-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9nca/FE3gy2BKTd6Ix71s1Z/hEhf78yMFmTNyDV8cuaHZ4E5AIfZMFzsYZfmOba gkcK2gxE0RL+m+j0V7vQPQ== 0000928816-96-000195.txt : 19960702 0000928816-96-000195.hdr.sgml : 19960702 ACCESSION NUMBER: 0000928816-96-000195 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960701 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM NEW YORK INVESTMENT GRADE MUNICIPAL TRUST CENTRAL INDEX KEY: 0000892960 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046716832 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07274 FILM NUMBER: 96589422 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 PUTNAM NY INVESTMENT GRADE MUNI TRUST Putnam New York Investment Grade Municipal Trust ANNUAL REPORT April 30, 1996 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "Receding flat-tax fears, low inflation, and a relatively tight supply of New York municipal bonds are contributing to a very favorable environment for tax-free securities. Furthermore, investment-grade municipal bonds are capturing close to 90% of the 30-year Treasury bond yield, suggesting that the municipal bond market could be poised for another period of advance." -- David J. Eurkus, Manager, Putnam New York Investment Grade Municipal Trust * "When the yield on the 30-year Treasury bond spiked to around 6.8% after ending last year at a two-year low of 5.9%, bond investors had a right to feel panicky.... Despite the frightening selloff, this may be a good time to hold or even increase your positions in bonds." -- Kiplinger Personal Finance Magazine, May 1996 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 15 Financial statements [GRAPHIC OMITTED: photo of George Putnam] (copyright) Karsh, Ottawa From the Chairman Dear Shareholder: The tax-exempt bond market provided quite a ride for shareholders of Putnam New York Investment Grade Municipal Trust during the fiscal year ended April 30, 1996. The year got off to a solid start as the U.S. bond market enjoyed what would become one of the strongest advances in recent memory. The euphoria proved short-lived for municipal bond investors, however, as talk of a flat tax gave rise to concern over the continued viability of tax-exempt securities. Once raised, the flat-tax worries provided a negative undercurrent throughout much of the remainder of the year. It subsided just in time to temper the decline in tax-exempt securities when the entire bond market suddenly plunged in March. Through all these market gyrations, your fund was able to close fiscal 1996 solidly in the black. As Fund Manager David Eurkus explains in the report that follows, he believes the continuing demand for tax-free investments, coupled with a relatively subdued pace in new issuance, bodes well for your fund in the fiscal year that has just begun. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees June 19, 1996 Report from the Fund Manager David J. Eurkus Bond market events during the past year have shown more ups and downs than a ride on a roller coaster. Fixed-income investors everywhere had to buckle their seat belts just to hang on as news of stronger-than- expected economic growth brought the 10-month rally to an abrupt halt. Much of Putnam New York Investment Grade Municipal Trust's fiscal year, which ended April 30, 1996, occurred during this period of market euphoria, which was driven by declining interest rates, benign inflation, and slow economic growth. Despite uncertainty over the various political proposals to reform the tax code, your fund was an active participant in the rally. In the aftermath of a decision by the Federal Reserve Board to reduce short-term interest rates by a quarter of a percentage point on December 19, the fund finished calendar 1995 with a total return of 17.14% at net asset value and 17.12% at market price. An additional quarter-point drop in rates at the end of January only served to bolster bond investors' optimism further. Despite the breakdown of budget talks in Washington, bond prices climbed. However, by early March, evidence of rapid employment growth fueled fears of inflation and a possible end to the Federal Reserve's program of lowering short-term interest rates. During the last few weeks of the fund's reporting period, the bond market continued to sell off amid further evidence of a stronger-than- expected economy. Thanks to strong headway made earlier in the period, the fund's returns for the 12 months ended April 30, 1996, were 6.99% at net asset value and 1.78% at market price, compared with the category average of 7.57% for the 12 New York closed-end municipal bond funds tracked by Lipper Analytical Services* over this period. Results for longer periods can be found on page 9. *Lipper is an industry research firm whose rankings are based on total return performance, vary over time, and do not reflect the effects of sales charges. * MUNICIPAL BOND VALUATIONS BECOME APPEALING AS FLAT-TAX FEARS RECEDE While the sudden reversal in the direction of interest rates affected all fixed-income securities, tax-free bonds fared better than their fully taxable counterparts. An improving outlook for the municipal bond market is largely responsible for this trend. For the better part of a year, prices of tax-free bonds had reflected lingering investor concerns about the perceived effect of tax-reform proposals. Central to this debate has been the flat-tax proposal, which in its purest form would jeopardize the tax advantages enjoyed by these bonds. However, much of the momentum for a major overhaul to the current tax structure has evaporated and with it investor anxieties. Although we expect discussions of broader tax reform to reappear this fall as the presidential election nears, our current assessment is that any radical changes to the tax code appear less likely than they did a few months ago. [GRAPHIC OF WORM CHART OMITTED: YIELD RATIO: MUNICIPAL BOND YIELDS AS A PERCENTAGE OF U.S. TREASURY BONDS* 30 Yr. Treas Vs. 30 Yr. Muni] Chart reads: 5/31/95 84.6% 6/30/95 88.5% 7/30/95 84.9% 8/31/95 88.2% 9/30/95 89.2% 10/31/95 88.2% 11/30/95 88.1% 12/31/95 88.6% 1/31/96 86.1% 2/28/96 82.3% 3/31/96 85.3% 4/30/96 82.9% *Many market professionals consider it a buying signal when municipal bond yields are between 78% and 82% of Treasuries. The chart shows the yield of an average 30-year general obligation bond versus the yield of an average 30-year U.S. Treasury bond. Treasuries are backed by the full faith and credit of the U.S. government. Source: Bloomberg. Any time municipal bonds underperform relative to Treasuries, as they did in 1995, we believe a buying opportunity exists. Most high-grade, long-term municipal bonds are currently providing 85% to 90% of the yield that Treasury bonds are offering on a before-tax basis. While there can be no assurances, the failure of municipal bonds to participate in 1995 to the same degree as their taxable counterparts leaves the potential for further price appreciation. This, in our opinion, represents attractive value. Furthermore, the supply of new issues coming to market is starkly lower than in previous years. With refinancings sharply curtailed as a result of relatively higher interest rates, a significant source of new bonds coming to market has all but disappeared. In addition, the fiscal realities of balanced budgets are also reducing the volume of debt issuance. This pronounced imbalance of supply and demand of New York municipal bonds is having a positive impact on prices of existing bonds. * BUDGET CONSTRAINTS IN ALBANY AND NEW YORK CITY CAUSE CONCERN The inability of Albany and New York City to balance their respective budgets has been a great concern for several months. With less money flowing from Washington and state lawmakers wrestling with dwindling resources, we think the likelihood of a balanced state budget is smaller than ever. Further fiscal tightening will necessitate budgetary cutbacks in programs, which we believe will only make the economics of public agencies more problematic. Most of the state-appropriated agencies are likely to feel continued stress. Moody's, an independent rating service, has indicated that New York City is in jeopardy of being downgraded from its current rating of Baa-1 to a lower investment-grade rating of Baa. We do not believe New York City bonds will drop below investment grade. However, the potential downgrade is likely to have a negative effect on the price of the bonds. This, in turn, will cause their yields to increase, compensating investors for the uncertainty. Looking ahead, we believe the yield spread between investment-grade state-appropriated bonds and bonds from other municipalities around the state can be expected to widen. * EMPHASIS ON INCOME AND CALL PROTECTION A climate of steadier economic growth clearly requires a more cautious approach to fixed-income investing. We are placing greater emphasis on coupon income, stressing the importance of astute credit analysis. As more weight is given to enhancing the portfolio's price stability and liquidity, careful maturity selection and a focus toward larger, well- known municipal issuers will play an increasingly vital role in your fund's strategy over the next few months. [GRAPHIC OF PIE CHART OMITTED: PORTFOLIO QUALITY OVERVIEW*] Chart reads: A - 11.4% AA - 23.7% AAA - 41.0% BB - 3.2% BBB - 12.3% VMIG1 (short-term) - 8.4% *as a percentage of market value as of 4/30/96. A bond rated BBB or higher is considered investment grade. The ratings reflect Standard and Poor's(registered trademark) descriptions unless noted otherwise. Holdings will vary over time. Given the secular decline in interest rates over the past several years, bonds with higher coupons are at risk of being called away. Tax-free bond issuers can refund older, higher-interest debts and offer new issues at lower rates. To reduce the fund's exposure to this risk, we have been extending call protection by swapping out of bonds approaching their call dates -- one to three years, for example -- and purchasing bonds with a minimum of 10 years or longer before their call dates. This strategy can be an effective tool for protecting the higher-coupon bonds in your portfolio and thus the fund's stream of tax-free income. Some of your fund's income is generated by the selective use of leveraging strategies. With this approach, the fund issues preferred shares that pay dividends at prevailing short-term rates. These shares are sold to corporate and institutional investors; the resulting assets are then invested in longer-term bonds with higher yields. The difference between the rates paid to holders of preferred shares and the rates earned by the fund augments the flow of income to holders of common shares. Since the yield curve steepened during the year, resulting in a profitable spread between short- and long-term yields, the fund's leveraging strategies proved to be beneficial. * OUTLOOK: CAUTIOUS OPTIMISM PREVAILS In our opinion, investor anxieties concerning an overheating economy are premature. We anticipate that the remainder of 1996 will be marked by steady, but manageable economic growth and foresee only limited risk of a sharp increase in inflationary pressures. Such an environment, in contrast with last year's slowing economy, is unlikely to lead to falling interest rates and price appreciation for the bond market. Rather, we believe coupon income will provide most of the total return for fixed-income investors during the rest of 1996. The new-issue supply in the state of New York is expected to remain light until there is a budget agreement, probably sometime in the third quarter of 1996. Total issuance for calendar 1996 is expected to level off around $10 billion, a sharp drop from the $18 billion to $20 billion coming to market annually in the early 1990s. We believe these developments, along with the recent market correction, may offer investors who have shied away from municipals an attractive opportunity to retest the waters. Furthermore, municipal yields should remain generous on a taxable-equivalent basis, providing an attractive alternative to Treasuries and investment-grade bonds. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 4/30/96, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. Putnam New York Investment Grade Municipal Trust is designed for investors seeking high current income free from federal, state, and New York City income tax, consistent with preservation of capital. This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. TOTAL RETURN FOR PERIODS ENDED 4/30/96 (common shares) Market NAV price - ---------------------------------------------------- 1 year 6.99% 1.78% - ---------------------------------------------------- Lifetime (11/27/92) 22.46 9.66 Annual average 6.08 2.72 - ---------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/96 Lehman Bros. Municipal Consumer Bond Index Price Index - ---------------------------------------------------- 1 year 7.95% 2.90% - ---------------------------------------------------- Lifetime (11/27/92) 22.14 10.07 Annual average 6.03 2.84 - ---------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 3/31/96 (common shares) (most recent calendar quarter) Market NAV price - ---------------------------------------------------- 1 year 7.66% 7.74% - ---------------------------------------------------- Lifetime (11/27/92) 22.91 11.19 Annual average 6.37 3.23 - ---------------------------------------------------- Performance data represent past results and do not reflect future performance. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, market price, and net asset value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 12 months ended 4/30/96 Distributions (common shares): - ------------------------------------------------------- Number 12 - ------------------------------------------------------- Income $0.88 - ------------------------------------------------------- Capital gains1 -- - ------------------------------------------------------- Total $0.88 - ------------------------------------------------------- Preferred shares series Th (200 shares) - ------------------------------------------------------- Income $1,850.05 - ------------------------------------------------------- Total $1,850.05 - ------------------------------------------------------- Share value (common shares): NAV Market price - ------------------------------------------------------- 4/30/95 $13.50 $13.625 - ------------------------------------------------------- 4/30/96 13.54 13.000 - ------------------------------------------------------- Current return (common shares): NAV Market price - ------------------------------------------------------- End of period - ------------------------------------------------------- Current dividend rate2 5.98% 6.23% - ------------------------------------------------------- Taxable equivalent3 10.66 11.11 - ------------------------------------------------------- Taxable equivalent4 11.13 11.60 - ------------------------------------------------------- 1Capital gains, if any, are taxable for federal and, in most cases, state tax purposes. For some investors, investment income may also be subject to the federal alternative minimum tax. Investment income may be subject to state and local taxes. 2Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. 3Assumes maximum combined federal and New York state tax rate of 43.90%. 4Assumes maximum combined federal, New York state, and New York City tax rate of 46.27%. Results for investors subject to lower tax rates would not be as advantageous. TERMS AND DEFINITIONS Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, the liquidation preference and cumulative undeclared dividends accrued on the remarketed preferred shares, divided by the number of outstanding common shares. Market price is the current trading price of one common share of the fund. Market prices are set by transactions between buyers and sellers on the American Stock Exchange. COMPARATIVE BENCHMARKS Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lehman Brothers Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. The index assumes reinvestment of all distributions and interest payments and does not take into account brokerage fees or taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Report of Independent Accountants To the Trustees and Shareholders of New York Investment Grade Municipal Trust In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments owned (except for bond ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of New York Investment Grade Municipal Trust (the "fund") at April 30, 1996, and the results of its operations, the changes in its net assets, and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at April 30, 1996 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts June 11, 1996
Portfolio of investments owned April 30, 1996 Key to Abbreviations AMBAC -- American Municipal Bond Assurance Corp. FGIC -- Financial Guaranty Insurance Co. FHA -- Federal Housing Authority FSA -- Financial Security Assurance G.O. Bonds -- General Obligation Bonds IFB -- Inverse Floating Bonds MBIA -- Municipal Bond Investor's Assurance Corp. VRDN -- Variable Rate Demand Notes Municipal Bonds and Notes (95.2%) * PRINCIPAL AMOUNT RATING VALUE New York (88.9%) - ----------------------------------------------------------------------------------------------------- $945,000 Ithaca, Hsg. Corp. Mtge. Rev. Bonds (Eddygate Park Apts. Project), 9s, 6/1/06 BBB $985,454 2,000,000 New York City G.O. IFB, AMBAC, 8.22s, 9/1/11 AAA 2,105,000 500,000 NY City Cultural Res. VRDN (American Museum of Natural History), Ser. B, MBIA, 2.1s, 4/1/21 VMIG1 500,000 1,385,000 NY City G.O. Bonds, Ser. A, 8s, 8/15/19 BBB 1,616,988 100,000 NY City Hlth. & Hosp. Rev. IFB, AMBAC, 5.635s, 2/15/23 AAA 94,750 1,400,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds (American Airlines, Inc. Project), 8s, 7/1/20 BB 1,498,000 2,000,000 NY City, Muni. Wtr. Fin. Auth. Rev. Bonds, Ser. A, 6s, 6/15/09 A 2,087,500 1,900,000 NY City, Muni. Wtr. Fin. Auth. VRDN, Ser. G, FGIC, 0.95s, 6/15/24 VMIG1 1,900,000 1,500,000 NY St. Dorm. Auth. Rev. Bonds (City Univ.), Ser. C, 8 1/8s, 7/1/08 BBB 1,636,875 1,300,000 NY State Dorm. Auth. IFB (Cornell U.), 10.597s, 7/1/30 (acquired 1/6/93, cost $1,533,675) ++ AA 1,527,500 1,800,000 NY State Dorm. Auth.Rev. Bonds (State U. Edl. Facs.), Ser. A, 6 3/4s, 5/15/21 AAA 2,018,250 2,850,000 NY State Dorm. Auth.Rev. Bonds (Mt. Sinai Medical School), Ser. A, MBIA, 5s, 7/1/21 AAA 2,536,500 1,000,000 NY State Energy Research & Dev. Auth. Poll. Control Rev. Bonds (Niagara Mohawk Pwr. Corp.), Ser. A, FGIC, 7.2s, 7/1/29 AAA 1,113,750 1,500,000 NY State Energy Research & Dev. Auth. Poll. Control VRDN (NY State Elec. & Gas Co.), Ser. C, 3.4s, 6/1/29 VMIG1 1,500,000 1,600,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds (State Wtr. Revolving Fund), Ser. A, 7 1/2s, 6/15/12 A 1,760,000 1,650,000 NY State Local Govt. Assistance Corp. Rev. Bonds, Ser. C, 5s, 4/1/21 A 1,416,938 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds 1,310,000 (Mental Hlth. Svcs. Fac.), Ser. D, 7.4s, 2/15/18 BBB 1,444,275 $1,800,000 (Hosp. & Nursing Home Insd. Mtge.), Ser. C, 6.65s, 8/15/32 AA $1,851,750 1,800,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds (Hosp. & Nursing Home Insd. Mtge.), Ser. D, FHA, 6.6s, 2/15/31 AAA 1,847,250 1,800,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds (Hosp. & Nursing Home Insd. Mtge.), Ser. C, FHA, 6 3/8s, 8/15/29 AAA 1,818,000 1,800,000 NY State Mtge. Agcy. Rev. Bonds (Homeownership Dev. Program), Ser. BB-2, 7.95s, 10/1/15 Aa 1,867,500 2,075,000 NY State Urban Dev. Corp. Rev. Bonds (State Fac.), 7 1/2s, 4/1/20 AAA 2,370,688 2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds (Bristol-Meyers Squibb Co. Project), 5 3/4s, 3/1/24 AAA 1,990,000 1,500,000 Port Auth. NY & NJ Cons. Rev. Bonds, Ser. 93, 6 1/8s, 6/1/94 AA 1,531,875 1,400,000 Port Auth. NY & NJ Cons. Rev. IFB, 9.383s, 8/1/26 (acquired 7/19/93, cost $1,687,700)++ AA 1,559,250 3,000,000 Triborough Brdg. & Tunl. Auth. General Purpose Rev. Bonds, Ser. A, 5s, 1/1/24 Aa 2,598,750 ----------- 43,176,843 Puerto Rico (6.3%) - ----------------------------------------------------------------------------------------------------- 1,500,000 Puerto Rico Elec. Pwr. Auth. Pwr. IFB, FSA, 8.348s, 7/1/23 AAA 1,511,250 1,365,000 Puerto Rico, Pub. Bldg. Auth. Gtd. Ed. & Hlth. Fac. Rev. Bonds, Ser. L, 6 7/8s, 7/1/21 AAA 1,540,744 ---------- 3,051,994 - ----------------------------------------------------------------------------------------------------- Total Investments (cost $46,227,439)*** $46,228,837 - ----------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $48,582,669. ** The Moody's or Standard & Poor's rating are believed to be the most recent ratings available at April 30, 1996 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While the agencies may from time to time revise such rating, they undertake no obligation to do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities at April 30., 1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated. These ratings are not covered by the Report of Independent Accountants. *** The aggregate identified cost for federal income tax purposes is $46,227,739, resulting in gross unrealized appreciation and depreciation of $837,333 and $836,235, respectively, or net unrealized appreciation of $1,098. ++ Restricted excluding 144A, as to public resale. The total market value of the restricted securities held at April 30, 1996 was $3,086,750 or 6.4% of net assets. The rates shown on IFBs which are securities paying variable interest rates that vary inversely to changes in the market interest rates and VRDNs are the current interest rates at April 30, 1996, which are subject to change based on the terms of the security. The Fund had the following industry group concentrations greater than 10% on April 30, 1996 (as a percentage of net assets): Utilities 20.30% Transportation 14.80% Education 15.9 Healthcare 14.5 The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities 30-Apr-96 Assets - ----------------------------------------------------------------------------------- Investments in securities, at value (identified cost $ 46,227,439) (Note 1) $46,228,837 - ----------------------------------------------------------------------------------- Cash 304,180 - ----------------------------------------------------------------------------------- Interest receivable 806,253 - ----------------------------------------------------------------------------------- Receivable for securities sold 1,616,394 - ----------------------------------------------------------------------------------- Unamortized organization expenses (Note 1) 3,644 - ----------------------------------------------------------------------------------- Total assets 48,959,308 Liabilities - ----------------------------------------------------------------------------------- Distributions payable to shareholders 192,165 - ----------------------------------------------------------------------------------- Payable for compensation of Manager (Note 3) 80,979 - ----------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 3) 85 - ----------------------------------------------------------------------------------- Payable for administrative services (Note 3) 419 - ----------------------------------------------------------------------------------- Other accrued expenses 102,991 - ----------------------------------------------------------------------------------- Total liabilities 376,639 - ----------------------------------------------------------------------------------- Net assets $48,582,669 Represented by - ----------------------------------------------------------------------------------- Remarketed preferred shares (200 shares issued and outstanding at $50,000 per share liquidation preference) (Note 2) $10,000,000 - ----------------------------------------------------------------------------------- Paid in capital-common shares (Note 1) 39,508,828 - ----------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 43,655 - ----------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (971,212) - ----------------------------------------------------------------------------------- Net unrealized appreciation of investments 1,398 - ----------------------------------------------------------------------------------- Net assets $48,582,669 Net assets available to: - ----------------------------------------------------------------------------------- Remarketed preferred shares at liquidation preference $10,000,000 - ----------------------------------------------------------------------------------- Cumulative undeclared dividends on remarketed preferred shares 19,521 - ----------------------------------------------------------------------------------- Net assets allocated to remarketed preferred shares $10,019,521 - ----------------------------------------------------------------------------------- Net assets available to common shares $38,563,148 - ----------------------------------------------------------------------------------- Net asset value per common share ($38,563,148 divided by 2,847,092) $13.54 - ----------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended April 30, 1996 Tax exempt interest income $3,279,153 - ----------------------------------------------------------------------------------- Expenses: - ----------------------------------------------------------------------------------- Compensation of Manager (Note 3) 346,077 - ----------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 3) 52,274 - ----------------------------------------------------------------------------------- Compensation of Trustees (Note 3) 7,537 - ----------------------------------------------------------------------------------- Reports to shareholders 22,387 - ----------------------------------------------------------------------------------- Auditing 46,112 - ----------------------------------------------------------------------------------- Legal 5,879 - ----------------------------------------------------------------------------------- Postage 9,751 - ----------------------------------------------------------------------------------- Exchange listing fees 2,090 - ----------------------------------------------------------------------------------- Preferred share remarketing agent fees 25,000 - ----------------------------------------------------------------------------------- Administrative services (Note 3) 4,270 - ----------------------------------------------------------------------------------- Amortization of organization expenses (Note 1) 2,292 - ----------------------------------------------------------------------------------- Other expenses 3,353 - ----------------------------------------------------------------------------------- Total expenses 527,022 - ----------------------------------------------------------------------------------- Expense reduction (Note 3) (57,437) - ----------------------------------------------------------------------------------- Net expenses 469,585 - ----------------------------------------------------------------------------------- Net investment income 2,809,568 - ----------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 4) (670,420) - ----------------------------------------------------------------------------------- Net unrealized appreciation on investments during the year 875,627 - ----------------------------------------------------------------------------------- Net gain on investments 205,207 - ----------------------------------------------------------------------------------- Net increase in net assets resulting from operations $3,014,775 - ----------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended April 30 ----------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment income $2,809,568 $3,008,728 - ------------------------------------------------------------------------------------------------------- Net realized loss on investments (670,420) (300,792) - ------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment transactions 875,627 (455,878) - ------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,014,775 2,252,058 - ------------------------------------------------------------------------------------------------------- Distributions to remarketed preferred shareholders: - ------------------------------------------------------------------------------------------------------- From net investment income (370,010) (354,950) - ------------------------------------------------------------------------------------------------------- From net realized gain on investments -- (31,431) - ------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations applicable to common shareholders (excluding cumulative undeclared dividends on remarketed preferred shares of $19,521 and $20,465, respectively) 2,644,765 1,865,677 - ------------------------------------------------------------------------------------------------------- Distributions to common shareholders: - ------------------------------------------------------------------------------------------------------- From net investment income (2,505,203) (2,679,970) - ------------------------------------------------------------------------------------------------------- From net realized gains -- (222,304) - ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 139,562 (1,036,597) - ------------------------------------------------------------------------------------------------------- Net Assets - ------------------------------------------------------------------------------------------------------- Beginning of year 48,443,107 49,479,704 - ------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $43,655 and $109,410, respectively) $48,582,669 $48,443,107 - ------------------------------------------------------------------------------------------------------- Common shares outstanding at beginning and end of year 2,847,092 2,847,092 - ------------------------------------------------------------------------------------------------------- Remarketed preferred shares outstanding at beginning and end of year 200 200 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) For the period November 27, 1996 (commencement of operations) to Year ended April 30 April 30 - --------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period (common shares) $13.50 $13.86 $14.57 $13.99* - --------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------- Net investment income .98 1.06 1.05 .40(a) - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .07 (.26) (.53) .64 - --------------------------------------------------------------------------------------------------- Total from investment operations 1.05 .80 .52 1.04 - --------------------------------------------------------------------------------------------------- Less distributions from: - --------------------------------------------------------------------------------------------------- Net investment income: - --------------------------------------------------------------------------------------------------- To preferred shareholders (.13) (.13) (.13) (.03)** - --------------------------------------------------------------------------------------------------- To common shareholders (.88) (.94) (.93) (.31) - --------------------------------------------------------------------------------------------------- Net realized gain on investments: - --------------------------------------------------------------------------------------------------- To preferred shareholders -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------- To common shareholders -- (.08) (.15) -- - --------------------------------------------------------------------------------------------------- Total distributions (1.01) (1.16) (1.23) (.34) - --------------------------------------------------------------------------------------------------- Preferred share offering costs -- -- (.12) - --------------------------------------------------------------------------------------------------- Net asset value, end of period (common shares) $13.54 $13.50 $13.86 $14.57 - --------------------------------------------------------------------------------------------------- Market value, end of period (common shares) $13.00 $13.63 $13.50 $15.00 - --------------------------------------------------------------------------------------------------- Total investment return at market value (common shares) (%) (c) 1.78 9.09 (3.25) 2.09(d) - --------------------------------------------------------------------------------------------------- Net assets, end of period (total fund) (in thousands) $48,583 $48,443 $49,480 $51,491 - --------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) (b)(e) 1.34 1.35 1.23 .35(a)(d) - --------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) (b) 6.19 6.87 6.23 2.60(a)(d) - --------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 84.87 8.55 15.18 32.27(d) - --------------------------------------------------------------------------------------------------- * Represents initial net asset value of $14.10 less offering expenses of approximately $0.11. ** Preferred shares were issued on February 18, 1993. (a) Reflects a waiver of the management fee for the period November 27, 1992 to February 19, 1993. As a result of such waiver, expenses of the fund for the period ended April 30, 1993 reflect a reduction of approximately $0.02 per share. (b) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for distributions to preferred shareholders. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (d) Not annualized. (e) The ratio of expenses to average net assets for the period ended April 30, 1996 includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 3) The accompanying notes are an integral part of these financial statements.
Notes to financial statements April 30, 1996 Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The fund's investment objective is to seek high current income exempt from federal income tax and New York State and City personal income tax. The fund intends to achieve its objective by investing in investment grade municipal securities constituting a portfolio that Putnam Investment Management, Inc., ("Putnam Management") the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes to be consistent with preservation of capital. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of the financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. The fair value of restricted securities is determined by Putnam Management following procedures approved by the Trustees, and such valuations and procedures are reviewed periodically by the Trustees. B) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. C) Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held and for excise tax on income and capital gains. At April 30, 1996, the fund had a capital loss carryover of approximately $839,000 available to offset future net capital gain, if any. The amount of the carryover and expiration dates are: Loss Carryover Expiration - ------------------------------------ $ 21,000 April 30, 2003 818,000 April 30, 2004 D) Distributions to shareholders Distributions to common and preferred shareholders are recorded by the fund on the ex-dividend date. Dividends on remarketed preferred shares become payable when, as and if declared by the Trustees. Each dividend period for the remarketed preferred shares is generally a 28 day period. The applicable dividend rate for the remarketed preferred shares on April 30, 1996 was 3.75%. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include treatment of post October 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 April 30, 1996, the fund reclassified $110 to decrease undistributed net investment income and $146 to increase paid-in-capital, with a increase to accumulated net realized losses on investments of $36. The calculation of net investment income per share in the financial highlights table excludes these adjustments. E) Determination of net asset value Net asset value of the common shares is determined by dividing the value of all assets of the fund (including accrued interest), less all liabilities (including accrued expenses and undeclared dividends on remarketed preferred shares) and the liquidation value of any outstanding remarketed preferred shares, by the total number of common shares outstanding. F) Amortization of bond premium and discount Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discounts on original issue bonds are accreted according to the effective yield method. G) Unamortized organization expenses Expenses incurred by the fund in connection with its organization, its registration with the Securities and Exchange Commission and with various states and the initial public offering of its shares were $11,494. These expenses are being amortized on a straight-line basis over a five-year period. Note 2 Remarketed preferred shares The remarketed preferred shares are redeemable at the option of the fund on any dividend payment date at a redemption price of $50,000 per share, plus an amount equal to any dividends accumulated on a daily basis but unpaid through the redemption date (whether or not such dividends have been declared) and, in certain circumstances, a call premium. It is anticipated that dividends paid to holders of remarketed preferred shares will be considered tax-exempt dividends under the Internal Revenue Code of 1986. To the extent that the fund earns taxable income and capital gains by the conclusion of a fiscal year, it will be required to apportion to the holders of the remarketed preferred shares throughout that year additional dividends as necessary to result in an after-tax equivalent to the applicable dividend rate for the period. Under the Investment Company Act of 1940, the fund is required to maintain asset coverage of at least 200% with respect to the remarketed preferred shares as of the last business day of each month in which any such shares are outstanding. Additionally, the fund is required to meet more stringent asset coverage requirements under terms of the remarketed preferred shares and the shares' rating agencies. Should these requirements not be met, or should dividends accrued on the remarketed preferred shares not be paid, the fund may be restricted in its ability to declare dividends to common shareholders or may be required to redeem certain of the remarketed preferred shares. At April 30, 1996, no such restrictions have been placed on the fund. Note 3 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of the average net asset value of the fund, 0.60% of the next $500 million, 0.55% of the next $500 million, and 0.50% of any excess over $1.5 billion of such average net asset value. If dividends payable on remarketed preferred shares during any dividend payment period plus any expenses attributable to remarketed preferred shares for the period exceed the fund's net income attributable to the proceeds of the remarketed preferred shares during that period, then the fee payable to Putnam Management for that period will be reduced by the amount of the excess (but not more than 0.70% of the liquidation preference of the remarketed preferred shares outstanding during the period). The fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Trustees of the fund receive an annual Trustees fee of $510 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in the fund or in other Putnam funds until distribution in accordance with the Plan. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended April 30, 1996, fund expenses were reduced by $57,437 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Note 4 Purchase and sales of securities During the year ended April 30, 1996, purchases and sales of investment securities other than short-term investments aggregated $39,130,898 and $42,134,190, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis.
Selected quarterly data (Unaudited) - ------------------------------------------------------------------------------------------------------------------ Net realized Net increase Net and unrealized (decrease) in Investment investment gain (loss) on net assets income income* investments* from operations* - ------------------------------------------------------------------------------------------------------------------ Per Per Per Per Quarter Common Common Common Common Ended Total Share Total Share Total Share Total Share - ------------------------------------------------------------------------------------------------------------------ 7/31/94 $891,663 $.31 $662,851 $.23 $(44,806) $(.02) $618,045 $.21 10/31/94 $882,892 $.31 $638,855 $.23 $(1,859,549) $(.64) $(1,220,694) $(.41) 1/31/95 $876,850 $.31 $687,134 $.24 $445,389 $.16 $1,132,523 $.40 4/30/95 $874,620 $.31 $644,473 $.23 $702,296 $.23 $1,346,769 $.46 7/31/95 $844,956 $.30 $634,552 $.22 $396,964 $.14 $1,031,516 $.36 10/31/95 $815,354 $.28 $600,033 $.21 $913,832 $.32 $1,513,865 $.53 1/31/96 $828,745 $.29 $613,742 $.22 $800,609 $.28 $1,414,351 $.50 4/30/96 $790,098 $.20 $592,175 $.20 $(1,906,198) $(.67) $(1,314,023) $(.47) - ------------------------------------------------------------------------------------------------------------------ * Available to common shareholders - ------------------------------------------------------------------------------------------------------------------
Federal tax information The fund has designated 100% of dividends paid from net investment income during the fiscal year as tax exempt for Federal income tax purposes. The Form 1099 you receive in January 1997 will show the tax status of all distributions paid to your account in calendar 1996. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS Price Waterhouse LLP TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Gary N. Coburn Vice President James E. Erickson Vice President Blake E. Anderson Vice President David J. Eurkus Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up- to-date information about the fund's net asset value. Putnam Investments The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - ---------------- Bulk Rate U.S. Postage PAID Putnam Investments - ---------------- 25127-185 6/96 -----END PRIVACY-ENHANCED MESSAGE-----