------------------------------------
Net assets $233,092,714
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized)
(Note 1) $237,105,986
- -------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,743,931
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (15,143,210)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,386,007
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $233,092,714
Computation of net asset value
- -------------------------------------------------------------------------------------------
Net asset value per common share ($233,092,714 divided by
21,330,292 shares) $10.93
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended May 31, 2003 (Unaudited)
Interest income: $10,873,128
- -------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,195,326
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 112,822
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,652
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,690
- -------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 199,556
- -------------------------------------------------------------------------------------------
Other 60,382
- -------------------------------------------------------------------------------------------
Total expenses 1,580,428
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (8,736)
- -------------------------------------------------------------------------------------------
Net expenses 1,571,692
- -------------------------------------------------------------------------------------------
Net investment income 9,301,436
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,485,130)
- -------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (974,639)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts
during the period 14,812,235
- -------------------------------------------------------------------------------------------
Net gain on investments 11,352,466
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $20,653,902
- -------------------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------------------
From tax exempt income (822,514)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations (applicable
to common shareholders) $19,831,388
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2003* 2002
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $9,301,436 $20,236,330
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (3,459,769) (1,402,433)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 14,812,235 (11,223,570)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,653,902 7,610,327
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From tax exempt income (822,514) (2,050,069)
- -------------------------------------------------------------------------------------------------------
From ordinary income -- (3,011)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) 19,831,388 5,557,247
Distributions to common shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From tax exempt income (8,881,920) (17,051,166)
- -------------------------------------------------------------------------------------------------------
From ordinary income -- (10,587)
- -------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 711,528 953,468
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 11,660,996 (10,551,038)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 221,431,718 231,982,756
- -------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,743,931 and $2,146,929, respectively) $233,092,714 $221,431,718
- -------------------------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 21,262,820 21,174,129
- -------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 67,472 88,691
- -------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 21,330,292 21,262,820
- -------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning and
end of period 1,400 1,400
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period (common shares) $10.41 $10.96 $10.88 $10.71 $11.98 $12.05
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .44 .95 1.01 1.03 1.06 1.07
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .54 (.60) (.02) .26 (1.14) .06
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .98 .35 .99 1.29 (.08) 1.13
- ------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
- ------------------------------------------------------------------------------------------------------------------
From net investment income (.04) (.10) (.20) (.28) (.23) (.24)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .94 .25 .79 1.01 (.31) .89
- ------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ------------------------------------------------------------------------------------------------------------------
From net investment income (.42) (.80) (.71) (.84) (.96) (.96)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.80) (.71) (.84) (.96) (.96)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $10.93 $10.41 $10.96 $10.88 $10.71 $11.98
- ------------------------------------------------------------------------------------------------------------------
Market price, end of period
(common shares) $11.44 $10.75 $10.67 $9.81 $11.94 $14.94
- ------------------------------------------------------------------------------------------------------------------
Total return at market price
(common shares)(%)(b) 10.66* 8.58 15.96 (11.14) (13.96) 8.73
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
common shares (in thousands) $233,093 $221,432 $231,983 $229,854 $225,172 $249,585
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .70* 1.46 1.49 1.47 1.46 1.47
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 3.75* 7.99 7.19 7.10 7.24 6.82
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22.42* 19.25 23.05 24.90 14.92 14.44
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(d) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
May 31, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Investment Grade Municipal Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund's investment
objective is to provide as high a level of current income exempt from
federal income tax as is believed to be consistent with preservation of
capital. The fund intends to achieve its objective by investing in a
diversified portfolio of tax-exempt municipal securities that Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC, believes do not involve
undue risk to income or principal. Under normal circumstances, the fund
will invest at least 80% of its net assets in investment grade
securities (rated "investment grade" at the time of investment or, if
not rated, determined by Putnam Management to be of comparable quality).
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued on the basis
of valuations provided by an independent pricing service, approved by
the Trustees. Such services use 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 valued 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 recorded 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. All premiums/discounts
are amortized/accreted on a yield-to-maturity basis. The premium in
excess of the call price, if any, is amortized to the call date;
thereafter, any remaining premium is amortized to maturity.
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. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." 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. Futures and written option contracts outstanding at period end
are listed after The fund's portfolio.
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 November 30, 2002, the fund had a capital loss carryover of
approximately $8,546,000 available to the extent allowed by tax law to
offset future capital gains, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$1,486,000 November 30, 2004
612,000 November 30, 2005
1,662,000 November 30, 2006
2,968,000 November 30, 2007
535,000 November 30, 2009
1,283,000 November 30, 2010
The aggregate identified cost on a tax basis is $365,580,248, resulting
in gross unrealized appreciation and depreciation of $26,810,813 and
$17,345,863, respectively, or net unrealized appreciation of $9,464,950.
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Distributions from 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 seven-day period. The applicable dividend rate for the
remarketed preferred shares on May 31, 2003 was 1.13%. 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 as of
period end.
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. On January 1, 2003, the fees payable to Putnam Management
under the fund's management contract were changed to 0.65% of weekly
average net assets of the fund. Prior to January 1, 2003, the fee was
equal to 0.70% of the average weekly net assets.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to
the proceeds of the remarketed preferred shares during that period, then
the fee payable to Putnam Management for that period will be reduced by
the amount of the excess (but not more than 0.65% 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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended May 31, 2003,
the fund's expenses were reduced by $8,736 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $701 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 six months ended May 31, 2003, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $78,630,792 and $78,619,040, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Preferred shares
The Series A shares are redeemable at the option of the fund on any
dividend payment date at a redemption price of $100,000 per share, plus
an amount equal to any dividends accumulated on a daily basis but unpaid
through the redemption date (whether or not such dividends have been
declared) and, in certain circumstances, a call premium.
Additionally, the fund has authorized a separate series of 2,000 Serial
Remarketed Preferred Shares, which are issuable only under certain
conditions in exchange for Series A shares. No Serial Remarketed
Preferred shares are currently outstanding.
It is anticipated that dividends paid to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal
Revenue Code of 1986. To the extent that the fund earns taxable income
and capital gains by the conclusion of a fiscal year, it may be required
to apportion to the holders of the remarketed preferred shares
throughout that year additional dividends as necessary to result in an
after-tax equivalent to the applicable dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to
maintain asset coverage of at least 200% with respect to the remarketed
preferred shares as of the last business day of each month in which any
such shares are outstanding. Additionally, the fund is required to meet
more stringent asset coverage requirements under terms of the remarketed
preferred shares and the shares' rating agencies. Should these
requirements not be met, or should dividends accrued on the remarketed
preferred shares not be paid, the fund may be restricted in its ability
to declare dividends to common shareholders or may be required to redeem
certain of the remarketed preferred shares. At May 31, 2003, no such
restrictions have been placed on the fund.
[PHOTO OMITTED: SAMUEL PUTNAM]
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With over 65 years of experience, Putnam has nearly $251 billion in
assets under management, over 100 mutual funds, over 13 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
(Information as of 12/31/02.)
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service twelve times in the past
thirteen years. Putnam offers products in every investment category,
including growth, value, and blend as well as international and fixed
income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach helps
us adhere to every fund's stated objective, style, and risk positioning.
We are committed to helping financial advisors provide sound, sensible
guidance, information, and expertise to help investors reach their
financial goals.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Jerome J. Jacobs
Vice President
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.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
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
88669 058 7/03
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: July 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: July 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 24, 2003