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Previous: PUTNAM INTERMEDIATE TAX EXEMPT FUND, 497, 1995-04-12 |
Next: DEFINED ASSET FUNDS MUNICIPAL INVT TR FD MULTISTATE SER 86, 487, 1995-04-12 |
As filed with the Securities and Exchange Commission on
April 12 , 1995
Registration No. 33-57937
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(Exact Name of Registrant as Specified in Charter)
ONE POST OFFICE SQUARE, BOSTON, MASSACHUSETTS 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
-----------
John R. Verani, Vice President
Putnam Intermediate Tax Exempt Fund
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
------------
Copy to:
John W. Gerstmayr, Esquire
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective.
------------
It is proposed that the filing will become effective on
May 12 , 1995 pursuant to Rule 488.
------------
An indefinite amount of the Registrant's securities has been
registered under the Securities Act of 1933 pursuant to Rule
24f-2. In reliance upon such Rule, no filing fee is being paid
at this time. A Rule 24f-2 notice for the Registrant for the
year ended September 30, 1994 was filed on November 29, 1994.<PAGE>
PUTNAM INTERMEDIATE TAX EXEMPT FUND
CROSS-REFERENCE SHEET
AS REQUIRED BY RULE 481(A)
FORM N-14 ITEM CAPTION IN PROSPECTUS/PROXY STATEMENT
1 Cross-Reference Sheet; Front Cover
2 Front Cover
3 Synopsis;
Risk Factors; Expenses Summary
4 Introduction; Proposal Regarding
Approval or Disapproval of
Agreement and Plan of
Reorganization; Background
and Reasons for the Proposed
Reorganization; Information
about the Reorganization
5, 6 The Municipal Trust
7 Introduction; Proposal Regarding
Approval or Disapproval of Agreement
and Plan of Reorganization;
Information About the Reorganization;
Voting Information
8, 9 Not Applicable
FORM N-14 ITEM CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
10, 11 Cover Page
12 Not Applicable
13 Cover Page; Additional Information About the
Municipal Trust
14 Financial Statements
PART C
The information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to
this Registration Statement.
<PAGE>
PUTNAM INVESTMENT GRADE INTERMEDIATE MUNICIPAL
TRUST
One Post Office Square
Boston, Massachusetts 02109
May 1, 1995
To the Shareholders:
Enclosed you will find several documents being furnished to
you in connection with a meeting of Putnam Investment Grade
Intermediate Municipal Trust (the "Municipal Trust") shareholders
to be held July 13, 1995 at 2:00 P.M. in Boston, Massachusetts.
I hope this material will receive your immediate attention and
that, if you cannot attend the meeting in person, you will vote
your proxy promptly.
The Trustees of the Municipal Trust are recommending that
shareholders approve a merger of the Municipal Trust into Putnam
Intermediate Tax Exempt Fund (the "Tax Exempt Fund"), an open-end
fund with substantially similar investment objectives and
policies. The merger would, in effect, result in your Municipal
Trust shares being exchanged at net asset value and on a tax-free
basis for Class A shares of the Tax Exempt Fund. Under the
proposed plan, the Municipal Trust will transfer all of its
assets to the Tax Exempt Fund in return for Class A shares of the
Tax Exempt Fund and the assumption by the Tax Exempt Fund of all
of the liabilities of the Municipal Trust. After the transfer,
the Class A shares of the Tax Exempt Fund will be distributed to
holders of the Municipal Trust shares, thereby liquidating the
Municipal Trust. Both the Municipal Trust and the Tax Exempt
Fund are managed by Putnam Investment Management, Inc. ("Putnam
Management") and have the same Trustees.
The proposed reorganization would provide shareholders with
increased liquidity for their shares. At present, shareholders
who wish to sell their shares can do so only on the American
Stock Exchange at current market prices which generally have
reflected a discount from net asset value. Following the
proposed reorganization, shareholders would have the opportunity
at any time to redeem their shares at net asset value or to
exchange their investment at net asset value (without payment of
sales commissions) for shares of other open-end funds in the
Putnam group. In order to offset costs of early redemptions
following the merger, a 2% temporary redemption fee will apply to
redemptions and exchanges made within six months following the
reorganization and will be paid to the Tax Exempt Fund.
YOUR TRUSTEES BELIEVE THAT THE PROPOSED MERGER WITH THE TAX
EXEMPT FUND IS IN THE BEST INTERESTS OF SHAREHOLDERS AND
RECOMMEND THAT YOU VOTE IN FAVOR OF IT.
The Notice of Meeting of Shareholders and the accompanying
Prospectus/Proxy Statement and form of proxy are enclosed.
Please read them carefully. If you are unable to attend the
meeting in person, we urge you to sign, date and return the proxy
card so that your shares may be voted in accordance with your
instructions.
I URGE YOU TO GIVE THE ENCLOSED MATERIAL YOUR PROMPT
ATTENTION SO THAT THE MUNICIPAL TRUST WILL NOT HAVE TO INCUR
THE EXPENSE OF ADDITIONAL MAILINGS.
Sincerely yours,
George Putnam, Chairman
<PAGE>
PUTNAM INVESTMENT GRADE INTERMEDIATE MUNICIPAL TRUST
NOTICE OF MEETING OF SHAREHOLDERS
To the Shareholders of Putnam Investment Grade
Intermediate Municipal Trust
NOTICE IS HEREBY GIVEN that a Meeting of Shareholders of
Putnam Investment Grade Intermediate Municipal Trust (the "Trust"
or the "Municipal Trust") will be held at One Post Office Square,
8th Floor, Boston, Massachusetts, on July 13, at 2 :00
p.m., Boston time, for the following purposes:
1. To consider and act upon an Agreement and Plan of
Reorganization providing for the transfer of all of the
assets of the Trust to Putnam Intermediate Tax Exempt
Fund (the "Tax Exempt Fund") in exchange for shares of
the Tax Exempt Fund and the assumption by the Tax
Exempt Fund of all of the liabilities of the Trust, and
the distribution of such shares to the shareholders of
the Trust in complete liquidation of the Trust; and
2. To transact such other business as may properly come
before the Meeting or any adjournment or adjournments
thereof.
The Trustees have fixed the close of business on April
21 , 1995 as the record date for determination of
shareholders entitled to notice of, and to vote at, the Meeting.
Each shareholder who does not expect to attend in person is
requested to date, fill in, sign, and return promptly the
enclosed form of proxy.
By the Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter Robert E. Patterson
Hans H. Estin Donald S. Perkins
John A. Hill George Putnam, III
Elizabeth T. Kennan A.J.C. Smith
Lawrence J. Lasser W. Nicholas Thorndike
Boston, Massachusetts
May 1 , 1995
Your prompt attention to the enclosed form of proxy will
help to avoid the expenses of additional mailings.
<PAGE>
PROSPECTUS/PROXY STATEMENT
May 1 , 1995
ACQUISITION OF THE ASSETS OF
Putnam Investment Grade Intermediate Municipal Trust
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
BY AND IN EXCHANGE FOR SHARES OF
Putnam Intermediate Tax Exempt Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
THE MUNICIPAL TRUST. . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . .
.12
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 14
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION. . . . . . . . . . . 15
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION . . . . 16
INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . . . . . 18
THE MUNICIPAL TRUST. . . . . . . . . . . . . . . . . . . . . . 24
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . 32
AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . .Exhibit A
This Prospectus/Proxy Statement relates to the proposed
merger of Putnam Investment Grade Intermediate Municipal Trust
(the "Municipal Trust") into Putnam Intermediate Tax Exempt Fund
(the "Tax Exempt Fund") through the transfer of all assets of the
Municipal Trust to the Tax Exempt Fund in exchange for Class A
shares of beneficial interest of the Tax Exempt Fund (such shares
issued in the merger referred to herein as the "Merger Shares")
and the assumption by the Tax Exempt Fund of all of the
liabilities of the Municipal Trust (the Municipal Trust and the
Tax Exempt Fund are sometimes collectively referred to herein as
the "Funds" and each individually as a "Fund"). Following such
transfer, the Merger Shares received by the Municipal Trust will
be distributed to shareholders of the Municipal Trust in
liquidation of the Municipal Trust. As a result of the proposed
transaction, each shareholder of the Municipal Trust will receive
a number of full and fractional Merger Shares equal in value at
the date of the exchange to the aggregate value of the
shareholder's Municipal Trust shares. The Merger Shares so
received will be subject to a Temporary Redemption Fee (as
described more fully below) payable to the Tax Exempt Fund of 2%
of their net asset value if such shares are redeemed before the
close of business on the last business day of the sixth month
following the Exchange Date (as defined below).
This Prospectus/Proxy Statement explains concisely what you
should know before investing in the Tax Exempt Fund. Please read
it and keep it for future reference. This Prospectus/Proxy
Statement is accompanied by (i) the Prospectus of the Tax
Exempt Fund, dated February 1, 1995 (the "Tax Exempt Fund
Prospectus") and (ii) the Report of Independent Accountants and
financial statements included in the Tax Exempt Fund's Annual
Report to Shareholders for the 1994 fiscal period beginning June
1, 1994 and ending September 30, 1994 (the "Fund Annual Report").
Each of the Tax Exempt Fund prospectus and the Fund Annual
Report contains information about the Tax Exempt Fund and is
incorporated into this Prospectus/Proxy Statement by reference.
The current Statement of Additional Information of the Tax Exempt
Fund, dated February 1, 1995 (the "Tax Exempt Fund Statement"),
has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus/Proxy Statement by
reference , and the Report of Independent Accountants and
financial statements included in the Municipal Trust's Annual
Report to Shareholders for the fiscal period beginning May 28,
1993 and ending April 30, 1994 and the Semi-Annual Report to
Shareholders for the fiscal period beginning May 1, 1994
and ending October 31, 1994 are also incorporated by reference
into this Prospectus/Proxy Statement. In addition, a Statement
of Additional Information dated May 1 , 1995 (the
"Reorganization Statement") relating to the transactions
described in this Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is also incorporated
into this Prospectus/Proxy Statement by reference. For a free
copy of either or both of the Statements of Additional
Information or the Trust's Annual Report or the
Semi-Annual Report, call Putnam Investor Services at
1-800-225-1581. Proxy materials, information statements and
other information filed by the registrant can be
inspected and copied at the Public Reference Facilities
maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C., 20549. Copies of such material
can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C., 20549 at prescribed rates.
THE SECURITIES OFFERED BY THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE TAX EXEMPT FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL
INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
SYNOPSIS
PROPOSED TRANSACTION. The Trustees of the Municipal Trust
have approved the merger of the Municipal Trust into the Tax
Exempt Fund. The merger is proposed to be accomplished pursuant
to an Agreement and Plan of Reorganization providing for the
transfer of all of the assets of the Municipal Trust to the Tax
Exempt Fund in exchange for the assumption by the Tax Exempt Fund
of all of the liabilities of the Municipal Trust and for a number
of Class A shares of the Tax Exempt Fund equal in value to the
value of the net assets of the Municipal Trust transferred to the
Tax Exempt Fund. Following the transfer, the Municipal Trust
will distribute the Merger Shares received by it to its
shareholders of record, in complete liquidation of the Municipal
Trust. As a result of the proposed transaction, each shareholder
of the Municipal Trust will receive a number of full and
fractional Merger Shares equal in value at the date of the
exchange to the aggregate value of the shareholder's Municipal
Trust shares. The Merger Shares so received will be subject to a
Temporary Redemption Fee (described more fully below) payable to
the Tax Exempt Fund of 2% of their underlying net asset value if
redeemed before the close of business on the last business day of
the sixth month following the Exchange Date (as defined below).
FOR THE REASONS SET FORTH BELOW UNDER "BACKGROUND AND
REASONS FOR THE PROPOSED REORGANIZATION," THE FUNDS' TRUSTEES,
INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED PERSONS"
OF EITHER FUND HAVE CONCLUDED (I) THAT THE REORGANIZATION WOULD
BE IN THE BEST INTERESTS OF THE FUNDS' EXISTING SHAREHOLDERS AND
RECOMMEND APPROVAL OF THE REORGANIZATION AND (II) THAT THE
INTERESTS OF THE FUNDS' EXISTING SHAREHOLDERS WILL NOT BE DILUTED
AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THE
REORGANIZATION. THE MUNICIPAL TRUST AND THE TAX EXEMPT FUND HAVE
THE SAME TRUSTEES.
CERTAIN TAX CONSEQUENCES OF THE REORGANIZATION. The closing
of the proposed reorganization is subject to the receipt of a
ruling from the Internal Revenue Service or an opinion of Ropes &
Gray, legal counsel to both the Municipal Trust and the Tax
Exempt Fund, to the effect that for federal income tax purposes
(i) no gain or loss will be recognized by the Municipal Trust or
the Municipal Trust's shareholders as a result of the
reorganization, (ii) the tax basis of the Merger Shares received
by each Municipal Trust shareholder will be the same as the tax
basis of the shareholder's Municipal Trust shares, and (iii) the
tax basis of assets of the Municipal Trust held by the Tax Exempt
Fund as a result of the reorganization, will be the same as the
tax basis of such assets in the hands of the Municipal Trust
prior to the reorganization. See "Information about the
Reorganization - Federal Income Tax Consequences."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The
Municipal Trust and the Tax Exempt Fund are both federally
tax-exempt intermediate-term income funds with substantially
similar investment objectives and policies. The Municipal Trust
seeks to maintain a dollar-weighted average maturity of 8 to 10
years, while the Tax-Exempt Fund seeks to maintain a
dollar-weighted average maturity of 6 to 10 years. The lower
range of the dollar-weighted average maturity which the Tax
Exempt Fund seeks to maintain could result in a portfolio that is
slightly less volatile than the Municipal Trust's portfolio
although this may not necessarily be the case. As of February
28 , 1995, the dollar-weighted average maturity of the
Municipal Trust and the Tax Exempt Fund was 10.01 years
and 10.19 years, respectively.
Each Fund follows the fundamental policy of investing at
least 80% of its net assets in Tax Exempt Securities (as defined
below), except when investing during times of adverse market
conditions. With respect to both Funds , "Tax Exempt
Securities" are debt obligations issued by a state (including the
District of Columbia), a United States territory or possession,
or any of their political subdivisions, the interest from which
is, in the opinion of bond counsel, exempt from federal tax.
For purposes of determining compliance with the 80% test
described above, the Tax Exempt Fund excludes securities the
interest from which may be subject to federal alternative minimum
tax for individuals, while the Municipal Trust may include such
securities for purposes of the 80% test. In effect, the
Municipal Trust may invest up to 30% of its total assets in
securities subject to such federal alternative minimum tax while
the Tax Exempt Fund is limited to investing 20% of its assets in
such securities. As of February 28 , 1995, the Municipal
Trust and the Tax Exempt Fund had 11.89% and
15.88% , respectively, of their assets invested in
securities subject to federal alternative minimum tax.
The principal difference in the Fund's investment
policies is that the Tax Exempt Fund may invest up to 25% of
its total assets in securities rated BB or Ba, or in unrated
securities Putnam Management determines to be of comparable
quality. By contrast, the Municipal Trust may only invest in
securities rated at least BBB or Baa, or in unrated securities
Putnam Management determines to be of comparable quality, subject
to the limitation described below. Securities rated BB or Ba are
considered "junk" bonds and have more speculative aspects than
investment grade securities. Despite this difference in
investment policies, the securities in which the Funds invest
have been of similar quality. In fact, as shown in the table
below, the Municipal Trust currently holds securities rated BB,
while the Tax Exempt Fund does not hold any securities below
investment grade, even though the Tax Exempt Fund may invest up
to 25% of its assets in BB securities. As of February 28,
1995 , the quality composition
of the Tax Exempt Securities in each Fund's portfolio was as
follows:
THE MUNICIPAL TRUST THE TAX EXEMPT FUND
AAA 40.2% 24.4%
AA 12.7% 17.8%
A 4.7% 20.6%
BBB 38.8% 37.2%
BB 3.6% * 0%
* The Municipal Trust's holdings of BB securities are the result
of ratings downgrades.
Certain additional differences in the Funds' investment
policies are the following. The Municipal Trust is classified as
a "non-diversified" fund under the Investment Company Act of 1940
(the "1940 Act"), permitting it to invest a higher percentage of
its assets in the securities of a single issuer than the Tax
Exempt Fund, which is classified as a "diversified" fund. Also,
the Tax Exempt Fund may invest without limit in unrated
securities, while the Municipal Trust may only invest up to 20%
of its assets in unrated securities.
Despite these differences, both Funds are managed by the
same portfolio manager, Michael F. Bouscaren , and follow
substantially similar investment strategies. In addition, the
securities currently held by the Funds are substantially similar
in maturity , as shown above, and quality. For these
reasons, the reorganization will not materially affect the
general strategy or style in which a shareholder's investment
will be managed except that as an open-end fund the Tax Exempt
Fund will be required to maintain a greater reserve of liquid
short-term investments to fund redemptions .
MANAGEMENT FEES AND OTHER EXPENSES. Under its Management
Contract, the Municipal Trust pays a quarterly fee to Putnam
Management based on the average net assets of the Municipal Trust
as determined at the close of the last business day of each week
which ends during the quarter. As of February 28 , 1995,
the Municipal Trust had net assets of $44,380,269 and paid
management fees at the annual rate of 0.50%. In addition, under
an Administrative Services Contract between the Municipal Trust
and Putnam Management, the Municipal Trust pays Putnam Management
a quarterly fee based on the Municipal Trust's average net asset
value, currently at the annual rate of 0.20%. Under the
contract, Putnam Management at its own expense and subject
to the control of the Trustees of the Municipal Trust, manages,
supervises, and conducts the non-investment related affairs and
business of the Municipal Trust, furnishes office space and
equipment, and provides bookkeeping and clerical services. The
services provided under the separate Management and
Administrative Service Contracts for the Municipal Trust are
provided under a single Management Contract for the Tax
Exempt Fund (described below). The Municipal Trust currently
pays management fees at the annual rate of 0.50% and
administrative service fees at the annual rate of 0.20%.
Under its Management Contract, which provides for both
investment management and administrative services, the Tax Exempt
Fund pays a quarterly fee of 0.60% per annum to Putnam
Management based on the average net assets of the Tax Exempt Fund
as determined at the close of business each day during the
quarter. As of February 28 , 1995, the Tax Exempt Fund had
net assets of $11,172,249 . Pursuant to an expense
limitation currently in effect through December 31, 1995, Putnam
Management has agreed to reduce its compensation and, where
necessary, absorb other expenses of the Tax Exempt Fund, to the
extent total fund operating expenses exceed an annual rate of
0.80% of the Tax Exempt Fund's average net assets. The Tax
Exempt Fund currently pays management fees at the annual rate of
0.47% after the expense limitation, and would pay management fees
at the annual rate of 0.60% in the absence of the expense
limitation.
The Tax Exempt Fund has adopted a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act to permit the Tax Exempt Fund to
compensate Putnam Mutual Funds Corp. ("Putnam Mutual Funds") by
paying it a fee at an annual rate of up to 0.35% of the Tax
Exempt Fund's average net assets attributable to its Class A
shares for services provided and expenses incurred by it in
promoting the sale of its Class A shares, reducing redemptions,
or maintaining or improving services provided to shareholders of
Putnam Mutual Funds or dealers. The Trustees currently limit
payments under the Class A Distribution Plan to 0.15% of net
assets attributable to such shares. See "Distribution Plans
- --Class A Distribution Plan" in the enclosed Tax Exempt Fund
Prospectus for a detailed description of the Distribution Plan.
As a closed-end fund, the Municipal Trust does not pay any
similar fee.
The Tax Exempt Fund incurred management fees and total fund
operating expenses for its fiscal period ended September 30, 1994
of 0.47% and 1.03%, respectively, reflecting the expense
limitation described above. In the absence of the expense
limitation described above, such management fees and total fund
operating expenses would have been 0.60% and 1.16%, respectively.
At February 28 , 1995, Putnam Management projects that the
Municipal Trust will incur management and administrative service
fees and total fund operating expenses for the fiscal year
ending April 30, 1995 of 0.70% and 1.01% ,
respectively.
Putnam Management has advised the Trustees that it expects,
based on the current sizes of the two Funds, that the management
fees paid by the Tax Exempt Fund after the proposed
reorganization would be paid at the rate of 0.47% after the
expense limitation. Putnam Management believes the Tax Exempt
Fund's total expenses following the reorganization would amount
to 1.03% of the Fund's net assets reflecting the expense
limitation and 1.16% of the Fund's net assets in the absence of
the expense limitation, as compared to the Municipal Trust's
projected current expense level of 1.01% of net
assets. The above expense projections are based upon average net
assets of approximately $11.2 million for the Tax Exempt
Fund and $44.4 million for the Municipal Trust at
February 28 , 1995.
PURCHASE PROCEDURES. The Tax Exempt Fund makes a continuous
public offering of its shares and currently offers two classes of
shares. Shares of the Tax Exempt Fund may be purchased either
through investment dealers which have sales agreements with
Putnam Mutual Funds or directly through Putnam Mutual Funds at
prices based on net asset value, plus varying sales charges,
depending on the class and number of shares purchased. For more
information about how to purchase additional shares of the Tax
Exempt Fund, consult the Tax Exempt Fund Prospectus incorporated
herein by reference. Reinvestments of distributions by the Tax
Exempt Fund are made at net asset value for both classes.
As a closed-end investment company, the Municipal Trust does
not currently offer its shares for sale. Shares of the Municipal
Trust may be purchased only on the American Stock Exchange at
prevailing market prices.
REDEMPTION AND EXCHANGE OF SHARES. Shares of either class
of the Tax Exempt Fund may be redeemed any day the New York Stock
Exchange is open at their net asset value next determined either
through an investment dealer or directly to the Fund through
Putnam Investor Services, the Fund's shareholder servicing agent.
There is no charge for redemptions of shares of the Tax Exempt
Fund, except that Class A shares purchased without an initial
sales charge as part of an investment of $1 million or more and
Class B shares may be subject to a contingent deferred sales
charge ("CDSC") depending on how long such shares are held. The
Merger Shares received by shareholders in connection with the
proposed reorganization will not be subject to a CDSC but will be
subject to a 2% Temporary Redemption Fee until the last business
day of the sixth month following the Exchange Date (as defined
below).
Shares of the Tax Exempt Fund, including the Merger Shares,
may be exchanged after a ten-day holding period for shares of the
same class of certain other Putnam open-end funds. Exchanges of
the Merger Shares would be subject to the Temporary Redemption
Fee, as described below.
Since the Municipal Trust is a closed-end investment
company, shareholders do not have the right to redeem their
shares. Instead, shares may be sold on the American Stock
Exchange at a price determined by the market. Since shortly
following the commencement of its operations, shares of the
Municipal Trust generally have traded at a discount from their
net asset value. If the proposed reorganization is not approved
by the shareholders of the Municipal Trust and implemented, the
Trustees of the Municipal Trust will consider such other
alternatives as may be in the best interests of shareholders.
EXPENSES SUMMARY
THE MUNICIPAL TRUST
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge (as a percentage
of offering price) Not Applicable
Dividend Reinvestment Plan Fees None
ANNUAL EXPENSES
Management Fees 0.50%
Other Expenses 0.52%
Administrative Service Fees 0.20%
Other Operating Expenses 0.31%
TOTAL ANNUAL EXPENSES 1.01%
The table is provided to help you understand your share of
the operating expenses which the Municipal Trust incurs. Shares
of the Municipal Trust were initially offered in an underwritten
public offering subject to a sales charge of 5.75%. The shares
currently trade on the American Stock Exchange and are not
subject to any sales charge but are subject to customary
brokerage commissions.
Example
An investment of $1,000 would incur the following expenses,
assuming a 5% annual return:
1 3 5 10
year years years years
$10 $32 $56 $124
The Example does not represent past or future expense
levels. Actual expenses may be more or less than those shown.
The Example does not show the effect of any sales charges, which
are not applicable to open market purchases of Municipal Trust
shares. Federal regulations require the Example to assume a 5%
annual return, but actual return has varied. In addition, while
the Example assumes reinvestment of all dividends and
distributions of net asset value, participants in the Municipal
Trust's Dividend Reinvestment Plan receive shares from the Plan
Agent (as defined below) at the market price in effect at that
time, which may be at, above or below net asset value.
THE TAX EXEMPT FUND
(Pro Forma Combined)
Class A
Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 3.25%
(Not applicable to Merger Shares)
Deferred Sales Charge
(as a percentage of the lower
of original purchase price or
redemption proceeds) None
(Not applicable to Merger Shares)
Temporary Redemption Fee 2.00%
(Applicable only to Merger Shares)
ANNUAL FUND OPERATING EXPENSES
(as percentage of average net assets)
Management Fees (after
expense limitation) 0.47%
12b-1 Fees 0.15%
Other Expenses 0.41%
Total Fund Operating Expenses
(after expense limitation) 1.03%
The table is provided to help you understand your share of
operating expenses with respect to Class A shares which the Tax
Exempt Fund expects to incur during its current fiscal year. The
management fee shown in the table reflects an expense limitation
currently in effect. In the absence of the expense limitation,
estimated management fees would be 0.60% and estimated total fund
operating expenses would be 1.16% for Class A shares. The
12b-1 fees shown in the table reflect the amount to which
the Trustees currently limit payments under the Class A Plan.
"Other Expenses" are based on estimated amounts for the Tax
Exempt Fund's current fiscal year.
* The fees shown give effect to the proposed reorganization as
if it had occurred as of February 28 , 1995 and apply
only to the Class A shares of the Tax Exempt Fund, including
the Merger Shares. See the Tax Exempt Fund Prospectus
incorporated herein by reference for information about the
expenses associated with investments in Class B shares of
the Tax Exempt Fund.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares that were purchased
without an initial sales charge as part of an investment of
$1 million or more. This deferred sales charge would not
apply to redemptions of the Merger Shares
EXAMPLES
An investment of $1,000 in Class A shares subject to the
maximum sales charge would incur the following expenses, assuming
a 5% annual return with or without redemption at the end of each
period:
1 3
year years
$43 $64
An investment of $1,000 in the Merger Shares at net asset
value pursuant to the reorganization would incur the following
expenses, assuming 5% annual return with or without redemption:
1 3
year years
$11 $33
The Examples give effect to the proposed reorganization and
have been estimated based on the net assets of the Funds as of
February 28 , 1995. The Examples do not represent past or
future expense levels. Actual expenses may be more or less than
those shown. Federal regulations require the Examples to assume
a 5% annual return, but actual annual return will vary.
<PAGE>
RISK FACTORS
Because the Funds share similar investment objectives and
policies, the risks of an investment in the Tax Exempt Fund as
described below are similar to the risks of an investment in the
Municipal Trust, except with respect to certain investment
quality limitations and risks applicable generally to open-end
mutual funds. A more detailed description of certain risks
associated with an investment in the Tax Exempt Fund is contained
in the Tax Exempt Fund Prospectus.
CERTAIN RISKS ASSOCIATED WITH INVESTMENTS IN TAX-EXEMPT
SECURITIES. As with those of the Municipal Trust, the
market value of the Tax Exempt Fund's investments will change in
response to changes in interest rates and other factors. During
periods of falling interest rates, the values of fixed-income
securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline.
Changes by recognized rating services in their ratings of Tax
Exempt Securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of
these investments. Changes in the value of portfolio securities
will not affect interest income dividends from those securities
but will affect the net asset value of the Fund.
Also, in general the secondary market for Tax Exempt
Securities is less liquid than that for taxable fixed-income
securities. Consequently, the ability of the Fund to buy and
sell Tax Exempt Securities may, at any particular time and with
respect to any particular securities, be limited.
LOWER-RATED SECURITIES. The Tax Exempt Fund may invest in
certain lower-rated Tax Exempt Securities. The Municipal Trust
may not invest in securities rated lower than BBB/Baa or unrated
securities judged to be of comparable quality by Putnam
Management, while the Tax Exempt Fund may invest up to 25% of its
assets in securities rated BB/Ba or unrated securities judged to
be of comparable quality by Putnam Management. The rating
services' descriptions of the five highest grades of debt
securities are included in the Tax Exempt Fund's Statement of
Additional Information. A breakdown of the quality composition
of the securities held by each Fund on February 28, 1995
is presented on page 5 of this Prospectus/Proxy Statement ,
although each Fund's holdings may vary . Securities rated Ba
or BB or lower, commonly known as "junk bonds", are considered to
have speculative elements, with large uncertainties or major risk
exposures to adverse conditions. Also, the values of
lower-rated securities generally fluctuate more than those of
higher-rated securities. In addition, the lower rating reflects
a greater possibility that the financial condition of the
issuer, or adverse changes in general economic conditions, or
both, may impair the ability of the issuer to make payments of
income and principal.
OPTIONS AND FUTURES TRANSACTIONS AND OTHER INVESTMENT
PRACTICES. As with the Municipal Trust, the Tax Exempt Fund's
ability to engage in options and futures transactions for hedging
purposes also involves certain risks, including the risks that
the Tax Exempt Fund will be unable at times to close out such
positions, that hedging transactions may not accomplish their
purpose because of imperfect market correlations, or that Putnam
Management may not forecast interest rate movements correctly.
The Tax Exempt Fund, like the Municipal Trust, may also
invest in securities representing interests in Tax Exempt
Securities, known as "inverse floating obligations" or "residual
interest bonds", which pay interest rates that vary inversely to
changes in the interest rates of certain securities. Such
securities generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term
securities generally respond to such changes, and are, as a
result, generally more volatile than the market values of
fixed-rate Tax Exempt Securities.
To the extent that the Tax Exempt Fund exercises its ability
to engage in certain investment practices, it may incur various
related risks. In making securities loans and entering into
repurchase agreements, the Fund may be delayed in recovering or
unable to recover its collateral in the event of default by the
other party. In purchasing securities for future delivery, the
Fund runs the risk of a decline in the value of such securities
prior to the settlement date. These transactions involve some
risk to the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from recovering
the collateral or completing the transaction.
CASH RESERVES. As an open-end Fund, to meet potential
redemption requests, the Tax Exempt Fund must retain cash
reserves or cash equivalents and at times when significant
redemptions are anticipated may have to liquidate portfolio
securities in order to increase such reserves. The larger cash
reserves required to operate prudently as an open-end investment
company could, under certain circumstances, reduce the Tax Exempt
Fund's investment flexibility and the scope of its investment
opportunities as compared to the Municipal Trust, which has no
such cash maintenance requirement. Such a requirement could
also have some adverse effect on the Tax Exempt Fund's yield.
EFFECT OF REDEMPTIONS. The ability of former Municipal
Trust shareholders following the reorganization to redeem their
Merger Shares could result in increased redemption requests,
requiring the Tax Exempt Fund to liquidate portfolio securities
in order to meet such requests. While such redemptions could
result in a shrinkage in aggregate net asset value, Putnam
Management expects, because of the combination of the assets of
the two Funds into the Tax Exempt Fund, the Tax Exempt Fund will
be of sufficient size to permit effective management. The
Temporary Redemption Fee should also serve to reduce redemption
requests and to help offset the transaction costs of any such
redemptions.
INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection
with the proposed merger of the Municipal Trust into
the Tax Exempt Fund through the transfer of all of the
Municipal Trust's assets and liabilities to the Tax Exempt
Fund and the solicitation of proxies by and on behalf of the
Trustees of the Municipal Trust for use at the Meeting of
Shareholders (the "Meeting"). The Meeting is to be held on July
13, 1995 at 2 :00 P.M. at One Post Office Square, 8th
Floor, Boston, Massachusetts. This Prospectus/Proxy Statement
and the enclosed form of proxy are being mailed to shareholders
on or about May 1 , 1995.
Any shareholder giving a proxy has the power to revoke it by
mail (addressed to the Municipal Trust's Clerk at the principal
office of the Municipal Trust, One Post Office Square, Boston,
Massachusetts 02109) or in person at the Meeting, by executing a
superseding proxy, or by submitting a notice of revocation to the
Municipal Trust. All properly executed proxies received in time
for the Meeting will be voted as specified in the proxy, or, if
no specification is made, FOR the proposal (set forth in item (1)
of the Notice of Meeting) to implement the reorganization of the
Municipal Trust by the transfer of all of its assets in exchange
for the Merger Shares and the assumption by the Tax Exempt Fund
of all of the liabilities of the Municipal Trust.
At April 21 , 1995, there were outstanding
shares of beneficial interest of the Municipal Trust. Only
shareholders of record on April 21 , 1995 will be entitled
to notice of and to vote at the Meeting. Each share is entitled
to one vote, with fractional shares voting proportionally.
The Municipal Trust's Trustees know of no matters other than
those set forth herein to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it
is the Trustees' intention that proxies will be voted on such
matters in accordance with the judgment of the persons named in
the enclosed form of proxy.
<PAGE>
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Municipal Trust are being asked to
approve or disapprove a merger between the Municipal Trust and
the Tax Exempt Fund pursuant to an Agreement and Plan of
Reorganization between the Municipal Trust and the Tax Exempt
Fund, dated as of April , 1995 (the "Agreement"), a copy of
which is attached to this Prospectus/Proxy Statement as Exhibit
A. The Agreement provides, among other things, for the transfer
of all of the assets of the Municipal Trust to the Tax Exempt
Fund in exchange for the assumption by the Tax Exempt Fund of all
of the liabilities of the Municipal Trust and for the Merger
Shares, calculated based on the value of the net assets of the
Municipal Trust acquired by the Tax Exempt Fund and the net asset
value per Tax Exempt Fund share, all as more fully described
below under "Information about the Reorganization". After
receipt of the Merger Shares in exchange for its assets and
assumption of its liabilities, the Municipal Trust will cause the
Merger Shares to be distributed to its shareholders in complete
liquidation of the Municipal Trust, and the legal existence of
the Municipal Trust as a separate business trust under
Massachusetts law will be terminated. Each shareholder of the
Municipal Trust will receive a number of full and fractional
Merger Shares of the Tax Exempt Fund equal in value at the date
of the exchange to the aggregate value of the shareholder's
Municipal Trust shares. In addition, the Municipal Trust will
file an application for deregistration under Section 8(f) of the
1940 Act.
Prior to the date of transfer (the "Exchange Date"), the
Municipal Trust will declare a distribution to shareholders
which, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment
company taxable income (computed without regard to deduction for
dividends paid) and net realized capital gains, if any, through
the Exchange Date.
The Tax Exempt Fund has no plan or intention to sell or
otherwise dispose of any of the assets of the Municipal Trust
acquired in the merger, except for sales necessary for the Tax
Exempt Fund to maintain its status as a diversified investment
company and sales made in the ordinary course of business.
The Trustees of the Municipal Trust have voted unanimously
to approve the proposed transaction and to recommend that the
Municipal Trust's shareholders also approve the transaction. The
affirmative vote of a majority of the outstanding shares of
beneficial interest of the Municipal Trust entitled to vote at
the Meeting is necessary for the consummation of the proposed
transactions. The Municipal Trust and the Tax Exempt Fund have
the same Trustees.
A shareholder of the Municipal Trust objecting to the
proposed transaction is not entitled under either Massachusetts
law or the Agreement and Declaration of Trust to demand payment
for and an appraisal of his or her Municipal Trust shares if the
transaction is consummated over his or her objection. If the
reorganization is consummated, however, shareholders will be free
at any time to redeem the Merger Shares, for cash at net asset
value at the time of such redemption, or, after a ten-day holding
period, exchange the Merger Shares for shares of certain other
Putnam funds at net asset value at the time of such exchange, in
each case subject to a 2% Temporary Redemption Fee payable to
the Fund during the six month period following the Exchange
Date.
In the event the proposal is not approved by the
shareholders of the Municipal Trust, the Municipal Trust will
continue to be managed as a separate fund in accordance with its
current investment objectives and policies, and the Trustees may
consider alternatives in the best interests of the shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Trustees of each of the Municipal Trust and the Tax
Exempt Fund have determined that the reorganization would be in
the best interests of each Fund's shareholders and that the
interests of existing shareholders of each of the Fund's would
not be diluted as a result of effecting the reorganization. The
Trustees have unanimously approved the proposed reorganization
and have recommended its approval by the shareholders.
The principal reasons why the Trustees are recommending the
reorganization are:
(1) ELIMINATION OF DISCOUNT FROM NET ASSET VALUE. Because
the Municipal Trust is a closed-end investment company, its
shares are not redeemable, but may be bought and sold on the open
market. The market prices of such shares are influenced by a
variety of factors and at times may represent a premium above or
discount from net asset value. Since shortly after the Municipal
Trust's underwritten initial public offering, shares generally
have traded at a discount from net asset value. Putnam
Management believes that this trading discount has resulted in
part from market conditions that are currently unfavorable to
closed-end tax-exempt intermediate funds, such as the Municipal
Trust. Yields on longer-term Tax-Exempt Securities are generally
higher than yields on intermediate-term Tax Exempt Securities.
Putnam Management believes that closed-end tax-exempt fund
investors have been attracted to such higher yield longer-term
funds and have not given as much consideration to the lower
volatility of intermediate-term funds such as the Municipal
Trust. These unfavorable market conditions and limited investor
interest may be evidenced more generally by the existence, to the
knowledge of Putnam Management, of only a small number of
intermediate closed-end tax-exempt funds. In addition, Putnam
Management believes that the trading of the Municipal Trust's
shares has been less active than it otherwise might be due to
the relatively small size of the Municipal Trust's net assets
compared to other closed-end funds which also has contributed to
the discount from net asset value of the Municipal Trust's
shares. The proposed reorganization with the Tax Exempt Fund,
which will result in the Municipal Trust's shareholders becoming
shareholders of the Tax Exempt Fund, effectively eliminates the
discount resulting from such unfavorable market conditions and
other factors since the Tax Exempt Fund's shareholders would
receive redeemable shares of the Tax Exempt Fund with a net asset
value equal to the net asset value of their investment in the
Municipal Trust. However, a 2% Temporary Redemption Fee will
apply to the redemption of the Merger Shares until the last
business day of the sixth full month following the Exchange
Date.
(2) APPROPRIATE INVESTMENT OBJECTIVE OF THE TAX EXEMPT
FUND. The investment objective, policies, and restrictions of
the Tax Exempt Fund are similar to those of the Municipal
Trust and the Funds have the same portfolio manager. The
Trustees therefore believe that under present market conditions
an investment in shares of the Tax Exempt Fund will provide
shareholders with an investment opportunity similar to that
currently afforded by the Municipal Trust as well as the benefits
of owning shares of an open-end investment company.
(3) INCREASE IN PORTFOLIO SIZE; OPPORTUNITY FOR GROWTH. The
proposed combination of the portfolios of the Municipal Trust and
the Tax Exempt Fund into a single, larger portfolio is expected
to result in increased operating efficiencies and investment
flexibility for both Funds. Following the reorganization, the
combined Funds would have a lower expense ratio as a result of
the expense limitation in effect through December 31, 1995. In
deciding to recommend approval of the proposed reorganization,
the Trustees considered the fact that the combined Funds might
have a higher expense ratio than the Municipal Trust if the
expense limitation is not continued beyond this date, primarily
because the Tax Exempt Fund currently makes payments of up to
0.15% of its net assets attributable to Class A shares annually
pursuant to a distribution plan adopted by its Trustees under
Rule 12b-1 and the higher shareholder services and other expenses
associated with operating an open-end fund. See the enclosed the
Tax Exempt Fund Prospectus under "Distribution Plans - Class A
Distribution Plan." The Trustees of the Municipal Trust
concluded that any such possible increase in expense ratio to
shareholders of the Municipal Trust would be offset by the other
benefits of the proposed reorganization to shareholders of the
Municipal Trust.
As an open-end Fund, the Tax Exempt Fund will have the
opportunity for further growth of assets, which is not available
to shareholders of closed-end funds like the Municipal Trust.
Putnam Management believes that over the longer term, growth of
assets is likely to produce economies of scale leading to a
reduced expense ratio (whether or not an expense limitation is in
effect) and therefore the opportunity for increased investment
returns.
(4) ABILITY TO EXCHANGE AN INVESTMENT IN THE MUNICIPAL
TRUST FOR AN INVESTMENT IN THE TAX EXEMPT FUND WITHOUT
RECOGNITION OF GAIN OR LOSS FOR FEDERAL INCOME TAX PURPOSES. If
a shareholder in the Municipal Trust were to sell an investment
in the Municipal Trust in order to invest in the Tax Exempt Fund
or another investment product, gain or loss would be recognized
by that shareholder for federal income tax purposes upon the
redemption of those shares. If the Municipal Trust were
liquidated or were reorganized in a taxable reorganization, the
transaction would likely result in a taxable event for
shareholders. By contrast, the proposed reorganization will
permit the Municipal Trust's shareholders to exchange their
investment in the Municipal Trust for an investment in the Tax
Exempt Fund without recognition of gain or loss for federal
income tax purposes. After the reorganization, as shareholders
of an open-end fund, shareholders will be free to redeem any or
all of their Merger Shares at net asset value (subject to the
Temporary Redemption Fee), at any time, at which point a taxable
gain or loss would be recognized.
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The proposed
Agreement and Plan of Reorganization provides that the Tax Exempt
Fund will acquire all of the assets of the Municipal Trust in
exchange for the assumption by the Tax Exempt Fund of all of the
liabilities of the Municipal Trust and for the issuance of the
Merger Shares, all as of the Exchange Date (defined in the
Agreement to be the next full business day following the
Valuation Time, defined in the Agreement as 4:00 p.m. Boston time
on July 28, 1995 or such other date as may be agreed upon by the
parties). The following discussion of the Agreement is qualified
in its entirety by the full text of the Agreement, which is
attached as Exhibit A to this Prospectus/Proxy Statement.
As a result of the proposed transaction, each shareholder of
the Municipal Trust will receive that number of full and
fractional Merger Shares equal in aggregate value at the Exchange
Date to the value of the shares of the Municipal Trust held by
the shareholder. Portfolio securities of the Municipal Trust and
the Tax Exempt Fund will be valued in accordance with the
valuation practices which are described under "How the Fund
values its shares" in the enclosed Tax Exempt Fund Prospectus.
The reorganization is being accounted for as a tax-free business
combination. The Trustees of the Funds have determined that the
interests of the Funds' shareholders will not be diluted as a
result of the transactions contemplated by the reorganization.
Immediately following the Exchange Date, the Municipal Trust
will distribute pro rata to its shareholders of record as of the
close of business on the Exchange Date the full and fractional
Merger Shares received by the Municipal Trust. Such liquidation
and distribution will be accomplished by the establishment of
accounts on the Tax Exempt Fund share records in the name of such
Municipal Trust shareholders, each account representing the
respective number of full and fractional Merger Shares due such
shareholder. New certificates for the Merger Shares will be
issued only upon written request.
The consummation of the reorganization is subject to the
conditions set forth in the Agreement. The Agreement may be
terminated and the reorganization abandoned at any time, before
or after approval by the shareholders, prior to the Exchange Date
by mutual consent of the Municipal Trust and the Tax Exempt Fund
or, if any condition set forth in the Agreement has not been
fulfilled and has not been waived by the party entitled to its
benefits, by such party.
THE TAX EXEMPT FUND WILL NOT PERMIT ANY MUNICIPAL TRUST
SHAREHOLDER HOLDING CERTIFICATES FOR THE MUNICIPAL TRUST SHARES
AT THE EXCHANGE DATE TO RECEIVE CASH DIVIDENDS OR OTHER
DISTRIBUTIONS, RECEIVE CERTIFICATES FOR MERGER SHARES, EXCHANGE
MERGER SHARES FOR SHARES OF OTHER INVESTMENT COMPANIES MANAGED BY
PUTNAM MANAGEMENT, OR PLEDGE OR REDEEM MERGER SHARES UNTIL
CERTIFICATES FOR THE MUNICIPAL TRUST SHARES HAVE BEEN
SURRENDERED, OR, IN THE CASE OF LOST CERTIFICATES, AN ADEQUATE
SURETY BOND HAS BEEN POSTED. IF A SHAREHOLDER IS NOT PERMITTED
FOR THAT REASON TO RECEIVE CASH DIVIDENDS OR OTHER DISTRIBUTIONS
ON MERGER SHARES, THE TAX EXEMPT FUND WILL PAY ALL SUCH DIVIDENDS
AND DISTRIBUTIONS IN ADDITIONAL MERGER SHARES, NOTWITHSTANDING
ANY ELECTION THE SHAREHOLDER MAY HAVE MADE PREVIOUSLY TO RECEIVE
DIVIDENDS AND DISTRIBUTIONS ON THE MUNICIPAL TRUST SHARES IN
CASH. HOWEVER, SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER
CERTIFICATES FOR THE MUNICIPAL TRUST SHARES UNTIL THEY RECEIVE
INSTRUCTIONS TO DO SO.
All fees and expenses, including legal and accounting
expenses, portfolio transfer taxes (if any), or other similar
expenses incurred in connection with the consummation of the
transactions contemplated by the Agreement will be allocated
ratably between the two Funds in proportion to their net assets
as of the day of the transfer, except that the costs of proxy
materials and proxy solicitations will be borne by the Municipal
Trust. The estimated fees and expenses for the transaction
are $95,000. However, to the extent that any payment by the
Municipal Trust or the Tax Exempt Fund of such fees or expenses
would result in the disqualification of the other Fund as a
"regulated investment company" within the meaning of Section 851
of the Internal Revenue Code of 1986, as amended (the "Code"),
such fees and expenses will be paid by such other Fund.
Full and fractional shares of the Tax Exempt Fund will be
issued to the Municipal Trust's shareholders in accordance with
the procedure under the Agreement as described above. The Merger
Shares (as defined above) are Class A shares of the Tax Exempt
Fund. Class A shares of the Tax Exempt Fund are generally not
subject to redemption fees (except the Temporary Redemption Fee
applicable to the Merger Shares) and such shares are subject
to a 12b-1 fee at the current annual rate of 0.15% of the Tax
Exempt Fund's average daily net assets attributable to Class A
shares. Shareholders holding shares of the Municipal Trust will
receive Class A shares of the Tax Exempt Fund as described above,
and will not pay the sales charge otherwise attributable to Class
A shares of the Tax Exempt Fund. Each share will be fully paid
and nonassessable (subject to the Temporary Redemption Fee) when
issued, will be transferable without restriction, and will have
no preemptive or conversion rights. Like that of the Municipal
Trust, the Tax Exempt Fund's Agreement and Declaration of Trust
permits the Tax Exempt Fund to divide its shares, without
shareholder approval, into two or more series of shares
representing separate investment portfolios and to further divide
any such series, without shareholder approval, into two or more
classes of shares having such preferences and special or relative
rights and privileges as the Trustees may determine. The Tax
Exempt Fund's shares are currently divided into four classes of
shares, two of which, Class A and Class B shares, are currently
being offered. As indicated above, only Class A shares will be
distributed by the Tax Exempt Fund in connection with the
proposed reorganization. Class B shares of the Tax Exempt Fund
are described in detail in the enclosed Tax Exempt Fund
Prospectus.
TEMPORARY REDEMPTION FEE. The Merger Shares distributed to
the Municipal Trust's shareholders in connection with the
reorganization which are redeemed or exchanged for shares of
another open-end fund in the Putnam group within six months of
the Exchange Date will be subject to a Temporary Redemption Fee
payable to the Tax Exempt Fund equal to 2% of the net asset value
of such shares at the time such shares are priced (usually the
close of the New York Stock Exchange) on the date that a
redemption or exchange request in good order is received by the
Tax Exempt Fund. The Temporary Redemption Fee will be payable to
the Tax Exempt Fund and will be deducted from the amount
otherwise payable to the redeeming shareholder upon redemption or
exchange. The Temporary Redemption Fee will apply to all
redemptions and exchanges of Merger Shares for the period
beginning on the Exchange Date and ending on the last business
day of the sixth month following the Exchange Date. After that
time, the Temporary Redemption Fee will terminate and the Merger
Shares will be redeemable or exchangeable at their net asset
value.
The Trustees believe that the Temporary Redemption Fee will
reduce the impact of initial redemptions upon the operations of
the Tax Exempt Fund and its transfer agent and may offset some of
the costs and expenses associated with meeting such redemption
requests, including those costs and expenses relating to the
liquidation of portfolio securities. The Trustees of the
Municipal Trust have determined that the Temporary Redemption Fee
is reasonable in relation to anticipated costs and expenses
associated with such redemptions and to the benefits received by
the Municipal Trust's shareholders in becoming shareholders of
the Tax Exempt Fund. The Trustees also believe that the
Temporary Redemption Fee may serve to discourage large numbers of
redemption requests during the period immediately following the
reorganization. Redemption fees similar to the Temporary
Redemption Fee have been employed in the investment company
industry following the conversion of a closed-end investment
company to open-end status and have been employed in other
mergers of closed-end funds into open-end funds.
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the Tax
Exempt Fund's obligations to consummate the reorganization, the
Municipal Trust will receive a ruling from the Internal Revenue
Service or an opinion of Ropes & Gray, counsel to the Tax Exempt
Fund and the Municipal Trust, to the effect that, on the basis of
the existing provisions of the Internal Revenue Code, current
administrative rules, and court decisions, for federal income tax
purposes: (i) under Section 361 of the Code, no gain or loss
will be recognized by the Municipal Trust as a result of the
reorganization, (ii) under Section 354 of the Code, no gain or
loss will be recognized by the shareholders of the Municipal
Trust on the distribution of the Merger Shares to them in
exchange for their shares of the Municipal Trust, (iii) under
Section 358 of the Code, the tax basis of the Merger Shares that
the Municipal Trust shareholders receive in place of their
Municipal Trust shares will be the same as the tax basis of the
Municipal Trust shares exchanged, and (iv) under Section 1223(1)
of the Code, a shareholder's holding period for the Merger Shares
received pursuant to the Agreement will be determined by
including the holding period for the Municipal Trust shares
exchanged for the Merger Shares, provided that the shareholder
held the Municipal Trust shares as a capital asset.
CAPITALIZATION. The following tables show the
capitalization of the Tax Exempt Fund and the Municipal Trust as
of February 28 , 1995 and on a pro forma basis as of that
date, <PAGE>
giving effect to the proposed acquisition of assets at net asset
value:
(UNAUDITED)
MUNICIPAL PRO FORMA
TAX EXEMPT FUND TRUST
COMBINED *
Net assets . . . . . $11,172,249 $44,380,269
$55,457,518
Shares outstanding . 1,379,501 3,282,073
6,858,546
Net asset value per share. $8.10** $13.52 $8.09**
* Pro Forma net assets reflect legal and accounting merger
related costs (see page 19).
** Class A
DIFFERENCES BETWEEN THE RIGHTS OF SHAREHOLDERS OF THE
MUNICIPAL TRUST AND THE RIGHTS OF SHAREHOLDERS OF THE TAX
EXEMPT FUND. The differences between the rights of shareholders
of the Municipal Trust from those of the Tax Exempt Fund relate
primarily to the respective characteristics of the Funds as
closed-end and open-end investment companies.
The Municipal Trust is registered as a "closed-end"
investment company under the 1940 Act. Closed-end investment
companies neither redeem their outstanding shares nor engage in
the ongoing sale of new shares, and thus operate with a
relatively fixed capitalization. Shares of closed-end investment
companies normally are bought and sold on national securities
exchanges. The Municipal Trust's shares currently are traded on
the American Stock Exchange and since shortly after the
commencement of the Municipal Trust's investment operations have
traded at a discount from net asset value, although it is
possible for shares of closed-end investment companies to trade
at a premium above net asset value. See "The Municipal Trust
- -Trading Information."
The Tax Exempt Fund is registered as a "open-end" investment
company under the 1940 Act. Open-end investment companies are
commonly referred to as "mutual funds" and generally issue
redeemable securities on an ongoing basis. The Tax Exempt Fund
is engaged in a continuous offering of its shares of beneficial
interest. Class A shares are sold at the Fund's current net
asset value per share subject to a sales charge of up to 3.25% of
the offering price and may be subject to deferred sales charges
upon redemption depending on the size of a purchase. Class B
shares are sold without a sales charge but may be subject to a
CDSC upon redemption. Shareholders of the Tax Exempt Fund may at
any time surrender their shares to the Tax Exempt Fund and
receive in return the net asset value of these shares (less any
applicable CDSC, or, in the case of the Merger Shares redeemed by
the Municipal Trust shareholders during the six-month period
following the Exchange Date, the Temporary Redemption Fee).
In addition to the methods of acquiring and disposing of
shares and their potential impact on portfolio management, there
are a number of other differences between the Funds which
shareholders of the Municipal Trust considering the
reorganization should take into account:
(i) DETERMINATION OF NET ASSET VALUE. Securities and
Exchange Commission regulations under the 1940 Act require the
Tax Exempt Fund, as an open-end investment company, to determine
its current net asset value on a daily basis so as to permit the
ongoing offering and redemption of shares. This information is
published daily by most major financial publications. In
contrast, the Municipal Trust is required to determine its net
asset value only on a weekly basis and its net asset value is
therefore published less frequently. Accordingly, the Municipal
Trust shareholders may be unable to determine on a daily basis
the existence and/or the extent of any difference between the
American Stock Exchange quoted price per share and the net asset
value per share of the Municipal Trust.
(ii) EFFECT OF REDEMPTION RIGHT ON VALUE OF SHARES. As
stated above, the Municipal Trust shareholders who receive the
Merger Shares pursuant to the Agreement may redeem such shares at
net asset value (subject to the Temporary Redemption Fee),
effectively eliminating any discount at which the Municipal Trust
shares have traded. The Municipal Trust shareholders should
note, however, that ownership of the Merger Shares also precludes
the possibility, which is inherent in ownership of shares of a
closed-end investment company, of ever receiving a premium over
net asset value.
(iii) SHAREHOLDER SERVICES. Shareholders of the Tax Exempt
Fund may participate in an Exchange Privilege allowing them to
exchange their shares for shares of certain other Putnam funds.
They may also arrange for the Tax Exempt Fund to set up various
tax qualified retirement plans and make systematic investments in
its shares by automatic reduction from bank checking accounts.
None of these services currently is available to shareholders of
the Municipal Trust.
(iv) DIVIDEND REINVESTMENT PLAN OF THE MUNICIPAL TRUST. For
the period prior to the proposed reorganization, shareholders of
the Municipal Trust participating in the Municipal Trust's
Dividend Reinvestment Plan (the "DRP"), will continue to have
their dividends reinvested in shares of the Municipal Trust in
accordance with the DRP unless they elect otherwise. The DRP
may be suspended, however, with respect to any dividend
payable
within 60 days prior to the Exchange Date. Any such
dividend will be paid to DRP participants in cash unless they
elect otherwise. Following the reorganization, former
shareholders of the Municipal Trust who participated in the DRP
will continue to have dividends on their the Merger Shares
reinvested in shares of the Tax Exempt Fund at net asset value.
Since the Tax Exempt Fund is an open-end investment company, it
will no longer be possible for former shareholders of the
Municipal Trust to have their dividends reinvested at less than
net asset value. For a description of the DRP see "The Municipal
Trust - Dividend Reinvestment Plan."
(v) SHAREHOLDER MEETINGS. The American Stock Exchange
listing regulations require that the Municipal Trust hold annual
shareholder meetings. The Tax Exempt Fund is not required to,
and does not as a matter of course, hold such annual meetings,
although shareholders have the right to call a meeting to elect
or remove Trustees, or to take other actions as are provided for
in the Agreement and Declaration of Trust. The reorganization
would eliminate the need for the Municipal Trust's annual
meetings and consequently would save the costs of preparing proxy
materials and soliciting shareholders' votes on the proposals
contained therein.
THE MUNICIPAL TRUST
Provided below is certain information concerning the
Municipal Trust, including financial information, trading
history, and information about management. Information that is
substantially the same for both the Municipal Trust and the Tax
Exempt Fund is incorporated by reference where appropriate.
GENERAL INFORMATION AND HISTORY
The Municipal Trust was organized as a Massachusetts
business trust on April 1, 1993 as Putnam Investment Grade
Intermediate Tax-Free Trust. A copy of the Municipal Trust's
Agreement and Declaration of trust, as amended, which is governed
by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts.
<PAGE>
FINANCIAL HIGHLIGHTS
The table below presents per share financial information for
the life of the Municipal Trust, which commenced operations May
28, 1993.
FOR THE PERIOD
FOR THE MAY 28, 1993
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
OCTOBER 31, 1994+ APRIL 30, 1994
NET ASSET VALUE,
BEGINNING OF PERIOD $13.64 $14.04*
INVESTMENT OPERATIONS:
Net investment income .36 .65(a)
Net realized and unrealized
gain (loss) on investments (.45) (.48)
TOTAL FROM INVESTMENT OPERATIONS (.09)
.17
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.35) (.52)
Net realized gain
(loss) on investments -- (.05)
TOTAL DISTRIBUTIONS (.35) (.57)
NET ASSET VALUE, END OF PERIOD $13.20 $13.64
MARKET VALUE, END OF PERIOD $11.63 $12.38
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%)(B) (3.36)(c) (14.03)(c)
NET ASSETS, END OF PERIOD
(in thousands) $43,324 $44,758
Ratio of expenses to
average net assets (%) .54(c) .95(a)(c)
Ratio of net investment income
to average net assets (%) 2.62(c) 4.54(a)(c)
Portfolio turnover rate (%) 52.29(c) 43.07(c)
_________________________
+ Unaudited.
* Represents initial net asset value of $14.14 less
offering expenses of approximately $0.10.
(a) Reflects a waiver of the management fees for the period
May 28, 1993 to June 13, 1993.
(b) Total investment return assumes dividend reinvestment
and does not reflect the effect of sale charges.
(c) Not annualized.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Municipal Trust is to seek a
high level of current income exempt from federal income tax as is
consistent with the preservation of capital while providing less
volatility than a long-term bond fund. The Municipal Trust's
investment objective and policies, and the risks associated
therewith, are substantially similar to those of the Tax
Exempt Fund and are described in this Prospectus/Proxy Statement
under the heading "Synopsis." The description of the Tax Exempt
Fund's investment objective, strategies, policies and associated
risks included in the enclosed Tax Exempt Fund Prospectus and in
the
Tax Exempt Fund Statement is incorporated herein by reference.
INVESTMENT RESTRICTIONS
The Municipal Trust is subject to a number of fundamental
investment restrictions. The full text of these fundamental
policies is contained in the Reorganization Statement, which is
incorporated herein by reference. Fundamental policies are those
which cannot be changed without a vote of the holders of the
majority of the outstanding voting securities of a fund. Except
for investment restrictions of a Fund designated as fundamental
in this Prospectus/Proxy Statement, the Tax Exempt Statement or
the Reorganization Statement, the investment policies described
in this Prospectus/Proxy Statement are not fundamental policies.
The Trustees may change non-fundamental investment policies of a
Fund without shareholder approval. As a matter of policy, the
Trustees would not materially change a Fund's investment
objective without shareholder approval.
<PAGE>
TRADING INFORMATION
The following chart shows quarterly trading information
for the shares for the life
of the Municipal Trust, as listed on the American Stock Exchange:
CLOSING
QUARTER HIGH LOW MARKET DISCOUNT
ENDED PRICE PRICE PRICE NAV TO NAV
July 31, 1993 $ 14 $ 13 7/8 $ 14 $14.29 2.03%
October 31, 1993 14 13 7/8 14 14.64 4.37
January 31, 1994 14 13 7/8 14 14.79 5.34
April 30, 1994 12 5/8 12 3/8 12 3/8 13.64 9.27
July 31, 1994 12 1/2 12 1/2 12 1/2 13.75 9.09
October 31, 1994 11 7/8 11 5/8 11 5/8 13.20 11.93
January 31, 1995 12 1/4 12 1/8 12 1/4 13.20 7.20
<PAGE>
The Municipal Trust's net asset value per common
share , closing market price and discount per share as of
March 31, 1995 were $13.65, $12.75, and -
6.59% , respectively. As shown in the table above, the shares
have historically traded for an amount less than net asset value.
A primary reason for the proposed reorganization is the
elimination of the net asset value discount. See "Background and
Reasons for the Proposed Reorganization - Elimination of Discount
from Net Asset Value."
HOW THE MUNICIPAL TRUST IS MANAGED
The Trustees of the Municipal Trust are responsible for
generally overseeing the conduct of the Municipal Trust's
business. Subject to such policies as the Trustees may
determine, Putnam Management, the investment manager of the
Municipal Trust, furnishes a continuing investment program for
the Municipal Trust and makes investment decisions on its behalf.
Subject to the control of the Trustees, Putnam Management also
manages the Municipal Trust's other affairs and business, and
places all orders for the purchase and sale of investments.
Michael F. Bouscaren, Senior Vice President of Putnam
Management and Vice President of the Municipal Trust, has had
primary responsibility for the day-to-day management of the
Municipal Trust's portfolio since April, 1995. Mr. Bouscaren
has been employed by Putnam Management since 1994. Prior
to 1994, Mr. Bouscaren was President and Chairman of the Board of
Directors at Salomon Brothers Series Funds, Inc. and a Director
of Salomon Brothers Asset Management Inc.
Except for the different fee arrangements and the special
limitations applicable to the Tax Exempt Fund under state
securities or blue sky laws, the terms and conditions of and the
arrangements under the Management Contract and the Administrative
Services Contract between Putnam Management and the Municipal
Trust described in the Synopsis are the same as those with
respect to the Tax Exempt Fund under its Management Contract.
The discussion of these terms and conditions and arrangements and
of other information concerning Putnam Management in the Tax
Exempt Fund Prospectus is incorporated herein by reference.
Putnam Management has entered into a contract with Middlesex
Administrators L.P. for the provision of certain administrative
services related to the Municipal Trust, including assistance in
the preparation or review of governmental and regulatory filings
and reports to shareholders and securities rating agencies.
Putnam Management pays a fee to Middlesex from its own assets for
any such services.
<PAGE>
DIVIDEND REINVESTMENT PLAN
The Municipal Trust has adopted a DRP for its shareholders
pursuant to which such shareholders may have all cash
distributions automatically reinvested by The First National Bank
of Boston as plan agent (the "Plan Agent") in additional shares,
unless they have elected to receive all dividends and
distributions in cash. Shareholders who do not elect to
participate in the DRP receive all distributions of income
dividends and capital gains in cash paid by check in U.S.
dollars.
The Plan Agent serves as agent for the shareholders in
administering the DRP. Shareholders may receive more detailed
instructions on the Plan from the Municipal Trust. Shareholders
whose shares are held in the name of a bank, broker or nominee
other than the selling agent should contact such broker or
nominee to determine their rights with respect to the DRP. Under
the Plan, the Plan Agent receives all distributions by the
Municipal Trust of net investment income or capital gains and
uses them to purchase previously issued shares in the open market
for the participants' account. The prices at which the Plan
Agent will reinvest distributions may be higher or lower than the
net asset value per share of the Municipal Trust at the time of
the reinvestment.
Putnam Fiduciary Trust Company as agent for the Plan Agent
maintains all shareholders' accounts in the DRP and furnishes
written confirmation of all transactions in the accounts. Shares
in an account will be held by the Plan Agent in non-certificated
form in the name of the participant.
Each participant pays a proportionate share of brokerage
commissions incurred with respect to the Plan Agent's open market
purchases. In each case, the cost per share of shares purchased
for each participant's account is the average cost, including
brokerage commissions, of the shares purchased.
The automatic reinvestment of dividends and distributions
does not relieve participants of any income taxes that may be
payable (or required to be withheld) on dividends and
distributions.
The Municipal Trust reserves the right to amend or terminate
the DRP as applied to any dividend or distribution paid
subsequent to written notice of the change sent to the
participants in the DRP at least 30 days before the record date
for such dividend or distribution. The DRP may also be amended
or terminated by the Plan Agent, with the Municipal Trust's prior
written consent, on at least 30 days prior written notice to
participants in the DRP. There is no direct service charge to
participants in the DRP; however, the Municipal Trust reserves
the right to amend the DRP to include a service charge payable by
the participants.
A shareholder participating in the DRP may withdraw at any
time. There is no penalty for non-participation in or withdrawal
from the DRP, and shareholders who have previously withdrawn may
rejoin at any time. Upon termination of participation in the
Plan, a shareholder will receive a certificate or certificates
for the full shares held under the Plan, and a cash adjustment
for any fractional shares. Changes in election must be in
writing and should include the name of the Municipal Trust and
the shareholder's name and address as they appear on the share
certificate. Such elections, and all other correspondence
concerning the DRP, should be sent to Putnam Investor Services,
Inc., P.O. Box 41203, Providence, RI 02940-1203 , or
shareholders may call Putnam Investor Services, Inc. at
800-634- 1587. An election to withdraw from the DRP will,
until such election is changed, be deemed to be an election by a
shareholder to take all subsequent distributions in cash.
Elections will only be effective for distributions
declared after, and with a record date of at least ten days
after, such elections are received by the Plan Agent.
TAXATION
Except the differences with respect to investments in
securities subject to alternative minimum tax described in the
Synopsis, substantially the same taxation provisions and
considerations apply to both Funds. The discussion of taxation
in the Tax Exempt Fund Prospectus is incorporated herein by
reference. You should consult your tax adviser to determine the
precise effect of an investment in the Municipal Trust on your
particular tax situation.
DESCRIPTION OF SHARES
The Trustees of the Municipal Trust have authority to issue
an unlimited number of shares. The shares outstanding are fully
paid and nonassessable by the Municipal Trust except as set forth
below. The Municipal Trust's shares have no preemptive,
conversion, exchange or redemption rights. Each share has one
vote, with fractional shares voting proportionately. Shares are
freely transferable.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Municipal Trust. However, the Agreement and Declaration of
Trust disclaims shareholder liability for acts or obligations of
the Municipal Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered
into or executed by the Fund or the Trustees. The Agreement and
Declaration of Trust provides for indemnification out of the
Municipal Trust property for all loss and expense incurred by any
shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Municipal Trust would be unable to meet its
obligations. The likelihood of such circumstances is remote.
The Agreement and Declaration of Trust of the Municipal
Trust includes provisions that could have the effect of limiting
the ability of other entities or persons to acquire control
of the Municipal Trust, or to cause it to engage in certain
transactions or to modify its structure. The affirmative vote of
at least two-thirds of the outstanding shares of the Municipal
Trust is required to authorize any of the following actions: (1)
merger or consolidation of the Municipal Trust, (2) sale of all
or substantially all of the assets of the Municipal Trust, (3)
liquidation or dissolution of the Municipal Trust, (4) conversion
of the Municipal Trust to an open-end investment company, or (5)
amendment of the Agreement and Declaration of Trust to reduce the
two-thirds vote required to authorize the actions in (1) through
(5), unless with respect to any of the foregoing such action has
been authorized by the affirmative vote of two-thirds of the
total number of Trustees, in which case the affirmative vote of a
majority of the outstanding shares of each class is required.
Although the Municipal Trust's shareholders do not have the
right to redeem their shares, the Municipal Trust may take action
to repurchase shares in the open market or make tender or
repurchase offers for its shares at their net asset value. This
may have the effect of reducing any market discount from net
asset value. The Municipal Trust may, by vote of its
shareholders, be converted to an open-end investment company,
which would make the Municipal Trust's shares redeemable upon
demand of the shareholders at the shares' net asset value.
Certain provisions of the Municipal Trust's Agreement and
Declaration of Trust discussed above may have the effect of
depriving shareholders of an opportunity to sell their shares at
a premium over prevailing market prices and may have the effect
of inhibiting the Municipal Trust's conversion to open-end
status.
The table below provides information with respect to the
authorized securities of the Municipal Trust:
SHARES HOLD BY THE
AMOUNT MUNICIPAL TRUST OR SHARES
TITLE AUTHORIZED FOR ITS ACCOUNT OUTSTANDING
Common shares Unlimited -0- 3,282,073
<PAGE>
OTHER INFORMATION
The Municipal Trust has the same custodian, transfer agent,
dividend disbursing agent, Trustees and Officers as the Tax
Exempt Fund. The provisions of the Tax Exempt Fund Prospectus
and the Tax Exempt Fund Statement relating to the above are
incorporated herein by reference.
The Municipal Trust distributes income and gains to its
shareholders in a substantially identical manner to the Tax
Exempt Fund. The provisions of the Tax Exempt Fund Prospectus
and the Tax Exempt Fund Statement relating to distributions are
incorporated herein by reference.
VOTING INFORMATION
Proxies are being solicited from the Municipal Trust's
shareholders by the Board of Trustees for the Meeting of
Shareholders to be held on July 13, 1995 (the "Meeting") at
2 :00
P.M. at One Post Office Square, 8th Floor, Boston, Massachusetts,
or at such later time made necessary by adjournment. A proxy may
be revoked at any time at or before the Meeting by oral or
written notice to Beverly Marcus, Clerk of the Fund, c/o Putnam
Investment Grade Intermediate Municipal Trust, One Post Office
Square, Boston, Massachusetts 02109 or as otherwise described in
the "Introduction" above. Unless revoked, all valid proxies will
be voted in accordance with the specification thereon or, in the
absence of specifications, for approval of the Agreement and
Agreement of Reorganization. The transactions contemplated
by the Agreement will be consummated only if approved by the
affirmative vote of the holders of at least a majority of the
outstanding shares of the Municipal Trust entitled to vote
thereon at the Meeting. IN THE EVENT THE SHAREHOLDERS DO NOT
APPROVE THE REORGANIZATION, THE MUNICIPAL TRUST'S TRUSTEES WILL
CONSIDER POSSIBLE ALTERNATIVE ARRANGEMENTS IN THE BEST INTERESTS
OF THE MUNICIPAL TRUST AND ITS SHAREHOLDERS.
Proxies are being solicited by mail. Trustees of the
Municipal Trust and employees of Putnam Management, Putnam
Fiduciary Trust Company and Putnam Mutual Funds may solicit
proxies in person or by telephone. The Municipal Trust may also
arrange to have votes recorded by telephone. The telephone
voting procedure is designed to authenticate a shareholder's
identity, to allow a shareholder to authorize the voting of his
or her shares in accordance with his or her instructions and to
confirm that the instructions have been properly recorded. If
these procedures were subject to a successful legal challenge,
such votes would not be counted at the Meeting. The Municipal
Trust has not sought to obtain an opinion of counsel on this
matter and is unaware of any such challenge at this time. A
shareholder would be called on a recorded line at the phone
number Putnam Investments has in its records for that
shareholder's account, and would be asked for a Social Security
number or other identifying information. The shareholder would
then be given an opportunity to authorize proxies to vote his or
her shares at the Meeting in accordance with his or her
instructions. To ensure that the shareholder's instructions have
been recorded correctly, the shareholder will also receive a
confirmation of instructions in the mail. A special toll-free
number will be available in case the information contained in the
confirmation is incorrect. If the shareholder decides after he
or she has voted by phone that he or she wants to attend the
Meeting in person, the shareholder can revoke his or her proxy at
that time and vote his or her shares at the Meeting.
Persons holding shares as nominees will upon request be
reimbursed for their reasonable expenses in sending soliciting
material to their principals. The Municipal Trust has retained
at its expense Tritech Services, Four Corporate Place,
Corporate Park 287, Piscataway, New Jersey 08854, to aid in
the solicitation of nominee accounts for a fee not to
exceed $8,500 plus reasonable out-of-pocket expenses.
Shareholders of record of the Municipal Trust at the close
of business on April 21, 1995 (the "Record Date"), will be
entitled to vote at the Meeting or any adjournment thereof. The
holders of 30% of the shares of the Municipal Trust outstanding
at the close of business on the record date present in person or
represented by proxy will constitute a quorum for the Meeting;
however, as noted above, the affirmative vote of at least a
majority of the shares outstanding at the close of business on
the Record Date is necessary to approve the reorganization.
Shareholders are entitled to one vote for each share held, with
fractional shares voting proportionally.
Votes cast by proxy or in person at the Meeting will be
counted by persons appointed by the Municipal Trust as tellers
for the Meeting. The tellers will count the total number of
votes case "for" approval of the proposal for purposes of
determining whether sufficient affirmative votes have been cast.
The tellers will count shares represented by proxies that reflect
abstentions and "broker non-votes" (i.e., shares held by brokers
or nominees as to which (i) instructions have not been received
from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting
power on a particular matter) as shares that are present and
entitled to vote on the matter for purposes of determining the
presence of a quorum. Abstentions and broker non-votes have
the effect of a negative vote on the proposal.
As of March 31 , 1995, as shown on the books of the
Municipal Trust, there were issued and outstanding 3,282,073
shares of beneficial interest of the Municipal Trust. As of
March 31 , 1995, the officers and Trustees of the Municipal
Trust as a group beneficially owned less than 1% of the
outstanding shares of the Municipal Trust. As of March
31 , 1995, to the best knowledge of the Municipal
Trust, only Cede & Co. (95%), owned beneficially or of record 5%
or more of the outstanding shares of the Municipal Trust.
The votes of the shareholders of the Tax Exempt Fund are not
being solicited, since their approval or consent is not necessary
for this transaction. As of March 31 , 1995, the officers
and Trustees of the Tax Exempt Fund as a group beneficially owned
less than 1% of the outstanding shares of the Tax Exempt Fund.
As of March 31 , 1995, to the best of the knowledge of the
Tax Exempt Fund, only ( %), owned beneficially or of record
5% or more of the outstanding shares of the Tax Exempt Fund.
If sufficient votes in favor of approval and adoption of the
reorganization are not received by the time scheduled for the
Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting for a period or periods of not more
than 60 days in the aggregate to permit further solicitation of
proxies with respect to any of such proposals. Any adjournment
will require an affirmative vote of a majority of the votes cast
on the question in person or by proxy at the session of the
Meeting to be adjourned. The persons named as proxies will vote
in favor of such adjournment those proxies which they are
entitled to vote in favor of such proposals. They will vote
against any such adjournment the proxies required to be voted
against any of such proposals. The Municipal Trust pays the
costs of any additional solicitation and of any adjourned
session.
THE TRUSTEES OF PUTNAM INVESTMENT GRADE INTERMEDIATE
MUNICIPAL TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL AND ADOPTION OF THE
AGREEMENT.<PAGE>
PUTNAMINVESTMENTS
THIS IS YOUR PROXY CARD.
PLEASE VOTE THIS PROXY, SIGN IT BELOW, AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED. YOUR VOTE IS IMPORTANT.
Please fold at perforation before detaching
- -----------------------------------------------------------------
Proxy for a meeting of shareholders, July 13, 1995, for
PUTNAM INVESTMENT GRADE INTERMEDIATE MUNICIPAL TRUST .
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE
FUND.
The undersigned shareholder hereby appoints George Putnam,
Hans H. Estin, and William F. Pounds, and each of them
separately, proxies, with power of substitution, and hereby
authorizes them to represent and to vote, as designated below, at
the meeting of shareholders of Putnam Investment Grade
Intermediate Municipal Trust on July 13. 1995, at 2:00 p.m.,
Boston time, and at any adjournments thereof, all of the shares
of the fund that the undersigned shareholder would be entitled to
vote if personally present.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
Please sign your name exactly as it appears on this card. If
you are a joint owner, each of you should sign. When signing as
an executor, administrator, attorney, trustee or guardian, or as
custodian for a minor, please give your full title as such. If
you are signing for a corporation, please sign the full corporate
name and indicate the signer's office. If you are a partner,
sign in the partnership name.
--------------------------------------------------------------
- ---
Shareholder sign here Date
- -----------------------------------------------------------------
Co-owner sign here Date
HAS YOUR ADDRESS CHANGED?
Please use this form to notify us of any change in address or
telephone number or to provide us with your comments. Detach
this form from the proxy ballot and return it with your signed
proxy in the enclosed envelope.
Street
- -----------------------------------------------------------------
City State Zip
- -----------------------------------------------------------------
Telephone
- -----------------------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the
expense of follow-up mailings by signing and returning
this proxy as soon as possible. A postage-paid
envelope is enclosed for your convenience.
THANK YOU!
- -----------------------------------------------------------------
Please fold at perforation before detaching<PAGE>
IF YOU COMPLETE AND SIGN THE PROXY, WE'LL VOTE IT EXACTLY AS YOU
TELL US. IF YOU SIMPLY SIGN THE PROXY, IT WILL BE VOTED FOR
PROPOSAL 1. THE PROXY WILL ALSO BE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS THAT MAY COME BEFORE THE MEETING.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
PLEASE MARK YOUR CHOICE / X / IN BLUE OR BLACK INK.
1. Approval of the Agreement and Plan of Reorganization
providing for the transfer of all of the assets of Putnam
Investment Grade Intermediate Municipal Trust (the "Trust")
to Putnam Intermediate Tax Exempt Fund (the "Tax Exempt
Fund") in exchange for shares of the Tax Exempt Fund and the
assumption by the Tax Exempt Fund of all of the liabilities
of the Trust, and the distribution of such shares to the
shareholders of the Trust in complete liquidation of the
Trust.
FOR AGAINST ABSTAIN
/ / / / / /
NOTE: If you have questions on the proposal, please
call 1-800-225-1581.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement")
is made as of April , 1995 in Boston, Massachusetts, by
and between Putnam Intermediate Tax Exempt Fund, a Massachusetts
business trust (the "Tax Exempt Fund"), and Putnam Investment
Grade Intermediate Municipal Trust, a Massachusetts business
trust (the "Municipal Trust").
PLAN OF REORGANIZATION
(a) The Municipal Trust will sell, assign, convey, transfer
and deliver to the Tax Exempt Fund on the Exchange Date
(as defined in Section 6) all of its properties and assets
existing at the Valuation Time (as defined in Section 3(c)
hereof). In consideration therefor, the Tax Exempt Fund shall,
on the Exchange Date, assume all of the liabilities of the
Municipal Trust existing at the Valuation Time and deliver to
the Municipal Trust, a number of full and fractional Class A
shares of beneficial interest of the Tax Exempt Fund (the
"Merger Shares") having an aggregate net asset value equal to
the value of assets of the Municipal Trust transferred to the
Tax Exempt Fund on such date less the value of the liabilities
of the Municipal Trust assumed by the Tax Exempt Fund on that
date. The Merger Shares shall be subject to the Temporary
Redemption Fee as described in Section 11 hereof. It is
intended that the reorganization described in this Plan shall be
a reorganization within the meaning of Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in
paragraph (a) of this Plan, the Municipal Trust shall distribute
in complete liquidation to its shareholders of record as of the
Exchange Date the Merger Shares, each shareholder being entitled
to receive that proportion of such Merger Shares which the number
of shares of beneficial interest of the Municipal Trust held by
such shareholder bears to the number of shares of the Municipal
Trust outstanding on such date. Certificates representing the
Merger Shares will be issued only if the shareholder so requests.
(c) As promptly as practicable after the liquidation of the
Municipal Trust as aforesaid, the Municipal Trust shall be
dissolved pursuant to the provisions of its Agreement and
Declaration of Trust, as amended, and applicable law, and its
legal existence terminated. It is intended that the
reorganization described in this Plan shall be a taxable
transaction under the Internal Revenue Code of 1986, as amended
(the "Code").
AGREEMENT
The Tax Exempt Fund and the Municipal Trust agree as
follows:
1. REPRESENTATIONS AND WARRANTIES OF THE TAX EXEMPT FUND.
The Tax Exempt Fund represents and warrants to and agrees with
the Municipal Trust that:
(a) The Tax Exempt Fund is a business trust duly
established and validly existing under the laws of The
Commonwealth of Massachusetts and has power to own all of its
properties and assets and to carry out its obligations under this
Agreement. The Tax Exempt Fund is not required to qualify as a
foreign association in any jurisdiction. The Tax Exempt Fund has
all necessary federal, state and local authorizations to carry on
its business as now being conducted and to carry out this
Agreement.
(b) The Tax Exempt Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statements of
operations, and statements of changes in net assets and schedules
of investments (indicating their market values) of the Tax Exempt
Fund for the fiscal period ended September 30, 1994, such
statements and schedules having been audited by Coopers & Lybrand
L.L.P. , independent accountants, have been furnished to
the Municipal Trust. Such statements of assets and liabilities
and schedules fairly present the financial position of the Tax
Exempt Fund as of their dates and said statements of operations
and changes in net assets fairly reflect the results of its
operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting
principles.
(d) The prospectus and statement of additional information
dated February 1, 1995 (the "Tax Exempt Fund Prospectus"),
previously furnished to the Municipal Trust, did not as of such
date and does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Tax Exempt Fund,
threatened against the Tax Exempt Fund which assert liability on
the part of the Tax Exempt Fund.
(f) The Tax Exempt Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown
as belonging to it on its statement of assets and liabilities as
of September 30, 1994 and those incurred in the ordinary course
of the Tax Exempt Fund's business as an investment company since
September 30, 1994.
(g) No consent, approval, authorization or order of any
court or governmental authority is required for the consummation
by the Tax Exempt Fund of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the
1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of
Puerto Rico) or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "H-S-R Act").
(h) The registration statement (the "Registration
Statement") filed with the Securities and Exchange Commission
(the "Commission") by the Tax Exempt Fund on Form N-14 relating
to the Merger Shares issuable hereunder, and the proxy statement
of the Municipal Trust included therein (the "Proxy Statement"),
on the effective date of the Registration Statement (i) will
comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred
to in Section 7(a) and at the Exchange Date, the prospectus
contained in the Registration Statement of which the Proxy
Statement is a part (the "Prospectus"), as amended or
supplemented by any amendments or supplements filed with the
Commission by the Municipal Trust, will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by the Municipal Trust for
use in the Registration Statement, the Prospectus or the Proxy
Statement.
(i) There are no material contracts outstanding to which the
Tax Exempt Fund is a party, other than as will be disclosed in
the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial
interest of the Tax Exempt Fund have been offered for sale and
sold in conformity with all applicable federal securities laws.
(k) The Tax Exempt Fund is and will at all times through
the Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(l) The issuance of the Merger Shares pursuant to this
Agreement will be in compliance with all applicable federal
securities laws.
(m) The Merger Shares to be issued to the Municipal Trust
have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable by the Tax Exempt Fund, and no
shareholder of the Tax Exempt Fund will have any preemptive right
of subscription or purchase in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE MUNICIPAL TRUST.
The Municipal Trust represents and warrants to and agrees with
the Tax Exempt Fund that:
(a) The Municipal Trust is a business trust duly
established and validly existing under the laws of The
Commonwealth of Massachusetts and has power to carry on its
business as it is now being conducted and to carry out this
Agreement. The Municipal Trust is not required to qualify as a
foreign association in any jurisdiction. The Municipal Trust has
all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now
being conducted and to carry out this Agreement.
(b) The Municipal Trust is registered under the 1940 Act as
a closed-end management investment company and such registration
has not been revoked or rescinded and is in full force and
effect.
(c) A statement of assets and liabilities, statements of
operations, and statements of changes in net assets and schedules
of investments (indicating their market values) of the Municipal
Trust for the fiscal year ended April 30, 1994 and the six months
ended October 31, 1994, such statements and schedules for the
fiscal year ended April 30, 1994 having been audited by Coopers &
Lybrand L.L.P., independent accountants, will be furnished to the
Tax Exempt Fund. Such statements of assets and liabilities and
schedules fairly present the financial position of the Municipal
Trust as of their dates, and said statements of operations and
changes in net assets fairly reflect the results of its
operations and changes in financial position for the periods
covered thereby in conformity with generally accepted accounting
principles.
(d) Pre-Effective Amendment No. 3 to the Registration
Statement of the Municipal Trust under the 1940 Act (Reg. No.
33-38432), as filed with the Commission which has been previously
furnished to the Tax Exempt Fund, did not contain as of its date
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Municipal Trust,
threatened against the Municipal Trust which assert liability or
may, if successfully prosecuted to their conclusion, result in
liability on the part of the Municipal Trust, other than as have
been disclosed in the Prospectus.
(f) There are no material contracts outstanding to which
the Municipal Trust is a party, other than as will be disclosed
in the Proxy Statement.
(g) The Municipal Trust has no known liabilities of a
material nature, contingent or otherwise, other than those shown
on the Municipal Trust's statement of assets and liabilities as
of October 31, 1994 referred to above and those incurred in the
ordinary course of the business of the Municipal Trust as an
investment company since such date. Prior to the Exchange Date,
the Municipal Trust will advise the Tax Exempt Fund of all
material liabilities, contingent or otherwise, incurred by it
subsequent to October 31, 1994, whether or not incurred in the
ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean the Municipal Trust's investments shown on the schedule of
its investments as of October 31, 1994 referred to in Section
2(c) hereof, as supplemented with such changes as the Municipal
Trust shall make, and changes resulting from stock dividends,
stock split-ups, mergers and similar corporate actions.
(i) The Municipal Trust has filed or will file all federal
and state tax returns which, to the knowledge of the Municipal
Trust's officers, are required to be filed by the Municipal Trust
and has paid or will pay all federal and state taxes shown to be
due on said returns or on any assessments received by the
Municipal Trust. All tax liabilities of the Municipal Trust have
been adequately provided for on its books, and no tax deficiency
or liability of the Municipal Trust has been asserted, and no
question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes
in excess of those already paid.
(j) At both the Valuation Time (as defined in Section 3(c))
and the Exchange Date, the Municipal Trust will have full right,
power and authority to sell, assign, transfer and deliver the
Investments and any other assets and liabilities of the Municipal
Trust to be transferred to the Tax Exempt Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of
the Investments and any such other assets and liabilities as
contemplated by this Agreement, the Tax Exempt Fund will acquire
the Investments and any such other assets and liabilities subject
to no encumbrances, liens or security interests whatsoever and
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the
Investments would be required if they were, as of the time of
such transfer, the subject of a public distribution by either of
the Tax Exempt Fund or the Municipal Trust, except as previously
disclosed to the Tax Exempt Fund by the Municipal Trust.
(l) No consent, approval, authorization or order of any
court or governmental authority is required for the consummation
by the Municipal Trust of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act, state securities or blue sky laws or the
H-S-R Act.
(m) The Registration Statement, the Prospectus and the
Proxy Statement, on the Effective Date of the Registration
Statement and insofar as they do not relate to the Tax Exempt
Fund (i) will comply in all material respects with the provisions
of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders'
meeting referred to in Section 8(a) below and on the Exchange
Date, the Prospectus, as amended or supplemented by any
amendments or supplements filed with the Commission by the Tax
Exempt Fund, insofar as it does not relate to the Tax Exempt
Fund, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements of fact relating
to the Municipal Trust contained in the Registration Statement,
the Prospectus or the Proxy Statement, or omissions to state in
any thereof a material fact relating to the Municipal Trust, as
such Registration Statement, Prospectus and Proxy Statement shall
be furnished to the Municipal Trust in definitive form as soon as
practicable following effectiveness of the Registration Statement
and before any public distribution of the Prospectus or Proxy
Statement.
(n) The Municipal Trust is and will at all times through
the Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(o) At the Exchange Date, the Municipal Trust will have
sold such of its assets, if any, as necessary to assure that,
after giving effect to the acquisition of the assets of the
Municipal Trust pursuant to this Agreement, the Tax Exempt Fund
will remain a "diversified company" within the meaning of
Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the
Prospectus previously furnished to the Municipal Trust.
3. REORGANIZATION. (a) Subject to the requisite approval
of the shareholders of the Municipal Trust and to the other terms
and conditions contained herein (including the Municipal Trust's
obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as
described in Section 8(m) hereof), the Municipal Trust agrees to
sell, assign, convey, transfer and deliver to the Tax Exempt
Fund, and the Tax Exempt Fund agrees to acquire from the
Municipal Trust, on the Exchange Date all of the Investments and
all of the cash and other properties and assets of the Municipal
Trust, whether accrued or contingent (including cash received by
the Municipal Trust upon the liquidation by the Municipal Trust
of any investments purchased by the Municipal Trust after
October 31, 1994 and designated by the Tax Exempt Fund as being
unsuitable for it to acquire), in exchange for that number of
shares of beneficial interest of the Tax Exempt Fund provided for
in Section 4 and the assumption by the Tax Exempt Fund of all of
the liabilities of the Municipal Trust, whether accrued or
contingent, existing at the Valuation Time. Pursuant to this
Agreement, the Municipal Trust will, as soon as practicable after
the Exchange Date, distribute all of the Merger Shares received
by it to the shareholders of the Municipal Trust in exchange for
their shares of beneficial interest of the Municipal Trust.
(b) The Municipal Trust will pay or cause to be paid to the
Tax Exempt Fund any interest, cash or such dividends, rights and
other payments received by it on or after the Exchange Date with
respect to the Investments and other properties and assets of the
Municipal Trust, whether accrued or contingent, received by it on
or after the Exchange Date. Any such distribution shall be
deemed included in the assets transferred to the Tax Exempt Fund
at the Exchange Date and shall not be separately valued unless
the securities in respect of which such distribution is made
shall have gone "ex" such distribution prior to the Valuation
Time, in which case any such distribution which remains unpaid at
the Exchange Date shall be included in the determination of the
value of the assets of the Municipal Trust acquired by the Tax
Exempt Fund.
(c) The Valuation Time shall be 4:00 p.m. Boston time on
July 28, 1995 or such earlier or later day as may be mutually
agreed upon in writing by the parties hereto (the "Valuation
Time").
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date,
the Tax Exempt Fund will deliver to the Municipal Trust a number
of full and fractional the Merger Shares having an aggregate net
asset value equal to the value of assets of the Municipal Trust
transferred to the Tax Exempt Fund on such date less the value of
the liabilities of the Municipal Trust assumed by the Tax Exempt
Fund on that date, determined as hereafter provided in this
Section 4.
(a) The net asset value of the Merger Shares to be
delivered to the Municipal Trust, the value of the assets of the
Municipal Trust and the value of the liabilities of the Municipal
Trust to be assumed by the Tax Exempt Fund shall in each case be
determined as of the Valuation Time.
(b) The net asset value of the Merger Shares shall be
computed in the manner set forth in the current Tax Exempt Fund
Prospectus. The value of the assets and liabilities of the
Municipal Trust shall be determined by the Tax Exempt Fund, in
cooperation with the Municipal Trust, pursuant to procedures
which the Tax Exempt Fund would use in determining the fair
market value of the Tax Exempt Fund's assets and liabilities.
(c) No adjustment shall be made in the net asset value of
either the Municipal Trust or the Tax Exempt Fund to take into
account differences in realized and unrealized gains and losses.
(d) The Tax Exempt Fund shall issue the Merger Shares to
the Municipal Trust in one certificate registered in the name of
the Municipal Trust. The Municipal Trust shall distribute the
Merger Shares to the shareholders of the Municipal Trust by
redelivering such certificate to the Tax Exempt Fund's transfer
agent which will as soon as practicable set up open accounts for
each Municipal Trust shareholder in accordance with written
instructions furnished by the Municipal Trust. [With respect to
any Municipal Trust shareholder holding share certificates as of
the Exchange Date, the Tax Exempt Fund will not permit such
shareholder to receive dividends and other distributions on the
Merger Shares (although such dividends and other distributions
shall be credited to the account of such shareholder), receive
certificates representing the Merger Shares, exchange the Merger
Shares credited to such shareholder's account for shares of other
investment companies managed by Putnam Investment Management,
Inc. ("Putnam"), or pledge or redeem such the Merger Shares until
notified by the Municipal Trust or the shareholder's agent that
such shareholder has surrendered his or her outstanding Municipal
Trust certificates or, in the event of lost, stolen, or destroyed
certificates, posted adequate bond. In the event that a
shareholder shall not be permitted to receive dividends and other
distributions on the Merger Shares as provided in the preceding
sentence, the Tax Exempt Fund shall pay any such dividends or
distributions in additional Merger Shares, notwithstanding any
election such shareholder shall have made previously with respect
to the payment, in cash or otherwise, of dividends and
distributions on shares of the Municipal Trust. The Municipal
Trust will, at its expense, request the shareholders of the
Municipal Trust to surrender their outstanding Municipal Trust
certificates, or post adequate bond, as the case may be.]
(e) The Tax Exempt Fund shall assume all liabilities of the
Municipal Trust, whether accrued or contingent, in connection
with the acquisition of assets and subsequent dissolution of the
Municipal Trust or otherwise.
5. EXPENSES, FEES, ETC. (a) All fees and expenses,
including legal and accounting expenses, portfolio transfer taxes
(if any) or other similar expenses incurred in connection with
the consummation by the Municipal Trust and the Tax Exempt Fund
of the transactions contemplated by this Agreement will be
allocated ratably between the Tax Exempt Fund and the Municipal
Trust in proportion to their net assets as of the Valuation Time,
except that the costs of proxy materials and proxy solicitation
will be borne by the Municipal Trust; provided, however, that
such expenses will in any event be paid by the party directly
incurring such expenses if and to the extent that the payment by
the other party of such expenses would result in the
disqualification of the Tax Exempt Fund or the Municipal Trust,
as the case may be, as a "regulated investment company" within
the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of the Tax Exempt Fund's
being either unwilling or unable to go forward (other than by
reason of the nonfulfillment or failure of any condition to the
Tax Exempt Fund's obligations referred to in Section 7(a) or
Section 8 the Tax Exempt Fund shall pay directly all reasonable
fees and expenses incurred by the Municipal Trust in connection
with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of the Municipal Trust's
being either unwilling or unable to go forward (other than by
reason of the nonfulfillment or failure of any condition to the
Municipal Trust's obligations referred to in Section 7(a) or
Section 9, the Municipal Trust shall pay directly all reasonable
fees and expenses incurred by the Tax Exempt Fund in connection
with such transactions, including without limitation legal,
accounting and filing fees.
(d) In the event the transactions contemplated by this
Agreement are not consummated for any reason other than (i) the
Tax Exempt Fund's or the Municipal Trust's being either unwilling
or unable to go forward or (ii) the nonfulfillment or failure of
any condition to the Tax Exempt Fund's or the Municipal Trust's
obligations referred to in Section 7(a), Section 8 or Section 9
of this Agreement, then each of the Tax Exempt Fund and the
Municipal Trust shall bear all of its own expenses incurred in
connection with such transactions.
(e) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement
are not consummated, no party shall be liable to the other party
for any damages resulting therefrom, including without limitation
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of the Municipal
Trust to be transferred, assumption of the liabilities of the
Municipal Trust to be assumed and the delivery of the Merger
Shares to be issued shall be made at the offices of Ropes & Gray,
One International Place, Boston, Massachusetts, at 10:00 A.M. on
the next full business day following the Valuation Time, or at
such other time and date agreed to by the Tax Exempt Fund and the
Municipal Trust, the date and time upon which such delivery is to
take place being referred to herein as the "Exchange Date."
7. MEETING OF SHAREHOLDERS; DISSOLUTION. (a) The
Municipal Trust agrees to call a meeting of its shareholders as
soon as is practicable after the effective date of the
Registration Statement for the purpose of considering the sale of
all of its assets to and the assumption of all of its liabilities
by the Tax Exempt Fund as herein provided, adopting this
Agreement, and authorizing the liquidation and dissolution of the
Municipal Trust.
(b) The Municipal Trust agrees that the liquidation and
dissolution of the Municipal Trust will be effected in the manner
provided in the Municipal Trust's Agreement and Declaration of
Trust in accordance with applicable law and that on and after the
Exchange Date, the Municipal Trust shall not conduct any business
except in connection with its liquidation and dissolution.
(c) The Tax Exempt Fund has, after the preparation and
delivery to the Tax Exempt Fund by the Municipal Trust of a
preliminary version of the Proxy Statement which was satisfactory
to the Tax Exempt Fund and to Ropes & Gray for inclusion in the
Registration Statement, filed the Registration Statement with the
Commission. Each of the Municipal Trust and the Tax Exempt Fund
will cooperate with the other, and each will furnish to the other
the information relating to itself required by the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations
thereunder to be set forth in the Registration Statement,
including the Prospectus and the Proxy Statement.
8. CONDITIONS TO THE TAX EXEMPT FUND'S OBLIGATIONS. The
obligations of the Tax Exempt Fund hereunder shall be subject to
the following conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of at least a majority of the
outstanding shares of beneficial interest of the Municipal Trust
entitled to vote (at least two-thirds of the Trustees of the
Municipal Trust having recommended such approval).
(b) That the Municipal Trust shall have furnished to the
Tax Exempt Fund a statement of the Municipal Trust's assets and
liabilities, with values determined as provided in Section 4 of
this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
the Municipal Trust's behalf by its President (or any Vice
President) and Treasurer, and a certificate of both such
officers, dated the Exchange Date, that there has been no
material adverse change in the financial position of the
Municipal Trust since October 31, 1994 other than changes in the
Investments and other assets and properties since that date or
changes in the market value of the Investments and other assets
of the Municipal Trust, or changes due to dividends paid or
losses from operations.
(c) That the Municipal Trust shall have furnished to the
Tax Exempt Fund a statement, dated the Exchange Date, signed by
the Municipal Trust's President (or any Vice President) and
Treasurer certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of the Municipal
Trust made in this Agreement are true and correct in all material
respects as if made at and as of such dates and the Municipal
Trust has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior
to such dates.
(d) That the Municipal Trust shall have delivered to the
Tax Exempt Fund a letter from Coopers & Lybrand L.L.P. dated the
Exchange Date stating that such firm has employed certain
procedures whereby it has obtained schedules of the tax
provisions and qualifying tests for regulated investment
companies as prepared by Putnam Fiduciary Trust Company ("PFTC")
for the fiscal period May 1, 1994 to April 30, 1995 and the
period May 1, 1995 to July , 1995 (the latter period being
based on unaudited data) and that, in the course of such
procedures, nothing came to their attention which caused them to
believe that the Municipal Trust would not qualify as a regulated
investment company for federal, state, or local income tax
purposes or for federal excise tax purposes under Section 4982 of
the Code, for the tax year ended April 30, 1995, and for the
period from May 1, 1995 to July , 1995, the Exchange Date.
(e) That there shall not be any material litigation pending
with respect to the matters contemplated by this Agreement.
(f) That the Tax Exempt Fund shall have received an opinion
of Ropes & Gray, in form satisfactory to the Tax Exempt Fund and
dated the Exchange Date, to the effect that (i) the Municipal
Trust is a business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts, and the
Municipal Trust is not, to the knowledge of such counsel,
required to qualify to do business as a foreign association in
any jurisdiction, (ii) this Agreement has been duly authorized,
executed, and delivered by the Municipal Trust and, assuming that
the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act
and assuming due authorization, execution and delivery of this
Agreement by the Tax Exempt Fund, is a valid and binding
obligation of the Municipal Trust, (iii) the Municipal Trust has
power to sell, assign, convey, transfer and deliver the assets
contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this
Agreement, the Municipal Trust will have duly sold, assigned,
conveyed, transferred and delivered such assets to the Tax Exempt
Fund, (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will
not, violate the Municipal Trust's Agreement and Declaration of
Trust, as amended, or any provision of any agreement known to
such counsel to which the Municipal Trust is a party or by which
it is bound, and (v) no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by the Municipal Trust of the transactions
contemplated hereby, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R
Act, it being understood that with respect to investment
restrictions as contained in the Municipal Trust's Agreement and
Declaration of Trust, Bylaws or then-current Registration
Statement, such counsel may rely upon a certificate of an officer
of the Municipal Trust whose responsibility it is to advise the
Municipal Trust with respect to such matters.
(g) That the Tax Exempt Fund shall have received an opinion
of Ropes & Gray, in form satisfactory to the Tax Exempt Fund,
with respect to the matters specified in Section 9(f) of this
Agreement, and such other matters as the Tax Exempt Fund may
reasonably deem necessary or desirable.
(h) That the Tax Exempt Fund shall have received a ruling
from the Internal Revenue Service or an opinion of Ropes & Gray
dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules, and court
decisions, for federal income tax purposes (i) no gain or loss
will be recognized by the Tax Exempt Fund upon receipt of the
Investments transferred to the Tax Exempt Fund pursuant to this
Agreement in exchange for the Merger Shares, (ii) the basis to
the Tax Exempt Fund of the Investments will be the same as the
basis of the Investments in the hands of the Municipal Trust
immediately prior to such exchange, and (iii) the Tax Exempt
Fund s holding periods with respect to the Investments will
include the respective periods for which the Investments were
held by the Municipal Trust.
(i) That the assets of the Municipal Trust to be acquired
by the Tax Exempt Fund will include no assets which the Tax
Exempt Fund, by reason of charter limitations or of investment
restrictions disclosed in the Tax Exempt Fund Prospectus in
effect on the Exchange Date, may not properly acquire.
(j) That the Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Tax Exempt Fund, threatened by the Commission.
(k) That the Tax Exempt Fund shall have received from the
Commission, any relevant state securities administrator, the
Federal Trade Commission (the "FTC") and the Department of
Justice (the "Department") such order or orders as Ropes & Gray
deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue
sky laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
(l) That all proceedings taken by the Municipal Trust in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Tax Exempt Fund and Ropes & Gray.
(m) That, prior to the Exchange Date, the Municipal Trust
shall have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of
distributing to the shareholders of the Municipal Trust all of
the Municipal Trust's investment company taxable income for its
taxable years ending on or after April 30, 1995 and on or prior
to the Exchange Date (computed without regard to any deduction
for dividends paid), and all of its net capital gain realized in
each of its taxable years ending on or after April 30, 1995 and
on or prior to the Exchange Date.
(n) That the Municipal Trust shall have furnished to the
Tax Exempt Fund a certificate, signed by the President (or any
Vice President) and the Treasurer of the Municipal Trust, as to
the tax cost to the Municipal Trust of the securities delivered
to the Tax Exempt Fund pursuant to this Agreement, together with
any such other evidence as to such tax cost as the Tax Exempt
Fund may reasonably request.
(o) That the Municipal Trust's custodian shall have
delivered to the Tax Exempt Fund a certificate identifying all of
the assets of the Municipal Trust held by such custodian as of
the Valuation Time.
(p) That the Municipal Trust's transfer agent shall have
provided to the Tax Exempt Fund (i) the originals or true copies
of all of the records of the Municipal Trust in the possession of
such transfer agent as of the Exchange Date, (ii) a certificate
setting forth the number of shares of the Municipal Trust
outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any such shares and the
number of shares held of record by each such shareholder.
(q) That all of the issued and outstanding shares of
beneficial interest of the Municipal Trust shall have been
offered for sale and sold in conformity with all applicable state
securities or blue sky laws and, to the extent that any audit of
the records of the Municipal Trust or its transfer agent by the
Tax Exempt Fund or its agents shall have revealed otherwise,
either (i) the Municipal Trust shall have taken all actions that
in the opinion of the Tax Exempt Fund or its counsel are
necessary to remedy any prior failure on the part of the
Municipal Trust to have offered for sale and sold such shares in
conformity with such laws or (ii) the Municipal Trust shall have
furnished (or caused to be furnished) surety, or deposited (or
caused to be deposited) assets in escrow, for the benefit of the
Tax Exempt Fund in amounts sufficient and upon terms
satisfactory, in the opinion of the Tax Exempt Fund or its
counsel, to indemnify the Tax Exempt Fund against any expense,
loss, claim, damage or liability whatsoever that may be asserted
or threatened by reason of such failure on the part of the
Municipal Trust to have offered and sold such shares in
conformity with such laws.
(r) That the Tax Exempt Fund shall have received from
Coopers & Lybrand L.L.P. a letter addressed to the Tax Exempt
Fund dated as of the Exchange Date satisfactory in form and
substance to the Tax Exempt Fund to the effect that, on the basis
of limited procedures agreed upon by the Tax Exempt Fund and
described in such letter (but not an examination in accordance
with generally accepted auditing standards), as of the Valuation
Time the value of the assets of the Municipal Trust to be
exchanged for the Merger Shares has been determined in accordance
with the provisions of the Tax Exempt Fund's Agreement and
Declaration of Trust, pursuant to the procedures customarily
utilized by the Tax Exempt Fund in valuing its assets and issuing
its shares.
9. CONDITIONS TO THE MUNICIPAL TRUST'S OBLIGATIONS. The
obligations of the Municipal Trust hereunder shall be subject to
the following conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of a majority of the outstanding
shares of beneficial interest of the Municipal Trust entitled to
vote (at least two-thirds of the Trustees of the Municipal Trust
having recommended such approval).
(b) That the Tax Exempt Fund shall have furnished to the
Municipal Trust a statement of the Tax Exempt Fund's net assets,
together with a list of portfolio holdings with values determined
as provided in Section 4, all as of the Valuation Time, certified
on the Tax Exempt Fund's behalf by its President (or any Vice
President) and Treasurer (or any Assistant Treasurer), and a
certificate of both such officers, dated the Exchange Date, to
the effect that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial
position of the Tax Exempt Fund since September 30, 1994, other
than changes in its portfolio securities since that date, changes
in the market value of its portfolio securities, changes due to
net redemptions, dividends paid or losses from operations.
(c) That the Tax Exempt Fund shall have executed and
delivered to the Municipal Trust an Assumption of Liabilities
dated as of the Exchange Date pursuant to which the Tax Exempt
Fund will assume all of the liabilities of the Municipal Trust
existing at the Valuation Time in connection with the
transactions contemplated by this Agreement.
(d) That the Tax Exempt Fund shall have furnished to the
Municipal Trust a statement, dated the Exchange Date, signed by
the Tax Exempt Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer) certifying that as of the
Valuation Time and as of the Exchange Date all representations
and warranties of the Tax Exempt Fund made in this Agreement are
true and correct in all material respects as if made at and as of
such dates, and that the Tax Exempt Fund has complied with all of
the agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to each of such dates.
(e) That there shall not be any material litigation
pending or threatened with respect to the matters by this
Agreement.
(f) That the Municipal Trust shall have received an opinion
of Ropes & Gray, in form satisfactory to the Municipal Trust and
dated the Exchange Date, to the effect that (i) the Tax Exempt
Fund is an unincorporated voluntary association duly established
and validly existing in conformity with the laws of The
Commonwealth of Massachusetts, and, to the knowledge of such
counsel, is not required to qualify to do business as a foreign
association in any jurisdiction except as may be required by
state securities or blue sky laws, (ii) the Merger Shares to be
delivered to the Municipal Trust as provided for by this
Agreement are duly authorized and upon such delivery will be
validly issued and will be fully paid and nonassessable by the
Tax Exempt Fund and no shareholder of the Tax Exempt Fund has any
preemptive right to subscription or purchase in respect thereof,
(iii) this Agreement has been duly authorized, executed and
delivered by the Tax Exempt Fund and, assuming that the
Prospectus, the Registration Statement and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and
assuming due authorization, execution and delivery of this
Agreement by the Municipal Trust, is a valid and binding
obligation of the Tax Exempt Fund, (iv) the execution and
delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Tax Exempt
Fund's Agreement and Declaration of Trust, as amended, or By-
laws, or any provision of any agreement known to such counsel to
which the Tax Exempt Fund is a party or by which it is bound, it
being understood that with respect to investment restrictions as
contained in the Tax Exempt Fund's Agreement and Declaration of
Trust, as amended, By-Laws or then-current prospectus or
statement of additional information, such counsel may rely upon a
certificate of an officer of the Tax Exempt Fund whose
responsibility it is to advise the Tax Exempt Fund with respect
to such matters, (v) no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by the Tax Exempt Fund of the transactions
contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws, and (vi) the
Registration Statement has become effective under the 1933 Act,
and to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act.
(g) That the Tax Exempt Fund shall have received a ruling
from the Internal Revenue Service or an opinion of Ropes & Gray
dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules, and court
decisions, for federal income tax purposes (i) no gain or loss
will be recognized by the Tax Exempt Fund upon receipt of the
Investments transferred to the Tax Exempt Fund pursuant to this
Agreement in exchange for the Merger Shares, (ii) the basis to
the Tax Exempt Fund of the Investments will be the same as the
basis of the Investments in the hands of the Municipal Trust
immediately prior to such exchange, and (iii) the Tax Exempt
Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were
held by the Municipal Trust.
(h) That all proceedings taken by the Tax Exempt Fund in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Municipal Trust and Ropes & Gray.
(i) That the Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Tax Exempt Fund, threatened by the Commission.
(j) That the Municipal Trust shall have received from the
Commission, any relevant state securities administrator, the FTC
and the Department such order or orders as Ropes & Gray deems
reasonably necessary or desirable under the 1933 Act, the 1934
Act, the 1940 Act, any applicable state securities or blue sky
laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
10. INDEMNIFICATION. (a) The Municipal Trust will
indemnify and hold harmless, out of the assets of the Municipal
Trust but no other assets, the Tax Exempt Fund, its trustees and
its officers (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages
and liabilities at any time imposed upon or reasonably incurred
by any one or more of the Indemnified Parties in connection with,
arising out of, or resulting from any claim, action, suit or
proceeding in which any one or more of the Indemnified Parties
may be involved or with which any one or more of the Indemnified
Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to the
Municipal Trust contained in the Registration Statement, the
Prospectus or the Proxy Statement or any amendment or supplement
to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a
material fact relating to the Municipal Trust required to be
stated therein or necessary to make the statements relating to
the Municipal Trust therein not misleading, including, without
limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of
any such claim, action, suit or proceeding, or threatened claim,
action, suit or proceeding made with the consent of the Municipal
Trust. The Indemnified Parties will notify the Municipal Trust
in writing within ten days after the receipt by any one or more
of the Indemnified Parties of any notice of legal process or any
suit brought against or claim made against such Indemnified Party
as to any matters covered by this Section 10(a). The Municipal
Trust shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 10(a), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if the Municipal
Trust elects to assume such defense, the Indemnified Parties
shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their expense. The
Municipal Trust's obligation under this Section 10(a) to
indemnify and hold harmless the Indemnified Parties shall
constitute a guarantee of payment so that the Municipal Trust
will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this
Section 10(a) without the necessity of the Indemnified Parties'
first paying the same.
(b) The Tax Exempt Fund will indemnify and hold harmless,
out of the assets of the Tax Exempt Fund but no other assets, the
Municipal Trust, its trustees and its officers (for purposes of
this subparagraph, the "Indemnified Parties") against any and all
expenses, losses, claims, damages and liabilities at any time
imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or
resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with
which any one or more of the Indemnified Parties may be
threatened by reason of any untrue statement or alleged untrue
statement of a material fact relating to the Tax Exempt Fund
contained in the Registration Statement, the Prospectus or the
Proxy Statement, or any amendment or supplement to any thereof,
or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact
relating to the Tax Exempt Fund required to be stated therein or
necessary to make the statements relating to the Tax Exempt Fund
therein not misleading, including without limitation any amounts
paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Tax Exempt Fund. The
Indemnified Parties will notify the Tax Exempt Fund in writing
within ten days after the receipt by any one or more of the
Indemnified Parties of any notice of legal process or any suit
brought against or claim made against such Indemnified Party as
to any matters covered by this Section 10(b). The Tax Exempt
Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and, if the Tax
Exempt Fund elects to assume such defense, the Indemnified
Parties shall be entitled to participate in the defense of any
such claim, action, suit or proceeding at their own expense. The
Tax Exempt Fund's obligation under this Section 10(b) to
indemnify and hold harmless the Indemnified Parties shall
constitute a guarantee of payment so that the Tax Exempt Fund
will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this
Section 10(b) without the necessity of the Indemnified Parties'
first paying the same.
11. TEMPORARY REDEMPTION FEE. Beginning at the close of
business on the Exchange Date and ending at the close of business
on the last business day of the sixth month following the
Exchange Date, all Merger Shares delivered to the Municipal Trust
on the Exchange Date and thereafter distributed to the Municipal
Trust s shareholders shall be subject to a Temporary Redemption
Fee equal to 2% of the net asset value of such shares at the time
of redemption or exchange for shares of another open-end fund in
the Putnam group. The Temporary Redemption Fee shall be payable
to the Tax Exempt Fund and shall be deducted from the amount
otherwise payable to holders of the Merger Shares upon redemption
or exchange of such shares.
12. NO BROKER, ETC. Each of the Municipal Trust and the
Tax Exempt Fund represents that there is no person who has dealt
with it who by reason of such dealings is entitled to any
broker's or finder's or other similar fee or commission arising
out of the transactions contemplated by this Agreement.
13. TERMINATION. The Municipal Trust and the Tax Exempt
Fund may, by mutual consent of their respective trustees,
terminate this Agreement, and the Municipal Trust or the Tax
Exempt Fund, after consultation with counsel and by consent of
their respective trustees or an officer authorized by such
trustees, may waive any condition to their respective obligations
hereunder. If the transactions contemplated by this Agreement
have not been substantially completed by , 1995,
this
Agreement shall automatically terminate on that date unless a
later date is agreed to by the Municipal Trust and the Tax Exempt
Fund.
14. RULE 145. Pursuant to Rule 145 under the 1933 Act, the
Tax Exempt Fund will, in connection with the issuance of any
Merger Shares to any person who at the time of the transaction
contemplated hereby is deemed to be an affiliate of a party to
the transaction pursuant to Rule 145(c), cause to be affixed upon
the certificates issued to such person (if any) a legend as
follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED EXCEPT TO PUTNAM INTERMEDIATE
TAX EXEMPT FUND OR ITS PRINCIPAL UNDERWRITER UNLESS
(I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PUTNAM INVESTMENT GRADE INTERMEDIATE
MUNICIPAL TRUST SUCH REGISTRATION IS NOT REQUIRED."
and, further, the Tax Exempt Fund will issue stop transfer
instructions to the Tax Exempt Fund's transfer agent with respect
to such shares. The Municipal Trust will provide the Tax Exempt
Fund on the Exchange Date with the name of any Municipal Trust
shareholder who is to the knowledge of the Municipal Trust an
affiliate of the Municipal Trust on such date.
15. COVENANTS, ETC. DEEMED MATERIAL. All covenants,
agreements, representations and warranties made under this
Agreement and any certificates delivered pursuant to this
Agreement shall be deemed to have been material and relied upon
by each of the parties, notwithstanding any investigation made by
them or on their behalf.
16. SOLE AGREEMENT; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the
parties regarding the subject matter hereof, constitutes the only
understanding with respect to such subject matter, may not be
changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by
the laws of The Commonwealth of Massachusetts.
17. AGREEMENTS AND DECLARATIONS OF TRUST. Copies of the
Agreements and Declarations of Trust of the Municipal Trust and
the Tax Exempt Fund, respectively, are on file with the Secretary
of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the
trustees of the Municipal Trust and the Tax Exempt Fund,
respectively, as trustees and not individually and that the
obligations of this instrument are not binding upon any of the
trustees, officers or shareholders of the Municipal Trust or the
Tax Exempt Fund individually but are binding only upon the assets
and property of the Municipal Trust and the Tax Exempt Fund,
respectively.
This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall
be deemed to be an original.
PUTNAM INTERMEDIATE TAX
EXEMPT FUND
By:___________________________
Executive Vice President
PUTNAM INVESTMENT GRADE
INTERMEDIATE MUNICIPAL TRUST
By:____________________________
Executive Vice President<PAGE>
PUTNAM INTERMEDIATE TAX EXEMPT FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1 , 1995
This Statement of Additional Information contains material
which may be of interest to investors but which is not included
in the Prospectus/Proxy Statement (the "Prospectus/Proxy
Statement") of Putnam Intermediate Tax Exempt Fund (the "Tax
Exempt Fund") dated May 1 , 1995 relating to the sale of
all of the assets of Putnam Investment Grade Intermediate
Municipal Trust (the "Municipal Trust") to the Tax Exempt Fund.
(The Tax Exempt Fund and the Municipal Trust are sometimes
collectively referred to herein as the "Funds" and each
individually as a "Fund"). This Statement is not a
Prospectus/Proxy Statement and is authorized for distribution
only when it accompanies or follows delivery of the
Prospectus/Proxy Statement. This Statement should be read in
conjunction with the Prospectus/Proxy Statement. Investors may
obtain a free copy of the Prospectus/Proxy Statement from Putnam
Investor Services, Mailing address: P.O. Box 41203,
Providence, RI 02940-1203.
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT THE TAX EXEMPT FUND . . . . 3
ADDITIONAL INFORMATION ABOUT THE MUNICIPAL TRUST . . . .
3
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) . .
9
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
ADDITIONAL INFORMATION ABOUT THE TAX EXEMPT FUND
Information about the Tax Exempt Fund is included the
Prospectus/Proxy Statement and in the Prospectus of the Tax
Exempt Fund dated February 1, 1995 which is incorporated therein
and herein by reference and a copy of which has been filed with
the Securities and Exchange Commission. Additional information
about the Tax Exempt Fund is included in the Statement of
Additional Information of the Tax Exempt Fund dated February 1,
1995 (the "Tax Exempt Fund Statement"). The Tax Exempt Fund
Statement has been filed with the Securities and Exchange
Commission and is incorporated by reference into the
Prospectus/Proxy Statement and this Statement.
TRUSTEES
In addition to the information provided relating to the
Trustees of the Municipal Trust in this Statement, which is
substantially the same for the Tax Exempt Fund, and the
information contained in the Tax Exempt Fund Statement, the
following applies to the Trustees of the Tax Exempt Fund.
The Trustees of the Tax Exempt Fund have received the
following aggregate compensation from the Fund for the fiscal
period ended September 30, 1994: Jameson A. Baxter, $2,950; Hans
H. Estin, $3,260; John A. Hall, $3,277; Elizabeth T. Kennan,
$3,228; Lawrence J. Lasser, $3,260; Robert E. Patterson, $3,336;
Donald S. Perkins, $3,213; William F. Pounds, $3,278; George
Putnam, $3,260; George Putnam, III, $3,260; A.J.C. Smith, $3,162;
and W. Nicholas Thorndike, $3,316.
ADDITIONAL INFORMATION ABOUT THE MUNICIPAL TRUST
INVESTMENT RESTRICTIONS
The Municipal Trust has adopted the following fundamental
investment restrictions which may not be changed without the
affirmative vote of a "majority of the outstanding voting
securities" of the Municipal Trust, as defined in the Investment
Company Act of 1940 ("1940 Act"). The Fund may not:
1. Issue senior securities, as defined in the 1940 Act,
except to the extent such issuance might be involved with
respect to borrowings described under restriction 2 below or
with respect to transactions involving financial futures,
options, and other financial instruments.
2. Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure (not
for leverage) in situations which might otherwise require the
untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
3. Pledge, hypothecate, mortgage, or otherwise encumber its
assets in excess of 15% of its total assets (taken at the
lower of cost and current value) in connection with
borrowings permitted by restriction 2 above.
4. Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases
and sales of securities, and except that it may make margin
payments in connection with transactions in futures
contracts, options, and other financial instruments.
5. Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when
a short position is open it owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable
for securities of the same issue as, and in equal amount to,
the securities sold short.
6. Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter
under the federal securities laws.
7. Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities
which are secured by interests in real estate, and securities
representing interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
8. Purchase or sell commodities or commodity contracts,
except that it may purchase or sell financial futures
contracts or options.
9. Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment
policies and by entering into repurchase agreements with
respect to not more than 25% of its total assets (taken at
current value).<PAGE>
10. Invest in securities of any issuer, if, to the knowledge
of the Fund, officers and Trustees of the Fund and officers
and directors of Putnam who beneficially own more than 0.5%
of the securities of that issuer together own more than 5% of
such securities.
11. With respect to 50% of its total assets, invest in
securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund
(taken at current value) would be invested in the securities
of such issuer; provided that this limitation does not apply
to securities of the U.S. government or its agencies or
instrumentalities.
12. Acquire more than 10% of the voting securities of any
issuer.
13. Invest more than 25% of the value of its total assets in
any one industry. (Securities of the U.S. government, its
agencies, or instrumentalities, and securities backed by the
credit of a governmental entity are not considered to
represent industries.)
14. Invest in the securities of registered open-end
investment companies, except as they may be acquired as part
of a merger or consolidation or acquisition of assets.
15. Buy or sell oil, gas, or other mineral leases, rights,
or royalty contracts, although it may purchase securities of
issuers which deal in, represent interests in, or are secured
by interests in such leases, rights, or contracts, and it may
acquire or dispose of such leases, rights, or contracts
acquired through the exercise of its rights as a holder of
debt obligations secured thereby.
16. Make investments for the purpose of gaining control of a
company's management.
- - - - - - - - - - - - -
All percentage limitations on investments will apply at the
time of investment and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a
result of such investment. Except for the investment
restrictions listed above and the Fund's policy under normal
market conditions to invest at least 80% of its total assets in
Tax Exempt Securities, the other investment policies described in
the Prospectus/Proxy Statement are not fundamental and may be
changed by approval of the Trustees. As a matter of policy, the
Trustees would not materially change the Fund's investment
objective without shareholder approval.
MISCELLANEOUS INVESTMENT PRACTICES
Except as otherwise disclosed in the Prospectus/Proxy
Statement, the Municipal Trust and the Tax Exempt Fund have
substantially similar investment practices. Information
concerning these investment practices is contained in the Tax
Exempt Fund Statement, which is incorporated herein by reference.
MANAGEMENT
Except as otherwise disclosed in the Prospectus/Proxy
Statement or in this Statement, the description of the management
of the Municipal Trust and the Tax Exempt Fund is substantially
identical. Information concerning management is contained in the
Tax Exempt Fund Statement, which is incorporated herein by
reference.
TAXATION
In addition to the description of taxation in the Tax Exempt
Fund Statement, the following information applies to the
Municipal Trust:
Dividend and capital gain distributions will be taxable to
shareholders whether received in cash or in shares under the
Dividend Reinvestment Plan (the "DRP"). A shareholder whose
distributions are reinvested in shares under the DRP will be
treated as having received the amount of cash allocated to the
shareholder for the purchase of shares on its behalf.
From time to time the Municipal Trust may make a tender
offer for its shares. It is expected that the terms of any such
offer will require a tendering shareholder to tender all shares
held, or considered under certain attribution rules to be held,
by such shareholder. Shareholders who tender all shares held, or
considered to be held, by them will be treated as having sold
their shares and generally will realize a capital gain or loss.
If a shareholder tenders some or all of its shares, but retains a
substantial portion of its shares, but retains a substantial
portion of its shares, such shareholder may be treated as having
received a taxable dividend upon the tender of its shares. In
such a case, there is a remote risk that non-rendering
shareholders will be treated as having received taxable
distributions from the Municipal Trust.
PORTFOLIO TRANSACTIONS
Putnam Management's policy with respect to making investment
decisions on behalf of the Municipal Trust and use of brokerage
and research services for the Municipal Trust is identical to its
policies with respect to such matters for the Tax Exempt Fund.
Information about such policies for the Tax Exempt Fund is
included in the Tax Exempt Fund Statement and is incorporated
herein by reference.
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract, the Municipal Trust pays a
quarterly fee to Putnam Investment Management, Inc. ("Putnam
Management") based on the average net assets of the
Municipal Trust as determined at the close of the last
business day of each week which ends during the quarter
at the annual rate of 0.50% of the first $500 million of
average net assets, 0.43% of the next $500 million, 0.39%
of the next $500 million, and 0.35% of any amount over
$1.5 billion. For its 1994 fiscal period (beginning May
28, 1993 and ending April 30, 1994) the Municipal Trust
incurred management fees of $211,152 for portfolio
management provided by Putnam Management under the
Management Contract.
ADMINISTRATIVE FEES
The Municipal Trust pays Putnam Management a quarterly
administrative service fee at the annual rate of 0.20% of the
first $500 million, 0.17% of the next $500 million, 0.16% of the
next $500 million, and 0.15% of any amount over $1.5 billion.
During the 1994 fiscal period (beginning May 28, 1993 and ending
April 30, 1994), the Municipal Trust incurred $94,292 in fees and
out-of-pocket expenses for administrative services provided by
Putnam Management under the Administrative Services Contract.
The Municipal Trust also reimbursed Putnam Management
$11,619 for management related expenses.
BROKERAGE COMMISSIONS
During the 1994 fiscal period, the Municipal Trust
did not incur any brokerage commissions on agency
transactions. In fiscal 1994, the Municipal Trust
incurred underwriting commissions aggregating $36,250 on
underwritten transactions. In fiscal 1994, Putnam Management, on
behalf of the Municipal Trust, placed agency and underwritten
transactions having an approximate aggregate dollar value of
$375,000 (7.76% of the Municipal Trust's agency and underwritten
transactions, on which approximately $2,813 of commissions were
paid) with brokers and dealers to recognize research, statistical
and quotation services Putnam Management considered to be
particularly useful to it and its affiliates.
<PAGE>
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1994 fiscal period (beginning May 28, 1993 and
ending April 30, 1994), the Municipal Trust incurred $72,656 in
fees and out-of-pocket expenses for investor servicing and
custody services provided by Putnam Fiduciary Trust Company.
TRUSTEE FEES
The Municipal Trust pays each Trustee a fee for his or her
services. Each Trustee also receives fees for serving as Trustee
of other Putnam funds. The Trustees periodically review their
fees to assure that such fees continue to be appropriate in light
of their responsibilities as well as in relation to fees paid to
trustees of other mutual fund complexes. The Trustees meet
monthly over a two-day period, except in August. The
Compensation Committee, which consists solely of Trustees not
affiliated with Putnam Management and is responsible for
recommending Trustee compensation, estimates that the Committee
and Trustee meeting time together with the appropriate
preparation requires the equivalent of at least three business
days per Trustee meeting. The fees paid to each Trustee by the
Municipal Trust and by all of the Putnam funds are shown below:
<PAGE>
Retirement
benefits
Year first Aggregate accrued as Total
elected as a compensation part of the compensation
Trustee of from the Municipal from all
the Putnam Municipal Trust's Putnam
Trustees funds Trust* expenses funds**
Jameson A. Baxter 1994 $196 $0 $135,850
Hans H. Estin 1972 472 0 141,850
John A. Hill 1985 472 0 143,850
Elizabeth T. Kennan 1992 472 0 141,850
Lawrence J. Lasser 1992 472 0 141,850
Robert E. Patterson 1984 468 0 144,850
Donald S. Perkins 1982 469 0 139,850
William F. Pounds 1971 471 0 143,850
George Putnam 1957 472 0 141,850
George Putnam, III 1984 472 0 141,850
A.J.C. Smith 1986 370 0 137,850
W. Nicholas Thorndike 1992 472 0 144,850
____________________________________________________________________
* Reflects amounts paid by the Municipal Trust for its fiscal year
ended April 30,
1994. Includes an annual retainer and an attendance fee for each
meeting attended.
** Reflects total payments received from all Putnam funds in the
most recent calendar
year. As of December 31, 1994, there were 86 funds in the Putnam family.
<PAGE>
The Municipal Trust's Trustees have approved Retirement
Guidelines for Trustees of the Putnam funds. These guidelines
provide generally that a Trustee who retires after reaching age
72 and who has at least 10 years of continuous service will be
eligible to receive a retirement benefit from each Putnam fund
for which he or she served as a Trustee. The amount and form of
such benefit is subject to determination annually by the Trustees
and, unless otherwise determined by the Trustees, will be an
annual cash benefit payable for life equal to one-half of the
Trustee retainer fees paid by the Municipal Trust at the time of
retirement. Several retired Trustees are currently receiving
benefits pursuant to the Guidelines and it is anticipated that
the current Trustees of the Municipal Trust will receive similar
benefits upon their retirement. A Trustee who retired in the
most recent calendar year and was eligible to receive benefits
under these Guidelines would have received an annual benefit of
$60,425, based upon the aggregate retainer fees paid by the
Putnam funds for such year. The Trustees of the Municipal Trust
reserve the right to amend or terminate such Guidelines and the
related payments at any time, and may modify or waive the
foregoing eligibility requirements when deemed appropriate.
Additional information concerning the Municipal Trust's
Trustees is contained in "Management of the Fund" in Part II to
the Tax Exempt Fund Statement.
PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combining investment
portfolio and statement of assets and liabilities assumes that
the exchange described in the next paragraph occurred as of
December 31, 1994 and the unaudited pro forma combining statement
of operations for the seven months ended December 31, 1994
presents the results of operations of the Tax Exempt
Fund as if the combination with the Municipal Trust had been
consummated at the beginning of the seven months ended December
31, 1994. The pro forma results of operations are not
necessarily indicative of future operations or the actual results
that would have occurred had the combination been consummated at
the beginning of such period. The statements have
been derived from the Tax Exempt Fund's and the Municipal
Trust's books and records utilized in calculating daily net asset
value at December 31, 1994, and for the seven month period then
ended.
The pro forma statements give effect to the proposed
transfer of all of the assets of the Municipal Trust to the
Tax Exempt Fund in exchange for the assumption by the Tax
Exempt Fund of all of the liabilities of the Municipal Trust and
for a number of the Tax Exempt Fund's shares equal in value to
the value of the net assets of the Municipal Trust transferred to
the Tax Exempt Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be
carried forward to the surviving entity and the results of
operations of the Tax Exempt Fund for pre-combination
periods will not be restated. The pro forma statements do
not reflect the expenses of either Fund in carrying out its
obligations under the Agreement and Plan of Reorganization.
The unaudited pro forma combining statements should be
read in conjunction with the separate financial statements
of the Tax Exempt Fund and the Municipal Trust .
<PAGE>
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(Unaudited)
Pro Forma Combining
Statement of
Assets and Liabilities
December 31, 1994
ASSETS
Putnam
Intermediate Tax
Exempt
Fund
Putnam
Investment Grade
Intermediate
Municipal Trust
Pro Forma
Adjustments
Pro Forma
Combined
Investments in securities, at value
(combined cost, $56,248,416)
$11,796,238
$42,408,223
0
$54,204,461
Cash
450,736
1,666,004
0
2,116,740
Interest Receivable
259,980
744,552
0
1,004,532
Receivable for shares of the fund sold
55,478
0
0
55,478
Receivable for securities sold
0
2,644,345
0
2,644,345
Unamortized organization expenses
73,346
19,331
(A) (19,331)
73,346
Receivable from Manager
2,186
0
(A) 19,331
21,517
Receivable for variation margins on futures
contracts
1,875
19,857
0
21,732
Total assets
12,639,839
47,502,312
0
60,142,151
LIABILITIES
Payable for securities purchased
$1,085,111
4,466,393
0
5,551,504
Payable for shares of the fund repurchased
22,500
0
0
22,500
Distributions payable to shareholders
20,930
188,382
0
209,312
Payable for compensation of Manager
0
54,357
0
54,357
Payable for distribution fees
4,709
0
0
4,709
Payable for administrative services
140
2,869
0
3,009
Payable for compensation of Trustees
403
593
0
996
Payable for investor servicing and custodian fees
(640)
8,230
0
7,590
Payable for organization expenses
77,750
375,923
0
453,673
Other accrued expenses
5,631
29,746
0
35,377
TOTAL LIABILITIES
1,216,534
5,126,493
0
6,343,027
NET ASSETS
$11,423,305
$42,375,819
$53,799,124
Shares outstanding
1,439,944
3,282,073
6,783,679
Net asset value per share
$7.93
$12.91
$7.93
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(UNAUDITED)
Pro Forma Combining
Statement of Operations
Seven months ended December 31, 1994
Intermediate Tax
Exempt Fund
Investment Grade
Intermediate
Municipal Trust
Pro Forma
Adjustments
Pro Forma
Combined
Investment income:
Interest
$213,028
$1,650,355
0
$1,863,383
Total investment income
213,028
1,650,355
0
1,863,383
Expenses:
Compensation of Manager
21,234
131,935
(B) 21,841
175,010
Investor servicing and custodian fees
(242)
26,542
(D) 7,146
33,446
Compensation of Trustees
1,051
6,117
(C) (1,051)
6,117
Reports to shareholders
13,540
16,067
(C) (18,003)
11,604
Postage
273
3,031
(C) (58)
3,246
Auditing
12,647
17,723
(C) (8,204)
22,166
Legal
3,757
6,323
0
10,080
Administrative services
141
57,373
(B) (57,373)
141
Distribution fees
13,872
0
(D) 38,465
52,337
Amortization of organization fees
4,404
3,384
(A) (3,384)
4,404
Registration fees
4,199
0
0
4,199
Other
498
292
0
790
Fees waived and other expenses absorbed
by Manager
(46,488)
0
(E) (43,705)
(90,193)
Exchange listing fee
0
2,500
(C) (2,500)
0
Total expenses
28,886
271,287
(66,826)
233,347
Net investment income
184,142
1,379,068
66,826
1,630,036
Net realized loss on investments
(351,366)
(1,953,800)
0
(2,305,166)
Net realized gain on futures
3,787
85,904
0
89,691
Net unrealized depreciation of investments
during the year
(30,114)
(885,009)
0
(915,123)
Net loss on investments
(377,693)
(2,752,905)
0
(3,130,598)
Net decrease in net assets resulting from
operations
(193,551)
(1,373,837)
66,826
(1,500,562)
PUTNAM INTERMEDIATE TAX EXEMPT FUND
NOTES TO PRO FORMA COMBINING STATEMENTS
(UNAUDITED)
DECEMBER 31, 1994
The proforma adjustments to these proforma financial statements
are comprised of the following:
(A) Reimbursement of the unamortized organizational costs
of the Municipal Trust by Putnam Management as a result
of the Municipal Trust's merger into the Tax Exempt
Fund.
(B) Increase in management fees and elimination of separate
administration services fees reflect the fee structure
of the Tax Exempt Fund as applied to larger combined
assets.
(C) Reduction in expenses as a result of the merger.
(D) Increase in distribution fees and investor servicing
and custodian fees are the result of the increase in
net assets due to the merger.
(E) Expense waiver has been extended for the Tax Exempt
Fund through December 1995.<PAGE>
<TABLE>
<CAPTION>
THE PROFORMA COMBINING INVESTMENT PORTFOLIO OF
PUTNAM INVESTMENT GRADE INTERMEDIATE MUNICIPAL TRUST AND
PUTNAM INTERMEDIATE TAX EXEMPT
DECEMBER 31, 1994 (UNAUDITED)
Investm
Intermediate
Tax
Exem
pt
MUNICIPal
Trust
FUND
PRO FORMA
COMBINED
(000'S)
(000'S)
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
MUNICIPAL BONDS
AND
PRINCIPAL
PRINCIPAL
PRINCIPAL
NOTES
(100.7%)*
RATINg**
AMOUNT
VALUE
AMOUNT
VALUE
AMOUnt
VALUE
ALABAMA
(0.3%)
Birmingham Jefferson Civic Ctr. Auth.
Rev. Bonds (Special Tax Cap. Outlay),
7.4, 1/1/08
A
$
170
$
180,837
$
170
$
180,837
CALIFORNIA (12.3%)
CA State Rev. Anticipation Warrants (RAW),
Ser. C, 5 3/4, 4/25/96
M1G1
400
399,250
400
399,250
Central Valley Fing. Auth. Rev Bond,
Carson-Ice Cogeneration Project),
5.8, 7/1/04
BBB
500
465,625
500
465,625
Nortrn CA Pwr. Agcy. (Geothermal Project
No. 3), Ser. A, 5.6s, 7/1/06
A
300
279,000
300
279,000
Pleasonton Joint Pwrs Fing. Auth. Rev.
Bonds, Ser. A, 6s, 9/2/05
Baa
275
262,281
275
262,281
Santa Clara Cnty. Fing. Auth. Lease Rev
Bonds, (VMC Fac. Replacement Project A)
American Municipal Bond Assurance Corp.
(AMBAC), 7 1/2s, 11/15/04
AAA
100
110,750
100
110,750
LA Cnty, Certificate of Participation (COP)
(Marina Del Rey), Ser. A, 6 1/4, 7/1/03
BBB/P
$
2,500
$
2,403,125
445
427,756
2,945
2,830,881
CA State Cmnty Dev Auth Rev Bonds
(Motion Picture & TV Fund), AMBAC
2.35, 1/1/08
AAA
650
476,125
500
366,250
1,150
842,375
Riverside Cmnty., Asset Leasing Corp.
Leasehold Rev. Bonds (Riverside Cmnty.
Hosp. Project), Ser. A, 5 3/4, 6/1/01
A
1,500
1,443,750
1,500
1,443,750
4,323,000
2,310,912
6,633,912
COLORADO (4.9%)
Denver City & Cnty. Arpt. Rev. Bonds
Ser. A, 7 1/2, 11/15/06
Baa
800
776,000
800
776,000
Ser. A, 7, 11/15/01
Baa
1,500
1,432,500
200
191,000
1,700
1,623,500
Ser. B, 7s, 11/15/02
Baa
250
236,250
250
236,250
2,208,500
427,250
2,635,750
CONNECTICUT (2.9%)
CT State Dev. Auth Hlth. Care Rev. Bonds
(Alzheimer Res Ctr.) Class A, 6 7/8, 8/15/04
BB/P
1,600
1,544,000
1,600
1,544,000
DISTRICT OF COLUMBIA (4.8%)
District of Columbia, RFDG, Municipal Bond
Insurance Association (MBIA), Ser. A-1
4.95, 6/1/05
AAA
3,000
2,606,250
3,000
2,606,250
FLORIDA (1.2%)
FL State Brd. of Ed. Cap. Outlay, Ser. C,
7s,6/1/04
AAA
430
460,637
430
460,637
Reedy Creek Impt. Dist. Util Rev Bds, Ser. 1,
MBIA, 8.9s, 10/1/03
AAA
170
187,637
170
187,637
648,274
648,274
ILLINOIS (10.0%)
Chicago Pub. Bldg. Rev. Bonds, MBIA,
5 1/4, 12/1/03
AAA
1,000
935,000
1,000
935,000
Chicago School Fin. Auth. Inverse Floating
Bonds (IFB), Federal Guaranty Insurance
Co. (FGIC), 6.52, 6/1/05 #
AA
4,000
3,370,000
4,000
3,370,000
IL Hlth. Fac. Auth. Rev. Bonds (Grant Hosp)
Ser. B., 7 1/4, 6/1/99
AAA
1,000
1,022,500
1,000
1,022,500
5,327,500
5,327,500
LOUISIANA (3.0%)
New Orleans Public Imp. General Obligation
(G.O.) Bonds, FSA, 8 1/8, 10/1/03
AAA
1,500
1,625,625
1,500
1,625,625
MASSACHUSETTS (12.8%)
MA Muni Whlsale Elec. Co.,IVRC Trust, IFB
Ser 93D, AMBAC, 7.267, 4/30/03 #
AAA/P
3,000
2,197,500
3,000
2,197,500
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Central New England Hlth Syst), Ser. A
5 3/4, 8/1/03
Baa
1,000
933,750
1,000
933,750
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A,
7, 7/1/01 #
Baa
1,680
1,593,900
440
417,450
2,120
2,011,350
South Essex Swr. Dist., Ser. B, MBIA
7 1/2, 6/1/04
AAA
1,170
1,291,387
400
441,500
1,570
1,732,887
6,016,537
858,950
6,875,487
MICHIGAN (3.3%)
Dickinson Cnty, Mem. Hosp. Rev. Bonds
7 5/8, 11/1/05
Baa
1,800
1,800,000
1,800
1,800,000
MINNESOTA (1.1%)
Minneapolis Spl. Sch. Dist., No. 1,COP,
Ser. A, 6.1s, 6/1/04
A
275
267,093
275
267,093
MN State Hsg. Fin. Auth.,( Single Fam. Mtg)
6.1s, 1/1/05
AA
350
344,312
350
344,312
611,405
611,405
MISSISSIPPI (1.0%)
Rankin Cnty. Indl. Dev. Rev Bonds, (Yellow
Fght. Sys. Inc. Project), 5 3/4s, 10/1/08
A
600
527,250
600
527,250
NEVADA (1.8%)
Washoe Cnty, Sch. Dist. Rev. Bonds, MBIA
5.9, 8/1/05
AAA
1,000
973,750
1,000
973,750
NEW HAMPSHIRE (0.3%)
NH State Hsg. Fin. Auth.,( Single Fam. Res. Mtg)
6.95s, 1/1/06
AA
170
170,637
170
170,637
NEW JERSEY (0.2%)
NJ State Tpk. Auth. Rev. Rfdg,
10 3/8s, 1/1/03
AAA
75
88,500
75
88,500
NEW YORK (11.5%)
NYCity GO Bonds, Ser. D,
8s, 8/1/03
A
575
631,062
575
631,062
NY State Dorm. Auth. Rev. Rfdg., Ser. A,
8 1/8s, 7/1/07
BBB
500
537,500
500
537,500
NY State Med Care Facs. Fing. Agcy. Rev.
Bonds, ( Mental Hlth. Svcs. Facs.), 8 7/8s,
8/15/07
BBB
340
370,175
340
370,175
NY State Med. Care Facs. Fing. Agcy. Rev.
Bonds, (NY Hosp. Mtg.), Ser. A, 6.2s,
2/15/05
AAA
550
555,500
550
555,500
NY State Mtge. Agcy., Home Mtge,
Ser. 44, 6.8, 10/1/05
Aa
1,000
1,023,750
1,000
1,023,750
New York City G.O. Bonds,Ser. B,
7, 8/15/06
A
3,000
3,056,250
3,000
3,056,250
4,080,000
2,094,237
6,174,237
OHIO (1.2%)
Student Ln. Fdg. Corp., Rev Bonds,
Ser. C, 6.35s, 7/1/05
AAA
675
669,094
675
669,094
OKLAHOMA (4.2%)
Tulsa Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.)
Ser. A, 7 5/8, 6/1/06
BBB
1,080
1,097,550
170
172,763
1,250
1,270,313
7s, 6/1/06
BBB
1,000
971,250
1,000
971,250
2,068,800
172,763
2,241,563
PENNSYLVANIA (7.5%)
Penn. Intergov. Coop. Auth. Spl. Tax Rev, FGIC
(Philadelphia Funding), 7s, 6/15/04
AAA
500
531,251
500
531,251
McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp Project), 6 1/4, 7/1/03
Baa
1,500
1,398,750
0
1,500
1,398,750
Philadelphia Indl Dev Rev Bonds
(Ashland Oil Inc Project), 5.7s, 6/1/05
Baa
2,300
2,118,875
0
2,300
2,118,875
3,517,625
531,251
4,048,876
PUERTO RICO (0.9%)
Cmnwlth. of Puerto Rico, Urban Renewal
& Hsg. Corp. Rev. Bonds, 7 7/8s, 10/1/04
Baa
450
488,251
450
488,251
TEXAS (4.5%)
TX State Rfdg (Vets Hsg Assist), Ser. C,
6s, 12/1/05
AA
500
491,876
500
491,876
Dallas Civic Ctr Convention Complex, Sr. Lien
Rev Bonds, 8.5, 1/1/04
A
150
154,876
150
154,876
Dallas Cnty., Flood Ctr. Rev. Bonds,
9 1/4s, 4/1/04
AAA
1,460
1,783,026
1,460
1,783,026
1,783,026
646,752
2,429,778
WASHINGTON (11.0%)
WA State Pub Pwr Supply Syst Rev Bonds
(Nuclear Project No. 1)
Ser. A, 5 1/2, 7/1/04
AA
2,000
1,860,000
2,000
1,860,000
Ser. A, 7 1/2, 7/1/07
AA
200
210,750
1,300
1,369,875
1,500
1,580,625
WA State, IFB, 6.0650705, 5/1/08 #
AA
3,000
2,452,500
3,000
2,452,500
4,523,250
1,369,875
5,893,125
TOTAL MUNICIPAL BONDS AND NOTES
$
42,397,863
$
11,796,238
$
54,194,101
(cost $ 56,231,372)
PUT OPTIONS ON US TREASURY BONDS (-%) *
NUMBER OF CONTRACTS
EXPIRATION/STRIKE
PRICE
5 U.S. Treasury Bond Futures,
Feb 95/ $98
$
4750
3 U.S. Treasury Bond Futures,
Feb 95/$100
5,610
Total Put Options on U.S. Treasury Bonds
(cost $ 17,044)
$
10,360
$
10,360
TOTAL COMBINED INVESTMENTS
(COMBINED COST $56,248,416)
(INTERMEDIATE TAX EXEMPT FUND $11,822,272 AND INV. GRADE INTERMEDIATE
MUNICIPAL TRUST $44,426,144)
$
42,408,223
$
11,796,238
$
54,204,461
*
PERCENTAGES INDICATED ARE BASED ON PROFORMA COMBINED NET ASSETS OF
$53,799,124 WHICH CORRESPOND TO A PROFORMA COMBINED NET ASSET
VALUE PER SHARE OF $7.93
**
THE MOODY'S OR STANDARD & POORS RATINGS INDICATED ARE BELIEVED TO BE THE
MOST RECENT RATINGS AVAILABLE AT DECEMBER 31, 1994 FOR THE SECURITIES LISTED.
RATINGS ARE GENERALLY ASCRIBED TO SECURITIES
AT THE TIME OF ISSUANCE. WHILE THE AGENCIES MAY FROM TIME TO TIME REVISE
SUCH RATINGS, THEY UNDERTAKE NO OBLIGATION TO DO SO, AND THE RATINGS DO
NOT NECESSARILY REPRESENT WHAT THE AGENCIES
WOULD ASCRIBE TO THESE SECURITIES AT DECEMBER 31, 1994.
SECURITIES RATED BY PUTNAM ARE INDICATED BY "/P" AND ARE NOT
PUBLICLY RATED.
#
A PORTION OF THESE SECURITIES WERE PLEDGED TO COVER MARGIN REQUIREMENTS
FOR FUTURES CONTRACTS AT DECEMBER 31, 1994. THE MARKET VALUE OF
THESE SEGREGATED SECURITIES WITH THE CUSTODIAN FOR
TRANSACTIONS ON FUTURES CONTRACTS IS $ 8,437,450.
THE RATES SHOWN ON INVERSE FLOATING BONDS (IFB),
WHICH ARE SECURITIES PAYING VARIABLE INTEREST RATES THAT CAN VARY
INVERSELY TO CHANGES IN MARKET INTEREST RATES, ARE THE CURRENT INTEREST
RATES AT
DECEMBER 31, 1994
WHICH ARE SUBJECT TO CHANGE BASED ON THE TERMS OF THE SECURITY.
U.S. TREASURY BOND FUTURES OUTSTANDING AT DECEMBER 31, 1994
/TABLE
<PAGE>
Part C. OTHER INFORMATION
Item 15. Indemnification
The information required by this item is incorporated herein by
reference to the Registrant's initial Registration Statement on
Form N-1A (File No. 33-52661) under the Securities Act of 1933
(the "Registration Statement") except as specifically set
forth below .
Item 16. Exhibits
1. Agreement and Declaration of Trust dated March 7,
1994 -- Incorporated by reference to Registrant's
Registration Statement.
2. By-Laws -- Incorporated by Reference to
Registrant's Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization constitutes
Exhibit A included in Part A hereof.
5a. Class A Specimen share certificate -- Incorporated
by reference to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement.
5b. Class B Specimen share certificate -- Incorporated
by reference to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement.
5c. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights --Incorporated by
reference to Registrant's Registration Statement.
5d. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to
Registrant's Registration Statement.
6. Copy of Management Contract dated April 8, 1994 --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement.
7a. Copy of Distributor's Contract for Class A and B
shares dated May 6, 1994 --Incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.<PAGE>
7b. Copy of Specimen of Dealer Sales Contract --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement.
7c. Copy of Specimen of Financial Institution Sales
Contract -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
8. Not Applicable.
9. Copy of Custodian Agreement with Putnam Fiduciary
Trust Company dated May 3, 1991 as amended July
13, 1992 -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
10a. Copy of Class A Distribution Plan and Agreement
dated April 8, 1994 -- Incorporated by reference
to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
10b. Copy of Class B Distribution Plan and Agreement
dated April 8, 1994 -- Incorporated by reference
to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
11. Opinion of Ropes & Gray , including consent --
To be filed by amendment.
12. Opinion of Ropes & Gray as to tax matters -
- To be filed by amendment.
13. Not Applicable.
14a. Consent of Independent Accountants -- Filed
herewith.
15. Not Applicable.
16. Power of Attorney -- Incorporated by reference
to Initial Registration Statement on Form N-
14 .
17. Copy of Registrant's Declaration under Rule 24f-2
-- Incorporated by reference to Registrant's
Registration Statement.
<PAGE>
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act,
the reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part
of an amendment to this Registration Statement and will not
be used until the amendment is effective, and that, in
determining any liability under the Securities Act, each
post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein,
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of the Trust, as
amended, of Putnam Intermediate Tax Exempt Fund (the "Fund"), is
on file with the Secretary of State of The Commonwealth of
Massachusetts , and notice is hereby given that this
Pre-Effective Amendment No. 1 to this Registration Statement
has been executed on behalf of the Fund by officers of the Fund
as officers and by its Trustees as trustees and not individually,
and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers, or
shareholders of the Fund individually, but are binding only upon
the assets and property of the Registrant.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Pre-Effective Amendment
No. 1 to this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, in the City of Boston
and The Commonwealth of Massachusetts on the 12th day of
April , 1995.
PUTNAM INTERMEDIATE TAX EXEMPT FUND
By: /s/Gordon H. Silver
Gordon H. Silver
Vice President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Pre-Effective Amendment No. 1 to this Registration
Statement on Form N-14 has been signed below by the following
persons in the capacities and on the date indicated:
Signature Title
George Putnam President and Chairman of the
Board; Principal Executive Officer;
Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
April 12, 1995<PAGE>
EXHIBIT INDEX
Page Number
Exhibit
14a Consent of Independent Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Putnam Intermediate Tax Exempt Fund:
We consent to the incorporation by reference in Pre-Effective
Amendment No. 1 to the Registration Statement of Putnam
Intermediate Tax Exempt Fund on Form N-14 (File No. 33-57937) of
our report dated November 16, 1994, on our audits of the
financial statements and "Financial highlights" of Putnam
Intermediate Tax Exempt Fund, which report is included in the
Annual Report to Shareholders, for the year ended September 30,
1994, and our report dated June 20, 1994 on our audits of the
financial statements and "Selected per share data and ratios" of
Putnam Investment Grade Intermediate Municipal Trust, which
report is included in the Annual Report to Shareholders, for the
year ended April 30, 1994, which are incorporated by reference in
the Registration Statement.
We also consent to the reference to our Firm under the caption
"Financial Statements" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 11, 1995
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