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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on an eventful year, we consider it important to take note
of the increasingly positive trends that have become apparent in the
U.S. economy and financial markets. The stimulus provided by fiscal and
monetary policies has drawn the economy out of the slump of early 2003
and rising profits prompted a broad rally for stocks. The bond market
steadied while offering pockets of opportunity. We see indications that
these trends can continue into 2004 and know that Putnam management
teams will seek to position the funds to benefit from them.
We are pleased to report that during the fiscal year ended November 30,
2003, Putnam Investment Grade Municipal Trust outperformed its benchmark
index at both net asset value and market price. At net asset value it
also surpassed the average return of its Lipper peer group. The details
are on the facing page.
As the managers explain in the following report, these results came
largely from the strong performance of airline-related industrial
development bonds and the fund's leveraging policy. They also offer
their insights into your fund's prospects in the fiscal year that has
just begun.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 21, 2004
Report from Fund Management
Fund highlights
* For the 12 months ended November 30, 2003, Putnam Investment Grade
Municipal Trust had a total return at net asset value (NAV) of 11.28%.
The fund's return at market price was 8.07%.
* Due to the strong performance of airline-related industrial
development bonds and the fund's use of leverage, the fund outperformed
its benchmark, the Lehman Municipal Bond Index, which returned 6.66% for
the period.
* The fund's performance at NAV also surpassed the average return of
10.65% for its Lipper category, Closed-End General Municipal Debt Funds
(Leveraged).
* See the Performance Summary on page 8 for complete fund performance,
comparative index performance, and Lipper data.
Performance commentary
The fund delivered gratifying results for its fiscal year on both an
absolute and a relative basis. The second half of the fund's fiscal year
was dominated by the strong price recovery of its airline-related
industrial development bonds (IDBs), which had detracted significantly
from performance during fiscal 2002 and the first half of 2003.
Leveraging, in which the fund sells preferred shares that pay income at
current short-term rates and invests the proceeds in longer-term bonds
in order to generate more income, also contributed to the fund's income
stream.
At the end of the fund's fiscal year, the fund held a majority of its
assets (approximately 70%) in bonds rated A or higher. However, our
decision to selectively invest a portion of the portfolio in bonds rated
Baa/BBB or lower proved beneficial to the fund's performance, as steady
improvement in the economy, rising corporate earnings, and positive
investor sentiment contributed to a rally in the lower-quality,
higher-yielding sector of the municipal bond market during the summer
and fall.
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.
Market price performance reflects investor demand as well as investment
results, and we believe the recovery in the equity market over the
year's second half reduced investor demand for fixed-income investments,
accounting for the lower return at market price.
Market overview
The municipal bond market was highly volatile during the fund's fiscal
year ended November 30, 2003. In the first few months, falling tax
revenues led to a decline in municipal credit quality. This, in
combination with a burgeoning supply of bonds, pushed yields higher and
bond prices lower. During the winter and spring, fears of an economic
slowdown and deflation led to lower yields and higher prices. Through
summer and early fall, mixed economic reports caused bond yields to
trace a jagged path. Overall, yields ended the fiscal year lower.
The spread, or difference between yields of 10-year municipal bonds and
10-year Treasuries, widened, with municipals yielding close to their
long-term average of 85% of comparable Treasury yields at the end of
November after yielding nearly 100% of Treasury yields earlier in the
year. Investor demand for higher-yielding municipals increased,
resulting in higher bond prices and lower yields. As the economy
improved, airline-related industrial development bonds outperformed.
Tobacco settlement bonds underperformed in the late spring following
unfavorable rulings in some of the industry's ongoing litigation
matters. However, these bonds began to outperform later in the period as
the prospects for the industry became more favorable.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 11/30/03
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 6.66%
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Lehman Aggregate Bond Index (broad bond market) 5.18%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 3.92%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 25.80%
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Equities
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S&P 500 Index (broad stock market) 15.09%
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Russell 1000 Index (large-company stocks) 16.94%
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Russell 2000 Index (stocks of small and midsize companies) 36.29%
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These indexes provide an overview of performance in different sectors
for the 12 months ended 11/30/03.
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Strategy overview
We shortened the portfolio's duration (a measure of a fund's sensitivity
to changes in interest rates) in May and June because interest rates
were at historically low levels and were more likely, in our opinion, to
rise than to fall. This defensive strategy helped protect portfolio
assets when rates rose sharply between mid June and the end of July. We
resumed a neutral duration in August and September, as we believed rates
were unlikely to rise further. In September, rates fell again, so we
shortened duration somewhat. This was beneficial when rates rose in
October. At the end of the period, the portfolio's duration remained
slightly defensive.
In late July, we closed out the cross-market arbitrage position we had
established earlier in the period. You may recall that we sought to take
advantage of a market anomaly in which municipal bond yields, which are
generally tax exempt, were nearly as high as comparable taxable Treasury
yields. We bought intermediate-term municipal bonds and sold 10-year
Treasury futures contracts, anticipating that the municipal/Treasury
yield ratio would revert to its long-term average and create an
opportunity for gain. In fact, the yield ratio did fall; however, we
bought back the Treasury futures too soon and the trade was not
profitable for the fund.
We took the opportunity afforded by strong demand for higher-yielding
municipal bonds to take profits where appropriate. We continued to
diversify the portfolio by adding selectively to the fund's
lower-quality holdings.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 5/31/03 as of 11/30/03
Health care 26.1% 25.7%
Utilities and power 20.6% 19.2%
Housing 6.5% 8.9%
Transportation 12.4% 8.0%
Water and sewer 4.3% 7.6%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of market value.
Holdings will vary over time.
How fund holdings and sector allocations affected performance
Over the past six months, few municipal bond sectors have seen a
stronger recovery than airline-related industrial development bonds
(IDBs). IDBs are backed by the credit of the company benefiting from the
financing -- in this case, the airlines. So, investor perceptions about
the backing company's health, or that of the industry as a whole, affect
the prices of these bonds. Since the terrorist attacks of September 11,
2001, these municipal bonds have been negatively affected by declining
air traffic, high fixed costs, and high-profile bankruptcies. As
prospects deteriorated, the ratings on many airline-related IDBs were
lowered by the rating agencies. Two of the fund's largest contributors
to performance during the past six months -- Dallas-Fort Worth
International Airport Facility Improvement Corp. Revenue Bonds issued
for American Airlines, Inc. and Houston Airport System Revenue Bonds
issued for Continental Airlines, Inc. -- saw their ratings decline at
different points in the first half of the fiscal period. Moody's reduced
their rating of the American Airlines-backed bonds to Caa2 in February
2003 and the Continental Airlines-backed bonds to Caa2 in March 2003. In
addition, just prior to the beginning of the fiscal period, in November
2002, Standard & Poor's reduced the Continental Airlines-backed bonds to
B-.
By the midpoint of the fund's fiscal year, when prospects for stronger
growth improved, the airline market had strengthened and concerns about
bankruptcies had diminished. We capitalized on the strong price recovery
to trim the fund's airline IDB positions. Since these bonds have been in
the portfolio for some time, none of the sales resulted in a profit
based on their acquisition cost, but the fund was able to sell on
strength rather than in distress.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (44.4%)
Aa/AA (3.5%)
A (17.6%)
Baa/BBB (23.1%)
Ba/BB (3.2%)
B (3.5%)
Caa/CCC (0.9%)
VMIG1/A-1+ (3.8%)
Footnote reads:
As a percentage of market value as of 11/30/03. A bond rated Baa/BBB 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.
The airline industry is one of many sectors that have been recovering
with the economy. One of the fund's other holdings, Pocahontas Parkway
Association Toll Road Revenue Bonds also rose in value as traffic (and
tolls) picked up. These bonds have a coupon of 5.5%, mature in 2028, and
are rated BB by Standard & Poor's. The Pocahontas Parkway, which opened
in October of 2002, is a major connector to the Richmond International
Airport, and includes the only bridge crossing over the James River for
15 miles. During construction, the price of the bonds fell as the
sluggish economy caused traffic projections to fall off and investors to
become concerned about the issuer's ability to service debt. However,
road traffic has picked up with the economy in the past six months and
tolls are approaching previous projections. The bonds are still trading
at a discount, and traffic will need to increase further in order to
support the bond's interest payments, but we are cautiously optimistic.
We carefully monitored developments in the tobacco industry,
particularly with regard to ongoing litigation and other factors
affecting demand for tobacco settlement bonds, which are secured by the
income stream from tobacco companies' settlement obligations to the
states. We managed the fund's exposure to these bonds, seeking to
capitalize on changing market sentiment.
We've been actively seeking ways to broaden the fund's diversification
in the past six months, trimming some of the larger positions and adding
new bond issuers to the portfolio. By spreading risk across a larger
number of municipal bonds, we believe we can reduce the potentially
damaging effect that any one holding might have on the portfolio if an
unforeseen negative event occurs.
We sold $1 million of Indiana State Development Finance Authority
Environment Revenue Bonds issued for USX Corp., which represented 20% of
the fund's total investment in these bonds. These bonds, rated Baa1 by
Moody's, have outperformed in recent months as the overall economic
environment has improved, and we thought it prudent to trim the
position. The proceeds from the sale were invested in $1.5 million of
Gulf Coast Waste Disposal Authority Texas Pollution Control Mandatory
Put Bonds issued for Amoco Oil, a subsidiary of British Petroleum. In
addition to diversifying the fund's assets into another
commodity-related company that should benefit from stronger growth,
these bonds carry a higher rating of Aa1/Moody's and AA+/Standard &
Poor's. These bonds are mandatory put bonds, which means that even
though the bonds have a stated maturity of 2017, they will be retired on
their "put" date in October 2006.
In the same vein, we bought $500,000 of Matagorda County Texas Pollution
Control Mandatory Put Bonds issued for American Electric Power Company,
Inc. These bonds are also mandatory put bonds, which will be retired in
November 2004, and carry a coupon of 2.15%. The obligor, in this case
American Electric Power, is a solid low-cost provider of electric power
to residents and businesses in such states as Texas, Louisiana,
Michigan, and Indiana. We believed the company's credit ratings of
Baa2/Moody's and BBB/Standard & Poor's have the potential for
improvement.
Finally, in an effort to further diversify the fund's holdings in the
tax-exempt power sector, we sold $750,000 of Pennsylvania State Economic
Development Finance Authority Resource Recovery Revenue Bonds issued for
Northampton Generating, which represented half the portfolio's position.
The proceeds were invested in $750,000 of Pennsylvania State Economic
Development Finance Authority Resource Recovery Revenue Bonds issued for
the Colver Project. The issuing agency may be the same, but this trade
diversifies the fund's exposure to electricity generators in the
tax-exempt power sector in Pennsylvania. The Colver Project, which burns
waste coal to produce energy, has delivered operating income that has
been exceeding projections. Although the Colver Project bonds are
non-rated by the credit agencies at this time, Putnam's analysts view
these bonds positively with improving prospects. The bonds are due to
mature in 2015 and carry a coupon of 8.05%.
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 David Hamlin (Portfolio Leader), Paul Drury
(Portfolio Member), Susan McCormack (Portfolio Member), James St. John
(Portfolio Member), Richard Wyke (Portfolio Member), and Kevin Cronin.
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.
In the coming six months, we anticipate continued volatility and believe
the Federal Reserve Board will hold the federal funds rate steady at 1%.
Our 12- to 18-month outlook is less certain. If economic policy
succeeds, we may experience a classic bear market for bonds that may
push yields higher. However, it is also possible that the economy may
not respond satisfactorily to fiscal and monetary policy, and the yield
on 10-year Treasuries could fall.
Given this degree of uncertainty and our belief that rates may rise in
the short term, we have positioned the fund's duration somewhat
defensively. Currently, we no longer see much opportunity to capitalize
on yield spreads between municipal bonds and Treasuries, as the
relationship between them is now close to the long-term average. We
expect that the credit quality of general obligation municipal bonds
will remain under pressure, because tax revenues cannot be expected to
grow significantly until taxpayers begin to report improved earnings.
Although yield spreads between high- and low-quality municipal bonds
have narrowed somewhat, we believe they could narrow further. As a
result, we may see more opportunity for potential gain in this area. In
keeping with the fund's objective, we will continue to monitor market
conditions as we pursue a high level of tax-free income and manage the
fund's risk exposures.
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 fiscal year, which ended November 30, 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. A
profile of your fund's strategy appears on the first page of this
report. See page 10 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 11/30/03
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Lipper
Closed-End
Lehman General Municipal
Municipal Debt Funds
Market Bond (Leveraged)
NAV price Index category average*
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1 year 11.28% 8.07% 6.66% 10.65%
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5 years 29.34 4.03 31.98 33.18
Annual average 5.28 0.79 5.71 5.89
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10 years 70.06 63.64 81.80 84.26
Annual average 5.45 5.05 6.16 6.29
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Annual average
Life of fund
(since 10/26/89) 7.56 6.94 7.26 7.65
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 11/30/03, there were 62,
48, and 46 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/03
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Putnam Investment Grade Municipal Trust
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Distributions from common shares
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Number 12
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Income $0.834
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Capital gains 1 --
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Total $0.834
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Series A
Distributions from preferred shares (1,400 shares)
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Income $1,067.35
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Capital gains 1 --
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Total $1,067.35
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Share value (common shares): NAV Market price
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11/30/02 $10.41 $10.75
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11/30/03 10.71 10.74
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Current return (common shares, end of period)
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Current dividend rate 2 7.79% 7.77%
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Taxable equivalent 3 11.98 11.95
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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% federal tax rate for 2003. Results for investors
subject to lower tax rates would not be as advantageous.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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1 year 9.51% 7.79%
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5 years 30.88 3.22
Annual average 5.53 0.64
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10 years 68.44 61.54
Annual average 5.35 4.91
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Annual average
Life of fund
(since 10/26/89) 7.61 6.98
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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
public exchanges such as the New York Stock Exchange or the American
Stock Exchange.
Comparative indexes
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
used to mirror the investable universe of the U.S. dollar global
high-yield corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
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 year.
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.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam Investment Grade Municipal Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Investment Grade Municipal Trust, including the fund's portfolio,
as of November 30, 2003, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for each
of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of November 30, 2003 by correspondence with the custodian and brokers or
by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Investment Grade Municipal Trust as of
November 30, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
January 2, 2004
The fund's portfolio
November 30, 2003
Key to Abbreviations
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AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
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 (0.7%)
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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 $515,625
1,175,000 Casa Grande, Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 7 5/8s, 12/1/29 B-/P 1,219,063
1,000,000 Scottsdale, Indl. Dev. Hosp. Auth.
Rev. Bonds (Scottsdale Hlth. Care),
5.8s, 12/1/31 A3 1,037,500
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2,772,188
Arkansas (2.4%)
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3,600,000 AR Dev. Fin. Auth. Rev. Bonds,
Ser. D, GNMA/FNMA Coll., 3s, 1/1/24 AAA 3,667,500
3,000,000 AR State Hosp. Dev. Fin. Auth.
Rev. Bonds (WA Regl. Med. Ctr.),
7 3/8s, 2/1/29 Baa3 3,262,500
1,900,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7s, 2/1/10 BB/P 2,004,500
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8,934,500
California (7.7%)
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150,000 ABAG Fin. Auth. for Nonprofit Corps.
Rev. Bonds (San Diego Hosp. Assn.),
Ser. C, 5 3/8s, 3/1/21 Baa1 147,375
2,000,000 Anaheim, Pub. Fin. Auth. Tax Alloc.
IFB, MBIA, 11 1/2s, 12/28/18 Aaa 2,715,000
2,500,000 CA Hlth. Fac. Auth. Rev. Bonds
(Sutter Hlth.), Ser. A, MBIA,
5 3/8s, 8/15/30 Aaa 2,596,875
CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A
1,500,000 6s, 5/1/15 A3 1,681,875
13,000,000 AMBAC, 5 1/2s, 5/1/13 Aaa 14,738,740
1,500,000 5 1/2s, 5/1/11 A3 1,659,375
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s,
4/1/30 BBB- 1,636,250
1,475,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 B/P 1,209,500
1,500,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 Baa2 1,500,000
450,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Bonds (Ladera Ranch -
No. 02-1), Ser. A, 5.55s, 8/15/33 BB/P 444,938
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28,329,928
Colorado (2.4%)
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2,500,000 CO Hlth. Fac. Auth. Rev. Bonds
(Hlth. Fac. - Evangelical Lutheran),
3.35s, 10/1/06 A3 2,565,625
3,000,000 CO Springs, Hosp. Rev. Bonds,
6 3/8s, 12/15/30 A3 3,228,750
CO State Hsg. Fin. Auth. Rev. Bonds
(Single Fam.)
350,000 Ser. B-2 , 7s, 5/1/26 Aa2 356,125
175,000 Ser. B-3, 6.8s, 11/1/28 Aa2 176,740
2,500,000 Denver, City & Cnty. Arpt.
Rev. Bonds, MBIA, 5 1/2s, 11/15/25 Aaa 2,643,750
--------------
8,970,990
District of Columbia (1.4%)
- -------------------------------------------------------------------------------
4,000,000 DC G.O. Bonds, Ser. B, FSA, 5 1/4s,
6/1/26 Aaa 4,110,000
1,000,000 DC Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 3/4s, 5/15/40 Baa2 955,000
--------------
5,065,000
Florida (4.2%)
- -------------------------------------------------------------------------------
1,500,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 B/P 1,854,375
4,895,000 Escambia Cnty., Hlth. Fac. Auth.
Rev. Bonds (Baptist Hosp. & Baptist
Manor), 5 1/8s, 10/1/19 A3 4,735,913
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 3,729,375
2,000,000 Hernando Cnty., Indl. Dev.
Rev. Bonds (FL Crushed Stone Co.),
8 1/2s, 12/1/14 A-/P 2,040,000
1,000,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 951,250
2,000,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
5 3/8s, 11/15/28 BB 1,610,000
400,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B-/P 384,500
--------------
15,305,413
Georgia (1.5%)
- -------------------------------------------------------------------------------
1,500,000 Atlanta, Arpt. Rev. Bonds, Ser. B,
FGIC, 5 5/8s, 1/1/30 Aaa 1,580,625
1,045,000 Atlanta, Waste Wtr. Rev. Bonds,
Ser. A, FGIC, 5s, 11/1/38 Aaa 1,184,769
2,300,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 1/1/32 A2 2,429,375
300,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
11.568s, 8/1/10 Aaa 308,064
--------------
5,502,833
Hawaii (0.2%)
- -------------------------------------------------------------------------------
780,000 HI Dept. of Trans. Special Fac.
Rev. Bonds (Continental Airlines,
Inc.), 7s, 6/1/20 B 740,025
Idaho (0.8%)
- -------------------------------------------------------------------------------
2,960,000 ID Hlth. Fac. Auth. VRDN (St. Lukes
Med. Ctr.), FSA, 1.06s, 7/1/30 VMIG1 2,960,000
Illinois (5.4%)
- -------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds
2,500,000 (School Reform Project), Ser. A,
AMBAC, 5 1/4s, 12/1/27 Aaa 2,584,375
3,830,000 (Chicago School Reform Board),
Ser. A, FGIC, 5 1/4s, 12/1/17 Aaa 4,308,750
Cook Cnty., Cmnty. G.O. Bonds (Cons.
School Dist. No. 64 Pk. Ridge), FSA
1,580,000 5 1/2s, 12/1/16 Aaa 1,815,025
1,445,000 5 1/2s, 12/1/15 Aaa 1,667,169
1,600,000 IL Dev. Fin. Auth. Rev. Bonds
(Midwestern U.), Ser. B, 6s, 5/15/26 BBB+ 1,708,000
2,500,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 2,534,375
1,000,000 IL State Sales Tax Rev. Bonds,
Ser. I, FGIC, 6s, 6/15/27 Aaa 1,177,500
IL U. Rev. Bonds (Auxiliary Fac.
Syst.), Ser. A, AMBAC
1,945,000 5 1/4s, 4/1/19 Aaa 2,156,519
1,850,000 5 1/4s, 4/1/18 Aaa 2,062,750
--------------
20,014,463
Indiana (1.4%)
- -------------------------------------------------------------------------------
4,000,000 IN State Dev. Fin. Auth. Env. Impt.
Rev. Bonds (USX Corp.), 5.6s,
12/1/32 Baa1 3,990,000
1,000,000 Rockport, Poll. Control
Rev. Bonds (Indiana-Michigan Pwr.),
Ser. A, 4.9s, 6/1/25 Baa2 1,055,000
--------------
5,045,000
Iowa (0.6%)
- -------------------------------------------------------------------------------
1,735,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives),
9 1/4s, 7/1/25 BBB-/P 2,068,988
Kansas (1.3%)
- -------------------------------------------------------------------------------
4,500,000 Burlington, Poll. Control Rev. Bonds
(KS Gas & Elec. Co.), MBIA, 7s,
6/1/31 Aaa 4,657,050
Kentucky (0.6%)
- -------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Rev. Bonds
(Special Fac.- Delta Airlines,
Inc.), Ser. A
500,000 7 1/2s, 2/1/12 B 499,955
500,000 6 1/8s, 2/1/22 B 436,875
1,200,000 KY Econ. Dev. Fin. Auth. Rev. Bonds
(Norton Healthcare, Inc.), Ser. A,
6 1/2s, 10/1/20 BBB/P 1,260,000
--------------
2,196,830
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 1,650,000
300,000 Tangipahoa Parish Hosp. Svcs.
Rev. Bonds (North Oaks Med. Ctr.
Project), Ser. A, 5s, 2/1/25 A 292,875
--------------
1,942,875
Maine (0.4%)
- -------------------------------------------------------------------------------
1,500,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 1,595,625
Massachusetts (10.7%)
- -------------------------------------------------------------------------------
10,330,000 MA State G.O. Bonds, Ser. A, MBIA,
5 3/8s, 8/1/08 AAA 11,634,163
2,785,000 MA State Dev. Fin. Agcy. Rev. Bonds
(MA Biomedical Research), Ser. C,
6 3/8s, 8/1/17 A1 3,136,606
8,550,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Med. Ctr. of Central MA), Ser. B,
AMBAC, 11.82s, 6/23/22 Aaa 10,879,875
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
1,000,000 (Civic Investments), Ser. A, 9s,
12/15/15 BB/P 1,142,500
750,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 752,813
1,450,000 (UMass Memorial), Ser. C, 6 5/8s,
7/1/32 Baa2 1,506,188
2,500,000 MA State Hsg. Fin. Agcy. Rev. Bonds
(Rental Mtge.), Ser. C, AMBAC,
5 5/8s, 7/1/40 Aaa 2,556,250
7,000,000 MA State Wtr. Res. Auth. Rev. Bonds,
Ser. J, FSA, 5 1/4s, 8/1/17 Aaa 7,883,750
--------------
39,492,145
Michigan (3.8%)
- -------------------------------------------------------------------------------
5,600,000 Detroit, Swr. Disp. VRDN, Ser. B,
FSA, 1.04s, 7/1/33 VMIG1 5,600,000
300,000 Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), 6s, 7/1/20 Baa3 289,125
1,500,000 Macomb Cnty., Hosp. Fin. Auth.
Rev. Bonds (Mt. Clemens Gen. Hosp.),
Ser. B, 5 7/8s, 11/15/34 BBB- 1,443,750
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 1,022,500
5,500,000 MI State Strategic Fund, Ltd.
Rev. Bonds (Detroit Edison Poll.
Control), 5.65s, 9/1/29 AAA 5,623,750
--------------
13,979,125
Minnesota (1.4%)
- -------------------------------------------------------------------------------
2,700,000 Cohasset, VRDN (MN Pwr. & Light Co.
Project), 1.05s, 6/1/20 A-1+ 2,700,000
750,000 Minneapolis & St. Paul, Metropolitan
Arpt. Comm. Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), Ser. A,
7s, 4/1/25 B+/P 703,125
1,705,000 Minneapolis, Cmnty. Dev. Agcy.
Supported Dev. Rev. Bonds, Ser. G-3,
5.45s, 12/1/31 A- 1,754,019
--------------
5,157,144
Mississippi (1.6%)
- -------------------------------------------------------------------------------
2,750,000 MS Bus. Fin. Corp. Rev. Bonds (Syst.
Energy Resources, Inc.), 5 7/8s,
4/1/22 BBB- 2,753,438
MS Dev. Bk. Special Obligation
Rev. Bonds (Jackson MS Project), FSA
1,455,000 5 1/4s, 3/1/22 Aaa 1,595,044
1,385,000 5 1/4s, 3/1/21 Aaa 1,526,963
--------------
5,875,445
Missouri (4.3%)
- -------------------------------------------------------------------------------
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 1,317,188
1,500,000 MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership), GNMA/FNMA coll., 5.55s,
9/1/34 AAA 1,644,375
MO State Hlth. & Edl. Fac. Auth.
Rev. Bonds (BJC Hlth. Syst.)
2,500,000 Ser. A, 6 1/2s, 5/15/20 Aa2 2,604,775
1,000,000 5 1/4s, 5/15/32 Aa2 1,020,000
8,850,000 SCA Tax Exempt Trust Multi-Fam.
Mtge. Rev. Bonds, FSA, 7.1s, 1/1/30 Aaa 9,219,488
--------------
15,805,826
Montana (0.3%)
- -------------------------------------------------------------------------------
1,175,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 Aaa 1,276,344
Nevada (0.3%)
- -------------------------------------------------------------------------------
1,205,000 Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14), 4 3/4s,
3/1/10 BB-/P 1,195,963
New Jersey (2.6%)
- -------------------------------------------------------------------------------
650,000 NJ Econ. Dev. Auth. Rev. Bonds
(Cedar Crest Village, Inc. Fac.),
Ser. A, 7 1/4s, 11/15/31 BB-/P 668,688
NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
2,000,000 (Trinitas Hosp. Oblig. Group),
7 1/2s, 7/1/30 Baa3 2,182,500
675,000 (Somerset Med. Ctr.), 5 1/2s, 7/1/33 Baa2 660,656
3,100,000 NJ State G.O. Bonds, Ser. F, MBIA,
5 1/2s, 8/1/11 AAA 3,565,000
1,000,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Drew U.), Ser. C, FGIC, 5 1/4s,
7/1/18 Aaa 1,125,000
Tobacco Settlement Fin. Corp.
Rev. Bonds
500,000 6 3/4s, 6/1/39 Baa2 485,625
1,000,000 (Asset Backed Bonds), 6s, 6/1/37 Baa2 875,000
--------------
9,562,469
New York (8.6%)
- -------------------------------------------------------------------------------
1,875,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (North Shore Hlth.
Syst.), Ser. D, 5 1/2s, 11/1/08 A3 1,978,125
7,780,000 NY City, G.O. Bonds, Ser. B, 5 1/4s,
12/1/09 A2 8,664,975
NY City, Indl. Dev. Agcy. Rev. Bonds
1,000,000 (Visy Paper, Inc.), 7.95s, 1/1/28 B+/P 1,036,250
2,000,000 (Brooklyn Navy Yard Cogen.
Partners), Ser. G, 5 3/4s, 10/1/36 BBB- 1,795,000
4,100,000 NY City, Muni. Wtr. & Swr. Fin.
Auth. Rev. Bonds, Ser. C, 5 3/4s,
6/15/26 Aa2 4,469,000
2,900,000 NY City, Muni. Wtr. & Swr. Fin.
Auth. VRDN, Ser. A, FGIC, 1.08s,
6/15/25 VMIG1 2,900,000
900,000 NY State Dorm. Auth. Rev. Bonds
(Winthrop-U. Hosp. Assn.), Ser. A,
5 1/2s, 7/1/32 Baa1 924,750
4,000,000 NY State Env. Fac. Corp. Rev. Bonds,
5s, 6/15/32 Aaa 4,080,000
1,000,000 NY State Thruway Auth. Rev. Bonds,
Ser. A, MBIA, 5 1/4s, 4/1/12 Aaa 1,125,000
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 4,681,250
--------------
31,654,350
North Carolina (2.4%)
- -------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds
1,000,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,103,750
2,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 2,065,000
5,000,000 NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.), Ser. B,
6 1/2s, 1/1/20 Baa1 5,556,250
--------------
8,725,000
Ohio (4.1%)
- -------------------------------------------------------------------------------
1,000,000 Brookville, Local School Dist. G.O.
Bonds, FSA, 5s, 12/1/31 Aaa 1,023,750
5,000,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/16 A1 5,518,750
2,000,000 OH State Air Quality Dev. Auth.
Rev. Bonds (Toledo Poll. Control),
Ser. A, 6.1s, 8/1/27 Baa2 2,057,500
1,500,000 OH State Solid Waste Rev. Bonds
(General Motors Corp. Project),
6.3s, 12/1/32 Baa1 1,578,750
1,820,000 OH State Tpk. Comm. Rev. Bonds,
Ser. A, FGIC, 5 1/2s, 2/15/18 Aaa 2,108,925
2,500,000 Rickenbacker, Port Auth. Rev. Bonds
(OASBO Expanded Asset Pooled),
Ser. A, 5 3/8s, 1/1/32 A2 2,665,625
--------------
14,953,300
Oklahoma (0.3%)
- -------------------------------------------------------------------------------
1,450,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Hlth. Care), Ser. A,
5 5/8s, 8/15/29 B1 998,688
Oregon (0.3%)
- -------------------------------------------------------------------------------
1,000,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds (Single Family Mtg.),
Ser. K, 5 5/8s, 7/1/29 Aa2 1,091,250
Pennsylvania (3.0%)
- -------------------------------------------------------------------------------
1,205,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek
Partners), 6.65s, 5/1/10 BBB- 1,302,906
1,500,000 Lancaster Cnty., Hosp. Auth.
Rev. Bonds (Gen. Hosp.), 5 1/2s,
3/15/26 A- 1,511,250
250,000 Lebanon Cnty., Hlth. Fac. Auth.
Rev. Bonds (Good Samaritan Hosp.
Project), 6s, 11/15/35 Baa1 252,500
1,000,000 Lehigh Cnty., Gen. Purpose Auth.
Rev. Bonds (Lehigh Valley Hosp.
Hlth. Network), Ser. A, 5 1/4s,
7/1/32 A2 980,000
1,000,000 PA Econ. Dev. Fin. Auth.
Rev. Bonds (Amtrak Project), Ser. A,
6 3/8s, 11/1/41 A3 1,000,000
PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 791,925
750,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BBB- 758,438
1,045,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Philadelphia College of
Osteopathic Med.), 5s, 12/1/08 A 1,152,113
1,200,000 Sayre, Hlth. Care Fac. Auth.
Rev. Bonds (Guthrie Hlth.), Ser. A,
5 7/8s, 12/1/31 A- 1,239,000
2,200,000 West Shore, Area Hosp. Auth.
Rev. Bonds (Holy Spirit Hosp.),
6 1/4s, 1/1/32 BBB+ 2,249,500
--------------
11,237,632
Puerto Rico (1.6%)
- -------------------------------------------------------------------------------
5,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth.
Rev. Bonds, Ser. B, 6s, 7/1/39 A 5,987,500
South Carolina (1.6%)
- -------------------------------------------------------------------------------
4,175,000 Connector 2000 Assn., Inc. SC Toll
Road Rev. Bonds (SR-Southern
Connector), Ser. A, 5 3/8s, 1/1/38 B- 1,790,031
500,000 Lexington Cnty. Rev. Bonds
(Refunding & Impt.), 5 3/4s, 11/1/28 A2 521,250
1,000,000 SC Hosp. Auth. Rev. Bonds (Med. U.),
Ser. A, 6 1/2s, 8/15/32 BBB+ 1,038,750
600,000 SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth.
Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 765,000
1,750,000 SC Tobacco Settlement Rev. Mgt.
Rev. Bonds, Ser. B, 6 3/8s, 5/15/28 Baa2 1,623,125
--------------
5,738,156
South Dakota (0.5%)
- -------------------------------------------------------------------------------
2,000,000 SD Edl. Enhancement Funding Corp.
Rev. Bonds, Ser. B, 6 1/2s, 6/1/32 Baa2 1,865,000
Tennessee (5.2%)
- -------------------------------------------------------------------------------
3,500,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. IFB, Ser. A2, MBIA,
10.915s, 7/1/21 (acquired
2/8/00, cost 3,296,650) (RES) Aaa 4,506,250
3,000,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/25 Baa2 3,277,500
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 11,353,222
--------------
19,136,972
Texas (5.3%)
- -------------------------------------------------------------------------------
5,200,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s,
4/1/21 Baa2 5,492,500
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 1,010,000
2,635,000 Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds (American
Airlines, Inc.), 6 3/8s, 5/1/35 Caa2 1,669,931
1,250,000 Gulf Coast, Waste Disp. Rev. Bonds,
Ser. A, 6.1s, 8/1/24 Baa2 1,289,063
1,500,000 Gulf Coast, Waste Disp. Auth. TX
Poll. Control Mandatory Put Bonds,
(Amoco Oil), Ser. A, 6.1s, 10/1/17 Aa1 1,500,000
1,500,000 Harris Cnty., Hlth. Fac. Rev. Bonds
(Memorial Hermann Hlth. Care),
Ser. A, 6 3/8s, 6/1/29 A2 1,614,375
1,500,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.),
Ser. E, 6 3/4s, 7/1/29 B- 1,318,125
500,000 Matagorda Cnty., Navigation Dist. TX
Poll. Control Mandatory Put Bonds,
(American Electric Power Co., Inc.)
2.15s, 5/1/30 Baa2 499,770
1,500,000 Sam Rayburn Muni. Pwr. Agcy.
Rev. Bonds, 6s, 10/1/21 Baa2 1,561,875
Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.)
600,000 6s, 7/1/25 Baa2 609,750
1,700,000 6s, 7/1/19 Baa2 1,751,000
1,000,000 Tyler, Hlth. Fac. Dev. Corp.
Rev. Bonds (Mother Frances Hosp.),
5s, 7/1/07 Baa1 1,058,750
--------------
19,375,139
Utah (5.0%)
- -------------------------------------------------------------------------------
2,850,000 Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A,
7.45s, 7/1/17 BB-/P 2,914,125
675,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil Project), 5.05s,
11/1/17 Baa1 731,531
UT State Pwr. Supply Rev. Bonds
(Intermountain Pwr. Agcy.), Ser. A,
MBIA
8,280,000 6.15s, 7/1/14 (prerefunded) Aaa 9,325,350
4,720,000 6.15s, 7/1/14 Aaa 5,256,900
--------------
18,227,906
Vermont (1.5%)
- -------------------------------------------------------------------------------
1,000,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 1,046,250
4,370,000 VT State Edl. & Hlth. Bldg. Fin.
Agcy. Rev. Bonds (Brattleboro
Memorial Hosp.), 7s, 3/1/24 BBB+ 4,519,236
--------------
5,565,486
Virginia (0.5%)
- -------------------------------------------------------------------------------
2,300,000 Pocahontas Parkway Assn. Toll Rd.
Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 BB 1,776,750
Washington (1.5%)
- -------------------------------------------------------------------------------
700,000 Port of Seattle, Special Fac.
Rev. Bonds (Northwest Airlines,
Inc.), 7 1/8s, 4/1/20 B+/P 672,000
2,485,000 Tobacco Settlement Auth. of WA
Rev. Bonds, 6 1/2s, 6/1/26 Baa2 2,373,175
2,200,000 WA State G.O. Bonds (Vehicle Fuel),
Ser. R-03, FGIC, 5s, 9/1/08 Aaa 2,444,750
--------------
5,489,925
Wisconsin (2.1%)
- -------------------------------------------------------------------------------
Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds
1,800,000 7s, 6/1/28 Baa2 1,800,000
3,500,000 6 3/8s, 6/1/32 Baa2 3,189,375
2,500,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 2,578,125
--------------
7,567,500
- -------------------------------------------------------------------------------
Total Investments (cost $352,925,330) $367,836,723
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at November 30, 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 November 30, 2003. Securities rated by Putnam are
indicated by "/P" and are not publicly rated. Ratings are not covered by
the Independent auditors' report.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 2003
was $9,187,500 or 2.5% of portfolio market value.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, VRDN and
mandatory put bonds are the current interest rates at November 30, 2003.
The fund had the following industry group concentrations greater than
10% at November 30, 2003
(as a percentage of market value):
Health care 25.7%
Utilities and power 19.2
The fund had the following insurance concentrations greater than 10% at
November 30, 2003
(as a percentage of market value):
FSA 14.6%
MBIA 14.4
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
November 30, 2003
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$352,925,330) (Note 1) $367,836,723
- -------------------------------------------------------------------------------
Cash 104,543
- -------------------------------------------------------------------------------
Interest and other receivables 6,697,212
- -------------------------------------------------------------------------------
Receivable for securities sold 1,012,500
- -------------------------------------------------------------------------------
Total assets 375,650,978
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 1,516,910
- -------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 8,820
- -------------------------------------------------------------------------------
Payable for securities purchased 4,196,090
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 597,861
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 43,698
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 29,515
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 526
- -------------------------------------------------------------------------------
Other accrued expenses 117,060
- -------------------------------------------------------------------------------
Total liabilities 6,510,480
- -------------------------------------------------------------------------------
Series A remarketed preferred shares: (1,400 shares
authorized and outstanding at $100,000 per share) (Note 4) 140,000,000
- -------------------------------------------------------------------------------
Net assets $229,140,498
Represented by
- -------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares
authorized) (Note 1) $237,787,011
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 711,448
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (24,269,354)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 14,911,393
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $229,140,498
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per common share ($229,140,498 divided by
21,394,578 shares) $10.71
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended November 30, 2003
Interest income: $21,133,043
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,402,043
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 238,304
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,925
- -------------------------------------------------------------------------------
Administrative services (Note 2) 7,624
- -------------------------------------------------------------------------------
Preferred share remarketing agent fees 390,178
- -------------------------------------------------------------------------------
Other 163,280
- -------------------------------------------------------------------------------
Total expenses 3,216,354
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (21,778)
- -------------------------------------------------------------------------------
Net expenses 3,194,576
- -------------------------------------------------------------------------------
Net investment income 17,938,467
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (12,433,663)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (239,991)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts during the year 20,337,621
- -------------------------------------------------------------------------------
Net gain on investments 7,663,967
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $25,602,434
- -------------------------------------------------------------------------------
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (1,494,296)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) $24,108,138
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended November 30
Increase (decrease) in net assets 2003 2002
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $17,938,467 $20,236,330
- -------------------------------------------------------------------------------
Net realized loss on investments (12,673,654) (1,402,433)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 20,337,621 (11,223,570)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 25,602,434 7,610,327
Distributions to Series A remarketed preferred shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (1,494,296) (2,050,069)
- -------------------------------------------------------------------------------
From ordinary income -- (3,011)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations (applicable to common
shareholders) 24,108,138 5,557,247
- -------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax exempt income (17,791,911) (17,051,166)
- -------------------------------------------------------------------------------
From ordinary income -- (10,587)
- -------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions 1,392,553 953,468
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets 7,708,780 (10,551,038)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 221,431,718 231,982,756
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $711,448 and
$2,146,929, respectively) $229,140,498 $221,431,718
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Common shares outstanding at beginning of
year 21,262,820 21,174,129
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 131,758 88,691
- -------------------------------------------------------------------------------
Common shares outstanding at end of year 21,394,578 21,262,820
- -------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of year 1,400 1,400
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended November 30
operating performance 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period (common shares) $10.41 $10.96 $10.88 $10.71 $11.98
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .84 .95 1.01 1.03 1.06
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 (.60) (.02) .26 (1.14)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.20 .35 .99 1.29 (.08)
- -----------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.07) (.10) (.20) (.28) (.23)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations:
(applicable to common shareholders) 1.13 .25 .79 1.01 (.31)
- -----------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.83) (.80) (.71) (.84) (.96)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.80) (.71) (.84) (.96)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $10.71 $10.41 $10.96 $10.88 $10.71
- -----------------------------------------------------------------------------------------------------------------------
Market price, end of period
(common shares) $10.74 $10.75 $10.67 $9.81 $11.94
- -----------------------------------------------------------------------------------------------------------------------
Total return at market price
(common shares) (%)(b) 8.07 8.58 15.96 (11.14) (13.96)
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
common shares (in thousands) $229,140 $221,432 $231,983 $229,854 $225,172
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.42 1.46 1.49 1.47 1.46
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 7.26 7.99 7.19 7.10 7.24
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.72 19.25 23.05 24.90 14.92
- -----------------------------------------------------------------------------------------------------------------------
(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
November 30, 2003
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 con formity
with accounting principles generally accepted in the United States of
America and re quires management to make estimates and assump tions
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, 2003, the fund had a capital loss carryover of
$20,916,906 available to the extent allowed by tax law to offset future
net capital gain, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- --------------------------------
$1,485,741 November 30, 2004
612,177 November 30, 2005
1,661,946 November 30, 2006
2,968,039 November 30, 2007
535,007 November 30, 2009
1,282,640 November 30, 2010
12,371,356 November 30, 2011
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 November 30, 2003 was 1.15%. 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 dividends payable, realized gains and losses on
certain futures contracts, market discount and straddle loss deferrals.
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 November
30, 2003, the fund reclassified $87,741 to decrease undistributed net
investment income, with a decrease to accumulated net realized losses of
$87,741.
The tax basis components of distributable earn ings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $19,488,844
Unrealized depreciation (4,577,451)
------------
Net unrealized appreciation 14,911,393
Undistributed tax-exempt
income 2,159,654
Capital loss carryforward (20,916,906)
Cost for federal income
tax purposes $352,925,330
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
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the annual rate of 0.65% of the weekly average net assets of
the fund. Prior to January 1, 2003, the fee was equal to 0.70% of the
weekly average 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 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 year ended November 30, 2003,
the fund's expenses were reduced by $21,778 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $696 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 Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the year ended November 30, 2003, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $114,832,330 and $121,842,650, 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. Addition ally, 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 November 30, 2003, no
such restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission (SEC) in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings, and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of
Massachusetts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading.
- ------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
Results of October 7, 2003 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
2003. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common shares
Votes
Votes for withheld
- -------------------------------------------------------------------
Jameson A. Baxter 18,597,986 336,852
Charles B. Curtis 18,606,340 328,498
Ronald J. Jackson 18,597,969 336,869
Paul L. Joskow 18,592,254 342,584
Elizabeth T. Kennan 18,576,998 357,840
Lawrence J. Lasser* 18,590,153 344,685
John H. Mullin III 18,612,204 322,634
George Putnam, III 18,607,809 327,029
A.J.C. Smith 18,593,338 341,500
W. Thomas Stephens 18,592,944 341,894
W. Nicholas Thorndike 18,547,239 387,599
Preferred Shares
Votes
Votes for withheld
- -------------------------------------------------------------------
Jameson A. Baxter 1,102 276
Charles B. Curtis 1,102 276
Ronald J. Jackson 1,102 276
Paul L. Joskow 1,102 276
Elizabeth T. Kennan 1,102 276
Lawrence J. Lasser* 1,102 276
John H. Mullin III 1,102 276
George Putnam, III 1,102 276
A.J.C. Smith 1,102 276
W. Thomas Stephens 1,102 276
W. Nicholas Thorndike 1,102 276
John A. Hill 1,102 276
Robert E. Patterson 1,102 276
All tabulations are rounded to the nearest whole number.
*Mr. Lasser resigned from the Board of Trustees of the Putnam funds
on November 3, 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on
the board of the Whitehead Institute for Biomedical Research (a
non-profit research institution) and has been President of the Yale
University Council since 1993. Prior to February 2002, he was a Director
of State Farm Indemnity Company (an automobile insurance company) and
prior to March 2000 he was a Director of New England Electric System (a
public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock,
LLC (cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director
of Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire
Life Insurance, and Kentucky Home Life Insurance. She is a Trustee of
Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of
Five Colleges Incorporated, as a Trustee of Notre Dame University, and
is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington
& Lee University, where he served as Chairman of the Investment
Committee. Prior to May 2001, he was a Director of Graphic Packaging
International Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer). He is also a Trustee of Northeastern University and an
honorary Trustee of Massachusetts General Hospital, where he previously
served as Chairman and President. Prior to December 2003, he was a
Director of The Providence Journal Co. (a newspaper publisher). Prior to
September 2000, he was a Director of Bradley Real Estate, Inc.; prior to
April 2000, he was a Trustee of Eastern Utilities Associates; and prior
to December 2001, he was a Trustee of Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of Marsh &
McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of November 30, 2003, there were 101 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
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
Independent Auditors
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
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
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime 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
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203434 058 1/04
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
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:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
- -------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
- ---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
- ---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
- -------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
- -----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
- ---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
- -------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
- -------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
- -------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
- -------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
- -------------------------------------------
The Role of the Funds' Trustees
- -------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
- ------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
- ---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
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As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
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Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
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Item 9. Controls and Procedures:
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(a) 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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
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(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: January 23, 2004
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: January 23, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: January 23, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 23, 2004