Putnam
Tax Exempt
Income Fund
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Careful security selection and in-depth credit analysis remain
fundamental investment strategies for Putnam Tax Exempt Income Fund. They
have become even more important as we discover better value in bonds that
carry ratings below investment grade."
-- William H. Reeves, fund manager
* "A study released by the Tax Foundation, a Washington nonprofit
research group, estimates the average taxpayer will have to work a record
two hours and 50 minutes out of each eight-hour workday this year merely
to make enough to pay all federal, state and local taxes. This is up 11
minutes from 1988."
-- The Wall Street Journal, April 15, 1998
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
10 Portfolio holdings
20 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The financial troubles in Asia continued to dominate the capital markets
during the first half of Putnam Tax Exempt Income Fund's fiscal year, pushing
aside worries that the continued strength in the U.S. economy would have
inflationary implications. The rush of funds to the safety of the U.S. bond
market did drive yields on most bonds, including municipals, lower -- and
their prices higher.
The Federal Reserve Board kept close watch on these events as you might
expect. But in the end, the Fed remained on the sidelines, apparently content
that the economic engine was still sufficiently under control.
In this environment, Fund Manager William Reeves continued to focus on
maintaining a high level of current tax-free income, consistent with capital
preservation. In the following report, Bill discusses his strategy during the
six months ended March 31, 1998, and looks at prospects for the fiscal year's
second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Manager
William H. Reeves
Without much melodrama, the $1.3 trillion municipal bond market has become
attractively priced relative to the Treasury market -- a state of affairs that
hasn't occurred since the flat-tax worry of 1996. Municipal bonds (as
represented by 30-year insured municipals) are now offering almost 90% of the
yield of long-term Treasury bonds. Within this relatively tranquil
environment, Putnam tax-exempt funds have delivered what they have promised to
shareholders: a reliable stream of tax-exempt income along with relatively low
share price volatility.
Putnam Tax Exempt Income Fund is no exception. Your fund's class A shares
returned 3.49% at net asset value and -1.38% at public offering price for
the six months ended March 31, 1998. Please see pages 7 and 8 for additional
performance information.
* FUNDAMENTALS KEEP BALANCE IN MARKET
The first quarter of 1998 has been most notable for its huge incremental
supply of municipal bonds, an increase of approximately 70% over the supply
brought to market one year ago. Demand for municipal bonds has also risen,
keeping balance in this market and fueled primarily by the bargain prices.
Also noteworthy is the unusually flat tax-exempt yield curve. With the 30-year
bond paying only a modest 30 to 40 basis points more than a 10-year bond,
investors are not compensated for taking on higher risk. For this reason, we
have found the best values (attractive yield with minimal volatility) in the
intermediate range of the yield curve -- anywhere from 8 to 15 years.
Another way we have sought to provide shareholders with the best value is to
reduce the call risk within the fund. Callable bonds have the option of being
called away by the issuer at a certain future date, a privilege that is
usually exercised if interest rates are lower than they were when the bonds
were issued. By avoiding callable bonds, the portfolio has a better chance of
maintaining a reliable level of income. We have focused on noncallable bonds
or bonds with distant call dates to enable the fund to provide the highest and
most durable level of income.
* MUNICIPAL BOND RATINGS IMPROVE AROUND COUNTRY
Around the country, state general obligation bonds (GOs), which are backed by
the full faith, credit, and taxing power of the issuer, are enjoying a surge
in popularity, as state governments reap the benefits of the strong economy
and budget surpluses. The fund's position in Massachusetts GOs contributed
favorably to performance following a credit upgrade; Standard & Poor's raised
its rating of the state's bonds to AA- from A in acknowledgment of the major
fiscal turnaround that occurred under the Weld and Cellucci administrations.
Two long-standing GO holdings, those of New York City and Washington, DC, also
recently received upgrades from the rating agencies, an event that is always
good news. The strong economy, sound fiscal management, and surging tax
revenues have helped these issuers attain their higher credit ratings.
According to Standard & Poor's, the number of rating upgrades during this
year's first quarter was more than nine times the number of downgrades. This
was the 10th quarter in a row in which upgrades exceeded downgrades. Moody's
Investors Service, Inc. fully agrees with this assessment stating that
"municipal bond credit quality is the strongest in more than a decade."
* WASHINGTON, DC, REFUNDING BENEFITS PORTFOLIO
Taking advantage of its higher credit rating, Washington, DC, prerefunded its
lower-rated outstanding bonds by investing the proceeds of the new,
higher-rated bond issue in U.S. government bonds. The new bonds, issued at
lower interest rates, will mature at the same time as the outstanding
municipal bonds. This prerefunding reduces the fund's credit risk as well as
contributes to the overall performance of the portfolio.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 15.5%
Health care 14.8%
Transportation 14.6%
Housing 5.0%
Education 4.5%
Footnote reads:
*Based on net assets as of 3/31/98. Holdings will vary over time.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa 46.0%
Aa 11.8%
A 11.8%
Baa 21.1%
Ba 8.5%
B 0.7%
VMIGI 0.1%
Footnote reads:
* As a percentage of market value as of 3/31/98. 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.
Careful security selection and in-depth credit analysis remain fundamental
investment strategies for your fund. They have become even more important as
we discover better value in bonds that carry ratings below investment grade.
These bonds have the potential to contribute substantially to the fund's
income level, but they also mean greater credit risk and require the most
meticulous research efforts.
* STRONG ECONOMY REQUIRES CAUTIOUS OUTLOOK
The Asian crisis has had a dramatic impact on interest rates everywhere in the
world except the United States. We've been expecting interest rates to rise
slightly, but this had not occurred as of the date of this report.
Nevertheless, we consider a rate increase more likely than a decline because
of the delayed yet inevitable consequences of the troubles in Asia.
True, inflation pressures are falling, consumers are buying more, and new jobs
are emerging faster than ever. These are some of the factors that have made
this expansion longer and stronger than anyone imagined. But in our opinion,
an economic peak is not a good time to expose the portfolio to investments
with longer maturities and higher interest-rate risk. If interest rates rise,
the inverse relationship between interest rates and bond prices will hold
true: bond prices will fall. We believe that a cautious strategy will produce
the best returns for your fund in the months ahead.
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 3/31/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 3/31/98
Class A Class B Class M
(inception date) (12/31/76) (1/4/93) (2/16/95)
NAV POP NAV CDSC NAV POP
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6 months 3.49% -1.38% 3.15% -1.85% 3.33% -0.06%
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1 year 10.57 5.29 9.86 4.86 10.23 6.59
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5 years 33.60 27.30 29.41 27.42 31.55 27.32
Annual average 5.96 4.95 5.29 4.97 5.64 4.95
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10 years 123.01 112.41 106.45 106.45 114.28 107.31
Annual average 8.35 7.82 7.52 7.52 7.92 7.56
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Life of fund
Annual average 8.41 8.16 7.53 7.53 7.92 7.75
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/98
Lehman Brothers Consumer
Muni Bond Index Price Index
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6 months 3.89% 0.62%
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1 year 10.72 1.38
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5 years 39.15 12.95
Annual average 6.83 2.47
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10 years 122.94 39.23
Annual average 8.35 3.37
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Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B and class M shares for periods prior
to their inception are derived from the historical performance of class A
shares, adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and, in the case of class B and class M
shares, the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/98
Class A Class B Class M
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Distributions (number) 6 6 6
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Income $0.235 $0.206 $0.222
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Capital gains1 -- -- --
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Total $0.235 $0.206 $0.222
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Share value: NAV POP NAV NAV POP
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9/30/97 $9.12 $9.57 $9.12 $9.14 $9.45
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3/31/98 9.20 9.66 9.20 9.22 9.53
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Current return (end of period)
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Current dividend rate2 5.02% 4.78% 4.37% 4.72% 4.56%
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Taxable equivalent3 8.31 7.91 7.24 7.81 7.55
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Current 30-day SEC yield4 4.72 4.49 4.07 4.42 4.27
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Taxable equivalent3 7.81 7.43 6.74 7.32 7.07
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1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
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.
Portfolio of investments owned
March 31, 1998 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
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 (98.9%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Alabama (0.9%)
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<S> <C> <C> <C>
$ 8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp.),
Ser. A, 6.7s, 12/1/24 Baa3 $ 9,243,750
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BB/P 11,137,500
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20,381,250
Arizona (1.1%)
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6,510,000 AZ State Muni. Fin. Program COP, Ser. 34, MBIA,
7 1/4s, 8/1/09 Aaa 7,991,025
5,400,000 Maricopa Cnty., G.O. Bonds, Ser. D, FGIC,
4.9s, 7/1/10 Aaa 5,481,000
10,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 12,387,500
--------------
25,859,525
California (10.5%)
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15,000,000 CA Edl. Fac. Auth. Rev Bonds (Stanford U.),
Ser. N, 5.2s, 12/1/27 Aaa 14,906,250
CA State G.O. Bonds
10,000,000 6 1/2s, 2/1/08 A1 11,612,500
24,135,000 6s, 2/1/09 A1 27,091,538
10,890,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr. Auth.
Rev. Bonds, Ser. A, 7 1/4s, 9/15/30 Aa3 11,897,325
16,935,000 Los Angeles Cnty., Metro. Trans. Auth. Sales Tax
Rev. Bonds, Ser. A (2nd Ser.), AMBAC, 5s, 7/1/25 Aaa 16,448,119
12,070,000 Los Angeles Cnty., Pub. Wks. Rev. Bonds, Ser. A,
MBIA, 6s, 9/1/05 Aaa 13,352,438
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 18,238,500
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds
(United Airlines, Inc.), Ser. G, 8.8s, 11/15/21 Baa3 7,857,500
10,000,000 Metropolitan Wtr. Dist. Rev. Bonds (Southern
CA Wtrwks.), Ser. C, 5s, 7/1/27 AA 9,687,500
10,150,000 Orange Cnty., Local Trans. Auth. IFB, FGIC, 7.9
11s, 2/14/11(acquired 1/30/97, cost
$10,393,516) [DBL. DAGGER] Aaa 11,900,875
11,285,000 San Diego Cnty., COP (Inmate Reception
Ctr. & Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 13,048,281
10,000,000 San Diego, Pub. Swr. Fac. Fin. Auth Rev. Bonds,
Ser. A, FGIC, 5 1/4s, 5/15/27 Aaa 10,012,500
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
53,760,000 zero %, 1/1/24 BBB+ 14,246,400
39,225,000 zero %, 1/1/22 BBB+ 11,522,344
27,400,000 zero %, 1/1/18 BBB+ 10,035,250
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA, 5s, 8/1/20 Aaa 17,203,525
17,700,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 (acquired 2/28/89,
cost $17,705,014) [DBL. DAGGER] BBB/P 18,916,875
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237,977,720
Colorado (6.1%)
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Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470
17,000,000 7s, 8/31/26 Aaa 20,251,250
5,000,000 6.95s, 8/31/26 Baa3 5,943,750
Denver, City & Cnty. Arpt. Rev. Bonds
28,660,000 Ser. A, 8 3/4s, 11/15/23 Baa1 33,424,725
10,340,000 Prerefunded, Ser. A, 8 3/4s, 11/15/23 Aaa 12,059,025
3,675,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 4,299,750
1,325,000 Prerefunded, Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 1,545,281
4,800,000 Ser. A, 8 1/2s, 11/15/23 Baa1 5,358,000
455,000 Prerefunded, Ser. A, 8 1/2s, 11/15/23 Aaa 511,306
2,745,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 3,094,988
260,000 Prerefunded, Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 292,175
22,050,000 Ser. A, 7 1/4s, 11/15/25 Baa1 25,247,250
3,980,000 Ser. B, 7 1/4s, 11/15/23 Baa1 4,432,725
1,020,000 Prerefunded, Ser. B, 7 1/4s, 11/15/23 Baa1 1,161,525
20,000,000 Denver, City & Cnty. Arpt. Special Fac. Arpt.
Rev. Bonds (United Airlines, Inc.), Ser. A,
6 7/8s, 10/1/32 Baa3 21,750,000
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139,371,750
Connecticut (0.7%)
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Mashantucket, Western Pequot Tribe 144A
Rev. Bonds
7,565,000 Ser. A, 6.4s, 9/1/11 Baa2 8,312,044
7,435,000 Prerefunded, Ser. A, 6.4s, 9/1/11 Aaa 8,615,306
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16,927,350
District of Columbia (4.0%)
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G.O. Bonds, Ser. A
39,250,000 6 3/8s, 6/1/26 Ba1 42,488,125
38,175,000 6s, 6/1/26 Ba1 39,988,313
7,000,000 Georgetown U. IFB, 9.065s, 4/25/22 A1 8,076,250
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90,552,688
Florida (2.5%)
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12,020,000 FL State Gen. Svcs. Rev. Bonds (Env. Protection-
Preservation), Ser. A, 6s, 7/1/12 Aaa 13,537,525
18,500,000 Hernando Cnty., Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 # Aaa 24,651,250
16,375,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indiantown Co-generation), Ser. A, 7 7/8s,
12/15/25 Baa3 19,056,406
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57,245,181
Georgia (5.0%)
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12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 BBB+/P 13,080,000
GA Muni. Elec. Auth. Pwr. Rev. Bonds
16,700,000 Ser. Y, AMBAC, 6.4s, 1/1/13 A/P 19,392,875
10,000,000 Ser. B, FGIC, 8 1/4s, 1/1/11 Aaa 13,212,500
GA State G.O. Bonds
10,460,000 Ser. D, 6.8s, 8/1/11 Aaa 12,656,600
10,000,000 6 1/2s, 12/1/09 Aaa 11,737,500
15,840,000 Ser. A, 6 1/4s, 4/1/09 Aaa 18,136,800
21,790,000 Ser. B, 6 1/4s, 4/1/09 Aaa 24,949,550
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113,165,825
Hawaii (1.0%)
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10,560,000 HI State G.O. Bonds, Ser. CO, FGIC, 6s, 3/1/08 Aaa 11,800,800
10,600,000 Honolulu, City & Cnty. G.O. Bonds, 5.45s, 9/11/08 Aa2 11,395,000
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23,195,800
Illinois (1.9%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
14,500,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa2 17,472,500
4,390,000 (United Airlines, Inc.), Ser. C, 8.2s, 5/1/18 Baa3 4,671,267
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.)
3,460,000 8 3/4s, 7/1/11 BB/P 3,840,600
1,770,000 Prerefunded, 8 3/4s, 7/1/11 AAA/P 2,028,863
8,000,000 IL Dev. Fom. Auth. IFB (St. Luke's Med. Ctr.),
MBIA, 9.818s, 10/1/24 Aaa 9,510,000
2,000,000 IL Hlth. Fac. Auth. IFB (Methodist Hlth.),
AMBAC, 9.892s, 5/1/21 Aaa 2,355,000
3,200,000 IL Hsg. Dev. Auth. IFB, 11.051s, 2/1/20
(acquired 4/8/92, cost $3,414,016) [DBL. DAGGER] Aa2 3,588,000
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43,466,230
Indianapolis (0.5%)
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10,480,000 Indianapolis, Local Pub. Impt Bd.. Rev. Bonds,
Ser. A, 6s, 2/1/11 Aaa 11,711,400
Kansas (1.4%)
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18,200,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 10.383s, 6/1/31 (acquired
various dates from 6/20/91 to 2/14/94,
cost $20,181,360) [DBL. DAGGER] Aaa 21,658,000
9,790,000 Kansas City, Util. Syst. Rev. Bonds, FGIC,
6 1/4s, 9/1/14 Aaa 10,866,900
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32,524,900
Kentucky (1.0%)
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11,065,000 Boone Cnty., Poll. Control Rev. Bonds
(Dayton Pwr. & Lt. Co.), Ser. A, 6 1/2s,
11/15/22 Aa3 12,102,344
10,200,000 Jefferson Cnty., Hosp. IFB (Alliant Hlth. Syst.),
MBIA, 6.1715s, 10/23/14 Aaa 11,130,750
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23,233,094
Louisiana (4.0%)
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7,000,000 De Soto, Parish Poll. Control Rev. Bonds
(Southwestern Elec. Pwr. Co.), 7.6s, 1/1/19 Aa3 8,058,750
56,900,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 65,577,250
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Utils. Co.)
8,000,000 8s, 12/1/24 Ba1 8,590,000
8,565,000 Ser. III, 7.7s, 12/1/14 Ba1 9,646,331
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91,872,331
Maine (0.6%)
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11,935,000 Bucksport, Solid Waste Disp. Rev. Bonds
(Champion Intl. Corp.), 6 1/4s, 5/1/10 Baa1 12,636,181
Massachusetts (8.1%)
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15,850,000 Boston, Rev. Bonds (Boston City Hosp.), Ser. A,
FHA Insd., 7 5/8s, 2/15/21 Aaa 17,415,188
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 11,025,000
10,000,000 MA St. Tpk. Auth. Rev. Bonds, Ser. A, MBIA,
5s, 1/1/37 Aaa 9,525,000
5,020,000 MA State Cons. Loan G.O. Bonds, Ser. C,
7 1/2s, 12/1/07 Aaa 5,540,825
MA State G.O. Bonds, Ser. A
23,190,000 6s, 11/1/11 AA- 26,001,788
7,800,000 AMBAC, 5 3/4s, 8/1/09 Aaa 8,599,500
7,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds,
AMBAC, 6.55s, 6/23/22 Aaa 8,015,000
MA State Hlth. & Edl. Fac. Auth. IFB
11,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.72s, 8/15/21 Aaa 12,952,500
18,000,000 (Boston U.), Ser. L, MBIA, 9.477s, 10/1/31 Aaa 21,285,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
8,000,000 (Waltham-Weston Hosp. & Med. Ctr.),
Ser. B, 8 3/8s, 7/1/15 Baa3 8,880,000
5,370,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 Aaa 5,987,550
6,015,000 MA State Hsg. Fin. Agcy. Hsg. Dev. Rev. Bonds,
Ser. A, 9s, 12/1/18 A 6,135,300
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 5,118,750
7,000,000 Ser. A, 9s, 7/1/15 BB-/P 7,936,250
5,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Harvard
Cmnty. Hlth.), Ser. B, 8 1/8s, 10/1/17 A- 5,201,800
MA State Port Auth. Rev Bonds
5,350,000 7 1/2s, 7/1/20 Aa3 5,804,750
1,650,000 Ser. A, FGIC, 7 1/2s, 7/1/20 AA- 1,796,438
5,700,000 stepped-coupon zero %, (13s, 1/1/04), 7/1/13 ++ AAA/P 5,621,625
MA State, G.O. Bonds, Ser. C
5,285,000 FGIC, 5 3/4s, 8/1/11 Aaa 5,780,469
5,425,000 AMBAC, 5 3/4s, 8/1/10 Aaa 5,947,156
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184,569,889
Michigan (2.4%)
- ---------------------------------------------------------------------------------------------------------
7,000,000 Detroit, G.O. Bonds, Ser. B, AMBAC, 6 1/4s, 4/1/08 Baa2 7,743,750
11,355,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
Ser. A, 6 1/4s, 12/13/08 Aaa 13,029,863
13,845,000 MI State Hosp. Fin. Auth. Rev. Bonds (Sinai
Hosp.), 6.7s, 1/1/26 A2 15,419,869
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 11,250,000
6,745,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa3 6,947,350
--------------
54,390,832
Minnesota (0.7%)
- ---------------------------------------------------------------------------------------------------------
15,750,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa2 16,891,875
Missouri (0.7%)
- ---------------------------------------------------------------------------------------------------------
14,400,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 16,200,000
Montana (0.7%)
- ---------------------------------------------------------------------------------------------------------
14,000,000 MT State Hlth. Fac. Auth. Hosp. IFB
(Deaconess Med. Ctr.), Ser. B, AMBAC,
9.296s, 3/8/16 Aaa 16,065,000
Nebraska (1.1%)
- ---------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
3,700,000 GNMA Coll., 9.39s, 9/15/24 Aaa 4,194,875
8,600,000 Ser. B, GNMA Coll., 9.943s, 9/15/23 Aaa 9,460,000
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.335s, 12/8/16 Aaa 10,665,000
--------------
24,319,875
New Hampshire (0.6%)
- ---------------------------------------------------------------------------------------------------------
10,500,000 NH State Tpk. Sys. IFB, FGIC, 9.789s, 11/1/17 Aaa 13,833,750
New Jersey (2.6%)
- ---------------------------------------------------------------------------------------------------------
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Raritan Bay Med. Ctr.)
13,500,000 7 1/4s, 7/1/27 BB/P 14,833,125
6,800,000 7 1/4s, 7/1/14 BB/P 7,514,000
19,755,000 NJ State G.O. Bonds, Ser. E, 6s, 7/15/05 Aa1 21,829,275
2,500,000 NJ State Tpk. Auth. VRDN, FGIC, 2.9s, 1/1/18 VMIG1 2,500,000
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,712,500
--------------
58,388,900
New York (15.0%)
- ---------------------------------------------------------------------------------------------------------
7,500,000 NY & NJ Port Auth. Special Oblig.
Rev. Bonds, 6s, 12/1/05 Aaa 8,268,750
NY City, G.O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 5,318,750
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,613,594
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 5,359,219
29,335,000 Ser. D, 8 1/4s, 8/1/12 Aaa 33,478,569
9,800,000 Ser. D, 8 1/4s, 8/1/11 Aaa 11,184,250
15,000,000 Ser. L, 8s, 8/1/03 A3 17,531,250
13,235,000 Ser. B, MBIA, 6 1/2s, 8/15/10 Aaa 15,319,513
6,765,000 Ser. D, MBIA, 6 1/2s, 11/1/09 Aaa 7,813,575
13,875,000 Ser. F, 5 1/8s, 8/1/11 A3 13,892,344
20,000,000 Ser. G, 5s, 8/1/22 A3 19,075,000
10,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper, Inc.), 7.95s, 1/1/28 BB-/P 11,725,000
NY City, Indl. Dev. Agcy. Special Fac.
Rev. Bonds (American Airlines, Inc.)
5,675,000 8s, 7/1/20 Baa2 5,918,968
15,000,000 6.9s, 8/1/24 Baa2 16,762,500
NY City, Muni. Assistance Corp. Rev Bonds
13,020,000 Ser. I, 6 1/4s, 7/1/07 Aa2 14,745,150
14,795,000 Ser. I, 6 1/4s, 7/1/06 Aa2 16,644,375
14,890,000 Ser. L, 6s, 7/1/05 Aa2 16,379,000
NY State Dorm. Auth. Rev. Bonds
13,100,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 14,328,125
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa1 12,003,625
12,485,000 (Construction City U. Syst.), Ser. A, 5 3/4s, 7/1/18 Baa1 13,327,738
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 A3 24,168,375
8,400,000 (State U. Edl. Fac.), Ser. A, 5 1/4s, 5/15/15 A3 8,536,500
4,400,000 NY State Env. Fac. Corp. Poll. Control
Rev. Bonds (State Wtr. Revolving Fund),
Ser. A, 7 1/2s, 6/15/12 Aa2 4,801,500
6,130,000 NY State Govt. Asst. Corp. Rev. Bonds,
Ser. B, MBIA, 5 1/2s, 4/1/07 Aaa 6,605,075
11,585,000 NY State Local Govt. Assistance Corp.
Rev. Bonds, Ser. A, 7s, 4/1/16 Aaa 12,729,019
NY State Med. Care Fac.Fin. Agcy. Rev. Bonds
(Mental Hlth. Svc. Fac.), Ser. B
2,480,000 7 5/8s, 8/15/17 A- 2,765,200
5,450,000 Prerefunded, 7 5/8s, 8/15/17 A- 6,131,250
10,000,000 NY State Thruway Auth. Rev. Bonds, 6s, 4/1/12 Baa1 10,825,000
--------------
341,251,214
North Carolina (4.9%)
- ---------------------------------------------------------------------------------------------------------
10,000,000 Intermountain Pwr. Agcy Rev. Bonds, AMBAC,
6s, 1/1/18 Aaa 11,162,500
19,700,000 NC Eastern Muni. Pwr. Agcy. Svcs. IFB, FGIC,
7.967s, 1/1/25 (acquired various dates
from 12/28/93 to 4/12/95, cost $23,983,708) [DBL. DAGGER] Aaa 24,477,250
11,680,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. C, MBIA, 7s, 1/1/13 AAA 14,220,400
NC Muni. Pwr. Agcy. Rev. Bonds (No. 1, Catawba Elec.)
41,000,000 AMBAC, 8s, 1/1/06 Aaa 50,122,500
11,995,000 MBIA, 5 1/4s, 1/1/06 Aaa 12,534,775
--------------
112,517,425
Ohio (1.8%)
- ---------------------------------------------------------------------------------------------------------
1,550,193 Lake Cnty., Indl. Dev. Rev. Bonds (Madison
Inn Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 1,645,065
8,655,000 Mount Vernon, Hosp. Rev. Bonds (Knox
Cmnty. Hosp.), 7 7/8s, 6/1/12 BBB+/P 8,844,545
OH Hsg. Fin. Agcy. Single Fam. Mtge.
4,673,000 IFB, Ser. A-2, GNMA Coll., 9.79s, 3/24/31 Aaa 5,309,696
13,045,000 GNMA Coll., 7.8s, 3/1/30 AAA 13,762,475
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
7,775,000 Ser. 4, GNMA Coll., 9s, 9/1/01 AAA/P 4,237,375
7,775,000 GNMA Coll., stepped-coupon zero%
(9s, 9/1/01), 9/1/18 ++ AAA/P 6,599,030
--------------
40,398,186
Oklahoma (0.4%)
- ---------------------------------------------------------------------------------------------------------
9,160,000 Tulsa, Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa2 9,938,600
Pennsylvania (2.9%)
- ---------------------------------------------------------------------------------------------------------
8,150,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh
Intl. Arpt.), Ser. A, MBIA, 5 3/4s, 1/1/11 Aaa 8,751,063
5,750,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Ohio Edison), Ser. A, 7 3/4s, 9/1/24 Baa3 6,059,063
8,360,000 Clearfield Hosp. Auth. Rev. Bonds (Clearfield
Hosp.), 6 7/8s, 6/1/16 BBB 9,007,900
PA Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Clover)
6,000,000 Ser. D, 7.15s, 12/1/18 BBB- 6,690,000
10,000,000 Ser. D, 7 1/8s, 12/1/15 BBB- 11,137,500
12,700,000 Ser. A, 6.4s, 1/1/09 (Northampton Generating) BBB- 13,477,875
10,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth.
Rev. Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10 B2 10,612,500
--------------
65,735,901
Puerto Rico (1.5%)
- ---------------------------------------------------------------------------------------------------------
23,355,000 Cmnwlth. of PR, Pub. Bldg. Auth. Gtd. Ed.
& Hlth. Fac. Rev. Bonds, Ser. M, AMBAC,
5 3/4s, 7/1/10 Aaa 25,719,694
6,700,000 Cmnwlth. of PR, Hwy. & Trans. Auth.
Rev. Bonds, MBIA, 6 1/4s, 7/1/12 Aaa 7,713,375
--------------
33,433,069
South Carolina (0.9%)
- ---------------------------------------------------------------------------------------------------------
5,190,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B+/P 5,650,613
13,500,000 Spartanburg, Cnty. Hosp. Fac. IFB, FSA,
6.416s, 4/13/22 Aaa 14,850,000
--------------
20,500,613
Tennessee (0.5%)
- ---------------------------------------------------------------------------------------------------------
40,000,000 Metro. Nashville & Davidson Cnty., Hlth. & Ed.
Fac. Board Rev. Bonds (Volunteer Hlth. Care),
zero %, 6/1/21 Aaa 11,700,000
Texas (7.5%)
- ---------------------------------------------------------------------------------------------------------
35,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa2 38,018,750
15,000,000 Dallas Cnty., G.O. Bonds (Flood Control
Dist. #1), 8.5s, 4/1/16 BB/P 16,068,750
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 BBB 27,932,813
10,905,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds
(Memorial Hlth. Syst.of East TX), 6 7/8s, 2/15/26 BBB- 11,995,500
2,025,000 Montgomery Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (Woodlands Med. Ctr.),
8.85s, 8/15/14 A-/P 2,181,938
20,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Baylor U. Med. Ctr.), Ser. A, 9.816s, 5/15/16 Aa2 23,975,000
6,500,000 Texas State Indl. Dev. Corp. Rev. Bonds
(Arco Pipeline Co.), 7 3/8s, 10/1/20 A2 8,385,000
2,400,000 TX State Dept. of Hsg. & Cmnty. Affairs
Home Mtge. IFB, Ser. A-2, GNMA Coll.,
9.774s, 7/18/23 AAA 2,472,000
9,500,000 TX State G.O. Bonds (National Research
Lab. Communication Superconductor),
7 1/8s, 4/1/20 Aaa 10,236,250
20,800,000 TX State Rev. Bonds, 6.2s, 9/30/11 Aa2 23,920,000
5,000,000 TX State Dept. of Hsg. & Cmnty. Affairs
Home Mtge. IFB, Ser. B-2, GNMA Coll.,
10.271s, 7/18/23 AAA 5,456,250
--------------
170,642,251
Utah (1.3%)
- ---------------------------------------------------------------------------------------------------------
19,065,000 Intermountain Pwr. Agcy. Rev. Bonds, (UT
State Pwr. Supply), Ser. B, MBIA,
6 1/2s, 7/1/09 Aaa 22,139,230
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps.,
Inc.), Ser. A, 8 1/8s, 5/15/15 AAA 6,337,500
--------------
28,476,730
Vermont (0.4%)
- ---------------------------------------------------------------------------------------------------------
7,600,000 VT Edl. & Hlth. Bldgs. Fin. Agcy. Rev. Bonds
(Hosp. Med. Ctr.), FGIC, 6 1/4s, 9/1/19 AAA 8,160,500
Virginia (2.4%)
- ---------------------------------------------------------------------------------------------------------
10,500,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon
Secours Hlth. Syst.), FSA, 7.873s, 8/23/27 Aaa 12,993,750
5,000,000 Norfolk, Cnth., Wtr. Rev. Bonds, MBIA,
5.9s, 11/1/25 Aaa 5,306,250
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester
Med. Ctr.), AMBAC, 9.246s, 1/1/14 Aaa 37,275,000
--------------
55,575,000
Washington (1.0%)
- ---------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Control
Rev. Bonds (Union Carbide Corp.),
7 1/2s, 8/1/04 Baa2 5,200,930
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchinson Cancer Ctr.)
8,400,000 Ser. D, 7 3/8s, 1/1/18 Aa1 8,946,000
7,700,000 Ser. D, 7.3s, 1/1/12 Aa1 8,200,500
--------------
22,347,430
Wisconsin (0.3%)
- ---------------------------------------------------------------------------------------------------------
5,815,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 10.057s, 10/25/22 Aa3 6,621,831
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $2,064,668,038) *** $2,252,080,096
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,277,675,990.
** The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at March 31, 1998 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, 1998. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $2,064,719,472,
resulting in gross unrealized appreciation and depreciation of $188,584,603 and
$1,223,979, respectively, or net unrealized appreciation of $187,360,624.
++ 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, 1998 was $80,541,000 or
3.5% of net assets.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at March 31, 1998.
The rates shown on IFB's, 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, 1998.
The fund had the following industry group concentrations greater than
10% at March 31, 1998 (as a percentage of net assets):
Utilities 15.5%
Health care 14.8
Transportation 14.6
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1998 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Muni Bond Index
(long) $91,507,500 $90,388,938 Jun-98 $1,118,562
US Treasury Bonds
(short) 180,014,250 180,154,594 Jun-98 140,344
- ---------------------------------------------------------------------------------------------------------
$1,258,906
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,064,668,038) (Note 1) $2,252,080,096
- ---------------------------------------------------------------------------------------------------
Cash 468,632
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 34,669,985
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,364,797
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 95,000
- ---------------------------------------------------------------------------------------------------
Total assets 2,289,678,510
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 374,906
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,566,949
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,763,959
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,703,087
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 196,377
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 41,487
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,904
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,199,922
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 150,929
- ---------------------------------------------------------------------------------------------------
Total liabilities 12,002,520
- ---------------------------------------------------------------------------------------------------
Net assets $2,277,675,990
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,118,154,294
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 230,239
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (29,379,507)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 188,670,964
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,277,675,990
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,016,782,320 divided by 219,251,188 shares) $9.20
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.20)* $9.66
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($250,873,778 divided by 27,280,107 shares)*** $9.20
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,019,892 divided by 1,087,053 shares) $9.22
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.22)** $9.53
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group sales the
offering price is reduced.
** 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
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $66,897,739
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 5,458,574
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,198,753
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,304
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,684
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,034,174
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,061,147
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 22,876
- --------------------------------------------------------------------------------------------------
Reports to shareholders 17,033
- --------------------------------------------------------------------------------------------------
Auditing 35,462
- --------------------------------------------------------------------------------------------------
Legal 52,161
- --------------------------------------------------------------------------------------------------
Postage 24,409
- --------------------------------------------------------------------------------------------------
Other 58,008
- --------------------------------------------------------------------------------------------------
Total expenses 9,991,585
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (172,029)
- --------------------------------------------------------------------------------------------------
Net expenses 9,819,556
- --------------------------------------------------------------------------------------------------
Net investment income 57,078,183
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 15,914,565
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (8,373,984)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 13,525,187
- --------------------------------------------------------------------------------------------------
Net gain on investments 21,065,768
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $78,143,951
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $57,078,183 $124,470,511
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 7,540,581 26,154,669
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 13,525,187 68,453,413
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 78,143,951 219,078,593
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (52,229,110) (113,245,307)
- ----------------------------------------------------------------------------------------------------------------------
Class B (5,596,007) (11,842,967)
- ----------------------------------------------------------------------------------------------------------------------
Class M (219,914) (348,827)
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (50,998,574) (159,470,685)
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (30,899,654) (65,829,193)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,308,575,644 2,374,404,837
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $230,239 and $1,197,087, respectively) $2,277,675,990 $2,308,575,644
- ----------------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.12 $8.76 $8.74 $8.55 $9.66 $9.11
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .48 .49 .52 .53 .57
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .09 .36 .02 .19 (.97) .67
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32 .84 .51 .71 (.44) 1.24
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.48) (.49) (.52) (.54) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.07) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.48) (.49) (.52) (.67) (.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.20 $9.12 $8.76 $8.74 $8.55 $9.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.49* 9.89 5.94 8.58 (4.72) 14.27
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,016,782 $2,054,537 $2,117,684 $2,237,837 $2,232,611 $2,425,661
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .40* .78 .78 .78 .77 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.52* 5.40 5.58 6.03 5.97 6.81
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.35* 52.33 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. 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.12 $8.76 $8.73 $8.53 $9.66 $9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .43 .43 .46 .47 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .09 .36 .03 .20 (.98) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .29 .79 .46 .66 (.51) .98
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.43) (.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) (.43) (.46) (.62) (.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.20 $9.12 $8.76 $8.73 $8.53 $9.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.15* 9.18 5.38 8.01 (5.51) 11.10*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $250,874 $245,759 $250,990 $246,407 $213,679 $137,323
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .72* 1.43 1.43 1.43 1.41 1.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.19* 4.75 4.92 5.34 5.31 3.66*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.35* 52.33 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. 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 Feb. 16, 1995+
operating performance (Unaudited) Year ended September 30 to Sep. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.14 $8.78 $8.75 $8.61
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .45 .46 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .08 .37 .03 .13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .30 .82 .49 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.22 $9.14 $8.78 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.33* 9.55 5.72 5.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,020 $8,280 $5,732 $2,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.08 1.06 .67*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.35* 5.07 5.26 3.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.35* 52.33 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. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
March 31, 1998 (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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended March 31, 1998, the
fund had no borrowings against the line of credit.
E) 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At September 30, 1997, the fund had a capital loss carryover of approximately
$11,195,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ----------------------
$7,128,000 September 30, 2003
4,067,000 September 30, 2004
F) 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.
G) 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 discount and stepped-coupon bonds are accreted according to the yield to
maturity basis.
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% thereafter.
The fund reimburses Putnam Management an allocated amount 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, 1998, fund expenses were reduced by
$172,029 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,440 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 certain Putnam funds until distribution in accordance with the
Deferral 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 currently limit payment by the fund to 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $63,227 and $976 from the sale of
class A and class M shares, respectively and $231,633 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, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $10,192 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $257,870,451 and
$312,708,373 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 9,162,102 $84,162,473
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,183,577 29,302,611
- ------------------------------------------------------------
12,345,679 113,465,084
Shares
repurchased (18,408,275) (169,109,526)
- ------------------------------------------------------------
Net decrease (6,062,596) $(55,644,442)
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 95,011,917 $844,210,014
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,165,921 64,012,566
- ------------------------------------------------------------
102,177,838 908,222,580
Shares
repurchased (118,475,572) (1,054,864,364)
- ------------------------------------------------------------
Net decrease (16,297,734) $(146,641,784)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 3,121,926 $28,692,589
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 375,808 3,458,888
- ------------------------------------------------------------
3,497,734 32,151,477
Shares
repurchased (3,175,309) (29,177,750)
- ------------------------------------------------------------
Net increase 322,425 $2,973,727
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 8,110,616 $72,116,207
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 829,536 7,408,717
- ------------------------------------------------------------
8,940,152 79,524,924
Shares
repurchased (10,625,717) (94,628,696)
- ------------------------------------------------------------
Net decrease (1,685,565) $(15,103,772)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 259,130 $2,392,649
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,587 153,033
- ------------------------------------------------------------
275,717 2,545,682
Shares
repurchased (94,670) (873,541)
- ------------------------------------------------------------
Net increase 181,047 $1,672,141
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 379,917 $3,399,547
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 29,348 262,886
- ------------------------------------------------------------
409,265 3,662,433
Shares
repurchased (155,806) (1,387,562)
- ------------------------------------------------------------
Net increase 253,459 $2,274,871
- ------------------------------------------------------------
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
William J. Curtin
Vice President
Jerome J. Jacobs
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
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 the 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
- --------------------
SA041-42036 011/322/472 5/98
