Putnam
Tax Exempt
Income Fund
[Artwork]
ANNUAL REPORT
September 30, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
"Yields on long-term munis currently equal about 80% of the yields on taxable
Treasury securities. That means anyone above the 15% bracket is better served
in tax-frees."
- -- Business Week, October 10, 1994
Performance should always be considered in light of a fund's investment strate-
gy. Putnam Tax Exempt Income Fund is designed for investors seeking high current
income free from federal income tax, consistent with capital preservation.
FISCAL 1994 RESULTS AT A GLANCE
Class A Class B
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Total return: NAV POP NAV CDSC
12 months ended 9/30/94
(change in value during period
plus reinvested distributions) -4.72% -9.23% -5.51% -9.93%
Share value: NAV POP NAV
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9/30/93 $9.66 $10.14 $9.66
9/30/94 8.55 8.98 8.53
In excess of
Capital Capital
Distributions No. Income Gains (1) Gains Total
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Class A 13 $0.541663 $0.067 $0.064 $0.672663
Class B 13 0.486969 $0.067 0.064 0.617969
Current return NAV POP NAV
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End of period
Current dividend rate (2) 6.27% 5.97% 5.62%
Taxable equivalent (3) 10.38 9.88 9.30
Current 30-day SEC yield (4) 5.98 5.69 5.26
Taxable equivalent (3) 9.90 9.42 8.71
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Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 4.75% maxi-
mum sales charge. CDSC assumes 5% maximum contingent deferred sales charge.
(1) Capital gains are taxable for federal and, in most cases, state tax purpo-
ses. For some investors, investment income may also be subject to the federal
Alternative Minimum Tax. Investment income may be subject to state and local
taxes. (2) Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period. (3) Assumes maximum 39.6% federal tax rate. Results
for investors subject to lower tax rates would not be as advantageous, although
many would have the opportunity to receive attractive tax-free benefits from a
fund investment. Consult your tax advisor for more guidance. (4) Based only on
investment income, calculated using SEC guidelines.
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FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
Dear Shareholder:
Municipal bond investors have experienced more than their share of frustration
over the past several months as the fixed-income markets endure a prolonged pe-
riod of volatility. Putnam Tax Exempt Income Fund's performance during the fis-
cal year ended September 30, 1994, reflects this unsettled environment.
Despite the lackluster performance, some signs of encouragement are beginning
to appear for investors in tax-exempt securities. Putnam Management anticipates
a tighter supply as a result of lower new issuance and potential increased de-
mand from more investors seeking tax relief; as with any commodity, more dollars
chasing fewer goods should translate into higher prices, particularly if in-
terest rates do not move significantly higher. Many sectors of the tax-exempt
market, including health care, education, and resource recovery, are poised for
growth, which should bode well over the long term for investments in those
areas.
With Putnam's considerable credit research and analysis capabilities behind him,
Fund Manager David Eurkus will continue to seek out the most promising tax-
exempt investments for your fund. Dave's report on fiscal '94 performance and
what he sees in store for fiscal '95 follows.
Respectfully yours,
George Putnam
Chairman of the Trustees
November 9, 1994
* (C) Copyright
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REPORT FROM THE FUND MANAGER
DAVID J. EURKUS
This year's broad deterioration in bond prices widely affected both taxable and
municipal bond funds. Although the Federal Reserve Board's initial increases in
short-term rates in the first quarter proved to be the low point, it could be
said that calendar 1994 has been one of the worst years in recent history for
the bond market. Putnam Tax Exempt Income Fund was not immune to the performan-
ce-dampening effects of these rate increases.
We encourage you to keep in mind that a mutual fund investment, in particular
one that emphasizes long-term municipal bonds in its portfolio, requires a long-
term view. Neither short-term profit-taking nor over-reactive pessimism is part
of this fund's strategy or our management style. We are committed, as we have
always been, to providing you with experienced, hands-on management and seeking
to take advantage of the best opportunities that occur under any type of market
conditions.
STAYING THE COURSE MEANT SWIMMING AGAINST THE STREAM
It was difficult for the municipal bond market to make much progress in the past
nine months. We were surprised by the extent and rapidity with which the Fed
raised short-term rates, as well as the subsequent overreaction of individual
and institutional investors to those increases.
As you'll recall, your fund's fiscal '94 began with long-term interest rates at
a historic low. However, we knew that after several years of falling rates, a
reversal was inevitable. Although we believed the market was due for a setback
- -- as a result of strong economic reports and increased fear of rising infla-
tion -- we were not overly concerned because we believed favorable supply/demand
dynamics would insulate the municipal bond market from excess volatility.
In fact, our projections about decreased supply were quite accurate. After re-
cord new issuance in municipal bonds in 1993,
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year-to-date new issuance for 1994 has dropped by more than 40%. Of the $290 bi-
llion worth of new issues that came to market in 1993, 70% was issued to prere-
fund older higher-coupon bonds destined to be called long before maturity. The
bond supply was contracting at a time when investor demand for tax relief seem-
ed likely to accelerate.
So why the dramatic price declines? Bond prices drop when interest rates rise,
but we believe this spring.s decline in prices in the wake of increases in in-
terest rates was also a byproduct of investor overreaction, rather than any in-
dication of poor market fundamentals. Many individual investors -- as well as
large institutional investors -- simply panicked, creating what we believe was
a self-fulfilling prophecy. As investors redeemed their mutual fund shares in
haste, many other money management firms feared a repeat of the '87 market deba-
cle and increased their funds. cash positions to meet anticipated redemptions,
selling municipal bonds into a market that was becoming rapidly saturated.
Your fund did not participate in the resulting sell-off and was not particularly
affected by redemptions. Nevertheless, the decline in bond prices exacerbated by
these events did affect the value of the portfolio. During these turbulent
weeks, many investors fled to the safety of tax-free money market instruments.
Consequently, yields on these short-term municipal
(Pie Chart - Page 5)
CREDIT QUALITY BREAKDOWN
A 9.1 %
AA 16.8
AAA 51.8
BB and below 16.9
BBB 1.8
Based on net assets on 9/30/94. Holdings will vary over time.
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securities remained low. Had we liquidated your fund's long-term bond positions
by redeploying assets into short-term municipals, we would have cushioned the
fund's value to a greater extent, but the yield would have dropped substantia-
lly. Once the dust settled, and redemptions didn't approach the levels first
feared, assets poured back into the market and intermittent rallies ensued.
HIGH CURRENT INCOME FROM A QUALITY BOND PORTFOLIO
Because your fund focuses its investments on long-term bonds, it's able to pro-
duce a relatively high level of tax-free income. Even in light of the recent
price declines, your fund's current income stream remains extremely attractive.
A taxable investment at the maximum federal income tax rate of 39.6% would have
had to provide a current return of 10.38% to equal the fund's 6.27% current di-
vidend rate for class A shares at net asset value, or 9.30% to equal the 5.62%
dividend rate for class B shares. In today's low-inflation and high-tax environ-
ment, we believe these figures represent attractive real rates of return.
Apparently, we're not the only ones. The article, "Why munis could lift your
bond market blues" (Business Week, October 10, 1994), states, "Yields on long-
term munis currently equal about 80% of the yields on taxable Treasury securi-
ties. That means anyone above the 15% bracket is better served in tax-frees."
In addition to high current income, your fund also offers you a portfolio that
remains heavily weighted in investment-grade bonds, those having a credit quali-
ty rating of BBB or above. As of period's end, 93% of the bonds in your fund's
portfolio were investment grade; the average credit quality was AA.
PORTFOLIO COMPOSITION: WELL DIVERSIFIED BY REGION, INDUSTRY
Throughout the fiscal year, we've concentrated your fund's investments in cer-
tain regions of the country. New York, Massachusetts, and California are signi-
ficantly represented in the portfolio with substantial exposure given to the Te-
xas and Pennsylvania markets, as well. Primarily, high taxes, strong investor
demand, the outlook for an improving economy with possible credit upgrades, and
the availability of some attractively yielding issues drew our attention to the-
se states.
With minor modifications, health care, utilities, transportation,
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(Bar Chart - Page 7)
TOP INDUSTRY SECTORS *
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Hospitals Utilities Housing Education Water and
Sewer Projects
22.6 % 14.7 % 10.0 % 7.2 % 5.8 %
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* Based on net assets on 9/30/94. Holdings will vary over time.
housing, and education continued to be the fund's top five industry sectors
throughout the period.
POSITIONING FOR A MARKET RISE
If you're among the roughly 70% of shareholders who reinvest your dividends,
you're currently enjoying a buying opportunity. By reinvesting, you're taking
advantage of today's post-correction prices, adding more shares to your fund
account than you would have when bond prices were higher. You're also position-
ing your investment to benefit from any rise in the bond market. Should our ob-
servations about the supply/demand imbalance prove correct, that day may not be
far off. Of course, many factors affect bond prices, most notably changes in in-
terest rates. These factors may overwhelm any support from a supply/demand imba-
lance, should it occur. Although there can never be any assurance, and volatili-
ty may continue over the short-term, we are positioning the fund's portfolio to
benefit from such a trend.
We believe investors have come to realize that tax-free bonds will be in short
supply going forward . while the demand for this dwindling avenue of tax-relief
is poised to outpace supply as individuals seek shelter from higher taxes. Con-
sequently, we believe municipal bonds are in the best position among fixed-
income investments for a solid recovery.
The views expressed throughout the report are exclusively those of Putnam Mana-
gement. They are not meant as investment advice.
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PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over va-
rying periods. For comparative purposes, we show how the fund performed relative
to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 9/30/94
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
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1 year -4.72% -9.23% -5.51% -9.93% -2.44% 2.96%
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5 years 45.57 38.66 -- -- 46.85 19.52
Annual average 7.80 6.76 -- -- 7.99 3.63
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10 years 171.84 158.97 -- -- 162.63 42.29
Annual average 10.52 9.98 -- -- 10.14 3.59
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Life of class -- -- 4.97 1.19 8.03 5.29
Annual average -- -- 2.83 0.68 4.54 3.00
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Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1993. The fund began opera-
tions on 12/31/76, offering shares now known as class A. Effective 1/1/93, the
fund began offering class B shares. Performance data represent past results and
will differ for each share class. Investment returns and net asset value will
fluctuate so an investor's shares, when sold, may be worth more or less than
their original cost.
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term fixed
rate investment-grade tax-exempt bonds representative of the municipal bond mar-
ket. The index does not take into account brokerage commissions or other costs,
may include bonds different from those in the fund, and may pose different risks
than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
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(Line Chart - Page 9)
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/84
Lehman Index Fund's Class A Consumer
Muni Bond Shares at POP Price Index
10/1/84 $ 10,000 $ 9,525 $ 10,000
9/30/85 11,624 11,371 10,314
86 14,489 14,281 10,495
87 14,565 13,838 10,952
88 16,455 16,183 11,410
89 17,884 17,789 11,905
90 19,100 18,547 12,638
91 21,618 21,130 13,067
92 23,878 23,783 13,457
93 26,990 27,178 13,819
94 $ 26,263 $ 25,897 $ 14,229
Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 1/4/93 would have been valued at $10,497
on 9/30/94 ($10,119 with a redemption at the end of the period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, divided by the number of outstanding shares, not including any initial or
contingent deferred sales charges.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 4.75% class A sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
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LIFE CYCLE INVESTING
As we move through life, our investment needs change. As these needs change, so
does the way we allocate our assets. Here are some basic rules for setting up
and maintaining an investment program and some examples of how assets might be
allocated. However, these illustrations are not intended as investment advice.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses, or retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with longer timelines
and lower for older investors who may depend on their investment for current in-
come.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your investable do-
llars should be allocated to each investment category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own Putnam portfolio
of funds as your financial needs change -- without a service fee. *
Look at the facing page for some ways you can allocate your assets, then turn
the page to see how the Putnam Family of Funds can help you make your choices.
* Putnam reserves the right to change or terminate the exchange privilege. In
some cases, a sales charge may apply. See prospectus for details.
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(4 Pie Charts - Page 11)
FOUR WAYS TO ALLOCATE ASSETS
SEEKING MAXIMUM GROWTH
Risk tolerance:
Generally investors with a higher risk tolerance (often in their 20s and early
30s)
40% - 50% Growth
30% - 40% Growth and income
5% - 20% Income or tax-free income
SEEKING GROWTH AND SOME INCOME
Risk tolerance:
Generally investors with a high to moderate risk tolerance (often in their late
30s and early 40s)
30% - 40% Growth
40% - 50% Growth and income
10% - 30% Income or tax-free income
SEEKING INCOME AND SOME GROWTH WITH PROTECTION AGAINST INFLATION
Risk tolerance:
Generally investors with a moderate risk tolerance (often in their late 40s and
50s)
10% - 20% Growth
30% - 40% Growth and income
25% - 60% Income or tax-free income
SEEKING HIGH CURRENT INCOME AND PROTECTION AGAINST INFLATION
Risk tolerance:
Generally investors with a moderate to low risk tolerance (often over 60 and
retired)
5% - 10% Growth
20% - 30% Growth and income
40% - 70% Income or tax-free income
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PUTNAM FAMILY OF FUNDS
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Diversified Equity Trust
Europe Growth Fund Global Growth Fund
Health Sciences Trust Investors Fund
Natural Resources Fund * New Opportunities Fund
OTC Emerging Growth Fund Overseas Growth Fund
Vista Fund Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust Dividend Growth Fund
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Balanced Government Fund Corporate Asset Trust
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust
Please call your financial advisor or Putnam to obtain a prospectus for any
Putnam fund. It contains more complete information, including charges and ex-
penses. Read it carefully before you invest or send money.
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free funds +
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS ++
Putnam money market funds:
Money Market Fund +++ Tax Exempt Money Market Fund
California Tax Exempt Money Market Fund New York Tax Exempt Money Market Fund
CDs and savings accounts**
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
+++ Formerly Putnam Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
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REPORT OF INDEPENDENT ACCOUNTANTS
For the Year Ended September 30, 1994
To the Trustees and Shareholders of
Putnam Tax Exempt Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Tax Exempt Income Fund, including the portfolio of investments owned, as of Sep-
tember 30, 1994, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the "Financial Highlights" for Class A shares for each of the
nine years in the period then ended, and for the ten months ended September 30,
1985, and for Class B shares for the year ended September 30, 1994 and for the
period January 4, 1993 (commencement of operations) to September 30, 1993. These
financial statements and "Financial Highlights" are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these finan-
cial statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and "Financial High-
lights" are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Sep-
tember 30, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of Putnam
Tax Exempt Income Fund as of September 30, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the "Financial Highlights" for Class A shares for
each of the nine years in the period then ended, and for the ten months ended
September 30, 1985, and for Class B shares for the year ended September 30, 1994
and for the period January 4, 1993 (commencement of operations) to September 30,
1993, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 10, 1994
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PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994
MUNICIPAL BONDS AND NOTES (96.6%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
ALABAMA (0.7%)
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Birmingham, Impt. Waste General Obligation
(G.O.) Bonds
$ 3,625,000 6.6s, 7/1/12 AA $ 3,688,438
4,000,000 5 1/8s, 7/1/17 AA 3,355,000
10,000 000 Jackson Cnty. Hlth. Care Auth. Hosp. Tax
Anticipation Rev. Bonds, 7 7/8s, 5/1/19 BB/P 9,975,000
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17,018,438
ALASKA (0.9%)
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7,500,000 AK Energy Auth. Util. Residual Interest
Bonds (RIBS), 10.2s, 7/1/15 AAA 8,203,125
AK Hsg. Fin. Corp. Rev. Bonds
12,000,000 Ser. B, 7s, 12/1/27 AAA 12,030,000
2,100,000 Ser. A, 7s, 12/1/21 AAA 2,113,125
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22,346,250
ARIZONA (0.4%)
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6,510,000 AZ State Muni. Fin. Program Certif. of
Participation Ser. 34, Bond Investors Gua-
ranty Insurance (BIGI), 7 1/4s, 8/1/09(d) AAA 7,144,725
3,700,000 Maricopa Cnty., Indl. Dev. Auth. Hosp. Fac.
Variable Rate Demand Note (VRDN) (Samaritan)
Hlth. Svcs. Hosp. B2), Municipal Bond Insu-
rance Corp. (MBIA), 3.65s, 12/1/08 VMIG1 3,700,000
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10,844,725
CALIFORNIA (6.8%)
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1,000,000 CA Poll. Cntrl. Fin. Auth. Bonds
(Dept. of Corrections-State Prisons), 2.25s,
2/28/08 AA 1,000,000
CA State Pub. Works Board Lease Rev. Bonds
8,955,000 (Dept. of Corrections-State Prisons), Ser. B,
MBIA, 5 3/8s, 12/1/19 AAA 7,656,525
11,150,000 Ser. A, American Municipal Bond Assurance
Corp. (AMBAC), 5s, 12/1/19 AAA 8,989,688
3,000,000 Calleguas-Las Virgines, Pub. Fing. Auth.
Installment Purchase Rev. Bonds
(Calleguas Muni. Wtr. Dist. Rfdg. Project),
Financial Guaranty Insurance Co. (FGIC),
5 1/8s, 7/1/21 AAA 2,441,250
5,000,000 East Bay, Muni. Util. Dist. Wtr. Syst. Rev.
Rfdg. Bonds MBIA, 5s, 6/1/21 AAA 4,000,000
7,350,000 Escondido Cmnty. Dev. VRDN, 3.55s, 12/1/97 VMIG1 7,350,000
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MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
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Los Angeles Cnty., Sanitation Dist. Fin.
Auth. Rev. Bonds
$ 18,900,000 (Capital Project), Ser. A, 5s, 10/1/23 AA $ 14,907,375
5,000,000 Ser. A 5 1/4s, 10/1/19 AA 4,181,250
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds
(United Airlines, Inc.), Ser. G, 8.8s,
11/15/21 Baa 7,752,500
Los Angeles, Wastewater Syst. RIBS
5,350,000 (acquired 11/08/93 cost $5,796,404),
7.566s, 11/1/06(c) AAA 4,801,625
9,350,000 (acquired 11/08/93 cost $7,783,105),
7.566s, 11/1/09(c) AAA 7,783,875
2,450,000 Sacramento Cnty., Sanitation Dist. Fin.
Auth. Rev. Rfdg. Bonds, 4 3/4s, 12/1/23 AA 1,865,063
10,565,000 Sacramento, City Fin. Auth. Lease Rev. Bonds,
Ser. B, 5.4s, 11/1/20 Aa 8,927,425
29,500,000 San Joaquin Hills, Trans. Corridor Agcy.
Toll Rd. Rev. Bonds (Senior Lien), 6 3/4s,
1/1/32 BB/P 27,730,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
(Transmission Project),
8,530,000 6s, 7/1/20 AA 7,826,275
2,620,000 6s, 7/1/20 AA 2,685,500
2,000,000 5 3/4s, 7/1/10 AA 1,832,500
4,195,000 5 3/4s, 7/1/09 AA 3,875,131
10,000,000 Ser. A, FGIC, zero%, 7/1/15 AAA 2,737,500
11,400,000 Ser. A, FGIC, zero%, 7/1/14 AAA 3,320,250
12,200,000 Ser. A, FGIC, zero%, 7/1/13 AAA 3,782,000
5,000,000 Ser. A, FGIC, zero%, 7/1/12 AAA 1,650,000
U. of CA Rev. Bonds
18,000,000 (USCD Med. Ctr. Satellite Med. Fac.), 7.9s,
12/1/19(c) BBB 18,922,500
1,500,000 (Multi. Purpose Project), Ser. C, AMBAC,
4 7/8s, 9/1/19 AAA 1,173,750
West Covina Certif. of Participation
3,230,000 (Queen of The Valley Hosp.), 6 1/2s, 8/15/24 A 3,028,125
2,705,000 6 1/2s, 8/15/14 A 2,586,656
4,310,000 6 1/2s, 8/15/19 A 4,083,725
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166,890,488
COLORADO (3.3%)
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2,075,000 CO Hsg. Fin. Auth. Single Fam. Rev.
Rfdg. Bonds Ser. A, 7 1/4s, 11/1/31 AA 2,129,469
Denver City & Cnty. Airport Rev. Bonds
8,090,000 Ser. A 8s, 11/15/17 Baa 8,009,100
44,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 46,420,000
5,000,000 Ser. B, 7 1/4s, 11/15/23 Baa 4,687,500
6,015,000 Ser. A, 8 1/2s, 11/15/23 Baa 6,233,044
8,500,000 Denver, City & Cnty. Rev. Bonds, Ser. B,
VRDN, 3.65s, 12/22/97 A 8,500,000
6,775,000 Denver, City & Cnty., Arpt. Rev. Bonds
Ser. A, 7 1/2s, 11/15/23 Baa 6,478,594
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82,457,707
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MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CONNECTICUT (0.3%)
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$ 3,500,000 CT State Dev. Auth. Solid Waste & Elec.
Rev. Bonds (Ogden Martin Syst. Bristol,
Inc.), 10s, 7/1/14 BBB $ 3,714,375
2,000,000 CT State Hsg. Fin. Auth. Rev. Bonds,
Ser. B, 6 3/4s, 11/15/23 AA 2,030,000
1,600,000 CT State Special Tax Oblig. Rev. Rfdg. Bonds
(Trans. Infrastructure), Ser. A, 5 3/8s,
9/1/08 AA 1,496,000
1,150,000 Stratford, G.O. Bonds, 7.3s, 3/1/12 Baa 1,286,563
---------------
8,526,938
DISTRICT OF COLUMBIA (0.3%)
- -------------------------------------------------------------------------------
7,000,000 DC, Georgetown U. Rev. RIBS, 9.545s, 4/25/22 AA 6,763,750
FLORIDA (3.1%)
- -------------------------------------------------------------------------------
Broward Cnty., Resource Recvy. Rev. Bonds
3,430,000 (Waste-Energy Project), 7.95s, 12/1/08 A 3,717,263
2,595,000 (South Project), 7.95s, 12/1/08 A 2,812,331
2,260,000 FL State Board of Ed., Cap. Outlay Rfdg. Rev.
Bonds (Public Ed.), Ser. D, 5 1/8s, 6/1/22 AA 1,853,200
FL State Muni. Pwr. Agcy. Rev. Rfdg. Bonds
3,500,000 (Stanton II Project), AMBAC, 4 1/2s, 10/1/27 AAA 2,498,125
6,850,000 5 1/4s, 10/1/21 AAA 5,736,875
18,500,000 Hernando Cnty., Rev. Bonds (Criminal Justice
Complex), FGIC, 7.65s, 7/1/16 AAA 21,436,875
9,025,000 Manatee Cnty. G.O. Bonds, 4 3/4s, 10/1/13 AAA 7,411,781
Orlando Utils. Commn. Wtr. & Elec. Rev. Bonds,
4,500,000 5 1/8s, 10/1/19 AA 3,712,500
3,800,000 Ser. A, 5s, 10/1/20 AA 3,035,250
18,600,000 Palm Beach Cnty., Solid Waste Indl. Dev. Rev.
Bonds (Okeelanta Pwr. & Lt. Project), Ser. A,
6.85s, 2/15/21 BB/P 17,600,250
7,060,000 Reedy Creek Fl Improvement Bonds Ser. 1,
5s, 10/1/19 AAA 5,753,900
---------------
75,568,350
GEORGIA (3.0%)
- -------------------------------------------------------------------------------
12,115,000 Atlanta Georgia Wtr. & Swr. Rev. Bonds,
4 3/4s, 1/1/23 AA 9,404,269
13,015,000 Colquitt Cnty. Dev. Auth. Rev. Bonds, zero%,
12/1/21 Aaa 1,903,444
12,000,000 De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts. Project), Ser. A,
7 1/2s, 4/1/17 A/P 12,150,000
De Kalb Cnty., Wtr & Sew. Rev. Rfdg. Bonds
7,740,000 5 1/4s, 10/1/23 AA 6,453,225
3,575,000 5 1/8s, 10/1/14 AA 3,052,156
6,455,000 GA Muni. Elec. Auth. Pwr. Rev. Bonds Ser. CC,
AMBAC, 4 3/4s, 1/1/19 AAA 4,978,419
5,000,000 Georgia Muni Elec. Power, MBIA, 6.6s, 1/1/18 AAA 5,106,250
5,875,000 Gwinnett Cnty., School Dist. Rfdg. Rev. Bonds
4 1/2s, 2/1/13 AA 4,736,719
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
GEORGIA (continued)
- -------------------------------------------------------------------------------
$ 3,220,000 Macon GA Wtr. Auth. Wtr. & Swr. Rev. Bonds,
Ser. B 5s, 10/1/16 A $ 2,680,650
6,500,000 Middle GA. Colliseum Rev. Rfdg. Bonds Ser A,
5 3/8s, 7/1/14 AA 5,874,375
6,410,000 Monroe Cnty., Dev. Auth. Poll. Control Rev.
Bonds (GA Pwr. Co. Plant Scherer Project),
10 1/2s, 9/1/15 A 6,850,688
Richmond Cnty., Dev. Auth. Rev. Bonds,
3,965,000 Ser. C, zero%, 12/1/21 Aaa 579,881
25,080,000 Ser. A, zero%, 12/1/21 Aaa 3,667,950
11,750,000 Savannah Econ. Dev. Auth. Rev. Bonds Ser. A,
zero%, 12/1/21 Aaa 1,747,813
2,000,000 Savannah, Port Auth. Poll. Control Rev. Bonds
(Union Carbide Corp. Plastic Co., Inc.),
7.55s, 8/1/04 Baa 2,062,500
13,090,000 Washington Cnty., Wilkes Payroll Dev. Auth.
Rev. Bonds, zero%, 12/1/21 Aaa 1,947,138
---------------
73,195,477
ILLINOIS (3.1%)
- -------------------------------------------------------------------------------
4,055,000 Central Lake Cnty., Joint Action Wtr. Agcy.
Rfdg. Rev. Bonds, 6s, 2/1/19 Aa 3,831,975
5,000,000 Chicago Il Skyway Toll Rd. Rev. Rfdg. Bonds,
6 3/4s, 1/1/17 Baa 4,843,750
Chicago, Metro. Hsg. Dev. Corp. Rev. Bonds,
Ser. A, FHA Insd.
2,895,000 6.7s, 7/1/12 AA 2,934,806
10,000,000 6.85s, 7/1/22 AA 10,200,000
4,740,000 Chicago, O.Hare Intl. Arpt. Special Fac. Rev.
Bonds (United Airlines, Inc.), Ser. C. 8.2s,
5/1/18 Baa 5,000,700
1,965,000 Elmhurst IL, Rev. Jt. Commn. VRDN
(Commonwealth Bank of Australia (LOC))
(Joint Accreditation Commission), 4.15s,7/1/18 A 1,965,000
5,000,000 IL Dev. Fin. Auth. Poll. Control Rev. Bonds
(Cmnwlth. Edison Co. Project), 10 5/8s,
3/1/15(d) Baa 5,200,000
IL Dev. Fin. Auth. Rev. Bonds
5,760,000 (Community Rehab. Providers) 8 3/4s, 7/1/11 BB/P 5,832,000
3,000,000 (Marriott Retirement Project), Ser. A,
7 3/4s, 8/1/10 A 3,127,500
3,670,000 (Marriott Retirement Project), Ser. B,
7 3/4s, 8/1/09 A 3,825,975
IL Hlth. Fac. Auth. RIBS
2,000,000 (Methodist Hlth. Project), AMBAC, 10.774s,
5/1/21 AAA 2,055,000
8,000,000 (St. Luke.s Med. Ctr.), MBIA, 8.602s,10/1/24 AAA 8,110,000
IL Hlth. Fac. Auth. Rev. Bonds
4,000,000 (Glen Oaks Med. Ctr.), Ser. B, 6.95s,11/15/13 Baa 3,935,000
10,000,000 (Masonic Medical Ctr. Project), Ser. B,
5 1/2s, 10/1/19 A 8,137,500
5,800,000 IL Hsg. Dev. Auth. Res. Mtge. RIBS (acquired
4/08/92 cost $6,087,904) 11.051s, 2/1/20(c) Aa 6,061,000
---------------
75,060,206
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
INDIANA (0.6%)
- -------------------------------------------------------------------------------
$ 10,000,000 IN Trans. Fin. Auth. Hwy. Rev. Bonds,
Ser. A, AMBAC, 5 1/4s, 6/1/15 AAA $ 8,700,000
3,500,000 Indianapolis, Ind. Gas Util. Rev. Bonds,
Ser. B, FGIC, 4s, 6/1/15 AAA 2,550,625
5,200,000 Petersburg Ind. Poll. Cntrl. Rev. Bonds,
Ser. B, 5.4s, 8/1/17 AA 4,459,000
---------------
15,709,625
KANSAS (0.8%)
- -------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Control RIBS (KS Gas &
Electric), Ser. 91-4, MBIA ($10,200,000 par
amount acquired 6/20/91, cost $10,098,000;
$8,000,000 par amount acquired 2/14/94, cost
$10,083,360), 9.86s, 6/1/31(c) AAA 19,246,500
KENTUCKY (1.1%)
- -------------------------------------------------------------------------------
1,900,000 Jefferson Cnty. Sch. Dist. Rev. Bonds, MBIA,
Ser. A, 4 7/8s, 1/1/13 AAA 1,560,375
5,100,000 Jefferson Cnty., Hosp. RIBS (Alliant Hlth.
Syst. Project), MBIA, 9.09s, 10/1/14 AAA 5,087,250
20,640,000 KY Hosp. Auth. Econ. Rev. Bonds (Baptist
Healthcare Syst.), MBIA, 5s, 8/15/24 AAA 16,279,800
8,500,000 KY State Tpk. Auth. Econ Rev. Bonds
(Revitalization Project), FGIC, zero%, 1/1/10 AAA 3,251,250
---------------
26,178,675
LOUISIANA (1.7%)
- -------------------------------------------------------------------------------
30,000,000 LA Pub. Fac. Auth. Multi-Fam. Rev. Bonds,
Ser. A, zero%, 2/1/20 AAA 4,950,000
50,000,000 LA Pub. Fac. Auth. Rev. Bonds Ser. B,
zero%, 12/1/19 AAA 8,312,500
LA State Recvy. Dist. Sales Tax VRDN
(Swiss Bank Corporation (LOC)),
6,100,000 MBIA, 5 1/2s, 7/1/98 VMIG1 6,100,000
2,100,000 FGIC, 2.9s, 7/1/97 VMIG1 2,100,000
15,000,000 Lake Charles, Harbor & Term. Dist. Port
Facs. Rev. Bonds
(Trunkline Co. Project), 7 3/4s, 8/15/22 Baa 15,731,250
3,000,000 MS River Bridge Auth. Rev. Bonds, 6 3/4s,
11/1/12 A 3,063,750
10,000,000 Orleans, Parish School Board Rev. Bonds,
zero%, FGIC, 2/1/15 AAA 2,500,000
---------------
42,757,500
MAINE (0.2%)
- -------------------------------------------------------------------------------
5,000,000 Skowhegan Poll. Cntrl. Rev. Bonds (Scott
Paper Co. Project), 5.9s, 11/1/13 Baa 4,506,250
MARYLAND (0.8%)
- -------------------------------------------------------------------------------
5,125,000 Baltimore MD Water Project Rev. Bonds,
Ser. A, FGIC, 5s, 7/1/24 AAA 4,196,094
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
MARYLAND (continued)
- -------------------------------------------------------------------------------
MD, State Hlth. & Higher Edl. Fac. Auth.
Rev. Bonds
$ 3,000,000 (Doctors. Cmnty. Hosp. Project), 5 3/4s, 7/1/13 Baa $ 2,516,250
10,000,000 (Howard Cnty. Genl. Hosp. Project), 5 1/2s,
7/1/21 BBB 7,925,000
6,000,000 Prince Cnty. Rev. Bonds (Dimensions Hlth.
Care Corp. Project), 5.3s, 7/1/24 A 4,777,500
---------------
19,414,844
MASSACHUSETTS (11.4%)
- -------------------------------------------------------------------------------
Boston, Rev. Rfdg. Bonds
15,850,000 (Boston City Hosp.), Ser. A, FHA Insd.,
7 5/8s, 2/15/21 Aaa 18,009,563
5,000,000 (Boston City Hosp.), Federal Home Association
(FHA) Insd., Ser. B 5 3/4s, 2/15/13 AA 4,618,750
1,855,000 Lawrence Ma. G.O. Rev. Bonds, 4 3/4s, 2/15/14 AAA 1,511,825
1,000,000 Lowell, G.O. Bonds, 7 5/8s, 2/15/10 Aaa 1,142,500
6,500,000 MA Bay Trans. Auth. Rev. Bonds, Ser. B,
7 7/8s, 3/1/21 AAA 7,491,250
3,000,000 MA G.O. Cons. Loan Bonds, Ser. A, 7 1/2s, 6/1/04 A 3,367,500
8,000,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds
(Waltham-Weston Hosp. & Med. Ctr.), Ser. B,
8 3/8s, 7/1/15 Baa 8,550,000
MA Hlth. & Edl. Facs. Auth RIBS (Beth Israel
Hosp.), AMBAC,
4,000,000 Ser. G, 5 3/4s, 7/1/12 AAA 3,740,000
5,000,000 9.289s, 7/1/25 AAA 4,306,250
1,955,000 MA Hsg. Fin. Agcy. Multi-Fam. Hsg. Rev.
Bonds, MBIA, Ser. A, Government National
Mtge. Assn. (GNMA), Insd., 9 1/8s, 12/1/20 AAA 2,069,856
13,255,000 MA Hsg. Fin. Agcy. Rev. Bonds Ser. A, 9s,12/1/18 AAA 14,000,594
MA Muni Whls. Electric Co. Pwr. Supply Sys.
Rev. Bonds,
1,510,000 Ser. B, 6 3/4s, 7/1/17 A 1,513,775
12,295,000 Ser. A, 8 3/4s, 7/1/18 Aaa 13,724,294
5,000,000 Ser. B, MBIA, 4 3/4s, 7/1/11 AAA 4,100,000
11,790,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Sys.
Rev. Bonds Ser. D, MBIA, 6 1/8s, 7/1/19 AAA 11,259,450
10,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Boston College Project), Ser. K, 5 1/4s, 6/1/23 A 8,312,500
MA State Cons. Loan G.O. Bonds
6,305,000 Ser. B, 7 1/2s, 4/1/09 Aaa 7,001,207
10,000,000 Ser. C, 7 1/2s, 12/1/07 Aaa 1,337,500
1,000,000 Ser. B, 6 1/2s, 8/1/08 A 1,033,750
2,000,000 MA State G.O. Bonds Ser. B, VRDN, 2.9s,12/1/97 VMIG1 2,000,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
10,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s,
8/15/21 AAA 10,262,500
5,625,000 (Holyoke Hosp.), Ser. A, 9 1/2s, 7/1/15 Baa 5,955,469
4,340,000 (Youville Hosp.), Ser. A, FHA Insd., 9.1s,
8/1/15 Aa 4,676,350
7,510,000 (Melrose-Wakefield Hosp.), Ser A, 8 5/8s,7/1/18 AAA 8,157,738
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
MASSACHUSETTS (continued)
- -------------------------------------------------------------------------------
$ 4,000,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa $ 3,805,000
3,270,000 (Charlton Memorial Hosp.), Ser. B, 7 1/4s,7/1/13 A 3,417,150
1,500,000 (Med. Ctr. of Central MA), 7s, 7/1/12 Baa 1,533,750
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
5,000,000 (Stars & Cars), AMBAC, 6.55s, 6/23/22 AAA 5,037,500
5,000,000 (Metro West Hlth. Inc.), Ser. C, 6.4s, 11/15/11 A 4,768,750
3,350,000 (Ctr. for New England Hlth. Syst.), Ser. A,
6 1/8s, 8/1/13 Baa 2,948,000
5,000,000 (Baystate Med. Ctr.), Ser. D, FGIC, 5s,
7/1/12 AAA 4,268,750
5,600,000 (MA Institute of Technology), Ser. H, 5s, 7/1/10 Aaa 4,893,000
MA State Hlth. & Edl. Facs. Auth. RIBS
18,000,000 (Boston U.), Ser. L, MBIA, 8.46s, 10/1/31 AAA 18,270,000
4,000,000 (Cap. Assets Program), Ser. D, MBIA,
3.65s, 1/1/35 VMIG1 4,000,000
695,000 MA State Hsg. Finance Agcy. Single Fam.
Hsg. Rev. Bonds, Ser. 2, 8 1/4s, 6/1/14 Aa 719,325
5,000,000 MA State Ind. Fin. Agcy. Rev. Bonds (Harvard
Cmnty. Hlth.), Ser. B, 8 1/8s, 10/1/17 A 5,406,250
MA State Indl. Fin. Agcy. Resource Recvy.
Rev. Bonds
7,000,000 (Southeastern MA Project), Ser. A, 9s, 7/1/15 BB/P 7,752,500
3,000,000 (Refuse Tech. Inc. Project), Ser. A, 6.3s,7/1/05 Baa 2,910,000
5,700,000 MA State Port Auth., Tax Rev. Bonds zero%,7/1/13 AAA 4,317,750
MA State Wtr. Resource Auth. G.O. Bonds,
9,400,000 Ser. A, 7 5/8s, 4/1/14 AAA 10,622,000
6,000,000 Ser. A, 5 3/4s, 12/1/21 AAA 5,400,000
5,000,000 Ser. A, 6 1/2s, 7/15/19 A 5,018,750
5,000,000 5 1/2s, 3/1/17 AAA 4,425,000
MA State Wtr. Resources Auth. Rev. Rfgd. Bonds,
4,250,000 Ser. C, MBIA, 5 1/4s, 12/1/15 AAA 3,644,375
10,000,000 Ser. C, MBIA, 4 3/4s, 12/1/23 AAA 7,662,500
Plymouth-Carver Regl. School Dist. Rev. Bonds,
550,000 8 3/4s, 10/1/05 Aaa 589,188
1,000,000 8 3/4s, 10/1/04 Aaa 1,071,250
1,250,000 8 3/4s, 10/1/03 Aaa 1,339,063
1,300,000 8 3/4s, 10/1/02 Aaa 1,392,625
U. of MA Bldg. Auth. Rev. Bonds, Ser. A,
3,000,000 7.2s, 5/1/04 A 3,285,000
2,500,000 7.15s, 5/1/03 A 2,731,250
---------------
279,371,347
MICHIGAN (2.7%)
- -------------------------------------------------------------------------------
5,000,000 Kalamazoo, Hosp. Fin. Auth. Rev. Bonds
(Bronson Methodist Project), Ser A, 6 1/4s,5/15/12 A 4,806,250
9,355,000 Kent Hosp. Fin. Auth. Rev. Bonds (Blodgett
Memorial Med. Ctr.), Ser. A, 5 3/4s, 7/1/09 A 8,583,213
41,685,000 Lowell Area Schools Cap. Apprec. Rev. Bonds
FGIC, zero%, 5/1/05 AAA 7,607,513
15,000,000 MI State Stragetic Fund Solid Waste Disp.
Rev. Bonds (Genesee Pwr. Station Project),
7 1/2s, 1/1/21 BB/P 14,606,250
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
MICHIGAN (continued)
- -------------------------------------------------------------------------------
$ 51,675,000 Okemos, Pub. School Dist. Rev. Bonds
Ser. I, MBIA, zero %, 5/1/21 AAA $ 8,978,531
12,585,000 Pellston Pub. School Dist. Rev. Bonds,
zero%, 5/1/22 AAA 2,060,794
Romulus, Cmnty. Schools Rev. Bonds
7,400,000 Ser. II, FGIC, zero%, 5/1/22 AAA 1,276,500
39,490,000 Ser. I, zero%, 5/1/17 AAA 9,082,700
36,490,000 West Ottawa, Pub. School Dist. Bldg. & Site
Rev. Bonds MBIA, zero%, 5/1/15 AAA 9,669,850
---------------
66,671,601
MINNESOTA (0.2%)
- -------------------------------------------------------------------------------
2,000,000 Duluth, Tax Increment, VRDN (Lake
Superior Paper), 3 3/4s, 9/1/10 VMIG1 2,000,000
1,800,000 Hutchinson, Indl. Dev. VRDN (Hutchinson
Tech. Inc. Project), 3.7s, 6/1/04 VMIG1 1,800,000
---------------
3,800,000
MISSISSIPPI (0.2%)
- -------------------------------------------------------------------------------
1,400,000 Jackson Cnty. Poll. Control Rev. Bonds
(Chevron U.S.A. Inc. Project), 2 1/4s,
12/1/16 AAA/P 1,400,000
3,000,000 Perry Cnty. VRDN, 3.55s, 3/1/02 AAA/P 3,000,000
---------------
4,400,000
MISSOURI (0.2%)
- -------------------------------------------------------------------------------
18,400,000 Greene Cnty., Single Fam. Mtge. Rev. Bonds,
Ser. A, zero%, 7/1/14 A 2,714,000
1,420,000 MO State Environ. Impt. & Energy Resources
Auth. Poll. Control Rev. Bonds, Ser. 1984G,
8 1/4s, 11/15/14 AA 1,519,400
---------------
4,233,400
MONTANA (0.5%)
- -------------------------------------------------------------------------------
14,000,000 MT Hlth. Fac. Auth. Hosp. RIBS (Deaconess Med.
Ctr. Project), Ser. B, AMBAC, 8.181s, 2/15/16 AAA 13,877,500
NEBRASKA (0.8%)
- -------------------------------------------------------------------------------
NB Investment Fin. Auth. Single Fam. Mtge. RIBS,
4,650,000 9.567s, 9/15/24 AAA 4,516,313
11,200,000 GNMA Coll., Ser. B, 8.949s, 9/19/23 AAA 11,284,000
3,000,000 NE Investment Fin. Auth. Hosp. Rev. RIBS,
MBIA, 10.197s, 11/15/16 AAA 3,037,500
---------------
18,837,813
NEVADA (0.3%)
- -------------------------------------------------------------------------------
7,150,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 6 1/2s, 12/1/33 Ba 6,417,125
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
NEW HAMPSHIRE (0.9%)
- -------------------------------------------------------------------------------
NH State Tpk. Syst. RIBS,
$ 10,500,000 FGIC, 10.245s, 11/1/17 AAA $ 11,130,000
15,600,000 7.669s, 2/1/24 A 9,672,000
---------------
20,802,000
NEW JERSEY (1.2%)
- -------------------------------------------------------------------------------
5,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac.
Rev. Bonds (Vineland Cogeneration L.P. Project),
7 7/8s, 6/1/19 BB/P 5,250,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
9,500,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 BB/P 9,013,125
6,800,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 6,604,500
2,500,000 (Union Hosp./Mega Care Inc.), 5 7/8s, 7/1/07 Baa 2,334,375
7,285,000 (Somerset Med. Ctr.), Ser. A, 5.2s, 7/1/24 AAA 6,082,975
---------------
29,284,975
NEW YORK (24.3%)
- -------------------------------------------------------------------------------
Battery Park, City Auth. Rev. Bonds,
15,625,000 Ser. A., 5 1/4s, 11/1/17 AA 13,281,250
10,000,000 Ser. A., 5 1/2s, 11/1/10 AA 9,087,500
1,900,000 Erie Cnty., Wtr. Auth. VRDN, Ser. A, AMBAC,
3.35s, 12/1/16 VMIG1 1,900,000
Metro. Trans. Auth. Svcs. Contract Fac.
Rev. Bonds
12,325,000 (Trans. Fac.), Ser. 7, 5 5/8s, 7/1/16 Baa 10,691,938
6,650,000 Ser. O, 5 3/4s, 7/1/13 Baa 6,018,250
4,850,000 Metro. Trans. Auth. Transit Fac. Rev. Bonds
Ser. F, 8 3/8s, 7/1/16 AAA 5,256,188
7,040,000 Muni. Assistance Corp. for the City of NY
Rev. Bonds Ser. 61, 5 3/4s, 7/1/08 AA 6,916,800
NY City, G.O. Bonds
5,000,000 Ser. F, 8.4s, 11/15/07 Baa 5,725,000
5,335,000 Ser. F, 8.4s, 11/15/06 Baa 6,095,238
5,500,000 Ser. F, 8.4s, 11/15/05 Baa 6,297,500
3,215,000 Ser. D, 8 1/4s, 8/1/13 Baa 3,624,913
30,000,000 Ser. D, 8 1/4s, 8/1/12 Baa 33,637,500
11,000,000 Ser. D, Group B, 8 1/4s, 8/1/11 Baa 12,361,250
5,000,000 Ser. B, 7 1/2s, 2/1/06 Baa 5,387,500
4,325,000 Ser. B, 7s, 10/1/13 Baa 4,557,469
4,000,000 VRDN, 3.7s, 8/15/20 VMIG1 4,000,000
1,300,000 NY City, Hsg. Dev. Corp. Mtge. VRDN (East
96th St. Project), Ser. A, 2.7s, 8/1/15 VMIG1 1,300,000
5,000,000 NY City, Hsg. Dev. Corp. Multi-Fam. Rev.
Bonds, Ser. B, 5.7s, 11/1/13 AA 4,531,250
NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr.
Syst. Rev. Bonds
9,250,000 Ser. C, 7 3/4s, 6/15/20 Aaa 10,637,500
12,100,000 Ser. G, FGIC, 3.6s, 6/15/24 VMIG1 12,100,000
5,200,000 NY City, VRDN, Ser B-4 3.6s, 8/15/22 VMIG1 5,200,000
13,235,000 NY Local Govt. Assistance Corp. Rev. Bonds,
Ser. E., 4/1/14 A 12,573,250
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
NEW YORK (continued)
- -------------------------------------------------------------------------------
NY State Dorm. Auth. Rev. Bonds
$ 7,000,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa $ 7,962,500
9,750,000 (City U. Syst.), Ser. 86B, 7 5/8s, 7/1/14 Baa 10,444,688
15,750,000 (City U. Syst.), Ser. A, 7 5/8s, 7/1/13 Baa 16,872,188
9,625,000 NY State Dorm. Auth. Rev. Bonds (City U.
Syst.), Ser. C, 7 1/2s, 7/1/10 Baa 10,587,500
NY State Dorm. Auth. Rev. Bonds
9,300,000 (Construction City U. Syst.), Ser. A, 6s,
7/1/20 Baa 8,486,250
26,060,000 (State U. Edl. Fac.), Ser. A, 5 7/8s, 5/15/17 Baa 23,714,600
17,285,000 (Construction City U. Syst.), Ser. A, 5 3/4s,
7/1/18 Baa 15,340,438
10,000,000 (Upstate Cmnty. Colleges), Ser. A, 5.7s,
7/1/21 Baa 8,637,500
230,000 (City U. Syst.), Ser. V, 5 3/8s, 7/1/07 Baa 205,563
6,000,000 (State U. Edl. Fac.), Ser. A, 5 1/4s, 5/15/15 Baa 5,077,500
4,000,000 (City U.), Ser. F, 5s, 7/1/20 Baa 3,105,000
4,600,000 NY State Energy Research & Dev. Auth. Poll.
Control VRDN (Toronto Dominion Bank
LOC) (Niagara Mohawk Power Project),
Ser A, 5.1s, 7/1/15 A 4,600,000
4,400,000 NY State Environmental Fac. Corp. Poll. Control
Rev. Bonds (State Wtr. Revolving Fund), Ser A,
7 1/2s, 6/15/12 Aa 4,873,000
NY State Hsg. Corp. Rev Bonds,
20,650,000 5 1/2s, 11/1/20 AA 18,172,000
60,785,000 5s, 11/1/18 AA 49,995,663
15,000,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig.
Rev. Bonds, Ser. C, 5 7/8s, 9/15/14 Baa 13,725,000
1,400,000 NY State Job Dev. Auth. VRDN, Ser. B-1 thru
B-9, 3.8s, 3/1/03 VMIG1 1,400,000
NY State Local Govt. Assistance Corp. Rev. Bonds,
4,600,000 Ser. C, 6 1/2s, 4/1/15 A 4,611,500
3,300,000 Ser. D, 6 3/4s, 4/1/21 AAA 3,625,875
6,755,000 Ser. A, 6 1/2s, 4/1/20 A 6,721,225
2,500,000 Ser. B, 5 3/8s, 4/1/16 A 2,162,500
3,700,000 Ser. E, 5 1/4s, 4/1/16 A 3,126,500
9,000,000 Ser. C, 5s, 4/1/21 A 7,155,000
4,100,000 NY State Local Govt. Asst. Corp. VRDN,
2.3s, 4/1/95 VMIG1 4,100,000
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
21,500,000 (Hosp. & Nursing Home Insd. Mtge.), Ser. A,
FHA Insd., 8s, 2/15/27 Aaa 23,488,750
3,970,000 (Beth Israel Med. Ctr Project), Ser. A, 7.2s,
11/1/14 Baa 4,123,838
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
1,800,000 (Hosp. & Nursing Home), Ser. C, 6.55s, 8/15/12 Aa 1,800,000
245,000 (Mental Hlth. Svcs. Fac.), Ser. D, 7.4s,
2/15/18 Baa 258,475
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
(Mental Hlth. Svcs. Fac.),
4,860,000 Ser. A, 7.8s, 2/15/19 AAA 5,297,400
8,780,000 Ser. A, 7.8s, 2/15/99 AAA 9,855,550
6,900,000 Ser. A, 7.7s, 2/15/18 Baa 7,426,125
7,695,000 Ser. A, 7.7s, 2/15/98 AAA 8,493,356
8,080,000 Ser. B, 7 5/8s, 8/15/17 Baa 8,655,700
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
NEW YORK (continued)
- -------------------------------------------------------------------------------
$ 13,400,000 Ser. A, 7.35s, 8/15/11 Baa $ 14,338,000
NY State Med. Care Facs. Fin. Agcy. Rev. Bonds,
18,575,000 Ser. A, 5 1/4s, 8/15/23 AAA 15,533,344
27,500,000 Ser. F, 5 1/4s, 2/15/19 AAA 23,271,875
5,000,000 NY State Mtg. Agy. Rev. Bonds 5.6s, 4/1/15 Aa 4,493,750
NY State Urban Dev. Corp. Correctional Fac.
Rev. Bonds,
2,000,000 Ser. 1, 7 3/4s, 1/1/14 Aaa 2,267,500
5,000,000 7 1/2s, 4/1/11 Baa 5,381,250
15,000,000 Ser. 2, 7 1/2s, 1/1/11 Aaa 16,987,500
9,705,000 (Correctional Fac.), Ser. A, 5 1/2s, 1/1/16 Baa 8,358,431
6,685,000 (Correctional Fac.), 5 1/2s, 1/1/15 Baa 5,774,169
3,030,000 NYC Muni Wtr. Fin. Auth. Wtr. & Swr. Sys.
Rev. Bonds, Ser. B 6 3/8s, 6/15/22 A 3,234,525
2,000,000 Triborough Bridge & Tunnel Auth. General
Purpose Rev. Bonds (Convention Ctr. Project),
Ser. E, 7 1/4s, 1/1/10 Baa 2,145,000
10,000,000 Triborough Bridge & Tunnel Auth. General
Purpose Rev. Bonds, Ser. Y 5 1/2s, 1/1/17 Aa 8,875,000
---------------
595,941,824
NORTH CAROLINA (3.3%)
- -------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Rev. Bonds,
3,155,000 Ser. A, 8s, 1/1/21 Aaa 3,494,163
395,000 Ser. A, 8s, 1/1/21 Aaa 437,463
2,985,000 Ser. A, 7 1/4s, 1/1/21 A 3,123,056
30,000,000 4 1/2s, 1/1/22 Aaa 23,175,000
19,200,000 FGIC, 9.278s, 1/1/25 AAA 16,440,000
NC G.O. Cap. Improvement Bonds
3,420,000 Ser. A, 3/4s, 2/1/13 AAA 2,817,225
10,000,000 Ser. A, 4.7s, 2/1/11 AAA 8,387,500
15,280,000 NC Muni. Pwr. Agcy. No. 1 Catawba Rev. Bonds,
5 3/4s, 1/1/15 A 13,771,100
1,625,000 North Carolina G.O. Bonds, Ser. A, 4 3/4s,
2/1/12 AAA 1,354,844
7,000,000 Pearson Cnty. Indl. Facs & Poll. Control Fin.
Auth. Rev. Bonds, VRDN, 3.65s, 11/1/16 VMIG1 7,000,000
---------------
80,000,351
OHIO (1.3%)
- -------------------------------------------------------------------------------
1,640,848 Lake Cnty., Ind. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr. Project), FHA Insd., 12s, 5/1/14 BBB/P 1,702,380
83,385,000 Lucas Plaza Hsg. Dev. Corp. Mtge. Rev. Bonds
FHA Insd., zero%, 6/1/24 AAA 10,423,125
3,950,000 Mount Vernon, Hosp. Rev. Bonds (Knox
Cmnty. Hosp.), 7 7/8s, 6/1/12 BB/P 4,162,313
OH Hsg. Fin. Agcy. Single Fam. Mtge. RIBS,
6,173,000 Ser. A-2, GNMA Coll., 10.348s, 3/1/31 AAA 6,219,298
7,775,000 (9s, 9/1/18), Government National Mortgage
Assn. (GNMA) Coll., 9s, 9/1/18 AAA 5,763,219
3,000,000 Stark Cnty.,Hosp. Rev. Bonds (Doctors Hosp.
Inc.), 6s, 4/1/24 Baa 2,546,250
---------------
30,816,585
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
PENNSYLVANIA (6.1%)
- -------------------------------------------------------------------------------
$ 2,560,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Southside Hosp. Pittsburgh), Ser. A, 8 3/4s,
6/1/10 BBB $ 2,710,400
11,575,000 Allentown Redev. Auth. Multi-Fam. Hsg., VRDN,
(Oxford Project), 4s, 11/1/06 A 11,575,000
6,000,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control
Rev. Rfdg. Bonds (OH Edison Project), Ser. A
7 3/4s, 9/1/24 Baa 6,195,000
5,605,000 Clearfield Hosp. Auth. Rev. Rfdg. Bonds
(Clearfield Hosp. Project), 6 7/8s, 6/1/16 BB/P 4,855,331
Geisinger, Auth. Hlth. Syst. Rev. Bonds,
7,095,000 Ser. B, 6 1/2s, 7/1/07 AA 7,290,113
20,000,000 Ser. A, 5.45s, 7/1/22 AA 19,850,000
8,030,000 Montgomery Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Philadelphia Elec. Co.), Ser. A,
10 1/2s, 5/15/15 Baa 8,561,988
3,000,000 PA Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Northampton Generating), Ser. A,
6.6s, 1/1/19 BB/P 2,696,250
PA Hsg. Fin. Agcy. Rev. Bonds,
12,560,000 4s, 10/1/13 AA 10,581,800
690,000 Ser. 29, 7 3/8s, 10/1/16 AA 719,325
7,330,000 PA Intergovernmental Coop. Auth. Spl. Tax Rev.
Bonds, MBIA, 5 3/4s, 6/15/15 AAA 6,688,625
5,000,000 PA State Certif. of Participation, Ser. A,
AMBAC, 5 1/4s, 7/1/10 AAA 4,437,500
PA State Econ. Dev. Fin. Auth. Rev. Bonds
12,700,000 (Northampton Generating Project), Ser. A,
6.4s, 1/1/09 BB/P 11,636,375
10,000,000 (Colver Project), Ser. D, 7 1/8s, 12/1/15 BBB 9,850,000
4,600,000 PA State Higher Ed. Assistance Agcy. Ser. B,
VRDN, 3 3/4s, 7/1/18 VMIG1 4,600,000
Philadelphia, Hosp. & Higher Edl. Fac. Auth.
Rev. Bonds,
3,000,000 (Children.s Hosp. Project), Ser. A, 8s, 7/1/18 AA 3,281,250
10,100,000 (Temple U. Hosp.), Ser. A, 6 5/8s, 11/15/23 Baa 9,292,000
7,200,000 (Children.s Hosp. Project), Ser. A, 6 1/2s,
2/15/21 Aaa 7,749,000
2,000,000 (Temple U. Hosp. Project), Ser. A, 6 1/2s,
11/15/08 Baa 1,927,500
Philadelphia, Wtr. & Wastewater Rev. Bull Floater,
5,000,000 FGIC, 4.8s, 6/15/05 AAA 1,356,250
5,000,000 FGIC, 5.2s, 6/15/05 AAA 4,425,000
5,000,000 Schuylkill Cnty., Indl. Dev. Auth. Res. Recvy.
Rev. Bonds (Schuylkill Energy Res. Inc.),
Ser. B, 6 1/2s, 1/1/10 BB/P 4,631,250
5,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp. Project),
Ser. B, 8 1/2s, 7/1/20 BB 5,275,000
---------------
150,184,957
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
PUERTO RICO (0.2%)
- -------------------------------------------------------------------------------
$ 3,640,000 Puerto Rico Hlth. & Edl. Pub. Bldg. Fac. Rev.
Bonds, Ser. M, 5.6s, 7/1/08 Baa $ 3,417,050
250,000 Puerto Rico Hwy. & Trans. Auth. Hwy. Rev.
Bonds, Ser. S, 6 5/8s, 7/1/18 AAA 274,063
250,000 Puerto Rico, Pub. Bldgs. Auth. Rev. Bonds,
Ser. K, 6 7/8s, 7/1/21 AAA 278,125
---------------
3,969,238
RHODE ISLAND (0.4%)
- -------------------------------------------------------------------------------
1,500,000 RI Clean Wtr. Protection Fin. Agcy. Wtr. Poll.
Control Rev. Bonds, Ser. A, MBIA, 5.4s, 10/1/15 AAA 1,336,875
4,720,000 RI Hsg. & Mtge. Fin. Corp. Rev. Bonds, Ser.
10-A, 6 1/2s, 4/1/27 AA 4,655,100
3,500,000 Rhode Island Deposit, MBIA, Ser. B, 5 1/4s,
8/1/21 AAA 2,843,750
---------------
8,835,725
SOUTH CAROLINA (0.3%)
- -------------------------------------------------------------------------------
6,750,000 Spartansburg Cnty., Hosp. Fac. Rev., RIBS,
9.303s, 4/13/22 AAA 6,471,563
SOUTH DAKOTA (0.5%)
- -------------------------------------------------------------------------------
Heartland, Consumer Elec. Pwr. Dist. Rev. Bonds,
8,000,000 6s, 1/1/17 AAA 7,600,000
5,000,000 6s, 1/1/12 AAA 4,800,000
---------------
12,400,000
TENNESSEE (1.1%)
- -------------------------------------------------------------------------------
90,734,086 Metropolitan Nashville & Davidson Cnty. Wtr.
& Swr. Rev. Bonds, zero%, 6/1/21 AAA 13,950,366
TN State G.O. Bonds,
6,700,000 Ser. A, 5.7s, 3/1/14 Aaa 6,356,625
8,060,000 Ser. A, 5.7s, 3/1/13 Aaa 7,657,000
---------------
27,963,991
TEXAS (5.4%)
- -------------------------------------------------------------------------------
Cypress-Fairbanks, Independent School Dist.
Rev. Bonds,
13,000,000 Ser. A, zero%, 2/15/13 AAA 3,981,250
14,000,000 Ser. A, zero%, 2/15/12 AAA 4,567,500
78,000 Dallas Cnty, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds (Lomas & Nettleton Co), MBIA,
10s, 10/1/07 AAA 80,730
10,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds,
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa 10,506,250
17,000,000 Harris Cnty., Toll Roads Rev. Bonds, AMBAC,
zero %, 8/15/18(d) AAA 3,697,500
2,500,000 Harris Cnty. Hlth. Fac. Dev. Corp. Rev. Bonds,
(Memorial Hosp.), Ser. A. 6 5/8s, 6/1/24 A 2,434,375
6,000,000 Harris Cnty. TX Toll Roads Rev. Bonds, 5s,
8/15/16 AAA 4,912,500
275,000 Harris Cnty., Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds, Ser. 1983A, 10 3/8s, 7/15/14 BB 274,313
300,000 Harris Cnty., Memorial Hosp. Rev. Bonds,
7 1/8s, 6/1/15 A 313,125
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
TEXAS (continued)
- -------------------------------------------------------------------------------
$ 60,000 Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds, 10s, 9/15/14 Baa $ 61,125
470,000 Jefferson Cnty., Hlth Fac. Dev. Corp. Hosp.
Rev. Bonds, (Baptist Healthcare Sys. Project),
8 7/8s, 6/1/21 Baa 546,963
1,450,000 Mesquite Tx Rev. Bonds, 4 1/4s, 8/15/11 AAA 1,127,375
200,000 Metropolitan Hlth. Fac. Rev. Bonds, 7 3/4s,
1/1/05 AAA 216,250
2,165,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev.
Bonds (Woodlands Med. Ctr. Project), 8.85s,
8/15/14 BB/P 2,324,669
35,975,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev.
Bonds (Heritage Manor), zero%, 7/15/23 AAA 4,766,688
North Central Hlth. Fac. Dev. Corp. RIBS,
20,000,000 (Baylor U. Med. Ctr.), Ser. A, 8.752s, 5/15/16 AA 20,700,000
3,475,000 (U. Med. Ctr. Project), 7 3/4s, 4/1/17 BBB/P 3,501,063
245,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB/P 253,269
200,000 Rio Grande Valley, Hlth. Fac. Dev. Corp.
RIBS (Golden Palms Project), Ser. D, MBIA,
6.2s, 8/1/06 AAA 204,000
2,000,000 Rio Grande, Hlth. Fac. Dev. Corp., RIBS,
MBIA, 6.4s, 8/1/12 AAA 2,012,500
15,250,000 Sabine, River Auth. Poll. Control Rev. Bonds
(Texas Util. Elec. Co. Project), Ser. A, FGIC,
6.55s, 10/1/22 AAA 15,269,063
Sam Rayburn, Muni. Pwr. Supply Agcy. Rev. Bonds,
2,500,000 Ser. A, 6 3/4s, 10/1/14 Baa 2,387,500
1,000,000 Ser. A, 6 1/2s, 10/1/08 Baa 951,250
Southeast TX Hsg. Fin. Corp. Multi-Fam. Rev. Bonds
12,000,000 (Bayou Pk. Village Project), Ser. A, 8s, 8/1/16 A/P 11,985,000
10,000,000 (Promenade Place Apts. Project), Ser. A, 8s,
8/1/16 BB/P 9,975,000
10,250,000 TX Dept. of Hsg. & Cmnty. Affairs Home Mtge.
RIBS, Ser. A, GNMA Coll., 10.271s, 7/18/23 AAA 10,301,250
5,000,000 TX State Dept. of Hsg. & Cmnty. Affairs Home
Mtge., RIBS, Ser. B, 10.271s, 7/18/23 AAA 5,025,000
10,400,000 TX State Reg., RIBS, Ser. B, 8.719s, 9/30/11 AA 10,361,000
---------------
132,736,508
UTAH (1.0%)
- -------------------------------------------------------------------------------
1,860,000 Intermountain Pwr. Agcy. Pwr. Supply, Rev.
Bonds, Ser. D, 8 5/8s, 7/1/21 AA 2,069,250
Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
5,000,000 Ser. A, 8 1/8s, 5/15/15 AAA 5,581,250
3,000,000 (IHC Hosps., Inc.), 6.05s, 2/15/12 AA 2,868,750
7,855,000 6.1s, 2/15/09 AA 7,727,356
UT State Bldg. Auth. Rev. Bonds,
1,945,000 Ser. A, 5 3/4s, 8/15/09 AA 1,869,631
2,060,000 Ser. A, 5 3/4s, 8/15/10 AA 1,967,300
2,185,000 Ser. A, 5 3/4s, 8/15/11 AA 2,083,944
---------------
24,167,481
VERMONT (0.3%)
- -------------------------------------------------------------------------------
VT Edl. & Hlth. Bldg. Fin. Agcy. RIBS,
4,300,000 11.88s, 9/1/16 AAA 4,020,500
5,000,000 (Brattleboro Memorial Hospital ), 7s, 3/1/24 BBB/P 4,493,750
---------------
8,514,250
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
VIRGINIA (3.0%)
- -------------------------------------------------------------------------------
$ 1,145,000 Fairfax Cnty. Indl. Dev. Auth. (Inova Hlth.
Syts. Hospitals Project), 5s, 8/15/14 AA $ 944,625
7,500,000 Fairfax Cnty., Econ. Dev. Auth. Lease Rev.
Bonds, 5 1/2s, 5/15/18 AA 6,609,375
2,700,000 Fairfax Cnty., Indl. Dev. Auth. Rev. Bonds
(Inova Hlth. Sys. Hosp. Project), 5s, 8/15/23 AA 2,119,500
8,500,000 Henrico Cnty., Indl. Dev. Auth. RIBS (Secours
Hlth. Syst. Project), 8.988s, 8/23/27 AAA 7,140,000
3,250,000 Lynchburg, Redev. & Hsg. Auth. Multi Fam. Hsg.
Rev. Bonds (Walden Pond III Apts.), VRDN,
3.4s, 4/1/07 A 3,250,000
10,200,000 Roanoke, Indl. Dev. Auth. Hosp. RIBS (Roanoke
Memorial Hosp.), Ser. B, MBIA, 5.95s, 7/1/20 AAA 9,753,750
2,760,000 Roanoke, Redev. & Hsg. Auth. Multi Fam. Hsg.
(Westwind II Apts.), VRDN, 3.4s, 4/1/07 A 2,760,000
36,900,000 Winchester, Indl. Dev. Auth. RIBS,
(Winchester Med. Ctr. Project ) , AMBAC,
5s, 1/16/14 AAA 37,315,125
---------------
69,892,375
WASHINGTON (2.7%)
- -------------------------------------------------------------------------------
Douglas Cnty., Pub. Util. Dist. No. 001 Rev.
Bonds (Wells Hydroelectric),
1,000,000 Ser.A, 6.15s, 9/1/13 A 963,750
1,000,000 Ser.A, 6.2s, 9/1/18 A 960,000
8,660,000 Kitsap Cnty., WA School Dist. 401 Rev. Bonds
(Central Kitsap), Ser. A, 6 5/8s, 12/1/08 A 8,833,200
5,200,000 Port of Moses Lake, Poll. Control Rev. Bonds
(Union Carbide Corp.), 7 1/2s, 8/1/04 Baa 5,362,500
10,000,000 Spokane, Regl. Solid Waste Mgmt. Syst. RIBS,
AMBAC, 8.4s, 12/1/10 AAA 7,637,500
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchinson Cancer Center), Ser. D,
5,200,000 7.3s, 1/1/12 Aaa 5,499,000
8,400,000 7 3/8s, 1/1/18 Aaa 8,925,000
17,560,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear Project No. 3), Ser. B, 5 1/2s,
7/1/17 AA 14,926,000
15,050,000 WA State Pwr. Supply Syst. Rev. Bonds (Nuclear
Project No. 2), Ser. A, 6 1/4s, 7/1/12 AA 14,485,600
---------------
67,592,550
WEST VIRGINIA (0.2%)
- -------------------------------------------------------------------------------
2,000,000 South Charleston, Poll. Control Rev. Bonds
(Union Carbide Corp.), 7 5/8s, 8/1/05 Baa 2,177,500
3,000,000 WV Certif. of Participation (Morris Sq.
Complex), 9 1/4s, 8/15/08 B/P 2,846,250
---------------
5,023,750
<PAGE>
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
WISCONSIN (.5%)
- -------------------------------------------------------------------------------
$ 9,200,000 WI Hsg. & Econ. Dev. Auth. RIBS
(Homeownership Dev. Program), 9.475s, 10/25/22 AA $ 9,200,000
4,000,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B,
7.05s, 11/1/22 A 4,100,000
---------------
13,300,000
WYOMING (0.2%)
- -------------------------------------------------------------------------------
2,375,000 Platte Cnty. Poll. Ctrl. Rev. Bonds, 5.1s,
1/1/08 A 2,122,656
2,000,000 Wyoming Cnty., Cmnty. Dev. Auth. Single-Fam.
Rev. Bonds, Ser. A, 6.1s, 6/1/33 AA 1,855,000
---------------
3,977,656
VIRGIN ISLANDS (0.1%)
- -------------------------------------------------------------------------------
1,850,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds (Matching
Funds Loan Notes), Ser. A, 7 1/4s, 10/1/18 BBB/P 1,891,625
- -------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS AND NOTES (cost $2,367,628,114) $2,358,044,583
- -------------------------------------------------------------------------------
MUNICIPAL OPTIONS (0.2%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
Modesto CA Irrigation Dist. Custody
Receipts (Purchase Rights) (Geysers Pwr.)
$ 2,400,000 4 1/2s, 10/1/99 AAA $ 214,500
20,380,000 6s, 10/1/15 AAA 993,525
4,405,000 5.8s, 10/1/11 AAA 211,991
4,160,000 5 3/4s, 10/1/10 AAA 208,000
3,940,000 5.65s, 10/1/09 AAA 204,388
3,735,000 5.55s, 10/1/08 AAA 203,091
3,540,000 5.45s, 10/1/07 AAA 203,550
3,360,000 5.35s, 10/1/06 AAA 203,700
3,190,000 5 1/4s, 10/1/05 AAA 203,363
3,035,000 5.15s, 10/1/04 AAA 202,966
2,890,000 5.05s, 10/1/03 AAA 205,913
2,755,000 4.95s, 10/1/02 AAA 206,625
2,630,000 4.85s, 10/1/01 AAA 208,756
2,510,000 4.7s, 10/1/00 AAA 213,350
2,300,000 4 1/4s, 10/1/98 AAA 219,938
2,220,000 3 3/4s, 10/1/97 AAA 220,613
- -------------------------------------------------------------------------------
TOTAL MUNICIPAL OPTIONS (cost $4,586,451) $ 4,124,269
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $2,373,214,565)(e) $2,361,986,182
- -------------------------------------------------------------------------------
<PAGE>
<PAGE>
(a) Percentages indicated are based on net assets of $2,446,289,855 which co-
rresponds to a net asset value per Class A share and Class B share of $8.55
and $8.53, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at September 30, 1994 for the securities lis-
ted. Ratings are generally ascribed to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessa-
rily represent ratings which the rating agencies whould ascribe to these se-
curities at September 30, 1994.These ratings are not covered by the Report
of Independent Accountants.
(c) Restricted, excluding 144A securities, as to public resale. At the date of
acquisition, these securities were valued at cost. There were no outstanding
unrestricted securities of the same class as that held. Total value of res-
tricted securities owned at September 30, 1994 was $56,815,500 or 2.3% of
net assets.
(d) A portion of this security was pledged to cover margin requirements for fu-
tures contracts at September 30, 1994. The market value segregated with the
custodian for transactions in futures contracts was $13,432,225.
(e) The aggregate identified cost for federal tax purposes is $2,373,405,197 re-
sulting in gross unrealized appreciation and depreciation of $75,583,424 and
$87,002,439, respectively, or net unrealized depreciation of $11,419,015.
The rates shown on Variable Rate Demand Notes (VRDN) and Residual Interest
Bonds (RIBS) which are securities paying variable interest rates that vary
inversely to changes in market interest rates, are current interest rates at
September 30, 1994, which are subject to change based on the terms of the
security.
The Fund had the following industry group concentrations greater than 10% on
September 30, 1994 as a percentage of net assets:
Hospitals/Health Care 22.6%
Utilities 14.7%
Housing 10.0%
U.S. Futures Contracts Outstanding at September 30, 1994
Market Aggregate Expiration Unrealized
Value Face Value Date Appreciation
US Treasury
Bond Futures
(Sell) $49,468,750 $49,473,210 Dec/94 $ 4,460
US Treasury
Note Futures
(Sell) 25,550,781 25,910,703 Dec/94 359,922
Municipal Bond
Futures
(Sell) 14,447,813 14,844,375 Dec/94 396,562
-----------
$760,944
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,373,214,565) (Note 1) $2,361,986,182
Cash 876,970
Interest receivable 38,476,615
Receivable for shares of the fund sold 2,348,647
Receivable for securities sold 56,905,946
Unamortized organization expenses (Note 1) 20,859
- -------------------------------------------------------------------------------
TOTAL ASSETS $2,460,615,219
LIABILITIES
- -------------------------------------------------------------------------------
Distributions payable to shareholders 5,471,609
Payable for variation margin on short futures contracts 132,813
Payable for shares of the fund repurchased 3,833,068
Payable for compensation of Manager (Note 2) 2,944,765
Payable for administrative services (Note 2) 11,161
Payable for compensation of Trustee (Note 2) 1,200
Payable for investor servicing and custodian fees (Note 2) 468,746
Payable for distribution fees (Note 2) 1,294,749
Other accrued expenses 167,253
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 14,325,364
- -------------------------------------------------------------------------------
NET ASSETS $2,446,289,855
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 4 and 5) $2,473,174,087
Distributions in excess of net investment income (Note 5) (417,701)
Accumulated net realized loss on investment transactions (Note 5) (15,999,092)
Net unrealized depreciation of investments (10,467,439)
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $2,446,289,855
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($2,232,610,577 divided by 261,196,059 shares) $8.55
Offering price per share (100/95.25 of $8.55) * $8.98
Net asset value and offering price of class B shares
($213,679,278 divided by 25,038,595 shares) + $8.53
- -------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and
on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
Year September 30, 1994
- -------------------------------------------------------------------------------
Tax exempt interest income $171,537,242
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 11,938,420
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,658,014
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 61,684
- -------------------------------------------------------------------------------
Auditing 101,881
- -------------------------------------------------------------------------------
Legal 80,066
- -------------------------------------------------------------------------------
Postage 205,945
- -------------------------------------------------------------------------------
Reports to shareholders 122,416
- -------------------------------------------------------------------------------
Administrative services (Note 2) 36,424
- -------------------------------------------------------------------------------
Distribution fees -- class A 4,706,243
- -------------------------------------------------------------------------------
Distribution fees -- class B 1,588,963
- -------------------------------------------------------------------------------
Registration fees 135,371
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 13,878
- -------------------------------------------------------------------------------
Other 44,586
- -------------------------------------------------------------------------------
TOTAL EXPENSES 20,693,891
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 150,843,351
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (27,713,433)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 27,490,957
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (274,250,423)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS TRANSACTIONS (274,472,899)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(123,629,548)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
1994 1993
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 150,843,351 $ 133,196,436
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (27,713,433) 42,963,146
- -------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts 27,490,957 (11,859,670)
- -------------------------------------------------------------------------------
Net unrealized appreciation/depreciation
of investments (274,250,423) 133,772,931
- -------------------------------------------------------------------------------
Net decrease in net assets
resulting from operations (123,629,548) 298,072,843
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A (141,107,300) (128,286,063)
- -------------------------------------------------------------------------------
Class B (10,620,980) (2,491,120)
- -------------------------------------------------------------------------------
In excess of net investment income:
Class A (31,397) (2,075,545)
- -------------------------------------------------------------------------------
Class B (2,363) (33,404)
- -------------------------------------------------------------------------------
Net realized gain on investments:
Class A (17,555,714) (27,403,273)
- -------------------------------------------------------------------------------
Class B (1,321,398) --
- -------------------------------------------------------------------------------
In excess of net realized gain on investments:
Class A (14,879,157) --
- -------------------------------------------------------------------------------
Class B (1,119,935) --
- -------------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 193,573,375 557,893,974
- -------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (116,694,417) 695,677,412
- -------------------------------------------------------------------------------
NET ASSETS
Beginning of year 2,562,984,272 1,867,306,860
- -------------------------------------------------------------------------------
END OF YEAR (including distributions
in excess of net investment income of
$417,701 and $2,108,949 respectively) $2,446,289,855 $2,562,984,272
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(For a share outstanding throughout the period)
For the period
Jan. 4, 1993
(commence-
ment of
operations)
to Sept. 30 Year ended September 30
1994 1993 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Class B Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $9.66 $9.02 $9.66 $9.11 $8.81 $8.29
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .47 .34 .53 .57 .59 .58
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (.98) .64 (.97) .67 .47 .54
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.51) .98 (.44) 1.24 1.06 1.12
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income (.49) (.34) (.54) (.56) (.60) (.58)
- -----------------------------------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income -- -- -- (.01) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments (.07) -- (.07) (.12) (.16) (.02)
- -----------------------------------------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on
Investments (.06) -- (.06) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.62) (.34) (.67) (.69) (.76) (.60)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.53 $9.66 $8.55 $9.66 $9.11 $8.81
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) (5.51) 11.10(b) (4.72) 14.27 12.56 13.92
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
(in thousands) $213,679 $137,323 $2,232,611 $2,425,661 $1,867,307 $1,513,029
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) 1.41 1.04(b) .77 .74 .66 .59
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 5.31 3.66(b) 5.97 6.81 6.65 6.75
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 59.27 43.77(b) 59.27 43.77 58.14 78.04
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Table has been restated to reflect a 3-for-1 share split declared by the fund to shareholders of record on October 27, 1989,
payable on October 28, 1989. Commencement of operations for Class B shares.
(a) Total Investment Return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not Annualized.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTON>
FINANCIAL HIGHLIGHTS (Continued)
(For a share outstanding throughout the period) Ten Months
ended
Year ended September 30 Sept. 30
1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.54 $8.33 $7.68 $8.59 $7.44 $6.87
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .57 .59 .61 .61 .65 .56
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (.20) .21 .65 (.83) 1.20 .57
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .37 .80 1.26 (.22) 1.85 1.13
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From Net Investment Income (.58) (.59) (.61) (.61) (.65) (.56)
- -----------------------------------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments (.04) -- -- (.08) (.05) --
- -----------------------------------------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on
Investments -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.62) (.59) (.61) (.69) (.70) (.56)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.29 $8.54 $8.33 $7.68 $8.59 $7.44
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 4.26 9.93 16.94 (3.10) 25.59 16.90(b)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
(in thousands) $1,306,100 $1,226,679 $1,037,074 $880,658 $625,574 $233,366
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) .54 .52 .51 .51 .53 .54(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 6.67 6.99 7.48 7.09 7.72 7.52(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 73.70 98.90 112.52 171.00 123.27 249.54(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks as high a
level of current income exempt from federal income tax as is consistent with
preservation of capital by investing primarily in a diversified portfolio of
longer-term tax exempt securities.
The fund offers both class A and class B shares. The fund commenced its public
offering of class B shares on January 4, 1993. Class A shares are sold with a
maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares, and
may be subject to a contingent deferred sales charge, if those shares are re-
deemed within six years of purchase. In addition, the Trustees declare separate
dividends on each class of shares. Expenses of the fund are borne pro-rata by
the holders of both classes of shares, except that each class bears expenses
unique to that class (including the distribution fees applicable to such class)
and votes as a class only with respect to its own distribution plan or other ma-
tters on which a class vote is required by law or determined by the Trustees.
Shares of each class would receive their pro-rata share of the net assets of the
fund, if the fund were liquidated.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principals.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of va-
luations provided by a pricing service, approved by the Trustees, which uses in-
formation with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The fair value of restricted securities is de-
termined by the Manager following procedures approved by the Trustees, and such
valuations and procedures are reviewed periodically by the Trustees.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed). In-
terest income is recorded on the accrual basis.
C FUTURES A futures contract is an agreement between two parties to buy and sell
a security at a set price on a future date. Upon entering into such a contract
the fund is required to pledge to the broker an amount of cash or tax-exempt se-
curities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by the
fund as unrealized gains or losses. When the contract is closed, the fund re-
cords a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed. The
potential risk to the fund is that the change in value of the underlying securi-
ties may not
<PAGE>
<PAGE>
correspond to the change in value of the futures contracts.
D FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal Revenue Code applicable to regulated investment companies. It is also the
intention of the fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefo-
re, no provision has been made for federal taxes on income, capital gains or un-
realized appreciation of securities held and excise tax on income and capital
gains.
E DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by the fund
and are distributed monthly. Capital gains distributions, if any, are recorded
on the ex-dividend date and paid annually.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principals. The differences include treatment of wash sales, stra-
ddles, options, and post-October loss deferrals. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for distribu-
tion (or available capital loss carryovers) under income tax regulations. For
the year ended September 30, 1994, the fund increased undistributed net invest-
ment income by $884,929 and decreased paid-in capital by the same amount.
F AMORTIZATION OF BOND PREMIUM AND ACCRETION OF BOND DISCOUNT Any premium resul-
ting from the purchase of securities is amortized using the effective yield me-
thod for bonds issued after September 27, 1985 and on a straight-line basis for
bonds issued prior thereto. The premium in excess of the call price, if any, is
amortized to the call date; thereafter, the remaining excess premium is amorti-
zed to maturity. Discount on zero-coupon bonds, original issue discount bonds
and stepped coupon bonds is accreted according to the effective yield method.
G Unamortized organization expenses Expenses incurred by the fund in connection
with its class B shares organization aggregated $34,737. These expenses are be-
ing amortized on a straight-line basis over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the fund's Manager, a wholly
owned subsidiary of Putnam Investments, Inc., for management and investment ad-
visory services is paid quarterly based on the average net assets of the fund
for the quarter. Such fee is based on the following annual rates: 0.6% of the
first $500 million of average net assets, 0.5% of the next $500 million, 0.45%
of the next $500 million and 0.4% of any amount over $1.5 billion, subject to
reduction under current law in any year to the extent that expenses (exclusive
of brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 mi-
llion of average net assets, 2.0% of the next $70 million and 1.5% of any amount
over $100 million and by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of the Manager on the fund's portfolio
transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees. For the year ended September 30, 1994, the fund paid
$36,424 for these services.
<PAGE>
<PAGE>
Trustees of the fund receive an annual Trustee.s fee of $2,980 and an additional
fee for each Trustees. meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent func-
tions are provided by Putnam Investor Services, a division of PFTC. Fees paid
for these investor servicing and custodial functions for the year ended Septem-
ber 30, 1994 amounted to $1,658,014.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended September 30, 1994, have been reduced by credits allowed by
PFTC.
The fund has adopted a Distribution Plan with respect to its class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the class A Plan is to compensate Putnam Mutual Funds Corp. (for-
merly known as Putnam Financial Services, Inc.), a wholly owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by it in
distributing class A shares. The Trustees have approved payment by the fund to
Putnam Mutual Funds Corp. at an annual rate of 0.20% of the fund's average net
assets attributable to class A shares. For the year ended September 30, 1994,
the fund paid $4,706,243 in distribution fees for class A shares.
During the year ended September 30, 1994, Putnam Mutual Funds Corp., acting as
an underwriter, received net commissions of $439,492 from the sale of class A
shares of the fund.
A deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares purchased as part of an investment of $1 million or more. For the year
ended September 30, 1994, Putnam Mutual Funds Corp., acting as an underwriter,
received $44,565 on class A redemptions.
The fund has adopted a Distribution Plan with respect to its class B shares (the
"Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of class B Plan is to compensate Putnam Mutual Funds Corp. for ser-
vices provided and expenses incurred by it in distributing class B shares. The
class B Plan provides for payments by the fund to Putnam Mutual Funds Corp. at
an annual rate of 0.85% of the fund's average net assets attributable to class
B shares. For the period ended September 30, 1994, the fund paid Putnam Mutual
Funds Corp. distribution fees of $1,588,963 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the contingent deferred
sales charges on its class B share redemptions within six years of purchase. The
charge is based on declining rates, which begin at 5% of the net asset value of
the redeemed shares. Putnam Mutual Funds Corp. received contingent deferred sa-
les charges of $384,936 from redemptions during the period ended September 30,
1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1994, purchases and sales of investment
securities other than short-term investments aggregated $1,482,547,053 and
$1,538,100,739, respectively. Purchases and sales of short-term municipal obli-
gations aggregated $440,455,102 and $330,045,240, respectively. In determining
the net gain or loss on securities sold, the cost of securities has been deter-
mined on the identified cost basis.
<PAGE>
<PAGE>
Transactions in futures contracts during the year are summarized as follows:
Sales of Futures Contracts
- -------------------------------------------------------------------------------
Number of Aggregate
Contracts Face Value
- -------------------------------------------------------------------------------
Contracts opened 39,950 $ 4,172,455,723
- -------------------------------------------------------------------------------
Contracts closed (39,035) (4,082,227,435)
- -------------------------------------------------------------------------------
Contracts outstanding at end of year 915 $ 90,228,288
- -------------------------------------------------------------------------------
NOTE 4
CAPITAL SHARES
At September 30, 1994, there was an unlimited number of shares of beneficial in-
terest authorized divided into two classes, class A and class B capital stock.
Transactions in capital shares were as follows:
Year ended September 30 1994
Class A Shares Amount
- -------------------------------------------------------------------------------
Shares sold 98,892,293 $ 889,947,250
- -------------------------------------------------------------------------------
Shares issued in connection with:
acquisition of Texas Tax Exempt Income Fund 1,886,097 16,314,742
- -------------------------------------------------------------------------------
Reinvestment of distributions 11,764,103 107,161,522
- -------------------------------------------------------------------------------
112,542,493 $1,013,423,514
- -------------------------------------------------------------------------------
Shares repurchased (102,548,532) (919,634,771)
- -------------------------------------------------------------------------------
NET INCREASE 9,993,961 $ 93,788,743
Year ended September 30 1993
Class A Shares Amount
- -------------------------------------------------------------------------------
Shares sold 92,015,736 $ 852,186,925
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 10,831,126 99,934,475
- -------------------------------------------------------------------------------
102,846,862 952,121,400
- -------------------------------------------------------------------------------
Shares repurchased (56,666,397) (527,609,676)
- -------------------------------------------------------------------------------
NET INCREASE 46,180,465 $ 424,511,724
Year ended September 30 1994
Class B Shares Amount
- -------------------------------------------------------------------------------
Shares sold 16,392,070 $ 149,153,403
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 947,875 8,594,767
- -------------------------------------------------------------------------------
17,339,945 157,748,170
- -------------------------------------------------------------------------------
Shares repurchased (6,518,200) (57,963,538)
- -------------------------------------------------------------------------------
NET INCREASE 10,821,745 $ 99,784,632
January 4, 1993 (commencement
of operations) to Sept. 30, 1993
Class B Shares Amount
- -------------------------------------------------------------------------------
Shares sold 14,809,951 $ 139,012,296
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 176,742 1,676,252
- -------------------------------------------------------------------------------
14,986,693 140,688,548
- -------------------------------------------------------------------------------
Shares repurchased (769,842) (7,306,298)
- -------------------------------------------------------------------------------
NET INCREASE 14,216,851 $ 133,382,250
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective October 1, 1993, Putnam Tax Exempt Income Fund has adopted the provi-
sions of Statement of Position 93-2 (SOP) "Determination, Disclosure, and Finan-
cial Statement Presentation of Income, Capital Gains and Return of Capital Dis-
tributions, by Investment Companies." The purpose of this SOP is to report the
accumulated net investment income (loss) and accumulated net realized gain
(loss) accounts in such a manner as to approximate amounts available for future
distributions (or to offset future realized capital gains) and to achieve uni-
formity in the presentation of distributions by investment companies.
As a result of the SOP, the fund has reclassified $1,725,008 to increase undis-
tributed net investment income and $1,194,998 to increase accumulated net reali-
zed loss with a
<PAGE>
<PAGE>
decrease of $530,010 to additional paid in capital.
These adjustments represent the cumulated amounts necessary to report these ba-
lances through September 30, 1993, the close of the fund's prior fiscal year
end for financial reporting and tax purposes.
NOTE 6
ACQUISITION OF PUTNAM TEXAS TAX EXEMPT INCOME FUND
On May 9, 1994, the exchange date, the fund acquired the net assets of Putnam
Texas Tax Exempt Income Fund ("TTEIF") by a tax free exchange approved by the
shareholders of TTEIF. The net assets of the fund immediately following the ac-
quisition on May 9, 1994 were $2,442,360,519.
The net assets of TTEIF for May 6, 1994, valuation date were $16,314,742 (inclu-
ding unrealized depreciation of $100,510).
1,886,097 shares of the fund were exchanged in the acquisition for all of the
outstanding shares of TTEIF.
<PAGE>
<PAGE>
FEDERAL TAX INFORMATION
The fund has designated all distributions from net investment income paid during
the fiscal year as exempt-interest dividends. Thus, 100% of the net investment
income is exempt from federal income tax. The income from each state will be re-
ported to you in January 1995. The fund also paid long-term capital gains of
$.087 and $.087 per share and short-term capital gains of $.044 and $.044 per
share on December 31, 1993 on class A and class B shares, respectively. This
amount was previously reported to you on Form 1099 in January 1994. Any additio-
nal capital gains paid subsequent to September 30, 1994, will be reported to you
on the Form 1099 you will receive in January 1995.
<PAGE>
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost.
For details about any of these or other services, contact your financial advisor
or call the toll-free number shown below and speak with a helpful Putnam repre-
sentative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
<PAGE>
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty John R. Verani
Senior Vice President Vice President
Lawrence J. Lasser Gordon H. Silver
Vice President Vice President
Gary N. Coburn James E. Erickson
Vice President Vice President
Blake E. Anderson David J. Eurkus
Vice President Vice President and Fund Manager
William N. Shiebler Paul M. O.Neil
Vice President Vice President
John D. Hughes Beverly Marcus
Vice President and Treasurer Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Tax Exempt Income
Fund. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment objec-
tives, and operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information, or to request a prospectus,
call toll-free: 1-800-225-1581.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, MA 02109
Bulk Rate
U.S. Postage
Paid
Putnam
Investments
011/322-14788
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APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
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(8) The registered mark symbol has been replaced by (R).
