Putnam
Tax
Exempt
Income Fund
ANNUAL REPORT
September 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Tax Exempt Income Fund begins a new fiscal year in an
encouraging environment for municipal bonds. We currently expect to
continue seeking investment opportunities in states with improving
economies and in industry sectors such as transportation and health
care that are experiencing vibrant growth."
-- Fund Manager William H. Reeves
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
15 Portfolio holdings
29 Financial statements
From the Chairman
(copyright) Karsh, Ottawa
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
Dear Shareholder:
The flat-tax anxiety that gripped the municipal bond market as Putnam
Tax Exempt Income Fund began fiscal 1996 seems like ancient history
today. As with so many other historical events, however, the effects
linger.
In this case, the residual consequence has had some positive
implications. When the rest of the bond market took a rather steep drop
last February, municipal bond prices barely wavered, although they are
still mildly erratic.
Overall, your fund's newly assigned manager, William H. Reeves, believes
positive forces at work in the municipal bond market outweigh the
negatives. Demand is strong, especially relative to fairly modest
supply. The economy, interest rates, and inflation remain generally
favorable. In sum, after a year full of challenges, the outlook for the
year ahead appears positive as Bill explains in the accompanying report.
While Bill is new to the fund's management team, he is a 10-year member
of Putnam's tax-exempt income staff. Bill has 31 years of investment
experience.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
November 20, 1996
Report from the Fund Manager
William H. Reeves
Fixed-income investors were buffeted by tides of change over the 12
months ended September 30, 1996, Putnam Tax Exempt Income Fund's most
recent fiscal year. Expectations of stronger economic growth and its
possible effects on future inflation caused last year's bond market
rally to reverse course sharply early in calendar 1996. As the economy
and interest-rate environment shifted gears over the ensuing months, the
fixed-income market endured significant twists and turns. Investors'
forecasts underwent one re-evaluation after another, and bond prices
responded with several abrupt changes in direction.
The fund's class A shares returned 5.94%, class B shares returned 5.38%,
and class M shares returned 5.72%, all at net asset value, during fiscal
1996. Results at public offering price were 0.86%, 0.38%, and 2.33% for
class A, class B, and class M shares, respectively. Additional
performance information can be found on pages 8 and 9.
* YEAR MARKED BY UNCERTAINTY OVER ECONOMY, INTEREST RATES
Municipal bond investors have certainly weathered a full range of
interest-rate climates over the past year. An expectation of slow
economic growth and minimal inflation drove rates to near-historic lows
throughout most of 1995. They reversed course in March 1996, when
reports of stronger-than-expected growth in employment stimulated
investors' concerns about robust economic activity and future inflation.
By midyear, signals of slower growth in parts of the economy appeared to
offset strength in employment. Inflation continued to be well contained,
and this containment allayed many investors' concerns. The revised
outlook caused volatility to ease somewhat; since then, both interest
rates and bond prices have stayed within a relatively narrow range. We
are monitoring early signs of pressure in wage inflation, but we still
expect inflation to remain mild overall.
* PORTFOLIO SHIFTS REFLECT INCREASED INCOME ORIENTATION
Your fund had been well positioned for the long-term secular decline in
interest rates that took place from 1982 through the mid 1990s. As
market cycles shift, however, so must investment strategies; accordingly
during the period we implemented several long-term strategy adjustments
to guide your fund through this changing interest-rate environment.
Although we continually work to enhance performance and minimize the
risk of price erosion, current income -- always a prime objective of the
fund -- has now taken on even greater emphasis. For the foreseeable
future, we expect that most of your fund's total return is likely to
come from coupon income rather than from price appreciation.
That expectation being the case, during fiscal 1996 we sold bonds with
10- to 15-year maturities, reinvesting the assets in bonds with
particular geographic and sector characteristics that we believe signify
attractive long-term growth potential. Our decision to make this shift
was based largely on the fact that over the past year the 10- to 15-year
bonds have been in high demand by insurance companies.
This demand had driven yields on these bonds to low levels relative to
alternative investments. We viewed this situation as an opportunity to
sell some of the fund's lower-yielding positions, as well as to realize
the gains that had resulted from price appreciation on these holdings.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*]
Health care 17.9%
Transportation 17.1%
Utilities 13.1%
Housing 10.0%
Education 6.7%
Footnote reads:
*Based on net assets as of 9/30/96. Holdings will vary over time.
Both income and total return potential are considerations in the fund's
efforts to take advantage of municipal bonds issued in geographic
locations that show signs of economic revitalization. These include the
higher-growth states of California and Texas. We also increased the
fund's holdings in sectors such as transportation, particularly airlines
and air freight.
Denver International Airport bonds, in particular, have proved to be
quite rewarding for your fund. This facility has been under a great deal
of scrutiny for a number of years, mainly relating to construction
delays and problems with its automated baggage system. During the
airport's turbulent construction period, we continued to see solid
fundamentals and remained convinced that the problems would eventually
be overcome. In fact, what many perceived as a municipal bond disaster
in the making has become a performance success story. As a result of
this investment, your fund was able to realize significant profits
throughout the year.
We also reduced the fund's position in uninsured health-care bonds and
reinvested proceeds in insured health-care securities. Besides their
higher credit quality afforded by the insurance, we believe the insured
bonds provide better relative investment value. While offering
considerably more credit security, the yield of the insured bonds is
only marginally lower than that of the uninsured bonds.
We also sought out securities that appeared to be undervalued. For
example, your fund was a major holder of short-term debt issued by
Washington, DC, when some notes came to market at yields considerably
higher than yields on most alternative investments. When the notes were
subsequently paid off, your fund acquired the longer-term issues
currently in the portfolio. While they carry no guarantee as to safety
of principal or timely interest payments, the debt bears a substantial
commitment from the federal government because of the special
relationship that exists between it and the District of Columbia. The
above-market yield and minimal risk associated with these securities has
contributed positively to the fund's performance.
[GRAPHIC OMITTED: Pie chart of CREDIT QUALITY OVERVIEW*]
CREDIT QUALITY OVERVIEW*
A- 9.1%
Aa- 11.7%
Aaa- 45.9%
B- 0.1%
Ba- 5.1%
Baa- 26.0%
VMIGI- 2.1%
Footnote reads:
* As a percentage of market value as of 9/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* GREATER MARKET STABILITY FORECAST FOR FISCAL '97
We expect the environment for municipal bonds to exhibit more stability
in the months ahead than it has in the past year, although the market
could experience periods of short-term choppiness as investors react to
stimuli such as the release of economic reports and the market's
assessment of November election results. Given our outlook for continued
moderate economic growth and low inflation over the next several months,
we expect that interest rates and bond price fluctuations will remain
within their currently narrow range.
Our expectation is that supply and demand prospects will continue to be
positive. The direction of the stock market and short-term interest
rates could also influence demand for municipal bonds. Some investors
question the sustainability of the stock market's recent strength
without undergoing a temporary correction. Should such a correction
occur, we believe demand for municipal bonds would increase
substantially. A reduction in short-term interest rates could also
stimulate demand.
On balance, given the current and projected economic environment, we
believe your fund is well positioned to respond positively to unfolding
events in the fiscal year ahead.
Footnote reads:
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 9/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Tax Exempt Income Fund is designed for investors
seeking high current income free from federal income tax, consistent
with capital preservation.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
Class A Class B Class M
(inception date) (12/31/76) (1/4/93) (2/16/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 5.94% 0.86% 5.38% 0.38% 5.72% 2.33%
- ------------------------------------------------------------------------
5 years 40.98 34.27 -- -- -- --
Annual average 7.11 6.07 -- -- -- --
- ------------------------------------------------------------------------
10 years 108.60 98.63 -- -- -- --
Annual average 7.63 7.10 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 19.48 16.56 11.26 7.63
Annual average -- -- 4.87 4.18 6.81 4.64
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS
ENDED 9/30/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------
1 year 6.04% 3.00%
- -----------------------------------------------------------------------
5 years 43.28 15.02
Annual average 7.46 2.84
- ------------------------------------------------------------------------
10 years 113.78 43.19
Annual average 7.89 3.66
- ------------------------------------------------------------------------
Life of class B 27.41 11.20
Annual average 6.68 2.88
- ------------------------------------------------------------------------
Life of class M 13.01 4.99
Annual average 8.01 3.05
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 4.75% maximum
sales charge for class A shares and 3.25% for class M shares. CDSC for
class B shares assumes the applicable sales charge, with the maximum
being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 9/30/86
Starting value (Insert ending Total)
$9,525 Fund's class A shares at POP $19,863
$10,000 Lehman Brothers Municipal Bond Index $21,378
$10,000 Consumer Price Index $14,319
(plot points for 10-year total return mountain chart)
Lehman Bros
Muni Bond
Date/year Fund at POP Index CPI
- --------- ----------- ------------ ---------
9/30/86 $9,525 $10,000 $10,000
9/30/87 9,228 10,052 10,436
9/30/88 10,792 11,357 10,871
9/30/89 11,863 12,343 10,343
9/30/90 12,369 13,182 12,042
9/30/91 14,091 14,920 12,450
9/30/92 15,860 16,480 12,822
9/30/93 18,124 18,580 13,167
9/30/94 17,269 18,131 13,557
9/30/95 18,751 20,160 13,902
9/30/96 19,863 21,378 14,319
Footnote reads:
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 $11,948 on 9/30/96 ($11,656 with a redemption at the end of the period).
A $10,000 investment in the fund's class M shares at inception on 2/16/95
would have been valued at $11,126 at net asset value on 9/30/96, $10,763
at public offering price.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income1 $0.490694 $0.432970 $0.463307
- ------------------------------------------------------------------------
Share value NAV POP NAV NAV POP
- ------------------------------------------------------------------------
9/30/95 $8.74 $9.18 $8.73 $8.75 $9.04
- ------------------------------------------------------------------------
9/30/96 8.76 9.20 8.76 8.78 9.07
- ------------------------------------------------------------------------
Current return (end of period):
- ------------------------------------------------------------------------
Current dividend rate2 5.60% 5.33% 4.95% 5.28% 5.11%
- ------------------------------------------------------------------------
Taxable equivalent3 9.27 8.82 8.20 8.74 8.46
- ------------------------------------------------------------------------
Current 30-day SEC yield4 5.24 4.99 4.57 4.93 4.77
- ------------------------------------------------------------------------
Taxable equivalent3 8.68 8.26 7.57 8.16 7.90
- ------------------------------------------------------------------------
Footnote reads:
1For some investors, investment income may be subject to the federal
alternative minimum tax. Investment income may be subject to state and
local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 39.60% federal tax rate. Results for investors subject
to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
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. Securities in the
fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
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
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds (DBL. DAGGER)
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM 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:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS [SECTION MARK]
Putnam money market funds: **
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts ++
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
(DBL. DAGGER) Not available in all states.
[SECTION MARK] Relative to above.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certain limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam 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.
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 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.
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.
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 inves-
tors. 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.
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.
Report of independent accountants
For the fiscal year ended September 30, 1996
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 September 30, 1996, and the related statement of operations
for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our 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,
1996, 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 each of the periods indicated therein,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 13, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1996
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of
Participation
MBIA -- Municipal Bond Investors Assurance
Corporation
RAN -- Revenue Anticipation Notes
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (100.2%)*
PRINCIPAL AMOUNT RATINGS ** VALUE
Alabama (0.8%)
- ---------------------------------------------------------------------------------------------------------------------------
$8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp. Project), Ser. A, 6.7s,
12/1/24 Baa $8,691,250
10,000,000 Jackson Cnty., Hlth. Care Auth. TRAN, 7 7/8s, 5/1/19 BB/P 10,562,500
--------------
19,253,750
Alaska (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
12,000,000 AK Hsg. Fin. Corp. Rev. Bonds, Ser. B, 7s, 12/1/27 Aa 12,540,000
Arizona (1.3%)
- ---------------------------------------------------------------------------------------------------------------------------
1,000,000 AZ Edl. Loan. Marketing Corp. VRDN, Ser. A, 3.9s, 12/1/20 Aaa 1,000,000
6,510,000 AZ State Muni. Fin. Program COP, Ser. 34, 7 1/4s, 8/1/09 Aaa 7,576,013
5,000,000 Maricopa Cnty., Indl. Dev. Auth. Hosp. Fac. Rev. Bonds (Samaritan Hlth.
Svc. Hosp.-B2), MBIA, 2.8s, 12/1/08 Aaa 5,000,000
6,600,000 Phoenix, Wtr. Syst. Rev. Bonds, 5.95s, 7/1/16 Aa 6,740,250
4,625,000 Phoenix G.O. Bonds, Ser. B, 5s, 7/1/18 Aa 4,243,438
2,000,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec. Pwr. Ivington Project),
Ser. A, 4.05s, 10/1/22 Aa 2,000,000
5,000,000 Yavapai Cnty., Indl. Dev. Auth. VRDN (Kachina Pointe Project), 3.7s,
1/1/09 VMIG1 5,000,000
--------------
31,559,701
Arkansas (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
3,000,000 Univ. of Arkansas VRDN, 4.3s, 12/1/19 Aa 3,000,000
California (6.7%)
- ---------------------------------------------------------------------------------------------------------------------------
11,415,000 CA Poll. Ctrl. Fin. Auth. Rev. Bonds (San Diego Gas & Elec. Project),
Ser. A, 5.9s, 6/1/14 A 11,757,450
11,700,000 CA State G.O. Bonds, 6 1/2s, 2/1/08 A 12,913,875
5,000,000 Contra Costa Wtr. Dist. Wtr. Rev. Bonds, Ser. G, MBIA, 5s, 10/1/24 Aaa 4,537,500
4,465,000 Contra Costa Trans. Auth. Sales Tax Rev. Bonds, Ser. A, FGIC, 6s, 3/1/08 Aaa 4,744,063
7,000,000 Los Angeles Regl. Arpt. Impt. Rev. Bonds (United Airlines, Inc.), Ser. G,
8.8s, 11/15/21 Baa 7,883,750
10,890,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr. Auth. Rev. Bonds, Ser. A, MBIA,
7 1/4s, 9/15/30 AAA 12,060,675
14,380,000 Los Angeles Cnty., Metro. Trans. Auth. Sales Tax Rev. Bonds, 2nd. Ser. A,
AMBAC, 5s, 7/1/25 Aaa 12,942,000
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth. Rev. Bonds (Capital Projects),
Ser. A, MBIA, 5s, 10/1/23 Aaa 16,821,000
11,285,000 San Diego Cnty., COP (Inmate Reception Ctr. & Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 12,427,606
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds (Merged Area Redev. Project),
MBIA, 5s, 8/1/20 Aaa 16,053,675
U. of CA Rev. Bonds
18,000,000 (UCSD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 BBB/P 19,620,000
13,000,000 (UC Davis Med. Ctr.), AMBAC, 5 3/4s, 7/1/24 Aaa 12,983,750
7,000,000 Ser. A, MBIA, 5s, 11/1/13 Aaa 6,466,250
8,000,000 Vallejo Sanitation & Flood Ctrl. Dist. COP, FGIC, 5s, 7/1/19 Aaa 7,380,000
--------------
158,591,594
Colorado (4.6%)
- ---------------------------------------------------------------------------------------------------------------------------
Arapahoe Cnty. Cap. Impt. Trust Fund Hwy. Rev. Bonds (470 Projects)
23,450,000 Ser. E, 7s, 8/31/26 Baa 25,208,750
5,000,000 Ser. E, 6.95s, 8/31/26 Baa 5,375,000
5,255,000 Denver City & Cnty., Arpt Rev. Bonds, Ser. A, 8 1/2s, 11/15/23 Baa 6,003,838
Denver City & Cnty., Arpt. Rev. Bonds
39,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 45,825,000
5,000,000 (Airport & Marina Improvements), Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 6,006,250
3,005,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 3,489,556
11,090,000 Ser. A, 8s, 11/15/17 Baa 11,686,088
5,000,000 Ser. B, 7 1/4s, 11/15/23 Baa 5,387,500
--------------
108,981,982
Connecticut (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
1,600,000 CT State Dev. Auth. Hlth. Care Rev. Bonds (Alzheimers Resource Ctr.),
Class A, 6 7/8s, 8/15/04 BB/P 1,624,000
15,000,000 Mashantucket, Western Pequot Tribe Rev. Bonds, Ser. A, 6.4s, 9/1/11
(3 double daggers) Baa 15,150,000
--------------
16,774,000
District of Columbia (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
5,000,000 DC, Carnegie Intl. Rev. Bonds, 5 3/4s, 11/15/26 Aa 4,825,000
7,000,000 DC, Georgetown U. IFB, 9.149s, 4/25/22 A-1 7,595,000
--------------
12,420,000
Florida (3.1%)
- ---------------------------------------------------------------------------------------------------------------------------
3,230,000 Broward Cnty., Resource Recvy. Rev. Bonds (Waste-Energy LP North Project),
7.95s, 12/1/08 A 3,557,038
12,000,000 FL State Ed. Board Cap. Outlay Rev. Bonds, Ser. F, FGIC, 5 1/2s, 6/1/26 Aaa 11,640,000
6,080,000 Dade Cnty. Wtr. & Swr. Syst. Rev. Bonds, FGIC, 5 1/2s, 10/1/25 Aaa 5,905,200
11,975,000 Dade Cnty. Sch. Rev. Bonds, 5.5s, 5/1/25 Aaa 11,589,285
2,800,000 Dade Cnty. Hlth & Hosp. Fac. Auth. Rev. Bonds VRDN (Miami Children's
Hospital), 2.65s, 9/1/20 A 2,800,000
18,500,000 Hernando Cnty. Rev. Bonds (Criminal Justice Complex Fin. Project),
FGIC, 7.65s, 7/1/16 # Aaa 23,402,500
4,000,000 Orange Cnty., Hsg. Fin. Auth. VRDN (Sundown Assoc. II), Ser. B,
3.95s, 6/1/04 # A 4,000,000
13,000,000 Port Everglades Auth. Port Impt. Rev. Bonds, Ser. A, 5s, 9/1/16 Baa 11,131,250
--------------
74,025,273
Georgia (3.7%)
- ---------------------------------------------------------------------------------------------------------------------------
10,200,000 Burke Cnty., Poll. Ctrl. Auth. VRDN, 3.6s, 7/1/24 # VMIG1 10,200,000
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds (Briarcliff Park Apts.
Project), Ser. A, 7 1/2s, 4/1/17 A 12,405,000
10,000,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds, Ser. B, FGIC, 8 1/4s, 1/1/11 Aaa 12,587,500
GA State G.O. Bonds
10,460,000 Ser. D, 6.8s, 8/1/11 Aaa 11,963,625
10,000,000 6 1/2s, 12/1/09 Aaa 11,112,500
21,790,000 Ser. B, 6 1/4s, 4/1/09 Aaa 23,642,150
27,595,000 Washington Cnty., Wilkes Payroll Dev. Auth. Rev. Bonds, Zero %, 12/1/21 Aaa 4,898,113
--------------
86,808,888
Hawaii (1.2%)
- ---------------------------------------------------------------------------------------------------------------------------
8,000,000 HI State Dept. Budget & Fin. Special Purpose Rev. Bonds (Queen's Health
Syst.), Ser. A, 5 3/4s, 7/1/26 Aa 7,850,000
10,600,000 Honolulu City & Cnty., IFB, 5.45s, 9/11/08 (acquired 5/13//96, cost
$10,552,088) (double dagger) Aa 10,613,250
8,760,000 Honolulu City. & Cnty. G.O. Bonds, Ser. A, 5.8s, 1/1/07 Aa 9,110,400
--------------
27,573,650
Illinois (2.0%)
- ---------------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
14,500,000 (American Airlines Inc. Project), 8.2s, 12/1/24 Baa 16,765,625
4,575,000 (United Air Lines, Inc.), Ser. C, 8.2s, 5/1/18 Baa 4,963,875
IL Dev. Fin. Auth. Rev. Bonds
5,400,000 (Community Rehab. Providers Facs.), 8 3/4s, 7/1/11 BB/P 5,737,500
8,000,000 (St. Luke's Med. Ctr.), MBIA, 9.818s, 10/1/24 Aaa 9,220,000
5,000,000 IL Fin. Dev. Poll. Ctrl. Auth. Rev. Bonds (Central IL Pub. Svc. Co.),
Ser. C-2, 5.7s, 8/15/26 Aa 4,831,250
4,000,000 IL Hsg. Dev. Auth. IFB, 10.516s, 2/1/20 (acquired 4/8/92, cost
$4,587,584) (double dagger) Aa 4,305,000
2,000,000 (Methodist Hlth. Project), AMBAC, 9.872s, 5/1/21 Aaa 2,315,000
--------------
48,138,250
Indiana (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
9,000,000 IN Muni. Pwr. Agcy. Rev. Bonds, Ser. B, MBIA, 5 1/2s, 1/1/16 Aaa 8,842,500
Indianapolis Ind. Local Pub. Rev. Bonds
4,755,000 FSA, 6 1/2s, 1/1/09 Aaa 5,177,006
5,210,000 Ser. A, FSA, 6 1/2s, 1/1/08 Aaa 5,672,388
1,500,000 Multi-Fam. VRDN (Canal Square Project), 3 3/4s, 12/1/15 Aa 1,500,000
--------------
21,191,894
Kansas (1.4%)
- ---------------------------------------------------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Ctrl. IFB, (KS Gas & Elec.) Ser. 91-4, MBIA, 9.944s, 6/1/31
(acquired various dates from 6/20/91 to 2/14/94, cost $20,181,360) (double dagger) Aaa 21,771,750
9,790,000 Kansas City Util. Syst. Rev. Bonds, FGIC, 6 1/4s, 9/1/14 Aaa 10,352,925
--------------
32,124,675
Kentucky (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
11,065,000 Boone Cnty., Poll. Ctrl. Rev. Bonds (Dayton Pwr. & Lt. Co.), Ser. A,
6 1/2s, 11/15/22 Aa 11,673,575
10,200,000 Jefferson Cnty., Hosp. IFB (Alliant Hlth. Syst. Project), MBIA, 6.52s, 10/23/14 Aaa 10,722,750
--------------
22,396,325
Louisiana (3.0%)
- ---------------------------------------------------------------------------------------------------------------------------
4,000,000 Ascension Parish Poll. Ctrl. VRDN (Shell Oil Co. Project), 3.7s, 5/1/26 A 4,000,000
7,000,000 De Soto Parish Poll. Ctrl. Rev. Bonds (Southwestern Elec. Pwr. Co.
Project), 7.6s, 1/1/19 Aa 7,945,000
21,000,000 Lake Charles Harbor & Term. Dist. Port Facs. Rev. Bonds (Trunkline Co.
Project), 7 3/4s, 8/15/22 Baa 23,520,000
7,000,000 Rapides Parish Env. Impt. Rev. Bonds (Intl. Paper Co. Project), Ser. A,
6 1/4s, 9/15/20 (3 double daggers) A 7,035,000
W. Feliciana Parish Poll. Ctrl. Rev. Bonds (Gulf States Utils. Co.)
8,000,000 8s, 12/1/24 Ba 8,520,000
8,565,000 Ser. III, 7.7s, 12/1/14 BB 9,250,200
9,000,000 W. Feliciana Parish Poll. Ctrl. VRDN (Gulf States Utilities Co.),
2 1/2s, 12/1/15 Aa 7,000,000
5,200,000 West Felincia Parish Poll. Ctrl. VRDN, 4 1/4s, 4/1/16 Aa 5,200,000
--------------
72,470,200
Maine (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
5,000,000 ME Fin. Auth. Solid Waste Recycling Fac. Rev. Bonds (Great Northern
Paper Project), 7 3/4s, 10/1/22 Baa 5,425,000
Maryland (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
10,000,000 MD, State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds (John Hopkins), 5s, 7/1/23 Aa 9,012,500
6,250,000 Prince Georges Cnty., Poll. Control Rev. Bonds (Potomac Electric), 5 3/4s, 3/15/10 A 6,445,313
--------------
15,457,813
Massachusetts (7.9%)
- ---------------------------------------------------------------------------------------------------------------------------
15,850,000 Boston Rev. Bonds (Boston City Hosp.), Ser. A, FHA, 7 5/8s, 2/15/21 AAA 17,851,063
10,000,000 MA Bay Trans. Auth. Rev. Bonds, Ser. B, 7 7/8s, 3/1/21 Aaa 11,462,500
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev. Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 10,645,250
MA State Cons. Loan G.O. Bonds
4,215,000 Ser. B, 7 1/2s, 4/1/09 AAA 4,599,619
5,020,000 Ser. C, 7 1/2s, 12/1/07 AAA 5,666,325
3,000,000 Ser. A, 7 1/2s, 6/1/04 A 3,480,000
MA State Hlth. & Edl. Fac. Auth. IFB
10,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.650s, 8/15/21 Aaa 11,375,000
5,000,000 (Beth Israel Hosp.), AMBAC, 8.623s, 7/1/25 Aaa 5,050,000
18,000,000 (Boston U.), Ser. L, MBIA, 9.456s, 10/1/31 Aaa 20,340,000
MA State Hlth. & Edl. Fac. Auth. Rev.Bonds
8,000,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8 3/8s, 7/1/15 Baa 8,550,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,270,000 (Charlton Memorial Hosp.), Ser. B, 7 1/4s, 7/1/13 A 3,474,375
1,500,000 (Central MA Med. Ctr.), Ser. A, AMBAC, 7s, 7/1/12 Aaa 1,655,625
4,000,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba 4,035,000
2,120,000 (MA Eye & Ear Infirmary), Ser. A, 7s, 7/1/01 Baa 2,127,950
5,370,000 (Worcester Polytech Inst.-E), 6 5/8s, 9/1/17 A 5,604,938
7,000,000 AMBAC, 6.55s, 6/23/22 Aaa 7,463,750
2,850,000 (Ctr. for New England Hlth. Syst.), Ser. A, 6 1/8s, 8/1/13 Ba 2,479,500
1,000,000 (Ctr. for New England Hlth. Syst.), Ser. A, 5 3/4s, 8/1/03 Ba 927,500
6,015,000 MA State Hsg. Fin. Agcy. Hsg. Dev. Rev. Bonds, Ser. A, MBIA, 9s, 12/1/18 A 6,233,044
MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA Project)
7,000,000 Ser. A, 9s, 7/1/15 BB/P 7,892,500
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB/P 5,090,625
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Harvard Cmnty. Hlth.), Ser. B,
8 1/8s, 10/1/17 A 5,331,250
MA State Port Auth. Rev. Bonds
7,000,000 Ser. A, FGIC, 7 1/2s, 7/1/20 Aaa 7,638,750
5,700,000 Stepped. Coupon zero %, 7/1/2013 Aaa 5,023,125
MA State Wtr. Resources Auth. Rev. Bonds
5,000,000 Ser. A, 6 1/2s, 7/15/19 A 5,487,500
12,105,000 Ser. B, MBIA, 5s, 3/1/22 Aaa 10,924,763
U. of MA Bldg. Auth. Rev. Bonds, Ser. A
3,000,000 7.2s, 5/1/04 A 3,393,750
2,500,000 7.15s, 5/1/03 A 2,796,875
--------------
186,600,577
Michigan (2.6%)
- ---------------------------------------------------------------------------------------------------------------------------
2,500,000 Cornell Township, Econ. Dev. Corp. VRDN (Escabana Paper Co.), 3.85s, 11/1/16 A 2,500,000
7,000,000 Detroit G.O. Bonds, Ser. B, 6 1/4s, 4/1/08 Baa 7,148,750
1,800,000 Dickinson Cnty. Mem. Hosp. Rev. Bonds, 7 5/8s, 11/1/05 Ba 1,971,000
4,200,000 Grand Rapids Wtr. Supply Syst. VRDN, FGIC, 2.1s, 1/1/20 Aaa 4,200,000
11,355,000 Greater Detroit, Resource Recvy. Auth. Rev. Bonds, Ser. A, 6 1/4s, 12/13/08 Aaa 12,249,206
10,000,000 MI State Strategic Fund Solid Waste Disp. Rev. Bonds (SD Warren Co.,
Project), Ser. C, 7 3/8s, 1/15/22 BB/P 10,187,500
13,845,000 MI State Hosp. Fin. Auth. Rev. Bonds (Sinai Hosp.), 6.7s, 1/1/26 Baa 13,948,838
5,000,000 MI State Job Dev. Auth. Rev. Bonds (Pontiac Hosp.), 6s, 2/1/24 Baa 4,693,750
5,250,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa 4,915,313
--------------
61,814,357
Minnesota (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
1,200,000 Golden Valley Indl. Dev. VRDN (Unicare Homes Project), 1.9s, 9/1/14 A 1,200,000
1,600,000 Hutchinson Indl. Dev. VRDN (Hutchinson Technical Inc. Project), 2.4s, 6/1/04 Aa 1,600,000
15,750,000 MN State Hsg. Fin. Agcy. Single Fam. G.O. Bonds, Ser. E, 6.85s, 1/1/24 Aa 16,320,938
800,000 New Brighton, Indl. Dev. VRDN (Unicare Inc. Project), 4.05s, 12/1/14 A 800,000
600,000 North Suburban Hospital Dist. VRDN (Anoka & Ramsey Cnty. Hosp.,
Hlth. Ctr.), 3.8s, 8/1/14 A 600,000
600,000 Robbinsdale Indl. Dev. VRDN (Unicare Homes Inc. Project), 2.45s, 10/1/14 A 600,000
1,000,000 U. Of Minn. Rev. Bonds, 4.8s, 8/15/03 Aa 993,750
--------------
22,114,688
Mississippi (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
3,000,000 MS River Bridge Auth. Rev. Bonds, 6 3/4s, 11/1/12 A 3,221,250
2,765,000 Perry Co. MS PCR VRDN, 4 3/4s 3/1/02 Aa 2,765,000
4,200,000 Perry Cnty. Poll. Ctrl. VRDN, 3 1/2s, 10/1/12 Aa 4,200,000
--------------
10,186,250
Missouri (1.7%)
- ---------------------------------------------------------------------------------------------------------------------------
7,755,000 Kansas City, Muni. Assistance Corp Rev. Bonds, Ser. H, MBIA, 6s, 4/15/20 Aaa 8,210,606
MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
14,400,000 (BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 15,642,000
8,150,000 (Jefferson Memorial Hosp. Assn. Project), 6s, 8/15/23 Baa 7,426,688
7,550,000 MO State Regl. Convention & Sports Auth. Rev. Bonds, Ser. A, 6.8s, 8/15/11 Aaa 8,446,563
--------------
39,725,857
Montana (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
14,000,000 MT, State Hlth. Fac. Auth. Hosp. IFB (Deaconess Med. Ctr. Project),
Ser. B, AMBAC, 9.3s, 3/8/16 Aaa 15,662,500
Nebraska (1.1%)
- ---------------------------------------------------------------------------------------------------------------------------
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA, 9.424s, 12/8/16 Aaa 10,271,250
NE Investment Fin. Auth. Single Fam. Mtge. IFB
4,350,000 GNMA Coll., 9.475s, 9/15/24 Aaa 4,524,000
9,800,000 Ser. B, GNMA Coll., 10.103s, 9/15/23 Aaa 10,571,750
--------------
25,367,000
New Hampshire (1.7%)
- ---------------------------------------------------------------------------------------------------------------------------
10,500,000 NJ State Tpk. Sys. IFB, FGIC, 9.838s, 11/1/17 Aaa 12,626,250
31,200,000 NJ State Tpk. Sys. Rev. Bonds, 5.244s, 2/1/24 A 27,651,000
--------------
40,277,250
New Jersey (1.8%)
- ---------------------------------------------------------------------------------------------------------------------------
5,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds (Vineland Cogeneration L.P.
Project), 7 7/8s, 6/1/19 BB 5,400,000
3,300,000 NJ Econ. Dev. Natural Gas Auth. VRDN (Natural Gas Co.), Ser. A, AMBAC, 4.3s,
8/1/30 Aaa 3,300,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (Raritan Bay Med. Ctr.)
6,800,000 7 1/4s, 7/1/14 BB/P 7,029,500
13,500,000 7 1/4s, 7/1/27 BB/P 13,854,375
3,000,000 NJ State Tpk. Auth. VRDN, FGIC, 2.45s, 1/1/18 Aa 3,000,000
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds (Transportation System), Ser. B,
MBIA, 6 1/2s, 6/15/10 Aaa 11,100,000
--------------
43,683,875
New York (15.5%)
- ---------------------------------------------------------------------------------------------------------------------------
4,600,000 Alleghany Cnty., Indl. Dev. Agcy. Solid Waste Rev. Bonds (Atlantic Richfield
Co. Project), 6 5/8s, 9/1/16 A 4,824,250
10,000,000 Metro. Trans. Auth. Trans. Fac. Rev. Bonds, Ser. K, 6 5/8s, 7/1/14 Aaa 11,075,000
NY City, G. O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 5,433,750
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,734,969
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 5,475,094
3,190,000 Ser. D, 8 1/4s, 8/1/13 Aaa 3,712,363
29,335,000 Ser. D (Group B) 8 1/4s, 8/1/12 Aaa 34,138,606
5,685,000 Prerefunded Ser. D, 8 1/4s, 8/1/11 Aaa 6,615,919
5,315,000 Ser. D, 8 1/4s, 8/1/11 A 6,072,388
5,000,000 Ser. B, 7 1/2s, 2/1/06 Baa 5,412,500
13,235,000 Ser. B, 6 1/2s, 8/15/10 Baa 13,797,488
12,150,000 Ser. J, 5 1/2s, 2/15/26 Baa 10,843,875
NY City, VRDN
4,500,000 3 1/2s, 2/1/22 Aaa 4,500,000
500,000 Cultural Res. (American Museum of Natural History), Ser. B, MBIA, 2.1s, 4/1/21 Aaa 500,000
6,765,000 NY City, Rev. Bonds, Ser. D, 6 1/2s, 11/1/09 Baa 7,060,969
1,400,000 NY City, Hsg. Dev. Corp. Special Obligation VRDN (East 96th St. Project),
Ser. A, 2.7s, 8/1/15 Aa 1,400,000
8,000,000 NY City Indl. Dev. Agcy. Rev. Bonds (Paper Inc. Project), 7.95s, 1/1/28 BB/P 8,470,000
NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds (American Airlines, Inc.,
Project)
5,675,000 8s, 7/1/20 Baa 6,058,063
15,000,000 6.9s, 8/1/24 Baa 15,731,250
NY State Dorm. Auth. Rev. Bonds
9,000,000 (State U. Edl. Fac.), Ser. A, 6s, 5/15/25 Baa 8,887,500
13,100,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 14,704,750
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa 10,913,625
4,060,000 (State U. Edl. Fac.), Ser. A, 5 7/8s, 5/15/17 Baa 4,029,550
12,485,000 (Construction City U. Syst.), Ser. A, 5 3/4s, 7/1/18 Baa 12,126,056
5,000,000 (City U. Syst.), MBIA, 5 1/2s, 7/1/24 Aaa 4,862,500
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 Baa 21,829,500
8,400,000 (State U. Edl. Fac.), Ser. A, 5 1/4s, 5/15/15 Baa 7,749,000
4,400,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds (State Wtr. Revolving Fund),
Ser. A, 7 1/2s, 6/15/12 Aa 4,862,000
NY State Local Govt. Assistance Corp. Rev. Bonds
13,000,000 Ser. C, 7s, 4/1/21 Aaa 14,462,500
11,585,000 Ser. A, 7s, 4/1/16 Aaa 12,888,313
NY State Local Govt. VRDN
2,000,000 Ser. F. 1/2s, 4/1/25 (Toronto Dominion Bank) Ser. F, 3 1/2s, 4/1/25 Aa 2,000,000
NY State Local Govt. VRDN
6,700,000 Ser. B, 2.3s, 4/1/23 VMIG1 6,700,000
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
21,500,000 (Hosp. & Nursing Home Insd. Mtge.), Ser. A, FHA, 8s, 2/15/27 AAA 22,686,800
4,860,000 (Mental Hlth. Svcs. Fac.), Ser. A, 7.8s, 2/15/19 BBB 5,236,650
6,900,000 (Mental Hlth Svcs. Fac.) Ser. A, 7.7s, 2/15/18 BBB 7,262,250
8,050,000 (Mental Hlth. Svsc. Fac.), Ser. B, 7 5/8s, 8/15/17 BBB 8,985,813
1,800,000 NY State Med. Care Fac. Fin. Agcy. VRDN (Lenox Hill Hosp.), Ser. A,
2 1/2s, 11/1/08 Aa 1,800,000
13,950,000 NY State Throughway Svc. Auth. Rev. Bonds, 5 3/4s, 4/1/16 Baa 13,601,250
2,500,000 Suffolk Cnty, Indl. Dev. Agy. VRDN (Target Rock Corp.), 3 3/4s,
2/1/07 Aa 2,500,000
2,000,000 Suffolk Cnty., Wtr. Auth. RAN, 3.3s, 2/8/01 Aa 2,000,000
1,000,000 Triborough Brdg. & Tunnel Auth. Special Obligation VRDN, FGIC,
1.85s, 1/1/24 VMIG1 1,000,000
20,000,000 Triborough Bridge & Tunnel Auth. General Purpose Rev. Bonds, Ser. Y,
MBIA, 5 1/2s, 1/1/17 Aaa 19,600,000
--------------
367,544,541
North Carolina (2.7%)
- ---------------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds, Ser. B
11,680,000 7s, 1/1/13 A 12,775,000
4,000,000 7s, 1/1/08 A 4,385,000
NC Eastern Muni. Pwr. Agcy. Svcs. Rev. Bonds
3,155,000 Ser. A, 8s, 1/1/21 Aaa 3,364,019
10,000,000 AMBAC, 6s, 1/1/18 Aaa 10,350,000
11,995,000 NC Muni. Pwr. Agcy. #1 Catawaba Elec. Rev. MBIA, 5 1/4s, 1/1/06 AAA 12,039,981
19,700,000 NC Eastern Muni. Pwr. Agcy. Svcs. IFB, FGIC, 7.894s, 1/1/25 (acquired various
dates from 12/28/93 to 4/12/95, cost $23,486,208) (double dagger) AAA 20,758,875
--------------
63,672,875
Ohio (4.3%)
- ---------------------------------------------------------------------------------------------------------------------------
2,000,000 Evendale Indl. Dev. VRDN, 3.63, 9/1/15 Aa 2,000,000
2,100,000 Hamilton Cnty. Hosp. Fac. Rev. Bonds VRDN (Bethesda Hospital), 3.9s, 2/15/24 Aaa 2,100,000
1,593,357 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn Hlth. Ctr. Project), FHA, Insd.
12s, 5/1/14 BBB/P 1,718,835
78,585,000 Lucas Plaza Hsg. Dev. Corp. Mtge. Rev. Bonds, FHA, zero %, 6/1/24 Aaa 12,671,831
8,950,000 Mount Vernon Hosp. Rev. Bonds (Knox Cmnty. Hosp.), 7 7/8s, 6/1/12 BBB/P 9,223,244
2,895,000 Scioto City AMBAC VRDN, 3.8s, 12/1/25 A 2,895,000
800,000 Scioto City AMBAC VRDN, 3.4s, 12/1/25 A 800,000
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
5,723,000 Ser. A-2, GNMA Coll., 9.885s, 3/24/31 Aaa 6,080,688
6,450,000 Ser. G-2, GNMA Coll., 10.305s, 3/2/23 AAA 7,167,563
16,615,000 GNMA Coll., 7.8s, 3/1/30 Aaa 17,632,669
7,775,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
GNMA Coll., Stepped-coupon zero % (9s, 9/1/01), 9/1/18# Aaa 5,860,406
7,775,000 OH Hsg.Fin. Agcy. Single Fam. Mtge. Rev. Bonds, Ser. 4, GNMA Coll., Interest
only strip 9s, 9/1/01 Aaa 3,236,344
25,115,000 OH State Tpke. Rev. Bonds, Ser. A, MBIA, 5 1/2s, 2/15/26 Aaa 24,455,731
7,200,000 OH State Wtr. Dev. Auth. Poll. Control Fac. Rev. Bonds, MBIA, 5 1/8s, 12/1/08 Aaa 7,056,000
--------------
102,898,311
Oklahoma (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
9,160,000 Tulsa Muni. Arpt. Rev. Bonds (American Airlines, Inc.), 7 3/8s, 12/1/20 Baa 9,698,150
Oregon (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
4,000,000 Portland, Poll. Ctrl. VRDN (Reynolds Metals), 3.9s, 12/1/09 Aa 4,000,000
Pennsylvania (2.7%)
- ---------------------------------------------------------------------------------------------------------------------------
2,560,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds (Southside Hosp. Pittsburgh),
Ser. A, 8 3/4s, 6/1/10 BBB 2,643,430
5,750,000 Beaver Cnty., Indl. Dev. Auth. Poll. Ctrl. Rev. Bonds (Ohio Edison Project),
Ser. A, 7 3/4s, 9/1/24 Baa 6,023,125
8,360,000 Clearfield Hosp. Auth. Rev. Bonds (Clearfield Hosp. Project), 6 7/8s, 6/1/16 BBB 8,286,850
PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds (Colver
Project), Ser. D
6,000,000 7.15s, 12/1/18 BBB 6,285,000
10,000,000 7 1/8s, 12/1/15 BBB 10,487,500
12,700,000 (Northampton Generating Project), Ser. A, 6.4s, 1/1/09 BBB 12,477,750
Philadelphia, Hosp. & Higher Edl. Fac. Auth.
3,000,000 (Children's Hosp. Project), Ser. A, 8s, 7/1/18 Aa 3,135,090
10,000,000 Ser. A&B, 7 1/4s, 7/1/10 BBB 10,287,500
4,390,000 Philadelphia, Hosp. & Higher Edl. Fac. Auth. IFB, 7 1/4s, 7/1/18 BBB 4,488,775
--------------
64,115,020
Puerto Rico (2.1%)
- ---------------------------------------------------------------------------------------------------------------------------
6,000,000 Cmnwlth. of PR Gov't Dev. Bank VRDN, 3.25s, 12/1/15 Aa 6,000,000
1,400,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN, Ser. X, 2.2s, 7/1/99 Aa 1,400,000
23,355,000 PR Pub. Bldgs. Auth. Hlth. Facs. Rev. Bonds, Ser. M, AMBAC, 5 3/4s, 7/1/10 Aaa 24,143,231
Puerto Rico Hwy. & Trans. Auth. Rev. Bonds, MBIA
6,700,000 6 1/4s, 7/1/12 Aaa 7,269,500
2,890,000 6 1/4s, 7/1/10 Aaa 3,139,263
3,500,000 6 1/4s, 7/1/09 Aaa 3,801,875
3,000,000 6 1/4s, 7/1/08 Aaa 3,262,500
--------------
49,016,369
South Carolina (1.1%)
- ---------------------------------------------------------------------------------------------------------------------------
6,000,000 Florence Cnty. Indl. Dev. Rev. Bonds (Stone Container Corp.), 7 3/8s, 2/1/07 BB/P 6,225,000
5,000,000 SC State Pub. Svc. Auth. Rev. Bonds, Ser. B, 6 1/2s, 7/1/26 Aaa 5,481,250
13,500,000 Spartanburg Cnty., Hosp. Fac. IFB, FSA, 6.416s, 4/13/22 Aaa 14,191,875
--------------
25,898,125
South Dakota (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------
8,000,000 Heartland, Consumer Elec. Pwr. Dist. Rev. Bonds, FSA, 6s, 1/1/17 Aaa 8,310,000
Tennessee (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
3,800,000 Clarkesville City, VRDN, 3.85s, 6/1/24 A-1 3,800,000
93,729,086 Metro. Nashville & Davidson Cnty., Hlth. & Edl. Fac. Board Rev. Bonds
(Volunteer Hlth. Care), zero %, 6/1/21 Aaa 16,988,397
--------------
20,788,397
Texas (12.0%)
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Arpt. Auth. Special Fac. Rev. Bonds
31,000,000 (American Airlines, Inc. Project), 7 1/2s, 12/1/29 Baa 32,976,250
20,385,000 (Federal Express Corp.), 6 3/8s, 4/1/21 Baa 20,181,150
12,900,000 Austin Hotel Occupancy Tax Rev. Bonds, Ser. A, AMBAC, 5 1/8s, 11/15/19 Aaa 11,884,125
15,000,000 Dallas Cnty., G.O. Bonds (Flood Control Dist. #1), stepped-coupon
zero %, (8.5s, 10/1/99) 4/1/16 # BB/P 13,068,750
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds (Champion Intl. Corp.),
7.45s, 5/1/26 Baa 27,080,625
8,500,000 Harris Cnty., Toll Roads Rev. Bonds, AMBAC, zero %, 8/15/18 Aaa 2,273,750
24,125,000 Houston, Wtr. & Swr. Syst. Rev. Bonds, Jr. Lien, Ser. A, FGIC, 5 1/4s, 12/1/25 Aaa 22,617,188
10,000,000 Lufkin, Hlth. Facs. Dev. Corp. Rev. Bonds (Memorial Hlth. Syst.of East TX),
6 7/8s, 2/15/26 BBB 10,150,000
Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
2,075,000 (Woodlands Med. Ctr. Project), 8.85s, 8/15/14 A/P 2,228,031
37,075,000 (Heritage Manor), FSA, zero %, 7/15/23 Aaa 5,792,969
20,000,000 North Central TX Hlth. Fac. Dev. Corp. IFB (Baylor U. Med. Ctr.), Ser. A,
9.878s, 5/15/16 Aa 24,225,000
3,475,000 North Central TX Hlth. Fac. Dev. Corp. Rev. Bonds (U. Med. Ctr. Project),
7 3/4s, 4/1/17 BBB/P 3,540,156
6,650,000 San Antonio Elec & Gas Rev. Bonds, Ser. B, 5s, 2/1/16 Aa 6,109,688
Southeast TX Hsg. Fin. Corp. Multi-Fam. Rev. Bonds
12,000,000 (Bayou Pk. Village Project), Ser. A, 8s, 8/1/16 BBB/P 11,985,000
10,000,000 (Promenade Place Apts. Project), Ser. A, 8s, 8/1/16 A/P 10,500,000
6,500,000 Texas City Indl. Dev. Corp. Rev. Bonds (Arco Pipeline Co.), 7 3/8s, 10/1/20 A 7,856,875
10,920,000 TX A&M U. Rev. Bonds, 5s, 5/15/11 Aa 10,210,200
6,450,000 TX Dept. of Hsg. & Cmnty. Affairs Home Mtge. IFB, Ser. A, GNMA Coll.,
9.855s, 7/18/23 AAA 6,716,063
9,500,000 TX State Nat'l Research Lab Communication Superconductor G.O. Bonds,
7 1/8s, 4/1/20 Aaa 10,450,000
10,400,000 TX State Reg. IFB, Ser. B-1 & B-2, 8.415s, 9/30/11 Aa 11,869,000
7,000,000 TX State TRA, 4 3/4s, 8/29/97 VMIG1 7,058,450
5,000,000 TX State Dept. of Hsg. & Cmnty. Affairs Home Mtge. IFB, Ser. B-2, GNMA Coll.,
9.866s, 7/18/23 AAA 5,368,750
12,800,000 TX State Tpke Auth. Rev. Bonds (George Bush Tpke.), 5s, 1/1/16 A 11,760,000
10,000,000 TX State Wtr. Dev. Rev. Bonds, Ser. A, 5 1/8s, 7/15/09 Aaa 9,712,500
--------------
285,614,520
Utah (1.1%)
- ---------------------------------------------------------------------------------------------------------------------------
17,565,000 Intermountain Pwr. Agcy. Rev. Bonds, MBIA, 6 1/2s, 7/1/09 Aaa 19,233,675
5,000,000 Salt Lake City Hosp. Rev. Bonds (IHC Hosps. Inc.), Ser. A, 8 1/8s, 5/15/15 AAA 5,943,750
--------------
25,177,425
Vermont (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
4,895,000 (Brattleboro Memorial Hosp.), 7s, 3/1/24 BBB 4,895,000
7,600,000 (Hosp. Med. Ctr.), FGIC, 11.072s, 9/1/19 Aaa 7,923,000
--------------
12,818,000
Virginia (3.6%)
- ---------------------------------------------------------------------------------------------------------------------------
21,000,000 Henrico Cnty., Indl. Dev. Auth. Rev. Bonds (Bon Secours Hlth. Syst.
Project), FSA, 5.929s, 8/23/27 Aaa 21,735,000
19,050,000 Penninsula Port Shell VRDN, 3.9s, 12/1/05 VMIG1 19,050,000
11,065,000 VA State Pub. Bldg. Auth. Rev. Bonds, Ser. A, 5s, 8/1/11 Aa 10,331,944
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester Med. Ctr. Project), AMBAC,
9.236s, 1/1/14 Aaa 33,900,000
--------------
85,016,944
Washington (1.1%)
- ---------------------------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Ctrl. Rev. Bonds (Union Carbide
Corp.), 7 1/2s, 8/1/04 Baa 5,240,144
2,750,000 WA State Hlth. Care Fac. VRDN (Sisters Providence), Ser. E, 2s, 10/1/05 AA 2,750,000
WA State Hlth. Care Fac. Auth. Rev. Bonds (Hutchinson Cancer Ctr.), Ser. D
8,400,000 7 3/8s, 1/1/18 Aa 8,872,500
7,700,000 7.3s, 1/1/12 Aa 8,113,410
--------------
24,976,054
West Virginia (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
3,000,000 WV State COP (Morris Sq. Complex), 9 1/4s, 8/15/08 B/P 2,970,000
Wisconsin (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
7,335,000 WI Hsg. & Econ. Dev. Auth. IFB (Home Ownership Dev.), 10.209s, 10/25/22 Aa 7,793,438
3,400,000 WI Hsg. & Econ. Dev. Auth. Rev. Bonds, Ser. B, 7.05s, 11/1/22 A 3,544,500
--------------
11,337,938
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost $2,270,737,841)*** $2,378,018,018
- ---------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,374,404,837.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1996, for the securities listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to do so,
and the ratings do not necessarily represent what the agencies would ascribe to these securities at September 30,
1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
*** The aggregate identified cost for federal income tax purposes is $2,270,880,287, resulting in gross unrealized
appreciation and depreciation of $121,861,337 and $14,723,606, respectively, or net unrealized appreciation of
$107,137,731.
++ 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.
[3 DBL.
DAGGERS] Forward commitments (Note 1).
# A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at September 30, 1996. The market value of this security was $3,162,500 or 0.1% of net assets.
[DOUBLE
DAGGER] Restricted 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 those held. Total market value of restricted securities
owned at September 30, 1996, was $57,448,875 or 2.4% of net assets.
The fund had the following insurance concentration greater than 10% at September 30, 1996, (as a percentage of
net assets):
MBIA 13.3%
The fund had the following industry group concentrations greater than 10% at September 30, 1996, (as a
percentage of net assets):
Hospital/Health Care 17.9%
Transportation 17.1
Utilities 13.1
Housing 10.0
The rates shown on IFB, which are securities paying variable rates that vary inversely with changes in the market
interest rates, and VRDNs, are the current interest rates at September 30, 1996, which are subject to change based
on the terms of the security.
<CAPTION>
- ------------------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1996
Aggregate
Face Expiration Unrealized
Total Value Value Date Depreciation
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UST Bond Futures
Buy $109,187,500 $109,775,313 Dec-96 $ (587,813)
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1996
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,270,737,841) (Note 1) $2,378,018,018
- ---------------------------------------------------------------------------------------------------------------------
Cash 14,688,410
- ---------------------------------------------------------------------------------------------------------------------
Interest and other receivables 35,325,782
- ---------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,496,899
- ---------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 17,530,473
- ---------------------------------------------------------------------------------------------------------------------
Receivable from Manager 69,921
- ---------------------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 4,362
- ---------------------------------------------------------------------------------------------------------------------
Total assets 2,447,133,865
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Payable for variation margin 587,813
- ---------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,086,755
- ---------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 34,661,977
- ---------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 27,735,736
- ---------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,836,321
- ---------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 102,045
- ---------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,997
- ---------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,080
- ---------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,249,544
- ---------------------------------------------------------------------------------------------------------------------
Other accrued expenses 458,760
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 72,729,028
- ---------------------------------------------------------------------------------------------------------------------
Net assets $2,374,409,199
Represented by
- ---------------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $2,326,855,419
- ---------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,781,474
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (60,924,420)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 106,692,364
- ---------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,374,404,837
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($2,117,683,612 divided by 241,611,518 shares) $8.76
- ---------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.76)* $9.20
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($250,989,685 divided by 28,643,247 shares)*** $8.76
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share ($5,731,540 divided by 652,547 shares) $8.78
- ---------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.78)** $9.07
- ---------------------------------------------------------------------------------------------------------------------
* 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 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1996
<S> <C>
Tax exempt interest income $154,598,771
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) $11,570,046
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,873,256
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 60,319
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 28,128
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,392,595
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,131,559
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 18,411
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 5,789
- --------------------------------------------------------------------------------------------------
Reports to shareholders 33,887
- --------------------------------------------------------------------------------------------------
Registration fees 925
- --------------------------------------------------------------------------------------------------
Auditing 112,927
- --------------------------------------------------------------------------------------------------
Legal 118,165
- --------------------------------------------------------------------------------------------------
Postage 427,982
- --------------------------------------------------------------------------------------------------
Other 53,226
- --------------------------------------------------------------------------------------------------
Total expenses 20,827,215
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,139,186)
- --------------------------------------------------------------------------------------------------
Net expenses 19,688,029
- --------------------------------------------------------------------------------------------------
Net investment income 134,910,742
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 37,057,771
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 82,321
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (24,181,648)
- --------------------------------------------------------------------------------------------------
Net gain on investments 12,958,444
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $147,869,186
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $134,910,742 $145,685,855
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 37,140,092 (79,603,919)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (24,181,648) 140,109,371
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 147,869,186 206,191,307
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------
From investment income:
Class A (121,847,440) (133,906,914)
- ---------------------------------------------------------------------------------------------------------------------
Class B (12,271,580) (12,184,294)
- ---------------------------------------------------------------------------------------------------------------------
Class M (203,144) (32,962)
- ---------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (125,723,510) (19,775,667)
- ---------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (112,176,488) 40,291,470
- ---------------------------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Beginning of year 2,486,581,325 2,446,289,855
- ---------------------------------------------------------------------------------------------------------------------
End of year (including undistribed net investment income and distribution in
excess of net investment income of $1,781,474 and $382,275 respectively) $2,374,404,837 $2,486,581,325
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
February 16, 1995
(commencement
of operations) Year ended
to September 30 September 30
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------------
Class M Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.75 $8.61 $8.73
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .46 .31 .43
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .03 .13 .03
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .49 .44 .46
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.30) (.43)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.30) (.43)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.78 $8.75 $8.76
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 5.72 5.23* 5.38
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $5,732 $2,337 $250,990
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.06 .67* 1.43
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.26 3.04* 4.92
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.99 68.23 92.99
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
For the Period
January 4, 1993
(commencement
of operations)
Year ended September 30 to September 30
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.53 $9.66 $9.02
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .46 .47 .34
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .20 (.98) .64
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 (.51) .98
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.49) (.34)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- (.07) --
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- (.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.62) (.34)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.73 $8.53 $9.66
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 8.01 (5.51) 11.10*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $246,407 $213,679 $137,323
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) 1.43 1.41 1.04*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.34 5.31 3.66*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 68.23 59.27 43.77
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year ended September 30
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.74 $8.55 $9.66
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .49 .52 .53
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .02 .19 (.97)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .51 .71 (.44)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income (.49) (.52) (.54)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- (.07)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- (.06)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.52) (.67)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.74 $8.55
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 5.94 8.58 (4.72)
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,117,684 $2,237,837 $2,232,611
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .78 .78 .77
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.58 6.03 5.97
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.99 68.23 59.27
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- -------------------------------------------------------------------------------------------------------
1993 1992
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.11 $8.81
- -------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------
Net investment income .57 .59
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .67 .47
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.24 1.06
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income (.56) (.60)
- -------------------------------------------------------------------------------------------------------
In excess of net investment income (.01) --
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments (.12) (.16)
- -------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- --
- -------------------------------------------------------------------------------------------------------
Total distributions (.69) (.76)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.66 $9.11
- -------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.27 12.56
- -------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,425,661 $1,867,307
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .74 .66
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.81 6.65
- -------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.77 58.14
- -------------------------------------------------------------------------------------------------------
Footnote reads:
*Not annualized
(a) Total investment return assumes dividend reinvestments and does not reflect the effect of sales
charges.
(b) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
</TABLE>
Notes to financial statements
September 30, 1996
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. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are 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
an ongoing distribution fee that is lower than class B shares and higher
than class A 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). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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 Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc., 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.
Securities purchased or sold on a forward commitment or delayed delivery
basis may be settled a month or more after the trade date; interest
income is accrued based on the terms of the security. Losses may arise
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it invests to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
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 on securities held and for excise tax on income and capital
gains.
At September 30, 1996, the fund had a capital loss carryover of
approximately $36,731,000 available to offset future captial gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------- -------------------
$25,580,000 September 30, 2003
11,151,000 September 30, 2004
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain 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 principles. These differences include treatment of
post October loss deferrals, realized and unrealized gains and loss on
certain futures contracts, market discount and losses on wash sale
transactions. Reclassifications are made to the fund's capital accounts
to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended September 30, 1996, the fund reclassified $1,575,171 to increase
undistributed net investment income and $412,589 to increase paid-in
capital, with an increase to accumulated net realized loss on
investments of $1,987,760. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
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.
Discounts on zero coupon bonds, original issue and stepped-coupon bonds
are 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 straight-line basis over a five-
year period. The fund will reimburse Putnam Management for the payment
of these expenses.
Note 2
Management fee,
administrative services,
and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
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 commissions and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions.
The fund reimburses Putnam Management 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 Trustees fee of $2,590 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended September 30, 1996, fund expenses were reduced by
$1,139,186 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested the assets utilized in connection with the expense offset
arrangements in an income producing asset if it had not entered into
such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B 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 Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. 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.
For the year ended September 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $167,065 and $2,566 from the
sale of class A and class M shares, respectively and $596,537 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. For the year ended September 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $29,904 on class A
redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$1,975,080,098 and $2,109,232,954, respectively. There were no purchases
and sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At September 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
September 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 151,334,010 $1,335,594,408
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,830,370 69,225,300
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Intermediate
Tax Exempt
Income Fund 4,415,668 38,151,371
- ----------------------------------------------------
163,580,048 1,442,971,079
Shares
repurchased (178,136,572) (1,575,678,966)
- ----------------------------------------------------
Net decrease (14,556,524) $ (132,707,887)
- ----------------------------------------------------
Year ended
September 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 152,618,601 $ 1,306,234,641
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,008,081 76,964,617
- ----------------------------------------------------
161,626,682 1,383,199,258
Shares
repurchased (166,654,699) (1,432,393,643)
- ----------------------------------------------------
Net decrease (5,028,017) $ (49,194,385)
- ----------------------------------------------------
Year ended
September 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 14,815,330 $ 130,495,282
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 881,235 7,784,707
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Intermediate
Tax Exempt
Income Fund 729,932 6,306,616
- ----------------------------------------------------
16,426,497 144,586,605
Shares
repurchased (16,001,570) (141,006,365)
- ----------------------------------------------------
Net increase 424,927 $ 3,580,240
- ----------------------------------------------------
Year ended
September 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 13,000,881 $111,156,375
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 908,734 7,767,291
- ----------------------------------------------------
13,909,615 118,923,666
Shares
repurchased (10,729,890) (91,840,442)
- ----------------------------------------------------
Net increase 3,179,725 $ 27,083,224
- ----------------------------------------------------
Year ended
September 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 561,785 $ 4,957,876
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,450 144,865
- ----------------------------------------------------
578,235 5,102,741
Shares
repurchased (192,893) (1,698,604)
- ----------------------------------------------------
Net increase 385,342 $3,404,137
- ----------------------------------------------------
For the period
February 16, 1995
(commencement of
operations) to
September 30, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 282,768 $ 2,473,005
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,400 20,942
- ----------------------------------------------------
285,168 2,493,947
Shares
repurchased (17,963) (158,453)
- ----------------------------------------------------
Net increase 267,205 $2,335,494
- ----------------------------------------------------
Note 5
Acquisition of Putnam
Intermediate Tax Exempt
Income Fund
On May 11, 1996, the fund issued 4,415,668 and 729,932 of class A and
class B shares, respectively, to shareholders of Putnam Intermediate Tax
Exempt Income Fund to acquire the fund's net assets in a tax-free
exchange approved by the shareholders. The net assets of the fund and
Putnam Intermediate Tax Exempt Income Fund on May 11, 1996, valuation
date, were $2,355,851,213 and $44,457,987, respectively. On May 10,
1996, the fund had unrealized appreciation of $1,232,080.
The aggregate net assets of the fund immediately following the
acquisition were $2,400,309,200.
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 that you will have received in January 1997 shows the tax
status of all distributions paid to your account in calendar year 1996.
Results of September 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on September 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 183,147,703 3,339,404
Hans H. Estin 183,107,868 3,379,238
John A. Hill 183,198,575 3,288,531
R.J. Jackson 183,122,675 3,364,431
Elizabeth T. Kennan 183,136,425 3,350,681
Lawrence J. Lasser 183,160,872 3,326,234
Robert E. Patterson 183,125,186 3,361,920
Donald S. Perkins 183,043,316 3,443,790
William F. Pounds 183,129,047 3,358,059
George Putnam 183,040,925 3,446,181
George Putnam, III 183,098,079 3,389,027
Eli Shapiro 182,815,046 3,672,060
A.J.C. Smith 183,163,509 3,323,598
W. Nicholas Thorndike 183,151,205 3,335,901
A proposal to ratify the Trustees' selection of Coopers & Lybrand L.L.P.
as auditors for the fund was approved as follows: 179,875,545 votes for,
and 1,551,642 votes against, with 5,059,920 abstentions and broker non-
votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
158,963,205 votes for, and 8,614,505 votes against, with 18,909,396
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 156,246,411 votes for, and 10,398,844 votes against, with
19,841,851 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
151,827,038 votes for, and 14,821,882 votes against, with 19,838,187
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
154,079,545 votes for, and 12,997,202 votes against, with 19,410,359
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 152,492,343 votes for, and 14,460,005 votes
against, with 19,534,758 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities of investments was approved as follows:
157,809,764 votes for, and 8,553,668 votes against, with 20,123,674
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
157,715,482 votes for, and 8,759,614 votes against, with 20,012,010
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 153,409,970 votes for, and 13,054,992 votes
against, with 20,022,145 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 150,279,301
votes for, and 16,008,591 votes against, with 20,199,214 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 150,725,595 votes
for, and 15,567,798 votes against, with 20,193,713 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 149,541,259 votes for, and 16,693,011 votes against, with
20,252,836 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 151,282,870 votes for, and 14,706,582 votes against, with
20,497,654 abstentions and broker non-votes.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Blake E. Anderson
Vice President
William H. Reeves
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also
learn more at Putnam Investments' website: http://www.putnaminv.com.
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------------
28368-011/322/472 11/96
