<PAGE> 1
PUTNAM
INVESTMENT
GRADE
INTERMEDIATE
MUNICIPAL TRUST
SEMIANNUAL REPORT
October 31, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
-- "When interest rates head up, all bonds decline in value, but
intermediate-term bonds lose less than long-term bonds because their
shorter life spans confer less risk."
-- KIPLINGER'S PERSONAL FINANCE MAGAZINE, September 1994, "Best
of the Muni Funds."
-- Performance should always be considered in light of a fund's investment
strategy. Putnam Investment Grade Intermediate Municipal Trust is
designed for investors seeking high current income exempt from federal
income tax consistent with preservation of capital.
<TABLE>
<CAPTION>
SEMIANNUAL RESULTS AT A GLANCE
------------------------------------------------------------------------
TOTAL RETURN: NAV MARKET PRICE
------------------------------------------------------------------------
<S> <C> <C>
(change in value during period
plus reinvested distributions)
6 months ended 10/31/94 -0.44% -3.36%
SHARE VALUE NAV MARKET PRICE
------------------------------------------------------------------------
4/30/94 $13.64 $12.375
10/31/94 13.20 11.625
CAPITAL GAINS1
LONG-
DISTRIBUTIONS: NO. INCOME TERM TOTAL
------------------------------------------------------------------------
6 $0.345 -- $0.345
CURRENT RETURN: NAV MARKET PRICE
------------------------------------------------------------------------
End of period
Current dividend rate(2) 5.23% 5.94%
Taxable equivalent(3) 8.66 9.83
<FN>
Performance data represent past results. For performance over longer
periods, see page 8. 1Capital gains, if any, are taxable for federal
and, in most cases, state tax purposes. For some investors,
investment income may also be subject to the federal Alternative Minimum
Tax. Investment income may be subject to state and local taxes. 2Income
portion of most recent distribution, annualized and divided by NAV or
market price at end of period. 3Assumes maximum 39.6% federal tax rate.
Results for investors subject to lower tax rates would not be as
advantageous.
</TABLE>
2
<PAGE> 3
[PHOTO]
(c) Karsh, Ottawa
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
WHEN MARKETS TURN DOWN, INVESTORS WITH VISION LOOK BEYOND THE UNFOLDING
NEGATIVES FOR OPPORTUNITIES FARTHER DOWN THE ROAD. THROUGHOUT THE FIRST
HALF OF PUTNAM INVESTMENT GRADE INTERMEDIATE MUNICIPAL TRUST'S FISCAL
YEAR, THERE WAS PLENTY TO OBSTRUCT THE VIEW.
THE SIX MONTHS ENDED OCTOBER 31, 1994, BEGAN IN THE MIDST OF A BOND
MARKET DECLINE TOUCHED OFF BY THE FEDERAL RESERVE BOARD'S INCREASE IN
SHORT-TERM INTEREST RATES. HAD FUND MANAGER TOM GOGGINS NOT TAKEN
DEFENSIVE ACTION SOME MONTHS EARLIER, THE TOLL ON PERFORMANCE WOULD
LIKELY HAVE BEEN GREATER. EVEN SO, THE FUND JOINED MOST OTHER
FIXED-INCOME INVESTMENTS IN THE DECLINE.
BUT TOM SEES EMERGING STRENGTHS FOR TAX-EXEMPT SECURITIES. SUPPLIES MAY
BECOME TIGHTER AS FEWER ISSUES COME TO MARKET AND MORE INVESTORS SEEK
TAX RELIEF. MANY SECTORS OF THE TAX-EXEMPT MARKET, INCLUDING HEALTH
CARE, EDUCATION, AND RESOURCE RECOVERY, ARE POISED FOR GROWTH. WE
BELIEVE BOTH SIGNS BODE WELL FOR MUNICIPAL BOND INVESTORS.
TOM WILL FOCUS ON THESE POSITIVE FACTORS AS HE SEEKS OUT THE MOST
PROMISING OPPORTUNITIES FOR YOUR FUND. HIS REPORT FOLLOWS ON
PERFORMANCE FOR THE FIRST HALF OF FISCAL '95 AND WHAT HE SEES IN STORE
FOR THE REMAINDER OF THE PERIOD.
RESPECTFULLY YOURS,
/S/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
DECEMBER 14, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
THOMAS C. GOGGINS
During the first half of Putnam Investment Grade Intermediate Municipal
Trust's fiscal year, the Federal Reserve Board continued its policy of
raising short-term interest rates in order to keep inflation at bay. As
interest rates rose, municipal bond prices declined. Although
intermediate-term bond prices fell less than bonds with longer
maturities, your fund still experienced a challenging semiannual period.
This is reflected in its total return: -0.44% at net asset value for the
six months ended October 31, 1994.
While these results are disappointing, the advantages of our
intermediate- bond emphasis show up clearly in comparisonwith
longer-term portfolios. For the year ended October 31, the three
closed-end intermediate-term municipal bond funds tracked by Lipper
Analytical Services had average returns of -5.46%, while the 58
general closed-end municipal bond funds tracked average returns of
-8.08%.
Your fund continues to provide attractive current tax-free dividends of
5.23% at net asset value. Investors in the highest federal income tax
bracket of 39.6% would have had to earn 8.66% on a fully taxable
investment to match this result. Those in lower brackets would also
have benefited though not to the same extent.
-- RISING RATES CALL FOR A DEFENSIVE STRATEGY
In an effort to protect the fund from market volatility, we continued
the defensive strategy we adopted at the beginning of the fiscal
year. During the period, we made several specific changes in the fund's
holdings.
We added more noncallable bonds to the portfolio. Because noncallable
bonds cannot be called before maturity, we were able to lock in higher
yields and provide the fund with an ongoing stream of investment
income.
4
<PAGE> 5
We selected bonds with higher coupon rates. These bonds tend to
experience less price volatility than lower-coupon bonds. They also
tend to be of lower quality. At the end of the period, approximately 45%
of the portfolio was invested in BBB-rated bonds or bonds of comparable
quality. During the period, these higher-yielding bonds outperformed
lower-yielding and insured municipal bonds.
We maintained the fund's duration at seven years. Duration was shortened
throughout the fiscal year. Duration is a mathematical formula that
indicates how much bond prices will move with each percentage point
shift in interest rates. The shorter the duration, the less
volatility in the portfolio. In a rising interest rate environment,
keeping the portfolio's average duration relatively short can be helpful
in protecting asset value.
We maintained an average maturity of eight years. Like duration, a
shorter average maturity reduces the volatility of the portfolio.
We did not issue any preferred shares, so the fund was not leveraged. In
a rising interest rate environment, issuing preferred shares can
increase volatility, because their coupons reset periodically, as
interest rates rise. So, while the fund has the ability to issue
preferred shares, to increase income, we opted not to exercise it at
this time.
-- SUPPLY DECLINED AS RATES ROSE
As interest rates rose this year, the supply of municipal bonds
decreased dramatically. This was a change from last year when supply was
plentiful, as municipal issuers prerefunded their
<TABLE>
DIVERSIFICATION BY STATE
----------------------------------------------------------------
<S> <C>
California 15.8%
----------------------------------------------------------------
New York 13.8
----------------------------------------------------------------
Massachusetts 11.5
----------------------------------------------------------------
Illinois 10.4
----------------------------------------------------------------
Washington 10.0
----------------------------------------------------------------
Other 38.4
<FN>
Based on percentage of net assets as of 10/31/94.
</TABLE>
5
<PAGE> 6
bonds to take advantage of declining interest rates. (Prerefunding
occurs when a bond issuer floats a second bond that carries a lower
interest rate in order to pay off the first bond.) In a rising
interest rate environment, however, fewer municipal issuers prerefund
their bonds.
In addition, as states and local communities strive to keep their
budgets under control, they are reluctant to take on new debt. While
supply has weakened, demand for municipal issues is relatively
strong. This supply/demand dynamic bodes well for tax-free bond prices,
as potential investors vie for a smaller number of issues.
-- HEALTH CARE SECTOR REMAINS LARGEST WEIGHTING
While we invested in a variety of geographical regions and economic
sectors, health care bonds accounted for 18% of the portfolio. In
selecting investments in the health care sector, we focused on
facilities that have adopted policies that emphasize solutions to the
high cost of health care. For example, all of the facilities in which we
invested have a managed-care component, such as a health maintenance
organization (HMO).
-- CREDIT RESEARCH UPHOLDS QUALITY
Putnam Management's emphasis on tax-free investment research allows us
to evaluate the potential of current holdings while seeking to uncover
future opportunities. Our extensive research capacity helps us to
identify quality municipal securities which may benefit from market
trends. In addition to identifying quality issues, our research can help
the fund avoid potential difficulties. Our analysts are committed
to thoroughly evaluating the area of the economy a particular security
operates in, as well as its long- and short- term debt burden.
6
<PAGE> 7
LINE GRAPH DEPICTING INTERMEDIATE VS. LONG-TERM BOND PRICES (1/1/91 - 10/31/94)
* Based on quarterly price changes for the Lehman Brothers 7-year and
Long-term (20+) Municipal Bond Indexes and the Lehman Brothers Long-term
Treasury Bond Index over the 3-1\2 years ended October 31, 1994, and
annualized total returns over the same period. This illustration is not
intended to reflect actual fund performance, which will vary.
-- LOOKING AHEAD
Our outlook for the remainder of fiscal '95 calls for continued economic
growth, controlled inflation, and higher interest rates. While higher
rates may trigger additional volatility in the bond market, we believe
they will also translate into more income for investors. Despite a more
volatile investment environment, we believe that investment-grade
intermediate municipal bonds will continue to provide attractive income
opportunities for investors who can accept short-term price
fluctuations.
7
<PAGE> 8
PERFORMANCE SUMMARY
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 back into the fund. We show
total return in two ways: on a cumulative long-term basis and on average
how the fund might have grown each year over varying periods. For
comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 10/31/94
<CAPTION>
LEHMAN BROS.
MUNICIPAL
NAV MARKET PRICE BOND INDEX CPI
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months -0.44% - 3.36% -0.85% 1.43%
---------------------------------------------------------------------
1 year -4.51 -12.05 -4.36 2.61
---------------------------------------------------------------------
Life of fund
(since 5/28/93) 0.79 -16.92 0.72 3.68
Annual average 0.56 -12.24 0.51 2.57
---------------------------------------------------------------------
</TABLE>
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
most current calendar quarter
<CAPTION>
LEHMAN BROS.
MUNICIPAL
NAV MARKET PRICE BOND INDEX CPI
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months 1.70% - 8.04% 1.80% 1.50%
---------------------------------------------------------------------
1 year -2.89 -12.13 -2.44 2.96
---------------------------------------------------------------------
Life of fund
(since 5/28/93) 2.50 -17.32 2.54 3.61
Annual average 1.86 -13.24 1.89 2.68
---------------------------------------------------------------------
<FN>
Performance data represent past results. Investment returns and
principal value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost. Fund performance
data do not take into account any adjustment for taxes payable on
reinvested distributions.
</TABLE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
MARKET PRICE is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
American Stock Exchange.
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.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
8
<PAGE> 9
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1994 (Unaudited)
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.9%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
ALASKA (4.4%)
------------------------------------------------------------------------------------------
Alaska St Housing Finance Corp. Rev. Bonds, Ser. A,
$2,000,000 6.1s, 12/1/06 Aa $1,910,000
ARIZONA (6.3%)
------------------------------------------------------------------------------------------
Maricopa Cnty. Certif. of Participation,
2,800,000 55\8s, 6/1/00 Baa 2,716,000
CALIFORNIA (15.8%)
------------------------------------------------------------------------------------------
CA Statewide Cmnty. Dev. Auth. Certif.
of Participation
1,600,000 (St. Joseph Hlth. Sys. Group), 6s, 7/1/06 AA 1,556,000
Duarte, Certif. of Participation
1,000,000 (City of Hope Nat'l. Med. Ctr.), 51\4s, 4/1/99 Baa 955,000
Foothill Tran. Zone, Certif. of Participation
1,550,000 Ser. A, 5.35s, 5/1/03 Baa 1,422,125
Los Angeles Cnty., Certif. of Participation
1,500,000 (Marina Del Rey), Ser. A, 61\4s, 7/1/03 BBB/P 1,464,375
Riverside Cmnty., Asset Leasing Corp.
Leasehold Rev. Bonds
1,500,000 (Riverside Cmnty. Hosp. Project),
Ser. A, 53\4s, 6/1/01 A 1,462,500
----------
6,860,000
COLORADO (5.2%)
------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds,
800,000 Ser. A, 71\2s, 11/15/06 Baa 783,000
1,500,000 Ser. B, 7s, 11/15/01 Baa 1,441,875
----------
2,224,875
CONNECTICUT (3.6%)
------------------------------------------------------------------------------------------
CT St. Dev. Auth Hlth. Care Rev. Bonds
1,600,000 (Alzheimer Res. Ctr.), Class A, 67\8s, 8/15/04 BB/P 1,562,000
HAWAII (2.9%)
------------------------------------------------------------------------------------------
HI State Hbr. Cap. Impt. Rev. Bonds,
1,260,000 FGIC, 5.9s, 7/1/05 AAA 1,226,925
ILLINOIS (10.4%)
------------------------------------------------------------------------------------------
Chicago, School Fin. Auth. Residual
Interest Bonds (RIBS),
Financial Guaranty Insurance Co.
4,000,000 (FGIC) 6.52s, 6/1/05 AAA 3,485,000
IL Hlth. Fac. Auth. Rev. Bonds
1,000,000 (Grant Hosp.), Ser. B, 71\4s, 6/1/99 AAA 1,025,000
----------
4,510,000
------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.9%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
MASSACHUSETTS (11.5%)
-------------------------------------------------------------------------------------------
MA Muni. Wholesale Elec. Co. IVRC Trust, RIBS,
$3,000,000 Ser. 93D, American Municipal Bond
Assurance Corp. (AMBAC), 6.572s, 4/30/03 AAA/P $ 2,433,750
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
1,000,000 (Central New England Hlth. Syst.), Ser. A,
53\4s, 8/1/03 Baa 950,000
1,680,000 (MA Eye & Ear Infirmary), Ser. A, 7s, 7/1/01 Baa 1,614,900
-----------
4,998,650
MICHIGAN (0.7%)
-------------------------------------------------------------------------------------------
Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
300,000 Ser. C, 91\4s, 12/13/08 BBB 316,125
NEW YORK (13.8%)
-------------------------------------------------------------------------------------------
NY City, G.O. Bonds
3,315,000 Ser. D, Group A, 8s, 8/1/03 A 3,642,356
NY State Dorm Auth. Rev. Bonds
1,000,000 (State U. Edl. Fac.), Ser. A, 5.2s, 5/15/02 Baa 936,250
NY State Urban Dev. Corp. Rev. Bonds
1,500,000 (Correctional Fac.), 51\4s, 1/1/03 Baa 1,404,375
-----------
5,982,981
OKLAHOMA (4.9%)
-------------------------------------------------------------------------------------------
Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regl.
Med. Ctr.),
1,080,000 Ser. A, 75\8s, 6/1/06 BBB 1,116,450
1,000,000 7s, 6/1/06 BBB 992,500
-----------
2,108,950
PENNSYLVANIA (8.2%)
-------------------------------------------------------------------------------------------
McKeesport, Hosp. Auth. Rev. Bonds
1,500,000 (McKeesport Hosp. Project), 61\4s, 7/1/03 Baa 1,421,250
Philadelphia Indl. Dev. Rev. Bonds
2,300,000 (Ashland Oil Inc. Project), 5.7s, 6/1/05 Baa 2,141,875
-----------
3,563,125
TEXAS (2.2%)
-------------------------------------------------------------------------------------------
Brazos Higher Ed. Auth., Inc. Student Loan
Rev. Bonds,
1,000,000 Ser. C-2, 57\8s, 6/1/04 A 946,250
WASHINGTON (10.0%)
-------------------------------------------------------------------------------------------
WA State Pub. Pwr. Supply Syst. Rev. Bonds
2,000,000 (Nuclear Project No. 1), Ser. A, 51\2s, 7/1/04 AA 1,872,500
WA State, RIBS,
3,000,000 7.545s, 5/1/08 AA 2,478,750
-----------
4,351,250
TOTAL INVESTMENTS -----------
(cost $45,447,990)(c) $43,277,131
-----------
</TABLE>
10
<PAGE> 11
NOTES
-----------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $43,324,336, which
correspond to a net asset value per share of $13.20.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at October 31, 1994 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these securities
at October 31, 1994. Securities rated by Putnam are indicated by "/P" and
are not publicly rated.
(c) The aggregate identified cost on a tax basis is $45,449,377 resulting in
gross unrealized appreciation and depreciation of $32,427 and $2,204,673,
respectively, or net unrealized depreciation of $2,172,246.
The rates shown on Residual Interest Bonds (RIBS), which are securities
paying variable interest rates that vary inversely to changes in market
interest rates, are the current interest rates at October 31, 1994, which
are subject to change based on the terms of the security.
<TABLE>
The Fund had the following industry group concentrations greater than 10%
on October 31, 1994 (as a percentage of net assets):
Hospital/Health Care 22.4%
Transportation 11.3
MUNICIPAL BOND FUTURES OUTSTANDING
AT OCTOBER 31, 1994
<CAPTION>
TOTAL AGGREGATE EXPIRATION UNREALIZED
VALUE FACE VALUE DATE DEPRECIATION
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond
Futures (Sell) $1,966,875 $1,950,625 Dec./94 $16,250
------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994 (Unaudited)
ASSETS
-------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $45,447,990) (Note 1) $43,277,131
-------------------------------------------------------------------------------------------
Interest receivable 1,046,862
-------------------------------------------------------------------------------------------
Receivable for securities sold 3,598,481
-------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 20,284
-------------------------------------------------------------------------------------------
TOTAL ASSETS 47,942,758
LIABILITIES
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) $ 238,191
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 188,373
-------------------------------------------------------------------------------------------
Payable for securities purchased 3,690,788
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 85,182
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 563
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 6,227
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,931
-------------------------------------------------------------------------------------------
Payable for offering and organization costs 375,923
-------------------------------------------------------------------------------------------
Payable for exchange listing fee 2,500
-------------------------------------------------------------------------------------------
Other accrued expenses 28,744
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,618,422
-------------------------------------------------------------------------------------------
NET ASSETS $43,324,336
-------------------------------------------------------------------------------------------
REPRESENTED BY
-------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $46,052,954
Undistributed net investment income (Note 4) 478,741
Accumulated net realized loss on investments (Note 4) (1,020,250)
Net unrealized depreciation of investments and futures contracts (2,187,109)
-------------------------------------------------------------------------------------------
NET ASSETS $43,324,336
-------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
-------------------------------------------------------------------------------------------
Net asset value per share ($43,324,336 divided by 3,282,073 shares) $ 13.20
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
<TABLE>
STATEMENT OF OPERATIONS
For the six months ended October 31, 1994 (Unaudited)
-------------------------------------------------------------------
<S> <C>
TAX EXEMPT INTEREST INCOME $ 1,409,278
EXPENSES:
-------------------------------------------------------------------
Compensation of manager (Note 2) $ 163,159
-------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 23,434
-------------------------------------------------------------------
Compensation of trustees (Note 2) 3,515
-------------------------------------------------------------------
Reports to shareholders 8,108
-------------------------------------------------------------------
Auditing 15,995
-------------------------------------------------------------------
Legal 7,237
-------------------------------------------------------------------
Postage 2,895
-------------------------------------------------------------------
Administrative services (Note 2) 2,940
-------------------------------------------------------------------
Exchange listing fees 2,500
-------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,924
-------------------------------------------------------------------
Other 7,344
-------------------------------------------------------------------
TOTAL EXPENSES 240,051
-------------------------------------------------------------------
NET INVESTMENT INCOME 1,169,227
-------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (851,902)
-------------------------------------------------------------------
Net realized gain on futures contracts 129,626
-------------------------------------------------------------------
Net unrealized depreciation of investments and futures
contracts during the period (747,786)
-------------------------------------------------------------------
NET LOSS ON INVESTMENTS (1,470,062)
-------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (300,835)
-------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE PERIOD
MAY 28, 1993
FOR THE SIX (COMMENCEMENT
MONTHS ENDED OF OPERATIONS)
OCTOBER 31 TO APRIL 30
-----------------------------
1994+ 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
------------------------------------------------------------------------------------
Operations:
------------------------------------------------------------------------------------
Net investment income $ 1,169,227 $ 2,139,961
------------------------------------------------------------------------------------
Net realized loss on investments (851,902) (140,557)
------------------------------------------------------------------------------------
Net realized gain on futures contracts 129,626 --
------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts (747,786) (1,439,323)
------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS (300,835) 560,081
------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (1,132,339) (1,698,429)
Net realized gain on investments -- (157,539)
------------------------------------------------------------------------------------
Increase from capital share transactions (Note 3) -- 45,953,397
------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,433,174) 44,657,510
NET ASSETS
------------------------------------------------------------------------------------
Beginning of period 44,757,510 100,000
------------------------------------------------------------------------------------
End of period (including undistributed
net investmentincome of $478,741
and $441,853, respectively) $43,324,336 $44,757,510
------------------------------------------------------------------------------------
<FN>
+ Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
FOR THE PERIOD
FOR THE MAY 28, 1993
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
OCTOBER 31 TO APRIL 30
------------------------------------------------------------------------------------
1994+ 1994
<S> <C> <C>
------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.64 $ 14.04*
------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
------------------------------------------------------------------------------------
Net investment income .36 .65(a)
------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (.45) (.48)
------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.09) .17
------------------------------------------------------------------------------------
Distributions to shareholders from:
------------------------------------------------------------------------------------
Net investment income (.35) (.52)
------------------------------------------------------------------------------------
Net realized gain (loss) on investments -- (.05)
------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.35) (.57)
------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.20 $ 13.64
------------------------------------------------------------------------------------
Market value, end of period $ 11.63 $ 12.38
------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%) (B) (3.36)(c) (14.03)(c)
------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $43,324 $44,758
------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .54(c) .95(a)(c)
------------------------------------------------------------------------------------
Ratio of net investment income to average net assets(%) 2.62(c) 4.54(a)(c)
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52.29(c) 43.07(c)
------------------------------------------------------------------------------------
<FN>
* Represents initial net asset value of $14.14 less offering expenses
of approximately $0.10.
+ Unaudited
(a) Reflects a waiver of the management fee for the period May 28, 1993
to June 13, 1993.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Not annualized.
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
October 31, 1994 (Unaudited)
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 provide as high a level of current income exempt
from federal income tax as is believed to be consistent with preservation of
capital. The fund intends to achieve its objective by investing in a
portfolio of investment grade municipal securities that the fund's Manager
believes does not involve undue risk to income or principal.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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 the Manager following procedures
approved by the Trustees, and such valuations and procedures are reviewed
periodically by 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 of securities held and excise tax on
income and capital gains.
D DISTRIBUTIONS TO SHAREHOLDERS Income dividends are declared and distributed
monthly by the fund. Capital gains distributions, if any, are recorded on the
ex-dividend date and paid
annually.
E 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. Discount on zero-coupon bonds, original issue
discount bonds and stepped-coupon bonds is accreted according to the
effective yield method.
F UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in
connection with its organization aggregated $29,008. These expenses are
being amortized on a straight-line basis over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc. ("Putnam Management"), the
fund's Manager, a
16
<PAGE> 17
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the
average net assets of the fund. Such fee is based on the annual rate of 0.50%
of the first $500 million of the average net asset value of the fund, 0.43%
of the next $500 million, 0.39% of the next $500 million, and 0.35% of any
excess over 1.5 billion of such average net asset value. The fund pays Putnam
a quarterly administrative service fee at the annual rate of 0.20% of the
first $500 million, 0.17% of the next $500 million, 0.16% of the next $500
million and 0.15% of any amount over $1.5 billion.
The fund also reimburses the Manager 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. For the six months
ended October 31, 1994, the fund paid $2,940 for these services.
Trustees of the fund receive an annual Trustee's fee of $510 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested
persons of the Manager and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC. Fees paid for these investor servicing and custodial
functions for the six months ended October 31, 1994 amounted to $23,434.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended October 31, 1994 have been reduced by credits
allowed by PFTC.
As part of the Custodial Contract between the subcustodian bank and PFTC, the
subcustodian has a lien on the securities of the fund to the extent permitted
by the fund's investment restrictions to cover any advances made by the
subcustodian for the settlement of securities purchased by the fund. At
October 31, 1994, the payable to subcustodian represents the amount due for
cash advanced for the settlement of a securities purchased.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the period ended October 31, 1994, purchases and sales of investment
securities other than short-term investments aggregated $34,734,938 and
$30,722,222, respectively. Purchases and sales of short-term municipal
obligations aggregated $12,400,000 and $12,900,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
<TABLE>
Transactions in futures contracts during the year are summarized as follows:
<CAPTION>
SALES OF FUTURES CONTRACTS
--------------------------------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
--------------------------------------------------
<S> <C> <C>
Contracts open
at beginning
of period 40 $ 3,974,531
--------------------------------------------------
Contracts opened 20 1,950,625
--------------------------------------------------
60 5,925,156
--------------------------------------------------
Contracts closed (40) (3,974,531)
--------------------------------------------------
OPEN AT END
OF PERIOD 20 $ 1,950,625
--------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTE 4
RECLASSIFICATION OF CAPITAL ACCOUNTS
The fund has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies"
("SOP"). The SOP requires the fund to report the undistributed net investment
income (accumulated loss) and accumulated net realized gain (loss) accounts
in such a manner as to approximate amounts available for future tax
distributions (or to offset future taxable realized gains).
In implementing the SOP the fund has reclassified $321 to increase
undistributed net investment income and $122 to increase accumulated net
realized gain with a decrease of $443 to paid-in capital. These adjustments
represent the cumulative amounts necessary to report these balances on a tax
basis through October 31, 1994. These reclassifications have no impact on the
total net asset value of the fund.
<TABLE>
SELECTED QUARTERLY DATA
(Unaudited)
<CAPTION>
FOR THE THREE MONTHS ENDED
OCTOBER 31 JULY 31
1994 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 711,309 $ 697,969
Per share $ .22 $ .21
-------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Total $ 584,391 $ 584,836
Per share $ .18 $ .18
-------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Total $(1,829,757) $ 359,695
Per share $ (.55) $ .10
-------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
Total $(1,245,366) $ 944,531
Per share $ (.37) $ .28
-------------------------------------------------------------------------------------------
NET ASSETS END OF PERIOD
Total $43,324,336 $45,135,847
Per share $ 13.20 $ 13.75
-------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 19
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
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
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C.Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Thomas C. Goggins
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
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 NAV or to request Putnam's
quarterly Closed- End Fund Commentary.
19
<PAGE> 20
PUTNAM INVESTMENTS --------------
BULK RATE
THE PUTNAM FUNDS U.S. POSTAGE
One Post Office Square PAID
Boston, Massachusetts 02109 PUTNAM
INVESTMENTS
--------------
583/15441
