<PAGE> 1
PUTNAM
MUNICIPAL
INCOME FUND
[ARTWORK]
ANNUAL REPORT
March 31, 1994
[LOGO]
<PAGE> 2
PERFORMANCE HIGHLIGHTS
o Morningstar again awarded the fund its (5-Star) rating as of March 31,
1994, among funds with similar investment objectives.*
o Performance should always be considered in light of a fund's investment
strategy. Putnam Municipal Income Fund is for investors seeking as high a
level of current income free from federal income tax as is consistent with
preservation of capital.
FISCAL 1994 RESULTS AT A GLANCE
12 MONTHS ENDED 3/31/94 CLASS A CLASS B
NAV POP NAV CDSC
TOTAL RETURN:
(change in value during period
plus reinvested earnings) 2.15% -2.65% 1.52% -3.26%
CURRENT RETURN: NAV POP NAV
(END OF PERIOD:)
CURRENT DIVIDEND RATE(1) 6.03% 5.74% 5.44%
TAXABLE EQUIVALENT(2) 9.98 9.50 9.01
CURRENT 30-DAY SEC YIELD(3) 5.91 5.63 5.23
TAXABLE EQUIVALENT(2) 9.78 9.32 8.66
CLASS A CLASS B
SHARE VALUE: NAV POP NAV
3/31/93 $9.12 $9.57 $9.12
3/31/94 8.73 9.17 8.73
DISTRIBUTIONS CAPITAL GAINS
12 MONTHS SHORT- LONG-
ENDED(4) NO. INCOME TERM TERM TOTAL
Class A 13 $0.542457 $0.051 $0.006 $0.599457
Class B 13 0.448340 0.051 0.006 0.50534
Performance data represent past results. For performance over longer
periods, see pages 8 and 9. POP assumes 4.75% maximum sales charge. CDSC
assumes 5% maximum contingent deferred sales charge.
(1) Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
(2) Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous. For some investors,
investment income may also be subject to the alternative minimum tax.
(3) Based only on investment income, calculated per SEC guidelines.
(4) Investment income may be subject to state and local taxes.
* Morningstar is an independent research firm that rates funds relative to
funds with similar objectives, based on risk-adjusted medium- and
long-term performance, as applicable, and adjusted for sales charges.
Ratings are subject to change every two weeks.
2
<PAGE> 3
FROM THE CHAIRMAN
[PHOTO]
[PHOTOGRAPH OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
Dear Shareholder:
These are surely times that test the mettle of investors. As uncertainties over
a host of concerns -- real and perceived -- continue to generate jitters in the
securities markets, many shareholders have been asking: "What's happening and
why?" "How long will this volatility last?" and "What should I do?" We have
been responding by pointing out that the recent market adjustments are a
natural occurrence at this stage of the economic recovery. The resulting
volatility will likely continue for a while as investors digest new realities
in such areas as interest rates, inflation, and the pace of recovery. But the
economy is still strong, interest rates remain relatively low on a historical
basis, and inflation appears under control. We believe overall prospects for
the long term remain positive. We have been cautioning shareholders against
taking hasty actions, for long-term investment programs should rarely be
altered in response to short-term events. Your investment advisor can provide
helpful guidance regarding your own investment program.
Respectfully yours,
George Putnam
Chairman of the Trustees
May 18, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
Putnam Municipal Income Fund's strong performance during most of fiscal 1994
was significantly eroded in the final weeks of the period as the fund, like
most other fixed-income investments, felt the effects of the sudden downturn in
the bond market (see chart). The total return in excess of 6% at net asset
value we reported for the first six months of the fiscal year was reduced to a
fraction of that for the fiscal year ended on March 31, 1994. Investors with
longer-term perspectives will be more gratified by the results over lengthier
periods, as shown in the tables on page 8.
Likewise, those who take their dividends in cash will find the tax-free current
dividend rate competitive in today's marketplace. This will be especially
apparent when the comparison is made against the return a taxable investment
would have had to provide to deliver equivalent after-tax income. The table on
page 2 provides examples.
o STRATEGY: LOOKING BEYOND SHORT-TERM EVENTS
During most of the year, we managed your fund in a climate of gradual
economic growth, low inflation, and generally declining interest rates.
Then, in February and again in March, the Federal Reserve Board sensed a
gathering head of inflationary pressure. In response, it staged a
preemptive strike by nudging short-term rates higher. Although the move
was expected and well-justified at this stage of the economic recovery, it
sent many investors running for the exits.
Short-term market moves like the one we are experiencing now cannot be
ignored, of course. Insofar as possible, we try to anticipate them and
take appropriate defensive action when
4
<PAGE> 5
justified. But in general we tend to hold a longer view for your fund, one
that considers underlying economic fundamentals, which do not necessarily
drive short-term market trends.
o PORTFOLIO: TAPPING WASTE, HEALTH CARE
During fiscal 1994, for example, we continued to find attractively priced
issues in resource recovery and health care. We increased the portfolio's
weighting in both of these sectors, investing in bonds with BB ratings
that we characterize as "special situations" because of such attributes as
strong management, positive business prospects, and improving cash flows.
While waste management is a concern for most municipalities, the
political, environmental, and economic factors surrounding the problem of
recycling waste make investing in this area complex. It is this
complexity, however, that often leads to attractive buying opportunities.
During the year, we took advantage of several refinancings involving bonds
issued to support recycling of coal, wood, and agricultural waste into
fuel for power-generating facilities. As resource recovery efforts become
more widespread,
[MUNICIPAL BOND PRICES GRAPH]
[LINE GRAPH]
MBINDEX
AVERAGE
PRICE
107.910
108.377
109.145
109.073
105.927
107.341
107.700
107.178
105.407
106.862
107.374
103.870
98.944
5
<PAGE> 6
we believe more investment opportunities will be available and credit
ratings will rise to investment-grade levels.
In the health care sector, we emphasized hospital issues. Health care
reform is evolving, and we believe that the market is leaning toward a
managed-care approach, whether it is accomplished by private-sector
initiative or federal government mandate. We generally look for securities
of hospitals whose market position, quality of management, and financial
performance have gone unnoticed by other investors or where they are just
starting to become recognized. We believe these issues hold the greatest
potential for appreciation.
We also selectively added bonds in the steel and container industries.
These bonds were attractively priced and have the potential to produce a
relatively high level of income.
o PROSPECTS: GREATER DEMAND, TIGHTER SUPPLY
Because we believe investors will continue to seek ways to shelter some of
their income from higher taxes, we do not expect a decline in demand for
tax-exempt securities.
We anticipate a dramatic decrease in issuance of municipal bonds over the
next several months, however. Last year, roughly $275 billion of municipal
bonds were issued. Of this total, $170 billion represented refunding of
existing issues. Just as homeowners aren't as eager to refinance their
mortgages in a rising interest rate environment, bond issuers aren't as
willing to refinance their old debt.
6
<PAGE> 7
TOP INDUSTRY SECTORS*
HEALTH CARE 19.9%
UTILITIES 14.8%
TRANSPORTATION 10.8%
HOUSING 8.2%
* Based on net assets on 3/31/94
We believe new bond issuance this year will be in the $110 billion range.
In a climate of rising interest rates, we expect this will keep municipal
bond prices from falling as quickly as those of taxable issues and may
narrow the spreads between tax-exempt and taxable securities. There can be
no assurance, of course, that our predictions regarding demand, supply,
and municipal bond prices will prove correct.
In general, we decreased the average maturity of the portfolio from 30
years to the 15- to 25-year range. Bonds with shorter maturities are
attractive to investors now, and with the expected dearth of supply, this
should make the bonds in the portfolio relatively more valuable.
o OUTLOOK: FED TO KEEP TIGHT REIN ON INFLATION
Continued strengthening of the economy could prompt the Fed to continue
raising interest rates to maintain a tight rein on inflation. This could
cause more volatility in the municipal bond market. Nevertheless, our
assessment of the long-term investment climate remains positive. Because
municipal securities are among the last ways to shelter income from tax,
they should continue to benefit from strong demand, an expectation that
bodes well for your fund's future long-term performance.
7
<PAGE> 8
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. 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 back into the fund.
We show total return in two ways: on a cumulative long-term basis (see
the chart on the facing page) and on average how the fund might have
grown each year over varying periods (see the table below).
We provide total returns for varying lengths of time ending on March
31, 1994, the close of the fiscal period covered in this report.
TOTAL RETURN FOR PERIODS ENDING 3/31/94
<TABLE>
<CAPTION>
LEHMAN BROS. CONSUMER
CLASS A CLASS B MUNICIPAL PRICE
NAV POP NAV CDSC BOND INDEX INDEX
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 2.15% -2.65% 1.52% -3.26% 2.32% 2.51%
- -------------------------------------------------------------------------------------------
3 years 30.19 23.96 -- -- 26.63 9.04
Annual average 9.19 7.42 -- -- 8.19 2.93
- -------------------------------------------------------------------------------------------
Life of class A* 48.46 41.47 -- -- 46.32 18.90
Annual average 8.47 7.40 -- -- 8.15 3.63
- -------------------------------------------------------------------------------------------
Life of class B* -- -- 4.62 0.71 6.12 3.74
Annual average -- -- 3.71 0.57 4.91 3.00
- -------------------------------------------------------------------------------------------
</TABLE>
* The fund began investment operations on May 22, 1989, offering shares
now known as class A. Effective January 4, 1993, the fund began offering
class B shares.
Performance data represent past results. Investment returns and net
asset value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost. Fund performance data do
not take into account any adjustment for taxes payable on reinvested
distributions.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
long-term fixed-rate investment-grade tax-exempt bonds representative of
the municipal bond market. The index does not take into account
brokerage commissions or other costs, may include bonds different from
those in the fund, and may pose different risks than the fund.
The Consumer Price Index is a commonly used measure of inflation; it
does not represent an investment return.
8
<PAGE> 9
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
Cumulative total return of a $10,000 investment since 5/22/89
(Insert ending Total)
[ ] Fund's Class A shares at POP $14,147
[ ] Lehman Bros. Municipal Bond Index $14,632
[ ] Consumer Price Index $11,890
(mountain chart)
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception on January 4, 1993, would have grown to
$10,462 by March 31, 1994 ($10,071 with a redemption at the end of the period).
(Plot points for 10-year total return mountain chart)
LEHMAN BROS.
DATE/YEAR FUND AT POP MUNI BOND INDEX CPI
5/22/89 9,525 10,000 10,000
3/31/90 10,140 10,579 10,396
3/31/91 10,866 11,555 10,905
3/31/92 12,182 12,709 11,252
3/31/93 13,849 14,301 11,599
3/31/94 14,147 14,632 11,890
TERMS AND DEFINITIONS
CLASS A SHARES are the shares of your fund that are subject to an initial sales
charge.
CLASS B SHARES are the shares of your fund that may be subject to a sales
charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 4.75% sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of shares. Your fund's CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
9
<PAGE> 10
LIFE CYCLE INVESTING
As we move through life, our investment needs change. As these needs
change, so does the way we allocate our assets. Here are some basic
rules for setting up and maintaining an investment program and some
examples of how assets might be allocated.
o DETERMINE YOUR INVESTMENT OBJECTIVES
Objectives may include a new home, college education expenses, or
retirement.
o EVALUATE YOUR RISK TOLERANCE
Generally, risk tolerance is higher for younger investors with longer
timelines and lower for older investors who may depend on their
investment for current income.
o ALLOCATE YOUR INVESTABLE SAVINGS
Your investment advisor will help you determine how much of your
investable dollars should be allocated to each investment category.
o CHOOSE THE APPROPRIATE PUTNAM FUNDS
Using Putnam's free exchange privilege, you can adjust your Putnam fund
investments as your financial needs change -- without a service fee.*
Look at the facing page for some ways you can allocate your assets,
then turn the page to see how the Putnam Fund Selector(TM) can help you
make your choices.
* Putnam reserves the right to change or terminate the exchange
privilege. Exchanges from money market funds or from funds with a
contingent deferred sales charge into those without one may incur a
sales charge.
10
<PAGE> 11
FOUR WAYS TO ALLOCATE ASSETS
SEEKING MAXIMUM GROWTH
RISK TOLERANCE: 30% - 40% Growth and Income
Generally 40% - 50% Growth [PIE CHART]
investors with a 5% - 20% Income or
higher risk Tax-free Income
tolerance
(often in their 20s
and early 30s.)
SEEKING GROWTH AND SOME INCOME
RISK TOLERANCE: 40% - 50% Growth and Income
Generally 30% - 40% Growth [PIE CHART]
investors with a 10% - 30% Income or
high to moderate Tax-free Income
risk tolerance
(often in their late
30s and early 40s.)
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
RISK TOLERANCE: 30% - 40% Growth and Income
Generally 10% - 20% Growth [PIE CHART]
investors with a 25% - 60% Income or
moderate risk Tax-free Income
tolerance
(often in their late
40s and 50s.)
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
RISK TOLERANCE 20% - 30% Growth and Income
Generally 5% - 10% Growth [PIE CHART]
investors with 40% - 70% Income or
a moderate to Tax-free Income
low risk
tolerance
(often over 60
and retired)
11
<PAGE> 12
THE PUTNAM FUND SELECTOR(TM)
The Putnam Fund Selector shows the many opportunities for investors
within every investment strategy. All investors should first accumulate
a base of conservative, cash-equivalent investments. Then, with the
help of your investment advisor, diversify your portfolio by investing
in the Putnam Family of Funds.
[RISK/REWARD CHART]
[PYRAMID GRAPH]
HIGHEST RISK/REWARD = PUTNAM GROWTH FUNDS
HIGH RISK/REWARD = PUTNAM GROWTH & INCOME FUNDS
LOWER RISK/REWARD = PUTNAM INCOME OR TAX-FREE FUNDS
LOWEST RISK/REWARD = MOST CONSERVATIVE INVESTMENTS
12
<PAGE> 13
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Energy-Resources Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH
AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Managed Income Trust
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free Insured Fund
Tax-Free High Yield Fund
STATE TAX-EXEMPT INCOME FUNDS*
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New
York, Ohio, and Pennsylvania
MOST CONSERVATIVE INVESTMENTS
MONEY MARKET FUNDS
Putnam Daily Dividend Trust
Putnam Tax Exempt Money Market Fund
CDS AND SAVINGS ACCOUNTS+
LIFESTAGE(TM) FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Growth Portfolio
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
* Not available in all states.
+ Certificates of deposit offer a fixed rate of return and may be insured, up
to certain limits, by federal/state agencies. Savings accounts may also be
insured up to certain limits.
Please call your financial advisor or Putnam to obtain a prospectus for any
Putnam fund. It contains more complete information, including charges and
expenses. Please read it carefully before you invest or send money.
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
for the year ended March 31, 1994
To the Trustees and Shareholders of Putnam Municipal Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Municipal Income Fund, including the portfolio of investments owned, as of
March 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the "Financial Highlights" for class A shares for each
of the four years in the period then ended, and for the period May 22, 1989
(commencement of operations) to March 31, 1990 and for class B shares for the
year ended March 31, 1994 and for the period January 4, 1993 (commencement of
operations) to March 31, 1993. These financial statements and "Financial
Highlights" are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and "Financial
Highlights" are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of
Putnam Municipal Income Fund as of March 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the "Financial Highlights" for
class A shares for each of the four years in the period then ended, and for the
period May 22, 1989 (commencement of operations) to March 31, 1990 and for
class B shares for the year ended March 31, 1994 and for the period January 4,
1993 (commencement of operations) to March 31, 1993, in conformity with
generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
May 17, 1994
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS OWNED
March 31, 1994
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (100.3%) (A)
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
ALABAMA (0.7%)
- ----------------------------------------------------------------------------------------
$2,000,000 Cortland, Indl. Dev. Board Rev. Bonds
(Champion Intl. Corp.), Ser. A, 7.2s, 12/1/13 Baa $ 2,095,000
Cullman, Med. Pk. Rev. Bonds
(Cullman Regl. Med Ctr.), Ser. A
4,000,000 6 1/2s, 2/15/23 Baa 3,670,000
2,645,000 6 1/4s, 2/15/02 Baa 2,608,631
-----------
8,373,631
ALASKA (0.2%)
- ----------------------------------------------------------------------------------------
2,000,000 AK Hsg. Fin. Corp. Rev. Bonds
(Veterans Home Project), Ser. A2,
Government National Mortgage Assn.
(GNMA) Coll., 6 3/4s, 12/1/24 AAA 2,035,000
ARIZONA (3.2%)
- ----------------------------------------------------------------------------------------
AZ State Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
2,870,000 (St. Luke's Hosp. Syst.), Ser. A, 10 1/8s, 11/1/15 Ba 3,045,788
1,000,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Ba 983,750
7,000,000 Gila Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds, Ser. 85, 8.9s, 7/1/06 Baa 7,848,750
Mohave Cnty., Indl. Dev. Auth.
Hosp. Syst. Rev. Bonds
2,000,000 (Med. Env. Inc. & Phoenix Hosp. &
Med. Ctr. Project), 7s, 7/1/16 Baa 1,982,500
Payson, Indl. Dev. Auth. Hosp. Rev. Bonds
5,000,000 (Payson Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P 4,650,000
2,100,000 Phoenix, Civic Impt. Corp. Excise Tax Rev. Sr. Lien
Rev. Bonds (New City Hall Projects), 5.1s, 7/1/18 AA 1,806,000
8,500,000 Pima Cnty., Indl. Dev. Auth. Rev. Bonds
(Tucson Elec. Pwr. Co. Irvington Project),
Ser. A, 7 1/4s, 7/15/10 AAA 9,010,000
Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
4,000,000 (Casa Grande Regl. Med. Ctr.),
Ser. A, 8 1/8s, 12/1/22 BB/P 4,230,000
Salt River Project, Agricultural Impt. & Pwr. Dist.
5,000,000 Elec. Syst. Rev. Bonds, Ser. A, 5 3/4, 1/1/13 AA 4,712,500
-----------
38,269,288
ARKANSAS (0.6%)
- ----------------------------------------------------------------------------------------
23,950,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge.
Rev. Bonds Ser. 84A, zero % , 7/1/15 Aa 2,903,938
2,400,000 Baxter Cnty., Indl. Dev. Rev. Bonds
(Aeroequipment/Trinova Project), 5.8s, 10/1/13 Baa 2,139,000
2,150,000 Pope Cnty., Poll. Control Rev. Bonds
(AR Pwr. & Lt. Co. Project), 11s, 12/1/15 Baa 2,386,500
-----------
7,429,438
CALIFORNIA (12.1%)
- ----------------------------------------------------------------------------------------
2,500,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa 2,321,875
4,655,000 Burbank, Redev. Agcy. Tax Allocation
Rev. Bonds Ser. A, 5 3/4s, 12/1/08 A 4,311,694
</TABLE>
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[CAPTION]
<TABLE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
CALIFORNIA (CONTINUED)
- ----------------------------------------------------------------------------------------
CA General Obligation (G.O.) Bonds
$3,000,000 Municipal Bonds Insurance Assn. (MBIA),
5 1/2s, 4/1/09 AAA $ 2,805,000
CA G.O. Bonds
15,000,000 MBIA, 5 1/2s, 4/1/12 AAA 13,762,500
CA Statewide Cmntys. Dev Auth.
Certif. of Participation
5,000,000 (Childrens Hosp. Project), MBIA, 4 3/4s, 6/1/21 AAA 3,987,500
6,300,000 Central Valley, Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration Project), 6.2s, 7/1/20 BBB 5,803,875
2,500,000 Corona, Certif. of Participation
(Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 BB/P 2,634,375
6,400,000 Irvine Ranch, Wtr. Dist. Certif. of Participation
2.6s, 8/1/16 VMIG1 6,400,000
Irvine Ranch, Wtr. Dist. Impt. VRDN
2,600,000 Ser. A, 2.65s, 11/15/13 A 2,600,000
1,100,000 2.65s, 6/1/15 VMIG1 1,100,000
La Habra, Certif. of Participation, (Friendly Hills
Hlth. Care Foundation), Ser. A.
3,370,000 7.15s, 7/1/23 BB/P 3,357,363
4,875,000 7.05s, 7/1/13 BB/P 4,832,344
4,500,000 Loma Linda Hosp. Rev. Bonds
(Loma Linda U. Med. Ctr.) Ser. C, MBIA,
5 3/8s, 12/1/22 AAA 3,920,625
3,000,000 Los Angeles, Convention & Exhibition Ctr. Rev.
Bonds, Ser. A, MBIA, 5 1/8s, 8/15/21 AAA 2,527,500
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp.
Lease Rev. Bonds (United Air Lines Inc.),
6 7/8s, 11/15/12 Baa 2,319,000
Los Angeles, Wastewater Syst. Rev. Bonds
8,000,000 MBIA, 5.7s, 6/1/20 AAA 7,330,000
5,000,000 Ser. D, 4.7s, 11/1/19 AAA 3,956,250
2,000,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
(Geothermal Project No. 3), Ser. A, 5.8s, 7/1/09 A 1,915,000
2,940,000 Pleasanton, Joint Pwr. Fin. Auth. Rev. Bonds,
Ser. A, 6.15s, 9/2/12 Baa 2,763,600
5,000,000 Redding, Joint Pwr. Fin. Auth. Rev. Bonds
(Solid Waste Corp. Yard Project), 5s, 1/1/23 BBB 3,931,250
5,000,000 Sacramento, City Fin. Auth. Lease Rev.
Bonds, Ser. A, American Municipal Bond
Assurance Corp. (AMBAC), 5 3/8s, 11/1/14 AAA 4,506,250
3,000,000 Sacramento, Muni. Util. Dist. Elec. Rev. Bonds,
Ser. C, MBIA, 5 3/4s, 11/15/07 AAA 2,962,500
3,000,000 San Bernardino Cnty., Certif. of Participation
(Med. Ctr. Project), 5 1/2s, 8/1/22 A 2,516,250
3,000,000 San Francisco City & Cnty., Swr.
Residual Interest Bonds (RIBS), AMBAC,
9.92s, 10/1/21 (c) AAA 3,461,250
San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds
3,305,000 Zero % (Senior Lien), 1/1/06 BB/P 1,838,406
10,000,000 Zero % 1/1/10 BB/P 5,637,500
16,000,000 6 3/4s, 1/1/32 BB/P 15,300,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
6,000,000 6 3/4s, 7/1/10 A 6,240,000
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
CALIFORNIA (CONTINUED)
$5,000,000 (Mead Adelanto Project), Ser. A, AMBAC,
4 7/8s, 7/1/20 AAA $4,081,250
U. of CA Regents (Multi. Purpose Projects)
9,340,000 Ser. C, AMBAC, 5s, 9/1/23 AAA 7,577,075
8,000,000 Ser. B, MBIA, 5s, 9/1/16 AAA 6,680,000
5,000,000 Walnut Creek Certif. of Participation
(John Muir Med. Ctr. Project), MBIA, 5s,
2/15/16 AAA 4,206,250
-----------
147,586,482
COLORADO (2.0%)
- ----------------------------------------------------------------------------------------
2,000,000 Adams Cnty., School Dist. Rev. Bonds
(Thornton), Financial Guaranty Insurance Co.
(FGIC), 6.2s, 12/15/08 AAA 2,042,500
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,000,000 8 3/4s, 11/15/23 Baa 6,682,500
2,850,000 8 1/2s, 11/15/23 Baa 3,099,375
1,250,000 Ser. A, 7 1/2s, 11/15/12 Baa 1,296,875
8,700,000 (United Air Lines, Inc. Project),
Ser. A, 6 7/8s, 10/1/32 Baa 8,101,875
3,000,000 Larimer Cnty., School Dist. Rev. Bonds, 7s, 12/15/16 A 3,408,750
-----------
24,631,875
CONNECTICUT (1.0%)
- ----------------------------------------------------------------------------------------
CT Dev. Auth. 1st Mtge. Rev. Bonds
1,475,000 (Gladeview Hlth. Care Project), 9 3/4s,
12/15/16 BB/P 1,675,969
2,500,000 (East Hill Woods Project), 8 3/4s, 7/1/19 B/P 2,456,250
2,500,000 CT Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimer Resource Ctr.), Ser. A, 10s, 8/15/21 B/P 2,903,125
5,475,000 CT Special Tax Rev. Bonds,
Ser. A, FGIC, 5.65s, 4/1/12 AAA 5,201,250
-----------
12,236,594
DELAWARE (0.3%)
- ----------------------------------------------------------------------------------------
4,000,000 DE Trans. Auth. Rev. Bonds, Ser. A, 5s, 7/1/14 AA 3,430,000
DISTRICT OF COLUMBIA (0.1%) BONDS
- ----------------------------------------------------------------------------------------
2,000,000 Dist. of Columbia Rev. Rfdg. Bonds
(American Geophysical Union), 5 3/4s, 9/1/13 BBB 1,767,500
FLORIDA (4.6%)
- ----------------------------------------------------------------------------------------
4,785,000 FL State Muni. Pwr. Agcy. Rev. Bonds (Stanton
II Project), AMBAC, 4 1/2s, 10/1/27 AAA 3,606,694
5,000,000 FL State Tpk. Auth. Rev. Bonds,
Ser. A, FGIC, 5s, 7/1/19 AAA 4,212,500
21,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 22,310,625
Hillsborough Cnty., FL Aviation Auth. Rev. Bonds
1,500,000 (U.S. Airlines Project), 8.6s, 1/15/22 Ba 1,528,125
2,000,000 (Delta Air Lines, Inc. Project), 6.8s, 1/1/24 BB 1,877,500
2,900,000 Jacksonville, Elec. Auth. Rev. Bonds
(Bulk Pwr. Supply), Ser. A, 5 1/4s, 10/1/21 AA 2,479,500
2,500,000 Levy Cnty., Indl. Dev. Rev. Bonds
(National Med. Assn. Inc. Project), 10s, 7/1/19 B/P 2,406,250
</TABLE>
17
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
FLORIDA (CONTINUED)
- ----------------------------------------------------------------------------------------
$3,500,000 Orange Cnty., Hlth. Fac. Auth.
1st. Mtge. Rev. Bonds (Princeton Hosp.),
9s, 7/1/21 B/P $3,736,250
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
JFK Med. Ctr. Inc. Project
1,315,000 8 7/8s, 12/1/18 AAA 1,556,631
1,160,000 8 7/8s, 12/1/18 BBB 1,280,350
Palm Beach Cnty., Solid Waste Indl. Dev. Rev.
Bonds (Okeelanta Pwr. & Lt. Project)
3,000,000 Ser. A, 6.85s, 2/15/21 (d) BB/P 2,905,070
4,700,000 6.7s, 2/15/15 BB/P 4,559,000
4,000,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8 1/2s,
3/1/23 BB/P 3,905,000
-----------
56,363,495
GEORGIA (4.7%)
- ----------------------------------------------------------------------------------------
8,790,000 Atlanta, Board of Ed. Certif. of Participation,
FGIC, 5 1/8s, 6/1/12 AAA 7,636,313
3,500,000 Atlanta, Special Fac. Rev. Bonds
(Delta Air Lines, Inc. Project),
Ser. B, 7.9s, 12/1/18 Ba 3,609,375
10,000,000 Augusta, Hsg. Auth. Multi-Fam. Hsg. Rev. Bonds
(Augusta-Oxford Project), 4s, 4/1/07 A 10,000,000
Burke Cnty., Dev. Auth. Poll. Control Rev. Bonds
1,000,000 (GA Pwr. Co. Vogtle Project), 1st Ser.,
12 1/4s, 8/1/14 BBB 1,043,750
2,000,000 (Oglethorpe Power Corp.), Ser. A, FGIC,
2.1/4s, 1/1/16 AAA 2,000,000
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts. Project)
1,500,000 Ser. B, 10s, 4/1/17 BB/P 1,554,375
3,700,000 Ser. A, 7 1/2s, 4/1/17 B/P 3,769,375
3,500,000 GA Muni. Elec. Auth. Special Oblig. Bonds
(3rd Crossover), 6.6s, 1/1/18 AA 3,605,000
11,800,000 GA State G.O. Bonds,
Ser. B, 5.95s, 3/1/07 AA 12,006,500
2,000,000 Gwinnett Cnty., Dev. Auth. Indl. Rev. Bonds
(Kawneer Co. Inc. Project),
Ser. 84, 9 1/2s, 6/1/15 BBB/P 2,157,500
10,000,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds
(Visy Paper Inc. Project), 7.4s, 1/1/16 B/P 9,762,500
-----------
57,144,688
HAWAII (0.7%)
- ----------------------------------------------------------------------------------------
8,820,000 Honolulu, City & Cnty. G.O. Bonds, Ser.
A, 6 1/4s, 4/1/14 (d) AA 8,985,375
ILLINOIS (4.6%)
- ----------------------------------------------------------------------------------------
2,000,000 Chicago, Gas Supply Rev. Bonds
(Peoples Gas, Light & Coke Co.),
Ser. A, 6 7/8s, 3/1/15 AA 2,110,000
5,000,000 Chicago, Metro. Wtr. Reclaimation Dist. Rev.
Bonds, 5 1/2s, 12/1/10 AA 4,637,500
</TABLE>
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
ILLINOIS (CONTINUED)
- ----------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Rev. Bonds
$1,000,000 Ser. A, 10 5/8s, 1/1/15 A $1,072,500
3,949,000 (United Air Lines Inc. Project),
Ser. B, 8.95s, 5/1/18 Baa 4,388,326
1,925,000 (United Air Lines, Inc. Project),
Ser. 84A, 8.85s, 5/1/18 Baa 2,146,375
5,635,000 (United Air Lines, Inc. Project),
Ser. 84B, 8.85s, 5/1/18 Baa 6,283,025
9,800,000 Ser. C, 5s, 1/1/11 AAA 8,636,250
4,000,000 Chicago, School Fin. Auth. RIBS, 7.302s, 6/1/05 AA 3,620,000
East Chicago, Indl. Poll. Control Rev. Bonds
2,000,000 (Inland Steel Co. Project No. 8),
Ser. B, 10 3/4s, 12/1/12 (c) Ba 2,170,000
1,500,000 (Inland Steel Co. Project No. 9), 10s, 11/1/11 BB/P 1,655,625
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood),
Ser. A, 10 1/4s, 4/15/19 B/P 1,750,000
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
2,150,000 8 3/4s, 7/1/11 BBB/P 2,184,938
1,735,000 8 3/4s, 3/1/10 BBB/P 1,787,050
1,405,000 8 1/4s, 8/1/12 BBB/P 1,394,463
2,085,000 IL Edl. Fac. Auth. Rev. Bonds
(Steppenwolf Theatre Project), 9.65s, 7/1/19 BB/P 2,186,644
IL Hlth. Fac. Auth. Rev. Bonds
3,615,000 (St. Elizabeth's Hosp.), 10 1/8s, 7/1/16 B/P 3,664,706
3,000,000 (Grant Hosp. of Chicago), 7 1/2s, 6/1/13 BB 3,288,750
1,000,000 IL Hsg. Dev. Auth. Rev. Bonds
(Elderly Hsg. Morningside North Dev.
D Sect. 8), 6.85s, 1/1/21 A 1,020,000
2,000,000 Kane Cnty., 1st Mtge. Rev. Bonds
(Mercy Hsg. Project), 9 3/4s, 10/1/19 B/P 1,932,500
-----------
55,928,652
INDIANA (1.7%)
- ----------------------------------------------------------------------------------------
2,000,424 Hammond, Indl. Port Auth.
Certif. of Participation, 9.65s, 6/1/14 BB/P 2,085,442
3,000,000 IN Trans. Fin. Auth. Hwy. Rev. Bonds,
Ser. A, AMBAC, 5 3/4s, 6/1/12 AAA 2,827,500
Indianapolis, Pub. Impt. Bond Bank Rev. Bonds
5,500,000 Ser. D, 6 3/4s, 2/1/20 A 5,561,875
1,500,000 Ser. D, 6 3/4s, 2/1/14 A 1,541,250
4,250,000 Ser. A, 6s, 1/10/18 AAA 4,069,375
4,000,000 Petersburg, Indl. Poll. Control Rev. Bonds
(Indianapolis Pwr. & Lt. Co.), Ser. A, 6.1s, 1/1/16 AA 3,850,000
-----------
19,935,442
IOWA (0.3%)
- ----------------------------------------------------------------------------------------
4,000,000 IA Fin. Auth. Hlth. Care Facs. Rev. Bonds
(Mercy Hlth. Initiatives Project), 9.95s, 7/1/19 BB/P 4,155,000
KANSAS (0.2%)
- ----------------------------------------------------------------------------------------
2,225,000 Wichita, Multi-Fam. Hsg. Rev. Bonds
(North Park II), GNMA Coll., 6 1/8s, 8/20/28 Aaa 2,136,000
</TABLE>
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
KENTUCKY (0.2%)
- ----------------------------------------------------------------------------------------
$2,500,000 Kenton Cnty., Arpt. Special Fac. Rev. Bonds
(Delta Air Lines, Inc. Project), 7.8s, 12/1/15 Ba $2,568,750
LOUISIANA (6.0%)
- ----------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds
(Boise Cascade Corp. Project), 7 3/4s, 6/1/21 Baa 4,245,000
2,200,000 6 1/8s, 3/1/23 Baa 1,905,750
3,000,000 Beauregard, Parish Solid Waste Disp. Rev.
Bonds (Boise Cascade Corp. Project),
6.3s, 8/1/23 Baa 2,670,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,657,500
1,447,839 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(Emily Morten Foundation), 10 1/4s, 5/1/19 B/P 1,547,378
1,600,000 LA Recvy. Dist. Sales Tax VRDN FGIC,
2.65s, 7/1/97 VMIG1 1,600,000
20,180,000 Lake Charles, Harbor & Term. Dist. Port
Facs. Rev. (Trunkline Co. Project),
7 3/4s, 8/15/22 Ba 21,264,675
2,450,000 Lee Cnty., Indl. Rev. Bonds (Mid-American
Waste Syst. Project), 7s, 9/15/13 B/P 2,370,375
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
1,000,000 14 1/2s, 1/1/02 BB 1,165,000
2,000,000 7 1/2s, 7/1/13 BB 1,990,000
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt., Inc.), 8 1/4s, 6/1/14 Baa 8,895,556
3,495,000 (Union Carbide Project), 7.35s, 11/1/22 Baa 3,643,538
2,000,000 St. James Parish, Solid Waste Disposal Rev. Bonds
(Kaiser Aluminum Project), 7 3/4s, 8/1/22 BB/P 2,087,500
West Feliciana Parish, Poll. Control Rev. Bonds
(Gulf States Util. Co. Project),
1,765,000 Ser. B, 12s, 5/1/14 Baa 1,892,963
3,815,000 Ser. A, 10 5/8s, 5/1/14 (e) AA 4,082,050
1,500,000 9s, 5/1/15 BBB/P 1,710,000
8,000,000 Ser. C, 7s, 11/1/15 Baa 8,080,000
-----------
73,807,285
MAINE (0.4%)
- ----------------------------------------------------------------------------------------
3,000,00 ME Fin. Auth. Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp. Project), 7.9s, 6/1/15 BB 3,135,000
2,000,000 ME Fin. Auth. Solid Waste Recycling Facs.
Rev. Bonds (Great Northern Paper Project),
7 3/4s, 10/1/22 Baa 2,130,000
-----------
5,265,000
MARYLAND (0.2%)
- ----------------------------------------------------------------------------------------
1,975,000 Denton, 1st Mtge. Rev. Bonds
(Wesleyan Hlth. Care Ctr. Project),
10 1/4s, 4/1/20 Baa 1,910,813
MASSACHUSETTS (5.5%)
- ----------------------------------------------------------------------------------------
5,000,000 Boston, MA Rev. Bonds (Boston City Hosp.),
Ser B, Federal Housing Authority (FHA) Insd.,
5 3/4s, 2/15/13 AA 4,568,750
</TABLE>
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
MASSACHUSETTS (CONTINUED)
- ----------------------------------------------------------------------------------------
$2,500,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P $2,690,625
MA Hlth. & Edl. Fac. Auth.
1,000,000 RIBS (St. Elizabeth Hosp.),
Ser. E, 10.92s, 8/15/21 AAA 1,107,500
2,000,000 Rev. Bonds (Boston U.), Ser. L, MBIA,
10.511s, 10/1/31 AAA 2,150,000
3,000,000 MA Hlth. & Edl. Fac. Auth. RIBS, FGIC,
9.074s, 8/15/18 AAA 2,790,000
2,970,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwood Hosp. Project), 8s, 7/1/05 Baa 3,118,500
1,540,000 MA Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds
(Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 1,466,850
MA Indl. Fin. Agcy. Resource Recvy. Rev. Bonds
(Southeastern MA Project)
13,000,000 Ser. A, 9s, 7/1/15 BB/P 14,625,000
3,000,000 Ser. B, 9 1/4s, 7/1/15 B/P 3,390,000
MA Indl. Fin. Agcy. Rev. Bonds
10,000,000 (Biomedical Research),
Ser. A-2, zero % s, 8/1/04 BB/P 5,262,500
4,000,000 (Atlanticare Med. Ctr.),
Ser. A, 10 1/8s, 11/1/14 BB/P 4,510,000
1,000,000 (Atlanticare Med. Ctr.),
Ser. B, 10 1/8s, 11/1/14 BB/P 1,127,500
1,019,314 MA Indl. Fin. Agcy. Rev. Bonds
(Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 1,274
2,435,000 MA Indl. Fin. Agcy. Tunnel Rev. Bonds
(MA Tpk.), 9s, 10/1/20 BB/P 2,492,831
2,690,000 MA Muni. Wholesale Elec. Co. Pwr.
Supply Syst. Rev. Bonds, Ser. D, 6s, 7/1/11 A 2,579,038
MA State Hsg. Fin. Agcy. Rev. Bonds
(Hsg. Projects), Ser. A
2,000,000 6.3s, 10/1/13 A 2,002,500
6,400,000 AMBAC, 6.15s, 10/1/15 AAA 6,288,000
3,000,000 MA VRDN, Ser. E, 2.55s, 12/1/97 A 3,000,000
3,000,000 MA Wtr. Resource Auth. Rev. Bonds,
Ser. A, 6 1/2s, 7/15/21 AAA 3,288,750
-----------
66,459,618
MICHIGAN (6.2%)
- ----------------------------------------------------------------------------------------
346,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig.
Rev. Bonds (Glacier Hills Inc. Project),
10 3/8s, 1/15/19 B/P 356,380
6,500,000 Detroit, Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB/P 8,100,625
1,645,000 Detroit, Econ. Dev. Corp. Ltd. Oblig. Rev.
Bonds (MI Hlth. Care Corp. Project),
9.1s, 12/1/09 B/P 1,679,956
4,415,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20 B 4,773,719
2,000,000 Dickinson Cnty., Econ. Dev. Corp.
Solid Waste Disp. Rev. Bonds
(Champion Intl. Corp.), 6.55s, 3/1/07 Baa 1,990,000
</TABLE>
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<TABLE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
MICHIGAN (CONTINUED)
- ----------------------------------------------------------------------------------------
Greater Detroit, Resource Recvy.
Auth. Rev. Bonds
$6,000,000 Ser. E, 9 1/4s, 12/13/08 BBB $6,427,500
4,030,000 Ser. G, 9 1/4s, 12/13/08 BBB 4,317,138
5,530,000 Livonia, Pub. School Dist. Rev. Bonds,
FGIC, 5 1/2s, 5/1/14 AAA 5,039,213
MI Hosp. Fin. Auth. Rev. Bonds
2,000,000 (Garden City Hosp.), 8 1/2s, 9/1/17 Ba 2,135,000
2,760,000 (Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 B 2,708,250
4,500,000 MI Hsg. Dev. Auth. Rental Hsg.
Rev. Bonds, Ser. A, 7.55s, 4/1/23 AAA 4,950,000
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
3,000,000 (Mercy Svcs. for Aging Project), 9.4s, 5/15/20 BBB/P 3,236,250
8,500,000 (Blue Water Fiber Project), 8s, 1/1/2012 (d) BB/P 8,361,875
10,000,000 MI Strategic Fund Solid Waste Disp. Rev. Bonds
(Genesee Pwr. Station Project), 7 1/2s, 1/1/21 BB/P 9,650,000
6,000,000 Midland Cnty., Econ. Dev. Corp. Poll.
Control Rev. Bonds, Ser. B, 9 1/2s, 7/23/09 B/P 6,667,500
1,500,000 Monroe Cnty., Poll. Control Rev. Bonds
(Detroit Edison Co.), Ser. A, 10 1/2s, 12/1/16 Baa 1,670,625
3,400,000 Wayne Charter Cnty., Special Arpt. Fac.
Rev. Bonds (Republic Airlines, Inc. Project),
Ser. C, 10 3/8s, 12/1/15 B/P 3,659,250
-----------
75,723,281
MINNESOTA (0.8%)
- ----------------------------------------------------------------------------------------
2,000,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc. Project), 10 1/4s,
9/1/20 BB/P 2,312,500
2,500,000 St Louis Pk., Hlth. Care Fac. Rev. Bonds
(Healthsystem Project), Ser. A, AMBAC,
5.2s, 7/1/16 AAA 2,181,250
5,000,000 St Paul, Hsg. & Redev. Auth. Rev. Bonds
(Hosp. Crossover Healtheast Project)
Ser. A, 6 5/8s, 11/1/17 Baa 4,731,250
-----------
9,225,000
MISSISSIPPI (2.0%)
- ----------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
5,780,000 (Syst. Energy Resources Inc.), 12 1/2s, 6/15/15 Baa 6,394,125
8,455,000 (Middle South Energy Inc.),
Ser. C, 9 7/8s, 12/1/14 BBB/P 9,966,331
4,380,000 (Syst. Energy Resources Inc.), 9 1/2s, 4/1/16 BBB 4,812,525
2,400,000 (Middle South Energy Inc.),
Ser. A, 9 1/2s, 12/1/13 BBB/P 2,793,000
-----------
23,965,981
MISSOURI (0.6%)
- ----------------------------------------------------------------------------------------
4,000,000 Kansas City, Indl. Dev. Auth. Poll. Control Rev.
Bonds (General Motors Corp.), 6.05s, 4/1/06 Baa 3,915,000
3,500,000 Sikeston, Elec. Rev. Bonds, MBIA, 6 1/4s, 6/1/22 AAA 3,504,375
-----------
7,419,375
</TABLE>
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
MONTANA (0.3%)
- ----------------------------------------------------------------------------------------
$3,500,000 Forsythe, Poll. Control Rev. Bonds (Pwr. Co.
Colstrip Project), Ser. A, AMBAC, 6 1/8s,
5/1/23 AAA $3,395,000
NEBRASKA (0.7%)
- ----------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. RIBS
6,300,000 Ser. 2, GNMA Coll., 12.423s, 9/10/30 AAA 7,063,875
1,600,000 Ser. B, GNMA Coll., 12.331s, 3/15/22 AAA 1,780,000
-----------
8,843,875
NEVADA (1.5%)
- ----------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
4,000,000 (Southwest Gas Corp. Project),
Ser. B, 7 1/2s, 9/1/32 Ba 4,115,800
8,500,000 (Southwest Gas Corp. Project),
Ser. A, 7.3s, 9/1/27 Ba 8,744,375
1,000,000 (Nevada Power Co. Project),
Ser. C, 7.2s, 10/1/22 Baa 1,033,750
5,000,000 (Southwest Gas Corp. Project),
Ser. A 6 1/2s, 12/1/33 Ba 4,531,250
-----------
18,425,175
NEW HAMPSHIRE (0.4%)
- ----------------------------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,960,000 (Havenwood/Heritage Heights), 9 3/4s, 12/1/19 BB/P 3,196,800
2,000,000 (River Woods at Exeter), 8s, 3/1/00 BB/P 2,060,000
-----------
5,256,800
NEW JERSEY (2.4%)
- ----------------------------------------------------------------------------------------
1,000,000 Atlantic Cnty., NJ Utils. Auth. Solid Waste
Rev. Bonds, 7 1/8s, 3/1/16 Baa 1,006,250
3,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac.
Rev. Bonds (Vineland Cogeneration
L.P. Project), 7 7/8s, 6/1/19 BB/P 3,202,500
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,400,000 (Mountainside Hosp.), Ser. A, 9s, 8/1/25 AA 3,689,000
3,000,000 (St. Elizabeth's Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 3,217,500
3,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Union Hosp./Mega Care Inc.), 5 7/8s, 7/1/14 Baa 2,628,750
NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds
4,000,000 Ser. 1, 9.314s, 11/1/07 (c) A/P 3,965,000
3,000,000 Ser. A, 6.95s, 11/1/13 A 3,176,250
Union Cnty., Util. Auth. Solid Waste
Rev. Bonds, Ser. A
3,500,000 7.2s, 6/15/14 A 3,556,875
5,000,000 7.15s, 6/15/09 A 5,112,500
-----------
29,554,625
NEW YORK (8.9%)
- ----------------------------------------------------------------------------------------
5,000,000 Battery Park, City Auth. Rev. Bonds,
Ser. A, 4 3/4s, 11/1/19 AA 3,981,250
3,000,000 Metro. Trans. Auth. Svc. Contract Rev. Bonds
(Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 Baa 2,760,000
3,700,000 NY City Energy, VDRN, 2 3/4s, 7/1/27 AAA 3,700,000
</TABLE>
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<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
NEW YORK (CONTINUED)
- ----------------------------------------------------------------------------------------
NY City G.O. Bonds
$2,400,000 Ser. A, 1 1/2s, 8/15/23 VMIG1 $2,400,000
2,760,000 Ser. F, 8 1/4s, 11/15/01 Aaa 3,318,900
3,020,000 Ser. D, 7.65s, 2/1/07 A 3,325,775
4,000,000 Ser. B, 7s, 6/1/13 A 4,280,000
5,000,000 Ser. H, 5.9s, 8/1/05 (d) A 4,837,500
1,000,000 Ser. B, 2.6s, 8/15/21 A 1,000,000
NY City, Muni. Wtr. Fin. Auth. Rev. Bonds,
6,250,000 Ser. B, 5 1/2s, 6/15/19 A 5,492,188
5,000,000 Ser. F, 5 1/2s, 6/15/15 AAA 4,556,250
NY Local Govt. Assistance Corp. Rev. Bonds,
1,800,000 Ser. D, 7s, 4/1/18 AAA 2,027,250
1,500,000 Ser. B, 5 5/8s, 4/1/13 A 1,383,750
7,500,000 Ser. C, 5 1/2s, 4/1/18 A 6,656,250
5,000,000 NY Metro. Trans. Auth. Svcs. Contract
Rev. Bonds, Ser. 7, 5 5/8s, 7/1/16 Baa 4,418,750
NY State Dorm. Auth. Rev. Bonds
State U. Edl. Fac.
3,000,000 Ser. A, 7 1/2s, 5/15/13 Baa 3,337,500
5,000,000 5 3/8s, 5/15/16 Baa 4,331,250
8,563,000 Ser. B, FGIC, 5 1/2s, 5/15/10 AAA 3,114,791
2,500,000 Ser. A, FGIC, 5 1/2s, 5/15/09 Baa 2,378,125
5,000,000 Ser. B, FGIC, 5 1/2s, 5/15/08 AAA 4,718,750
10,000,000 Ser. F, FGIC, 5s, 7/1/20 AAA 8,350,000
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
13,920,000 Ser. A, 6 1/2s, 1/1/10 Baa 14,076,600
5,000,000 Ser. A, 5 1/2s, 1/1/14 Baa 4,512,500
5,765,000 Ser. 4, 5 3/8s, 1/1/23 Baa 4,864,219
5,000,000 Onondaga Cnty., Indl. Dev. Agcy.
Swr. Fac. Rev. Bonds (Bristol-Myers Squibb
Co. Project), 5 3/4s, 3/1/24 AAA 4,659,050
Triborough, Bldg. & Tunnel Auth.
Rev. Bonds, Ser. A
895,000 5s, 1/1/24 Aa 732,781
5,000,000 4 3/4s, 1/1/19 A 4,000,000
-----------
113,213,429
NORTH CAROLINA (1.3%)
- ----------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Rev. Bonds
3,000,000 RIBS, FGIC, 8.873s, 1/1/25 (c) AAA 2,846,250
2,100,000 Ser. B, 6s, 1/1/22 A 1,974,000
5,250,000 6s, 1/1/18 AAA 5,085,938
3,500,000 Ser. D, 5.6s, 1/1/16 A 3,084,375
2,770,000 NC Hsg. Fin. Agcy. Rev. Bonds Ser. V, 6.8s,
9/1/25 AA 2,801,163
-----------
15,791,726
OHIO (1.2%)
- ----------------------------------------------------------------------------------------
2,500,000 Clermont Cnty., Hosp. Facs., Rev. Bonds
AMBAC, 10.911s, 9/1/21 AAA 2,834,375
4,500,000 Dayton, Special Fac. Rev. Bonds
(Emery Air Freight Corp.),
Ser. A, 12 1/2s, 10/1/09 B/P 5,276,250
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
OHIO (CONTINUED)
- ----------------------------------------------------------------------------------------
$1,785,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev.
Bonds, Ser. B, GNMA Coll., 8 1/4s, 12/15/19 AAA $1,860,863
4,500,000 OH Wtr. Dev. Auth. Rev. Bonds
(Mid-American Waste Syst. Inc. Project),
7 3/4s, 9/1/07 BBB/P 4,663,125
-----------
14,634,613
OKLAHOMA (0.8%)
- ----------------------------------------------------------------------------------------
2,220,000 McGee Creek, Wtr. Auth. Rev. Bonds,
MBIA, 6s, 1/1/23 AAA 2,145,075
6,995,000 Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.),
Ser. A, 7 5/8s, 6/1/17 BBB 7,239,825
-----------
9,384,900
PENNSYLVANIA (6.5%)
- ----------------------------------------------------------------------------------------
3,000,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Cleveland Elec. Illuminating Co.),
10 1/2s, 9/1/15 Ba 3,266,250
3,000,000 Erie Cnty., Higher Edl. Bldg. Auth. College
Rev. Bonds (Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB/P 2,752,500
3,775,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.),
6 1/2s, 1/1/02 BBB/P 3,619,281
5,000,000 Harrisburg, Pkg. Auth., Rev. Bonds
AMBAC, 5 1/8s, 8/1/16 AAA 4,268,750
7,500,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s, 7/1/03 Baa 7,265,625
Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project)
3,500,000 8 3/8s, 11/1/11 Ba 3,688,125
2,230,000 7 1/2s, 11/1/12 Ba 2,241,150
5,000,000 PA Certif. of Participation, Ser. A,
AMBAC, 5s, 7/1/15 AAA 4,237,500
PA Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Northampton Generating), Ser. A
1,250,000 6.6s, 1/1/19 BB/P 1,153,125
2,000,000 6.1/2s, 1/1/13 BB/P 1,870,000
10,000,000 PA State Fin. Auth. Rev. Bonds
(Muni. Capital Imports Program), 6.6s, 11/1/09 A 9,937,500
5,300,000 PA State G.O. RIBS, 8.929s, 4/15/04 (c) AA 5,704,125
2,000,000 PA State Higher Edl. Assistance Agcy. Student
Loan RIBS, Ser. B, MBIA, 12.162s, 3/1/20 AAA 2,240,000
2,000,000 PA State Higher Edl. Fac. Auth. Rev. Bonds
(Widener U.), Ser. A, 5 1/4s, 7/15/18 AAA 1,700,000
Philadelphia, Gas Works RIBS
3,000,000 Ser. 13, 7.7s, 6/15/21 AAA 3,487,500
6,000,000 7.615s, 8/1/21 (c) AAA 4,597,500
4,000,000 Ser. 14, 6 3/8s, 7/1/14 Baa 3,915,000
4,500,000 Philadelphia, Hosp. & Higher Edl. Fac. Auth.
Rev. Bonds (Temple U. Hosp. Project),
Ser. A, 6 1/2s, 11/15/08 BBB 4,578,750
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
PENNSYLVANIA (CONTINUED)
- ----------------------------------------------------------------------------------------
$1,100,000 Philadelphia, Indl. Impt. Auth. Rev. Bonds
(Stenton Nursing Project), 7 1/2s, 11/1/02 BB/P $1,100,000
2,000,000 Schuylkill Cnty., Indl. Dev. Auth. Resource
Recvy. Rev. Bonds (Schuylkill Energy Res. Inc.),
6 1/2s, 1/1/10 BB/P 1,895,000
3,500,000 Washington Cnty., Hosp. Auth. Rev. Bonds
(Canonsburg Gen. Hosp. Project), 7.35s, 6/1/13 BB/P 3,329,375
1,800,000 Washington Cnty., Hosp. Auth., 1st Mtge.
Rev. Bonds(AHF/Central States Inc. Project),
10 1/4s, 11/1/19 B/P 1,800,000
-----------
78,647,056
PUERTO RICO (2.8%)
- ----------------------------------------------------------------------------------------
Cmnwlth. of Puerto Rico, Tel. Auth. RIBS
3,250,000 Cmnwlth. of Puerto Rico, Aqueduct & Swr.
Auth. Rev. Bonds, Ser. A, 7 7/8s, 7/1/17 Baa 3,583,125
5,000,000 MBIA, 7.358s, 1/1/05 (c) A 4,856,250
10,000,000 Cmnwlth. of Puerto Rico, Linked Pub.
Offering RIBS, AMBAC, 7s, 7/1/10 AAA 10,987,500
10,000,000 AMBAC, 6.742s, 1/1/03 AAA 8,925,000
5,000,000 Puerto Rico Pub. Bldg. Auth. Rev. Bonds,
Ser. L, 5.6s, 7/1/08 A 4,768,750
1,000,000 Puerto Rico, Hsg. Fin. Corp. Single Fam. Mtge.
RIBS, GNMA Coll., 10.316s, 8/4/25 AAA 1,021,250
------------
34,141,875
RHODE ISLAND (0.8%)
- ----------------------------------------------------------------------------------------
5,340,000 RI Hsg. & Mtge. Fin. Corp. Rev. Bonds,
Ser. 10-A, 6 1/2s, 4/1/27 AA 5,406,750
5,000,000 RI State Pub. Bldg. Auth. RIBS
(Pub. Projects), 7.33s, 2/1/02 A 4,581,250
------------
9,988,000
SOUTH CAROLINA (0.9%)
- ----------------------------------------------------------------------------------------
5,000,000 Charleston Cnty., Hosp. Fac.
(Bon Secours Hlth. Ctr.),
Ser. B, 7.979s, 8/15/13 AAA 4,456,250
2,500,000 Darlington Cnty., Indl. Dev. Rev. Bonds
(Nucor Corp. Project), Ser. A, 5 3/4s, 8/1/23 A 2,250,000
4,405,000 Piedmont, Muni. Pwr. Agcy. Rev. Bonds
(SC Elec. Project),Ser. A, FGIC, 6 1/2s, 1/1/16 AAA 4,548,163
------------
11,254,413
TENNESSEE (1.3%)
- ----------------------------------------------------------------------------------------
3,645,000 Chattanooga, Hlth. Edl. & Hsg. Fac.
Board 1st Mtge. Rev. Bonds
(Cambridge Hall Project), 8 5/8s, 2/1/13 B/P 3,490,088
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board
Rev. Bonds (Sanders Alliance), Ser. C, MBIA,
6 1/4s, 1/1/13 AAA 6,982,500
2,470,000 Memphis Shelby Cnty., Arpt. Auth. Special
Fac. Project Rev. Bonds (Federal Express
Corp.), 6 3/4s, 9/1/12 Baa 2,457,650
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
TENNESSEE (CONTINUED)
- ----------------------------------------------------------------------------------------
$2,500,000 Metropolitan Nashville Arpt. Auth. Special
Fac. Rev. Bonds (American Airlines, Inc. Project),
9 7/8s, 10/1/05 Baa $2,684,375
------------
15,614,613
TEXAS (6.9%)
- ----------------------------------------------------------------------------------------
7,235,000 Alliance Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 7 1/2s, 12/1/29 Baa 7,343,525
4,050,000 Amarillo, Hlth. Fac. Corp. Hosp. RIBS
(High Plains Baptist Hosp.), 10.194s, 1/3/22 AAA 4,151,250
2,000,000 Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Adv. Living Tech. Inc. Project),
Ser. A, 10 1/2s, 6/15/18 B/P 1,840,000
1,505,000 Central TX Hsg. Fin. Corp. Single Fam.
Mtge. Rev. Bonds, FGIC, 10s, 10/15/07 AAA 1,595,300
Dallas-Fort Worth, Intl. Arpt. Rev. Bonds
(American Airlines, Inc. Project)
2,000,000 7 5/8s, 11/1/21 Ba 2,037,500
6,000,000 7 1/4s, 11/1/30 Baa 5,992,500
900,000 Gulf Coast, Waste Disp. Auth. Poll.
Control Rev. Bonds (Monsanto Co. Project),
11 1/2s, 7/1/01 A 1,015,875
2,000,000 Gulf Coast, Waste Disp. Auth. Rev. Bonds
(Champion Intl. Corp. Project), 7 1/4s, 4/1/17 Baa 2,085,000
4,500,000 Harris Cnty., Cultural Ed. Fac. Fin. Corp.
Rev. Bonds (Space Center Houston Project),
9 1/4s, 8/15/15 B/P 4,995,000
911,708 Harris Cnty., Indl. Dev. Corp. Arpt. Facs.
Rev. Bonds (Continental Airlines Inc.),
7.95s, 7/1/19 B/P 878,659
5,000,000 Harris Cnty., Indl. Dev. Corp. Rev. Bonds
(Marine Terminal GATX Corp. Project),
6.95s, 2/1/22 A 5,162,500
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
1,627,000 Ser. A, 10 7/8s, 2/15/16 Baa 1,679,878
1,845,000 10s, 9/15/14 Baa 1,895,738
925,857 Maverick Cnty., Certif. of Participation 9.1s,
6/15/10 CCC/P 555,514
2,000,000 North Central Hlth. Fac. Dev. Corp. VRDN
(Presbyterian Med. Ctr.), Ser. C, 3.4s, 12/1/15 Aaa 2,000,000
North Central TX Hlth. Fac. Dev. Corp. RIBS
4,000,000 (Presbyterian Hlth. Care Syst.), Ser. C,
MBIA 10.84s, 6/15/21 AAA 4,280,000
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 9.45s, 5/15/08 AA 3,247,500
3,000,000 (U. Med. Ctr. Inc. Project), 8.2s, 4/1/19 BBB/P 3,176,250
7,500,000 (U. Med. Ctr. Inc. Project), 7 3/4s, 4/1/17 BBB/P 7,734,375
1,250,000 Sabine, River Auth. Poll. Control Rev. Bonds
(Tx Util. Elec. Co. Project), Ser. A, FGIC,
6.55s, 10/1/22 AAA 1,282,813
Sam Rayburn, Muni. Pwr. Supply Agcy.
Rev. Bonds
5,000,000 Ser. A, 6 1/2s, 10/1/08 BBB 4,712,500
2,000,000 Ser. B, 6 1/8s, 10/1/13 BBB 1,785,000
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
TEXAS (CONTINUED)
- ----------------------------------------------------------------------------------------
$3,500,000 Ser. B, 5 1/2s, 10/1/20 BB $2,808,750
4,500,000 Ser. B, 5 1/2s, 10/1/17 Baa 4,083,750
Southeast TX Hsg. Fin. Corp. Multi-Fam.
Rev. Bonds
2,000,000 (Bayou Park Village Apt. Project),
Ser. B, 10.175s, 8/1/16 B/P 2,032,500
1,600,000 (Promenade Place Apts. Project),
Ser. B, 10.175s, 8/1/16 B/P 1,610,000
4,000,000 (Pavilion Place Apts. Project),
Ser. A, 7.6s, 7/1/16 BBB/P 4,055,000
------------
84,036,677
UTAH (0.8%)
- ----------------------------------------------------------------------------------------
Intermountain, Pwr. Supply Agcy. Rev. Bonds
5,000,000 Ser. H, 9s, 7/1/19 AA 5,343,750
2,500,000 7.2s, 7/1/19 AA 2,668,750
1,345,000 UT State Hsg. Fin. Agcy. Rev. Bonds,
Ser. 93-A, 7.85s, 7/1/24 AA 1,481,181
------------
9,493,681
VIRGINIA (0.7%)
- ----------------------------------------------------------------------------------------
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Facs.
RIBS, FGIC, 10.474s, 8/15/23 AAA 2,130,000
3,500,000 Peninsula Ports Auth. Rev. Bonds
(Dominion Terminal Assoc. Project),
7 3/8s, 6/1/20 BBB 3,574,375
3,000,000 Winchester, Indl. Dev. Auth. Hosp. RIBS,
AMBAC 5.39s, 1/1/15 AAA 2,831,250
------------
8,535,625
WASHINGTON (1.3%)
- ----------------------------------------------------------------------------------------
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev.
Bonds (Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,235,000
5,425,000 Seattle, Wtr. Syst. Rev. Bonds,
5 1/2s, 6/1/18 AA 4,828,250
WA State Pwr. Supply Syst. Rev. Bonds
5,000,000 (Nuclear Project No. 3), Ser. B, MBIA,
7 1/8s, 7/1/16 AAA 5,412,500
3,000,000 (Nuclear Project No. 2),
Ser. A, 6 1/4s, 7/1/12 AA 2,921,250
1,000,000 (Nuclear Project No. 3),
Ser. B, MBIA, 5.6s, 7/1/15 AAA 907,500
------------
16,304,500
WEST VIRGINIA (0.9%)
- ----------------------------------------------------------------------------------------
9,000,000 Marion Cnty., Cmnty. Solid Waste Disp.
Fac. Rev. Bonds (American Pwr. Paper
Recycling Project), 8 1/4s, 12/1/11 (d) B/P 8,606,250
2,500,000 WV State Pkwy. Econ. Dev. & Tourism Auth.
RIBS, FGIC, 8.792s, 5/16/19 AAA 2,262,500
------------
10,868,750
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (b) VALUE
<S> <C> <C>
WISCONSIN (0.2%)
- ----------------------------------------------------------------------------------------
$2,000,000 WI Hsg. & Econ. Dev. Auth. RIBS
(Homeownership Dev. Program),
11.132s, 10/25/22 AA $2,195,000
VIRGIN ISLANDS (0.8%)
- ----------------------------------------------------------------------------------------
Virgin Islands, Pub. Fin. Auth. Rev.
(Matching Funds Loan Notes), Ser. A
7,750,000 7 1/4s, 10/1/18 BBB/P 8,166,563
1,000,000 7s, 10/1/02 BBB/P 1,041,250
------------
9,207,813
- ----------------------------------------------------------------------------------------
Total Investments (cost $1,256,001,109)(g) $1,225,530,079
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on total net assets of
$1,221,286,954, which correspond to a net asset value for both class
A and class B shares of $ 8.73.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at March 31, 1994 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, 1994. Securities rated by Putnam are
indicated by "/P" and are not publicly rated. The ratings are not
covered by the Report of Independent Accountants.
(c) Restricted as to public resale. At the date of acquisition, these
securities were valued at cost. There were no outstanding
unrestricted securities of the same class as those held. The total
market value of the restricted securities owned at March 31, 1994 was
$27,600,375 or 2.3% of net assets.
(d) A portion of these securities, valued at $33,696,070 or 2.8% of net
assets, has been purchased on a "forward commitment" basis--that is,
the fund has agreed to take delivery of and make payment for these
securities beyond the settlement time of five business days after the
trade date and subsequent to the date of this report. The purchase
price and interest rates of these securities are fixed at the trade
date, although the fund does not earn any interest on these
securities until settlement date.
(e) This security was pledged to cover margin requirements for futures
contracts at March 31, 1994. The market value of segregated
securities with the custodian for transactions on futures contracts
is $4,082,500.
(f) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
this rate.
(g) The aggregate identified cost for federal income is $1,256,052,581
resulting in gross unrealized appreciation and depreciation of
$23,697,275 and $54,219,777 respectively, resulting in gross
unrealized depreciation of $30,522,502.
29
<PAGE> 30
U.S. FUTURES CONTRACTS OUTSTANDING AT
MARCH 31, 1994
<TABLE>
<CAPTION>
AGGREGATE EXPIRATION UNREALIZED
TOTAL VALUE FACE VALUE DATE APPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond
- --------------------------------------------------------------------------------
Futures (Sell) $ 6,850,781 $ 6,935,199 June 94 $ 84,418
- --------------------------------------------------------------------------------
U.S. Treasury
- --------------------------------------------------------------------------------
Bond Futures (Sell) $ 53,762,500 $ 55,453,328 June 94 $ 1,690,828
- --------------------------------------------------------------------------------
TOTAL $ 1,775,246
- --------------------------------------------------------------------------------
</TABLE>
The rates shown on Variable Rate Demand Notes (VDRN), and Residual Interest
Bonds (RIBS) are the current interest rates at March 31, 1994, which are
subject to change based on the terms of the security.
The Fund had the following industry group concentrations greater than 10% on
March 31, 1994 (as a percentage of net assets):
<TABLE>
<S> <C>
Utilities 19.9%
Health Care 14.8
Transportation 10.8
</TABLE>
The table below shows the percentages of the Fund's investments on March 31,
1994 in securities assigned to the various rating categories by Moody's and
Standard & Poor"s and in unrated securities determined by Putnam Investment
Management to be of comparable quality.
<TABLE>
<CAPTION>
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY,
AS A PERCENTAGE OF AS A PERCENTAGE OF RATING
RATING FUND'S NET ASSETS FUND'S NET ASSETS
- ----------------------------------------------------------------------
<S> <C> <C>
"AAA"/"Aaa" 24.7% --
- ---------------------------------------------------------------------
"AA"/"Aa" 9.0 --
- ---------------------------------------------------------------------
"A"/"A" 10.5 0.3%
- ---------------------------------------------------------------------
"BBB"/"Baa" 22.0 5.2
- ---------------------------------------------------------------------
"BB"/"Ba" 8.0 9.5
- ---------------------------------------------------------------------
"B"/"B" 0.6 9.5
- ---------------------------------------------------------------------
"CCC"/"Caa" -- 0.1
- ---------------------------------------------------------------------
"VMIG1" 0.9 --
- ---------------------------------------------------------------------
75.7% 24.6%
- ---------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1994
<TABLE>
<S> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,256,001,109) (Note 1) $1,225,530,079
- ------------------------------------------------------------------------------------------------------------------------------
Cash 3,261,799
- ------------------------------------------------------------------------------------------------------------------------------
Interest and other receivables 24,217,419
- ------------------------------------------------------------------------------------------------------------------------------
Receivable for shares of the Fund sold 7,574,314
- ------------------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 14,128,654
- ------------------------------------------------------------------------------------------------------------------------------
Receivable for variation margin on open futures contracts 16,406
- ------------------------------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 807
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,274,729,478
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased $46,418,065
- ------------------------------------------------------------------------------------------------------------------------------
Payable for shares of the Fund repurchased 3,273,463
- ------------------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 785,823
- ------------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,788,615
- ------------------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,767
- ------------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,250
- ------------------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 817,732
- ------------------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 127,566
- ------------------------------------------------------------------------------------------------------------------------------
Other accrued expenses 224,243
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 53,442,524
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,221,286,954
- ------------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
- ------------------------------------------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $1,257,183,501
- -----------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (956,199)
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments
and futures contracts (6,244,564)
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures contracts (28,695,784)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $1,221,286,954
- ------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A
shares ($852,280,534 divided by 97,636,167 shares) $8.73
- ------------------------------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25 of $8.73)* $9.17
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($369,006,420
divided by 42,292,343 shares)** $8.73
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* On single retail sales of less than $25,000. On sales of $25,000 or more and
on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
STATEMENT OF OPERATIONS
March 31, 1994
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
TAX EXEMPT INTEREST INCOME $71,255,951
EXPENSES:
- ---------------------------------------------------------------------------------
Compensation of Manager (Note 2) $6,321,827
- ---------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 678,470
- ---------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 26,936
- ---------------------------------------------------------------------------------
Reports to shareholders 60,353
- ---------------------------------------------------------------------------------
Auditing 38,497
- ---------------------------------------------------------------------------------
Legal 31,223
- ---------------------------------------------------------------------------------
Postage 82,793
- ---------------------------------------------------------------------------------
Registration fees 275,517
- ---------------------------------------------------------------------------------
Administrative services (Note 2) 20,157
- ---------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 8,414
- ---------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,021,478
- ---------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,210,027
- ---------------------------------------------------------------------------------
Other 51,881
- ---------------------------------------------------------------------------------
TOTAL EXPENSES 11,827,573
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME 59,428,378
- ---------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 466,569
- ---------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (911,305)
- ---------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures contracts
during the year (56,353,269)
- ---------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (56,798,005)
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,630,373
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
STATEMENT OF CHANGES IN NET ASSETS
Year ended March 31
<TABLE>
<CAPTION>
INCREASE IN NET ASSETS
- -----------------------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- -----------------------------------------------------------------------------------------
Net investment income $ 59,428,378 $ 30,122,247
- -----------------------------------------------------------------------------------------
Net realized gain on investments 466,569 4,152,797
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts (911,305) (111,965)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (56,353,269) 20,689,086
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,630,373 54,852,165
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- -----------------------------------------------------------------------------------------
From net investment income Class A (46,353,540) (29,745,389)
- -----------------------------------------------------------------------------------------
From net investment income Class B (13,074,838) (470,680)
- -----------------------------------------------------------------------------------------
In excess of net investment income Class A (542,155) --
- -----------------------------------------------------------------------------------------
In excess of net investment income Class B (165,144) --
- -----------------------------------------------------------------------------------------
From net realized gains on investments Class A (652,082) (2,671,354)
- -----------------------------------------------------------------------------------------
In excess of net realized gains on
investments Class A (4,607,972)
- -----------------------------------------------------------------------------------------
In excess of net realized gains on
investments Class B (1,973,895)
- -----------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 551,880,210 387,797,101
- -----------------------------------------------------------------------------------------
Total increase in net assets 487,140,957 409,761,843
NET ASSETS
- -----------------------------------------------------------------------------------------
Beginning of year 734,145,997 324,384,154
- -----------------------------------------------------------------------------------------
End of year (including distributions
in excess of net investment income of
$956,500 and $538,225 respectively) $1,221,286,954 $734,145,997
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
33
<PAGE> 34
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 4, 1993
Year (commencement Year
ended of operations) to ended
March 31 March 31 March 31
-----------------------------------------------------
1994 1993 1994
- ----------------------------------------------------------------------------------------------------
Class B Class A
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $9.12 $8.95 $9.12
- ----------------------------------------------------------------------------------------------------
Investment Operations
- ----------------------------------------------------------------------------------------------------
Net Investment Income .44 .10 .55
- ----------------------------------------------------------------------------------------------------
Net Realized and Unrealized
- ----------------------------------------------------------------------------------------------------
Gain (Loss) on Investments (.32) .17 (.34)
- ----------------------------------------------------------------------------------------------------
Total from Investment Activities .12 .27 .21
- ----------------------------------------------------------------------------------------------------
Less Distributions:
- ----------------------------------------------------------------------------------------------------
From Net Investment Income (.44) (.10) (.54)
- ----------------------------------------------------------------------------------------------------
In Excess of Net Investment Income (.01) -- --
- ----------------------------------------------------------------------------------------------------
From Net Realized Gain on Investments -- -- (.01)
- ----------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on Investments (.06) -- (.05)
- ----------------------------------------------------------------------------------------------------
Total Distributions (.51) (.10) (.60)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $8.73 $9.12 $8.73
- ----------------------------------------------------------------------------------------------------
Total Investment Return at NAV (%) (b) 12.71(c) 2.15
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $369,006 $95,175 $852,281
- ----------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) 1.54 1.27(c) .97
- ----------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
- ----------------------------------------------------------------------------------------------------
Average Net Assets (%) 5.02 5.05(c) 5.73
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 47.08 31.05(d) 47.08
- ----------------------------------------------------------------------------------------------------
</TABLE>
See page 35 for notes to Financial Highlights.
34
<PAGE> 35
<TABLE>
<CAPTION>
For the period
May 22, 1989
Year (commencement
ended of operations) to
March 31 March 31
- ----------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $8.65 $8.36 $8.47 $8.50
- ----------------------------------------------------------------------------------------------------------------
Investment Operations
- ----------------------------------------------------------------------------------------------------------------
Net Investment Income .63 .67 .68 .57(a)
- ----------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
- ----------------------------------------------------------------------------------------------------------------
Gain (Loss) on Investments .51 .31 (.10) (.04)
- ----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.14 .98 .58 .53
- ----------------------------------------------------------------------------------------------------------------
Less Distributions:
- ----------------------------------------------------------------------------------------------------------------
From Net Investment Income (.62) (.68) (.69) (.56)
- ----------------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income
- ----------------------------------------------------------------------------------------------------------------
From Net Realized Gain on Investments (.05) (.01) -- --
- ----------------------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on Invest
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (.67) (.69) (.69) (.56)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.12 $8.65 $8.36 $8.47
- ----------------------------------------------------------------------------------------------------------------
Total Investment Return at NAV (%) (b) 13.67 12.11 7.16 7.45(c)
- ----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $638,971 $324,384 $244,508 $182,641
- ----------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.05 .91 .95 .85(a)(c)
- ----------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets (%) 6.83 7.80 8.08 6.92(a)(c)
- ----------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 31.05 44.34 49.80 41.84(d)
</TABLE>
* Financial highlights for periods ended through March 31, 1992 have been
restated and data presented to conform with requirements issued by the SEC
in April, 1993.
(a) Reflects a voluntary expense limitation in effect during the period. As a
result of such limitation, expenses of the Fund for the period reflect a
reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Annualized.
(d) Not annualized.
35
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
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 Putnam Management
believes is consistent with the preservation of capital. The Fund is required
under normal market conditions to invest at least 65% of its assets in
"investment-grade" tax-exempt securities.
The Fund offers both class A and class B shares. The Fund commenced its public
offering of class B shares on January 4, 1993. Class A shares are sold with a
maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and may be subject to a contingent deferred sales charge if those shares are
redeemed within six years of purchase. Expenses of the Fund are borne pro-rata
by the holders of both classes of shares, except that each class bears expenses
unique to that class (including the distribution fees applicable to such class)
and 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
policies are in conformity with generally accepted accounting principles.
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. Short- term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C FUTURES An index futures contract is an agreement between two parties to
buy and sell the cash equivalent of an index at a set price on a future date.
Upon entering into such a contract the Fund is required to pledge to the broker
an amount of cash or securities equal to the minimum "initial margin"
requirements of the futures exchange. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
"variation margin" and are
36
<PAGE> 37
recorded by the Fund as unrealized gains or losses. 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.
D FEDERAL TAXES It is the policy of the Fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by the
Fund and are distributed monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid annually, or as necessary to meet the
distribution requirements described above.
F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discount on zero-coupon bonds is accreted according to
the effective yield method.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the Fund in
connection with its organization, aggregated $42,571. These expenses are being
amortized on a straight-line basis over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the Fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the average net assets
of the Fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of the Fund's average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million and 0.45% of any amount over $1.5
billion. Fees are subject, under current law, to reduction in any year to the
extent that expenses (exclusive of brokerage, interest, taxes, deferred
organizational and extraordinary expenses) of the Fund exceed 2.5% of the first
$30 million of average net assets, 2.0% of the next $70 million and 1.5% of any
amount over $100 million, and by the amount of certain brokerage commissions
and fees (less expenses) received by affiliates of the Manager on the Fund's
portfolio transactions.
The Fund also reimburses the Manager 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. For the year ended March 31, 1994, the
Fund paid $20,157 for these services.
Trustees of the Fund receive an annual Trustee's fee of $2,400 and an
37
<PAGE> 38
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the Fund 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. Fees
paid for these investor servicing and custodial functions for the year ended
March 31, 1994 amounted to $678,470.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended March 31, 1994 have been reduced by credits allowed by PFTC.
The Fund has adopted a distribution plan with respect to class A shares (the
Class A Plan) pursuant to Rule 12b-1 of the Investment Company Act of 1940. The
purpose of the class A Plan is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred in distributing Class A shares. The Trustees have approved
payments by the Fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of
average net assets attributable to class A shares. For the year ended March 31,
1994, the Fund paid $2,021,478 in distribution fees for class A shares.
During the year ended March 31, 1994, Putnam Mutual Funds Corp., acting as an
underwriter, received net commissions of $224,031 from the sale of class A
shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares purchased as part of an investment of $1 million or more. For the year
ended March 31, 1994 Putnam Mutual Funds Corp., acting as an underwriter,
received $55,558 on such redemptions.
The Fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 of the Investment Company
Act of 1940. The purpose of the class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
class B shares. The class B Plan provides for payments by the Fund to Putnam
Mutual Funds Corp. at an annual rate of up to 1.00% of the Fund's average net
assets attributable to class B shares. Currently, the Trustees have limited
payments to .85% of such assets. For the period January 4, 1993 (commencement
of operations) to March 31, 1994, the Fund paid Putnam Mutual Funds Corp.
distribution fees of $2,210,027 for class B shares.
Putnam Mutual Funds Corp., acting as an underwriter, also receives the proceeds
of the contingent deferred sales charges levied on class B share redemptions
within six years of purchase. The charge is based on declining rates, which
begin at 5.0% of the net asset value of the redeemed shares. Putnam Mutual
Funds Corp. received $248,294 in contingent deferred sales charges from such
redemptions for the year ended March 31, 1994.
38
<PAGE> 39
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 1994, purchases and sales of investment
securities other than short-term municipal obligations aggregated
$1,051,722,420 and $480,514,879, respectively. Purchases and sales of
short-term municipal obligations aggregated $236,816,950 and $247,477,350,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
<TABLE>
<CAPTION>
SALES OF FUTURES CONTRACTS
- ------------------------------------------------------------------------------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
beginning of year 100 $ 10,939,638
- -----------------------------------------------------------------------------------------------
Contracts opened 2,567 201,898,592
- -----------------------------------------------------------------------------------------------
Contracts closed (2,086) (230,449,703)
- -----------------------------------------------------------------------------------------------
Contracts open at
end of year 581 $ 62,388,527
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 4
CAPITAL SHARES
At March 31, 1994, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, Class A and Class B capital
stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1994
CLASS A SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 38,825,482 $ 360,230,905
- -----------------------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions
2,899,473 $ 26,912,500
- -----------------------------------------------------------------------------------------------
41,724,955 $ 387,143,405
Shares repurchased
(14,142,740) $(131,073,073)
- -----------------------------------------------------------------------------------------------
Net increase 27,582,215 $ 256,070,332
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1994
CLASS B SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 34,234,352 $ 317,727,481
- -----------------------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions
953,588 $ 8,845,441
- -----------------------------------------------------------------------------------------------
35,187,940 $ 326,572,922
Shares repurchased
(3,327,974) $ (30,763,044)
- -----------------------------------------------------------------------------------------------
Net increase 31,859,966 $ 295,809,878
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1993
CLASS A SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 37,646,775 $ 338,403,203
- -----------------------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions
1,684,394 $ 15,064,950
- -----------------------------------------------------------------------------------------------
39,331,169 $ 353,468,153
Shares repurchased
(6,787,410) $ (60,821,501)
- -----------------------------------------------------------------------------------------------
Net increase 32,543,759 $ 292,646,652
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1993
CLASS B SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 10,573,121 $ 96,429,881
- -----------------------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions
23,581 $ 215,517
- -----------------------------------------------------------------------------------------------
10,596,702 $ 96,645,398
Shares repurchased
(164,325) $ (1,494,949)
- -----------------------------------------------------------------------------------------------
Net increase 10,432,377 $ 95,150,449
- -----------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
NOTE 5
RECLASSIFICATION
OF CAPITAL ACCOUNTS
Effective April 1, 1993, Putnam Municipal Income Fund has adopted the
provisions of Statement of Position 93-2 "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of Capital
Distributions, by Investment Companies (SOP)." The purpose of this SOP is to
report the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts
available for future distributions (or to offset future realized capital gains)
and to achieve uniformity in the presentation of distributions by investment
companies.
As a result of the SOP, the Fund has reclassified $2,492 to increase
undistributed net investment income with a decrease of $2,492 to additional
paid-in-capital.
This adjustment represents the cumulative amounts necessary to report these
balances through March 31, 1993, the close of the Fund's last fiscal year end
for financial reporting and tax purposes.
Permanent book and tax basis differences relating to shareholder distribution
will result in reclassification to paid in capital.
40
<PAGE> 41
FEDERAL TAX INFORMATION
The Fund has designated all distributions from net investment income paid
during the fiscal year as exempt from federal income tax. The Fund also paid a
short-term capital gain of $0.51 per share and a long term gain of $.006 on
December 28, 1993. This amount was previously reported to you on form 1099 in
January 1994. The form 1099 you will receive in January 1995 will tell you the
tax status of any distributions paid to your account in calendar year 1994.
41
<PAGE> 42
OUR COMMITMENT TO QUALITY SERVICE
o CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested
Service Seal every year since the award's 1990 inception.
DALBAR, an independent research firm, ran more than 10,000
tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
o HELP YOUR INVESTMENT GROW.
You can set up a regular program for investing with as little
as $25 a month from a Putnam money market fund or your own bank
account.*
o SWITCH FUNDS EASILY.
You can move money from one account to another with the same
class of shares without a service charge. (This privilege is
subject to change or termination.)
o ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business
day at the then-current net asset value, which may be more or
less than their original cost.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and
speak with a helpful Putnam representative.
o To make an additional investment in this or any other Putnam
fund, contact your financial advisor or call our toll-free
number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or
protect against a loss in a declining market. Investors should
consider their ability to continue purchasing shares during
periods of low price levels.
42
<PAGE> 43
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C.Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Municipal 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.
43
<PAGE> 44
PUTNAM INVESTMENTS Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Boston, MA
Permit No. 53749
38/69-11898
