(logo)
Putnam
Investment
Grade
Municipal
Trust III
Semiannual Report
April 30, 1994
(artwork)
For investors seeking high current income free from federal
income tax, consistent with preservation of capital
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
6 Report of Independent Accountants
7 Portfolio of investments owned
10 Financial statements
18 Fund performance supplement
19 Your Trustees
<PAGE>
<TABLE>
<CAPTION>
How your
fund performed
Total return* Lehman Lehman
Fund Brothers Brothers
Market Municipal Consumer Long-Term Gov't
(common shares) NAV price Bond Index Price Index Bond Index
<S> <C> <C> <C> <C> <C>
Life-of-fund
(since 11/19/93)** 5.79% 19.99% 2.67% 1.10% 6.95%
Share data (common shares) NAV Market price
November 19, 1993 $14.04 $15.000
April 30, 1994 $12.95 $11.750
Distributions(a)
(common shares) Investment Capital
Period ended Number income gains Total
April 30, 1994 4 $0.2668 -- $0.2668
(preferred shares)
Period ended Number Series Total
April 30, 1994 200 A $347.62
Taxable equivalents+
Current returns (common shares) Market Market
at the end of the period NAV price NAV price
Current dividend rate 6.18% 6.81% 10.23% 11.27%
/TABLE
<PAGE>
* Performance data represent past results. Investment return and
principal value will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost.
** The Fund's date of inception is November 19, 1993.
(a) Capital gains, if any, are taxable for federal and, in most
cases, state purposes. For some investors, investment income may
also be subject to the Alternative Minimum Tax.
+ Assumes the maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as
advantageous, although many such investors would have the
opportunity to receive attractive tax benefits from a fund
investment. Consult your tax advisor for more guidance.
Terms and definitions
Total return is the change in value of an investment from the
beginning to the end of a period, assuming the reinvestment of
all distributions.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, and the liquidation preference and
cumulative undeclared dividends on the remarketed preferred
shares, divided by the number of outstanding shares.
Market price is the current trading price of one share of the
fund. Market prices are set by transactions between buyers and
sellers on the New York Stock Exchange.
Current dividend rate is calculated by annualizing the income
portion of the fund's most recent distribution and dividing by
the NAV or market price on the last day of the period.
Taxable equivalent return is the return that a taxable investment
would have to produce to equal the fund's current return.
Please see the fund performance supplement on page 18 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(c) Karsh, Ottawa
George Putnam
Chairman of the
Trustees
Dear Shareholder:
The period between Putnam Investment Grade Municipal Trust III,
inception in 1993, and the close of the semiannual period on
April 30, 1994, has been a challenging time in the financial
markets -- but one, I believe, ripe with opportunities. Thus,
even though the performance you'll see discussed in this, the
fund's first semiannual report, has been disappointing, there is
reason to be optimistic about the fund's potential.
Interest rates rarely move smoothly and this has certainly been
the case this spring. Early in calendar year 1994, signs of
growing strength in the economy caused much nervousness in the
bond market and renewed fears of inflation. As a result, the
Federal Reserve raised short-term interest rates for the first
time in five years. This sparked a greater-than-expected level of
fluctuation in bond prices and, in turn, a significant increase
in yields. The 30-year Treasury bond yield reached 7.31% by the
end of the period -- a considerable increase from the 25-year
low of 5.79% last October.
While the resulting market turbulence has dampened the
performance of this fledgling fund, it may well contribute to
stronger results in the months ahead. Fund manager Thomas Goggins
has worked to minimize the price depreciation that naturally
results from a rising interest rate environment while capturing
the higher income potential offered by newer municipal bonds
coming to market. He is also taking advantage of today's lower
bond prices to increase the size of existing positions.
In spite of recent market volatility amid speculation about
future interest rate increases, we believe Putnam Investment
Grade Municipal Trust III's methodically structured portfolio
will continue to deliver attractive levels of tax-free income in
the coming months and beyond.
Respectfully yours,
(signature of George Putnam)
George Putnam
June 15, 1994
<PAGE>
Report from Putnam Management
Favorable economic and supply/demand trends were not enough to
offset the dampening effect this spring's sudden interest rate
increases had on bond prices. As a result, Putnam Investment
Grade Municipal Trust III's total return performance since
inception on November 19, 1993, through April 30, 1994 was a
disappointing 5.79% at net asset value. This figure reflects
general market trends, which were, to some extent, exacerbated by
the fund's relative youth and the fact that it was just becoming
fully invested when the most significant declines took place.
It is important to point out, however, that the fund is
fulfilling its primary objective of providing attractive monthly
tax-free income. To bring home the tax advantages of a fund
investment, consider this: to keep pace with the fund's 6.18%
dividend rate at net asset value, shareholders who pay the
maximum 39.6% federal tax rate would have to receive 10.23% from
an equivalent taxable investment. Most investors in lower
brackets would also enjoy tax benefits, though not necessarily to
the same extent.
Inflation fears fuel rising rates Having reached a 25-year bottom
in October 1993, low interest rates dominated the financial
landscape until the last three months of the period. At this
point, rates begin to climb noticeably. Strong economic
indicators for the fourth quarter of 1993 and throughout the
first months of 1994 aggravated fears of rising inflation and led
the Federal Reserve Board to raise short-term interest rates
three times in three months. While there has been much debate
about the timing and degree of these rate increases, the bond
market reacted as any economist would have predicted. Prices on
existing bonds fell as interest rates on Treasury bonds increased
across the entire yield spectrum.
Municipal bonds have not been immune to the price depreciation
that naturally follows interest rate increases. However, the news
is not all bad. Investors, preoccupied with short-term losses and
inflationary fears may well overlook sound buying opportunities.
With the aid of our extensive, in-house research capabilities,
we're able to identify and capture promising securities at
attractive prices. And, of course, there is an obvious benefit of
rising interest rates: the fund's income stream can directly
benefit from the purchase of new bonds coming to market --
bonds which carry a higher coupon than has been available during
recent months.
Given its introduction in November 1993, Putnam Investment Grade
Municipal Trust III's portfolio model was largely constructed
prior to these rate increases, and its initial investments were
made during a period of low yields and relatively high bond
prices. This timing may turn out to have a silver lining. Older
funds, which generally have a larger stake in long-term, higher-
yielding bonds than your fund, face a greater risk of issuers
calling away their highest-coupon holdings. In such an event,
these funds would be forced to replace the higher-yielding bonds
with newer-issue, lower-yielding bonds -- potentially affecting
the portfolio's income stream.
Investing for diversity In the months following your fund's
inception, the portfolio became fully invested, primarily in
investment grade tax-exempt municipal bonds. On April 30, 1994,
your fund's holdings had an average quality rating of AA. The
fund's ability to invest in tax-free securities from across the
nation has contributed to the portfolio's overall diversity and
could help soften the impact of an economic downturn in any
single geographic location.
While cash from the fund's initial offering has been invested in
over 27 different sectors of the municipal market, we believe the
portfolio has a definite health care bent. Approximately 28% of
the fund's assets are invested in hospitals and related medical
facilities. It is our belief that the bonds we have selected will
thrive in an environment of reform and be major contributors to
the fund's income stream and total return.
We continue to add to existing positions at today's less
expensive price levels. Of particular interest are bonds from
high tax states such as Pennsylvania, New York, and
Massachusetts, where the new-issue supply is expected to tighten
later this year and into 1995. The double-tax-exempt nature of
these bonds contributes to a higher-than-average demand by
investors seeking refuge from higher taxes.
A longer view Our fundamental outlook for municipal bonds remains
a positive one. Favorable supply/demand trends have played a
pivotal role in your fund's performance and are expected to
continue to do so. Rising interest rates have had a sobering
effect on the refinancing phenomenon, reducing supply from one of
the largest sources of new issues. In the face of higher taxes
and strengthening demand, shrinking supply could further enhance
the value of the bonds in the portfolio, and thus, the fund's net
asset value.
As always, we remain vigilant for new bonds that can help the
fund meet its objective of high tax-free income and low
volatility of net asset value. In the current market environment,
we believe our hands-on approach will be critical to successfully
uncovering the most rewarding investment opportunities as they
arise.
<PAGE>
Putnam
Investment
Grade
Municipal
Trust III
Semiannual
Report
For the Period ended April 30, 1994
Report of Independent Accountants
To the Trustees and Shareholders of
Putnam Investment Grade Municipal Trust III
We have audited the accompanying statement of assets and
liabilities of Putnam Investment Grade Municipal Trust III,
including the portfolio of investments owned as of April 30,
1994, the related statement of operations, the statement of
changes in net assets and the "Financial Highlights" for the
period November 29, 1993 (commencement of operations) to April
30, 1994. These financial statements and "Financial Highlights"
are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial
statements and "Financial Highlights" based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of April 30, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Investment Grade
Municipal Trust III as of April 30, 1994, the results of its
operations, the changes in its net assets and the "Financial
Highlights" for the period November 29, 1993 (commencement of
operations) to April 30, 1994 in conformity with generally
accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
June 13, 1994
<PAGE>
<TABLE>
<CAPTION>
Portfolio of
investments owned
April 30, 1994
Municipal Bonds and Notes (101.6%)(a)
Principal Amount Ratings(b) Value
<S> <C> <C> <C> <C>
Alaska (6.0%)
$3,500,000 Valdez, Marine Term Rev. Bonds
(Sohio Pipeline), 7 1/8s, 12/1/25 AA $ 3,718,750
California (15.0%)
5,000,000 Beverly Hills, Pub. Fin. Auth. Lease Inverse
Rate Floaters, Ser. A, Municipal Bond Insurance
Assn. (MBIA), 8.27s, 6/1/15 AAA 4,337,500
2,500,000 CA Hlth. Fac. Fin. Auth. Rev. Bonds,
(Kaiser Permanente Med. Project),
Ser. A, 5.55s, 8/15/25 AA 2,175,000
1,700,000 Poway, Certif. of Participation Financial
Security Insurance Corp. (FSA) (Cap. Impt.
Project-Royal Mobilehome Park), 7s, 7/1/20 AAA 1,780,750
1,000,000 San Diego Cnty., Wtr. Auth. Residual Interest
Bonds (RIBS), Financial Guaranty
Insurance Co. (FGIC), 8.498s, 4/23/08 AAA 961,250
9,254,500
Colorado (5.3%)
3,000,000 Denver, City & Cnty. Arpt. Rev. Bonds,
Ser. A, 8 3/4s, 11/15/23 Baa 3,266,250
District of Columbia (5.4%)
3,065,000 District of Columbia Rev. Bonds
(Georgetown U.), Ser. A, 7.4s, 4/1/18 A 3,329,356
Florida (5.3%)
3,000,000 Broward Cnty., Resource Recvy. Rev. Bonds
(South Project), 7.95s, 12/1/08 A 3,285,000
Illinois (5.1%)
$750,000 Chicago, Gas Supply Rev. Bonds
(People Gas & Lt.), Ser. C, 7 1/2s, 3/1/15 AA $818,437
2,000,000 IL Hlth. Fac. Auth. Rev. Bonds
(Glenoaks Med. Ctr.), Ser. D, 9 1/2s, 11/15/15 Baa 2,347,500
3,165,937
Kansas (4.7%)
2,700,000 Burlington, Poll. Control Rev. Bonds
(Gas and Electric Co. Project), MBIA, 7s, 6/1/31 AAA 2,892,375
Louisiana (3.5%)
2,000,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt., Inc.), 8 1/4s, 6/1/14 Baa 2,187,500
Massachusetts (21.1%)
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Baa 3,131,250
4,300,000 (New England Baptist Hosp.), Ser. B, 7.35s, 7/1/17 A 4,606,375
3,400,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. A, 6 3/8s, 4/1/21 A 3,298,000
1,000,000 MA State General Obligation Variable Rate
Demand Notes (VRDN), Ser. B, 3.1s, 12/1/97 VMIG1 1,000,000
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Brookhaven), Ser. A, 7s, 1/1/09 BBB/P 1,001,250
13,036,875
Nevada (2.8%)
$1,700,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Nevada Power Co. Project), Ser. C, 7.2s, 10/1/22 Baa $ 1,742,500
<PAGE>
Ohio (3.4%)
2,000,000 OH State Wtr. Dev. Auth. Poll. Control. Fac.
Rev. Bonds (OH Edison), Ser. A, 7 5/8s, 7/1/23 Baa 2,097,500
Pennsylvania (3.3%)
1,000,000 Delaware Cnty., Indl. Dev. Auth. Arpt. Fac.
VRDN (United Parcel Service Project),
3.1s, 12/1/15 Aaa 1,000,000
1,000,000 Lawrence Cnty., Ind. Dev. Auth. Poll. Control
Rev. Bonds (PA Pwr. Co. New Castle Project),
Ser. A, 7.15s, 3/1/17 Baa 1,043,750
2,043,750
South Carolina (6.4%)
5,000,000 SC State Pub. Svc. Auth. RIBS, 7.79s, 7/1/21
(acquired 11/30/93, cost $4,839,200)(c) A 3,968,750
South Dakota (4.2%)
2,500,000 SD Student Loan Assistance Corp. Student Loan
Rev. Bonds, Ser. B, 7 5/8s, 8/1/06 A 2,609,375
Texas (6.7%)
$2,000,000 Bexar Cnty., Hlth. Facs. Dev. Corp. Hosp.
Rev. Bonds (St. Luke's Lutheran Hosp. Project),
7.9s, 5/1/18 Baa $2,087,500
2,000,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa 2,090,000
4,177,500
Washington (3.4%)
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Highline Cmnty. Hosp.), Connie Lee
750,000 5 1/2s, 8/15/08 AAA 700,658
1,515,000 5.4s, 8/15/07 AAA 1,419,267
2,119,925
Total Investments (cost $66,649,196)(d) $62,895,843
/TABLE
<PAGE>
Notes
(a) Percentages indicated are based on total net assets of
$61,894,325. Net assets available to common shareholders are
$51,894,325, which correspond to a net asset value per common
share of $12.95.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at April 30,
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 April 30, 1994.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated. Ratings are not covered by the Report of
Independent Accountants.
(c) Restricted as to public resale. At the date of acquisition,
this security was valued at cost. There were no outstanding
unrestricted securities of the same class as that held. Total
market value of restricted security owned at April 30, 1994 was
$3,968,750 or 6.4% of net assets.
(d) The aggregate identified cost on a tax basis is $66,649,196,
resulting in gross unrealized appreciation and depreciation of
$1,250 and $3,754,603, respectively, or net unrealized
depreciation of $3,753,353.
The rates shown on Variable Rate Demand Notes (VRDN) and Residual
Interest Bonds (RIBS) are the current interest rates at April 30,
1994, 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, 1994 (as a percentage of net assets):
Hospital/Health Care 28.2%
Utilities 16.2
The Fund had the following insurance concentration at April 30,
1994 (as a percentage of net assets):
MBIA 11.5%
U.S. Treasury Bond Futures Outstanding
at April 30, 1994
Total Aggregate Expiration Unrealized
Value Face Value Date Appreciation
US Treasury
Bond Futures
(Sell) $4,180,000 $4,292,188 June /94 $112,188
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
April 30, 1994
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $66,649,196) (Note 1) $62,895,843
Cash 430,069
Interest receivable 1,502,303
Unamortized organization expenses (Note 1) 24,655
Variation margin on futures contracts 10,000
Total assets 64,862,870
Liabilities
Distributions payable to shareholders $294,737
Payable for securities purchased 2,172,567
Payable for compensation of Manager (Note 4) 74,993
Payable for investor servicing and custodian fees (Note 4) 2,807
Payable for administrative services (Note 4) 2,935
Payable for offering and organization costs (Notes 1 and 2) 404,729
Other accrued expenses 15,777
Total liabilities 2,968,545
Net assets $61,894,325
Represented by
Series A remarketed preferred shares, without par value; 200 shares
authorized (200 shares issued at $50,000 per share liquidation preference)
(Note 3) $10,000,000
Common shares, without par value; unlimited shares authorized;
4,007,092 shares outstanding 55,939,281
<PAGE>
Undistributed net investment income 358,168
Accumulated net realized loss on investment transactions (761,959)
Net unrealized depreciation of investments (3,641,165)
Net assets $61,894,325
Computation of
net asset value
Remarketed preferred shares at liquidation preference $10,000,000
Net assets available to common shares:
Net asset value per share $12.95
($51,894,325 divided by 4,007,092 shares) 51,894,325
Net assets $ 61,894,325
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
For the period November 29, 1993 (commencement of operations) to April 30, 1994*
<S> <C> <C>
Tax exempt interest income $1,627,059
Expenses:
Compensation of Manager (Note 4) $173,701
Investor servicing and custodian fees (Note 4) 17,038
Compensation of Trustees (Note 4) 1,258
Reports to shareholders 3,144
Auditing 12,575
Legal 3,354
Postage 1,015
Administrative services (Note 4) 2,935
Exchange listing fees 4,215
Amortization of organization expenses (Note 1) 2,502
Preferred share remarketing agent fees 7,270
Fees waived by Manager (Note 4) (98,708)
Total expenses 130,299
Net investment income 1,496,760
Net realized loss on investments (Notes 1 and 4) (761,959)
Net unrealized depreciation of investments during the period (3,641,165)
Net loss on investments (4,403,124)
Net decrease in net assets resulting from operations $(2,906,364)
* See Note 2.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
For the period
November 29, 1993
(commencement of
operations) to
April, 30
1994
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $1,496,760
Net realized loss on investments (761,959)
Net unrealized depreciation of investments (3,641,165)
Net decrease in net assets resulting from operations (2,906,364)
Distributions to remarketed preferred shareholders from net
investment income (69,524)
Net decrease in net assets resulting from operations applicable
to common shareholders (2,975,888)
Distributions to common shareholders from:
Net investment income (1,069,068)
Increase from capital share transactions
Issuance of remarketed preferred shares (Note 3) 10,000,000
Issuance of common shares (Note 2) 56,156,537
Underwriting commissions and offering costs on remarketed preferred
shares (Note 3) (317,256)
Total increase in net assets 61,794,325
Net assets
Beginning of period 100,000
<PAGE>
End of period (including undistributed net investment income of $358,168) $61,894,325
Number of fund shares
Common shares outstanding at beginning of period (Note 2) 7,092
Common shares issued in public offering (Note 2) 4,000,000
Common shares outstanding at end of period 4,007,092
Remarketed preferred shares at beginning of period --
Remarketed preferred shares issued in public offering (Note 3) 200
Remarketed preferred shares outstanding at end of period 200
* See Note 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding
throughout the period)
For the period
November 29, 1993
commencement of
operations) to
April 30
1994
<S> <C>
Net Asset Value, Beginning of Period (common shares) $14.04*
Investment Operations:
Net Investment Income .38
Net Realized and Unrealized Loss on Investments (1.10)
Total from Investment Operations (.72)
Less Distributions from:
Net Investment Income:
to Preferred Shareholders** (.02)
to Common Shareholders (.27)
Total Distributions (.29)
Preferred Share Offering Costs (.08)
Net Asset Value, End of period (common shares) $12.95
Market Value, End of period (common shares) $11.750
Total Investment Return at Market Value (common shares) (%)(a)(b) (44.42)
Net Assets, End of Period (in thousands) $61,894
Ratio of Expenses to Average Net Assets (%)(b)(c) 0.55
Ratio of Net Investment Income to Average Net Assets (%)(b)(c) 6.30
Portfolio Turnover Rate (%)(d) 49.76
* Represents initial net asset value of $14.10 less offering expenses of approximately
$0.06.
** Preferred shares were issued on February 10, 1994.
(a) Total investment return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Annualized.
(c) Ratios reflect net assets available to common shares only; net investment income
ratio also reflects reduction for dividend payments to preferred shareholders.
(d) Not annualized.
/TABLE
<PAGE>
Notes to
financial statements
April 30, 1994
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, closed-end management investment
company. The Fund's investment objective is to provide as high a
level of current income exempt from federal income tax as is
believed to be consistent with preservation of capital. The Fund
intends to achieve its objective by investing in a diversified
portfolio of 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) 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 and dividends), less all
liabilities (including accrued expenses and unpaid dividends on
remarketed preferred shares and cumulative undeclared dividends
on remarketed preferred shares, by the total number of common
shares outstanding.
C) 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.
D) Futures A futures contract is an agreement between two parties
to buy and sell a security at a set price on a future date. Upon
entering into such a contract, the Fund is required to pledge to
the broker an amount of cash or U.S. government securities equal
to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the Fund agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Fund as urealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the
time it was closed. The potential risk to the Fund is that the
change in value of the underlying securities may not correspond
to the change in value of the futures contracts.
E) 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.
F) Distributions to shareholders Distributions to common and
preferred shareholders are recorded by the Fund on the ex-
dividend date. Dividends on each share of remarketed preferred
shares will accumulate from its Date of Original Issue and will
be payable, when, as and if declared by the Trustees, on the
applicable Dividend Payment Dates. 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, 1994 was 3.09%. After the initial dividend period, each
subsequent dividend period will generally be a 28-day period and
the applicable dividend rate will be the dividend rate determined
by the remarketing agent.
G) 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, stepped-coupon bonds and original issue
discount bonds is accreted according to the effective yield
method.
H) Unamortized organization expenses Expenses incurred by the
Fund in connection with its organization aggregated $27,151.
These expenses are being amortized on a straight-line basis over
a five-year period.
Note 2 Initial capitalization and offering of shares
The Fund was established as a Massachusetts business trust under
the laws of Massachusetts on September 23, 1993.
During the period September 23, 1993 to November 26, 1993 the
Fund had no operations other than those related to organizational
matters, including the initial capital contribution of $100,000,
and the issuance of 7,092 shares to Putnam Mutual Funds Corp. on
November 12, 1993.
On November 29, 1993, the Fund completed the initial offering of
4,000,000 of its shares for which it received net proceeds of
$56,400,000 before deducting $243,463 of initial offering
expenses (such offering expenses and the Fund's organizational
expenditures were paid initially by Putnam Investment Management,
Inc., the Fund's Manager, and the Fund will reimburse the Manager
for such costs). Regular investment operations commenced on
November 29, 1993.
Note 3 Remarketed preferred shares
On February 10, 1994, the Fund issued 200 shares of Series A
Remarketed Preferred Shares. Proceeds to the Fund, before
underwriting expenses of $150,000 and offering expenses of
$167,256, amounted to $10,000,000. These expenses were charged
against net assets of the Fund available to common shareholders.
The Series A 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.
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 the 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,
1994, there were no such restrictions on the Fund.
Note 4 Management fee, administrative services, and other
transactions
Compensation of Putnam Investment Management, Inc., the Fund's
Manager, a 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 of average net assets, 0.17% of the
next $500 million, 0.16% of the next $500 million and 0.15% of
any amount over $1.5 billion.
In connection with the initial offering of shares of the Fund,
Putnam Management agreed to waive its management fee for the
first three-month period following the closing of the sale to the
Underwriters. For the period November 29, 1993 (commencement of
operations) to April 30, 1994, Putnam Management waived $98,708
in investment management fees.
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 fees payable to Putnam
Management for that period will be reduced by an agreed-upon
formula. See "Administrative Services Contract."
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 period ended April 30, 1994, the Fund paid
$2,935 for these services.
Trustees of the Fund receive an annual Trustee's fee of $520 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 period
ended April 30, 1994 amounted to $17,038.
Investor servicing and custodian fees reported in the Statement
of Operations for the period ended April 30, 1994 have been
reduced by credits allowed by PFTC.
Note 5 Purchases and sales of securities
During the period ended April 30, 1994, purchases and sales of
investment securities other than short-term investments
aggregated $94,449,372 and $29,000,079, respectively. Purchases
and sales of short-term municipal obligations aggregated
$29,900,000 and $27,900,000, respectively. In determining the net
gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
<PAGE>
The following is a summary of futures contract activity during
the period ended April 30, 1994:
Purchases of Futures Contract
Number of Aggregate
Contracts Face Value
Contracts opened 50 $5,252,089
Contracts closed (10) (959,901)
Open at end of period 40 $4,292,188
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Data*
(Unaudited)
For the period
November 29, 1993
(commencement of
Three months ended operations) to
April 30, 1994** January 31, 1994
<S> <C> <C>
Total investment income
Total $1,032,439 $594,620
Per Share+ $.26 $.15
Net investment income available to common shareholders
Total $853,691 $573,545
Per Share+ $.22 $.14
Net realized and unrealized gain (loss) on investments
Total $(5,869,325) $1,466,201
Per Share+ $(1.47) $.37
Net increase (decrease) in net assets available to common shareholders resulting
from operations
Total $(5,015,634) $2,039,746
Per Share+ $(1.25) $.51
Net assets available to common shareholders at end of period
Total $51,894,325 $58,029,010
Per Share+ $12.95 $14.48
* Per common share.
** Preferred shares were issued on February 10, 1994.
/TABLE
<PAGE>
Fund
performance
supplement
Putnam Investment Grade Municipal Trust III is a portfolio
managed for high current income free from federal income tax,
consistent with preservation of capital.
The 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 from the fund.
The Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
Composed of all bonds covered by the Lehman Brothers Government
Bond Index with maturities of 10 years or greater. Total return
comprises price appreciation/depreciation and income as a
percentage of the original investment. Indexes are rebalanced
monthly by market capitalization.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and
the indexes used for performance comparisons. The information is
not part of the portfolio of investments owned or the financial
statements.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President, The Putnam Funds
William F. Pounds
Vice Chairman
The Putnam Funds,
Professor of Management, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology
Jameson Adkins Baxter
President,
Baxter Associates, Inc.
Hans H. Estin
Vice Chairman,
North American Management Corporation
John A. Hill
Principal and Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President
Mount Holyoke College
Lawrence J. Lasser
President and Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners Limited Partnership
Donald S. Perkins
Director of various corporations
George Putnam, III
President, New Generation
Research, Inc.
A.J.C. Smith
Chairman of the Board and Chief Executive Officer,
Marsh & McLennan Companies, Inc.
W. Nicholas Thorndike
Director of various corporations
<PAGE>
Putnam
Investment
Grade
Municipal
Trust III
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
(DALBAR logo)
Putnam Investor Services
has received the DALBAR
award each year since the
award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
215/12452<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Thomas Goggins
Vice President and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President and Treasurer
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 NAV or to request
Putnam's quarterly Closed-End Fund Commentary.
<PAGE>
---------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
---------------
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
