Putnam Intermediate Tax Exempt Fund
ANNUAL REPORT
September 30, 1994
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
"Partisans say the long-term case for buying munis and muni
funds is becoming stronger. Even as tax shelters have fallen by
the wayside, federal tax rates have climbed. And that's not
including the states, which are expected to raise taxes as
budget deficits increase."
- -- "Bad Timing?" Barron's, October 10, 1994.
Performance should always be considered in light of a fund's
investment strategy. Putnam Intermediate Tax Exempt Fund is
designed for investors seeking high current income free from
federal income tax, and consistent with capital preservation.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------
Total return: NAV POP NAV CDSC
- ---------------------------------------------------------------
(change in value during
period plus reinvested
distributions) 6/1/94(1)
to 9/30/94 -1.01% -4.27% -1.11% -4.01%
- ---------------------------------------------------------------
Share value: NAV POP NAV
- ---------------------------------------------------------------
6/1/94(1) $8.50 $8.79 $8.50
9/30/94 8.23 8.51 8.24
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital gains
Distributions:(2)No. Income Long-term Short-term Total
- ---------------------------------------------------------------
Class A 4 $0.184265 -- -- $0.184265
Class B 4 0.166020 -- -- 0.166020
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Current return:
End of period NAV POP NAV
- ---------------------------------------------------------------
Current dividend rate(3) 5.95% 5.75% 5.37%
Taxable equivalent(4) 9.85 9.52 8.89
Current 30-day
SEC yield(5) 6.27 6.07 6.27
Taxable equivalent(4) 10.38 10.05 10.38
- ---------------------------------------------------------------
<FN>
Performance data represents past results. For performance
compared to benchmark indices, see pages 8 and 9. POP assumes
3.25% maximum sales charge. CDSC assumes 3% maximum contingent
deferred sales charge. Performance data reflect an expense
limitation in effect during the period. Without the limitation,
results would have been lower.(1) Commencement of operations.
(2) Capital gains 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. (3)
Income portion of most recent distribution, annualized and
divided by NAV or POP at end of period. (4) Assumes maximum
39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous. (5) Based only on
investment income, calculated using SEC guidelines.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
It's hard to imagine a more challenging market in which to
introduce Putnam Intermediate Tax Exempt Fund. At the same
time, given the long-term positive prospects Putnam Management
sees for tax-exempt investing, there were no compelling reasons
for delay.
Municipal bond investors have experienced more than their share
of frustration over the past several months as the fixed-income
markets endure a prolonged period of volatility. Your fund's
performance during the four months ended September 30, 1994,
reflects this unsettled environment.
Even as your fund completes its abbreviated initial fiscal
period, signs of encouragement are beginning to appear for
investors in tax-exempt securities. In the report that follows,
Fund Manager Thomas Goggins discusses the challenges and
opportunities of becoming fully invested in a rising interest
rate environment. The intermediate tax-exempt bonds that make
up your fund's portfolio are expected to play a pivotal role in
reducing the price volatility that naturally accompanies such a
market.
Respectfully yours,
[SIGNATURE]
George Putnam
Chairman of the Trustees
November 9, 1994
<PAGE>
Report from the fund manager
Thomas Goggins
Favorable economic and supply/demand trends were not enough to
offset the dampening effect of persistent interest rate
increases on bond prices over the past several months. As a
result, Putnam Intermediate Tax Exempt Fund provided a negative
total return between its inception on June 1, 1994, and
September 30, 1994, the end of its first fiscal period. This
performance reflects general market trends, but was exacerbated
to some extent by the fund's relative youth and the fact that
it was becoming fully invested.
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
5.95% dividend rate for class A shares at net asset value,
shareholders who pay the maximum 39.6% federal tax rate would
have had to receive 9.85% from an equivalent taxable
investment. Most investors in lower brackets would also enjoy
tax benefits, though not to the same extent.
INTERMEDIATE BONDS OFFER ADVANTAGES IN RISING RATE MARKET
The period between the fund's late-spring inception and the
close of the fiscal period has been a challenging time in the
financial markets -- but one ripe with opportunities. Thus,
even though the performance you'll see discussed in this first
report to shareholders might seem somewhat disappointing, there
is reason to be optimistic about the fund's potential,
especially in light of current interest rate trends.
The price sensitivity of a fund to changes in interest rates is
a function of several factors, including the average maturity
of the fund's securities. The longer the maturity, the higher
the volatility; the shorter the maturity, the lower the
volatility. Though there are no guarantees, intermediate bonds,
which have 1- to 10-year maturity horizons, have historically
provided attractive income and greater relative price stability
than long-term bonds. In fact, in today's municipal bond
market, intermediate bonds are yielding 80% of long-term
municipal bonds -- with half the volatility. While this
strategy limits gains in market rallies, it has the ability to
cushion declines in rising interest rate markets.
INFLATION FEARS FUEL RATE INCREASES
Interest rates rarely move smoothly and this has certainly been
the case this summer. Continued signs of an expanding economy
perpetuated the bond market's nervousness about inflation. The
Federal Reserve Board raised short-term interest rates again in
June, which sparked a greater-than-expected level of
fluctuation in bond prices. This, in turn, resulted in a
significant increase in yields. The bellwether 30-year Treasury
bond was yielding 7.82% by the end of the period, a significant
rise from its 25-year low of 5.79% in October 1993.
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
carrying higher coupons than have been available in recent
months.
BOND PRICE CHANGES* 1990-1994
[MOUNTAIN CHART]
Plot Points:
Date Muni 7yr Index Muni Long Term Lehman Treas Bd Long
- ---------------------------------------------------------------
12/31/90 1.99% 3.14% 6.32%
3/31/91 0.72% 0.48% -0.11%
6/30/91 0.05% 0.65% -1.70%
9/30/91 2.06% 2.58% 6.05%
12/31/91 1.59% 1.77% 4.67%
3/31/92 -1.66% -1.38% -5.57%
6/30/92 1.93% 2.66% 2.08%
9/30/92 1.14% 1.00% 4.49%
12/31/92 0.05% 0.71% -0.96%
3/31/93 1.68% 2.71% 4.62%
6/30/93 1.28% 2.55% 3.48%
9/30/93 1.45% 2.49% 4.27%
12/31/93 -0.20% 0.07% -3.23%
3/31/94 -5.12% -9.38% -7.78%
6/30/94 -0.39% -0.84% -4.64%
9/30/94 -0.47% -1.15% -2.55%
- ---------------------------------------------------------------
* Graph shows quarterly price changes for the Lehman
Brothers 7-year and Long-Term (22+ years) Municipal Bond
Indexes and the Lehman Brothers Long-term Treasury Bond
Index over the four years ended September 30, 1994, and
annualized total returns over the same period. The
annualized return for the Treasury index before taxes was
10.28%; after-tax return assumes the maximum 39.6% federal
income tax rate. This illustration is not intended to
reflect actual fund performance, which will vary.
INVESTING FOR ATTRACTIVE INCOME AND PORTFOLIO DIVERSITY
In the months following its inception, your fund became fully
invested, concentrating primarily on high-quality investment-
grade tax-exempt municipal bonds. At fiscal year end, fund
holdings had an average quality rating of A. The fund's ability
to invest in tax-free securities from around the nation has
contributed to the portfolio's overall diversity and could help
soften the impact of credit quality changes or an economic
downturn in any single geographic location.
The fund is invested across several sectors of the municipal
market, but the portfolio has a definite health care bent.
Approximately 20% of the fund's net 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. For example, Massachusetts Eye and Ear
Infirmary is a Boston-based medical facility that is relatively
sound despite financial pressures and the fallout from the
health care debate. Our cautious optimism that this hospital
can effectively control costs and attract new customers led us
to purchase these 7% coupon bonds at affordable prices.
OUTLOOK: TIGHTENING SUPPLY AMID FURTHER MARKET VOLATILITY
While the market's turbulence has initially dampened the
performance of this fledgling fund, it may well contribute to
stronger results in the months ahead. We have been taking
advantage of today's lower bond prices to increase the size of
selected existing positions. 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 well into 1995.
Rising interest rates have had a sobering effect on the
refinancing phenomenon, reducing supply from one of the largest
sources of new issues. As a result, total issuance of tax-
exempt bonds is running more than 40% below 1993 levels. In the
face of steady investor demand, shrinking supply could further
enhance the value of the bonds in the portfolio, and thus, the
fund's net asset value.
TOP 10 HOLDINGS (9/30/94)
- ---------------------------------------------------------------
Rankin County, Industrial Development revenue bonds
- ---------------------------------------------------------------
New York State Medical Care Facilities Finance Agency revenue
bonds
- ---------------------------------------------------------------
Florida State Board of Education capital outlay general
obligation bonds
- ---------------------------------------------------------------
Massachusetts Health and Educational Facilities Authority
revenue bonds
- ---------------------------------------------------------------
Los Angeles County certificate of participation
- ---------------------------------------------------------------
Greater Detroit Resource Recovery Authority revenue bonds
- ---------------------------------------------------------------
Clackamas County, Service District Number 1 sewer revenue bonds
- ---------------------------------------------------------------
Michigan State Strategic Fund pollution control revenue bonds
- ---------------------------------------------------------------
Kentucky Infrastructure Authority revenue bonds
- ---------------------------------------------------------------
Minneapolis Special School District Number 1 certificate of
participation
- ---------------------------------------------------------------
These holdings represent 52.5% of the fund's net assets.
Portfolio holdings are subject to change.
In the current market environment, our hands-on approach will
be critical to successfully uncovering the most rewarding
investment opportunities as they arise. In spite of the bond
market volatility amid speculation about future interest rate
increases, we believe your fund's methodically structured
portfolio will continue to deliver attractive levels of tax-
free income in the coming months and beyond.
The views expressed throughout the report are exclusively those
of Putnam Management. They are not meant as investment advice.
While we viewed favorably the issues discussed here as of
9/30/94, there is no assurance the fund will continue to hold
them in the future.
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. Going forward, we will be showing you 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. Since your fund has only been in operation since June,
we show only cumulative results in this report. For comparative
purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 9/30/94
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- ----------------------------------------------------------------------
Life of fund -1.01% -4.27% -1.11% -4.01% 0.07% 1.29%
- ----------------------------------------------------------------------
<FN>
Fund performance data does not take into account any adjustment
for taxes payable on reinvested distributions. The fund began
operations on 6/1/94, offering both class A and class B shares.
The fund's total return reflects an expense limitation in
effect during the period. Without the limitation, results would
have been lower. Performance data represent past results and
will differ for each share class. Investment returns and net
asset value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales
charge.
Class B shares may be subject to a sales charge upon
redemption.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred sales
charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase.
POP performance figures shown here assume the maximum 3.25%
sales charge.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of class B shares and assumes
redemption at the end of the period. Your fund's CDSC declines
from a 3% maximum during the first year to 1% during the fourth
year. After the fourth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
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.
<PAGE>
Life cycle investing
As we move through life, our investment needs change. As these
needs change, so does the way we allocate our assets. Here are
some basic rules for setting up and maintaining an investment
program and some examples of how assets might be allocated.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses,
or retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with
longer timelines and lower for older investors who may depend
on their investment for current income.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of
your investable dollars should be allocated to each investment
category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own
Putnam portfolio of funds as your financial needs change --
without a service fee.*
Look at the facing page for some ways you can allocate your
assets, then turn the page to see how the Putnam Family of
Funds can help you make your choices.
* Putnam reserves the right to change or terminate the
exchange privilege. In some cases, a sales charge may
apply. See prospectus for details.
<PAGE>
Four ways to allocate assets
Your investment advisor can help you determine your objectives,
evaluate your risk tolerance, and develop a long-term financial
plan. These sample portfolios can help you diversify your
portfolio within the Putnam Family of Funds. These
illustrations are not intended as investment advice.
[PIE CHARTS]
SEEKING MAXIMUM GROWTH
30% D 40% Growth and income
40% D 50% Growth
5% D 20% Income or tax-free income
Risk tolerance: Generally investors with a higher risk
tolerance (often in their 20s and early 30s.)
SEEKING GROWTH AND SOME INCOME
40% D 50% Growth and income
30% D 40% Growth
10% D 30% Income or tax-free income
Risk tolerance: Generally investors with a high to moderate
risk tolerance (often in their late 30s and early 40s.)
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
30% D 40% Growth and income
25% D 60% Income or tax-free income
10% D 20% Growth
Risk tolerance: Generally investors with a moderate risk
tolerance (often in their late 40s and early 50s.)
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
20% D 30% Growth and income
5% D 10% Growth
40% D 70% Income or tax-free income
Risk tolerance: Generally investors with a low risk tolerance
(often over 60 and retired.)
The Putnam Fund Selector(TM)
The Putnam Fund Selector(TM) shows the many opportunities for
investors within every investment strategy. All investors
should first accumulate a base of conservative, cash-equivalent
investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of
Funds.
[Pyramid Artwork]
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free funds(+)
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios
that spread your money across a variety of stocks, bonds, and
money market investments to help maximize your return and
reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS(++)
Putnam money market funds:
Money Market Fund(S)
Tax Exempt Money Market Fund
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
CDs and savings accounts**
* Formerly Energy-Resources Trust.
(+) Not available in all states.
(++) Relative to above.
(S) Formerly Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured, up to
certain limits, by federal/state agencies. Savings
accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.
<PAGE>
Report of independent accountants
for the period ended September 30, 1994
To the Trustees and Shareholders of
Putnam Intermediate Tax Exempt Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Intermediate Tax Exempt Fund, including
the portfolio of investments owned, as of September 30, 1994,
the related statement of operations for the four months then
ended, and the statement of changes in net assets and the
"Financial Highlights" for the four months then ended. These
financial statements and "Financial Highlights" are the
responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and
"Financial Highlights" based on our 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 September 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 Intermediate Tax
Exempt Fund as of September 30, 1994, the results of its
operations for the four months then ended, and the changes in
its net assets and the "Financial Highlights" for the four
months ended September 30, 1994, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 16, 1994
Portfolio of investments owned
September 30, 1994
Portfolio of investment owned
September 30, 1994
MUNICIPAL BONDS AND NOTES (127.7%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
Alabama (2.5%)
- ---------------------------------------------------------------
$170,000 Birmingham Jefferson Civic
Ctr. Auth. Rev. Bonds
(Special Tax Cap. Outlay),
7.4s, 1/1/08 A $183,388
Alaska (2.8%)
- ---------------------------------------------------------------
200,000 AK State Hsg. Fin. Corp.
Rev. Bonds (Veterans Mtge.
Program), 1st Ser., Government
National Mortgage Assn./
Federal National Mortgage
Assn. (GNMA/FNMA) Coll.,
5.9s, 6/1/05 AAA 198,000
Arizona (2.7%)
- ---------------------------------------------------------------
200,000 Maricopa Cnty., Certif. of
Participation (COP),
5 5/8s, 6/1/00 Baa 197,000
California (19.0%)
- ---------------------------------------------------------------
100,000 CA Hlth. Facs. Fing. Auth.
Rev. Bonds (Scripps Resh.
Inst.), Ser. A, 5.8s, 7/1/04 A 98,000
100,000 CA State General Obligation
(G.O.) Bonds (New Prison &
Cnty. Jail), Ser. C, D, E,
8 3/4s, 5/1/04 A 120,500
170,000 CA State Pub. Wks. Brd. Lease
Rev. Bonds (Var. Cnmty. College
Projects), Ser. A, 5 1/2s, 12/1/07 A 156,188
250,000 Foothill Tran. Zone, COP, Ser. A,
5.35s, 5/1/03 Baa 233,750
345,000 Los Angeles Cnty., COP,
(Marina Del Rey), Ser. A,
6 1/4s, 7/1/03 BBB/P 340,688
275,000 Pleasanton, Jt. Pwrs. Fing.
Auth. Rev. Bonds, Ser. A, 6s,
9/2/05 Baa 270,531
150,000 San Francisco, Port Comm.
Rev. Bonds, 5.8s, 7/1/07 A 145,500
----------
1,365,157
Colorado (2.7%)
- ---------------------------------------------------------------
200,000 Denver City & Cnty. Arpt.
Rev. Bonds, Ser. B, 7s,
11/15/01 Baa 194,000
Florida (11.9%)
- ---------------------------------------------------------------
175,000 Broward Cnty., Resource Recvy.
Rev. Bonds (SES Broward Co.
LP South Project),
7.95s, 12/1/08 A 189,656
430,000 FL State Brd. of Ed. Cap.
Outlay G.O. Bonds, Ser. C,
7s, 6/1/04 Aaa 474,613
170,000 Reedy Creek, Impt. Dist. Utils.
Rev. Bonds, Ser. 1, Municipal
Bond Insurance Assn. (MBIA),
8.9s, 10/1/03 AAA 190,825
----------
855,094
Hawaii (3.5%)
- ---------------------------------------------------------------
250,000 HI State Hbr. Cap. Impt. Rev.
Bonds, Financial Guaranty
Insurance Co. (FGIC), 5.9s,
7/1/05 AAA 248,125
Idaho (2.8%)
- ---------------------------------------------------------------
200,000 ID Hsg. Agcy. Rev. Bonds, Ser.
D-1, 5.9s, 7/1/06 Aa 200,000
Indiana (1.5%)
- ---------------------------------------------------------------
100,000 IN Hlth. Fac. Fing. Auth. Hosp.
Rev. Bonds (Lutheran Hosp. Ind.
Inc.), American Municipal Bond
Assurance Corp. (AMBAC), 7s,
2/15/05 AAA 107,500
Kentucky (4.3%)
- ---------------------------------------------------------------
275,000 KY Infrastructure Auth. Rev.
Bonds (Govtl. Agencies Program),
Ser. A, 7 5/8s, 8/1/04 A 304,563
Louisiana (2.8%)
- ---------------------------------------------------------------
200,000 LA State Recvy. Dist. Sales
Tax Variable Rate Demand Notes
(VRDN), MBIA, 3.6s, 7/1/98 VMIG1 200,000
Massachusetts (7.1%)
- ---------------------------------------------------------------
75,000 MA State Cons. Ln. G.O.
Bonds, Ser. C, 7.3s, 12/1/02 A 81,656
440,000 MA State Hlth. & Edl. Facs.
Auth. Rev. Bonds (MA Eye & Ear
Infirmary), Ser. A, 7s,
7/1/01(c) Baa 429,550
----------
511,206
Michigan (11.8%)
- ---------------------------------------------------------------
200,000 Cornell Twp. Economic Dev.
Corp. Env. Impt. VRDN (Mead-
Escanaba Paper Co.), 3.6s,
11/1/16 A-1 200,000
320,000 Greater Detroit, Res. Recvy.
Auth. Rev. Bonds, Ser. C,
9 1/4s, 12/13/08 BBB 338,800
300,000 MI State Strategic Fd. Poll.
Ctl. Rev. Bonds (Gen. Motors
Corp.), 6 5/8s, 3/1/07 Baa 306,000
----------
844,800
Minnesota (3.8%)
- ---------------------------------------------------------------
275,000 Minneapolis Spl. Sch. Dist.
No. 1, COP, Ser. A, 6.1s, 6/1/04 A 272,938
Mississippi (7.2%)
- ---------------------------------------------------------------
560,000 Rankin Cnty., Indl. Dev. Rev.
Bonds (Yellow Fght. Sys. Inc.
Project), 5 3/4s, 10/1/08 A 512,210
New Hampshire (3.8%)
- ---------------------------------------------------------------
100,000 NH Mun. Bond Bk. Rev. Bonds,
Ser. B, 5 1/2s, 8/15/04 A 98,250
170,000 NH State Hsg. Fin. Auth. Rev.
Bonds (Single Family Res. Mtge.),
Ser. D, 6.95s, 1/1/06 Aa 173,825
----------
272,075
New Jersey (2.1%)
- ---------------------------------------------------------------
150,000 NJ Hlth. Care Facs. Fing.
Auth. Rev. Bonds (Englewood
Hosp. & Med. Ctr.), 6s, 7/1/03 Baa 147,563
New Mexico (2.1%)
- ---------------------------------------------------------------
150,000 NM Edl. Assistance Fndtn.
Student Ln. Rev. Bonds, Ser. 3-A,
6s, 12/1/04 Aaa 149,063
New York (11.1%)
- ---------------------------------------------------------------
NY City G.O. Bonds,
75,000 Ser. A, 6.1s, 8/1/02 A 74,906
250,000 Ser. A, 6s, 8/1/05 A 240,625
NY State Med. Care Facs. Fin. Agcy. Rev. Bonds
340,000 (Mental Hlth. Svcs. Facs.),
Ser. A, 8 7/8s, 8/15/07 Baa 377,825
100,000 (Huntington Hosp. Mtge. Project),
Ser. A, 5.8s, 11/1/03 Baa 98,750
----------
792,106
Ohio (1.4%)
- ---------------------------------------------------------------
100,000 Cleveland, Urban Renewal Increment
Rev. Bonds (Rock & Roll Hall of
Fame Project), 6.15s, 3/15/05 BBB/P 98,500
Oklahoma (2.5%)
- ---------------------------------------------------------------
170,000 Tulsa, Indl. Auth. Hosp. Rev.
Bonds (Tulsa Regl. Med. Ctr.),
Ser. A, 7 5/8s, 6/1/06 BBB 179,138
Oregon (4.3%)
- ---------------------------------------------------------------
300,000 Clackamas Cnty., Svc. Dist. No. 1
Swr. Rev. Bonds, 6 1/4s, 10/1/04 A 307,875
Pennsylvania (2.6%)
- ---------------------------------------------------------------
200,000 Philadelphia, Indl. Dev. Rev.
Bonds (Ashland Oil Inc. Project),
5.7s, 6/1/05 Baa 189,000
Texas (3.5%)
- ---------------------------------------------------------------
100,000 Brazos, Higher Ed. Auth., Inc.
Student Loan Rev. Bonds, Ser. C-2,
5 7/8s, 6/1/04 A 96,125
150,000 Dallas, Civic Ctr. Convention
Complex Sr. Lien Rev. Bonds,
8 1/2s, 1/1/04 A 156,750
----------
252,875
Virginia (2.6%)
- ---------------------------------------------------------------
200,000 Hampton, Museum Rev. Bonds,
4 1/2s, 1/1/02 A 185,250
Washington (5.3%)
- ---------------------------------------------------------------
170,000 Lynnwood, Wtr. & Swr. Rev. Bonds,
7.7s, 12/1/08 A 184,659
WA State Pub. Pwr. Supply Sys. Rev. Bonds
100,000 (Nuclear Project No. 1),
Ser. C, 7s, 7/1/04 AAA 107,125
100,000 (Nuclear Project No. 3),
Ser. C, 5s, 7/1/05 AA 89,750
----------
381,534
- ---------------------------------------------------------------
Total Investments (cost $9,180,696)(d) $9,148,960
- ---------------------------------------------------------------
[FN]
NOTES
(a) Percentages indicated are based on net assets of
$7,163,475, which correspond to a net asset value per
class A and class B share of $8.23, and $8.24,
respectively.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
September 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 September 30, 1994.
Securities rated by Putnam are indicated by "/P" and are
not publicly rated. The ratings are not covered by the
Report of Independent Accountants.
(c) A portion of this security was pledged to cover margin
requirements for futures contracts at September 30, 1994.
The market value of this segregated security with the
custodian for transactions on futures contracts is
$24,406.
(d) The aggregate identified cost on a tax basis is
$9,180,696, resulting in gross unrealized appreciation and
depreciation of $26,352 and $58,088, respectively, or net
unrealized depreciation of $31,736.
U.S. Treasury Bond Futures Outstanding at September 30, 1994
[/TABLE]
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Aggregate Expiration Unrealized
Total Value Face Value Date Appreciaiton
- ---------------------------------------------------------------
U.S. Treasury Bond
Futures (Sell) $395,750 $397,656 Dec. 94 $1,906
- ---------------------------------------------------------------
<FN>
The rates shown on Variable Rate Demand Notes (VRDN) are the
current interest rates at September 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% at September 30, 1994 (as a percentage of net
assets):
Hospitals 20.1%
Political Subdivision 12.2
Transportation 11.5
</TABLE>
The table below shows the percentages of the fund's investments
at September 30, 1994 in securities assigned to the various
rating categories by Moody's and Standard & Poor's and in
unrated securities determined by Putnam Investment Management,
Inc. to be of comparable quality.
<TABLE><CAPTION>
<S> <C> <C>
Unrated securities
Rated Securities of comparable quality
as a percentage of as a percentage of
Rating fundOs net assets fund netOs assts
- ---------------------------------------------------------------
"AAA"/"Aaa" 20.6% --
"AA"/"Aa" 6.5 --
"A"/"A" 47.6 --
"BBB"/"Baa" 41.3 6.1%
"A-1" 2.8 --
"VMIGI" 2.8 --
- ---------------------------------------------------------------
121.6% 6.1%
- ---------------------------------------------------------------
</TABLE>
<PAGE>
Statement of assets and liabilities September 30, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- ---------------------------------------------------------------
Investments in securities, at value
(identified cost $9,180,696) (Note 1) $9,148,960
Cash 337,182
Interest receivable 130,730
Receivable for securities sold 274,521
Receivable for shares of the fund sold 329,509
Receivable from Manager (Note 3) 14,643
Unamortized organization expenses (Note 1) 77,442
Total assets 10,312,987
Liabilities
- ---------------------------------------------------------------
Payable for securities purchased $3,052,004
Distributions payable to shareholders 10,695
Payable for organization expenses 77,750
Payable for administrative services (Note 3) 81
Payable for compensation of Trustees (Note 3) 301
Payable for variation margin on open futures contracts 625
Payable for distribution fees (Note 3) 2,519
Other accrued expenses 5,537
Total liabilities 3,149,512
Net assets $7,163,475
Represented by
- ---------------------------------------------------------------
Paid-in capital (Notes 1, 2 and 5) $7,270,027
Distributions in excess of net investment income (1,273)
Accumulated net realized loss on investments
and futures contracts (75,449)
Net unrealized depreciation of investments
and futures contracts (29,830)
Total -- Representing net assets applicable
to capital shares outstanding $7,163,475
Computation of net asset value and offering price
- ---------------------------------------------------------------
Net asset value and redemption price of class A shares
($4,236,993 divided by 514,659 shares) $8.23
Offering price per class A share (100/96.75 of $8.23)* $8.51
Net asset value and offering price of class B shares
($2,926,482 divided by 355,209 shares)+ $8.24
- ---------------------------------------------------------------
<FN>
* On single retail sales of less than $100,000. On sales of
$100,000 or more and on group sales the offering price is
reduced.
+ Redemption price per share is equal to net asset value
less any applicable contingent deferred sales charge.
</TABLE>
<PAGE>
Statement of operations Period ended
September 30, 1994
<TABLE><CAPTION>
<S> <C>
- ---------------------------------------------------------------
Tax exempt interest income: $71,705
- ---------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------
Compensation of Manager (Note 3) 7,718
- ---------------------------------------------------------------
Compensation of Trustees (Note 3) 601
- ---------------------------------------------------------------
Auditing 7,922
- ---------------------------------------------------------------
Legal 205
- ---------------------------------------------------------------
Amortization of organization expenses (Note 1) 308
- ---------------------------------------------------------------
Reports to shareholders 1,313
- ---------------------------------------------------------------
Administrative services (Note 3) 81
- ---------------------------------------------------------------
Registration fees 677
- ---------------------------------------------------------------
Distribution fees -- class A (Note 3) 1,079
- ---------------------------------------------------------------
Distribution fees -- class B (Note 3) 3,914
- ---------------------------------------------------------------
Postage 156
- ---------------------------------------------------------------
Other expenses 8
- ---------------------------------------------------------------
Fees waived by Manager (Note 3) (22,361)
- ---------------------------------------------------------------
Total expenses 1,621
- ---------------------------------------------------------------
Net investment income 70,084
- ---------------------------------------------------------------
Net realized loss on investments and
futures contracts (Notes 1 and 4) (75,449)
- ---------------------------------------------------------------
Net unrealized depreciation of investments
and futures contracts during the year (29,830)
- ---------------------------------------------------------------
Net loss on investment transactions (105,279)
- ---------------------------------------------------------------
Net decrease in net assets resulting from operations $(35,195)
- ---------------------------------------------------------------
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C>
June 1, 1994
(commencement of
operations) to
September 30
------------------
1994
- ---------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------
Operations:
Net investment income $70,084
Net realized loss on investments and futures contracts (75,449)
Net unrealized depreciation of investments
and futures contracts (29,830)
Net decrease in net assets resulting from operations (35,195)
Distributions to shareholders:
- ---------------------------------------------------------------
From net investment income
Class A (42,275)
Class B (27,809)
In excess of net investment income
Class A (608)
Class B (665)
Increase from capital share transactions (Note 5) 7,170,027
Total increase in net assets 7,063,475
Net assets
- ---------------------------------------------------------------
Beginning of period (Note 2) 100,000
End of period (including distributions in
excess of net investment income of $1,273). $7,163,475
- ---------------------------------------------------------------
</TABLE>
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
June 1, 1994 June 1, 1994
(commencement (commencement
of operations) to of operations) to
September 30 September 30
--------------- ---------------
1994 1994
- ---------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------
Net asset value, beginning of period $8.50 $8.50
Investment operations
- ---------------------------------------------------------------
Net investment income .18(a)(b) .17(a)(b)
Net realized and unrealized
loss on investments (.27) (.26)
Total from investment operations (.09) (.09)
Less distributions:
- ---------------------------------------------------------------
From net investment income (.18) (.17)
In excess of net investment income -- --
- ---------------------------------------------------------------
Total distributions (.18) (.17)
- ---------------------------------------------------------------
Net asset value, end of period $8.23 $8.24
- ---------------------------------------------------------------
Total investment return at net
asset value (%) (c) (1.01)(d) (1.11)(d)
- ---------------------------------------------------------------
Net assets, end of period
(in thousands) $4,237 $2,926
- ---------------------------------------------------------------
Ratio of expenses to average
net assets (%) (.05)(a)(d) .17(a)(d)
- ---------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 1.89(a)(d) 1.73(a)(d)
- ---------------------------------------------------------------
Portfolio turnover (%) 122.9 122.9
- ---------------------------------------------------------------
<FN>
(a) Reflects a voluntary expense limitation applicable during
the period. As a result of such a limitation, expenses of
the fund for the period ended September 30, 1994 reflect
per share reductions of approximately $0.05 for class A
and $0.06 for class B (See Note 3).
(b) Per share net investment income for the period ended
September 30, 1994, has been determined on the basis of
the weighted average number of shares outstanding during
the period.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) Not annualized.
</TABLE>
<PAGE>
Notes to financial statements
September 30, 1994
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management
investment company. The fund seeks as high a level of current
income exempt from federal income tax as Putnam Management
believes is consistent with preservation of capital by
investing primarily in a portfolio of tax exempt securities.
The fund offers both class A and class B shares. The fund
commenced its public offering of class A shares and class B
shares on June 1, 1994. Class A shares are sold with a maximum
front- end sales charge of 3.25%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution
fee than class A shares, and may be subject to a contingent
deferred sales charge if those shares are redeemed within four
years of purchase. Expenses of the fund are borne pro-rata by
the holders of both classes of shares, except that each class
bears expenses unique to that class (including the distribution
fees applicable to such class) and votes as a class only with
respect to its own distribution plan or other matters on which
a class vote is required by law or determined by the Trustees.
Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class
of shares.
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.
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) 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 tax-exempt securities equal
to the minimum "initial margin" requirements of the futures
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 unrealized 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.
D) Federal taxes
It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any
excise tax under Section 4982 of the Internal Revenue Code of
1986. 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.
E) Distributions to shareholders
Income dividends are recorded daily by the fund and are
distributed to the shareholders monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and
paid annually, or as necessary to meet the distribution
requirements described above.
The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or
available capital loss carryovers) under income tax
regulations. There were no current reclassifications required
as a result of the AICPA Statement of Position (SOP) 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions, by
Investment Companies."
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.
Discount on zero-coupon bonds is 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 class A and class B shares aggregated $77,750.
These expenses are being amortized over a five-year period
based on current and projected net asset levels.
Note 2
Initial capitalization and offering of shares
The fund was established as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts on March 7,
1994.
During the period March 7, 1994 to May 31, 1994, the fund had
no operations other than those related to organizational
matters, including the initial contribution of $50,000 and the
issuance of 5,882 shares for class A and the initial
contribution of $50,000 and the issuance of 5,882 shares for
class B, to Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments, Inc. on May 3, 1994.
Note 3
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 for the
quarter. Such fee is based on the following annual rates: 0.6%
of the first $500 million of average net assets, 0.5% of the
next $500 million, 0.45% of the next $500 million and 0.4% of
any amount over $1.5 billion, subject to reduction in any year
to the extent of certain brokerage commissions and fees (less
expenses) received by affiliates of the Manager on the fund's
portfolio transactions.
Until the date the net assets of the fund exceed $100,000,000
or June 1, 1995, whichever comes first, the Manager has
voluntarily agreed to reduce its compensation to the extent
that expenses of the fund exceed 0.80% of average net assets.
The fund's expenses subject to this limitation are exclusive of
brokerage, interest, taxes, deferred organizational and
extraordinary expenses, and payments required under the fund's
Distribution Plans. This limitation is accomplished by a
reduction of the compensation payable to the Manager and, if
necessary, payment of additional fund expenses by the Manager.
For the period ended September 30, 1994, the fund's expenses
were reduced by $22,361, such reduction includes an
overreimbursement of $8,426.
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 September 30,
1994, the fund paid $81 for these services.
Trustees of the fund receive an annual Trustee's fee of $100
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. For the period ended
September 30, 1994, the fund paid $601 for these services.
Custodial functions are being provided to the fund by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of the Putnam
Companies, Inc. Investor servicing agent functions are provided
by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees of $3,817 for the period
ended September 30, 1994 have been reduced by credits allowed
by PFTC, such credits amounted to $5,545.
The fund has adopted a distribution plan with respect to its
class A shares (the Class A Plan) pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The purpose of the Class A Plan
is to compensate Putnam Mutual Funds Corp. for services
provided and expenses incurred in distributing class A shares.
The Trustees have approved payments by the fund to Putnam
Mutual Funds Corp. at an annual rate of 0.15% of average net
assets attributable to class A shares. For the period ended
September 30, 1994, the fund paid $1,079 in distribution fees
for class A shares.
During the period ended September 30, 1994, Putnam Mutual Funds
Corp., acting as the underwriter, received net commissions of
$5,494 from the sale of class A shares of the fund.
A deferred sales charge of 1.00% or 0.50%, based on the lower
of shares' cost and current net asset value, is assessed on
certain redemptions of class A shares purchased as part of an
investment of $1 million or more. For the period ended
September 30, 1994 Putnam Mutual Funds Corp., acting as an
underwriter, received no monies on such redemptions.
The fund has adopted a separate distribution plan with respect
to its class B shares (the "Class B Plan") pursuant to Rule 12b-
1 of the Investment Company Act of 1940. The purpose of the
Class B Plan is to compensate Putnam Mutual Funds Corp. for
services provided and expenses incurred by it in distributing
class B shares. The Class B Plan provides for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate of up to
1.00% of the funds' average net assets attributable to class B
shares. Currently, the Trustees have limited payments to 0.75%
of such assets. For the period ended September 30, 1994 the
fund paid Putnam Mutual Funds Corp., distribution fees of
$3,914 for class B shares.
Putnam Mutual Funds Corp., acting as the underwriter, also
receives the proceeds of the contingent deferred sales charges
levied on class B share redemptions within four years of
purchase. The charge is based on declining rates, which begin
at 3.0% of the net asset value of redeemed shares. Putnam
Mutual Funds Corp. received $10,654 in contingent deferred
sales charges from such redemptions for the period ended
September 30, 1994.
Note 4
Purchases and sales of securities
During the period ended September 30, 1994, purchases and sales
of investment securities other than short- term municipal
obligations aggregated $15,093,027 and $6,224,537,
respectively. Purchases and sales of short-term municipal
obligations aggregated $400,000, and $0, respectively. In
determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
<TABLE><CAPTION>
<S> <C> <C>
Sales of futures contracts
- ---------------------------------------------------------------
Number of Aggreage
contracts face value
- ---------------------------------------------------------------
Contracts opened 15 $1,500,156
Contracts closed (11) (1,102,500)
Contracts open at end of period 4 $397,656
- ---------------------------------------------------------------
</TABLE>
Note 5
Capital shares
At September 30, 1994 there was an unlimited number of shares
of beneficial interest authorized divided into two classes of
shares, class A and class B capital stock. Transactions in
capital shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
June 1, 1994
(commencement of
operations) to
September 30
- ---------------------------------------------------------------
1994
- ---------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------
Shares sold 577,132 $4,821,888
Shares issued in connection
with reinvestment of
distributions 3,463 28,725
580,595 4,850,613
Shares repurchased (71,818) (603,138)
Net increase 508,777 $4,247,475
- ---------------------------------------------------------------
June 1, 1994
(commencement of
operations) to
September 30
- ---------------------------------------------------------------
1994
- ---------------------------------------------------------------
Class B Shares Amount
Shares sold 375,444 $3,138,621
Shares issued in connection
with reinvestment of
distributions 1,938 16,076
377,382 3,154,697
Shares repurchased (28,055) (232,145)
Net increase 349,327 $2,922,552
- ---------------------------------------------------------------
</TABLE>
Federal tax information
The fund has designated all distributions from net investment
income paid during the fiscal year as exempt from federal
income tax. The form 1099 you will receive in January 1995 will
tell you the tax status of any distribution paid to your
account in calendar year 1994.
<PAGE>
Fund information
September 30, 1994
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
Coopers & Lybrand L.L.P.
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
Gordon H. Silver
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 R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Intermediate Tax Exempt Fund. It may also be used as sales
literature when preceded or accompanied by the current
prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most
recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-
225-1581.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
155/341-14798
<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 names of the fund) and footers (e.g.
page numbers and OThe accompanying notes are an integral part
of these financial statementsO) 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 symbols are omitted.
(6) Page Numbering is different.
