Putnam
Tax Exempt
Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Perhaps the best way to look at the fiscal 1999 performance of Putnam Tax
Exempt Income Fund -- and the rest of the bond market, for that matter --
is to focus on the opportunities that should lie in the wake of the
market's second worst year on record. Rising interest rates have pulled
bond yields higher, but in so doing, they have driven prices lower. The
result has been subdued total returns across the board, even though your
fund outperformed most other funds in its investment category. Please see
page 4 for Lipper rankings.
On the brighter side, municipal bonds are now yielding almost 97% as much
as taxable bonds, with attractive tax implications, especially for
higher-income investors. David Hamlin, your fund's manager, took advantage
of this situation during the fiscal year. But he was not looking only at
the current income stream. He was also focusing on the attractive prices
of some issues with solid credentials -- and the potentially positive
effect on the portfolio that an upswing in the bond market would have.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Manager
David E. Hamlin
In a rising interest-rate market, higher municipal bond yields are an
inevitable outcome. Prudent management prescribes the judicious use of
strategies to help capture the higher income potential, including the
purchase of longer-maturity municipal bonds. This was exactly our
prescription for Putnam Tax Exempt Income Fund during the 12 months ended
September 30, 1999. We also injected a healthy dose of higher-yielding
lower-rated tax-free bonds. Not surprisingly, however, higher interest
rates are also symptomatic of falling bond prices. The fund's performance
reflects this unavoidable market pressure, though it outperformed most
other municipal bond funds with similar investment objectives. See Lipper
performance rankings on page 4.
Total return for 12 months ended 9/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
-2.12% -6.74% -2.76% -7.39% -3.20% -4.12% -2.40% -5.54%
- -----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 5.
* DIFFICULT YEAR MAY HAVE SILVER LINING
If history tells us anything about bond investing, it is that buying a
bond fund after a bad year can be a smart thing to do. The bond market has
endured its toughest year since 1994, making it the second-worst year on
record, as a result of two moves by the Federal Reserve Board to raise
interest rates and calm inflation fears. Today we believe investors are
faced with considerable opportunities just as they were following the bond
bear markets of 1989 and 1994.
Recently a 30-year AAA-rated municipal bond offered a 6% yield, a superb
level of tax-free income, registering almost 97% of the yield on a 30-year
taxable Treasury bond. With inflation still remarkably low at 2% or less,
the after-tax, after-inflation returns are the highest they have been in
years.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 20.3%
Transportation 19.9%
Utilities 14.7%
Education 5.3%
Water and
sewerage 5.2%
Footnote reads:
*Based on net assets as of 9/30/99. Holdings will vary over time.
Most of this attractive opportunity can be explained by Y2K, which, except
for Treasuries, has had a massive impact on all markets. Most
municipalities have accelerated their bond issues out of concern that Y2K
complications may affect the financial markets. As a consequence, we
expect a supply void in the fourth quarter. In the past, unusually low
supply, combined with healthy demand by investors, has been the recipe for
strong performance in the bond market.
* NEW YORK CITY AND CALIFORNIA GOs TRIMMED IN FAVOR OF AIRLINES
Shrugging off the impact of uncertainty in global financial markets last
fall, California and New York City general obligation bonds (GOs) climbed
steadily in value during the period. Given their marked appreciation, we
scaled back these two positions in anticipation of additional supply
coming to market in the near future, an event that typically creates some
price pressure. Given the current demand for the tax-free income offered
by these bonds, particularly in California, the fund realized substantial
gains from the sale.
We invested the proceeds from the sale of those GOs in the airline
industry, which has been one of the most rewarding sectors of the
municipal bond market for your fund. The fund has been an active buyer of
Continental Airlines bonds, among them those issued by the City of Houston
Airport System and New Jersey Economic Development Authority. Effective
management, strong passenger demand, and a young plane fleet bolster our
outlook for this turnaround airline. The fund's holdings in United Air
Lines and American Airlines have also proved rewarding. While these and
other holdings were viewed favorably at the end of the fiscal period, all
portfolio holdings are subject to review and adjustment in accordance with
the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 8.5%
A -- 7.2%
Baa/BBB -- 20.2%
Ba/BB -- 6.1%
B -- 2.1%
Other -- 0.2%
Aaa/AAA -- 55.7%
Footnote reads:
*As a percentage of market value as of 9/30/99. A bond rated Baa/BBB or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
* FUND SEEKS TO MAXIMIZE INCOME WHILE PROCEEDING WITH CAUTION
Although the fund's performance has been in line with the overall
direction of the municipal bond market, we have minimized the impact of
rising interest rates by investing in intermediate to longer-intermediate
maturities (10 to 15 years) and the lower-credit sectors (BB rated and
below). Our research has shown that over the course of an interest-rate
cycle these intermediate-maturity bonds and lower-rated municipal bonds
tend to fluctuate less widely than shorter-term bonds and higher-quality
bonds. They can also be helpful in boosting income potential.
We have extended the portfolio's duration to eight years. (Duration is a
measure of the portfolio's maturity structure and reflects the price
sensitivity of holdings to changes in interest rates.) This longer
duration is largely the result of selling several older prerefunded bonds
that were due to mature within a year and reinvesting the proceeds in
higher-yielding, longer-maturity bonds.
In keeping with our goal of providing income stability and low price
volatility, we have found many investment opportunities in the
noninvestment grade area. These bonds are often unrated by the rating
agencies, a situation that provides a rare opportunity to invest in a
municipal security before it becomes widely followed. Regardless of
whether a security has been rated by one of the agencies, we do our own
evaluation of every issue that might be considered for the portfolio.
Thus, no security that your fund owns is actually unrated.
Putnam Tax Exempt Income Fund's class A shares were ranked in the top 25% by
Lipper for the one-year period ended September 30, 1999. The fund ranked 61
out of 263 municipal bond funds ranked.
Past performance is not indicative of future restuls. For the 5- and 10-year
periods ended 9/30/99, the fund ranked 86 out of 162 (53%) and 34 out of 77
(44%), respectively. Lipper is an industry research firm whose rankings are
based on total return performance, vary over time, and do not reflect the
effects of sales charges. Performance of other share classes will vary.
Hospitals represent a sector that is undergoing great change, creating
uncertainty and the possibility of overlooked gems. Two new fund holdings
stand out in particular. Martin County, Minnesota, bonds (Fairmont
Community Hospital) carry a 6.625% yield and an internal Putnam rating of
BB+. Fairmont Community Hospital is well managed with no local
competition. Cochise County, Arizona, bonds, which are financing growth at
the Sierra Vista Hospital, offer a 6.20% yield and have been assigned an
internal Putnam rating of BBB-. Because these bonds are noncallable, they
provide an effective way to help protect the fund's income stream.
* OUTLOOK CALLS FOR PATIENCE, NOT PANIC
Although the Fed did not raise interest rates in October, it has declared
a bias toward tightening rates should inflation appear stronger. Even so,
much of this bias has already been priced into the bond market's behavior,
clearing the way for better performance. There may be some stumbling
blocks ahead, but we believe that the major ones are behind us. Guided by
this sentiment, we are inclined to take slightly more risk in the
portfolio now, extending maturities as opportunities arise.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 9/30/99, 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 taxes, consistent with capital preservation.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Class A Class B Class C Class M
(inception dates) (12/31/76) (1/4/93) (7/26/99) (2/16/95)
NAV POP NAV POP NAV POP NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year -2.12% -6.74% -2.76% -7.39% -3.20% -4.12% -2.40% -5.54%
- ------------------------------------------------------------------------------------------
5 years 32.66 26.32 28.73 26.73 27.08 27.08 30.70 26.43
Annual average 5.82 4.78 5.18 4.85 4.91 4.91 5.50 4.80
- ------------------------------------------------------------------------------------------
10 years 93.13 83.95 79.34 79.34 77.69 77.69 86.18 80.12
Annual average 6.80 6.28 6.01 6.01 5.92 5.92 6.41 6.06
- ------------------------------------------------------------------------------------------
Life of fund 463.74 436.96 369.35 369.35 367.93 367.93 409.72 393.15
Annual average 7.90 7.67 7.03 7.03 7.02 7.02 7.42 7.27
- ------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Lehman Brothers Municipal Consumer
Bond Index price index
- ------------------------------------------------------------------------
1 year -0.70% 2.75%
- ------------------------------------------------------------------------
5 years 38.78 12.38
Annual average 6.77 2.36
- ------------------------------------------------------------------------
10 years 103.85 34.32
Annual average 7.38 2.99
- ------------------------------------------------------------------------
Life of fund --* 188.49
Annual average --* 4.77
- ------------------------------------------------------------------------
*Index did not exist.
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 the higher operating expenses applicable to
such shares. For class C shares, returns for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the CDSC currently applicable to class C shares,
which is 1% for the first year and is eliminated thereafter, and the
higher operating expenses applicable to class C shares. All returns assume
reinvestment of distributions at NAV. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/89
Lehman Brothers
Fund's class A Municipal Bond Consumer price
Date shares at POP Index index
9/30/89 9,525 10,000 10,000
9/30/90 9,931 10,680 10,616
9/30/91 11,314 12,088 10,976
9/30/92 12,734 13,351 11,304
9/30/93 14,552 15,053 11,608
9/30/94 13,865 14,689 11,952
9/30/95 15,055 16,333 12,256
9/30/96 15,949 17,320 12,624
9/30/97 17,529 18,884 12,896
9/30/98 18,794 20,529 13,072
9/30/99 $18,395 $20,385 $13,432
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $17,934 and $17,769, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $18,618 ($18,012 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 3 12
- --------------------------------------------------------------------------------
Income $0.463946 $0.404960 $0.072107 $0.437715
- --------------------------------------------------------------------------------
Capital gains1
Long-term 0.015700 0.015700 -- 0.015700
- --------------------------------------------------------------------------------
Short-term 0.012000 0.012000 -- 0.012000
- --------------------------------------------------------------------------------
Total $0.491646 $0.432660 $0.072107 $0.465415
- --------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------
9/30/98 $9.30 $9.76 $9.30 $ -- $9.32 $9.63
- --------------------------------------------------------------------------------
7/26/99* -- -- -- 8.87 -- --
- --------------------------------------------------------------------------------
9/30/99 8.62 9.05 8.62 8.63 8.64 8.93
- --------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------
Current dividend
rate2 5.56% 5.30% 4.91% 4.75% 5.26% 5.09%
- --------------------------------------------------------------------------------
Taxable equivalent3 9.21 8.77 8.13 7.86 8.71 8.43
- --------------------------------------------------------------------------------
Current 30-day
SEC yield4 4.89 4.65 4.23 4.20 4.57 4.42
- --------------------------------------------------------------------------------
Taxable equivalent3 8.10 7.70 7.00 6.95 7.57 7.32
- --------------------------------------------------------------------------------
*Class C share inception date.
1 High-income investors may be subject to the alternative minimum tax.
Income may be subject to state and local taxes. Capital gains, if any, are
taxable for federal and, in most cases, state purposes. Income may be
subject to state and local taxes
2 Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 4.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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 index 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
The Board of Trustees and Shareholders
Putnam Tax Exempt Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Tax Exempt Income Fund, including the fund's portfolio, as of
September 30, 1999, and the related statement of operations, statement of
changes in net assets and financial highlights for the year or period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended
September 30, 1998 and the financial highlights for each of the years or
periods in the four-year period ended September 30, 1998 were audited by
other auditors whose report dated November 10, 1998 expressed an
unqualified opinion on that financial statement and those financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1999 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Tax Exempt Income Fund as of September 30, 1999, the results of
its operations, changes in its net assets and financial highlights for the
year or period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
November 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
BIGI -- Bond Investors Guarantee Insurance
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA Coll. -- Federal National Mortgage Association Collateralized
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IF -- Inverse Floater
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (99.2%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Alabama (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp.),
Ser. A, 6.7s, 12/1/24 Baa2 $ 8,861,250
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 11,225,000
3,750,000 Jefferson Cnty., Swr. Rev. Bond Ser. 487 R,
FRB, 8.2s, 2/1/38 (acquired 3/23/99,
cost $4,272,343) (RES) AAA 3,520,313
--------------
23,606,563
Arizona (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,510,000 AZ State Muni. Fin. Program COP, BIGI, Ser. 34,
7 1/4s, 8/1/09 Aaa 7,689,937
7,220,000 Cochise Cnty., Indl. Dev. Auth. Rev. Bonds
(Sierra Vista Regl. Hlth.), Ser. A, 6.2s, 12/1/21 BBB-/P 7,183,900
10,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 11,937,500
--------------
26,811,337
Arkansas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 AR State Hosp. Equip. Fin. Auth. VRDN
(Baptist Hlth.), MBIA, 3.85s, 11/1/10 A-1+ 4,000,000
California (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 CA State G.O. Bonds, 6 1/2s, 2/1/08 AA- 11,212,500
500,000 CA Statewide Cmnty. Dev. Auth. VRDN
(Barton Memorial Hosp.), 3.65s, 12/1/09 VMIG-1 500,000
1,500,000 Los Angeles Cnty., Cmnty. Dev. Comm. Certif.
VRDN (Willowbrook), 3.38s, 11/1/15 A-1+ 1,500,000
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 17,080,875
2,200,000 Los Angeles, Cmnty. Redev. Agcy. Multi-Fam.
VRDN (Promenade Towers), 3.45s, 4/1/09 VMIG-1 2,200,000
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds
(United Airlines, Inc.), Ser. G, 8.8s, 11/15/21 Baa2 7,470,750
2,000,000 Los Angeles, School Dist. COP VRDN
(Belmont Learning Complex), Ser. A,
3.2s, 12/1/17 VMIG-1 2,000,000
2,000,000 Oakland, COP VRDN (Cap. Equip.), 3.3s, 12/1/15 A-1+ 2,000,000
10,150,000 Orange Cnty., Local Trans. Auth. IFB, FGIC, 7.84s,
2/14/11(acquired 1/30/97, cost $10,393,516) (RES) Aaa 11,406,063
11,285,000 San Diego Cnty., COP (Inmate Reception Ctr. &
Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 12,709,731
2,100,000 San Diego, Hsg. Auth. Multi-Fam. Hsg. VRDN
(Carmel Del Mar Apts.), Ser. A, 3.3s, 12/1/15 A-1+ 2,100,000
2,000,000 San Francisco, City & Cnty. Redev. Agy. Multi-Fam.
Rev. Bonds VRDN (HSG. Fillmore Ctr.), Ser. A-1,
3.1s, 12/1/17 A-1+ 2,000,000
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
53,760,000 zero %, 1/1/24 Aaa 13,104,000
39,225,000 zero %, 1/1/22 Aaa 10,786,875
27,400,000 zero %, 1/1/18 Aaa 9,727,000
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA, 5s, 8/1/20 Aaa 16,208,463
17,375,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 A-/P 17,782,618
--------------
139,788,875
Colorado (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470
17,000,000 7s, 8/31/26 Aaa 19,443,750
5,000,000 6.95s, 8/31/20 Aaa 5,706,250
Denver, City & Cnty. Arpt. Rev. Bonds
28,660,000 Ser. A, 8 3/4s, 11/15/23 Baa1 31,167,750
10,340,000 Ser. A, 8 3/4s, 11/15/23 (Prerefunded) Aaa 11,451,550
3,675,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 4,042,500
1,325,000 Ser. A, MBIA, 8 3/4s, 11/15/23 (Prerefunded) Aaa 1,467,438
4,800,000 Ser. A, 8 1/2s, 11/15/23 Baa1 5,082,000
455,000 Ser. A, 8 1/2s, 11/15/23 (Prerefunded) Aaa 486,281
2,745,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 2,913,131
260,000 Ser. A, MBIA, 8 1/2s, 11/15/23 (Prerefunded) Aaa 277,875
22,050,000 Ser. A, 7 1/4s, 11/15/25 AAA 24,310,125
3,980,000 Ser. B, 7 1/4s, 11/15/23 Baa1 4,258,600
1,020,000 Ser. B, 7 1/4s, 11/15/23 (Prerefunded) Aaa 1,120,725
5,000,000 Denver, City & Cnty. Single Family Mtg. Rev. Bonds
(Metro Mayors Conference), Ser. A, 6s, 10/1/22
FHLMC, FNMA Coll., GNMA Coll. AAA 5,031,250
--------------
116,759,225
Connecticut (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 7,470,000
Mashantucket, Western Pequot Tribe 144A
Rev. Bonds, Ser. A.
7,565,000 6.4s, 9/1/11 (acquired 12-17-97,
cost $7,503,161) (RES) Baa2 8,028,356
7,435,000 6.4s, 9/1/11 (Prerefunded) (acquired 12/17/97,
cost $7,374,212) (RES) Aaa 8,271,438
--------------
23,769,794
District of Columbia (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds, Ser. A
39,250,000 6 3/8s, 6/1/26 AAA 43,125,938
38,175,000 6s, 6/1/26 BBB 38,031,844
7,000,000 DC, Georgetown U. IFB, 8.733s, 4/25/22 A1 7,962,500
--------------
89,120,282
Florida (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 FL State Board of Ed. Rev. Bonds, Ser. D,
5 3/4s, 6/1/22 Aa2 3,920,000
11,010,000 FL State Gen. Svcs., 8 1/4s, 7/1/17
(acquired 9/2/98, cost $14,162,544) (RES) AAA/P 12,468,825
18,500,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 (SEG) Aaa 23,009,375
16,375,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration), Ser. A, 7 7/8s, 12/15/25 Baa3 16,784,375
--------------
56,182,575
Georgia (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 AAA/P 13,110,000
1,000,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 3.8s, 8/1/26 A-1 1,000,000
GA Muni. Elec. Pwr. Auth. Rev. Bonds
10,000,000 Ser. B, FGIC, 8 1/4s, 1/1/11 Aaa 12,537,500
16,700,000 Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 18,265,625
GA State G.O. Bonds
10,460,000 Ser. D, 6.8s, 8/1/11 Aaa 12,015,925
15,840,000 Ser. A, 6 1/4s, 4/1/09 Aaa 17,404,200
21,790,000 Ser. B, 6 1/4s, 4/1/09 Aaa 23,941,762
--------------
98,275,012
Hawaii (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,560,000 HI State G.O. Bonds, Ser. CO, FGIC, 6s, 3/1/08 Aaa 11,286,000
Honolulu, City and Cnty., G.O. Bonds, Ser. B, MBIA
8,600,000 5.45s, 10/1/08 Aa3 8,782,750
2,000,000 5.45s, 10/1/08 (Prerefunded) Aa3 2,075,000
--------------
22,143,750
Illinois (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds, Ser. A FGIC
5,400,000 zero %, 12/1/17 Aaa 1,842,750
7,750,000 zero %, 12/1/16 Aaa 2,828,750
14,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8.2s, 12/1/24 Baa1 16,475,625
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
3,200,000 8 3/4s, 7/1/11 B/P 3,472,000
1,635,000 8 3/4s, 7/1/11 (Prerefunded) AAA/P 1,757,625
8,000,000 IL Dev. Fom. Auth. IFB (St. Luke's Med. Ctr.), MBIA,
9.767s, 10/1/24 Aaa 9,090,000
2,000,000 IL Hlth. Fac. Auth. IFB (Methodist Hlth.), AMBAC,
9.922s, 5/18/21 Aaa 2,237,500
5,000,000 IL Hlth. Fac. Auth. Rev. Bonds (Advocate Hlth.),
Ser. B, MBIA, 5 1/4s, 8/15/18 AAA 4,593,750
2,600,000 IL Hsg. Dev. Auth., 10.185s, 2/1/20
(acquired 4/8/92, cost $2,773,888) (RES) Aa1 2,740,322
--------------
45,038,322
Indiana (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 7,380,000
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 3,735,000
20,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 20,250,000
10,480,000 Indianapolis, Local Pub. Impt Bd.. Rev. Bonds, Ser. A,
6s, 2/1/11 Aaa 11,226,700
--------------
42,591,700
Kansas (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 9.60s, 6/1/31 (acquired various
dates from 6/20/91 to 2/14/94,
cost $20,181,360) (RES) Aaa 19,883,500
9,790,000 Kansas City, Util. Syst. Rev. Bonds, FGIC,
6 1/4s, 9/1/14 Aaa 10,450,825
--------------
30,334,325
Kentucky (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
11,065,000 Boone Cnty., Poll. Control Rev. Bonds (Dayton
Pwr. & Lt. Co.), Ser. A, 6 1/2s, 11/15/22 Aa3 11,825,719
Jefferson Cnty., Hosp. Rev. IF
3,800,000 6.436s, 10/23/14 Aaa 3,990,000
6,400,000 6.436s, 10/23/14 (Prerefunded) Aaa 6,872,000
1,400,000 Mayfield, KY Multi-CityLease VRDN, 3.9s, 7/1/26 A-1+ 1,400,000
--------------
24,087,719
Louisiana (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 De Soto Parish, Poll. Control Rev. Bonds
(Southwestern Elec. Pwr. Co.), 7.6s, 1/1/19 A1 7,726,250
17,800,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 19,580,000
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
8,000,000 8s, 12/1/24 Ba1 8,191,680
8,565,000 Ser. III, 7.7s, 12/1/14 Ba1 9,185,963
--------------
44,683,893
Maine (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
11,935,000 Bucksport Solid Waste Disp. Rev. Bonds
(Champion Intl. Corp.), 6 1/4s, 5/1/10 Baa1 12,233,375
Massachusetts (7.9%)
- --------------------------------------------------------------------------------------------------------------------------
15,850,000 Boston, Rev. Bonds (Boston City Hosp.), Ser. A,
FHA Insd., 7 5/8s, 2/15/21 Aaa 16,567,529
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 10,547,250
MA State G.O. Bonds
11,595,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $14,266,954) (RES) Aa3 13,073,363
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 Aaa 5,569,069
5,425,000 Ser. C, AMBAC, 5 3/4s, 8/1/10 Aaa 5,736,938
7,800,000 Ser. A, AMBAC, 5 3/4s, 8/1/09 Aaa 8,277,750
MA State Hlth. & Edl. Fac. Auth. IFB
11,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.82s, 8/12/21 Aaa 11,990,000
18,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
9.284s, 10/1/31 Aaa 19,620,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
5,370,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 AAA 5,813,025
7,000,000 AMBAC, 6.55s, 6/23/22 Aaa 7,420,000
6,000,000 (Caritas Christian Oblig. Group), Ser. A,
5 5/8s, 7/1/20 Baa2 5,490,000
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 4,910,625
7,000,000 Ser. A, 9s, 7/1/15 BB-/P 7,621,250
MA State Port Auth. Rev Bonds
5,700,000 13s, 7/1/13 Aaa 7,125,000
5,350,000 FGIC, 7 1/2s, 7/1/20 Aaa 5,556,350
20,000,000 MA State Rev. Bonds (Grant Anticipation Notes),
Ser. A, MBIA, 5 1/2s, 6/15/13 Aaa 20,250,000
--------------
155,568,149
Michigan (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 Detroit, G.O. Bonds, Ser. B, AMBAC, 6 1/4s, 4/1/08 AAA 7,437,500
4,400,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 5 1/2s, 5/1/21 A2 4,075,500
11,355,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 12/13/08 Aaa 12,334,369
13,845,000 MI State Hosp. Fin. Auth. Rev. Bonds (Sinai Hosp.),
6.7s, 1/1/26 A- 14,069,981
10,000,000 MI State Strategic Fund Solid Waste Disp. Rev.
Bonds (SD Warren Co.), Ser. C, 7 3/8s, 1/15/22 BB-/P 10,812,500
10,000,000 MI State Strategic Fund Ltd. Rev. Bonds (Detroit
Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 9,387,500
6,745,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa3 6,593,238
10,490,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds
(Northwest Airlines Inc.), 6 3/4s, 12/1/15 BB+/P 10,962,050
--------------
75,672,638
Minnesota (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,010,000 Martin Cnty., Hosp. Rev Bonds (Fairmont
Cmnty. Hosp.), 6 5/8s, 9/1/22 BB+/P 3,949,850
4,560,000 MN Agricultural & Econ. Dev. Board Rev. Bonds
(Benedictine Health), Ser. A, MBIA,
5 1/4s, 2/15/12 AAA 4,520,100
15,750,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA+ 16,320,937
--------------
24,790,887
Missouri (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
14,400,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 15,786,000
Montana (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
14,000,000 MT State Hlth. Fac. Auth. Hosp. IFB (Deaconess
Med. Ctr.), Ser. B, AMBAC, 9.195s, 3/8/16 Aaa 14,980,000
Nebraska (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.284s, 11/15/16 Aaa 9,821,250
NE Investment Fin. Auth. Single Fam. Mtge. IFB
2,900,000 GNMA Coll., 8.855s, 9/15/24 Aaa 3,132,000
6,300,000 Ser. B, GNMA Coll., 10.065s, 10/17/23 Aaa 6,796,125
--------------
19,749,375
New Hampshire (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,500,000 NH State Tpk. Sys. IFB, FGIC, 9.475s, 11/1/17 Aaa 12,442,500
New Jersey (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 7,760,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Raritan Bay Med. Ctr.)
13,500,000 7 1/4s, 7/1/27 B-/P 13,381,875
5,800,000 7 1/4s, 7/1/14 B-/P 5,807,250
NJ State Trans. Trust Fund Auth. Rev. Bonds
10,000,000 (Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,175,000
5,000,000 Ser. A, 5 5/8s, 6/15/14 AA- 5,112,500
--------------
43,236,625
New York (12.9%)
- --------------------------------------------------------------------------------------------------------------------------
12,500,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 7.596s,
12/1/24 (acquired 5/19/98, cost $13,496,874) (RES) A-/P 11,937,500
Long Island, Pwr. Auth. NY Elec. Syst.
Rev. Bonds, Ser. A
10,000,000 FSA, 5 1/2s, 12/1/13 Aaa 10,137,500
14,750,000 FSA, 5 1/2s, 12/1/12 AAA 15,174,063
Nassau Cnty., Hlth. Care Corp. Rev. Bonds
5,000,000 FSA, 6s, 8/1/15 AAA 5,175,000
4,410,000 FSA, 6s, 8/1/14 AAA 4,586,400
NY City, G.O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 5,060,000
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,340,500
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 5,098,500
29,335,000 (Group B), Ser. D, 8 1/4s, 8/1/12 Aaa 31,865,144
9,800,000 Ser. D, 8 1/4s, 8/1/11 Aaa 10,645,250
13,235,000 Ser. B, MBIA, 6 1/2s, 8/15/10 AAA 14,690,850
6,765,000 Ser. D, MBIA, 6 1/2s, 11/1/09 Aaa 7,517,606
10,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper Inc.), 7.95s, 1/1/28 B/P 10,725,000
15,000,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.), 6.9s, 8/1/24 Baa1 15,843,750
20,000,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth.
Rev. Bonds, Ser. B, FGIC, 5 1/8s, 6/15/30 AAA 17,725,000
NY State Dorm. Auth. Rev. Bonds
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa1 11,213,375
12,485,000 (U. Syst. Construction), Ser. A, 5 3/4s, 7/1/18 Baa1 12,547,425
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 A3 22,522,500
7,515,000 (North Shore U. Hosp.), MBIA, 5 1/2s, 11/1/11 Aaa 7,712,269
5,000,000 (State U. Edl. Facs.), Ser. A, MBIA, 4 3/4s, 5/15/25 Aaa 4,212,500
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 4,580,972
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
2,480,000 (Mental Hlth. Svcs. Fac.), Ser. B, 7 5/8s, 8/15/17 A3 2,638,100
5,450,000 (Mental Hlth. Svcs. Fac.), Ser. B, 7 5/8s, 8/15/17
(Prerefunded) A3 5,886,000
10,000,000 NY State Thruway Auth. Rev. Bonds, 6s, 4/1/12 Baa1 10,400,000
--------------
253,235,204
North Carolina (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6s, 1/1/18 AAA 10,475,000
19,700,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC,
7.91s, 1/1/25 (acquired various dates from
12/28/93 to 4/12/95, cost $23,983,708) (RES) Aaa 21,029,750
11,680,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. C, MBIA, 7s, 1/1/13 Aaa 13,534,200
5,000,000 NC Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. A,
5 3/4s, 1/1/26 BBB 4,562,500
--------------
49,601,450
Ohio (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,494,490 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 1,542,837
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
3,323,000 Ser. A-2, GNMA Coll., 9.618s, 3/24/31 Aaa 3,514,073
7,190,000 GNMA Coll., 7.8s, 3/1/30 AAA 7,380,966
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
7,775,000 Ser. 4, GNMA Coll., 9s, 9/1/18 (acquired
various dates from 10/20/93 to 7/10/95,
cost $6,383,994) (RES) AAA 7,182,156
7,775,000 Interest Only (IO), Ser. 4, GNMA Coll., 9s, 9/1/01 AAA 1,263,438
15,000,000 OH State, Tpk. Comm. Rev. Bonds, Ser. B, FGIC,
4 3/4s, 2/15/28 Aaa 12,581,250
--------------
33,464,720
Oklahoma (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,500,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 BBB+ 5,793,125
9,160,000 Tulsa Muni. Arpt. Trust Rev. Bonds
(American Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 9,583,650
--------------
15,376,775
Pennsylvania (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,150,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh
Intl. Arpt.), Ser. A, MBIA, 5 3/4s, 1/1/11 Baa1 8,404,688
8,110,000 Clearfield Hosp. Auth. Rev. Bonds (Clearfield Hosp.),
6 7/8s, 6/1/16 BBB 8,373,575
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
6,000,000 Ser. D, 7.15s, 12/1/18 BBB- 6,517,500
10,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 10,862,500
12,700,000 Ser. A, 6.4s, 1/1/09 (Northampton Generating) BBB- 13,112,750
20,000,000 PA State, Tpk. Comm. Oil Franchise Tax Rev. Bonds,
Ser. B, AMBAC, 4 3/4s, 12/1/27 Aaa 16,675,000
3,400,000 Philadelphia, G.O. Bonds, FGIC, 4 3/4s, 5/15/20 Aaa 2,924,000
10,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds
(Graduate Hlth. Syst.), 7 1/4s, 7/1/10 (acquired
4/11/96, cost $10,062,500) (In default) (NON) (RES) B2 3,300,000
--------------
70,170,013
Puerto Rico (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,700,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
MBIA, 6 1/4s, 7/1/12 Aaa 7,478,875
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 24,989,850
--------------
32,468,725
South Carolina (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,695,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B/P 4,918,013
13,500,000 Spartanburg Cnty. Hosp. Fac. Rev. Bonds, FSA,
6.416s, 4/13/22 Aaa 14,377,500
--------------
19,295,513
Tennessee (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Chattanooga, Indl. Dev. Board Rev. Bonds, VRDN
(Warehouse Row Ltd.), 3.8s, 12/15/12 A-1+ 4,000,000
40,000,000 Metro. Nashville & Davidson Cnty. Hlth. & Ed. Fac.
Board Rev. Bonds (Volunteer Hlth. Care)
zero %, 6/1/21 Aaa 9,800,000
--------------
13,800,000
Texas (9.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,250,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Retirement), Ser. A, 5 7/8s, 11/15/18 BB+/P 3,973,750
31,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 32,472,500
15,000,000 Dallas Cnty., G.O. Bonds, (Flood Control Dist. (SEG)1),
stepped-coupon, zero % (8.5s, 10/1/99), 4/1/16
(acquired 11/18/94, cost $10,059,000) (RES) (STP) BB-/P 16,931,250
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa1 26,828,125
12,555,000 Harris Cnty., Hlth. Facs. Dev. Corp. Rev. Bonds
(Christus Hlth.), Ser. A, 5 5/8s, 7/1/12 AAA 12,759,019
Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.)
10,880,000 Ser. B, 5.7s, 7/15/29 Ba1 9,710,400
8,000,000 Ser. C, 5.7s, 7/15/29 Ba1 7,140,000
10,805,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds (Memorial
Hlth. Syst.of East TX), 6 7/8s, 2/15/26 BBB 11,358,756
20,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Baylor U. Med. Ctr.), Ser. A, 10.029s, 5/15/16 Aa2 22,425,000
3,600,000 San Antonio, Certificates of Obligation, Ser. 2000,
5s, 2/1/20 AA+ 3,231,000
3,000,000 San Antonio, G.O. Bonds, Ser. 2000, 5s, 2/1/20 AA+ 2,636,250
6,500,000 TX State Indl. Dev. Corp. Rev. Bonds
(Arco Pipeline Co.), 7 3/8s, 10/1/20 A2 7,832,500
2,700,000 TX State Dept. of Hsg. & Cmnty. Affairs Home
Mtge. IFB, Ser. B-2, GNMA Coll., 9.612s, 6/18/23 AAA 2,804,625
20,800,000 TX State Rev. Bonds, 6.2s, 9/30/11 Aa2 22,568,000
10,000,000 TX State Tpk. Auth. Rev. Bonds, FGIC, 5 1/2s, 1/1/15 AAA 9,887,500
--------------
192,558,675
Utah (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
19,065,000 Intermountain Pwr. Agcy. Rev. Bonds, (UT State
Pwr. Supply), Ser. B, MBIA, 6 1/2s, 7/1/09 Aaa 21,162,150
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
Ser. A, 8 1/8s, 5/15/15 AAA 6,050,000
--------------
27,212,150
Vermont (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,600,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Hosp. Med. Ctr.), FGIC, 7s, 9/1/19 Aaa 7,961,000
Virginia (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,500,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 7.934s, 8/23/27 Aaa 11,011,875
5,000,000 Norfolk, Cnty., Wtr. Rev. Bonds, MBIA, 5.9s, 11/1/25 Aaa 5,118,750
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester
Med. Ctr.), AMBAC, 9.195s, 1/21/14 Aaa 33,937,494
--------------
50,068,119
Washington (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Control Rev.
Bonds (Union Carbide Corp.), 7 1/2s, 8/1/04 Baa2 5,207,800
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchinson Cancer Ctr.), Ser. D
8,400,000 7 3/8s, 1/1/18 Aa2 8,830,500
7,700,000 7.3s, 1/1/12 Aa2 8,085,000
--------------
22,123,300
Wisconsin (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,865,000 WI Hsg. & Econ. Dev. Auth. IFB (Home Ownership
Dev.), 9.753s, 10/25/22 Aa3 3,022,575
--------------
Total Municipal Bonds and Notes
(cost $1,892,229,335) $1,952,011,140
PREFERRED STOCKS (0.5%) (a) (RES)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A,
6.875%, cum. pfd. (acquired 5/7/99,
cost $6,000,000) $ 6,060,000
4,000,000 Charter Mac Equity Issue Trust 144A, 6.625%,
cum. pfd. (acquired 6/11/99, cost $4,000,000) 3,995,000
--------------
Total Preferred Stocks (cost $10,000,000) $ 10,055,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,902,229,335) (b) $1,962,066,140
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,967,456,636.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at September 30, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of
independent accountants.
(b) The aggregate identified cost on a tax basis is $1,902,229,503, resulting in gross unrealized appreciation and
depreciation of $104,160,630 and $44,323,993, respectively, or net unrealized appreciation of $59,836,637.
(NON) Non-income-producing security.
(STP) 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.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held
at September 30, 1999 was $149,832,836 or 7.6% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at September 30, 1999.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
The rates shown on Floating Rate Bonds (FRB) are the current interest rates shown at September 30, 1999, 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 September 30, 1999.
The fund had the following industry group concentration greater than 10% at September 30, 1999 (as a percentage of
net assets):
Hospitals/Health care 20.3%
Transportation 19.9
Utilities 14.7
The fund had the following insurance concentration greater than 10% at September 30, 1999 (as a percentage of net
assets):
MBIA 14.1%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Index Future (Long) $89,712,719 $90,084,369 Dec. 99 $(371,650)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,902,229,335) (Note 1) $1,962,066,140
- -----------------------------------------------------------------------------------------------
Cash 96,710
- -----------------------------------------------------------------------------------------------
Interest and other receivables 28,538,393
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,001,738
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,301,740
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 424,469
- -----------------------------------------------------------------------------------------------
Total assets 1,996,429,190
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,113,359
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 19,396,624
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,543,979
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,464,742
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 243,324
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 42,223
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,653
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,060,206
- -----------------------------------------------------------------------------------------------
Other accrued expenses 103,444
- -----------------------------------------------------------------------------------------------
Total liabilities 28,972,554
- -----------------------------------------------------------------------------------------------
Net assets $1,967,456,636
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,942,187,111
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,176,192)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (30,019,438)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 59,465,155
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,967,456,636
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,737,755,128 divided by 201,546,466 shares) $8.62
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.62)* $9.05
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($219,300,285 divided by 25,441,190 shares)*** $8.62
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($637,007 divided by 73,856 shares) *** $8.63
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($9,764,216 divided by 1,129,605 shares) $8.64
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.64)** $8.93
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sale of $25,000 or more and on group
sales, the offering price is reduced.
** On single retail sales of 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
Year ended September 30, 1999
<S> <C>
Tax exempt interest income: $126,832,056
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,292,561
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,194,672
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 30,113
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 18,713
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,773,673
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,030,043
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 529
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 49,962
- -----------------------------------------------------------------------------------------------
Reports to shareholders 64,363
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 35,275
- -----------------------------------------------------------------------------------------------
Legal 36,371
- -----------------------------------------------------------------------------------------------
Postage 127,161
- -----------------------------------------------------------------------------------------------
Other 128,977
- -----------------------------------------------------------------------------------------------
Total expenses 18,782,488
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (109,536)
- -----------------------------------------------------------------------------------------------
Net expenses 18,672,952
- -----------------------------------------------------------------------------------------------
Net investment income 108,159,104
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 5,292,040
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (5,224,796)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (152,688,772)
- -----------------------------------------------------------------------------------------------
Net loss on investments (152,621,528)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (44,462,424)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 108,159,104 $ 110,463,424
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 67,244 10,644,394
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (152,688,772) 37,008,150
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (44,462,424) 158,115,968
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (96,670,820) (101,505,109)
- ---------------------------------------------------------------------------------------------------------------
Class B (10,680,703) (10,917,992)
- ---------------------------------------------------------------------------------------------------------------
Class C (2,378) --
- ---------------------------------------------------------------------------------------------------------------
Class M (475,838) (452,794)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (2,118,523) --
- ---------------------------------------------------------------------------------------------------------------
Class B (267,654) --
- ---------------------------------------------------------------------------------------------------------------
Class M (11,143) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
Class A (3,778,117) --
- ---------------------------------------------------------------------------------------------------------------
Class B (477,326) --
- ---------------------------------------------------------------------------------------------------------------
Class M (19,873) --
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (131,696,702) (95,697,580)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (290,661,501) (50,457,507)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 2,258,118,137 2,308,575,644
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $4,176,192 and
$1,215,384 respectively) $1,967,456,636 $2,258,118,137
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.30 $9.12 $8.76 $8.74 $8.55
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .45 .48 .49 .52
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.66) .19 .36 .02 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.19) .64 .84 .51 .71
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.46) (.48) (.49) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.46) (.48) (.49) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.62 $9.30 $9.12 $8.76 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.12) 7.22 9.89 5.94 8.58
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,737,755 $1,998,387 $2,054,537 $2,117,684 $2,237,837
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81 .81 .78 .78 .78
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.14 4.92 5.40 5.58 6.03
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.02 29.61 52.33 92.99 68.23
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.30 $9.12 $8.76 $8.73 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .39 .43 .43 .46
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.66) .19 .36 .03 .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.25) .58 .79 .46 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.40) (.43) (.43) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.40) (.43) (.43) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.62 $9.30 $9.12 $8.76 $8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.76) 6.52 9.18 5.38 8.01
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $219,300 $249,541 $245,759 $250,990 $246,407
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.46 1.46 1.43 1.43 1.43
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.49 4.28 4.75 4.92 5.34
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.02 29.61 52.33 92.99 68.23
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.87
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .07
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.85)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $637
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .88*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.02
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 16, 1995+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.32 $9.14 $8.78 $8.75 $8.61
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .44 .43 .45 .46 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.65) .19 .37 .03 .13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.21) .62 .82 .49 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.44) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.44) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.64 $9.32 $9.14 $8.78 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.40) 6.89 9.55 5.72 5.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,764 $10,191 $8,280 $5,732 $2,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.11 1.11 1.08 1.06 .67*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.84 4.65 5.07 5.26 3.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.02 29.61 52.33 92.99 68.23
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2)
</TABLE>
Notes to financial statements
September 30, 1999
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, class C, and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C shares do
not pay a front-end sales charge but pay a higher ongoing distribution fee
than class B shares, and are subject to a one-year 1.00% contingent
deferred sales charge and do not convert to class A shares. Class M shares
are sold with a maximum front end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class B
and class C 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 that 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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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 Investment, 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). Gains or losses on securities sold are determined on
the identified cost basis. 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 may invest 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 year ended
September 30, 1999, 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.
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. These differences include temporary and
permanent differences of losses on wash sale transactions, post-October
loss deferrals, dividends payable, unrealized gains and losses on certain
futures contracts and distribution required for excise tax purposes.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended September 30,
1999, the fund reclassified $3,290,173 to increase distributions in excess
of net investment income and $394,738 to increase paid-in-capital, with an
decrease to accumulated net realized losses of $2,895,435. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
G) 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 discount, 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 upon the lesser of (i) an annual rate of 0.50% of the
average net asset value of the Fund or (ii) 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. Prior to July 1, 1999,
the management fee was based on (ii) above.
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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended September 30, 1999, fund expenses were reduced by
$109,536 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 $1,692
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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.20%, 0.85%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended September 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $93,898 and $1,194 from the
sale of class A and class M shares, respectively and received $337,236 and
$0 in contingent deferred sales charges from redemptions of class B and
class C shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. For the year ended
September 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $12,572 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended September 30, 1999, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $235,147,585 and $396,056,636, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 16,432,211 $ 148,695,789
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,507,094 58,762,128
- -----------------------------------------------------------------------------
22,939,305 207,457,917
Shares
repurchased (36,237,597) (327,691,753)
- -----------------------------------------------------------------------------
Net decrease (13,298,292) $(120,233,836)
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 18,804,997 $172,838,323
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,180,011 56,920,901
- -----------------------------------------------------------------------------
24,985,008 229,759,224
Shares
repurchased (35,454,034) (326,053,162)
- -----------------------------------------------------------------------------
Net decrease (10,469,026) $(96,293,938)
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,470,027 $ 22,383,882
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 785,074 7,084,886
- -----------------------------------------------------------------------------
3,255,101 29,468,768
Shares
repurchased (4,648,909) (41,897,239)
- -----------------------------------------------------------------------------
Net decrease (1,393,808) $(12,428,471)
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,568,920 $42,013,565
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 730,503 6,728,105
- -----------------------------------------------------------------------------
5,299,423 48,741,670
Shares
repurchased (5,422,107) (49,873,672)
- -----------------------------------------------------------------------------
Net decrease (122,684) $(1,132,002)
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to September 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 76,151 $660,173
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 88 761
- -----------------------------------------------------------------------------
76,239 660,934
Shares
repurchased (2,383) (20,642)
- -----------------------------------------------------------------------------
Net increase 73,856 $640,292
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 362,835 $3,310,536
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 38,929 329,957
- -----------------------------------------------------------------------------
401,764 3,640,493
Shares
repurchased (365,420) (3,315,180)
- -----------------------------------------------------------------------------
Net increase 36,344 $ 325,313
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 330,633 $3,050,357
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 33,572 309,929
- -----------------------------------------------------------------------------
364,205 3,360,286
Shares
repurchased (176,950) (1,631,926)
- -----------------------------------------------------------------------------
Net increase 187,255 $1,728,360
- -----------------------------------------------------------------------------
Note 5
Change in Independent
Accountants (Unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent auditor and voted to appoint KPMG LLP for the
fund's fiscal year ended September 30, 1999. During the two previous
fiscal years, PricewaterhouseCoopers LLP audit reports contained no
adverse opinion or disclaimer of opinion; nor were its reports qualified
or modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audits for the two previous fiscal years
and through July 14, 1999, there were no disagreements between the fund
and PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
The fund has designated 99.93% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $235,103 as capital gain, for its taxable year ended
September 30, 1999.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market 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
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION 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
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
KPMG LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
David E. Hamlin
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN041-56149 011/322/472 11/99
