Putnam
Tax Exempt
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The credit quality of municipal bond issuers is the highest it has been
in a decade."
-- Tax Angles, April 1999
* "In a financial world in which volatility has become the norm, the
municipal bond market has unquestionably been one of the calmest."
-- David E. Hamlin, manager
Putnam Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
23 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Municipal bonds have enjoyed a period of relative calm, as most of the
world's other securities markets continue to experience varying degrees of
volatility. Popular with U.S. investors because their income escapes
federal taxes, these bonds have also been beneficiaries of an environment
that considerably narrowed the gap between their yields and the yields on
taxable U.S. Treasury bonds. The gap has widened in recent weeks to a more
traditional 90% of Treasury bond yields, but the disparity still provides
a significant advantage on a taxable-equivalent basis, especially for
taxpayers in the higher tax brackets.
In this environment, I am pleased to report that Putnam Tax Exempt Income
Fund continues to focus on minimizing risk and delivering competitive
tax-free income. It is encouraging also to note that your fund's
management team believes persistent heavy demand for municipals in a
strong economy with low inflation augurs well as the fund enters fiscal
2000. In the following report, Fund Manager David Hamlin reviews
performance during the fiscal year just ended and takes a look at
prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 1999
Report from the Fund Manager
David E. Hamlin
In a financial world in which volatility has become the norm, the
municipal bond market has unquestionably been one of the calmest. One of
the biggest benefits of a quiet market environment is the relative
stability of your fund's net asset value. While less price volatility is
positive, total return lagged the Lehman Brothers Municipal Bond Index.
For the six months ended March 31, 1999, Putnam Tax Exempt Income Fund's
class A shares generated a total return of 0.79% at net asset value
(-3.96% at public offering price). The fund's exposure to a greater
percentage of less than investment-grade bonds during a time when credit
spreads widened, hindered performance compared to the Lehman Brothers
Municipal Bond Index. Results for class B and class M shares, as well as
performance details for longer periods, can be found on page 8.
* MUNICIPALS OUTPERFORM TREASURIES, SUPPLY TAPERS
As municipal bond yields -- which rise as bond prices fall -- have moved
up less than 20 basis points since the beginning of the year, Treasury
yields rose more in February than in any other single month in 10 years.
While this means that municipal yields have returned to more traditional
ratios (90% as of April 5, 1999) compared with those of Treasuries,
municipals still offer attractive income to many tax-conscious investors.
As expected, with the slight rise in yields, the national supply of
municipal bonds has tapered off. The calendar of new issues shows about
20% fewer bonds coming to market in comparison with year-earlier levels.
On the demand side, cash flow into municipal bonds has increased, a
by-product of a volatile stock market and investors' need to rebalance
their portfolios. The ensuing supply/demand relationship is positive for
municipal bonds.
Since the beginning of the fund's fiscal year, the yield curve has
steepened but then has become fairly flat once again. A yield curve links
a bond's maturity with its yield. Normally the longer it takes for a bond
to mature, the greater the yield because the investor is rewarded for the
extra risk associated with investing over a longer period. As the yield
curve flattened, the difference between short- and long-term rates became
smaller. The reward for extending maturities decreased and we returned to
positioning the majority of the fund's holdings along the intermediate
portion of the curve. It is our view that bonds with these relatively
neutral maturities of 7 to 12 years should perform well in a stable
interest-rate environment.
* WIDER CREDIT SPREADS CREATE OPPORTUNITY
Last fall, when the equity markets around the world plunged, credit
spreads began to widen, meaning there was a larger difference in yield
between a higher-rated and a lower-rated bond. In this environment, we
concentrated on improving the fund's income by starting to invest in
lower-rated bonds because we were compensated with extra yield for taking
added risk.
The health-care sector recently provided some buying opportunities,
especially because of fallout from the highly publicized Philadelphia
Graduate Hospital default. As a result, many well-managed hospital issues
became available at attractive prices. For example, we purchased
Massachusetts State Health and Education Authority revenue bonds issued
for the Caritas Christi Hospital as well as California State Community
Development Authority revenue bonds issued on behalf of the Internex
Hospital. The ratings of both issues fall on the lower tier of the
investment-grade spectrum, and they provide a higher level of income than
bonds rated A or above.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
TOP INDUSTRY SECTORS*
Transportation 21.8%
Hospitals/health care 15.6%
Utilities 14.9%
Education 5.4%
Housing 3.7%
Footnote reads:
*Based on net assets as of 3/31/99. Holdings will vary over time.
Negative spillover effects in certain sectors are one reason why we have
always considered security selection and credit analysis critical elements
of the fund's investment strategy. Opportunity comes from choosing bonds
correctly, not from overall sector performance. Security and credit
research becomes even more important when we invest in bonds that carry
ratings below investment grade, as many health sector bonds do, because
they can add significantly to the fund's current income.
* AIRLINE SECTOR FAVORED OVER GENERAL OBLIGATION BONDS
We continue to favor the airline and airport industry and have recently
purchased the one and only issue of industrial development revenue bonds
from the upscale British Airways (New York City Industrial Development
Authority). We also bought almost $19 million of Continental Airline bonds
issued by the City of Houston Airport System. Continental offers a young
fleet of airplanes, more legroom for passengers, full meals, and
competitive prices that we believe will translate into strong revenues in
the years ahead.
For some time now, we have held several California general obligation bond
issues. During this time, the state has enjoyed several credit upgrades
from all three rating agencies. Since we believe that these bonds may be
at or near top capacity in terms of price appreciation, we will begin to
redeploy some of these assets as opportunities in other sectors arise. For
the same reason, we also have begun to underweight New York City general
obligation bond positions.
We also saw an opportunity to enhance the fund's income in an issue by the
Indiana Development Authority for U.S. Steel Corporation. Although the
bonds fall into the lower end of the investment-grade spectrum, we
consider them relatively stable and are optimistic about their income
potential.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW*]
CREDIT QUALITY OVERVIEW*
BB/Ba and under -- 8.8%
BBB/Baa -- 19.2%
A/A -- 6.3%
AA/Aa -- 9.0%
VMIGI/A-1 -- 0.6%
AAA/Aaa -- 56.1%
Footnote reads:
*As a percentage of market value as of 3/31/99. A bond rated BBB/Baa 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.
* OUTLOOK: NO CLEAR EVIDENCE OF INFLATION
With inflation remaining exceptionally mild despite strong economic growth
and low unemployment, a new awareness is emerging: strong growth does not
necessarily translate into higher prices or inflation. Since upward
pressure on inflation is quite negative for bonds, this new insight is
positive news for all bond markets. Since inflation in the United States
has ranged from zero % to 2% over the past 12 months, depending on the
measure used, investors have not yet realized that real rates of return
are actually quite attractive. Accustomed to higher rates of inflation
hovering in the 3% to 4% range, investors need to reset their expectations
as to what constitutes a good rate of return. Simply put, a yield of 5%
with 1% inflation is better than a 6% yield with 3% inflation. It is
always important to evaluate the effects of inflation -- in this case,
positive effects -- as you review your fund's performance.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/99, 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.
TOTAL RETURN FOR PERIODS ENDED 3/31/99
Class A Class B Class M
(inception date) (12/31/76) (1/4/93) (2/16/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 0.79% -3.96% 0.46% -4.44% 0.75% -2.49%
- ------------------------------------------------------------------------------
1 year 4.42 -0.55 3.75 -1.21 4.22 0.84
- ------------------------------------------------------------------------------
5 years 37.85 31.24 33.45 31.45 35.85 31.51
Annual average 6.63 5.59 5.94 5.62 6.32 5.63
- ------------------------------------------------------------------------------
10 years 110.56 100.56 95.29 95.29 103.01 96.42
Annual average 7.73 7.21 6.92 6.92 7.34 6.98
- ------------------------------------------------------------------------------
Life of fund 480.53 452.95 384.91 384.91 426.20 409.10
Annual average 8.23 7.99 7.35 7.35 7.75 7.59
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/99
Lehman Brothers
Municipal Consumer
Bond Index price index
- ------------------------------------------------------------------------------
6 months 1.49% 0.98%
- ------------------------------------------------------------------------------
1 year 6.20 1.73
- ------------------------------------------------------------------------------
5 years 44.43 12.09
Annual average 7.63 2.31
- ------------------------------------------------------------------------------
10 years 120.84 34.91
Annual average 8.25 3.04
- ------------------------------------------------------------------------------
Life of fund N/A 183.51
Annual average N/A 4.80
- ------------------------------------------------------------------------------
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 and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class B and class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares, the higher operating
expenses applicable to such shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.224563 $0.194618 $0.211192
- ------------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------------
Long-term 0.015700 0.015700 0.015700
- ------------------------------------------------------------------------------
Short-term 0.012000 0.012000 0.012000
- ------------------------------------------------------------------------------
Total $0.252263 $0.222318 $0.238892
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/98 $9.30 $9.76 $9.30 $9.32 $9.63
- ------------------------------------------------------------------------------
3/31/99 9.12 9.57 9.12 9.15 9.46
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.10% 4.86% 4.44% 4.79% 4.63%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.44 8.05 7.35 7.93 7.67
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.14 3.95 3.49 3.84 3.71
- ------------------------------------------------------------------------------
Taxable equivalent3 6.85 6.54 5.78 6.36 6.14
- ------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% or class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
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
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 (99.6%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C>
Alabama (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp.),
Ser. A, 6.7s, 12/1/24 Baa3 $ 9,190,625
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 11,687,500
3,750,000 Jefferson Cnty., Swr. Rev. Bond (Rites-PA),
Ser. 487 R, FRB, 8.2s, 2/1/38 (acquired 3/23/99,
cost $4,290,150) (RES) AAA 4,260,938
--------------
25,139,063
Arizona (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
6,510,000 AZ State Muni. Fin. Program COP, MBIA,
Ser. 34, 7 1/4s, 8/1/09 AAA 8,056,125
10,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 12,625,000
--------------
20,681,125
California (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
CA State G.O. Bonds
10,000,000 6 1/2s, 2/1/08 Aa3 11,700,000
20,000,000 5 3/4s, 10/1/09 Aa3 22,550,000
10,890,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr. Auth.
Rev. Bonds, Ser. A, MBIA, 7 1/4s, 9/15/30 Aa3 11,638,688
7,500,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 7,340,625
1,500,000 Los Angeles Cnty., Cmnty. Dev. Comm. Certif.
VRDN (Willowbrook), 2.7s, 11/1/15 A-1+ 1,500,000
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital project), Ser. A, MBIA,
5s, 10/1/23 AAA 18,711,000
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds
(United Airlines, Inc.), Ser. G, 8.8s, 11/15/21 Baa2 7,630,000
10,150,000 Orange Cnty., Local Trans. Auth. IFB, FGIC, 7.911s,
2/14/11 (acquired 1/3/97, cost $10,393,516) (RES) Aaa 11,900,875
11,285,000 San Diego Cnty., COP (Inmate Reception Ctr. &
Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 13,104,706
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
53,760,000 zero %, 1/1/24 Aaa 15,456,000
39,225,000 zero %, 1/1/22 Aaa 12,502,969
27,400,000 zero %, 1/1/18 Aaa 10,651,750
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA, 5s, 8/1/20 Aaa 17,535,213
17,375,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 A-/P 18,098,321
--------------
180,320,147
Colorado (6.6%)
- --------------------------------------------------------------------------------------------------------------------------
Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470
17,000,000 7s, 8/31/26 Aaa 20,208,750
5,000,000 6.95s, 8/31/20 Aaa 5,931,250
Denver, City & Cnty. Arpt. Rev. Bonds
28,660,000 Ser. A, 8 3/4s, 11/15/23 Baa1 32,027,550
10,340,000 Ser. A, 8 3/4s, 11/15/23 (Prerefunded) Aaa 11,813,450
3,675,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 4,189,500
1,325,000 Ser. A, MBIA, 8 3/4s, 11/15/23 (Prerefunded) Aaa 1,513,813
4,800,000 Ser. A, 8 1/2s, 11/15/23 Baa1 5,178,000
455,000 Ser. A, 8 1/2s, 11/15/23 (Prerefunded) Aaa 498,794
2,745,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 3,002,344
260,000 Ser. A, MBIA, 8 1/2s, 11/15/23 (Prerefunded) Aaa 285,025
22,050,000 Ser. A, 7 1/4s, 11/15/25 AAA 25,026,750
3,980,000 Ser. B, 7 1/4s, 11/15/23 Baa1 4,353,125
1,020,000 Ser. B, 7 1/4s, 11/15/23 (Prerefunded) Aaa 1,151,325
20,000,000 Denver, City & Cnty. Arpt. Special Fac. Arpt.
Rev. Bonds (United Air Lines, Inc.), Ser. A,
6 7/8s, 10/1/32 Baa3 21,475,000
5,000,000 Denver, City & Cnty. Single Family Mtg. Rev.
Bonds (Metro Mayors Conference), Ser. A,
FHLMC, FNMA Coll., GNMA Coll., 6s, 10/1/22 AAA 5,275,000
--------------
141,929,676
Connecticut (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba3 8,020,000
Mashantucket, Western Pequot Tribe 144A Rev.
Bonds, Ser. A.,
7,565,000 6.4s, 9/1/11 (acquired 12/1/97, cost
$7,496,413) (RES) Baa2 8,359,325
7,435,000 6.4s, 9/1/11 (Prerefunded) (acquired 12/1/97,
cost $7,367,591) (RES) Aaa 8,587,425
--------------
24,966,750
District of Columbia (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds, Ser. A
39,250,000 6 3/8s, 6/1/26 AAA 45,088,438
38,175,000 6s, 6/1/26 Ba1 40,370,063
7,000,000 DC, Georgetown U. IFB, 9.545s, 4/25/22 A1 8,093,750
--------------
93,552,251
Florida (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
11,010,000 FL State Gen. Svcs. FRB, FSA , 8 1/4s, 7/1/17
(acquired 9/2/98, cost $14,265,001) (RES) AAA/P 14,037,750
18,500,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 (SEG) Aaa 24,674,375
16,375,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration), Ser. A, 7 7/8s, 12/15/25 Baa3 17,111,875
--------------
55,824,000
Georgia (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 AAA 13,485,000
GA Muni. Auth. Elec. Pwr. Rev. Bonds
10,000,000 Ser. B, FGIC, 8 1/4s, 1/1/11 Aaa 13,325,000
16,700,000 Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 19,497,250
GA State G.O. Bonds
10,460,000 Ser. D, 6.8s, 8/1/11 Aaa 12,761,200
15,840,000 Ser. A, 6 1/4s, 4/1/09 Aaa 18,275,400
21,790,000 Ser. B, 6 1/4s, 4/1/09 Aaa 25,140,213
--------------
102,484,063
Hawaii (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,560,000 HI State G.O. Bonds, Ser. CO, FGIC, 6s, 3/1/08 Aaa 11,814,000
10,600,000 Honolulu, City & Cnty. Rev. Bonds, MBIA,
5.45s, 9/11/08 AAA 11,395,000
--------------
23,209,000
Illinois (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds, Ser. A
5,400,000 FGIC, zero %, 12/1/17 AAA 2,058,750
7,750,000 FGIC, zero %, 12/1/16 AAA 3,138,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
14,500,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 17,182,500
4,280,000 (United Air Lines, Inc.), Ser. C, 8.2s, 5/1/18 Baa2 4,419,014
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
3,335,000 8 3/4s, 7/1/11 BB/P 3,618,475
1,705,000 8 3/4s, 7/1/11 (Prerefunded) AAA/P 1,888,287
8,000,000 IL Dev. Fom. Auth. IFB (St. Luke's Med. Ctr.),
MBIA, 8.602s, 10/1/24 Aaa 9,500,000
2,000,000 IL Hlth. Fac. Auth. IFB (Methodist Hlth.),
AMBAC, 10.774s, 5/18/21 Aaa 2,335,000
5,000,000 IL Hlth. Fac. Auth. Rev. Bonds (Advocate Hlth.),
Ser. B, MBIA, 5 1/4s, 8/15/18 AAA 5,037,500
3,000,000 IL Hsg. Dev. Auth. IFB, 11.051s, 2/1/20
(acquired 4/8/92, cost $3,354,527) (RES) Aa1 3,175,200
--------------
52,353,476
Indiana (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 8,313,750
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 4,129,250
30,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev.
Bonds (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa2 32,287,500
10,480,000 Indianapolis, Local Pub. Impt Bd.. Rev. Bonds,
Ser. A, 6s, 2/1/11 Aaa 11,999,600
--------------
56,730,100
Kansas (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 3s, 6/1/31 (acquired various
dates from 6/20/19 to 2/14/94,
cost $19,756,448) (RES) Aaa 21,180,250
9,790,000 Kansas City, Util. Syst. Rev. Bonds, FGIC,
6 1/4s, 9/1/14 Aaa 10,977,038
--------------
32,157,288
Kentucky (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
11,065,000 Boone Cnty. Poll. Control Rev. Bonds
(Dayton Pwr. & Lt. Co.), Ser. A,
6 1/2s, 11/15/22 Aa3 12,171,500
Jefferson Cnty., Hosp. Rev. Bonds IF
3,800,000 6.436s, 10/1/14 Aaa 4,142,000
6,400,000 6.436s, 10/23/14 (Prerefunded) AAA 7,088,000
--------------
23,401,500
Louisiana (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 De Soto Parish, Poll. Control Rev. Bonds
(Southwestern Elec. Pwr. Co.), 7.6s, 1/1/19 A1 7,971,250
17,800,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 20,069,500
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
8,000,000 8s, 12/1/24 Ba1 8,332,320
8,565,000 Ser. III, 7.7s, 12/1/14 Ba1 9,410,794
--------------
45,783,864
Maine (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
11,935,000 Bucksport Solid Waste Disp. Rev. Bonds
(Champion Intl. Corp.), 6 1/4s, 5/1/10 Baa1 12,561,588
Massachusetts (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
15,850,000 Boston, Rev. Bonds (Boston City Hosp.), Ser. A,
FHA Insd., 7 5/8s, 2/15/21 Aaa 17,038,750
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev.
Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 11,012,750
20,000,000 MA Sate Rev. Bonds (Grant Anticipation Notes),
Ser. A, MBIA, 5 1/2s, 6/15/13 Aaa 21,700,000
5,020,000 MA State Cons. Loan G.O. Bonds, Ser. C,
7 1/2s, 12/1/07 Aaa 5,446,700
MA State G.O. Bonds
11,595,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $14,375,270) (RES) Aa3 14,769,131
7,800,000 Ser. A, AMBAC, 5 3/4s, 8/1/09 AAA 8,677,500
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 AAA 5,905,988
5,425,000 Ser. C, AMBAC, 5 3/4s, 8/1/10 AAA 6,082,781
MA State Hlth. & Edl. Fac. Auth. IFB
11,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s,
8/12/21 Aaa 12,787,500
18,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
8.46s, 10/1/31 Aaa 20,992,500
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
8,000,000 (Waltham-Weston Hosp. & Med. Ctr.),
Ser. B, 8 3/8s, 7/1/15 Baa3 8,630,000
5,370,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s,
9/1/17 Aaa 5,953,987
7,000,000 AMBAC, 6.55s, 6/23/22 Aaa 7,980,000
6,000,000 (Caritas Christian Oblig. Group), Ser. A,
5 5/8s, 7/1/20 Baa2 5,962,500
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 5,006,250
7,000,000 Ser. A, 9s, 7/1/15 BB-/P 7,770,000
MA State Port Auth. Rev Bonds
5,350,000 FGIC, 7 1/2s, 7/1/20 Aaa 5,684,375
1,650,000 Ser. A, FGIC, 7 1/2s, 7/1/20 Aaa 1,761,375
5,700,000 Stepped-coupon zero %, 13s, (13s, 1/1/04),
7/1/13 (STP) AAA/P 7,032,375
--------------
180,194,462
Michigan (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 Detroit, G.O. Bonds, Ser. B, AMBAC,
6 1/4s, 4/1/08 AAA 7,787,500
4,400,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 5 1/2s, 5/1/21 BB-/P 4,323,000
11,355,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 12/13/08 Aaa 13,072,444
13,845,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Sinai Hosp.), 6.7s, 1/1/26 A- 14,589,169
10,000,000 MI State Strategic Fund Ltd. Rev. Bonds (Detroit
Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 (FWC/WIS) Aaa 10,087,500
10,000,000 MI State Stragetic Fund Solid Waste Disp. Rev.
Bonds (SD Warren Co.), Ser. C, 7 3/8s, 1/15/22 BB-/P 11,150,000
6,745,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa3 6,947,350
10,490,000 Wayne Charter Cnty., Special Arpt. Fac. Rev.
Bonds (Northwest Airlines Inc.), 6 3/4s, 12/1/15 BB+/P 11,473,438
--------------
79,430,401
Minnesota (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
15,750,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA+ 16,655,625
Missouri (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
14,400,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 16,290,000
Montana (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
14,000,000 MT State Hlth. Fac. Auth. Hosp. Hosp. IFB
(Deaconess Med. Ctr.), Ser. B, AMBAC,
8.181s, 3/8/16 Aaa 15,855,000
Nebraska (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
10.197s, 11/15/16 Aaa 10,563,750
NE Investment Fin. Auth. Single Fam. Mtge. IFB
3,150,000 GNMA Coll., 9.159s, 9/15/24 Aaa 3,528,000
7,000,000 Ser. B, GNMA Coll., 8.949s, 10/17/23 Aaa 7,778,750
--------------
21,870,500
New Hampshire (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,500,000 NH State Tpk. Sys. IFB, FGIC, 10.245s, 11/1/17 AAA 14,096,250
New Jersey (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (Raritan
Bay Med. Ctr.)
13,500,000 7 1/4s, 7/1/27 B-/P 14,259,375
6,300,000 7 1/4s, 7/1/14 B-/P 6,678,000
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,812,500
--------------
32,749,875
New York (11.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,500,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 7 1/4s,
12/1/24 (acquired 5/19/98, cost $13,565,566) (RES) A-/P 14,078,125
10,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, FSA, 5 1/2s, 12/1/13 AAA 10,912,500
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. VRDN,
Ser. 1, 2.9s, 5/1/33 VMIGI 4,000,000
NY City, G.O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 5,215,250
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,504,356
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 5,254,931
29,335,000 (Group B), Ser. D, 8 1/4s, 8/1/12 Aaa 32,781,863
9,800,000 Ser. D, 8 1/4s, 8/1/11 (Prerefunded) Aaa 10,951,500
13,235,000 Ser. B, MBIA, 6 1/2s, 8/15/10 Aaa 15,534,581
6,765,000 Ser. D, MBIA, 6 1/2s, 11/1/09 Aaa 7,915,050
10,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper Inc.), 7.95s, 1/1/28 B/P 11,175,000
NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
15,000,000 (American Airlines, Inc.), 6.9s, 8/1/24 Baa1 16,612,500
8,250,000 (British Airways), 5 1/4s, 12/1/32 A2 8,136,563
NY State Dorm. Auth. Rev. Bonds
13,100,000 (State U. Edl. Fac.), Ser. A, 7.7s, 5/15/12 Aaa 13,967,875
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa1 12,194,375
12,485,000 (Construction City U. Syst.), Ser. A, 5 3/4s, 7/1/18 Baa1 13,483,800
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 A3 24,543,750
7,515,000 (North Shore U. Hosp.), MBIA, 5 1/2s, 11/1/11 AAA 8,153,775
5,000,000 (State U. Edl. Facs.), Ser. A, MBIA, 4 3/4s, 5/15/25 AAA 4,750,000
4,400,000 NY State Env. Fac. Corp. Poll. Control Rev.
Bonds (State Wtr. Revolving Fund), Ser. A,
7 1/2s, 6/15/12 Aa2 4,680,500
NY State Med. Care Fac.Fin. Agcy. Rev. Bonds
(Mental Hlth. Svcs. Fac.), Ser. B
2,480,000 7 5/8s, 8/15/17 A3 2,709,400
5,450,000 7 5/8s, 8/15/17 (Prerefunded) A- 6,042,687
10,000,000 NY State Thruway Auth. Rev. Bonds, 6s, 4/1/12 Baa1 10,937,500
--------------
249,535,881
North Carolina (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6s, 1/1/18 Aaa 11,325,000
19,700,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC,
9.278s, 1/1/25 (acquired 3/3/93,
cost $3,116,820) (RES) Aaa 24,969,750
11,680,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. C, MBIA, 7s, 1/1/13 Aaa 14,439,400
41,000,000 NC Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.), AMBAC, 8s, 1/1/06 Aaa 49,814,995
--------------
100,549,145
Ohio (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,519,746 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 1,568,241
4,273,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB,
Ser. A-2, GNMA Coll., 10.227s, 3/24/31 Aaa 4,764,395
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
7,775,000 Interest Only (IO), Ser. 4, GNMA Coll., 9s,
9/1/01 AAA/P 1,584,156
8,850,000 GNMA Coll., 7.8s, 3/1/30 AAA 9,189,132
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
7,775,000 GNMA Coll., stepped-coupon zero %
(9s, 9/1/01) 9/1/18 (acquired various
dates from 10/20/93 to 7/10/95,
cost $5,675,782) (RES) (STP) AAA/P 7,055,813
15,000,000 OH State, Tpk. Comm. Rev. Bonds, Ser. B, FGIC,
4 3/4s, 2/15/28 AAA 14,325,000
--------------
38,486,737
Oklahoma (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,500,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest
Healthcare), Ser. A, 5 5/8s, 8/15/29 BBB+ 6,467,500
9,160,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 9,755,400
--------------
16,222,900
Pennsylvania (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,150,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh Intl.
Arpt.), Ser. A, MBIA, 5 3/4s, 1/1/11 Aaa 8,852,938
5,750,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Ohio Edison), Ser. A, 7 3/4s, 9/1/24 Baa3 5,936,817
8,360,000 Clearfield Hosp. Auth. Rev. Bonds
(Clearfield Hosp.), 6 7/8s, 6/1/16 BBB 9,101,950
PA Econ. Dev. Fin. Auth. Res. Recvy. Rev. Bonds
12,700,000 Ser. A, 6.4s, 1/1/09 (Northampton Generating) BBB- 13,430,250
6,000,000 Ser. D, 7.15s, 12/1/18 BBB- 6,630,000
10,000,000 Ser. D, 7 1/8s, 12/1/15 BBB- 11,037,500
20,000,000 PA State, Tpk. Comm. Oil Franchise Tax Rev.
Bonds, Ser. B, AMBAC, 4 3/4s, 12/1/27 AAA 18,950,000
3,400,000 Philadelphia, G.O. Bonds, FGIC, 4 3/4s, 5/15/20 AAA 3,247,000
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) (RES) (NON) CCC 3,300,000
--------------
80,486,455
Puerto Rico (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
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 26,157,600
6,700,000 PR, Hwy. & Trans. Auth. Rev. Bonds, MBIA,
6 1/4s, 7/1/12 Aaa 7,897,625
--------------
34,055,225
South Carolina (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,695,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B+/P 5,011,912
13,500,000 Spartanburg Cnty. Hosp. Fac. Rev. Bonds, FSA,
6.416s, 4/13/22 Aaa 14,782,500
--------------
19,794,412
Tennessee (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
40,000,000 Metro. Nashville & Davidson Cnty. Hlth. & Ed.
Fac. Board Rev. Bonds (Volunteer Hlth. Care),
zero %, 6/1/21 Aaa 11,550,000
Texas (9.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,250,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds
(Sears Methodist Retirement), Ser. A, 5 7/8s,
11/15/18 BB+/P 4,218,125
35,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 37,318,750
9,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds,
MBIA, 5 1/4s, 11/15/31 AAA 9,056,250
3,500,000 Bowie Cnty., Ind. Dev. Corp. VRDN (Texarkana
Newspapers, Inc.), 2.8s, 11/1/25 A-1+ 3,500,000
15,000,000 Dallas Cnty., G.O. Bonds (Flood Control Dist. #1),
stepped-coupon zero % (8.5s, 10/1/99), 4/1/16
(acquired 11/18/94, cost $10,059,000) (RES) (STP) BB-/P 17,212,500
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa1 27,301,563
Houston, Arpt. Syst. Rev. Bonds (Continental)
10,880,000 Ser. B, 5.7s, 7/15/29 Ba1 10,784,800
8,000,000 Ser. C, 5.7s, 7/15/29 Ba1 7,930,000
10,805,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds
(Memorial Hlth. Syst.of East TX),
6 7/8s, 2/15/26 BBB- 11,926,019
1,970,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev.
Bonds (Woodlands Med. Ctr.), 8.85s, 8/15/14 A-/P 2,039,915
20,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Baylor U. Med. Ctr.), Ser. A, 8.752s, 5/15/16 Aa2 23,500,000
San Antonio, Elec. & Gas Rev. Bonds, Ser. A
3,000,000 5 1/4s, 2/1/14 Aa1 3,120,000
3,000,000 4 1/2s, 2/1/21 Aa1 2,782,500
6,600,000 San Antonio, G.O. Bonds, Ser. 2000, 5s, 2/1/20 AA+ 6,294,750
6,500,000 Texas State Indl. Dev. Corp. Rev. Bonds
(Arco Pipeline Co.), 7 3/8s, 10/1/20 A 8,409,375
4,350,000 TX State Dept. of Hsg. & Cmnty. Affairs
Home Mtge. IFB, Ser. B-2, GNMA Coll.,
10.271s, 6/18/23 AAA 4,670,813
9,500,000 TX State (Nat'l. Research Lab. Communication
Superconductor), G.O. Bonds, 7 1/8s, 4/1/20 Aaa 10,047,960
20,800,000 TX State Rev. Bonds, 6.2s, 9/30/11 Aa2 24,050,000
--------------
214,163,320
Utah (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
19,065,000 Intermountain Pwr. Agcy. Rev. Bonds, (UT State
Pwr. Supply), Ser. B, MBIA, 6 1/2s, 7/1/09 Aaa 22,306,050
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
Ser. A, 8 1/8s, 5/15/15 AAA 6,468,750
--------------
28,774,800
Vermont (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,600,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Hosp. Med. Ctr.), FGIC, 7s, 9/1/19 AAA 8,303,000
Virginia (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,800,000 Culpepper, Ind. Dev. Auth. Res. Care Fac.
VRDN (Baptist Homes), 3s, 11/1/17 A-1+ 3,800,000
10,500,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 8.988s, 8/23/27 Aaa 13,400,625
5,000,000 Norfolk, Cnth., Wtr. Rev. Bonds, MBIA,
5.9s, 11/1/25 Aaa 5,418,750
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester
Med. Ctr.), AMBAC, 5s, 1/21/14 Aaa 37,762,500
--------------
60,381,875
Washington (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Control Rev.
Bonds (Union Carbide Corp.), 7 1/2s, 8/1/04 Baa2 5,207,384
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchinson Cancer Ctr.), Ser. D
8,400,000 7 3/8s, 1/1/18 Aa2 9,009,000
7,700,000 7.3s, 1/1/12 Aa2 8,258,250
--------------
22,474,634
Wisconsin (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,115,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.475s, 10/25/22 Aa3 3,457,650
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,983,093,618)(b) $2,156,472,038
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,164,902,502.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 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 March 31, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,983,144,999, resulting in gross unrealized appreciation and
depreciation of $186,319,208 and $12,992,169, respectively, or net unrealized appreciation of $173,327,039.
(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 March 31, 1999, was $152,887,082 or 7.1% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at March 31, 1999.
(FWC/WIS) When-issued securities (Note 1).
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 FRB are current interest rates shown at March 31, 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 March 31, 1999.
The fund had the following industry group concentrations greater than 10% at March 31, 1999 (as a percentage
of net assets):
Transportation 21.8%
Hospital/Health care 15.6
Utilities 14.9
The fund had the following insurance concentrations greater than 10% at March 31, 1999 (as a percentage of net
assets):
MBIA 14.5%
AMBAC 10.9
- -------------------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------------------
Muni Index Future (Short) $5,561,719 $5,543,145 Jun. 99 $(18,574)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,983,093,618) (Note 1) $2,156,472,038
- -----------------------------------------------------------------------------------------------
Cash 74,224
- -----------------------------------------------------------------------------------------------
Interest and other receivables 30,963,525
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 639,082
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 8,986,197
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 21,094
- -----------------------------------------------------------------------------------------------
Total assets 2,197,156,160
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,533,383
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 20,671,558
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,032,929
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,605,978
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 165,746
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 37,211
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,535
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,141,241
- -----------------------------------------------------------------------------------------------
Other accrued expenses 61,077
- -----------------------------------------------------------------------------------------------
Total liabilities 32,253,658
- -----------------------------------------------------------------------------------------------
Net assets $2,164,902,502
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,022,746,456
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,307,447)
- -----------------------------------------------------------------------------------------------
Distributions in excess of gain on investments (Note 1) (28,896,353)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 173,359,846
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,164,902,502
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,912,658,829 divided by 209,625,867 shares) $9.12
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.12)* $9.57
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($241,892,164 divided by 26,517,828 shares)*** $9.12
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,351,509 divided by 1,131,478 shares) $9.15
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.15)** $9.46
- -----------------------------------------------------------------------------------------------
* 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
Six months ended March 31, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 61,550,568
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,296,546
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,135,765
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,747
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,119
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,947,764
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,045,786
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 25,299
- -----------------------------------------------------------------------------------------------
Reports to shareholders 24,929
- -----------------------------------------------------------------------------------------------
Auditing 35,175
- -----------------------------------------------------------------------------------------------
Legal 14,180
- -----------------------------------------------------------------------------------------------
Postage 45,805
- -----------------------------------------------------------------------------------------------
Other 55,430
- -----------------------------------------------------------------------------------------------
Total expenses 9,646,545
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (60,780)
- -----------------------------------------------------------------------------------------------
Net expenses 9,585,765
- -----------------------------------------------------------------------------------------------
Net investment income 51,964,803
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 5,696,945
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,611,181)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (38,794,081)
- -----------------------------------------------------------------------------------------------
Net loss on investments (34,708,317)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 17,256,486
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 51,964,803 $ 110,463,424
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 4,085,764 10,644,394
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (38,794,081) 37,008,150
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,256,486 158,115,968
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (47,618,637) (101,505,109)
- ---------------------------------------------------------------------------------------------------------------
Class B (5,212,475) (10,917,992)
- ---------------------------------------------------------------------------------------------------------------
Class M (225,754) (452,794)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (5,896,640) --
- ---------------------------------------------------------------------------------------------------------------
Class B (744,982) --
- ---------------------------------------------------------------------------------------------------------------
Class M (31,014) --
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (50,742,619) (95,697,580)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (93,215,635) (50,457,507)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 2,258,118,137 2,308,575,644
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $2,307,447 and
$1,215,384 respectively) $2,164,902,502 $2,258,118,137
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.30 $9.12 $8.76 $8.74 $8.55 $9.66
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .45 .48 .49 .52 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) .19 .36 .02 .19 (.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .64 .84 .51 .71 (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.46) (.48) (.49) (.52) (.54)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- -- -- -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- -- -- (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.46) (.48) (.49) (.52) (.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.12 $9.30 $9.12 $8.76 $8.74 $8.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .79* 7.22 9.89 5.94 8.58 (4.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,912,659 $1,998,387 $2,054,537 $2,117,684 $2,237,837 $2,232,611
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .40* .81 .78 .78 .78 .77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.39* 4.92 5.40 5.58 6.03 5.97
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.12* 29.61 52.33 92.99 68.23 59.27
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter includes amounts paid
through expense offset arrangements with PFTC. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.30 $9.12 $8.76 $8.73 $8.53 $9.66
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .39 .43 .43 .46 .47
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) .19 .36 .03 .20 (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .04 .58 .79 .46 .66 (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.40) (.43) (.43) (.46) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- -- -- -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- -- -- (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.40) (.43) (.43) (.46) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.12 $9.30 $9.12 $8.76 $8.73 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .46* 6.52 9.18 5.38 8.01 (5.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $241,892 $249,541 $245,759 $250,990 $246,407 $213,679
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .72* 1.46 1.43 1.43 1.43 1.41
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.06* 4.28 4.75 4.92 5.34 5.31
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.12* 29.61 52.33 92.99 68.23 59.27
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestments and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter includes amounts paid
through expense offset arrangements with PFTC. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 16, 1995+
operating performance (Unaudited) Year ended September 30 to 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 .21 .43 .45 .46 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14) .19 .37 .03 .13
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .62 .82 .49 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.44) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.44) (.46) (.46) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.15 $9.32 $9.14 $8.78 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .75* 6.89 9.55 5.72 5.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,352 $10,191 $8,280 $5,732 $2,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.11 1.08 1.06 .67*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.24* 4.65 5.07 5.26 3.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.12* 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) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter includes amounts paid
through expense offset arrangements with PFTC. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
March 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Tax Exempt Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax as is consistent with preservation
of capital by investing primarily in a diversified portfolio of
longer-term tax exempt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The fair
value of restricted securities is determined by Putnam Investment
Management, Inc. ("Putnam Management") the fund's Manager, a wholly-owned
subsidiary of Putnam 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). Interest income is recorded on the accrual basis.
Securities purchased or sold on a when-issued basis may be settled a month
or more after the trade date; interest income is accrued based on the
terms of the security. Losses may arise due to changes in the market value
of the underlying securities or if the counterparty does not perform under
the contract.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it 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 six months
ended March 31, 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. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities is amortized using the effective
yield method for bonds issued after September 27, 1985, and on a
straight-line basis for bonds issued prior thereto. The premium in excess
of the call price, if any, is amortized to the call date; thereafter, the
remaining excess premium is amortized to maturity. Discounts on zero
coupon bonds, original issue discount, stepped-coupon bonds are accreted
according to the yield to maturity basis.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.60% of the first $500
million of average net assets, 0.50% of the next $500 million, 0.45% of
the next $500 million, 0.40% of the next $5 billion, 0.375% of the next $5
billion, 0.355% of the next $5 billion, 0.34% of the next $5 billion, and
0.33% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended March 31, 1999, fund expenses were reduced by
$60,780 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 $1,280
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees currently limit payment by the fund to an
annual rate of 0.20%, 0.85% and 0.50% of the average net assets
attributable to class A, class B and class M shares respectively.
For the six months ended March 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $50,645 and $814 from the sale
of class A and class M shares, respectively and $145,443 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended March 31, 1999, Putnam Mutual Funds
Corp., acting as underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1999, purchases and sales of
investment securities other than short-term municipal investments
aggregated $112,909,669 and $179,167,118, respectively. There were no
purchases and sales of U.S. government obligations. In determining the net
gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At March 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,008,152 $ 82,952,054
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,393,236 31,201,706
- -----------------------------------------------------------------------------
12,401,388 114,153,760
Shares
repurchased (17,620,279) (162,356,526)
- -----------------------------------------------------------------------------
Net decrease (5,218,891) $(48,202,766)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,328,895 $ 12,244,646
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 408,040 3,751,884
- -----------------------------------------------------------------------------
1,736,935 15,996,530
Shares
repurchased (2,054,105) (18,888,431)
- -----------------------------------------------------------------------------
Net decrease (317,170) $ (2,891,901)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 201,059 $ 1,877,818
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,981 153,666
- -----------------------------------------------------------------------------
220,040 2,031,484
Shares
repurchased (181,823) (1,679,436)
- -----------------------------------------------------------------------------
Net increase 38,217 $ 352,048
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth 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
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
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
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
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
PUTNAM 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
LIFESTAGE SM 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
+ Formerly Putnam Federal Income Trust
[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 neither insured nor guaranteed by
the U.S. government. These funds are managed to maintain a price of $1.00
per share, although there is no assurance that this price will be
maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest
or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
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
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Tax Exempt
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA041-51853 011/322/472 5/99
