Putnam
Tax Exempt
Income Fund
SEMIANNUAL REPORT
March 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The changes [Jerry] Jacobs is bringing to Putnam's muni efforts
seem to be intelligent ones. That's not to say the Putnam's efforts were
in dire need of being revamped. Most of their funds, including [Putnam Tax
Exempt Income Fund], have fine records."
-- Morningstar Mutual Funds, January 31, 1997
* "Based on tax-equivalent yields alone, muni funds easily outshine
most taxable-bond funds. For example, after adjusting for a 28% marginal
federal tax rate, the yield on the average muni-national long-term fund
currently beats that of the average general long-term fund by nearly 50
basis points."
-- Morningstar Mutual Funds, March 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
23 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The Federal Reserve Board's increase in the federal funds rate just before the
midpoint of Putnam Tax Exempt Income Fund's fiscal year was hardly a surprise
to your fund's management team. The portfolio had already been positioned
defensively in response to the unsettled market environment that had prevailed
during much of the period.
Besides taking several defensive actions, the team, including newly appointed
Fund Manager William Reeves, has been seeking investments in industry sectors
likely to benefit from a strong economy. As a result, Bill believes the
portfolio is positioned not only to weather continued market volatility but
also to benefit from what, in his view, will be sustained, strong demand for
municipal bonds.
Bill joined Putnam in 1986 to manage Putnam California Tax Exempt Income Fund,
now Putnam's largest tax-exempt fund, which remains among his responsibilities.
He has 24 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 21, 1997
Report from the Fund Manager
William H. Reeves
When the Federal Reserve Board finally made its move to raise interest rates
near the end of March, the bond market reacted as expected -- bond prices
fell. It was on this note that Putnam Tax Exempt Income Fund ended its
semiannual period on March 31, 1997. While the fund's results reflect the
prevailing environment, they also reflect the positive effect of some factors
unique to the tax-free market as well as the benefits of active management.
Returns at net asset value were in line with the fund's benchmark, the Lehman
Brothers Municipal Bond Index: 2.86% for class A shares, 2.53% for class B
shares, and 2.71% for class M shares. The Lehman Brothers Municipal Bond Index
posted a return of 2.31%. Additional performance information can be found on
pages 8 and 9.
* MANAGEMENT SHIFTS TO SEVERAL DEFENSIVE STRATEGIES
For most of the period, the bond market stayed relatively quiet, with interest
rates moving up and down in a narrow trading range. By February, however, most
fixed-income markets, including the municipal market, were poised for a
long-awaited interest-rate increase in response to continued strength in
economic activity. When the Federal Reserve Board raised short-term interest
rates by a quarter of a percentage point on March 25, its first increase in
more than two years, the market reacted accordingly.
In a rising-rate environment, protecting portfolio value becomes increasingly
important, since bonds fall in price as interest rates increase. So, in order
to maintain the fund's stream of tax-exempt income with minimal price
volatility, we have implemented several defensive strategies. Anticipating
future interest rate increases, we have shortened the portfolio's duration to
the 71/4- to 71/2-year range. Duration, measured in years, indicates a
portfolio's sensitivity to interest-rate changes. A longer duration can mean a
more volatile net asset value if rates change. The fund's shorter duration
should help cushion its net asset value if interest rates move up -- as we
expect them to do in the current environment. It also means that we would not
be able to take full advantage of any price increases if rates should decline.
But we consider the strategy to be a worthwhile risk, given our view of the
prospects in the existing market.
Another defensive strategy has been to sell longer-maturity discount bonds and
use the proceeds to purchase higher-coupon premium bonds with shorter
maturities. Our goal is to build a core portfolio with maturities in the 5- to
15-year range. We believe this structure will enable the fund to provide
attractive returns with relatively low volatility.
* INDUSTRY SELECTION PLAYS KEY ROLE
Careful selection among industry sectors continues to play an important role
in the fund's solid performance. We still favor the airline and airport
industries, which recently have posted record earnings. This is because when
the economy performs well, so do travel-related businesses. Airline holdings,
issued by industrial development authorities on behalf of the airlines,
currently include American Airlines and United Airlines.
Denver International Airport bonds still hold a prominent position in the
portfolio. Because their airport revenues have been solid, they have offered
an attractive, steady yield over the past five years.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 21.7%
Transportation 14.4%
Utilities 13.8%
Housing 6.5%
Education 5.4%
Footnote reads:
* Based on net assets as of 3/31/97. Holdings will vary over time.
* DIVERSIFICATION AMONG STATES HELPS PERFORMANCE
We've been adding to the fund's holdings in high-tax states such as New York
and California. We believe that certain bonds from these states are
undervalued. California bonds offer yields close to those from low-tax states,
which are usually higher. California has experienced an economic turnaround,
with revenues increasing and budget deficits declining. In addition, job
growth in California has been robust. Employment in the high-paying service,
entertainment, and technology sectors continues to grow. The real estate
market, although still sluggish, appears to be recovering. While population
growth slowed during the 1990 - 1993 recession, this trend appears to be
reversing. Consequently we currently believe select California bonds offer the
opportunity to rise in value.
We have also invested selectively in some lower-rated credits such as New
York. Although it is no secret that the Big Apple has faced difficult
financial times, recently the city's 1997 budget is more soundly balanced than
it has been in recent years, with more realistic expectations of state aid.
New York City's general obligation bonds are currently rated Baa1 by Moody's
Investors Service.
* SUPPLY/DEMAND SCENARIO APPEARS POSITIVE
Currently, the supply of municipal bonds is down below its 10-year average.
However, volume should increase because the strong economy has expanded the
capacity of municipal bond borrowers to meet infrastructure needs by issuing
new debt. While demand is well-balanced with supply, investors may begin a
shift to fixed-income investing as the stock market loses some of its appeal.
Such a shift would help improve a positive supply/demand relationship for the
municipal bond market and consequently could be expected to help improve
relative performance.
* FOUR KEY FACTORS AFFECT OUR OUTLOOK
The factors that are most likely to affect the course of the municipal bond
market are the rate of inflation, the strength of the economy, the demand for
municipal bonds, and the extent to which the president and Congress can make
progress toward the goal of balancing the federal budget by 2002.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A 2.6%
Aa 11.9%
Aaa 48.6%
Ba 6.5%
Baa 22.4%
VMIGI 8.0%
Footnote reads:
* As a percentage of market value as of 3/31/97. 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.
The U.S. economy continues to show solid growth, but as interest rates rise,
this growth rate should slow. Inflation is expected to remain low -- around
3%. Nevertheless, we do expect a slightly tighter monetary policy and are
preparing for another interest-rate increase in May. With returns on municipal
bonds higher than after-tax returns on many other fixed-income investments,
demand may become even stronger -- especially if the stock market continues
its correction. Finally the federal deficit may expand somewhat in 1997, but
Congress and the president will probably continue working toward their goal of
a balanced budget. With a cautious outlook, we will maintain our defensive
investment strategies of shortening duration, selling long-term discount
bonds, and buying higher-coupon premium bonds.
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 3/31/97, 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.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
Class A Class B Class M
(inception date) (12/31/76) (1/4/93) (2/16/95)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------
6 months 2.86% -2.06% 2.53% -2.47% 2.71% -0.57
- --------------------------------------------------------------------------
1 year 5.56 0.53 5.01 0.01 5.36 1.88
- --------------------------------------------------------------------------
5 years 39.68 33.10 -- -- -- --
Annual average 6.91 5.88 -- -- -- --
- --------------------------------------------------------------------------
10 years 100.6 91.03 -- -- -- --
Annual average 7.21 6.69 -- -- -- --
- --------------------------------------------------------------------------
Life of class -- -- 22.50 20.55 14.27 10.54
Annual average -- -- 4.90 4.51 6.49 4.84
- --------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/97
Lehman Bros. Consumer
Municipal Bond Price
Index Index
- --------------------------------------------------------------------------
6 months 2.31% 1.39%
- --------------------------------------------------------------------------
1 year 5.47 2.76
- --------------------------------------------------------------------------
5 years 41.42 14.86
Annual average 7.18 2.81
- --------------------------------------------------------------------------
10 years 106.42 42.73
Annual average 7.52 3.62
- --------------------------------------------------------------------------
Life of class B 30.35 12.76
Annual average 6.44 2.87
- --------------------------------------------------------------------------
Life of class M 15.62 6.45
Annual average 7.21 2.99
- --------------------------------------------------------------------------
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 principal 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%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.240705 $0.211861 $0.227906
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/96 $8.76 $9.20 $8.76 $8.78 $9.07
- ------------------------------------------------------------------------------
3/31/97 8.77 9.21 8.77 8.79 9.09
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend
rate1 5.38% 5.12% 4.72% 5.08% 4.92%
- ------------------------------------------------------------------------------
Taxable equivalent2 8.91 8.48 7.81 8.41 8.15
- ------------------------------------------------------------------------------
Current 30-day SEC yield3 5.19 4.94 4.49 4.89 4.73
- ------------------------------------------------------------------------------
Taxable equivalent3 8.59 8.18 7.43 8.10 7.83
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Assumes maximum 39.60% combined federal tax rate. Results for investors
subject to lower tax rates would not be as advantageous.
3Based only on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
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.
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.
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Portfolio of investments owned
March 31, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (100.9%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Alabama (0.9%)
- ------------------------------------------------------------------------------------------------------------
$ 8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp.),
Ser. A, 6.7s, 12/1/24 Baa $ 8,797,500
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BB/P 10,712,500
--------------
19,510,000
Alaska (0.5%)
- ------------------------------------------------------------------------------------------------------------
12,000,000 AK Hsg. Fin. Corp. Rev. Bonds, Ser. B, 7s, 12/1/27 AAA 12,510,000
Arizona (1.6%)
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6,500,000 Apache Cnty., Ind. Dev. Auth. VRDN (Tucson Elec.),
Ser. 83A, 3.5s, 12/15/18 VMIG1 6,500,000
1,000,000 AZ Edl. Loan. Marketing Corp. VRDN, Ser. A, 3.55s,
12/1/20 VMIG1 1,000,000
6,510,000 AZ State Muni. Fin. Program COP, Ser. 34, MBIA,
7 1/4s, 8/1/09 Aaa 7,616,700
3,500,000 Maricopa Cnty., Indl. Auth. VRDN (Sun City),
3.4s, 9/1/02 VMIG1 3,500,000
10,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 11,625,000
3,700,000 Phoenix, Indl. Multi-Fam. Hsg. Dev. Auth. VRDN
(Del Mar Terrace Apts.), 3.4s, 10/15/06 VMIG1 3,700,000
2,000,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Ivington), Ser. A, 3.45s, 10/1/22 VMIG1 2,000,000
--------------
35,941,700
Arkansas (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 AR Hosp. Equip. Fin. Auth. VRDN (Baptist Hlth.),
3.5s, 11/1/10 VMIG1 3,500,000
California (8.4%)
- ------------------------------------------------------------------------------------------------------------
21,760,000 Anaheim, Pub. Fin. Auth. Rev. Bonds (Pub.
Improvements), Ser. A, FSA, 5s, 3/1/37 Aaa 18,768,000
15,000,000 CA Pub. Wks. Board Lease Rev. Bonds, Ser. A,
AMBAC, 5 1/4s, 1/1/21 Aaa 13,762,500
10,890,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr. Auth.
Rev. Bonds, Ser. A, 7 1/4s, 9/15/30 Aa 11,951,775
16,935,000 Los Angeles Cnty., Metro. Trans. Auth. Sales Tax
Rev. Bonds, Ser. A (2nd Ser.), AMBAC, 5s, 7/1/25 Aaa 14,860,463
12,070,000 Los Angeles Cnty., Pub. Wks. Rev. Bonds, Ser. A,
MBIA, 6s, 9/1/05 Aaa 12,809,288
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth. Rev.
Bonds (Capital Projects), Ser. A, MBIA, 5s, 10/1/23 Aaa 16,419,375
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds (United
Airlines, Inc.), Ser. G, 8.8s, 11/15/21 Baa 7,805,000
10,125,000 Metropolitan Wtr. Dist. Rev. Bonds, Ser. C, 5s, 7/1/27 Aa 8,834,063
20,300,000 Orange Cnty., Local Trans. Auth. Sales Tax Rev.
Bonds, FGIC, 6.1s, 2/14/11 Aaa 20,731,375
11,285,000 San Diego Cnty., COP (Inmate Reception
Ctr. & Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 12,314,756
20,000,000 San Diego, Pub. Swr. Fac. Fin. Auth Rev. Bonds,
Ser. A, FGIC, 5 1/4s, 5/15/27 Aaa 18,300,000
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA, 5s, 8/1/20 Aaa 15,677,763
18,000,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 BBB 19,350,000
--------------
191,584,358
Colorado (4.5%)
- ------------------------------------------------------------------------------------------------------------
Arapahoe Cnty. Cap., Impt. Trust Fund
Hwy. Rev. Bonds
17,000,000 Ser. E-470, 7s, 8/31/26 Baa 18,062,500
5,000,000 Ser. E-470, 6.95s, 8/31/26 Baa 5,300,000
Denver, City & Cnty. Arpt. Rev. Bonds
39,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 45,581,250
5,000,000 (Airport & Marina Improvements), Ser. A,
MBIA, 8 3/4s, 11/15/23 Aaa 5,900,000
5,255,000 Ser. A, 8 1/2s, 11/15/23 Baa 5,964,425
3,005,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 3,429,456
11,090,000 Ser. A, 8s, 11/15/17 Baa 11,524,506
5,000,000 Ser. B, 7 1/4s, 11/15/23 Baa 5,387,500
--------------
101,149,637
Connecticut (0.7%)
- ------------------------------------------------------------------------------------------------------------
15,000,000 Mashantucket, Western Pequot Tribe Rev. Bonds,
Ser. A, 6.4s, 9/1/11 Baa 15,225,000
District of Columbia (1.9%)
- ------------------------------------------------------------------------------------------------------------
35,000,000 DC, G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 Ba 35,131,250
7,000,000 DC, Georgetown U. IFB, 9.248s, 4/25/22 A 7,463,750
--------------
42,595,000
Florida (1.9%)
- ------------------------------------------------------------------------------------------------------------
3,850,000 Dade Cnty., Ind. Dev. Auth. VRDN (Dolphins
Stadium), Ser. D, 3.45s, 1/1/16 VMIG1 3,850,000
18,500,000 Hernando Cnty., Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 Aaa 22,963,125
2,300,000 Jacksonville, Hlth. Fac. Auth. VRDN (Baptist Hlth.),
3.4s, 6/1/20 VMIG1 2,300,000
1,010,000 Manatee Cnty., Poll. Control VRDN
(FL Pwr. & Lt. Co.), 3.8s, 9/1/24 VMIG1 1,010,000
13,400,000 St. Lucie Cnty., Poll. Control VRDN
(FL Pwr. & Lt. Co.), 3.8s, 1/1/26 VMIG1 13,400,000
--------------
43,523,125
Georgia (4.2%)
- ------------------------------------------------------------------------------------------------------------
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 BBB 12,405,000
6,200,000 Fulton Cnty., Res. Care Fac. VRDN (Lenbrook
Sq. Foundation), 3.8s, 1/1/18 VMIG1 6,200,000
16,700,000 GA Muni. Elec. Auth. Special Obligation Rev. Bonds
(Crossover Ser. Project One), AMBAC, 6.4s, 1/1/13 Aaa 18,203,000
10,000,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds, Ser. B, FGIC,
8 1/4s, 1/1/11 Aaa 12,675,000
GA State G.O. Bonds
10,460,000 Ser. D, 6.8s, 8/1/11 Aaa 11,898,250
10,000,000 6 1/2s, 12/1/09 Aaa 11,137,500
21,790,000 Ser. B, 6 1/4s, 4/1/09 Aaa 23,696,625
--------------
96,215,375
Hawaii (1.4%)
- ------------------------------------------------------------------------------------------------------------
10,560,000 HI State G.O. Bonds, Ser. CO, FGIC, 6s, 3/1/08 Aaa 11,114,400
8,760,000 Honolulu, City & Cnty. G.O. Bonds, Ser. A, 5.8s,
1/1/07 Aa 9,143,250
10,600,000 Honolulu, City & Cnty. Rev. Bonds, 5.45s, 9/11/08 Aa 10,639,750
--------------
30,897,400
Illinois (2.3%)
- ------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. VRDN
(American Airlines)
6,200,000 Ser. A, 3.85s, 12/1/17 VMIG1 6,200,000
700,000 Ser. C, 3.85s, 12/1/17 VMIG1 700,000
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
14,500,000 (American Airlines Inc.), 8.2s, 12/1/24 Baa 16,801,875
4,575,000 (United Airlines, Inc.), Ser. C, 8.2s, 5/1/18 Baa 4,912,406
5,400,000 IL Dev. Fin. Auth. Rev Bonds (Community Rehab.
Providers Fac.) 8 3/4s, 7/1/11 BB/P 5,737,500
8,000,000 IL Dev. Fin. Auth. IFB (St. Luke's Med. Ctr.) MBIA,
9.838s, 10/1/24 Aaa 9,090,000
2,000,000 IL Hlth. Fac. Auth. IFB (Methodist Hlth.), AMBAC,
9.983s, 5/1/21 Aaa 2,280,000
3,600,000 IL Hsg. Dev. Auth. IFB, 11.226s, 2/1/20 (acquired
4/8/92, cost $4,587,584) [DBL. DAGGERS] Aa 3,937,500
2,650,000 IL State Toll Hwy. Auth. Adjustable Rate Rev.
Bonds, Ser. B, MBIA, 3s, 1/1/10 Aaa 2,650,000
--------------
52,309,281
Indiana (0.6%)
- ------------------------------------------------------------------------------------------------------------
9,000,000 IN Muni. Pwr. Agcy. Rev. Bonds, Ser. B, MBIA,
5 1/2s, 1/1/16 Aaa 8,696,250
5,210,000 Indianapolis, Local Pub. Rev. Bonds, Ser. A, FSA,
6 1/2s, 1/1/08 Aaa 5,691,925
--------------
14,388,175
Kansas (1.4%)
- ------------------------------------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Control IFB (KS Gas & Elec.),
Ser. 91-4, MBIA, 10.186s, 6/1/31 (acquired
various dates from 6/20/91 to 2/14/94,
cost $19,648,039) [DBL. DAGGERS] Aaa 21,294,000
9,790,000 Kansas City, Util. Syst. Rev. Bonds, FGIC,
6 1/4s, 9/1/14 Aaa 10,303,975
--------------
31,597,975
Kentucky (1.0%)
- ------------------------------------------------------------------------------------------------------------
11,065,000 Boone Cnty., Poll. Control Rev. Bonds
(Dayton Pwr. & Lt. Co.), Ser. A, 6 1/2s, 11/15/22 Aa 11,535,263
10,200,000 Jefferson Cnty., Hosp. IFB (Alliant Hlth. Syst.),
MBIA, 6.172s, 10/23/14 Aaa 10,633,500
--------------
22,168,763
Louisiana (3.2%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Ascension Parish Poll. Control VRDN (Shell Oil Co.),
3.3s, 5/1/26 VMIG1 4,000,000
4,000,000 Caddo Parish Indl. Dev. Board VRDN (Atlas),
Ser. B, 3.5s, 12/1/26 VMIG1 4,000,000
7,000,000 De Soto Parish, Poll. Control Rev. Bonds
(Southwestern Elec. Pwr. Co.), 7.6s, 1/1/19 Aa 7,883,750
4,500,000 De Soto Parish, Poll. Control VRDN (Central
LA Elec. Co.), Ser. A, 3.3s, 7/1/18 VMIG1 4,500,000
3,200,000 E. Baton Rouge Parish, Poll. Cntrl. Auth. VRDN
(Exxon), 3.85s, 3/1/22 VMIG1 3,200,000
21,000,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 Baa 23,756,250
W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf State Utils. Co.),
8,000,000 8s, 12/1/24 Baa 8,530,000
8,565,000 Ser. III, 7.7s, 12/1/14 BB 9,335,850
W. Feliciana Parish Poll. Control VRDN
(Gulf State Utils. Co.)
2,300,000 3.9s, 12/1/15 VMIG1 2,300,000
5,000,000 3.9s, 4/1/16 VMIG1 5,000,000
--------------
72,505,850
Massachusetts (8.7%)
- ------------------------------------------------------------------------------------------------------------
15,850,000 Boston, Rev. Bonds (Boston City Hosp.), Ser. A,
FHA Insd., 7 5/8s, 2/15/21 AAA 17,593,500
10,000,000 MA Bay Trans. Auth. Rev. Bonds, Ser. B, 7 7/8s, 3/1/21 Aaa 11,275,000
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev.
Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 10,608,500
2,600,000 MA Muni. Whsl. Pwr. Supply VRDN, Ser. C, 3.3s,
7/1/19 VMIG1 2,600,000
5,020,000 MA State Cons. Loan G.O. Bonds, Ser. C, 7 1/2s,
12/1/07 AAA 5,584,750
23,190,000 MA State G.O. Bonds, Ser. A, 6s, 11/1/11 A 24,494,438
5,200,000 MA State VRDN, Ser. B, 3.8s, 12/1/97 VMIG1 5,200,000
5,000,000 MA State Hlth. & Edl. Fac. Auth. FRB, Ser. G-3,
AMBAC 3.15s, 7/1/25 Aaa 5,000,000
MA State Hlth. & Edl. Fac. Auth. IFB
11,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.03s, 8/15/21 Aaa 12,347,500
18,000,000 (Boston U.), Ser. L, MBIA, 9.507s, 10/1/31 Aaa 20,092,500
5,000,000 (Beth Israel Hosp.), AMBAC, 8.522s, 7/1/25 Aaa 4,987,500
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 8,680,000
5,370,000 (Worcester Polytech Inst.-E), 6 5/8s, 9/1/17 A 5,893,575
7,000,000 AMBAC, 6.55s, 6/23/22 Aaa 7,358,750
6,700,000 MA State Hlth. & Edl. Fac. Auth. VRDN (Capital
Assets Program), Ser. D, 3.7s, 1/1/35 VMIG1 6,700,000
6,015,000 MA State Hsg. Fin. Agcy. Hsg. Dev. Rev. Bonds, Ser. A,
MBIA, 9s, 12/1/18 A 6,191,059
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB/P 5,096,250
7,000,000 Ser. A, 9s, 7/1/15 BB/P 7,910,000
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 7,560,000
5,700,000 stepped-coupon zero% (13s, 1/1/04), 7/1/13 ++ Aaa 5,208,375
12,105,000 MA State Wtr. Resources Auth. Rev. Bonds, Ser. B,
MBIA, 5s, 3/1/22 Aaa 10,576,744
--------------
196,289,691
Michigan (2.5%)
- ------------------------------------------------------------------------------------------------------------
Delta Cnty., Econ. Dev. Corp. Impt. VRDN
(Escanaba Paper)
2,000,000 Ser. F, 3.8s, 12/1/13 VMIG1 2,000,000
3,900,000 Ser. E, 3.8s, 12/1/23 VMIG1 3,900,000
7,000,000 Detroit, G.O. Bonds, Ser. B, AMBAC, 6 1/4s, 4/1/08 Aaa 7,463,750
11,355,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
Ser. A, 6 1/4s, 12/13/08 Aaa 12,235,013
10,000,000 MI State Stragetic Fund Solid Waste Disp. Rev.
Bonds (SD Warren Co.), Ser. C, 7 3/8s, 1/15/22 BB/P 10,537,500
13,845,000 MI State Hosp. Fin. Auth. Rev. Bonds (Sinai Hospital),
6.7s, 1/1/26 Baa 13,914,225
6,745,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa 6,449,906
--------------
56,500,394
Minnesota (1.7%)
- ------------------------------------------------------------------------------------------------------------
3,900,000 Duluth, Tax Increment VRDN (Lake Superior
Paper), 3.45s, 9/1/10 VMIG1 3,900,000
15,750,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa 16,320,938
18,180,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. D, 9 3/4s, 11/1/17 Baa 19,044,459
--------------
39,265,397
Mississippi (0.3%)
- ------------------------------------------------------------------------------------------------------------
Perry Cnty., Poll. Control VRDN
3,700,000 3.85s, 3/1/02 VMIG1 3,700,000
4,200,000 3.5s, 10/1/12 VMIG1 4,200,000
--------------
7,900,000
Missouri (1.0%)
- ------------------------------------------------------------------------------------------------------------
14,400,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 15,570,000
7,550,000 MO State Regl. Convention & Sports Auth.
Rev. Bonds, Ser. A, 6.8s, 8/15/11 Aaa 8,352,188
--------------
23,922,188
Montana (0.7%)
- ------------------------------------------------------------------------------------------------------------
14,000,000 MT State Hlth. Fac. Auth. Hosp. IFB (Deaconess
Med. Ctr.), Ser. B, AMBAC, 9.266s, 3/8/16 Aaa 15,452,500
Nebraska (1.1%)
- ------------------------------------------------------------------------------------------------------------
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA, 9.477s,
12/8/16 Aaa 10,125,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
4,100,000 GNMA Coll., 9.271s, 9/15/24 Aaa 4,510,000
9,400,000 Ser. B, GNMA Coll., 10.227s, 9/15/23 Aaa 10,022,750
--------------
24,657,750
New Hampshire (0.6%)
- ------------------------------------------------------------------------------------------------------------
10,500,000 NH State Tpk. Syst. IFB, FGIC, 9.850s, 11/1/17 Aaa 12,534,375
New Jersey (2.4%)
- ------------------------------------------------------------------------------------------------------------
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Raritan Bay Med. Ctr.)
13,500,000 7 1/4s, 7/1/27 BB/P 14,090,625
6,800,000 7 1/4s, 7/1/14 BB/P 7,148,500
19,755,000 NJ State G.O. Bonds, 6s, 7/15/05 Aa 21,113,156
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,162,500
--------------
53,514,781
New Mexico (0.4%)
- ------------------------------------------------------------------------------------------------------------
8,100,000 Farmington, Poll. Control VRDN (Arizona Public
Services Co.), Ser. B, 3.85s, 9/1/24 VMIG1 8,100,000
New York (15.1%)
- ------------------------------------------------------------------------------------------------------------
Metropolitan Trans. Auth. Rev. Bonds
11,125,000 Ser. A, MBIA, 5 1/4s, 4/1/26 Aaa 10,262,813
7,900,000 Ser. A, MBIA, 5 1/4s, 4/1/21 Aaa 7,347,000
10,000,000 Metropolitan Trans. Auth. Fac. Rev. Bonds, Ser. K,
6 5/8s, 7/1/14 Aaa 10,937,500
11,000,000 Muni. Assistance Corp. Rev. Bonds, Ser. G, 5 1/2s,
7/1/04 Aa 11,343,750
NY City, G.O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 5,336,000
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,631,800
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 5,376,600
3,190,000 Ser. D, 8 1/4s, 8/1/13 Aaa 3,656,538
29,335,000 Ser. D, (Group B) 8 1/4s, 8/1/12 Aaa 33,625,244
9,800,000 Ser. D, 8 1/4s, 8/1/11 Aaa 11,233,250
13,235,000 Ser. B, 6 1/2s, 8/15/10 Baa 13,764,400
6,765,000 NY City, Rev. Bonds, Ser. D, 6 1/2s, 11/1/09 Baa 7,094,794
10,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper Inc.), 7.95s, 1/1/28 BB/P 10,625,000
NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.)
5,675,000 8s, 7/1/20 Baa 6,001,313
15,000,000 6.9s, 8/1/24 Baa 16,068,750
NY City, Muni. Assistance Corp. Rev. Bonds, Ser. I
13,020,000 6 1/4s, 7/1/07 Aa 14,077,875
14,795,000 6 1/4s, 7/1/06 Aa 15,960,106
6,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Syst. Rev.
Bonds, Ser. C, 7 3/4s, 6/15/20 AAA 6,757,500
NY State Dorm. Auth. Rev. Bonds
13,100,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 14,475,500
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa 10,845,500
12,485,000 (Construction City U. Syst.), Ser. A, 5 3/4s, 7/1/18 Baa 12,250,906
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 Baa 21,656,250
8,400,000 (State U. Edl. Fac.), Ser. A, 5 1/4s, 5/15/15 Baa 7,749,000
400,000 NY State Dorm. Auth. VRDN (Oxford U. Press Inc.),
3.7s, 7/1/23 VMIG1 400,000
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 4,801,500
NY State Local Govt. Assistance Corp. Rev. Bonds
13,000,000 Ser. C, 7s, 4/1/21 Aaa 14,283,750
11,585,000 Ser. A, 7s, 4/1/16 Aaa 12,729,019
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
21,270,000 (Hosp. & Nursing Home Insd. Mtge. Ser. A, FHA
Insd., 8s, 2/15/27 AAA/P 22,002,964
6,900,000 (Mental Hlth. Svcs. Fac.), Ser. A, 7.7s, 2/15/18 BBB 7,193,664
2,480,000 (Mental Hlth. Svcs. Fac.) Ser. B, 7 5/8s, 8/15/17 Baa 2,740,400
5,450,000 (Mental Hlth. Svcs. Fac,) Ser. B, Prerefunded,
7 5/8s, 8/15/17 BBB 6,144,875
10,000,000 Triborough Bridge & Tunnel Auth. Special
Obligation VRDN, FGIC, 3.45s, 1/1/24 VMIGI 10,000,000
--------------
342,373,561
North Carolina (5.4%)
- ------------------------------------------------------------------------------------------------------------
19,700,000 NC Eastern Muni. Pwr. Agcy. Svcs. IFB, FGIC,
8.272s, 1/1/25 (acquired various dates from
12/28/93 to 4/12/95, cost $23,486,208) [DBL. DAGGER] Aaa 20,537,250
NC Eastern Muni. Pwr. Agcy. Svcs. Rev. Bonds
10,000,000 AMBAC, 6s, 1/1/18 Aaa 10,212,500
3,155,000 Ser. A, 8s, 1/1/21 Aaa 3,309,280
11,680,000 7s, 1/1/13 AAA 13,329,800
4,000,000 NC Med. Care Cmnty. Hosp. VRDN (Lincoln
Hlth. Syst.), 3.5s, 4/1/16 VMIG1 4,000,000
9,800,000 NC Med. Care Cmnty. Hosp. Rev. Bonds
(Aces-Pooled Fin.), Ser. A, 3.9s, 10/1/20 VMIG1 9,800,000
NC Muni. Pwr. Agcy. Elec. Rev. Bonds
(#1 Catawba Elec.)
11,995,000 MBIA, 5 1/4s, 1/1/06 Aaa 12,069,969
41,000,000 AMBAC, 8s, 1/1/06 Aaa 49,097,500
--------------
122,356,299
Ohio (2.5%)
- ------------------------------------------------------------------------------------------------------------
1,579,819 Lake Cnty., Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 BBB/P 1,690,407
78,585,000 Lucas Plaza Hsg. Dev. Corp. Mtge. Rev. Bonds,
FHA Insd., zero %, 6/1/24 Aaa 14,145,300
8,950,000 Mount Vernon Hosp. Rev. Bonds (Knox Cmnty.
Hosp.), 7 7/8s, 6/1/12 BBB/P 9,180,373
5,423,000 OH Hsg. Fin Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.943s, 3/24/31 Aaa 5,965,300
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
15,445,000 Ser. A, GNMA Coll., 7.8s, 3/1/30 AAA 16,313,781
7,775,000 Ser. 4, GNMA Coll., 9s, 9/1/01 Aaa 3,537,625
7,775,000 GNMA Coll., stepped-coupon zero% (9s, 9/1/01),
9/1/18 ++ AAA 6,093,656
--------------
56,926,442
Oklahoma (0.4%)
- ------------------------------------------------------------------------------------------------------------
9,160,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa 9,698,150
Pennsylvania (3.0%)
- ------------------------------------------------------------------------------------------------------------
4,690,000 Allegheny Cnty., Hosp. VRDN (Presbyterian
Hlth. Ctr.), Ser. A, MBIA, 3.5s, 3/1/20 VMIG1 4,690,000
2,560,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Southside Hosp. Pittsburgh), Ser. A, 8 3/4s,
6/1/10 AAA/P 2,579,482
5,750,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Ohio Edison), Ser. A, 7 3/4s, 9/1/24 Baa 5,994,375
8,360,000 Clearfield Hosp. Auth. Rev. Bonds
(Clearfield Hosp.), 6 7/8s, 6/1/16 BBB 8,600,350
PA Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver)
10,000,000 Ser. D, 7 1/8s, 12/1/15 BBB 10,450,000
6,000,000 Ser. D, 7.15s, 12/1/18 BBB 6,255,000
12,700,000 (Northampton Generating), Ser. A, 6.4s, 1/1/09 BB/P 12,541,250
4,000,000 Philadelphia, Auth. for Indl. Dev. Rev. Bonds
(Gallery II Garage), 6.4s, 2/15/13 BBB/P 4,025,000
Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds
3,000,000 (Children's Hosp.), Ser. A, 8s, 7/1/18 Aa 3,073,530
10,000,000 (Graduate Hlth. Syst.), 7 1/4s, 7/1/10 Baa 10,500,000
--------------
68,708,987
Puerto Rico (1.4%)
- ------------------------------------------------------------------------------------------------------------
6,700,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
MBIA, 6 1/4s, 7/1/12 Aaa 7,277,875
23,355,000 PR Pub. Bldgs. Auth. Hlth. Fac. Rev. Bonds, Ser. M,
AMBAC, 5 3/4s, 7/1/10 Aaa 24,260,006
--------------
31,537,881
Rhode Island (1.1%)
- ------------------------------------------------------------------------------------------------------------
10,000,000 RI State COP (Howard Ctr.), MBIA, 5 3/8s, 10/1/16 Aaa 9,412,500
16,685,000 RI State Health & Edl. Bldg. Corp. Rev. Bonds
(Lifespan Oblig. Group), MBIA, 5 1/4s, 5/15/26 Aaa 15,120,781
--------------
24,533,281
South Carolina (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,675,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 BB/P 5,958,750
13,500,000 Spartanburg Cnty., Hosp. Fac. IFB, FSA,
6.416s, 4/13/22 Aaa 14,073,750
--------------
20,032,500
Tennessee (1.3%)
- ------------------------------------------------------------------------------------------------------------
7,000,000 Chattanooga-Hamilton Cntys., Hosp. Auth.
VRDN (Erlanger), 4.3s, 10/1/17 VMIG1 7,000,000
3,800,000 Clarkesville, Pub. Bldg. Auth. VRDN (TN Muni.
Bond Fund), 3.5s, 6/1/24 VMIG1 3,800,000
93,729,086 Metro. Nashville & Davidson Cnty. Hlth. &
Edl. Fac. Board Rev. Bonds (Volunteer
Hlth. Care), zero %, 6/1/21 Aaa 17,925,688
--------------
28,725,688
Texas (9.8%)
- ------------------------------------------------------------------------------------------------------------
31,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 32,976,250
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 13,781,250
30,000,000 Dallas, Wtr. & Swr. Rev. Bonds, Ser. S, 7 3/4s, 4/1/03 Aa 34,425,000
3,000,000 El Paso, Indl. Dev. Auth. VRDN (Camden Wire),
3.7s, 3/1/16 VMIG1 3,000,000
Grapevine, Ind. Dev. Corp. VRDN (American
Airlines Inc.)
1,800,000 Ser. B2, 3.8s, 12/1/24 VMIG1 1,800,000
1,500,000 Ser. A3, 3.8s, 12/1/24 VMIG1 1,500,000
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa 26,891,250
3,700,000 Harris Cnty., Indl. Dev. Corp. Poll. Control VRDN
(Exxon Project-1984), Ser. B, 3.85s, 3/1/24 VMIG1 3,700,000
8,500,000 Harris Cnty., Toll Rd. Rev. Bonds, AMBAC, zero%,
8/15/18 Aaa 2,316,250
11,000,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds (Memorial
Hlth. Syst.of East TX), 6 7/8s, 2/15/26 BBB 11,316,250
Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
2,075,000 (Woodlands Med. Ctr.), 8.85s, 8/15/14 A/P 2,305,844
37,075,000 (Heritage Manor), FSA, zero %, 7/15/23 Aaa 6,117,375
20,000,000 North Central TX Hlth. Fac. Dev. Corp. IFB
(Baylor U. Med. Ctr.), Ser. A, 10.020s, 5/15/16 Aa 23,800,000
6,500,000 Texas City Indl. Dev. Corp. Rev. Bonds (Arco
Pipeline Co.), 7 3/8s, 10/1/20 A 7,824,375
4,440,000 TX State G.O. Bonds, 8 1/4s, 12/1/10 AAA 4,845,150
10,400,000 TX State G.O. Bonds, IFB, Ser. B, 9.866s, 9/30/11 Aa 11,804,000
10,400,000 TX State G.O. Bonds, FRB, Ser. B, 4s, 9/30/11 Aa 10,400,000
TX State Dept. of Hsg. & Cmnty. Affairs Home
Mtge. IFB,
5,000,000 Ser. B-2, GNMA Coll., 9.937s, 7/18/23 AAA 5,362,500
6,450,000 Ser. A, GNMA Coll., 9.916s, 7/18/23 AAA 6,724,125
9,500,000 TX State Nat'l Research Lab Communication
Superconductor G.O. Bonds, 7 1/8s, 4/1/20 Aaa 10,307,500
--------------
221,197,119
Utah (1.2%)
- ------------------------------------------------------------------------------------------------------------
18,565,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6 1/2s, 7/1/09 Aaa 20,398,288
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
Ser. A, 8 1/8s, 5/15/15 AAA 5,812,500
--------------
26,210,788
Vermont (0.3%)
- ------------------------------------------------------------------------------------------------------------
7,600,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Hosp. Med. Ctr.), FGIC, 7s, 9/1/19 Aaa 7,885,000
Virginia (3.0%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Culpepper, Ind. Dev. Auth. Res. Care Fac. VRDN
(Baptist Homes), 3.5s, 11/1/17 VMIG1 4,000,000
21,000,000 Henrico Cnty., Indl. Dev. Auth. Rev. Bonds
(Bon Secours Hlth. Syst.), FSA, 5.929s, 8/23/27 Aaa 21,446,250
9,100,000 Peninsula Port Auth. VRDN (Shell Oil), Ser. A,
3.85s, 12/1/05 VMIG1 9,100,000
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester
Med. Ctr.), AMBAC, 9.246s, 1/1/14 Aaa 33,375,000
--------------
67,921,250
Washington (1.2%)
- ------------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Control Rev.
Bonds (Union Carbide Corp.), 7 1/2s, 8/1/04 Baa 5,239,780
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchison Cancer Ctr.)
8,400,000 Ser. D, 7 3/8s, 1/1/18 Aa 8,830,500
7,700,000 Ser. D, 7.3s, 1/1/12 Aa 8,075,375
WA State Nonprofit Hsg. Fin. Auth. VRDN
1,835,000 (Greater Seattle YMCA), 3.8s, 7/1/11 VMIG1 1,835,000
2,400,000 (Snohomish Cnty. YMCA), 3.7s, 8/1/19 VMIG1 2,400,000
--------------
26,380,655
Wisconsin (0.3%)
- ------------------------------------------------------------------------------------------------------------
6,935,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 10.329s, 10/25/22 Aa 7,515,806
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,199,892,494) *** $ 2,285,762,122
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,264,633,776.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at March 31, 1997 for the securities listed. Ratings are generally ascribed to
securities at the time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not necessarily represent
what the agencies would ascribe to these securities at March 31, 1997. Securities rated by
Putnam are indicated by "/P".
*** The aggregate identified cost on a tax basis is $2,200,043,693, resulting in gross unrealized
appreciation and depreciation of $101,848,068 and $16,129,639, respectively, or net unrealized
appreciation of $85,718,429.
++ 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.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at March 31, 1997 was $45,768,750 or 2.0% of net assets.
The rates shown on FRB are the current interest rates shown at March 31, 1997, which are subject
to change based on the terms of the security.
The rates shown on IFB , which are securities paying interest rates that vary inversely to
changes in the market interest rates, and VRDN's are the current interest rates at March
31, 1997.
The fund had the following industry group concentrations greater than 10% at March 31, 1997 (as a
percentage of net assets):
Healthcare 21.7%
Transportation 14.4
Utilities 13.8
The fund had the following insurance concentration greater than 10% at March 31, 1997 (as a
percentage of net assets):
MBIA 12.4%
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,199,892,494) (Note 1) $ 2,285,762,122
- ---------------------------------------------------------------------------------------------------
Cash 1,008,254
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 34,171,087
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,158,739
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 26,510,446
- ---------------------------------------------------------------------------------------------------
Receivable from Manager 69,921
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 889
- ---------------------------------------------------------------------------------------------------
Total assets 2,348,681,458
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,709,384
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 71,751,461
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,207,949
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,728,146
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 193,979
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 32,163
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,703
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,207,452
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 213,445
- ---------------------------------------------------------------------------------------------------
Total liabilities 84,047,682
- ---------------------------------------------------------------------------------------------------
Net assets $ 2,264,633,776
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 2,214,043,097
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,175,763
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments
(Note 1) (37,454,712)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 85,869,628
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding 2,264,633,776
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,016,538,161 divided by 229,944,818 shares) $8.77
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.77)** $9.21
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($241,217,053 divided by 27,512,661 shares)*** $8.77
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($6,878,562 divided by 782,661 shares) $8.79
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.79)* $9.09
- ---------------------------------------------------------------------------------------------------
* On single retail redemption less than $25,000. On sale of $25,000 or more and on group sales
the offering price is reduced.
** On single retail redemption less than $50,000. On sale 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
Six months ended March 31, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $ 73,030,834
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,574,646
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 860,295
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 61,998
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,954
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,093,024
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,055,616
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 15,762
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,473
- --------------------------------------------------------------------------------------------------
Reports to shareholders 56,885
- --------------------------------------------------------------------------------------------------
Auditing 38,532
- --------------------------------------------------------------------------------------------------
Legal 39,557
- --------------------------------------------------------------------------------------------------
Postage 64,384
- --------------------------------------------------------------------------------------------------
Other 50,063
- --------------------------------------------------------------------------------------------------
Total expenses 9,923,189
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (459,518)
- --------------------------------------------------------------------------------------------------
Net expenses 9,463,671
- --------------------------------------------------------------------------------------------------
Net investment income 63,567,163
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 16,342,928
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 7,126,780
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (20,822,736)
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,646,972
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 66,214,135
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 63,567,163 $ 134,910,742
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 23,469,708 37,140,092
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (20,822,736) (24,181,648)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 66,214,135 147,869,186
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (57,051,316) (121,847,440)
- ----------------------------------------------------------------------------------------------------------------------
Class B (5,959,597) (12,271,580)
- ----------------------------------------------------------------------------------------------------------------------
Class M (161,961) (203,144)
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (112,812,322) (125,723,510)
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (109,771,061) (112,176,488)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,374,404,837 2,486,581,325
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,175,763 and $1,781,474, respectively) $ 2,264,633,776 $ 2,374,404,837
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.74 $8.55 $9.66 $9.11 $8.81
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .49 .52 .53 .57 .59
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .02 .19 (.97) .67 .47
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .25 .51 .71 (.44) 1.24 1.06
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.49) (.52) (.54) (.56) (.60)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.07) (.12) (.16)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.06) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.49) (.52) (.67) (.69) (.76)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.77 $8.76 $8.74 $8.55 $9.66 $9.11
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.86* 5.94 8.58 (4.72) 14.27 12.56
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,016,538 $2,117,684 $2,237,837 $2,232,611 $2,425,661 $1,867,307
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .39* .78 .78 .77 .74 .66
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.73* 5.58 6.03 5.97 6.81 6.65
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.09* 92.99 68.23 59.27 43.77 58.14
- ------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 with PFTC and brokerage service
arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Jan. 4, 1993+
operating performance (Unaudited) Year ended September 30 to Sep. 30
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.73 $8.53 $9.66 $9.02
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .21 .43 .46 .47 .34
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .03 .20 (.98) .64
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 .46 .66 (.51) .98
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.43) (.46) (.49) (.34)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.07) --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.43) (.46) (.62) (.34)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.77 $8.76 $8.73 $8.53 $9.66
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
Total investment return
at net asset value (%)(a) 2.53* 5.38 8.01 (5.51) 11.10*
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $241,217 $250,990 $246,407 $213,679 $137,323
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71* 1.43 1.43 1.41 1.04*
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.40* 4.92 5.34 5.31 3.66*
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.09* 92.99 68.23 59.27 43.77
- ------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 with PFTC and brokerage service
arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year ended Feb. 16, 1995+
operating performance (Unaudited) Sep. 30 to Sep. 30
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.78 $8.75 $8.61
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .46 .31
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .03 .13
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .24 .49 .44
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.79 $8.78 $8.75
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.71* 5.72 5.23*
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,879 $5,732 $2,337
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .54* 1.06 .67*
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.57* 5.26 3.04*
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.09* 92.99 68.23
- ------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 with PFTC and brokerage service
arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
March 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Tax Exempt Income Fund (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.
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 capital 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 at least 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. 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.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. 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.
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, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
of the next $5 billion, 0.34% of the next $5 billion, and 0.33% of any excess
thereafter. Prior to January 20, 1997, any amount over $1.5 billion was based
on a rate of 0.40%.
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.
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 six months ended March 31, 1997, fund expenses were reduced by
$459,518 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.
Trustees of the fund receive an annual Trustees fee of $1,950 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 Put accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 six months ended March 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $66,818 and $1,546 from the sale of
class A and class M shares, respectively and $276,443 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 six
months ended March 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $2,482 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $1,851,780,462 and
$1,939,317,244, 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 March 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 45,307,742 $ 400,969,325
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,648,605 32,371,683
- ------------------------------------------------------------
48,956,347 433,341,008
Shares
repurchased (60,623,047) (537,256,621)
- ------------------------------------------------------------
Net decrease (11,666,700) $ (103,915,613)
- ------------------------------------------------------------
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 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)
- ------------------------------------------------------------
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,168,919 $ 36,923,665
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 421,796 3,740,750
- ------------------------------------------------------------
4,590,715 40,664,415
Shares
repurchased (5,721,301) (50,718,086)
- ------------------------------------------------------------
Net decrease (1,130,586) $ (10,053,671)
- ------------------------------------------------------------
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 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
- ------------------------------------------------------------
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 218,372 $ 1,941,766
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 13,965 124,154
- ------------------------------------------------------------
232,337 2,065,920
Shares
repurchased (102,223) (908,958)
- ------------------------------------------------------------
Net increase 130,114 $ 1,156,962
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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 [DBL. DAGGERS]
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 [SECTION MARK]
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.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
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 [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
[2 DBL. DAGGERS] 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.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
32900-011/322/472 5/97
