Putnam
Tax Exempt
Income Fund
SEMIANNUAL REPORT
March 31, 1995
[graphic - scales logo]
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> "The best-performing funds in the first quarter were muni funds. . . . In
addition to the improved interest-rate outlook, municipal bonds are
benefiting from a shrinkage of available supply."
--The Wall Street Journal, "Mutual Funds Quarterly Review,"
April 5, 1995
> Performance should always be considered in light of a fund's investment
strategy. Putnam Tax Exempt Income Fund is designed for investors seeking as
high a level of current income free from federal income tax as is consistent
with preservation of capital.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return: NAV POP NAV CDSC
<S> <C> <C> <C> <C>
(change in value during
period plus reinvested
distributions)
6 months ended 3/31/95 5.12% 0.09% 5.03% 0.03%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Class A Class B Class M
Share value: NAV POP NAV NAV POP
9/30/94 $8.55 $8.98 $8.53 -- --
2/16/95 -- -- -- $8.61 $8.90
3/31/95 8.71 9.14 8.71 8.71 9.00
</TABLE>
Distributions: No. Income Total
Class A 6 $0.263800 $0.263800
Class B 6 0.236534 0.236534
Class M 2 0.073392 0.073392
Class A Class B
Current return NAV POP NAV
End of period
Current dividend
rate(2) 6.08% 5.80% 5.42%
Taxable
equivalent(3) 10.07 9.60 8.97
Current 30-day SEC
yield(4) 5.87 5.59 5.14
Taxable
equivalent(3) 9.72 9.25 8.51
Performance data represent past results. For performance over longer periods,
see page 8. POP assumes 4.75% maximum sales charge for class A shares and 3.25%
for class M shares. CDSC assumes 5% maximum contingent deferred sales charge.
The fund began offering class M shares on 2/16/95; total return performance for
these shares is not shown because of the brevity of the reporting period.
(1)Capital gains, if any, are taxable for federal and, in most cases, state tax
purposes. For some investors, investment income may also be subject to the
federal alternative minimum tax. Investment income may be subject to state and
local taxes. (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. (4)Based only on investment income, calculated using SEC
guidelines.
<PAGE>
From the Chairman
Dear Shareholder:
[graphic - photo of George Putnam]
(c)Karsh, Ottawa
The municipal bond market's volatile environment in 1994 has finally given way
to a more agreeable climate. During the first quarter of calendar 1995, Putnam
Tax Exempt Income Fund--along with the market--made impressive gains. While
offset by lagging performance earlier in the fiscal period, these gains still
resulted in a positive performance for the semiannual period that ended on
March 31, 1995.
Tax-conscious investors finally seemed ready to concede that the Federal
Reserve Board's sustained boost in short-term interest rates throughout 1994
is having the desired dampening effect on inflation without choking off
economic growth. The expectation of sharply reduced volume in new bonds coming
to market in 1995 raises the prospect of brisk demand, and higher prices, for
existing issues although, of course, there can be no assurance of this result.
For the past several months, Fund Manager David Eurkus has been positioning the
portfolio in anticipation of the brighter mood that now seems to be emerging.
In the report that follows, Dave discusses the fund's performance and what he
sees in store for the remainder of fiscal 1995.
Respectfully yours,
[graphic - signature of George Putnam]
George Putnam
Chairman of the Trustees
May 17, 1995
<PAGE>
Report from the fund manager
David J. Eurkus
Years of money management experience have taught us that sometimes in
investing, as in life, it can seem darkest before the dawn. While the market
environment for municipal bonds appeared abysmally black this past fall, the
revivingly brighter mood of the past few months suggests that the dawn may be
here at last.
From September 30, 1994, through December 31, 1994, Putnam Tax Exempt Income
Fund's class A shares returned a total of -2.30% at net asset value, while in
the first quarter of calendar 1995, the fund's class A shares rebounded,
returning a total return of 7.59% at net asset value. The combination of the
two very different market environments resulted in a total return of 5.12% for
class A shares (5.03% for class B shares) at net asset value for the semiannual
period ended March 31, 1995.
> THE GREAT BOND BEAR MARKET OF '94
The market turbulence of 1994, particularly during October and November, tested
the mettle of even the most experienced bond fund managers. Just when
fixed-income investors were regaining their composure following the Federal
Reserve Board's August interest rate increase, market volatility resurfaced.
Tensions mounted through October and November as the Fed prepared for and
enacted its highest rate increase thus far. During those weeks, bond prices
experienced their most dramatic slide of the year. Individual and institutional
investors alike panicked, liquidating their holdings and flooding the market --
creating an atmosphere of hysteria not unlike the October market of 1987. The
Orange County, California, bankruptcy in December succeeded in exacerbating an
already volatile situation.
It was our belief that level-headedness and experience would eventually
prevail. As the performance figures show on page 2, we have since proven this
to be true. Unlike the money management firms that increased their cash
positions to meet anticipated redemptions, we opted to stay the course and
remain, for the most part, fully invested.
<PAGE>
Our strategy at the time was to assess the very positive underlying
fundamentals of the municipal market, reevaluate the fund's current holdings,
and position the portfolio to benefit from what we were confident would be an
eventual turnaround in the market.
> PORTFOLIO SHIFTS PROVE TIMELY
As municipal bonds became increasingly oversold, particularly AAA- and AA-rated
issues, their distressed prices became too compelling to ignore. We began
employing a strategy known as bond swapping. This has enabled us to raise your
fund's average quality rating while maximizing long-term total return
potential.
To take advantage of the incredible buying opportunity provided by the market
downturn, our bond-swapping strategy involved a two-part approach. We
redeployed assets from premium coupon bonds, those selling at prices above
their par values, into discount coupon bonds, those selling at prices below
their par values.
Discount coupon bonds tend to offer greater price appreciation potential during
market upswings. As the yield spread between AAA- and BBB-rated bonds narrowed,
we also swapped out of bonds at the lower end of the investment-grade spectrum
into higher-grade bonds, once again enhancing your fund's price appreciation
potential in anticipation of a market recovery.
[graphic - vertical bar chart]
A DECLINE IN SUPPLY
1/94 977
2/94 961
3/94 1056
4/94 782
5/94 986
6/94 1008
7/94 751
8/94 865
9/94 774
10/94 867
11/94 870
12/94 868
1/95 584
2/95 573
3/95 687
[end vertical bar chart]
Chart shows monthly volume of municipal bond issuance. Source: Securities Data
Co. Used by permission.
<PAGE>
> OFF TO AN ENCOURAGING START
The fixed-income market turned the corner into positive territory in January as
investors embraced the new year. In February, the market appeared to take the
Fed's decision to increase rates by another half of a percentage point in
stride. Because this increase was significantly smaller than the previous one,
it gave investors greater confidence in the Fed's ability to curb inflation and
bring economic growth to more moderate levels without causing a recession.
The long-anticipated supply/demand imbalance has also begun to materialize--new
bond issuance is down by approximately 60% from this time last year. This has
contributed to the long-awaited rally, with prices rising and yields declining
by as much as one percentage point for certain issues. Independent analysts
also expect scant issuance levels for the remainder of 1995.
Your fund has participated fully in the rally, recouping virtually all the
losses sustained in 1994. In addition to offering your investment significant
appreciation potential, your fund continues to provide a steady stream of
attractive tax-free income. A taxable investment at the maximum federal income
tax rate of 39.6% would have had to provide a current return of 10.07% to equal
the fund's 6.08% current dividend rate for class A shares at net asset value,
or 8.97% to equal the fund's 5.42% dividend rate for class B shares.
The portfolio's broad diversification in industry sectors across the nation
also helped soften the impact of credit quality changes or economic downturns
in any single region of the country.
> LOW SUPPLY EXPECTATIONS SUPPORT A POSITIVE OUTLOOK
Nearly $60 billion worth of high-coupon bonds issued in 1985 are due to mature
or become callable this June and July. As more investors chase fewer bonds, the
value of available securities has the potential to rise. In light of this
phenomenon, we continue to focus sharply on call protection in our bond
selection, achieving this mainly through the purchase of deep discount and
noncallable bonds.
<PAGE>
[graphic - horizontal bar chart]
TOP INDUSTRY SECTORS*
Utilities 22.5%
Hospitals/Healthcare 20.8%
Housing 13.4%
Water & sewerage 10.3%
[end horizontal bar chart]
*Based on net assets on 3/31/95. Holdings will vary over time.
The near-term prospects for the municipal market remain bright. This mood
should prevail if the Fed can succeed in engineering a "soft landing" with
inflation contained and economic growth moderated, and state governments can
effectively follow through on spending-cut initiatives. However, the
possibility exists that stronger-than-expected inflationary and economic data
could be forthcoming, pressuring the Fed to raise rates again. Therefore, while
compelling evidence exists for a long-lasting turnaround in the municipal bond
market, we will proceed in a cautiously optimistic manner.
The views expressed in this report are exclusively those of Putnam Management,
and are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/95 there is no guarantee the fund will continue to
hold these securities in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
<S> <C> <C> <C> <C> <C> <C>
6 months 5.12 % 0.09 % 5.03 % 0.03 % 5.54 % 1.34 %
1 year 6.06 0.98 5.38 0.40 7.43 2.85
5 years 48.17 41.18 -- -- 48.59 17.64
Annual average 8.18 7.14 -- -- 8.24 3.30
10 years 159.21 146.87 -- -- 154.56 42.29
Annual average 9.99 9.46 -- -- 9.79 3.59
Life of class B -- -- 9.68 6.81 14.01 6.70
Annual average -- -- 4.04 2.87 6.03 2.94
</TABLE>
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
operations on 12/31/76, offering shares now known as class A. Effective 1/4/93,
the fund began offering class B shares and on 2/16/95, class M shares. Total
return performance for class M shares is not shown because of the brevity of
the reporting period. Performance data represent past results and will differ
for each share class. Investment returns and principal value will fluctuate so
an investor's shares, when sold, may be worth more or less than their original
cost.
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 4.75% sales charge for class A shares and 3.25%
for class M shares.
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.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given the
cautionary nature of such instructions, it may take most investors a while to
realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only modest
rewards. Furthermore, even insured or guaranteed investments may be subject to
changes in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward.
Accepting an appropriate level of investment risk can give you a better chance
of outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your
A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this is
a measure of how sensitive a fund's holdings are to changes in general market
conditions. Remember, though, that securities that lose value quickly in market
declines may also show the strongest gains in more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type of
risk is a particular concern for fixed-income investors. However, interest-rate
increases can also have a substantial negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your money
will begin to lose its purchasing power. Stock investments are generally
considered among the best ways of addressing inflation risk over the long term.
<PAGE>
financial advisor's feedback and your time horizon can make all the difference
in determining how much risk is compatible with your investment goals and your
peace of mind.
FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their potential
rewards? It's helpful to understand the types of risks that can apply to
different types of investments, and to look at your own portfolio with this
perspective.
For short-term goals, your first priority may be managing
market risk. Longer-term investors may be more concerned with inflation risk.
And all income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment categories,
you can select funds with differing levels of risk and reward potential to
customize your portfolio.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves the
premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at their
perceived market values. Liquidity risk can affect the price of securities held
in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each investment
will also have its own specific risks. You will find a more detailed discussion
of these risk considerations in each fund's prospectus.
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation 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
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income 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:
Daily Dividend Trust
Tax Exempt Money Market Fund
CDs and savings accountsS.
* Temporarily closed to new investors.
+ Not available in all states.
S. 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.
++ Relative to above.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest or
send money.
<PAGE>
Portfolio of investments owned
March 31, 1995 (Unaudited)
MUNICIPAL BONDS AND NOTES (100.6%)*
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT RATINGS** VALUE
<C> <S> <C> <C>
Alabama (1.0%)
$3,000,000 Birmingham Wtrwks. & Swr. Brd. Rev. Bonds 5-1/2s, 1/1/20 AA $2,775,000
Birmingham, Impt. Waste General Obligation (G.O.) Bonds
3,625,000 6.6s, 7/1/12 AA 3,801,719
8,500,000 5-1/8s, 7/1/17 AA 7,511,875
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. Tax Revenue
Anticipation Notes (TRAN) 7-7/8s, 5/1/19 BB/P 10,075,000
24,163,594
Alaska (0.9%)
7,500,000 AK Energy Auth. Util. Inverse Floating Bond (IFB) 10.2s,
7/1/15 AAA 8,006,250
AK Hsg. Fin. Corp. Rev. Bonds
12,000,000 Ser. B, 7s, 12/1/27 AA 12,390,000
2,100,000 (Stephens Pk. Project), Ser. A, 7s, 12/1/21 AA 2,176,125
22,572,375
Arizona (0.3%)
6,510,000 AZ State Muni. Fin. Program Certif. of Participation (COP)
Ser. 34, Bond Investors Guaranty Insurance (BIGI) 7-1/4s,
8/1/09 AAA 7,429,538
California (11.4%)
20,535,000 CA State Wtr. Dept. Rev. Rfdg. Bonds (Central Valley
Project), Ser. L, 5-7/8s, 12/1/25 AA 19,687,931
16,850,000 CA Statewide Cmnty. Dev. Corp. COP (J. Paul Getty Tr.),
Municipal Bond Insurance Association (MBIA), 5s, 10/1/23 AAA 14,406,750
11,850,000 East Bay, Muni. Util. Dist. Wtr. Syst. Rev. Rfdg. Bonds
MBIA, 5s, 6/1/21 AAA 10,146,563
Los Angeles Cnty., Sanitation Dist. Fin. Auth. Rev. Bonds
13,955,000 (Capital Project), MBIA, 5-1/4s, 10/1/19 AAA 12,437,394
18,900,000 (Capital Project), Ser. A, MBIA, 5s, 10/1/23 AAA 16,088,625
Los Angeles Dept. Wtr. & Pwr. Elec. Plant Rev. Bonds Federal
Guaranty Insurance Corp. (FGIC)
13,000,000 5-3/8s, 2/15/34 AA 11,505,000
10,500,000 5-7/8s, 9/1/30 AAA 10,066,875
10,000,000 2nd Issue, MBIA, 5-1/4s, 11/15/26 AAA 8,800,000
7,000,000 Los Angeles Regl. Arpt. Impt. Rev. Bonds (United Airlines,
Inc.), Ser. G, 8.8s, 11/15/21 Baa 7,796,250
Los Angeles, Wastewater Syst. IFB
9,350,000 FGIC (acquired 11/8/93 cost $9,708,105) 6.063s, 11/1/09# AAA 8,531,875
5,350,000 FGIC, (acquired 11/8/93 cost $5,796,404) 6.063s, 11/1/06# AAA 5,209,563
3,275,000 Metro. Wtr. Southern CA Wtrwks. Rev. Bonds 6s, 7/1/21 AA 3,225,875
67,450,000 Modesto, Irrigation Dist. Fin. Auth., Custody Receipts
(Purchased Rights) (Geysers Pwr Project), 5.692s, 10/1/15 AAA 6,028,344
10,565,000 Sacramento, City Fin. Auth. Lease Rev. Bonds Ser. B, 5.4s,
11/1/20 Aa 9,495,294
11,285,000 San Diego Cnty., COP (Inmate Reception Ctr. & Cooling) MBIA,
6-3/4s, 8/1/19 AAA 11,962,100
7,750,000 San Diego Cnty., COP (Inmate Reception Ctr. & Cooling),
MBIA, 6-1/4s, 8/1/24 AAA 7,837,188
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
California (continued)
$17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds (Merged Area
Redev. Project), MBIA, 5s, 8/1/20 AAA $15,169,175
4,680,000 San Pablo Redev. Agcy. G.O. Bonds (Tax Allocation Merged
Area Project) FGIC, 5-1/4s, 12/1/23 AAA 4,135,950
4,375,000 Signal Hill Redev. Agcy. Tax Allocation Rfdg. Rev. Bonds
MBIA, 5-1/4s, 10/1/23 AAA 3,871,875
Southern CA Pub. Pwr. Auth. Rev. Bonds (Transmission
Project)
2,620,000 6s, 7/1/20 AA 2,669,125
8,530,000 6s, 7/1/20 AA 8,370,063
2,000,000 5-3/4s, 7/1/10 AA 1,930,000
4,195,000 5-3/4s, 7/1/09 AA 4,048,175
7,860,000 MBIA, 5-1/2s, 7/1/20 AAA 7,250,850
10,000,000 Ser. A, FGIC, zero %, 7/1/15 AAA 3,000,000
11,400,000 Ser. A, FGIC, zero %, 7/1/14 AAA 3,562,500
12,200,000 Ser. A, FGIC, zero %, 7/1/13 AAA 4,071,750
5,000,000 Ser. A, FGIC, zero %, 7/1/12 AAA 1,775,000
U. of CA Rev. Bonds
18,000,000 (USCD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 BBB 19,170,000
5,000,000 (Multi. Purpose Projects) Ser. C, American Municipal Bond
Assurance Corp. (AMBAC), 5-1/8s, 9/1/18 AAA 4,393,750
21,500,000 (Multi. Purpose Project) Ser. C, AMBAC, 5s, 9/1/23 AAA 18,301,875
8,000,000 Vallejo, Sanitation & Flood Control Dist. COP
FGIC, 5s, 7/1/19 AAA 6,880,000
West Covina COP (Queen of The Valley Hosp.)
3,230,000 6-1/2s, 8/15/24 A 3,149,250
4,310,000 6-1/2s, 8/15/19 A 4,234,575
2,705,000 6-1/2s, 8/15/14 A 2,677,950
281,887,490
Colorado (3.3%)
2,910,000 CO Hsg. Fin. Auth. Single Fam. Rev. Rfdg. Bonds Ser. A,
7-1/4s, 11/1/31 AA 3,004,575
Denver, City & Cnty. Arpt. Rev. Bonds
44,000,000 Ser. A, 8-3/4s, 11/15/23 Baa 48,565,000
6,015,000 Ser. A, 8-1/2s, 11/15/23 Baa 6,503,719
8,090,000 Ser. A, 8s, 11/15/17 Baa 8,322,588
5,000,000 Ser. B, 7-1/4s, 11/15/23 Baa 5,018,750
13,475,000 Ser. D, 7s, 11/15/25 Baa 13,154,969
84,569,601
Connecticut (0.2%)
3,500,000 CT State Dev. Auth. Solid Waste & Elec. Rev. Bonds (Ogden
Martin Syst. Bristol, Inc.), 10s, 7/1/14 BBB 3,640,000
2,000,000 CT State Hsg. Fin. Auth. Rev. Bonds Ser. B, 6-3/4s, 11/15/23 AA 2,050,000
5,690,000
Delaware (0.5%)
14,010,000 Delaware River & Bay Del. Auth. Rev. Rfdg. Bonds MBIA,
4-3/4s, 1/1/24 AAA 11,435,663
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
District of Columbia (0.3%)
$7,000,000 DC, Georgetown U. IFB 9.545s, 4/25/22 AA $7,201,250
Florida (4.2%)
Broward Cnty., Resource Recvy. Rev. Bonds
3,335,000 (Waste-Energy Project), 7.95s, 12/1/08 A 3,618,475
2,520,000 (South Project), 7.95s, 12/1/08 A 2,734,200
FL State Board of Ed.
5,000,000 Ser. C, 5-1/2s, 6/1/23 AA 4,631,250
8,460,000 Ser. C, 5-7/8s, 6/1/23 AA 8,259,075
6,850,000 FL State Muni. Pwr. Agcy. Rev. Rfdg. Bonds (State Lucie
Project), FGIC, 5-1/4s, 10/1/21 AAA 6,147,875
14,000,000 FL State Rfdg. Rev. Bonds (Dade Cnty. Roads) 5-1/8s, 7/1/17 AA 12,582,500
18,500,000 Hernando Cnty., Rev. Bonds (Criminal Justice Complex
Project), FGIC, 7.65s, 7/1/16 AAA 22,570,000
6,000,000 Martin Cnty., Indl. Dev. Auth. Rev. Rfdg. Bonds (Indiantown
Co-generation Project), Ser. A, 7-7/8s, 12/15/25 BBB 6,420,000
Orlando Utils. Commn. Wtr. & Elec. Rev. Bonds
7,000,000 Ser. B, 5-1/4s, 10/1/23 AA 6,247,500
4,500,000 5-1/8s, 10/1/19 AA 3,971,250
3,800,000 Ser. A, 5s, 10/1/20 AA 3,287,000
12,600,000 Palm Beach Cnty., Solid Waste Indl. Dev. Rev. Bonds
(Okeelanta Pwr. & Lt. Project), Ser. A, 6.85s, 2/15/21 BB/P 12,048,750
13,000,000 Port Everglades Auth. Port Impt. Rev. Bonds Ser. A, 5s,
9/1/16 BBB 10,838,750
103,356,625
Georgia (2.3%)
13,015,000 Colquitt Cnty. Dev. Auth. Rev. Bonds
zero %, 12/1/21 Aaa 1,870,906
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts. Project), Ser. A, 7-1/2s, 4/1/17 A/P 12,285,000
13,740,000 De Kalb Cnty., Wtr & Swr. Rev. Rfdg. Bonds
5-1/4s, 10/1/23 AA 12,383,175
3,020,000 Fulton Cnty. School Dist. G.O. Bonds
5-5/8s, 1/1/21 AA 2,914,300
4,770,000 Macon GA Wtr. Auth. Wtr. & Swr. Rev. Bonds
Ser. B, 5s, 10/1/16 A 4,120,088
6,500,000 Middle GA. Colliseum Rev. Rfdg. Bonds
Ser A, 5-3/8s, 7/1/14 AA 6,199,375
6,410,000 Monroe Cnty., Dev. Auth. Poll. Control Rev. Bonds
(GA Pwr. Co. Plant Scherer Project), 10-1/2s, 9/1/15 A 6,682,425
Richmond Cnty., Dev. Auth. Rev. Bonds
3,965,000 Ser. C, zero %, 12/1/21 Aaa 599,706
25,080,000 Ser. A, zero %, 12/1/21 Aaa 3,793,350
11,750,000 Savannah, Econ. Dev. Auth. Rev. Bonds
zero %, 12/1/21 Aaa 1,718,438
2,000,000 Savannah, Port. Auth. Poll. Control Rev. Bonds
(Union Carbide Corp. Plastic Co., Inc.), 7.55s, 8/1/04 Baa 2,042,500
13,090,000 Washington Cnty., Wilkes Payroll Dev. Auth. Rev. Bonds
zeros %, 12/1/21 Aaa 1,963,500
56,572,763
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Illinois (2.0%)
$2,865,000 Chicago, Metro. Hsg. Dev. Corp. Rev. Bonds
Ser. A, Federal Housing Administration (FHA) Insd., 6.7s,
7/1/12 AA $2,940,206
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
4,740,000 (United Airlines, Inc. Project), Ser. C., 8.2s, 5/1/18 Baa 5,048,100
12,500,000 (American Airlines Inc. Project), 8.2s, 12/1/24 Baa 13,828,125
IL Dev. Fin. Auth. Rev. Bonds
5,760,000 (Community Rehab. Providers Facs.) 8-3/4s, 7/1/11 BBB/P 5,925,600
3,000,000 (Marriott Retirement Project), Ser. A, 7-3/4s, 8/1/10 A 3,165,000
3,670,000 (Marriott Retirement Project), Ser. B, 7-3/4s, 8/1/09 A 3,871,850
2,000,000 IL Hlth. Fac. Auth. IFB
(Methodist Hlth. Project), American Municipal Bond
8,000,000 Assurance Corp. (AMBAC), 9.111s, 5/1/21 AAA 2,195,000
(St. Luke's Med. Ctr.), MBIA, 9.26s, 10/1/24 AAA 8,590,000
5,000,000 IL Hsg. Dev. Auth. Res. Mtge. IFB (acquired 4/8/92 cost
$5,334,400) 9.968s, 2/1/20# Aa 5,425,000
50,988,881
Indiana (0.1%)
3,500,000 Indianapolis, Ind. Gas Util. Rev. Rfdg. Bonds
Ser. B, FGIC, 4s, 6/1/15 AAA 2,616,250
Kansas (0.8%)
18,200,000 Burlington, Poll. Control, IFB (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) 9.283s, 6/1/31# AAA 20,429,500
Kentucky (0.6%)
7,540,000 Econ. Dev. Fin. Auth. Hosp. Facs. Rev. Rfdg. Bonds (Baptist
Healthcare Syst.), MBIA, 5s, 8/15/24 AAA 6,343,025
5,100,000 Jefferson Cnty., Hosp. Rev. IFB (Alliant Hlth. Syst.
Project), MBIA, 8.38s, 10/1/14 AAA 5,361,375
8,500,000 KY State Tpk. Auth. Econ. Rev. Rfdg. Bonds (Revitalization
Project), FGIC, zero %, 1/1/10 AAA 3,548,750
15,253,150
Louisiana (1.9%)
30,000,000 LA Pub. Fac. Auth. Multi-Fam. Rev. Bonds Ser. A, zero %,
2/1/20 AAA 5,175,000
50,000,000 LA Pub. Fac. Auth. Rev. Bonds Ser. B, zero %, s, 12/1/19 AAA 8,750,000
15,000,000 Lake Charles, Harbor & Term. Dist. Port Facs. Rev. Bonds
(Trunkline Co. Project), 7-3/4s, 8/15/22 Baa 16,143,750
10,000,000 Orleans, Parish School Board Rev. Bonds zero %, FGIC, 2/1/15 AAA 2,750,000
8,000,000 West Feliciana Parish, Poll. Control Rev. Bonds (Gulf States
Util. Co.), 8s, 12/1/24 Baa 8,340,000
6,750,000 West Feliciana Parish, Poll. Control Rev. Bonds (Gulf State
Utilities III) 7.7s, 12/1/14 Ba 6,944,063
48,102,813
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Maine (0.4%)
$5,000,000 ME Fin. Auth. Solid Waste Recycling Fac. Rev. Bonds (Great
Northern Paper Project), 7-3/4s, 10/1/22 Baa $5,293,750
5,000,000 Skowhegan Poll. Cntrl. Rev. Bonds (Scott Paper Co. Project),
5.9s, 11/1/13 A 4,612,500
9,906,250
Maryland (1.5%)
MD, State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds
3,000,000 (Doctors' Cmnty. Hosp. Project), 5-3/4s, 7/1/13 Baa 2,542,500
10,000,000 (Howard Cnty. Genl. Hosp. Project), 5-1/2s, 7/1/21 BBB 8,162,500
15,000,000 (John Hopkins) 5s, 7/1/23 AA 12,937,500
14,750,000 Montgomery Cnty., Poll. Ctrl. Rev. Rfdg. Bonds (Potamac
Elec. Pwr. Co.), MBIA, 5-3/8s, 2/15/24 AAA 13,238,125
36,880,625
Massachusetts (11.7%)
Boston, Rev. Rfdg. Bonds
15,850,000 (Boston City Hosp.), Ser. A, FHA Insd., 7-5/8s, 2/15/21 Aaa 18,029,375
5,000,000 (Boston City Hosp.), Ser. B, FHA Insd., 5-3/4s, 2/15/13 AA 4,737,500
6,500,000 MA Bay Trans. Auth. Rev. Bonds Ser. B, 7-7/8s, 3/1/21 AAA 7,523,750
MA Muni Whls. Electric Co. Pwr. Supply Sys. Rev. Bonds
12,295,000 Ser. A, 8-3/4s, 7/1/18 AAA 13,585,975
1,510,000 Ser. B, 6-3/4s, 7/1/17 A 1,572,288
11,790,000 Ser. D, MBIA 6-1/8s, 7/1/19 AAA 11,745,788
4,835,000 Ser. B, MBIA, 4-3/4s, 7/1/11 AAA 4,212,494
MA State Cons. Loan G.O. Bonds
6,305,000 Ser. B, 7-1/2s, 4/1/09 Aaa 6,990,713
10,000,000 Ser. C, 7-1/2s, 12/1/07 Aaa 11,362,500
3,000,000 Ser. A, 7-1/2s, 6/1/04 A 3,472,500
1,000,000 Ser. B, 6-1/2s, 8/1/08 A 1,078,750
MA State Hlth. & Edl. Fac. Auth. IFB
10,000,000 (St. Elizabeth Hosp.), Ser. E, FSA 9.18s, 8/15/21 AAA 10,875,000
18,000,000 (Boston U.), Ser. L, MBIA, 8.46s, 10/1/31 AAA 19,462,500
5,625,000 (Holyoke Hosp.), Ser. A, 9-1/2s, 7/1/15 Baa 5,807,813
4,340,000 (Youville Hosp.), Ser. A, FHA Insd., 9.1s, 8/1/15 Aa 4,584,125
7,510,000 (Melrose-Wakefield Hosp.), Ser A, 8-5/8s, 7/1/18 AAA 8,026,313
8,000,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 8,430,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
5,000,000 (Beth Israel Hosp.) AMBAC, 7.813s, 7/1/25 AAA 4,856,250
4,000,000 (MA Eye & Ear Infirmary), Ser. A, 7-3/8s, 7/1/11 Baa 3,845,000
3,270,000 (Charlton Memorial Hosp.), Ser. B, 7-1/4s, 7/1/13 A 3,437,588
1,500,000 (Central MA Med. Ctr.) Ser. A, AMBAC, 7s, 7/1/12 AAA 1,614,375
5,370,000 (Worcester Polytech Inst.), Ser. E, 6-5/8s, 9/1/17 A 5,524,388
7,000,000 AMBAC, 6.55s, 6/23/22 AAA 7,393,750
5,000,000 (Metro West Hlth. Inc.), Ser. C, 6.4s, 11/15/11 Baa 4,793,750
3,350,000 (Ctr. for New England Hlth. Syst.), Ser. A, 6-1/8s, 8/1/13 Baa 2,897,750
4,000,000 (Beth Israel Hosp.) Ser. G, AMBAC, 5-3/4s, 7/1/12 AAA 3,930,000
10,000,000 (Boston College) Ser. K, MBIA, 5-1/4s, 6/1/23 AAA 8,837,500
5,000,000 (Baystate Med. Ctr.), Ser. D, FGIC, 5s, 7/1/12 AAA 4,381,250
5,600,000 (MA Institute of Technology), Ser. H, 5s, 7/1/10 Aaa 5,152,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (continued)
$6,015,000 MA State Hsg. Fin. Agcy. Hsg. Dev. Rev. Bonds
Ser. A, MBIA, 9s, 12/1/18 AAA $6,345,825
1,955,000 MA State Hsg. Fin. Agcy. Multi-Fam. Mtge. Rev. Bonds
Ser. A, Governemnt National Mtge. Assn. (GNMA) Insd.,
9-1/8s, 12/1/20 AAA 2,040,531
5,000,000 MA State Hsg. Fin. Agcy. Rev. Rental Hsg. Rev. Bonds
Ser. A, AMBAC, 7.35s, 1/1/35 AAA 5,337,500
665,000 MA State Hsg. Fin. Agcy. Single Fam. Hsg. Rev. Bonds
Ser. 2, 8-1/4s, 6/1/14 Aa 687,444
7,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds
(Southeastern MA Project), Ser. A, 9s, 7/1/15 BB/P 7,647,500
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Harvard Cmnty. Hlth.), Ser. B, 8-1/8s, 10/1/17 A 5,400,000
5,700,000 MA State Port Auth. Tax Rev. Bonds
zero %, 7/1/13 AAA/P 4,446,000
4,000,000 MA State Tpk. Auth. Rev. Rfdg. Bonds
Ser. A, 5s, 1/1/20 A 3,455,000
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, MBIA, 5-3/4s, 12/1/21 AAA 5,692,500
5,000,000 Ser. A, 6-1/2s, 7/15/19 A 5,262,500
5,000,000 Ser. B, MBIA, 5-1/2s, 3/1/17 AAA 4,675,000
5,000,000 Ser. C, MBIA, 5-1/4s, 12/1/20 AAA 4,468,750
12,105,000 Ser. B, MBIA, 5s, 3/1/22 AAA 10,395,169
4,250,000 MA State Wtr. Resource Auth. Rev. Rfdg. Bonds
Ser. C, MBIA, 5-1/4s, 12/1/15 AAA 3,888,750
Plymouth-Carver Regl. School Dist. Rev. Bonds
550,000 8-3/4s, 10/1/05 Aaa 578,188
1,000,000 8-3/4s, 10/1/04 Aaa 1,051,250
1,250,000 8-3/4s, 10/1/03 Aaa 1,314,063
1,300,000 8-3/4s, 10/1/02 Aaa 1,366,625
U. of MA Bldg. Auth. Rev. Bonds, Ser. A
3,000,000 7.2s, 5/1/04 A 3,360,000
2,500,000 7.15s, 5/1/03 A 2,790,625
288,986,205
Michigan (1.3%)
5,500,000 Dickinson Cnty., Hosp. Rev Bonds (Memorial Hosp. Syst.),
8-1/8s, 11/1/24 BBB 5,665,000
5,000,000 Kent Hosp. Fin. Auth. Rev. Rfdg. Bonds (Blodgett Med. Ctr.)
Ser. A, 5-3/4s, 7/1/09 AAA 4,868,750
5,000,000 MI State Hosp. Fin. Auth. Rev. Rfdg. Bonds (Detroit Med.
Ctr.) Ser. B, 5-1/2s, 8/15/23 A 4,250,000
15,000,000 MI State Stragetic Fund Solid Waste Disp. Rev. Bonds
(Genesee Pwr. Station Project), 7-1/2s, 1/1/21 BB/P 14,550,000
12,585,000 Pellston Pub. School Dist. Rev. Bonds zero % FSA, 5/1/22 AAA 2,233,838
31,567,588
Mississippi (0.1%)
3,000,000 MS River Bridge Auth. Rev. Bonds
6-3/4s, 11/1/12 A 3,138,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Missouri (1.5%)
$16,100,000 Greene Cnty., Single Fam. Mtge. Rev. Bonds
Ser. A, zero %, 7/1/14 A $2,415,000
MO 4th State Bldg. G.O. Bonds Ser. A
4,305,000 5-5/8s, 4/1/16 AAA/P 4,224,281
6,600,000 5-1/2s, 4/1/20 AAA/P 6,311,250
1,395,000 MO State Environ. Impt. & Energy Resources Auth. Poll.
Control Rev. Bonds
Ser. 1984G, 8-1/4s, 11/15/14 AA 1,482,188
MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
14,400,000 (BJC Hlth. Sys.), Ser. A, 6-1/2s, 5/15/20 AA 14,958,000
6,150,000 (Jefferson Memorial Hosp. Assn. Project) 6s, 8/15/23 BAA 5,135,250
3,000,000 MO State Wtr. Poll. Ctrl. G.O. Bonds
Ser. A, 5-1/2s, 4/1/20 AAA/P 2,868,750
37,394,719
Montana (0.6%)
14,000,000 MT Hlth. Fac. Auth. Hosp. IFB (Deaconess Med. Ctr. Project),
Ser. B, AMBAC, 8.637s, 2/15/16 AAA 14,647,500
Nebraska (1.1%)
NB Investment Fin. Auth. Single Fam. Mtge. IFB, GNMA
10,700,000 Ser. B, 9.709s, 9/19/23 AAA 11,475,750
4,650,000 8.664s, 9/15/24 AAA 4,719,750
9,000,000 NE Investment Fin. Auth. Hosp. Rev. IFB MBIA, 8.838s,
11/15/16 AAA 9,596,250
25,791,750
Nevada (0.3%)
7,150,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest Gas Corp.),
Ser. A, 6-1/2s, 12/1/33 Baa 6,631,625
New Hampshire (0.9%)
NH State Tpk. Syst. IFB
10,500,000 FGIC, 9.181s, 11/1/17 AAA 11,825,625
15,600,000 5.824s, 2/1/24 A 11,251,500
23,077,125
New Jersey (0.9%)
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 5,225,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
12,000,000 (Raritan Bay Med. Ctr.), 7-1/4s, 7/1/27 BB/P 11,280,000
6,800,000 (Raritan Bay Med. Ctr.), 7-1/4s, 7/1/14 BB/P 6,536,500
23,041,500
New York (25.5%)
Battery Park, City Auth. Rev. Bonds
5,000,000 Ser. A, FHA Insd., 5-3/4s, 6/1/23 AAA 4,612,500
15,625,000 Ser. A, 5-1/4s, 11/1/17 AA 13,671,875
8,230,000 Clifton Park Wtr. Syst. Auth. Rev. Rfdg. Bonds FGIC, 5s,
10/1/26 AAA 6,985,213
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
New York (continued)
Metro. Trans. Auth. Svcs. Contract Fac. Rev. Bonds
$6,650,000 (Trans. Fac.), Ser. P, 5-3/4s, 7/1/15 Baa $6,134,625
6,000,000 Ser. O, 5-3/4s, 7/1/13 Baa 5,655,000
12,325,000 (Trans. Fac.), Ser. 7, 5-5/8s, 7/1/16 Baa 11,169,531
4,850,000 Metro. Trans. Auth. Transit Fac. Rev. Bonds Ser. F, 8-3/8s,
7/1/16 AAA 5,177,375
7,040,000 Muni. Assistance Corp. for the City of NY Rev. Bonds Ser.
61, 5-3/4s, 7/1/08 AA 7,075,200
NY City G.O. Bonds
3,215,000 Ser. D, 8-1/4s, 8/1/13 Baa 3,783,506
9,205,000 Ser. D, Group B, 8-1/4s, 8/1/12 Baa 10,079,475
NY City Housing Dev. Corp. VRDN
410,000 (Carnegie Park) 3.8s, 12/1/16 AAA 410,000
5,000,000 Ser. F, 8.4s, 11/15/07 A 5,568,750
5,335,000 Ser. F, 8.4s, 11/15/06 A 5,975,200
5,500,000 Ser. F, 8.4s, 11/15/05 A 6,173,750
20,795,000 Ser. D, Group B, 8-1/4s, 8/1/12 A 24,486,094
11,000,000 Ser. D, Group B, 8-1/4s, 8/1/11 Baa 12,045,000
5,000,000 Ser. B, 7-1/2s, 2/1/06 A 5,337,500
6,780,000 Ser. D, 5-3/4s, 8/15/12 A 6,102,000
5,000,000 NY City, Hsg. Dev. Corp. Multi-Fam. Rev. Bonds
Ser. B, FHA, 5.7s, 11/1/13 AA 4,681,250
10,000,000 NY City, Ind. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines Inc., Project), 6.9s, 8/1/24 Baa 10,087,500
NY City, Muni. Wtr. & Fin. Auth. Wtr. & Swr. Syst. Rev.
Bonds
6,075,000 Ser. A, FGIC 5-3/4s, 6/15/18 AAA 5,816,813
8,400,000 Ser. A, 5-1/2s, 6/15/20 A 7,623,000
9,250,000 Ser. C, 7-3/4s, 6/15/20 AAA 10,695,313
17,000,000 Ser. G, FGIC, 4.1s, 6/15/24 VMIG1 17,000,000
2,600,000 NY City, VRDN
Ser. B-4, 2.35s, 8/15/21 VMIG1 2,600,000
NY State Dorm. Auth. Rev. Bonds
7,000,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 7,971,250
9,750,000 (City U. Syst.), Ser. 86B, 7-5/8s, 7/1/14 Baa 10,310,625
15,750,000 (City U. Syst.), Ser. A, 7-5/8s, 7/1/13 Baa 16,655,625
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa 10,327,750
4,060,000 (State U. Edl. Fac.), Ser. A, 5-7/8s, 5/15/17 Baa 3,791,025
3,500,000 (State U. Edl. Fac.) Ser. A, 5-7/8s, 5/15/11 BBB 3,364,375
12,485,000 (Construction City U. Syst.) Ser. A, 5-3/4s, 7/1/18 Baa 11,517,413
10,000,000 (Upstate Cmnty. Colleges), Ser. A, 5.7s, 7/1/21 Baa 9,162,500
23,100,000 (State U. Edl. Fac.) Ser. A, 5-1/2s, 5/15/19 BBB 20,703,375
230,000 (City U. Syst.), Ser. V, 5-3/8s, 7/1/07 Baa 211,600
8,400,000 (State U. Edl. Fac.), Ser. A, 5-1/4s, 5/15/15 Baa 7,371,000
4,000,000 (City U.), Ser. F, 5s, 7/1/20 Baa 3,300,000
4,000,000 NY State Energy Research & Dev. Auth. Poll. Control
VRDN,Toronto Dominion Bank LOC) (Niagara Mohawk Power
Project), Ser A, 4.3s, 7/1/15 A 4,000,000
NY State Environmental Fac. Corp. Poll. Control Rev. Bonds
4,400,000 (State Wtr. Revolving Fund), Ser A, 7-1/2s, 6/15/12 Aa 4,829,000
13,235,000 (State Wtr. Revolving Fund) Ser. A, 5-7/8s, 6/15/14 A 13,119,194
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
New York (continued)
NY State Hsg. Corp. Rev. Bonds
$50,000,000 5s, 11/1/18 AA $42,875,000
20,650,000 5-1/2s, 11/1/20 AA 18,920,563
16,960,000 NY State Hsg. Fin. Agcy. Svcs. Contract Oblig. Rev. Bonds,
Ser. C, 6-1/8s, 3/15/20 Baa 16,196,800
NY State Local Govt. Assistance Corp. Rev. Bonds
4,600,000 Ser. C, 6-1/2s, 4/1/15 A 4,663,250
4,950,000 Ser. A, 6s, 4/1/24 A 4,795,313
3,000,000 Ser. B, 5-3/8s, 4/1/16 A 2,726,250
11,500,000 Ser. C, 5s, 4/1/21 A 9,717,500
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
(Hosp. & Nursing Home Insd. Mtge.),
21,500,000 Ser. A, FHA Insd., 8s, 2/15/27 AAA 23,461,875
4,860,000 Ser. A, 7.8s, 2/15/19 AAA 5,181,975
8,780,000 Ser. A, 7.8s, 2/15/19 AAA 9,844,575
6,900,000 Ser. A, 7.7s, 2/15/18 Baa 7,279,500
7,695,000 Ser. A, 7.7s, 2/15/18 AAA 8,454,881
8,080,000 (Mental Hlth. Svsc. Fac.), Ser. B, 7-5/8s, 8/15/17 Baa 8,756,700
245,000 (Mental Hlth. Svcs. Fac.), Ser. D, 7.4s, 2/15/18 Baa 262,150
8,290,000 (Hosp. & Nursing Home Insd. Mtge.), Ser. C, FHA Insd.,
6-3/8s, 8/15/29 AAA 8,331,450
22,000,000 (Presbyterian Hosp.), Ser. A, 5-3/8s, 2/15/25 AAA 19,470,000
18,575,000 Ser. A, FGIC, 5-1/4s, 8/15/23 AAA 16,415,656
27,500,000 FGIC, Ser. F 5-1/4s, 2/15/19 AAA 24,509,375
5,000,000 NY State Mtge. Agcy. Rev. Bonds
(Hometown Mtge.) Ser. C-2, MBIA, 5.6s, 4/1/15 AAA 4,743,750
9,650,000 NY State Thruway Auth. G.O. Bonds
Ser. C, FGIC, 6s, 1/1/25 AAA 9,529,375
NY State Urban Dev. Corp. Rev. Bonds
2,000,000 (Correctional Fac.), Ser. 1, 7-3/4s, 1/1/14 Aaa 2,265,000
15,000,000 (Correctional Fac.), Ser. 2, 7-1/2s, 1/1/11 Aaa 17,081,250
3,575,000 (Correctional Fac.), AMBAC, Ser. A, 5-1/2s, 1/1/16 Baa 3,186,219
12,815,000 (Correctional Fac.), Ser. A, 5-1/4s, 1/1/21 Baa 10,908,769
5,900,000 NY City, VRDN
Sub. Ser. B-2, 4.3s, 8/15/19 A 5,900,000
Triborough Bridge & Tunnel Auth. General Purpose Rev.
Purpose Rev. Bonds
2,000,000 (Convention Ctr. Project), Ser. E, 7-1/4s, 1/1/10 Baa 2,192,500
20,000,000 Ser. Y, MBIA, 5-1/2s, 1/1/17 AAA 18,825,000
632,075,878
North Carolina (2.5%)
NC Eastern Muni. Pwr. Agcy. Rev. Bonds
3,550,000 Ser. A, 8s, 1/1/21 Aaa 3,905,000
19,200,000 FGIC, (acquired 12/28/93 cost $23,486,208) 7.344s, 1/1/25# AAA 18,384,000
2,985,000 Ser. A, 7-1/4s, 1/1/21 A 3,085,744
30,000,000 Ser. A, 4-1/2s, 1/1/22 Aaa 24,562,500
NC G.O. Cap. Improvement Bonds
7,235,000 Ser. A, 4-3/4s, 2/1/13 AAA 6,330,625
6,185,000 Ser. A, 4.7s, 2/1/11 AAA 5,489,188
61,757,057
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Ohio (2.5%)
$1,630,186 Lake Cnty., Ind. Dev. Rev. Bonds (Madison Inn Hlth. Ctr.
Project), FHA Insd., 12s, 5/1/14 BBB/P $1,772,827
83,385,000 Lucas Plaza Hsg. Dev. Corp. Mtge. Rev. Rfdg. Bonds zero %,
FHA Insd., 6/1/24 Aaa 10,423,125
3,950,000 Mount Vernon, Hosp. Rev. Rfdg. Bonds (Knox Cmnty. Hosp.),
7-7/8s, 6/1/12 BBB/P 4,112,938
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
7,550,000 Ser G-2, GNMA Coll., 9.91s, 3/2/23 N/R 8,154,000
6,073,000 Ser. A-2, GNMA Coll., 9.324s, 3/1/31 AAA 6,475,336
21,775,000 GNMA Coll., 7.8s, 3/1/30 AAA 22,754,875
7,775,000 (9s, 9/1/18), GNMA Coll., 9s, 9/1/18 AAA 5,481,375
3,000,000 Stark Cnty., Hosp. Rev. Bonds (Doctors Hosp. Inc.) 6s,
4/1/24 Baa 2,587,500
61,761,976
Pennsylvania (3.8%)
2,560,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds (Southside
Hosp. Pittsburgh), Ser. A, 8-3/4s, 6/1/10 BBB 2,684,800
6,000,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control Rev. Rfdg.
Bonds, (Ohio Edison Project), Ser. A, 7-3/4s, 9/1/24 Baa 6,240,000
10,500,000 Bethlehem Wtr. Auth. Rev. Rfdg. Bonds MBIA, 5.2s, 11/15/21 AAA 9,279,375
5,605,000 Clearfield Hosp. Auth. Rev. Rfdg. Bonds (Clearfield Hosp.
Project) 6-7/8s, 6/1/16 BB/P 4,834,313
7,095,000 Geisinger, Auth. Hlth. Syst. Rev. Bonds Ser. B, 6-1/2s,
7/1/07 AA 7,290,113
8,030,000 Montgomery Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Philadelphia Elec. Co.), Ser. A, 10-1/2s, 5/15/15 Baa 8,321,088
12,560,000 PA Hsg. Fin. Agcy. Rev. Bonds (6.1s, 4/1/04), 4s, 10/1/13# AA 10,550,400
5,000,000 PA State COP Ser. A, AMBAC, 5-1/4s, 7/1/10 AAA 4,612,500
PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds
10,000,000 (Colver Project) Ser. D, 7-1/8s, 12/1/15 BBB 10,162,500
3,000,000 (Northampton Generating Project), Ser. A, 6.6s, 1/1/19 BB/P 2,775,000
12,700,000 (Northampton Generating Project), Ser. A, 6.4s, 1/1/09 BB/P 11,858,625
3,000,000 Philadelphia, Hosp. & Higher Edl. Fac. Auth. Rev. Bonds
(Children's Hosp. Project), Ser. A, 8s, 7/1/18 AA 3,247,500
7,085,000 Schuylkill Cnty., Indl. Dev. Auth. Res. Recvy. Rev. Bonds
(Schuylkill Energy Res. Inc.), 6-1/2s, 1/1/10 BBB/P 6,659,900
5,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth. Rev. Bonds (Moses
Taylor Hosp. Project), Ser. B, 8-1/2s, 7/1/20 BB 5,162,500
93,678,614
Rhode Island (0.3%)
3,500,000 RI Depositor Econ. Protection Corp. Special Oblig. MBIA,
Ser. B, 5-1/4s, 8/1/21 AAA 3,049,375
4,720,000 RI Hsg. & Mtge. Fin. Corp. Rev. Bond Ser. 10-A, 6-1/2s,
4/1/27 AA 4,720,000
7,769,375
South Carolina (0.3%)
6,750,000 Spartansburg Cnty., Hosp. Fac. Rev. IFB FSA, 8.401s, 4/13/22 AAA 6,994,688
South Dakota (0.3%)
8,000,000 Heartland, Consumer Elec. Pwr. Dist. Rev. Rfdg. Bonds, FSA,
6s, 1/1/17 AAA 7,910,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Tennessee (1.5%)
$5,000,000 Metro. Govt. Nashville & Davidson Cnty. G.O. Bonds 6-1/8s,
5/15/19 AA $5,062,500
90,734,086 Metro. Nashville & Davidson Cnty., Hlth. & Edl. Fac. Board
Rev. Bonds (Volunteer Hlth. Care), zero %, s, 6/1/21 Aaa 14,063,783
TN State G.O. Bonds
6,700,000 5.7s, 3/1/14 Aaa 6,624,625
3,060,000 Ser. A, 5.7s, 3/1/13 Aaa 3,044,700
3,000,000 Ser. A, 5-1/2s, 7/1/11 AA 2,936,250
4,000,000 Ser. A, 5-1/2s, 7/1/10 AA 3,940,000
35,671,858
Texas (7.5%)
31,000,000 Alliance Arpt. Auth. Special Fac. Rev. Bonds (American
Airlines, Inc. Project), 7-1/2s, 12/1/29 Baa 31,581,250
5,000,000 CO River Texas Muni. Wtr. Dist. Rev. Rfdg. Bonds AMBAC
5.15s, 1/1/21 AAA 4,337,500
Cypress-Fairbanks, Independent School Dist. Rev. Rfdg.
Bonds
14,000,000 Ser. A, zero %, 2/15/12 AAA 5,110,000
13,000,000 Ser. A, zero %, s, 2/15/13 AAA 4,468,750
15,000,000 Dallas Cnty., G.O. Bonds (Flood Control Dist. #1), zero %,
s, 4/1/16 BB/P 11,006,250
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds (Champion Intl.
Corp.), 7.45s, 5/1/26 Baa 26,575,625
245,000 Harris Cnty., Single-Fam. Hsg. Fin. Corp. Rev. Bonds Ser.
1983A, 10-3/8s, 7/15/14 BBB 247,144
17,000,000 Harris Cnty., Toll Roads Rev. Bonds AMBAC, zero %, s,
8/15/18 AAA 3,973,750
470,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev. Bonds
(Baptist Healthcare Sys. Project), 8-7/8s, 6/1/21 Baa 543,438
Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
2,165,000 (Woodlands Med. Ctr. Project), 8.85s, 8/15/14 BB/P 2,338,200
35,975,000 (Heritage Manor), FSA, zero %, 7/15/23 AAA 4,721,719
North Central Hlth. Fac. Dev. Corp. IFB
20,000,000 (Baylor U. Med. Ctr.), Ser. A, 9.411s, 5/15/16 AA 21,600,000
245,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB/P 256,944
3,475,000 (U. Med. Ctr. Project), 7-3/4s, 4/1/17 BBB/P 3,574,906
4,600,000 (Presbyterian Med. Ctr.), Ser. D, MBIA, 4.4s, 12/1/15 A 4,600,000
Southeast TX Hsg. Fin. Corp. Multi-Fam. Rev. Bonds
12,000,000 (Bayou Pk. Village Project), Ser. A, 8s, 8/1/16 A/P 12,075,000
10,000,000 (Promenade Place Apts. Project), Ser. A, 8s, 8/1/16 BB/P 10,062,500
TX Dept. of Hsg. & Cmnty. Affairs Home Mtge. IFB
10,250,000 Ser. A, GNMA Coll., 9.308s, 7/18/23 AAA 11,082,813
5,000,000 Ser. B-2, GNMA Coll., 9.308s, 7/18/23 AAA 5,406,250
11,805,000 TX State Nat'l Research Lab Communication Superconductor
G.O. Bonds
7-1/8s, 4/1/20 AAA 13,059,281
10,400,000 TX State Reg. IFB
Ser. B-1 & B-2, 8.06s, 9/30/11 AA 11,440,000
188,061,320
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Utah (0.7%)
$1,860,000 Intermountain Pwr. Agcy. Pwr. Supply, Rev. Bonds
Ser. D, 8-5/8s, 7/1/21 AA $2,043,675
Salt Lake City, Hosp. Rev. Bonds (IHC Hosps., Inc.)
5,000,000 Ser. A, 8-1/8s, 5/15/15 AAA 5,537,500
3,000,000 6.05s, 2/15/12 AA 2,970,000
UT State Bldg. Ownership Auth. COP
2,185,000 Ser. A, 5-3/4s, 8/15/11 AA 2,124,913
2,060,000 Ser. A, 5-3/4s, 8/15/10 AA 2,013,650
1,945,000 Ser. A, 5-3/4s, 8/15/09 AA 1,913,394
16,603,132
Vermont (0.5%)
VT Edl. & Hlth. Bldgs. Fin. Agcy. IFB
7,600,000 (Hosp. Med. Ctr.) FGIC, 11.072s, 9/1/19 AAA 7,828,000
4,950,000 (Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB/P 4,510,688
12,338,688
Virginia (3.1%)
9,000,000 Alexandria Indl. Dev. Auth. Poll. Ctl. (Potomac Elec.
Project), MBIA 5-3/8s, 2/15/24 AAA 8,032,500
5,000,000 Augusta Cnty. Svsc. Auth. Wtr. & Swr. Rev. Bonds MBIA, 5s,
11/1/24 AAA 4,231,250
7,500,000 Fairfax Cnty., Indl. Dev. Auth. Lease Rev. Bonds 5-1/2s,
5/15/18 AA 7,003,125
Fairfax Cnty., Indl. Dev. Auth. Rev. Bonds (Inova Hlth.
Syst. Hosp. Project)
2,700,000 5s, 8/15/23 AA 2,176,875
1,145,000 5s, 8/15/14 AA 963,231
8,500,000 Henrico Cnty., Indl. Dev. Auth. Rev. IFB
(Secours Hlth. Syst. Project), FSA, 7.336s, 8/23/27 AAA 8,128,125
3,250,000 Lynchburg, Redev. & Hsg. Auth. Multi-Fam. Hsg. VRDN
(Walden Pond III Apts.), 3.4s, 4/1/07 A 3,250,000
2,760,000 Roanoke, Redev. & Hsg. Auth. Multi-Fam. Hsg. Rev. VRDN
(Westwind II Apts.), 4.65s, 4/1/07 A 2,760,000
36,900,000 Winchester, Indl. Dev. Auth. IFB
(Winchester Med. Ctr. Project), AMBAC, 8.453s, 1/16/14 AAA 40,267,125
76,812,231
Washington (1.2%)
5,200,000 Port of Moses Lake, Poll. Control Rev. Bonds
(Union Carbide Corp.), 7-1/2s, 8/1/04 Baa 5,330,000
10,000,000 Spokane, Regl. Solid Waste Mgmt. Syst. IFB
AMBAC, 5.041s, 12/1/10 AAA 8,262,500
WA State Hlth. Care Fac. Auth. Rev. Bonds (Hutchinson Cancer
Center) Ser. D
8,400,000 7-3/8s, 1/1/18 Aaa 8,904,000
7,700,000 7.3s, 1/1/12 Aaa 8,152,375
30,648,875
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
West Virginia (0.1%)
$3,000,000 WV State COP
(Morris Sq. Complex), 9-1/4s, 8/15/08 BB/P $2,910,000
Wisconsin (0.5%)
8,900,000 WI Hsg. & Econ. Dev. Auth. IFB (Homeownership Dev. Program)
9.642s, 10/25/22 AA 9,478,500
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds Ser. B, 7.05s, 11/1/22 A 3,527,500
13,006,000
Wyoming (0.2%)
2,375,000 Platte Cnty. Poll. Ctrl. Rev. Bonds (Basin Elec. Pwr. Corp.)
5.1s, 1/1/08 A 2,170,156
2,000,000 Wyoming Cnty., Cmnty. Dev. Auth. Single-Fam. Rev. Bonds Ser.
A, 6.1s, 6/1/33 AA 1,880,000
4,050,156
Total Municipal Bonds and Notes
(cost $2,388,978,636) $2,495,382,978
PUT OPTIONS ON FUTURES CONTRACTS (0.2%)*
(cost $10,090,189) EXPIRATION DATE/ VALUE
NUMBER OF CONTRACTS STRIKE PRICE
6,835,000 U.S. Treasury Bond Futures JUN95/$102 $4,442,750
Total Investments (cost $2,399,068,825)*** $2,499,825,728
</TABLE>
*Percentages indicated are based on net assets of $2,479,860,731, which
correspond to a net asset value per class A, class B and class M shares of
$8.71, $8.71 and $8.71, respectively.
***The aggregate identified cost on a tax cost basis is $2,389,421,516,
resulting in gross unrealized appreciation of $142,616,987, and $36,655,525,
respectively, or net unrealized appreciation of $105,961,462.
**The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at March 31, 1995 for the securities listed.
Ratings are generally ascribed to securities at the time of issuance. While the
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings do not necessarily represent what the
agencies would ascribe to these securities at March 31, 1995. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
#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 of those held. Total market value of
restricted securities owned at March 31, 1995 was $57,979,938 or 2.3% of net
assets.
++The interest rate and date shown parenthetically represent the new interest
rate to be paid and the date the fund will begin receiving interest at this
rate.
The rates shown on Variable Rate Demand Notes (VRDN), Inverse Floating Bonds
(IFB) which are securities paying variable interest rates that vary inversely
to changes in market interest rates are the current interest rates at March 31,
1995, which are subject to change based on the terms of the security.
<PAGE>
NOTES
<TABLE>
<CAPTION>
Written Call Options On US Treasury BOND
Futures
(Premium received $16,210,391)
Number Of Contracts Expiration Date/
Strike Price Value
<S> <C> <C> <C>
760,000 U.S. Treasury Bond
Futures (Sell) JUN 95/$102 $19,304,000
</TABLE>
The Fund had the following industry group concentrations greater than 10% on
March 31, 1995 (as a percentage of net assets):
Utilities 22.5%
Hospitals/Health Care 20.8
Housing 13.4
Water & Sewerage 10.3
The fund had the following insurance concentrations greater than 10% on March
31, 1994, as a percentage of net assets:
MBIA 31.4%
FGIC 24.8
AMBAC 18.5
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value identified cost $2,399,068,825) (Note 1) $2,499,825,728
Cash 354,253
Interest receivable 40,433,605
Receivable for shares of the fund sold 2,349,800
Receivable for securities sold 21,390,168
Unamortized organization expenses (Note 1) 13,960
Total assets 2,564,367,514
Liabilities
Distributions payable to shareholders 5,782,482
Payable for securities purchased 52,390,100
Payable for shares of the fund repurchased 2,574,857
Written options outstanding at value (Premium received 16,210,391) 19,304,000
Payable for compensation of Manager (Note 2) 2,847,742
Payable for administrative services (Note 2) 8,183
Payable for compensation of Trustees (Note 2) 1,860
Payable for investor servicing and custodian fees (Note 2) 169,704
Payable to distribution fees (Note 2) 1,264,077
Other accrued expenses 163,778
Total liabilities 84,506,783
Net assets 2,479,860,731
Represented by
Paid-in capital (Note 4) 2,458,312,151
Undistributed net investment income 375,183
Accumulated net realized loss on investment transactions (76,489,897)
Net unrealized appreciation of investments and options 97,663,294
Total--Representing net assets applicable to capital shares outstanding 2,479,860,731
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($2,249,550,853 divided by 258,168,954 shares) $8.71
Offering price per share (100/95.25 of $8.71)* $9.14
Net asset value and offering price of class B shares
($230,166,238 divided by 26,425,294 shares)+ $8.71
Net asset value and redemption price of class M shares
($143,640 divided by 16,486 shares) $8.71
Offering price per share (100/96.75 of $8.71)** $9.00
</TABLE>
* 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.
** On single retail sales of less than $50,000. On sales of $50,000 or more 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>
Statement of operations
Six months ended March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Tax exempt interest income $84,179,482
Expenses:
Compensation of Manager (Note 2) $5,640,413
Compensation of Trustees (Note 2) 28,268
Administrative services (Note 2) 13,488
Distribution fees -- Class A (Note 2) 2,169,488
Distribution fees -- Class B (Note 2) 905,202
Distribution fees -- Class M (Note 2) 39
Investor servicing, custodian fees and other expenses
(Note 2) 52,253
Total expenses 8,809,151
Net investment income 75,370,331
Net realized loss on investments (Note 3) (58,899,536)
Net realized loss on futures contracts
(Note 3) (1,591,269)
Net unrealized appreciation of investments and options
during the period 108,130,733
Net gain on investment transactions 47,639,928
Net increase in net assets resulting from operations $123,010,259
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Six months
ended Year ended
March 31 September 30
1995* 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 75,370,331 $ 150,843,351
Net realized loss on investments and futures contracts
and options (60,490,805) (222,476)
Net unrealized appreciation (depreciation) of
investments 108,130,733 (274,250,423)
Net increase (decrease) in net assets resulting
from operations $ 123,010,259 $ (123,629,548)
Distributions to shareholders from
Net investment income:
Class A (68,558,490) (141,107,300)
Class B (6,018,614) (10,620,980)
Class M (343) --
In excess of net investment income
Class A -- (31,397)
Class B -- (2,363)
Net realized gain on investments
Class A -- (17,555,714)
Class B -- (1,321,398)
In excess of net realized gain on investments
Class A -- (14,879,157)
Class B -- (1,119,935)
Increase (decrease) from capital share transactions
(Note 4) (14,861,936) 193,573,375
Total increase (decrease) in net assets 33,570,876 (116,694,417)
Net assets
Beginning of period 2,446,289,855 2,562,984,272
End of period (including undistributed net investment
income and distributions in excess of net investment
income of $375,183 and $417,701 respectively) $2,479,860,731 $2,446,289,855
</TABLE>
* Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial highlights*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
February 16, For the period
1995 January 4, 1993
(commencement Six months (commencement Six months
of operations) ended Year ended of operations) ended Year ended
to March 31 March 31 September 30 to September 30 March 31 September 30
1995** 1995** 1994 1993 1995** 1994
Class M Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of period $ 8.61 $ 8.53 $ 9.66 $ 9.02 $ 8.55 $ 9.66
Investment
operations
Net
investment
income .06(c) .24 .47 .34 .26 .53
Net realized
and
unrealized
gain (loss)
on
investments .11 .18 (.98) .64 .16 (.97)
Total from
investment
operations .17 .42 (.51) .98 .42 (.44)
Distributions
to
shareholders:
From net
investment
income (.07) (.24) (.49) (.34) (.26) (.54)
In excess of
net
investment
income -- -- -- -- -- --
Net realized
gain on
investments -- -- (.07) -- -- (.07)
In excess of
net
realized
gain on
investments -- -- (.06) -- -- (.06)
Total
distributions (.07) (.24) (.62) (.34) (.26) (.67)
Net asset
value, end
of period $8.71 $8.71 $8.53 $9.66 $8.71 $8.55
Total
investment
return at
net asset
value (%)
(a) 2.02(b) 5.03(b) (5.51) 11.10(b) 5.12(b) (4.72)
Net assets,
end of
period
(in
thousands) $143 $230,166 $213,679 $137,323 $2,249,551 $2,232,611
Ratio of
expenses to
average net
assets (%) .10(b) .66(b) 1.41 1.04(b) .34(b) .77
Ratio of net
investment
income to
average net
assets (%) .46(b) 2.85(b) 5.31 3.66(b) 3.18(b) 5.97
Portfolio
turnover
(%) 31.86(b) 31.86(b) 59.27 43.77 31.86(b) 59.27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30
1993 1992 1991 1990 1989
Class A
<S> <C> <C> <C> <C>
$9.11 $8.81 $8.29 $8.54 $8.33
.57 .59 .58 .57 .59
.67 .47 .54 (.20) .21
1.24 1.06 1.12 .37 .80
(.56) (.60) (.58) (.58) (.59)
(.01) -- -- -- --
(.12) (.16) (.02) (.04) --
-- -- -- -- --
(.69) (.76) (.60) (.62) (.59)
$9.66 $9.11 $8.81 $8.29 $8.54
14.27 12.56 13.92 4.26 9.93
$2,425,661 $1,867,307 $1,513,029 $1,306,100 $1,226,679
.74 .66 .59 .54 .52
6.81 6.65 6.75 6.67 6.99
43.77 58.14 78.04 73.70 98.90
</TABLE>
<PAGE>
Financial highlights*
(continued)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Ten months ended
Year ended September 30 September 30
1988 1987 1986 1985
Class A
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 7.68 $ 8.59 $ 7.44 $ 6.87
Investment operations
Net investment income .61 .61 .65 .56
Net realized and unrealized gain (loss) on
investments .65 (.83) 1.20 .57
Total from investment operations 1.26 (.22) 1.85 1.13
Distributions to shareholders:
From net investment income (.61) (.61) (.65) (.56)
In excess of net investment income -- -- -- --
Net realized gain on investments -- (.08) (.05) --
In excess of net realized gain on investments -- -- -- --
Total distributions (.61) (.69) (.70) (.56)
Net asset value, end of period $ 8.33 $ 7.68 $ 8.59 $ 7.44
Total investment return at net asset value (%) (a) 16.94 (3.10) 25.59 16.90(b)
Net assets, end of period
(in thousands) $1,037,074 $880,658 $625,574 $233,366
Ratio of expenses to average net assets (%) .51 .51 .53 .54(b)
Ratio of net investment income to average net
assets (%) 7.48 7.09 7.72 7.52(b)
Portfolio turnover (%) 112.52 171.00 123.27 249.54(b)
</TABLE>
** Unaudited.
* 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.
(c) Per share net investment income for the period ended March 31, 1995 have
been determined on the basis of the weighted average number of shares
outstanding for the period.
<PAGE>
Notes to financial statements
March 31, 1995 (Unaudited)
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 class A, class B and class M shares. The fund commenced its
public offering of Class M shares on February 16, 1995. 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 redeemed within six years of purchase. Class M shares are sold with
a maximum front end sales charge of 3.25% and pay a distribution fee that is
lower than class A shares. In addition, the Trustees declare separate dividends
on each class of shares. Expenses of the fund are borne pro-rata by the holders
of each class of shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class) and votes as a
class only with respect to its own distribution plan or other matters on which
a class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro- rata share of the net assets of the fund, if the
fund were liquidated.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities in determining value. The fair value of restricted
securities is determined by the Manager following procedures approved by the
Trustees, and such valuations and procedures are reviewed periodically by 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).
Interest income is recorded on the accrual basis.
C Option accounting principles The fund may, to the extent consistent with its
investment objectives and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When a fund writes a call option, an amount equal to the premium
received by the fund is included in the fund's "Statement of assets and
liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of an option written. The current market value of an option is the last
sale price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date, or if the
<PAGE>
fund enters into a closing purchase transaction, the fund realizes a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the fund realizes a gain
or loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. If a written put option is
exercised, the amount of the premium originally received reduces the cost of
the security that the fund purchases upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk the fund may not be
able to enter into a closing transaction because of an illiquid secondary
market.
The fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. The fund may buy call options to
hedge against an increase in the price of the securities that the fund
ultimately wants to buy. These funds may also buy and sell combinations of put
and call options on the same underlying security to earn additional income. The
premium paid by a fund for the purchase of a put and call option is included in
the fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option the fund has purchased expires on the stipulated
expiration date, the fund realizes a loss in the amount of the cost of the
option. If the fund enters into a closing sale transaction, the fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security and the
proceeds from such a sale are decrease by the premium originally paid. The risk
associated with purchasing options is limited to the premium originally paid.
D Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E Distributions to shareholders Income dividends are recorded daily by the fund
and are distributed monthly. Capital gains distributions, if any, are recorded
on the ex-dividend date and paid annually.
The amount and character of income and gains distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
<PAGE>
F Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities is amortized using the effective
yield method 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 amortized 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
being amortized on a straight-line basis over a five-year period.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Investment Management, Inc., the fund's Manager, a
wholly owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the average net assets
of the fund for the quarter. Such fee is based on the following annual rates:
0.60% of the first $500 million of average net assets, 0.50% of the next $500
million, 0.45% of the next $500 million and 0.40% of any amount over $1.5
billion, subject, under current law, to reduction, in any year to the extent
that expenses (exclusive of brokerage, interest and taxes) of the fund exceed
2.5% of the first $30 million 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 commis- sions 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
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $2,900 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
functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended March 31, 1995, have been reduced by credits allowed
by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its class
A shares, class B shares and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Trustees have approved payment by the fund at an annual rate
of 0.20%, 0.85% and 0.50% of the average net assets attributable to class A,
class B and class M shares, respectively.
<PAGE>
For the six months ended March 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $89,476 and $193 from the sale of class
A and class M shares and $287,024 in contingent deferred sales charges from
redemptions of class B shares. 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 six months ended March 31, 1995, Putnam Mutual
Funds Corp., acting as underwriter received $12,908 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $851,377,750 and
$730,628,360, respectively. Purchases and sales of short-term municipal
obligations aggregated $339,195,000 and $407,375,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
Written option transactions during the year are summarized as follows:
<TABLE>
<CAPTION>
Premiums
Received
<S> <C>
Contracts outstanding at
beginning of period $ --
Options opened 26,590,806
Options expired --
Options closed (10,380,415)
Written options outstanding
at end of period $ 16,210,391
</TABLE>
Note 4
Capital shares
At March 31, 1995, there was an unlimited number of shares of beneficial
interest authorized divided into three classes, class A, class B and class M
capital stock. Transactions in capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
Six months Year ended
ended March 31 September 30
1995 1994
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 68,278,861 $ 572,066,269 98,892,293 $ 889,947,250
Shares issued in
connection with
acquisition of Putnam
Texas Tax Exempt
Income Fund -- -- 1,886,097 16,314,742
Shares issued in
connecetion with
reinvestment of
distributions 4,761,846 39,939,944 11,764,103 107,161,522
73,040,707 612,006,213 112,542,493 1,013,423,514
Shares repurchased (76,067,811) (638,560,328) (102,548,532) (919,634,771)
Net increase (decrease) (3,027,104) $ (26,554,115) 9,993,961 $ 93,788,743
</TABLE>
<TABLE>
<CAPTION>
Six months Year ended
ended March 31 September 30
1995 1994
Class B Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 6,069,360 $ 50,672,145 16,392,070 $149,153,403
Shares issued in
connection with
reinvestment of
distributions 463,747 3,888,808 947,875 8,594,767
6,533,107 54,560,953 17,339,945 157,748,170
Shares repurchased (5,146,407) (43,011,477) (6,518,200) (57,963,538)
Net increase 1,386,700 $ 11,549,476 10,821,745 $ 99,784,632
</TABLE>
<TABLE>
<CAPTION>
For the period
February 16, 1995
(commencement of
operations) to
March 31
1995
Class M Shares Amount
<S> <C> <C>
Shares sold 16,459 $142,467
Shares issued in
connection with
reinvestment of
distributions 27 236
16,486 142,703
Shares repurchased -- --
Net increase 16,486 $142,703
</TABLE>
<PAGE>
Our commitment to quality service
> CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the
past five years. The award is presented annually by DALBAR Inc., an independent
firm that monitors and evaluates the quality of service provided by mutual fund
companies throughout the United States. During 1994, DALBAR ranked firms by
conducting 80,000 anonymous performance evaluations based on 55 service
components.
> 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 the original cost
of the shares.
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 representative.
> 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 continue
purchasing shares during periods of low price levels.
<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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
David J. Eurkus
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency,
and involve risk, including the possible loss of principal amount invested.
<PAGE>
[graphic - Putnam Investments logo with address]
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
011/322/472-17776
