Putnam
Tax Exempt
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's manager discusses
performance for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam Tax
Exempt Income Fund that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. In June, John Hill will become Chairman. John
is currently an independent Trustee and has served on the board for the
past 14 years. In addition, my son, George Putnam, III, will take on the
role of President. I am confident that the leadership of the funds will
be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/ GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the Fund Manager
David E. Hamlin
A hawkish Federal Reserve Board and Y2K uncertainty leading up to the
advent of the new millennium contributed to some turbulent moments in
financial markets during the six months ended March 31, 2000. For
bondholders in particular, inflation fears and the lure of rapidly
appreciating stocks made fixed-income investing a very lonesome place to
be.
How quickly things can change. The unprecedented volatility in recent
weeks reminds investors about the importance of maintaining
diversification across all asset classes. This wake-up call provided a
welcome boost to municipal bond prices in the final days of the period
as investors sought the safety and relative predictability of bonds. All
told, however, tax-free securities turned in modest performance for the
period. Putnam Tax Exempt Income Fund followed suit.
Total return for 6 months ended 3/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
1.20% -3.61% 0.87% -4.04% 0.68% -0.31% 1.05% -2.23%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* FED'S ANTI-INFLATION BENT ULTIMATELY REASSURES BOND INVESTORS
Reeling from a year of steady interest-rate increases, the municipal
bond market may finally be approaching the point at which the news gets
better. Judging by the inverted yield curve we have seen in recent
months, the Fed's tightening activity should be near its final phase. A
responsible Fed, like the one we have, is good news for bond investors.
Although rising interest rates have a negative effect on bond prices, in
the longer run, they keep inflation, the bond market's worst enemy,
under control.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 21.8%
Transportation 20.8%
Utilities 19.5%
Education 5.1%
Housing 4.3%
Footnote reads:
*Based on net assets as of 3/31/00. Holdings will vary over time.
Even though the Fed raised interest rates in February and March, the
bond markets have recently rallied, acknowledging that the strong
economy and inflation are finally responding to the Fed's policies. This
curious, yet positive market behavior reflects bond investors'
confidence that a slower economy will emerge and inflation is under
control.
While insured municipal bonds have historically yielded about 85% of
comparable U.S. Treasury bonds, that ratio is now approximately 95%.
That translates into a very high level of tax-free income for most
municipal bond funds, which is good news. The painful news is that as
interest rates are rising, bond prices fall, and the total return of
municipal bond funds, including your fund, has not escaped this
unavoidable relationship.
* EMPLOYING STRATEGIES TO LOCK IN HIGHER INCOME AND APPRECIATION
The recent rising trend in interest rates has provided myriad
opportunities for us to increase the income and appreciation potential
of your portfolio for years to come. Capitalizing on the bargain prices
in the municipal bond market, we bought zero-coupon securities with long
maturities. Zero-coupon bonds defer the payment of interest until
maturity and are typically protected from the optional call feature,
that is, the ability of the issuer to call in and retire the bonds prior
to maturity. These bonds perform especially well in rallying markets.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 54.8%
Aa/AA -- 8.0%
A -- 7.3%
Baa/BBB -- 22.0%
Ba/BB -- 5.6%
B -- 2.2%
Other -- 33.3%
Footnote reads:
*As a percentage of market value as of 3/31/00. A bond rated 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.
We also sold prerefunded bonds, which have short maturities, and
replaced them with bonds offering a similar yield but much longer
maturities. (In a prerefunding, the municipality issues new bonds to pay
off the original bond issue at the first call date or maturity. Proceeds
from the new issue in an amount sufficient to pay off the entire
original bond issue are invested in an escrow fund made up of short-term
U.S. securities.)
The intended consequence of these two strategies was a slight
lengthening of the portfolio's average duration from 8.00 years on
September 30, 1999, to 8.27 years on March 31, 2000. Duration measures
the portfolio's maturity structure and reflects the price sensitivity of
holdings to changes in interest rates. A longer duration can mean a more
volatile net asset value if rates increase but also one more likely to
appreciate substantially if rates decline. Given our belief that the
Fed's aggressive stance on interest rates may be easing in the coming
months, this seemed a wise course at this time.
* WIDER CREDIT SPREADS PRESENT NEW OPPORTUNITIES
With the increase in interest rates has come a dramatic widening of
credit spreads between lower-yielding, higher-quality municipal bonds
and higher-yielding, lower-quality municipal bonds. We took advantage of
the new, more affordable prices in the lower end of the credit spectrum
to buy several new holdings.
Often these bonds are unrated by the rating agencies, creating a rare
chance to invest in a municipal security before it becomes a widely
followed issue. At Putnam, we do our own evaluation of every issue that
may be considered for the portfolio -- low rated, high rated, or those
not rated by the standard agencies. Consequently, nothing your fund owns
is actually unrated. However, it takes meticulous, time-consuming
research to identify the strongest and most creditworthy issues.
We found the most attractive opportunities in the hospital sector, which
has struggled since the Balanced Budget Act mandated lower Medicare
reimbursements. The industry is undergoing massive restructurings and
cost-cutting programs, which should strengthen hospitals in the long
run. Our purchases included Arkansas Development State Finance Authority
for Washington Regional Medical Center (BBB-/Baa3 rated, 7.50% yield)
and New Jersey Healthcare Facilities Financing Authority for the
Trinitas Hospital Obligated Group (BBB rated, 7.63% yield). While these
holdings, along with others discussed in this report, were viewed
favorably at the end of the period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may
vary in the future.
We added two significant positions in the utilities sector -- North
Carolina Municipal Power Agency Number One for Catawba (BBB+/Baa1 rated,
6.73% yield) and North Carolina Eastern Municipal Power Agency (BBB/Baa3
rated, 6.75% yield). The regulatory environment varies from state to
state, but we believe that North Carolina will manage the deregulation
process in a way that is very favorable to utilities and that these two
large producers of electricity should fare well.
* LOOKING AHEAD TO BRIGHTER DAYS
We believe that municipal bonds are attractively priced at current
levels. We do not anticipate major moves, either up or down, in
long-term interest rates over the next few months. It is apparent that
the bond market has already begun to act positively. Once signs emerge
that the Fed's interest-rate hikes are finally slowing economic growth,
bond markets, including the municipal bond market, should perform even
better.
When interest rates are rising, it can be a natural reaction among
investors to choose guaranteed certificates of deposit over fund
investments because the income from CDs seems more and more appealing.
However, in such an environment, investors may find they are left with
only one to two years of attractive income and are then out of the bond
market during the period of its strongest returns. Although the
principal value on CDs is generally insured and their rate of return is
fixed while a fund investment's value and return will fluctuate, CDs may
be subject to penalties for early withdrawals and the income they
provide is fully taxable.
"Now is a particularly good time to look at [municipals] since muni debt
is paying as much as 30-year Treasurys -- and it's tax-exempt."
- -- SmartMoney.com, April 20, 2000
We understand that volatile markets are not easy for investors but they
do provide us with the opportunity to increase yield, find exceptional
credits, and improve call protection -- strategies that can be
particularly rewarding for municipal bond investors over time.
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 3/31/00, 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 3/31/00
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 CDSC NAV CDSC NAV POP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
6 months 1.20% -3.61% 0.87% -4.04% 0.68% -0.31% 1.05% -2.23%
- ----------------------------------------------------------------------------------------
1 year -1.73 -6.35 -2.37 -7.01 -2.85 -3.78 -2.12 -5.32
- ----------------------------------------------------------------------------------------
5 years 27.73 21.71 23.64 21.69 22.25 22.25 25.96 21.91
Annual average 5.02 4.01 4.33 4.00 4.10 4.10 4.72 4.04
- ----------------------------------------------------------------------------------------
10 years 89.23 80.30 75.95 75.95 74.04 74.04 82.58 76.67
Annual average 6.59 6.07 5.81 5.81 5.70 5.70 6.20 5.86
- ----------------------------------------------------------------------------------------
Life of fund 470.50 443.39 373.43 373.43 371.10 371.10 415.07 398.33
Annual average 7.78 7.55 6.92 6.92 6.89 6.89 7.30 7.15
- ----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Lehman Brothers Municipal Consumer
Bond Index price index
- -------------------------------------------------------------------------
6 months 2.13% 2.03%
- -------------------------------------------------------------------------
1 year -0.08 3.69
- -------------------------------------------------------------------------
5 years 34.30 13.15
Annual average 6.07 2.50
- -------------------------------------------------------------------------
10 years 99.60 33.02
Annual average 7.15 2.89
- -------------------------------------------------------------------------
Life of fund --* 194.16
Annual average --* 4.75
- -------------------------------------------------------------------------
* 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/00
Class A Class B Class C Class M
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Distributions (number) 6 6 6 6
- -----------------------------------------------------------------------------------------------
Income $0.249413 $0.221782 $0.215400 $0.237260
- -----------------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- -----------------------------------------------------------------------------------------------
Total $0.249413 $0.221782 $0.215400 $0.237260
- -----------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -----------------------------------------------------------------------------------------------
9/30/99 $8.62 $9.05 $8.62 $8.63 $8.64 $8.93
- -----------------------------------------------------------------------------------------------
3/31/00 8.47 8.89 8.47 8.47 8.49 8.78
- -----------------------------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------------------------
Current dividend rate2 5.97% 5.69% 5.33% 5.18% 5.68% 5.49%
- -----------------------------------------------------------------------------------------------
Taxable equivalent3 9.88 9.42 8.82 8.58 9.40 9.09
- -----------------------------------------------------------------------------------------------
Current 30-day
SEC yield4 5.44 5.18 4.79 4.65 5.14 4.97
- -----------------------------------------------------------------------------------------------
Taxable equivalent3 9.01 8.58 7.93 7.70 8.51 8.23
- -----------------------------------------------------------------------------------------------
1 High-income investors may be subject to the alternative minimum tax.
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 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 that are generally
considered to be 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 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 noninvestment 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-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
March 31, 2000 (Unaudited)
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
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 (99.4%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
$ 8,500,000 Fairfield, Indl. Dev. Auth. Rev. Bonds (USX Corp.),
Ser. A, 6.7s, 12/1/24 Baa2 $ 8,680,625
9,770,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 10,747,000
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 3,548,438
----------------
22,976,063
Alaska (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
2,800,000 AK State Indl. Dev. Auth. Rev. Bonds (AK Hotel
Properties, Inc.), FRB, 3 1/2s, 6/1/06 A-1+ 2,800,000
Arizona (1.6%)
- ----------------------------------------------------------------------------------------------------------------------------
6,510,000 AZ State Muni. Fin. Program COP BIGI, Ser. 34,
7 1/4s, 8/1/09 Aaa 7,551,600
7,220,000 Cochise Cnty., Indl. Dev. Auth. Rev. Bonds (Sierra
Vista Regl. Hlth.), Ser. A, 6.2s, 12/1/21 BBB-/P 6,362,625
10,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 11,887,500
4,000,000 Pima Cnty., Indl. Dev. Auth., VRDN (Tucson Elec.
Pwr. Co.-Irvington), 3.35s, 10/1/22 A-1+ 4,000,000
----------------
29,801,725
Arkansas (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
3,900,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(WA Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 3,870,750
4,000,000 AR State Hosp. Equip. Fin. Auth. VRDN
(Baptist Hlth.), MBIA, 3.25s, 11/1/10 A-1+ 4,000,000
3,175,000 Northwest Regl. Arpt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 3,325,813
----------------
11,196,563
California (6.8%)
- ----------------------------------------------------------------------------------------------------------------------------
15,500,000 Alameda, Corridor Trans. Auth. Rev. Bonds,
Ser. 99-A, MBIA, zero %, 10/1/31 AAA 2,402,500
2,000,000 Kings Cnty., Hsg. Auth. Multi-Fam. Hsg., VRDN
(Edgewater Isle Apts), 3.8s, 6/1/07 VMIG 1 2,000,000
18,900,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth. Rev.
Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 17,269,875
7,000,000 Los Angeles, Regl. Arpt. Impt. Rev. Bonds (United
Airlines, Inc.), Ser. G, 8.8s, 11/15/21 Baa2 7,304,780
10,150,000 Orange Cnty., Local Trans. Auth. IFB, FGIC, 7.911s,
2/14/11 (acquired 1/30/97, cost $10,393,516) (RES) Aaa 11,101,563
11,285,000 San Diego Cnty., COP (Inmate Reception
Ctr. & Cooling), MBIA, 6 3/4s, 8/1/19 Aaa 12,441,713
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
53,760,000 zero %, 1/1/24 Aaa 13,507,200
39,225,000 zero %, 1/1/22 Aaa 11,130,094
27,400,000 zero %, 1/1/18 Aaa 10,069,500
21,000,000 San Joaquin Hills, Trans. Corridor Agcy. Toll Road
Rev. Bonds, Ser. A, MBIA, zero %, 1/15/36 AAA 2,520,000
17,690,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA, 5s, 8/1/20 Aaa 16,363,250
17,025,000 U. of CA Rev. Bonds (UCSD Med. Ctr.
Satellite Med. Fac.), 7.9s, 12/1/19 A-/P 17,208,189
----------------
123,318,664
Colorado (4.0%)
- ----------------------------------------------------------------------------------------------------------------------------
17,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Aaa 19,082,500
Denver, City & Cnty. Arpt. Rev. Bonds
28,660,000 Ser. A, 8 3/4s, 11/15/23 Baa1 30,666,200
10,340,000 Ser. A, 8 3/4s, 11/15/23 (Prerefunded) Aaa 11,167,200
4,800,000 Ser. A, 8 1/2s, 11/15/23 Baa1 4,981,344
455,000 Ser. A, 8 1/2s, 11/15/23 (Prerefunded) Aaa 475,379
3,980,000 Ser. B, 7 1/4s, 11/15/23 Baa1 4,144,175
1,020,000 Ser. B, 7 1/4s, 11/15/23 (Prerefunded) Aaa 1,096,500
----------------
71,613,298
Connecticut (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
8,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA Electric Co.), Ser. A, 5.85s, 9/1/28 Ba1 7,170,000
Mashantucket, Wertern Pequot Tribe 144A
Rev. Bonds, Ser. A
7,565,000 6.4s, 9/1/11 Baa2 7,782,494
7,435,000 6.4s, 9/1/11 (Prerefunded) Aaa 8,178,500
----------------
23,130,994
District of Columbia (4.8%)
- ----------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds, Ser. A
39,250,000 6 3/8s, 6/1/26 AAA 42,439,063
38,175,000 6s, 6/1/26 BBB 36,743,438
7,000,000 DC, Georgetown U. IFB, 9.545s, 4/25/22 A+ 7,726,250
----------------
86,908,751
Florida (3.2%)
- ----------------------------------------------------------------------------------------------------------------------------
11,010,000 FL State Gen. Svcs. , 8 1/4s, 7/1/17 (acquired 9/2/98,
cost $14,162,544) (RES) AAA/P 12,606,450
5,530,000 Halifax, Hosp. Med. Ctr. Rev. Bonds, Ser. A,
7 1/4s, 10/1/29 BB/P 5,232,763
18,500,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 (SEG) Aaa 22,986,250
16,375,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration), Ser. A, 7 7/8s, 12/15/25 Baa3 16,538,750
----------------
57,364,213
Georgia (3.6%)
- ----------------------------------------------------------------------------------------------------------------------------
12,000,000 De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.), Ser. A, 7 1/2s, 4/1/17 AAA/P 12,870,000
GA Muni. Elec. Pwr. Auth. Rev. Bonds
10,000,000 Ser. B, FGIC, 8 1/4s, 1/1/11 Aaa 12,537,500
21,700,000 Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 23,897,125
10,460,000 GA State G.O. Bonds, Ser. D, 6.8s, 8/1/11 Aaa 11,976,700
5,000,000 GA State Private College & U. Auth. Rev. Bonds
(Emory U.), Ser. A, Go. Of Univ., 5 1/2s, 11/1/31 AA 4,762,500
----------------
66,043,825
Illinois (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds, Ser. A FGIC
5,400,000 zero %, 12/1/17 Aaa 1,930,500
7,750,000 zero %, 12/1/16 Aaa 2,954,688
14,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8.2s, 12/1/24 Baa1 15,841,250
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
3,200,000 8 3/4s, 7/1/11 B/P 3,400,000
1,635,000 8 3/4s, 7/1/11 (Prerefunded) AAA/P 1,726,969
8,000,000 IL Dev. Fom. Auth. IFB (St. Luke's Med. Ctr.),
MBIA, 8.602s, 10/1/24 Aaa 8,810,000
2,000,000 IL Hlth. Fac. Auth. IFB (Methodist Hlth.), AMBAC,
10.774s, 5/18/21 Aaa 2,186,260
5,000,000 IL Hlth. Fac. Auth. Rev. Bonds (Advocate Hlth.),
Ser. B, MBIA-IBC, 5 1/4s, 8/15/18 AAA 4,443,750
2,200,000 IL Hsg. Dev. Auth. IFB, 10.349s, 2/1/20 (acquired
4/8/92, cost $2,347,136) (RES) Aa1 2,276,164
----------------
43,569,581
Indiana (2.3%)
- ----------------------------------------------------------------------------------------------------------------------------
9,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 7,301,250
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 3,558,625
20,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 19,025,000
10,480,000 Indianapolis, Local Pub. Impt Bd.. Rev. Bonds,
Ser. A, 6s, 2/1/11 Aaa 11,200,500
----------------
41,085,375
Kansas (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
18,200,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 9.67s, 6/1/31 (acquired various
dates from 6/20/91 to 2/14/94,
cost $20,181,360) (RES) Aaa 19,747,000
Louisiana (1.6%)
- ----------------------------------------------------------------------------------------------------------------------------
17,800,000 Lake Charles, Harbor & Term. Dist. Port Fac. Rev.
Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 19,201,750
8,565,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), Ser. III, 7.7s, 12/1/14 Ba1 9,068,194
----------------
28,269,944
Maine (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
11,935,000 Bucksport Solid Waste Disp. Rev. Bonds
(Champion Intl. Corp.), 6 1/4s, 5/1/10 Baa1 12,069,269
Massachusetts (8.4%)
- ----------------------------------------------------------------------------------------------------------------------------
15,850,000 Boston, Rev. Bonds (Boston City Hosp.), Ser. A,
FHA Insd., 7 5/8s, 2/15/21 Aaa 16,285,400
9,800,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev.
Bonds, MBIA, 6 1/2s, 7/1/05 Aaa 10,449,250
MA State G.O. Bonds
11,595,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $14,388,236) (RES) Aa3 13,218,300
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 Aaa 5,542,644
5,425,000 Ser. C, AMBAC, 5 3/4s, 8/1/10 Aaa 5,709,813
20,000,000 MA State Rev. Bonds (Grant Anticipation Notes),
Ser. A, MBIA, 5 1/2s, 6/15/13 Aaa 20,400,000
MA State Hlth. & Ed. Fac. Auth. Rev. Bonds
6,000,000 (Caritas Christian Oblig. Group), Ser. A,
5 5/8s, 7/1/20 Baa2 4,747,500
7,000,000 AMBAC, 6.55s, 6/23/22 Aaa 7,376,250
MA State Hlth. & Edl. Fac. Auth. IFB
11,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s, 8/12/21 Aaa 11,825,000
18,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
8.46s, 10/1/31 Aaa 19,282,500
5,370,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 AAA 5,698,913
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 4,809,375
7,000,000 Ser. A, 9s, 7/1/15 BB-/P 7,472,500
MA State Port Auth. Rev Bonds
5,700,000 13s, 7/1/13 Aaa 7,167,750
5,350,000 FGIC, 7 1/2s, 7/1/20 Aaa 5,483,055
8,000,000 MA State Tpk. Auth. Hwy. Syst. Rev. Bonds, Ser. A,
AMBAC, 5s, 1/1/39 Aaa 6,860,000
----------------
152,328,250
Michigan (3.1%)
- ----------------------------------------------------------------------------------------------------------------------------
4,400,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 5 1/2s, 5/1/21 A2 3,910,500
11,355,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 12/13/08 Aaa 12,192,431
5,000,000 MI State Hosp. Fin. Auth. Rev. Bonds (Sinai Hosp.),
6.7s, 1/1/26 A- 4,443,750
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 10,387,500
10,000,000 MI State Strategic Fund Ltd. Rev. Bonds
(Detroit Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 9,412,500
6,745,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/13 Baa3 5,944,031
10,475,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds
(Northwest Airlines Inc.), 6 3/4s, 12/1/15 BB+/P 10,475,000
----------------
56,765,712
Minnesota (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
4,010,000 Martin Cnty., Hosp. Rev Bonds (Fairmont
Cmnty. Hosp.), 6 5/8s, 9/1/22 BB+/P 3,553,863
4,560,000 MN Agricultural & Econ. Dev. Board Rev. Bonds
(Benedictine Health), Ser. A, MBIA, 5 1/4s, 2/15/12 AAA 4,525,800
15,065,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA+ 15,479,288
----------------
23,558,951
Missouri (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
14,400,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 15,552,000
Montana (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
14,000,000 MT State Hlth. Fac. Auth. Hosp. IFB (Deaconess
Med. Ctr.), Ser. B, AMBAC, 8.181s, 3/8/16 Aaa 14,803,460
Nebraska (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
9,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
10.197s, 11/15/16 Aaa 9,765,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
2,700,000 GNMA Coll., 9.719s, 9/15/24 Aaa 2,828,250
5,800,000 Ser. B, GNMA Coll., 10.47s, 10/17/23 Aaa 6,140,750
----------------
18,734,000
New Hampshire (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
10,500,000 NH State Tpk. Sys. IFB, FGIC, 10.245s, 11/1/17 Aaa 12,298,125
New Jersey (2.5%)
- ----------------------------------------------------------------------------------------------------------------------------
8,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 7,310,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
5,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 5,031,250
13,500,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 B-/P 12,133,125
5,800,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 B-/P 5,394,000
NJ State Trans. Trust Fund Auth. Rev. Bonds
10,000,000 (Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,112,500
5,000,000 Ser. A, 5 5/8s, 6/15/14 AA 5,162,500
----------------
46,143,375
New York (15.8%)
- ----------------------------------------------------------------------------------------------------------------------------
12,500,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 7 1/4s,
12/1/24 (acquired 5/19/98, cost $13,496,874) (RES) A-/P 11,828,125
Long Island, Pwr. Auth. NY Elec. Syst. Rev.
Bonds, Ser. A
10,000,000 FSA, 5 1/2s, 12/1/13 Aaa 10,225,000
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 5,193,750
4,410,000 FSA, 6s, 8/1/14 Aaa 4,602,938
6,500,000 NY City, City Transitional Fin. Auth. Rev. Bonds,
Ser. A, 5 3/4s, 8/15/24 AA 6,483,750
NY City, G.O. Bonds
4,600,000 Ser. F, 8.4s, 11/15/07 Aaa 4,933,500
4,855,000 Ser. F, 8.4s, 11/15/06 Aaa 5,206,988
4,635,000 Ser. F, 8.4s, 11/15/05 Aaa 4,971,038
29,335,000 (Group B), Ser. D, 8 1/4s, 8/1/12 Aaa 31,131,769
9,800,000 Ser. D, 8 1/4s, 8/1/11 (Prerefunded) Aaa 10,400,250
13,235,000 Ser. B, MBIA, 6 1/2s, 8/15/10 AAA 14,624,675
6,765,000 Ser. D, MBIA, 6 1/2s, 11/1/09 Aaa 7,433,044
3,000,000 Ser. J, 5s, 8/1/23 A3 2,602,500
10,000,000 Ser. G, 5s, 8/1/22 A3 8,700,000
10,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper Inc.), 7.95s, 1/1/28 B/P 10,312,500
20,000,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev.
Bonds, Ser. B, FGIC, 5 1/8s, 6/15/30 AAA 17,975,000
2,800,000 NY City, NY State Dorm. Auth. Lease Rev. Bonds
(Court Facs.), 6s, 5/15/39 A3 2,803,500
20,000,000 NY State Urban Dev. Corp. Rev. Bonds, HUD
Sect. 236 Go. Of Corp., 5 1/2s, 7/1/16 Aaa 19,750,000
NY State Dorm. Auth. Rev. Bonds (State U. Edl. Facs.)
7,500,000 MBIA, 6s, 5/15/16 AAA 7,846,875
7,000,000 MBIA, 6s, 5/15/15 AAA 7,341,250
6,000,000 NY State Metropolitan Trans. Auth. Rev. Bonds,
Ser. A, FGIC, 5 7/8s, 4/1/25 AAA 6,060,000
NY State Dorm. Auth. Rev. Bonds
10,900,000 (Construction City U. Syst.), Ser. A, 6s, 7/1/20 Baa1 11,267,875
12,485,000 (U. Syst. Construction), Ser. A, 5 3/4s, 7/1/18 Baa1 12,625,456
23,100,000 (State U. Edl. Fac.), Ser. A, 5 1/2s, 5/15/19 A3 22,551,375
7,515,000 (North Shore U. Hosp.), MBIA, 5 1/2s, 11/1/11 AAA 7,684,088
5,000,000 (State U. Edl. Facs.), Ser. A, MBIA, 4 3/4s, 5/15/25 Aaa 4,281,250
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 4,510,924
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
(Mental Hlth. Svcs. Fac.)
2,480,000 Ser. B, 7 5/8s, 8/15/17 A3 2,610,200
5,450,000 Ser. B, 7 5/8s, 8/15/17 (Prerefunded) A3 5,777,000
----------------
286,908,683
North Carolina (4.6%)
- ----------------------------------------------------------------------------------------------------------------------------
10,000,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6s, 1/1/18 AAA 10,387,500
19,700,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC, 9.278s,
1/1/25 (acquired various dates from 12/28/93 to
4/12/95, cost $23,983,708) (RES) Aaa 20,783,500
11,680,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. C, MBIA, 7s, 1/1/13 Aaa 13,359,000
5,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. D, 6 3/4s, 1/1/26 BBB 5,056,250
29,000,000 NC Muni. Pwr. Agcy. Rev. Bonds (No. 1
Catawba Elec.), Ser. B, 6 1/2s, 1/1/20 BBB+ 29,253,750
5,000,000 NC Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. A,
5 3/4s, 1/1/26 BBB 4,425,000
----------------
83,265,000
Ohio (1.4%)
- ----------------------------------------------------------------------------------------------------------------------------
1,475,120 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 1,507,720
3,223,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 10.176s, 3/24/31 Aaa 3,420,409
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
7,775,000 Ser. 4, GNMA Coll., 9s, 9/1/18 AAA/P 7,366,813
7,775,000 Interest Only (IO), Ser. 4, GNMA Coll., 9s, 9/1/01 AAA/P 942,719
15,000,000 OH State, Tpk. Comm. Rev. Bonds, Ser. B, FGIC,
4 3/4s, 2/15/28 AAA 12,656,250
----------------
25,893,911
Oklahoma (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
6,500,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 Baa2 5,118,750
6,000,000 OK State Ind. Auth. Rev. Bonds (Hlth. Syst.-Oblig.
Group), Ser. A, 5 3/4s, 8/15/29 AAA 5,820,000
----------------
10,938,750
Pennsylvania (3.8%)
- ----------------------------------------------------------------------------------------------------------------------------
8,150,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh
Intl. Arpt.), Ser. A, MBIA, 5 3/4s, 1/1/11 Baa1 8,384,313
2,780,000 Canon-McMillan School Dist. G.O. Bonds, FGIC,
zero %, 12/1/20 AAA 816,625
8,110,000 Clearfield Hosp. Auth. Rev. Bonds (Clearfield Hosp.),
6 7/8s, 6/1/16 BBB 7,917,388
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
6,000,000 Ser. D, 7.15s, 12/1/18 BBB- 6,172,500
10,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 10,287,500
12,700,000 (Northampton Generating), Ser. A, 6.4s, 1/1/09 BBB- 12,414,250
20,000,000 PA State, Tpk. Comm. Oil Franchise Tax Rev. Bonds,
Ser. B, AMBAC, 4 3/4s, 12/1/27 Aaa 17,000,000
3,400,000 Philadelphia, G.O. Bonds, FGIC, 4 3/4s, 5/15/20 Aaa 2,932,500
10,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev.
Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10
(In default) (NON) B2 3,300,000
----------------
69,225,076
Puerto Rico (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
6,700,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
MBIA, 6 1/4s, 7/1/12 Aaa 7,403,500
South Carolina (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
4,150,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds (Stone
Container Corp.), 7 3/8s, 2/1/07 B/P 4,274,500
Tennessee (1.6%)
- ----------------------------------------------------------------------------------------------------------------------------
3,000,000 Elizabethton, Hlth. & Edl. Facs. Board Rev. Bonds
(Hosp. Ref. & Impt.), Ser. B, 8s, 7/1/33 AAA 3,097,500
7,000,000 Johnson City, Hlth. & Edl. Facs. Rev. Bonds
(Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 AAA 6,921,250
5,000,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board Rev.
Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/25 AAA 4,975,000
40,000,000 Metro. Nashville & Davidson Cnty. Hlth. & Ed. Fac.
Board Rev. Bonds (Volunteer Hlth. Care),
zero %, 6/1/21 Aaa 10,000,000
4,000,000 Shelby Cnty., Hlth. Edl. & Hsg. Facs. Board Rev.
Bonds (Wyndridge Multifamily Hsg.), FRB,
3.6s, 11/1/19 A-1+ 4,000,000
----------------
28,993,750
Texas (10.5%)
- ----------------------------------------------------------------------------------------------------------------------------
4,250,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Retirement), Ser. A, 5 7/8s, 11/15/18 BB+/P 3,479,688
31,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 31,775,000
15,000,000 Dallas Cnty., G.O. Bonds, stepped-coupon (Flood
Control Dist. (SEG)1), (8.5s, 10/1/99), 4/1/16 (STP) BB-/P 13,500,000
7,000,000 Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.), 6 3/8s, 5/1/35 Baa1 6,676,250
25,250,000 Gulf Coast, Waste Disposal Auth. Rev. Bonds
(Champion Intl. Corp.), 7.45s, 5/1/26 Baa1 26,102,188
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 8,880,800
8,000,000 Ser. C, 5.7s, 7/15/29 Ba1 6,530,000
10,700,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds (Memorial
Hlth. Syst.of East TX), 6 7/8s, 2/15/26 BBB- 10,084,750
20,000,000 North Central Hlth. Fac. Dev. Corp. IFB (Baylor U.
Med. Ctr.), Ser. A, 8.752s, 5/15/16 Aa2 21,900,000
3,600,000 San Antonio, Certificates of Obligation, Ser. 2000,
5s, 2/1/20 AA+ 3,226,500
3,000,000 San Antonio, G.O. Bonds, Ser. 2000, 5s, 2/1/20 AA+ 2,688,750
6,500,000 Texas State Indl. Dev. Corp. Rev. Bonds (Arco
Pipeline Co.), 7 3/8s, 10/1/20 A 7,678,125
20,800,000 TX State Rev. Bonds, 6.2s, 9/30/11 Aa2 22,568,000
1,700,000 TX State Dept. of Hsg. & Cmnty. Affairs Home
Mtge. IFB, Ser. B-2, GNMA Coll., 10.119s, 6/18/23 AAA 1,722,253
10,000,000 TX State Tpk. Auth. Rev. Bonds, FGIC, 5 1/2s, 1/1/15 AAA 9,925,000
----------------
189,496,323
Utah (1.5%)
- ----------------------------------------------------------------------------------------------------------------------------
19,065,000 Intermountain Pwr. Agcy. Rev. Bonds, (UT State
Pwr. Supply), Ser. B, MBIA, 6 1/2s, 7/1/09 Aaa 20,876,175
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
Ser. A, 8 1/8s, 5/15/15 AAA 6,081,250
----------------
26,957,425
Vermont (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
7,600,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds (Hosp.
Med. Ctr.), FGIC, 7s, 9/1/19 AAA 7,894,500
Virginia (2.7%)
- ----------------------------------------------------------------------------------------------------------------------------
10,500,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 8.988s, 8/23/27 Aaa 10,985,625
5,000,000 Norfolk, Cnth., Wtr. Rev. Bonds, MBIA, 5.9s, 11/1/25 Aaa 5,056,250
30,000,000 Winchester, Indl. Dev. Auth. IFB (Winchester
Med. Ctr.), AMBAC, 5s, 1/21/14 Aaa 33,600,000
----------------
49,641,875
Washington (1.5%)
- ----------------------------------------------------------------------------------------------------------------------------
5,200,000 Port of Moses Lake, Pub. Corp. Poll. Control Rev.
Bonds (Union Carbide Corp.), 7 1/2s, 8/1/04 Baa2 5,206,968
4,500,000 Port Vancouver, Rev. Bonds (United Grain Corp.),
FRB, 3 1/2s, 12/1/09 (LOC-Bk. Of America
NT & SA) A-1+ 4,500,000
WA State Hlth. Care Fac. Auth. Rev. Bonds
(Hutchinson Cancer Ctr.), Ser. D
8,400,000 7 3/8s, 1/1/18 Aa3 8,715,237
7,700,000 7.3s, 1/1/12 Aa1 7,985,978
----------------
26,408,183
Wisconsin (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
2,865,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 10.371s, 10/25/22 Aa3 2,956,651
----------------
Total Municipal Bonds and Notes
(cost $1,771,287,458) $ 1,800,337,265
PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
4,000,000 Charter Mac. Equity, 6.625%, pfd. (acquired 6/11/99,
cost $4,000,000) (RES) $ 3,910,000
6,000,000 MuniMae Tax Exempt Bonds Subsidiary, LLC 144A,
6.875%, cum.pfd. (acquired 5/7/99,
cost $6,000,000) (RES) 5,955,000
----------------
Total Preferred Stocks (cost $10,000,000) $ 9,865,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,781,287,458) (b) $ 1,810,202,265
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of $1,811,595,704.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at March 31, 2000, 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, 2000. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,781,287,626,
resulting in gross unrealized appreciation and depreciation of
$83,006,292 and $54,091,653, respectively, or net unrealized
appreciation of $28,914,639.
(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, 2000, was $104,974,540 or 5.8% 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, 2000.
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 current interest
rates shown at March 31, 2000, which are subject to change based on the
terms of the security.
The rates shown on Inverse Floating Bonds (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, 2000.
The fund had the following industry group concentrations greater
than 10% at March 31, 2000 (as a percentage of net assets):
Utilities 15.2%
Transportation 15.1
Hospital/Health care 14.7
The fund had the following insurance concentrations greater than
10% at March 31, 2000 (as a percentage of net assets):
MBIA 14.5%
- --------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2000 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
[S] [C] [C] [C] [C]
- --------------------------------------------------------------------------------
Muni Bond
Futures (Long) $64,357,031 $62,984,033 June 00 $ 1,372,998
U.S. Treasury
Bond Futures (Short) 54,021,188 52,879,676 June 00 (1,141,512)
- --------------------------------------------------------------------------------
$ 231,486
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000 (Unaudited)
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,781,287,458) (Note 1) $1,810,202,265
- ----------------------------------------------------------------------------------------------
Cash 10,891,298
- ----------------------------------------------------------------------------------------------
Interest and other receivables 28,432,163
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 815,618
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 230,111
- ----------------------------------------------------------------------------------------------
Total assets 1,850,571,455
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for variation margin 44,469
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,571,499
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 29,053,925
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,950,993
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,241,709
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 62,668
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 44,308
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,274
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 953,058
- ----------------------------------------------------------------------------------------------
Other accrued expenses 48,848
- ----------------------------------------------------------------------------------------------
Total liabilities 38,975,751
- ----------------------------------------------------------------------------------------------
Net assets $1,811,595,704
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,821,610,948
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,252,104)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (34,909,433)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 29,146,293
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,811,595,704
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,603,129,394 divided by 189,218,016 shares) $8.47
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.47)* $8.89
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($198,034,894 divided by 23,379,891 shares)*** $8.47
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($993,103 divided by 117,245 shares)*** $8.47
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($9,438,313 divided by 1,111,065 shares) $8.49
- ----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.49)** $8.78
- ----------------------------------------------------------------------------------------------
* 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.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 2000 (Unaudited)
<S> <C>
- ----------------------------------------------------------------------------------------------
Tax exempt interest income: $61,988,545
- ----------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,607,986
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 555,184
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,767
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,674
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,650,889
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 881,153
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 4,179
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 23,463
- ----------------------------------------------------------------------------------------------
Reports to shareholders 5,699
- ----------------------------------------------------------------------------------------------
Auditing 14,829
- ----------------------------------------------------------------------------------------------
Legal 19,927
- ----------------------------------------------------------------------------------------------
Postage 31,262
- ----------------------------------------------------------------------------------------------
Other 95,797
- ----------------------------------------------------------------------------------------------
Total expenses 7,918,809
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (130,815)
- ----------------------------------------------------------------------------------------------
Net expenses 7,787,994
- ----------------------------------------------------------------------------------------------
Net investment income 54,200,551
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,523,381)
- ----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,366,614)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (30,318,862)
- ----------------------------------------------------------------------------------------------
Net loss on investments (35,208,857)
- ----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $18,991,694
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
2000* 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 54,200,551 $ 108,159,104
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (4,889,995) 67,244
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (30,318,862) (152,688,772)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 18,991,694 (44,462,424)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (48,569,307) (96,670,820)
- -------------------------------------------------------------------------------------------------------
Class B (5,424,040) (10,680,703)
- -------------------------------------------------------------------------------------------------------
Class C (21,239) (2,378)
- -------------------------------------------------------------------------------------------------------
Class M (261,877) (475,838)
- -------------------------------------------------------------------------------------------------------
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) (120,576,163) (131,696,702)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (155,860,932) (290,661,501)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 1,967,456,636 2,258,118,137
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $4,252,104 and
$4,176,192 respectively) $1,811,595,704 $1,967,456,636
- -------------------------------------------------------------------------------------------------------
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.62 $9.30 $9.12 $8.76 $8.74 $8.55
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .47 .45 .48 .49 .52
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) (.66) .19 .36 .02 .19
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 (.19) .64 .84 .51 .71
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.46) (.46) (.48) (.49) (.52)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- (.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.49) (.46) (.48) (.49) (.52)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.47 $8.62 $9.30 $9.12 $8.76 $8.74
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.20* (2.12) 7.22 9.89 5.94 8.58
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,603,129 $1,737,755 $1,998,387 $2,054,537 $2,117,684 $2,237,837
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .39* .81 .81 .78 .78 .78
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.95* 5.14 4.92 5.40 5.58 6.03
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.81* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.62 $9.30 $9.12 $8.76 $8.73 $8.53
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .41 .39 .43 .43 .46
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) (.66) .19 .36 .03 .20
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 (.25) .58 .79 .46 .66
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.40) (.40) (.43) (.43) (.46)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains
on investments -- (.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.43) (.40) (.43) (.43) (.46)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.47 $8.62 $9.30 $9.12 $8.76 $8.73
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .87* (2.76) 6.52 9.18 5.38 8.01
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $198,035 $219,300 $249,541 $245,759 $250,990 $246,407
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71* 1.46 1.46 1.43 1.43 1.43
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.62* 4.49 4.28 4.75 4.92 5.34
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.81* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
Per-share March 31 July 26, 1999+
operating performance (Unaudited) to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.63 $8.87
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .07
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.16) (.24)
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 (.17)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.07)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.07)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.47 $8.63
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .68* (1.85)*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $993 $637
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .79* .29*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.54* .88*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.81* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 16, 1995+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.64 $9.32 $9.14 $8.78 $8.75 $8.61
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .44 .43 .45 .46 .31
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14) (.65) .19 .37 .03 .13
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .09 (.21) .62 .82 .49 .44
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.44) (.44) (.46) (.46) (.30)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- (.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.44) (.46) (.46) (.30)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.49 $8.64 $9.32 $9.14 $8.78 $8.75
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.05* (2.40) 6.89 9.55 5.72 5.23*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,438 $9,764 $10,191 $8,280 $5,732 $2,337
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .54* 1.11 1.11 1.08 1.06 .67*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.80* 4.84 4.65 5.07 5.26 3.04*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.81* 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
March 31, 2000 (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, class C 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 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 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 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.
Restricted securities are stated at fair value following procedures
approved by the Trustees. 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 maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended March 31, 2000 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
taxable 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 paid 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 in excess of maturity
value is amortized on a yield-to-maturity basis. Any premium resulting
from the purchase of securities in excess of maturity value is amortized
on a yield-to-maturity basis. 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, Inc. ("Putnam Management") a
wholly-owned subsidiary of Putnam Investment Inc., 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.
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, 2000, fund expenses were reduced by
$130,815 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested 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 $1,658
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 six months ended March 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $27,200 and $560 from
the sale of class A and class M shares, respectively and received
$193,131 and $1,771 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. 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 six months ended March 31,
2000, Putnam Mutual Funds Corp., acting as underwriter received $22,887
on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $162,916,882 and $279,927,481, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At March 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 11,688,894 $98,121,364
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,378,083 28,384,281
- ---------------------------------------------------------------------------
15,066,977 126,505,645
Shares
repurchased (27,395,427) (230,062,294)
- ---------------------------------------------------------------------------
Net decrease (12,328,450) $(103,556,649)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,461,228 $12,302,193
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 393,744 3,306,415
- ---------------------------------------------------------------------------
1,854,972 15,608,608
Shares
repurchased (3,916,271) (32,837,528)
- ---------------------------------------------------------------------------
Net decrease (2,061,299) $(17,228,920)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 64,543 $544,869
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,371 11,521
- ---------------------------------------------------------------------------
65,914 556,390
Shares
repurchased (22,525) (188,738)
- ---------------------------------------------------------------------------
Net increase 43,389 $367,652
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 80,290 $676,156
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 25,528 215,012
- ---------------------------------------------------------------------------
105,818 891,168
Shares
repurchased (124,358) (1,049,414)
- ---------------------------------------------------------------------------
Net decrease (18,540) $(158,246)
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
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
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
Richard G. Leibovitch
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA041/60358 011/322/472 5/00
