<PAGE> 1
PUTNAM
MUNICIPAL
INCOME FUND
SEMIANNUAL REPORT
SEPTEMBER 30, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
-- The fund's class A shares have earned Morningstar's ranking of
four stars, out of a possible five, based on risk-adjusted 3- and
5-year performance, through September 30, 1994. The fund's class A
shares have held a 4- or 5-star ranking since June 30, 1992.*
-- Lipper has ranked the fund's class A shares in the upper 14% of
municipal bond funds based on total return for five years ended
September 30, 1994.+
-- Performance should always be considered in light of a fund's
investment strategy. Putnam Municipal Income Fund is designed for
investors seeking as high a level of current income free from
federal income tax as is consistent with preservation of capital.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FISCAL 1994 results at a glance
---------------------------------------------------------------------
Class A Class B
Total return NAV POP NAV CDSC
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months ended 9/30/94
(change in value
during period
plus reinvested
distributions) 1.34% -3.52% 0.93% -3.98%
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Share value NAV POP NAV
---------------------------------------------------------------------
3/31/94 8.73 9.17 8.73
---------------------------------------------------------------------
9/30/94 8.58 9.01 8.57
Capital
Distributions No. Income Gains(1) Total
---------------------------------------------------------------------
Class A 6 $0.267349 -- $0.267349
Class B 6 0.241655 -- 0.241655
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Current return NAV POP NAV
---------------------------------------------------------------------
End of period
Current dividend rate2 6.28% 5.98% 5.69%
Taxable equivalent3 10.40 9.90 9.42
Current 30-day SEC yield4 6.33 6.03 5.66
Taxable equivalent3 10.48 9.98 9.37
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</TABLE>
Performance data represent past results and will differ for each share
class. 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. 1Capital gains are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal Alternative Minimum Tax. Investment income may be
subject to state and local taxes. 2Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous. 4Based only on investment
income, calculated using SEC guidelines.
* Morningstar is an independent research firm that rates funds relative to
funds with similar objectives, based on risk-adjusted performance, as
applicable, and adjusted for sales charges. A four-star rating puts the
fund in the top 32.5% of rated funds. Ratings are updated monthly. Past
performance is not indicative of future results.
+ Lipper Analytical Services is an industry research firm whose rankings
vary over time and do not include the effects of sales charges. For
periods ended 9/30/94, the fund's class A shares ranked 48th out of 175
funds for 1 year, 14th out of 107 funds for 3 years, and12th out of 88
funds for 5 years. Past performance is not indicative of future results.
2
<PAGE> 3
FROM THE CHAIRMAN [PHOTO OF GEORGE PUTNAM]
DEAR SHAREHOLDER: C Karsh, Ottawa
MUNICIPAL BOND INVESTORS HAVE EXPERIENCED MORE THAN THEIR SHARE OF
FRUSTRATION OVER THE PAST SEVERAL MONTHS AS THE FIXED-INCOME MARKETS
ENDURE A PROLONGED PERIOD OF VOLATILITY. PUTNAM MUNICIPAL INCOME FUND'S
PERFORMANCE DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1994, REFLECTS
THIS UNSETTLED ENVIRONMENT.
DESPITE THE LACKLUSTER PERFORMANCE, SOME SIGNS OF ENCOURAGEMENT ARE
BEGINNING TO APPEAR FOR INVESTORS IN TAX-EXEMPT SECURITIES. SUPPLIES
MAY BECOME TIGHTER AS MORE INVESTORS SEEK TAX RELIEF, WHICH COULD
TRANSLATE INTO HIGHER PRICES, PARTICULARLY IF INTEREST RATES DO NOT
MOVE SIGNIFICANTLY HIGHER. MANY SECTORS OF THE TAX-EXEMPT MARKET,
INCLUDING HEALTH CARE, EDUCATION, AND RESOURCE RECOVERY, ARE POISED FOR
GROWTH, WHICH SHOULD BODE WELL OVER THE LONG TERM FOR INVESTMENTS IN
THOSE AREAS.
WITH PUTNAM'S CONSIDERABLE CREDIT RESEARCH AND ANALYSIS CAPABILITIES
BEHIND HIM, FUND MANAGER RICHARD WYKE WILL CONTINUE SEEKING OUT THE
MOST PROMISING TAX-EXEMPT INVESTMENTS FOR YOUR FUND. RICK'S REPORT ON
FISCAL '94 PERFORMANCE AND WHAT HE SEES IN STORE FOR FISCAL '95
FOLLOWS.
RESPECTFULLY YOURS,
/s/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 9, 1994
3
C = COPYRIGHT
<PAGE> 4
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
In a period that has been rather inhospitable to most fixed-income
investments, Putnam Municipal Income Fund proved able to contain much
of the damage. The higher-yielding bonds in its portfolio helped the
fund avoid much of the price erosion experienced by funds with a
heavier emphasis on investment-grade securities in the market decline
touched off by the Federal Reserve Board's increases in short-term
interest rates earlier this year.
For the six months ended September 30, 1994, the fund's class A shares
provided a total return of 1.34% and class B shares, 0.93%, both at net
asset value. Results over longer periods are better indicators of the
fund's potential. As the table on page 8 shows, the fund's total return
at net asset value for five years and since its inception on May 22,
1989, are both ahead of the municipal bond market as measured by the
Lehman Brothers index. The index includes only investment-grade bonds,
while the fund may invest in lower-rated higher-yielding securities.
- STRATEGY: HIGH-YIELD BONDS, HEDGING, SHORTER DURATION
Early in the period, we began shopping for promising opportunities
among high-yield bonds. We were attracted to these lower-rated tax-
exempt securities because institutional investors had become active
buyers. These investors, particularly insurance companies, were
purchasing general obligation securities for long-term investment
reasons, not short-term market reasons. We reasoned, correctly, that
this extended investment horizon, coupled by sustained demand, would
promote near-term price stability.
During the fund's semiannual period, these bonds outperformed the
market by more than a quarter of a percentage point. Retail demand, on
the other hand, was responding more to the volatility in the fixed-
income markets touched off by the Fed's increases in short-term rates.
4
<PAGE> 5
While these high-yield holdings insulated the fund's portfolio somewhat
from the volatility sparked by the rate increases, it was not immune.
Rather than exchange some of the more rate-sensitive holdings in the
portfolio with less sensitive ones, we concluded the more cost-
effective course would be to initiate some hedging tactics. Once in
place, these hedges, mainly futures contracts, achieved the desired
result of further reducing the portfolio's overall sensitivity to
changes in interest rates.
To protect the fund's value further, we shortened the portfolio's
average duration. Duration is a mathematical measure of a bond's
sensitivity to changes in interest rates and, like maturity, is
expressed in years. The shorter the duration, the less volatility you
can expect from the portfolio.
- RESISTING THE SIREN SONG OF DISCOUNTED SECURITIES
We also resisted the lure of discounted securities, bonds whose market
prices had dropped below their par value. Because a bond's stated
interest rate, or "coupon," is fixed for the life of the security, the
only way for the market to bring the bond's actual return into line
with prevailing interest rates is to adjust the selling price. Thus,
when interest rates fall, bond prices tend to rise; when rates rise,
prices tend to decline.
[A line graph comparing the growth of a hypothetical $10,000 investment
in tax-free municipal bonds with a similar investment in U.S. Treasury
bonds, and shows the effective after-tax returns of the fully taxable
Treasury securities for an individual paying the maximum 39.6% federal
income tax rate.]
Sources: Lehman Brothers Municipal Bond Index., Lehman Brothers
Treasury Bond Index.
5
<PAGE> 6
As the rise in short-term interest rates spread over into longer-term
securities, prices of some bonds declined well below par, the price the
bond's issuer will pay upon retiring the bond. The difference between
the acquisition cost and par can sometimes represent alluring capital
appreciation potential. But recently the market's treatment of these
bonds has been harsh in the wake of new and more stringent rules on the
taxation of the potential gains. As a result, these securities have
underperformed. We did well to avoid them in your fund's portfolio.
- SECTOR EMPHASIS: RESOURCE RECOVERY, HEALTH CARE, INDUSTRY
We continued to add to the resource recovery sector of the municipal
bond market. Over time, we believe these facilities devoted to
recycling and converting trash into fuel will gain broader
acceptability and, therefore, receive higher credit ratings.
Securities related to health care still make up about 18.41% of the
fund's net assets, though they have been trimmed back somewhat since
the start of fiscal 1994. We select them issue by issue, credit by
credit, rather than investing broadly across the sector. While the
sector as a whole could well experience further unrest as the national
debate on reform resumes, we are focusing on issues that appear likely
to perform well regardless of the ultimate outcome.
Municipal bonds issued to promote industrial development have benefited
as a group because of their exposure to improving corporate profits in
the recovering economy. During the period, we sold some of the higher-
rated issues because we believed they had become fully valued and were
approaching the limit of their potential benefit for your portfolio.
- OUTLOOK: TIGHT SUPPLY SHOULD BUOY MARKET
The portfolio is still positioned somewhat defensively. While we
believe rates on long-term bonds will rise more as the Fed tries to
contain inflation by notching up short-term rates, we are keeping a
portion of the portfolio flexible to enable us to participate in
special situations and other opportunities that might arise.
6
<PAGE> 7
<TABLE>
<CAPTION>
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TOP industry sectors*
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<S> <C>
Utilities, water and sewer 20.42%
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Hospitals and Health care 18.41%
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Transportation 13.74%
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<FN>
* Based on net assets on 9/30/94
</TABLE>
Over the past several months, the supply of municipal bonds has
declined by more than 40% from last year's levels, a trend that is
likely to continue as fewer municipalities refinance existing bonds and
cut back on financing new projects. We also believe demand will rise as
more investors seek relief from higher taxes and increasingly recognize
the attractiveness of municipal bonds relative to taxable Treasury
securities.
We see an economy of slow but steady growth with relatively low
inflation. Although there can be no guarantees, with properly balanced
market and sector weightings, we believe the fund can offer you strong
potential for attractive tax-free income and total return through the
remainder of fiscal 1995 and beyond.
The views expressed in this report are exclusively those of Putnam
Management, and are not meant as investment advice. Although the
described holdings were viewed favorably as of September 30, 1994,
there is no guarantee the fund will continue to hold these securities
in the future.
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 and on
average how the fund might have grown each year over varying periods.
For comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
MOST RECENT CALENDAR QUARTER
<CAPTION>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months 1.34% -3.52% 0.93% -3.98% 1.80% 1.50%
1 year -3.08 -7.68 -3.66 -8.20 -2.44 2.96
5 years 47.46 40.47 -- -- 46.85 19.52
Annual average 8.08 7.03 -- -- 7.99 3.63
Life of class A 50.38 43.29 -- -- 48.95 20.68
Annual average 7.91 6.94 -- -- 7.72 3.57
Life of class B 5.54 1.71 8.03 5.29
Annual average 3.15 0.98 4.54 3.00
</TABLE>
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions or, for class A shares, distribution
fees prior to implementation of the class A distribution plan in 1990. The
fund began 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 and will differ for each share
class. Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than their original
cost.
8
<PAGE> 9
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES 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 class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year to
1% during the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may
pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
9
<PAGE> 10
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994 (Unaudited)
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
ALABAMA (0.9%)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,000,000 Cortland, Indl. Dev. Board Rev. Bonds
(Champion Intl. Corp.), Ser. A, 7.2s, 12/1/13 Baa $ 2,047,500
Cullman, Med. Pk. South Med. Clinic Board Rev.
Bonds (Cullman Regl. Med. Ctr.)
4,000,000 Ser. A, 61\2s, 2/15/23 Baa 3,640,000
2,645,000 Ser. A, 61\4s, 2/15/02 Baa 2,605,325
3,500,000 Huntsville, Hlth. Care Auth. Fac. Variable Rate
Demand Notes (VRDN), Ser. B, Municipal Bonds
Insurance Association, (MBIA), 3.7s, 6/1/22 AAA 3,500,000
-----------
11,792,825
ARIZONA (2.7%)
- -------------------------------------------------------------------------------------------
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hosp. Syst.),
2,870,000 Ser. A, 101\8s, 11/1/15 Ba 3,002,737
1,000,000 71\4s, 11/1/14 Ba 962,500
7,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds, Ser. 85, 8.9s, 7/1/06 Baa 7,735,000
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst. Rev.
Bonds (Env. Inc. & Phoenix Hosp. & Med. Ctr.),
7s, 7/1/16 Baa 1,975,000
5,000,000 Payson, Ind. Dev. Auth. Hosp. Rev. Bonds (Payson
Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P 4,881,250
2,100,000 Phoenix, Civic Impt. Corp. Excise Tax Sr. Lien
Rev. Bonds, (New City Hall Projects), 5.1s, 7/1/18 AA 1,737,750
8,500,000 Pima Cnty., Indl. Dev. Auth. Rev. Bonds (Tucson
Elec. Pwr. Co. Irvington Project), Ser. A, Fin.
Security Ass. Corp (FSA), 71\4s, 7/15/10 AAA 9,031,250
4,000,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds (Casa
Grande Regl. Med. Ctr.), Ser. A, 81\8s, 12/1/22 BB/P 4,155,000
-----------
33,480,487
ARKANSAS (0.4%)
- -------------------------------------------------------------------------------------------
22,500,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge. Rev.
Bonds, Ser. 84A, zero % s, 7/1/15 A 2,503,125
2,150,000 Pope Cnty., Poll. Control Rev. Bonds (AR Pwr.
& Lt. Co. Project), 11s, 12/1/15 Baa 2,327,375
-----------
4,830,500
CALIFORNIA (13.5%)
- -------------------------------------------------------------------------------------------
4,500,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates Med.
Ctr.), Ser. A, 6.55s, 12/1/22 Baa 4,156,875
CA State General Obligation (G.O.) Bonds
15,000,000 FSA, 51\2s, 3/1/20 AAA 12,993,750
15,000,000 MBIA, 51\2s, 4/1/12 AAA 13,650,000
3,000,000 MBIA, 51\2s, 4/1/09 AAA 2,827,500
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (CONTINUED)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CA State Pub. Works Board Lease Rev. Bonds
$12,000,000 (U. of CA Projects), Ser. A, 51\2s, 6/1/21 A $ 10,095,000
8,500,000 (Dept. of Corrections-State Prisons), Ser. B,
MBIA, 53\8s, 12/1/19 AAA 7,267,500
15,000,000 CA State Rev. Anticipation Notes (RAN),
Ser. C, 53\4s, 4/25/96 MIG1 15,196,875
5,000,000 CA Statewide Cmntys. Dev. Auth. Certif. of
Participation Rev. Bonds (Childrens Hosp.),
MBIA, 43\4s, 6/1/21 AAA 3,793,750
6,300,000 Central Valley, Fin. Auth. Rev. Bonds (Carson
Ice-Cogeneration Project), 6.2s, 7/1/20 BBB 5,701,500
2,500,000 Corona, Certif. of Participation (Vista Hosp.
Syst.), Ser. B, 91\2s, 7/1/20 BB/P 2,593,750
3,000,000 Irvine Ranch, Wtr. Dist. VRDN (Dist. Nos
140-240-105-250), 31\2s, 4/1/33 VMIG1 3,000,000
LA Habra, Certif. of Participation (Friendly Hills
Hlth. Care Foundation)
3,370,000 Ser. A, 7.15s, 7/1/13 BB/P 3,370,000
4,875,000 Ser. A, 7.05s, 7/1/13 BB/P 4,875,000
4,500,000 Loma Linda, Hosp. Rev. Bonds (Loma Linda U.
Med. Ctr.), Ser. C, MBIA, 53\8s, 12/1/22 AAA 3,808,125
3,000,000 Los Angeles, Convention, & Exhib. Ctr. Rev.
Bonds, Ser. A, MBIA, 51\8s, 8/15/21 AAA 2,445,000
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds, (United Airlines Inc.), 67\8s, 11/15/12 Baa 2,256,000
5,000,000 Los Angeles, Wastewater Syst. Rev. Bonds,
Ser. D, FGIC, 4.7s, 11/1/19 AAA 3,825,000
2,000,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
(Geothermal Project No. 3), Ser. A, 5.8s, 7/1/09 A 1,882,500
6,150,000 Northn. CA Pwr. Agcy. Multi. Cap. Fac. RIBS,
MBIA, 10.105s, 8/15/17 AAA 6,219,188
7,600,000 Orange Cnty., Local Trans. Auth. Sales Tax
Residual Interest Bonds (RIBS), 9.023s, 2/14/11 AA 7,476,500
2,935,000 Pleasanton, Joint Pwr. Fin. Auth. Rev. Bonds,
Ser. A, 6.15s, 9/2/12 Baa 2,729,550
5,000,000 Redding, Joint Pwr. Fin. Auth. Rev. Bonds
(Solid Waste Corp. Yard Project), 5s, 1/1/23 A 3,750,000
5,000,000 Sacramento, City Fin. Auth. Lease Rev. Bonds,
Ser. A, American Municipal Bonds Assurance
Corp (AMBAC), 53\8s, 11/1/14 AAA 4,400,000
3,000,000 San Bernardino Cnty., Certif. of Participation
(Med. Ctr. Project), 51\2s, 8/1/22 Baa 2,422,500
San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds
6,000,000 63\4s, 1/1/32 BB/P 5,640,000
10,000,000 5s, 1/1/33 BB/P 7,075,000
10,000,000 zero %, 1/1/10 BB/P 6,000,000
3,305,000 zero %, 1/1/06 BB/P 1,995,394
3,000,000 Southern CA Pub. Pwr. Auth. Pwr. Project Rev.
Bonds (Multi. Projects), 63\4s, 7/1/10 A 6,150,000
8,000,000 U. of CA Rev. Bonds
(Multi. Purpose Projects), Ser. B, MBIA, 5s, 9/1/16 AAA 6,560,000
5,000,000 Walnut Creek Certif. of Participation (John Muir
Med. Ctr. Project), MBIA, 5s, 2/15/16 AAA 4,100,000
-----------
168,256,257
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
COLORADO (4.5%)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Denver, City & Cnty. Arpt. Rev. Bonds
$ 5,000,000 Ser. D, 73\4s, 11/15/13 Baa $ 4,975,000
9,900,000 Ser. D, 7s, 11/15/25 Baa 8,984,250
2,000,000 Ser. C, 63\4s, 11/15/13 Baa 1,812,500
Denver, City & Cnty. Arpt. Rev. Bonds
6,000,000 Ser. A, 83\4s, 11/15/23 Baa 6,330,000
15,500,000 Ser. B, 71\4s, 11/15/23 Baa 14,531,250
1,500,000 Ser. C, 63\4s, 11/15/22 Baa 1,323,750
2,700,000 Ser. A, 6.6s, 11/15/97 Baa 2,696,625
1,500,000 Ser. A, 6.35s, 11/15/96 Baa 1,498,125
12,700,000 Denver, City & Cnty. Special Fac. Arpt. Rev.
Bonds (United Air Lines, Inc. Project),
Ser. A, 67\8s, 10/1/32 Baa 11,303,000
3,000,000 Larimer Cnty., School Dist. Rev. Bonds,
7s, 12/15/16 A 3,311,250
-----------
56,765,750
CONNECTICUT (1.0%)
- -------------------------------------------------------------------------------------------
1,475,000 CT Dev. Auth. 1st. Mtge. Rev. Bonds
(Gladeview Hlth. Care Project), 93\4s, 12/15/16 BB/P 1,648,312
2,500,000 CT Dev. Auth. Hlth. Care Rev. Bonds (Alzheimer
Resource Ctr.), Ser. A, 10s, 8/15/21 BB/P 3,178,125
5,475,000 CT Special Tax Rev. Bonds Ser. A, Financial
Guaranty Insurance Co. (FGIC), 5.65s, 4/1/12 AAA 5,105,438
2,320,000 CT State Dev. Auth. 1st. Mtge. Rev. Bonds (East
Hill Woods Project), 83\4s, 7/1/19 B/P 2,366,400
-----------
12,298,275
DELAWARE (0.3%)
- -------------------------------------------------------------------------------------------
4,000,000 DE Trans. Auth. Trans. Syst. Rev. Bonds,
Ser. A, 5s, 7/1/14 AA 3,395,000
DISTRICT OF COLUMBIA (0.1%)
- -------------------------------------------------------------------------------------------
2,000,000 Dist. of Columbia Rfdg. Rev. Bonds (American
Geophysical Union), 53\4s, 9/1/13 BBB 1,692,500
FLORIDA (4.3%)
- -------------------------------------------------------------------------------------------
3,850,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Co. LP South Project), 7.95s, 12/1/08 A 4,172,437
450,000 Cape Coral, Hlth. Med. Ctr. Rev. Bonds,
71\2s, 11/15/11 BBB 447,750
4,500,000 FL State Tpk. Auth. Rev. Bonds, Ser. A, FGIC,
5s, 7/1/19 AAA 3,667,500
21,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL
Crushed Stone Co.), 81\2s, 12/1/14 B/P 22,666,500
3,100,000 Hillsborough Cnty., Aviation Auth. Special
Purpose Rev. Bonds, (USAir Project), 8.6s, 1/15/22 B 3,003,125
2,475,000 Levy Cnty., Indl. Dev. Rev. Bonds (National
Med. Assn. Inc. Project), 10s, 7/1/19 B/P 2,338,875
3,500,000 Orange Cnty., Hlth. Fac. Auth. 1st. Mtge. Rev.
Bonds (Princeton Hosp.), 9s, 7/1/21 B/P 3,552,500
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc. Project)
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
FLORIDA (CONTINUED%)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,315,000 8 7\8s, 12/1/18 BBB $ 1,520,469
1,160,000 8 7\8s, 12/1/18 BBB 1,271,650
Palm Beach Cnty., Solid Waste Indl. Dev. Rev. Bonds
(Okeelanta Pwr. & Lt. Project)
3,000,000 Ser. A, 6.85s, 2/15/21 BB/P 2,838,750
4,700,000 Ser. A, 6.7s, 2/15/15 BB/P 4,423,875
4,000,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8 1\2s, 3/1/23 BB/P 3,865,000
------------
53,768,431
Georgia (2.5%)
- --------------------------------------------------------------------------------------------
8,790,000 Atlanta, Board of Ed. Certif. of Participation Rev.
Bonds, FGIC, 5 1\8s, 6/1/12 AAA 7,669,275
4,000,000 Atlanta, Special Purpose Fac. Rev. Bonds (Delta
Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 4,050,000
2,000,000 Burke Cnty., Dev. Auth. Poll. Control VRDN
(Oglethorpe Pwr. Corp.), Ser. A, FGIC, 3.6s,
1/1/16 A 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 1,545,000
3,700,000 Ser. A, 7 1\2s, 4/1/17 BB/P 3,746,250
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc. Project), Ser. 84, 9 1\2s, 6/1/15 BBB/P 2,130,000
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
------------
30,903,025
Hawaii (0.7%)
- --------------------------------------------------------------------------------------------
8,820,000 Honolulu, City & Cnty. G.O. Ser. A, 6 1\4s, 4/1/14 AA 8,864,100
Illinois (5.5%)
- --------------------------------------------------------------------------------------------
2,000,000 Chicago, Gas Supply Rev. Bonds (Peoples Gas &
Lt.), Ser. A, 6 7\8s, 3/1/15 AA 2,090,000
Chicago, O'Hare Intl. Arpt. Rev. Bonds
1,000,000 Ser. A, 10 5\8s, 1/1/15 A 1,043,750
9,800,000 Ser. C, MBIA, 5s, 1/1/11 AAA 8,379,000
Chicago, O'Hare Intl. Arpt. Special Fac. Rev.
Bonds (United Air Lines, Inc.)
3,894,000 Ser. B, 8.95s, 5/1/18 Baa 4,273,665
1,895,000 Ser. 84A, 8.85s, 5/1/18 Baa 2,070,287
5,550,000 Ser. 84B, 8.85s, 5/1/18 Baa 6,063,375
4,000,000 Chicago, School Fin. Auth. RIBS, 6.72s, 6/1/05
(acquired 7/12/93, cost $5,000,000)(c) AA 3,590,000
7,000,000 Cook Cnty., Cmty. College Dist. Inverse Floater
RIBS, MBIA, 12.14s, 12/1/07 (acquired 6/10/94,
cost $9,750,720)(c) AAA 8,916,250
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A, 10 1\4s,
4/15/19(d) B/P 1,750,000
IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
ILLINOIS (CONTINUED)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,405,000 8 1\4s, 8/1/12 BBB/P $ 1,366,363
2,100,000 8 3\4s, 7/1/11 BBB/P 2,126,250
1,735,000 8 3\4s, 3/1/10 BBB/P 1,765,363
IL Ed. Fac. Auth. Rev. Bonds
2,060,000 (Steppenwolf Theatre Project), 9.65s, 7/1/19 BB/P 2,132,100
6,000,000 (Northwestern U.), 5 1\2s, 12/1/13 AA 5,302,500
IL Hlth. Fac. Auth. Rev. Bonds
3,570,000 (St. Elizabeth's Hosp.), 10 1\8s, 7/1/16 BB/P 3,721,725
3,000,000 (Grant Hosp. of Chicago), 7 1\2s, 6/1/13 BB 3,228,750
10,000,000 IL State G.O. 5 7\8s, 8/1/19 AA 9,262,500
2,000,000 Kane Cnty., 1st. Mtge. Rev. Bonds (Mercy Hsg.
Project), 9 3\4s, 10/1/19 BB/P 2,012,500
------------
69,094,378
Indiana (1.5%)
- --------------------------------------------------------------------------------------------
6,000,000 Burns Harbor Indl. Solid Waste Disp. Fac. Rev.
Bonds (Bethlehem Steel Corp. Project), 8s, 4/1/24 B/P 6,247,500
East Chicago, Indl. Poll. Control Rev. Bonds
2,000,000 (Inland Steel Co. Project No. 8), Ser. B, 10 3\4s,
12/1/12 Ba 2,127,500
1,500,000 (Inland Steel Co. Project No. 9), 10s, 11/1/11 Ba 1,629,375
3,000,000 (Inland Steel Co. Project Number 11), 7 1\8s,
6/1/07 Ba 2,992,500
1,983,937 Hammond, Indl. Port Auth. Certif. of Participation,
9.65s, 6/1/14 BB/P 2,036,015
3,000,000 IN Trans. Fin. Auth. Hwy. Rev. Bonds, Ser. A,
AMBAC, 5 3\4s, 6/1/12 AAA 2,797,500
1,500,000 Indianapolis, Ind. Loc. Pub. Impt. Bond Bank Rev.
Bonds, Ser. D, 6 3\4s, 2/1/14 A 1,520,625
------------
19,351,015
Iowa (0.3%)
- --------------------------------------------------------------------------------------------
4,000,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds (Mercy
Hlth. Initiatives Project), 9.95s, 7/1/19 B/P 4,000,000
Kentucky (0.2%)
- --------------------------------------------------------------------------------------------
3,000,000 Perry County Solid Waste Disposal Rev. Bonds
(TJ Int'l. Project), 7s, 6/1/24 BB/P 2,925,000
Louisiana (5.9%)
- --------------------------------------------------------------------------------------------
Beauregard, Parish Rev. Bonds (Boise Cascade
Corp. Project)
4,000,000 7 3\4s, 6/1/21 Baa 4,100,000
2,200,000 6 1\8s, 3/1/23 Baa 1,892,000
3,000,000 Beauregard, Parish Solid Waste Disposal Rev.
Bonds (Boise Cascade Corp. Project), 6.3s, 8/1/23 Baa 2,591,250
4,500,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 4,691,250
1,435,539 LA Pub. Fac. Auth. 1st. Mtge. Rev. Bonds (Emily
Morten Foundation), 10 1\4s, 5/1/19 B 1,514,494
21,180,000 Lake Charles, Harbor & Term. Dist. Port Facs.
Rev. Bonds (Trunkline Co. Project), 7 3\4s, 8/15/22 Baa 22,212,525
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
LOUISIANA (CONTINUED)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,000,000 14 1\2s, 1/1/02 BB $ 1,133,750
2,000,000 7 1\2s, 7/1/13 BB 1,962,500
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1\4s, 6/1/14 Baa 8,775,481
6,995,000 (Union Carbide Project), 7.35s, 11/1/22 BBB/P 7,099,925
2,000,000 St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum Project), 7 3\4s, 8/1/22 B/P 2,052,500
West Feliciana Parish, Poll. Control Rev. Bonds
(Gulf States Util. Co. Project)
1,765,000 Ser. B, 12s, 5/1/14 Baa 1,842,219
3,815,000 Ser. A, 10 5\8s, 5/1/14(e) Baa 3,977,138
1,500,000 9s, 5/1/15 BBB/P 1,676,250
8,000,000 Ser. C, 7s, 11/1/15 Baa 8,040,000
------------
73,561,282
Maine (0.4%)
- --------------------------------------------------------------------------------------------
3,000,000 ME Fin. Auth. Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp. Project), 7.9s, 6/1/15 BB 3,105,000
2,000,000 ME Fin. Auth. Solid Waste Recycling Facs. Rev.
Bonds (Great Northern Paper Project),
7 3\4s, 10/1/22 Baa 2,102,500
------------
5,207,500
Maryland (0.2%)
- --------------------------------------------------------------------------------------------
1,975,000 Denton, 1st. Mtge. Rev. Bonds (Wesleyan Hlth.
Care Ctr. Project), 10 1\4s, 4/1/20 B/P 2,036,718
Massachusetts (4.5%)
- --------------------------------------------------------------------------------------------
2,500,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 2,728,125
5,000,000 Boston, Rev. Rfdg. Bonds (Boston City Hosp.),
(Federal Home Association (FHA) Insd.,
Ser. B, 5 3\4s, 2/15/13 AA 4,618,750
MA Indl. Fin. Agcy. Rev. Bonds
4,000,000 (Atlanticare Med. Ctr.), Ser. A, 10 1\8s, 11/1/14 BB/P 4,040,000
1,000,000 (Atlanticare Med. Ctr.), Ser. B, 10 1\8s, 11/1/14 BB/P 1,010,000
10,000,000 (Biomedical Research), Ser. A-2, zero %, 8/1/04 A 5,450,000
2,860,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Baa 2,781,350
3,000,000 MA State Hlth. & Edl. Fac. Auth. Inverse Floating
Rate RIBS, FGIC, 9.074s, 8/15/18 AAA 2,632,500
MA State Hlth. & Edl. Fac. Auth. RIBS
1,000,000 (St. Elizabeth Hosp.), Ser. E, Financial Security
Assurance (FSA), 9.97s, 8/15/21 AAA 1,026,250
2,970,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba 2,910,600
1,540,000 MA State Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds
(Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 1,437,975
MA State Indl. Fin. Agcy. Resource Recvy.
Rev. Bonds (Southeastern MA Project)
13,000,000 Ser. A, 9s, 7/1/15 BB/P 14,397,500
3,000,000 Ser. B, 9 1\4s, 7/1/15 BB/P 3,337,500
1,019,317 MA State Indl. Fin. Agcy. Rev. Bonds (Pioneer
Valley Living Ctr.), zero %, 10/1/20 (d) B/P 1,274
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
MASSACHUSETTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 4,250,000 MA State Indl. Fin. Agcy. Solid Waste Disposal
Rev. Bonds, (Molten Metal Technology Project),
8 1\4s, 8/1/14 B/P $ 4,186,250
2,435,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(MA Tpk.), 9s, 10/1/20 BAA/P 2,559,794
3,000,000 MA Wtr. Resource Auth. Rev. Bonds, Ser. A,
6 1\2s, 7/15/21 AAA 3,247,500
------------
56,365,368
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 347,730
1,645,000 Detroit, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(MI Hlth. Care Corp. Project), 9.1s, 12/1/09 B/P 1,605,931
4,415,000 Detroit, Hosp. Fin. Auth. Hosp. Fac. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20 B 4,575,043
6,095,000 Detroit, Local Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1\2s, 5/1/21 BBB/P 7,443,519
Greater Detroit, Resource Recvy. Auth. Rev. Bonds
6,000,000 Ser. E, 9 1\4s, 12/13/08 BBB 6,352,500
4,030,000 Ser. G, 9 1\4s, 12/13/08 BBB 4,266,763
5,530,000 Livonia, Pub. Sch. Dist. Rev. Bonds, FGIC,
5 1\2s, 5/1/14 AAA 4,970,088
2,000,000 MI Hosp. Fin. Auth. Rev. Bonds (Garden City
Hosp.), 8 1\2s, 9/1/17 Ba 2,132,500
4,500,000 MI Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, 7.55s, 4/1/23 AAA 4,747,500
5,000,000 MI State Env. Protn. Program G.O. 6 1\4s, 11/1/12 AA 4,950,000
2,760,000 MI State Hosp. Fin. Auth. Rev. Bonds (Detroit
Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 B 2,635,800
10,000,000 MI State Stragetic Fund Solid Waste Disp. Rev.
Bonds (Genesee Pwr. Station Project), 7 1\2s, 1/1/21 BB/P 9,737,500
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging Project), 9.4s, 5/15/20 BBB/P 3,191,250
8,500,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 8,255,625
6,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control
Rev. Bonds, Ser. B, 9 1\2s, 7/23/09 B/P 6,525,000
1,500,000 Monroe Cnty., Poll. Control Rev. Bonds
(Detroit Edison Co.), Ser. A, 10 1/2s, 12/1/16 Baa 1,631,250
3,400,000 Wayne Charter Cnty., Special Arpt. Fac. Rev.
Bonds (Republic Air Lines Inc. Project),
Ser. C, 10 3\8s, 12/1/15 B/P 3,604,000
------------
76,971,999
Minnesota (1.1%)
- --------------------------------------------------------------------------------------------
1,985,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc. Project), 10 1\4s, 9/1/20 BB/P 2,262,900
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade
Corp. Project), 7.2s, 10/1/24 BAA 4,962,500
2,500,000 St Louis Pk., Hlth. Care Fac. Rev. Bonds (Hlth.
Syst. Project), Ser. A, AMBAC, 5.2s, 7/1/16 AAA 2,143,750
5,000,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds
(Healtheast Project), Ser. A, 6 5\8s, 11/1/17 Baa 4,643,750
------------
14,012,900
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
MISSISSIPPI (1.9%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Claiborne Cnty., Poll. Control Rev. Bonds
$ 5,780,000 (Syst. Energy Resources Inc.), 12 1\2s, 6/15/15 Baa $ 6,220,725
8,455,000 (Middle South Energy Inc.), Ser. C, 9 7/8s, 12/1/14 BBB/P 9,723,250
4,380,000 (Syst. Energy Resources Inc.), 9 1\2s, 4/1/16 Baa 4,730,400
2,400,000 (Middle South Energy Inc.), Ser. A, 9 1\2s, 12/1/13 BBB/P 2,730,000
------------
23,404,375
Nebraska (0.6%)
- --------------------------------------------------------------------------------------------
1,500,000 NE Investment Fin. Auth. Single Fam. Mtge. RIBS,
Ser. B, Government National Mortgage Assn.
(GNMA) Coll., 11.47s, 3/15/22 AAA 1,608,750
5,400,000 NE Investment Fin. Auth. Single Fam. Mtge. RIBS,
Ser. 2, GNMA Coll., 11.746s, 9/10/30 AAA 5,865,750
------------
7,474,500
Nevada (1.9%)
- --------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Certif. of Participation
4,000,000 (Southwest Gas Corp.), Ser. B, 7 1\2s, 9/1/32 Ba 4,080,000
8,500,000 (Southwest Gas Corp.), Ser. A, 7.3s, 9/1/27 Ba 8,585,000
6,000,000 (Nevada Pwr. Co. Project), Ser. C, AMBAC,
7.2s, 10/1/22 AAA 6,337,500
5,000,000 (Southwest Gas Corp.), Ser. A, 6 1\2s, 12/1/33 Ba 4,487,500
------------
23,490,000
New Hampshire (0.9%)
- --------------------------------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,960,000 (Havenwood/Heritage Heights), 9 3\4s, 12/1/19 B/P 3,159,800
4,000,000 (1st. Mtge. Revermead Peterborough), 8 1\2s, 7/1/24 B/P 3,865,000
1,955,000 (Havenwood/Heritage Heights), 8s, 3/1/01 B/P 1,952,556
2,000,000 (1st. Mtge. River Woods at Exeter), 8s, 3/1/00 B/P 2,015,000
------------
10,992,356
New Jersey (3.3%)
- --------------------------------------------------------------------------------------------
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 3,150,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,400,000 (Mountainside Hosp.), Ser. A, 9s, 8/1/25 AA 3,595,500
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1\4s, 7/1/20 Baa 3,210,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
4,000,000 (Jersey Shore Med. Ctr.), AMBAC, 5 7\8s, 7/1/24 AAA 3,695,000
3,000,000 (Union Hosp./Mega Care Inc.), 5 7\8s, 7/1/14 Baa 2,688,750
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. RIBS,
Ser. 1, 8.594s, 11/1/07 (acquired 2/11/93,
cost $4,146,240)(c) A 3,945,000
3,000,000 NJ State Msg. & Mtge. Fin. Agcy. Rev. Bonds,
Ser. A, 6.95s, 11/1/13 A 3,075,000
3,500,000 New Jersey State G.O., Ser. D, 8s, 2/15/07 AA 4,112,500
6,530,000 Salem Cnty, Ind. Poll. Control Fin. Auth. Rev.
Bonds (Pub. Svc. Elec. & Gas Co. Project),
Ser. A, MBIA, 5.45s, 2/1/32 AAA 5,370,925
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
NEW JERSEY (CONTINUED)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Union Cnty., Util. Auth. Solid Waste Rev. Bonds,
Ser. A
$ 3,500,000 7.2s, 6/15/14 A $ 3,530,625
5,000,000 7.15s, 6/15/09 A 5,056,250
------------
41,429,550
New York (6.8%)
- --------------------------------------------------------------------------------------------
5,000,000 Battery Park, City Auth. Rev. Bonds, Ser. A,
4 3\4s, 11/1/19 AA 3,912,500
5,000,000 Metro. Trans. Auth. Svcs. Contract Fac. Rev.
Bonds (Trans. Fac.), Ser. 7, 5 5\8s, 7/1/16 Baa 4,337,500
NY City G.O. Bonds
2,760,000 Ser. F, 8 1\4s, 11/15/01 A 3,267,150
3,020,000 Ser. D, 7.65s, 2/1/07 A 3,276,700
4,000,000 Ser. B, 7s, 6/1/13 A 4,145,000
5,000,000 NY City Muni. Wtr. Fin. Auth., Wtr. & Swr. Syst.
Rev. Bonds, Ser. F, MBIA, 5 1\2s, 6/15/15 AAA 4,468,750
NY State Dorm. Auth. Rev. Bonds (State U. Edl. Fac.)
3,000,000 7 1\2s, 5/15/13 Baa 3,326,250
10,000,000 Ser. F, FGIC, 5s, 7/1/20 AAA 8,162,500
8,563,000 Ser. B, FGIC, zero %, 5/15/10 AAA 3,200,421
NY State Local Govt. Assistance Corp. Rev. Bonds,
1,800,000 Ser. D, 7s, 4/1/18 AAA 2,004,750
1,500,000 Ser. B, 5 5\8s, 4/1/13 A 1,359,375
3,000,000 NY State Med. Care Facs. Fin. Rev. Bonds (Mental
Hlth. Svcs. Fac.), Ser A, AMBAC, 5.8s, 8/15/22 AAA 2,745,000
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
16,920,000 Ser. A, 6 1\2s, 1/1/10 Baa 16,920,000
5,000,000 Ser. A, 5 1\2s, 1/1/14 Baa 4,381,250
5,000,000 Ser. A, 5 1\4s, 1/1/21 Baa 4,012,500
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Swr. Fac. Rev.
Bonds (Bristol-Meyers Squibb Co. Project),
5 3\4s, 3/1/24 AAA 4,581,250
5,000,000 Triborough, Brdg. & Tunl. Auth. Rev. Bonds,
Ser. A, 4 3\4s, 1/1/19 AA 3,881,250
7,300,000 Triborough, Brdg. & Tunl. Auth. Special Oblig.
VRDN, FGIC, 3.55s, 1/1/24 AA 7,300,000
------------
85,282,146
North Carolina (2.0%)
- --------------------------------------------------------------------------------------------
3,000,000 NC Eastern Muni. Pwr. Agcy. Serv. RIBS,
FGIC, 8.226s, 1/1/25 (acquired 3/3/93,
cost $3,116,820)(c) AAA 2,568,750
NC Eastern Muni. Pwr. Agcy. Serv. Rev. Bonds
2,100,000 Ser. B, 6s, 1/1/22 A 1,900,500
5,250,000 6s, 1/1/18 AAA 5,053,125
3,500,000 Ser. D, 5.6s, 1/1/16 A 3,023,125
20,000 NC Hsg. Fin. Agcy. Rev. Bonds, Ser. V, 6.8s, 9/1/25 AA 20,025
NC Muni. Pwr. Agcy. No. 1 Catawba Elec.
Rev. Bonds
8,000,000 6 1\4s, 1/1/17 A 7,610,000
5,000,000 5 3\4s, 1/1/15 A 4,506,250
------------
24,681,775
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
OHIO (1.7%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,500,000 Clermont Cnty., Hosp. Facs., Muni. Variable Rate
Inverse Class Sec., AMBAC, 9.641s, 9/1/21 AAA $ 2,562,500
4,500,000 Dayton, Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1\2s, 10/1/09 B/P 5,236,875
2,000,000 Evendale, Indl. Dev. VRDN (SHV Real Estate
Inc.), 3.4s, 9/1/15 A 2,000,000
1,575,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
Ser. B, GNMA Coll., 8 1\4s, 12/15/19 AAA 1,630,125
6,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(JMG FDG Ltd. Partnership Project), AMBAC,
6 3\8s, 1/1/29(f) AAA 5,835,000
4,335,000 OH State Wtr. Dev. Auth. Rev. Bonds (Mid-
American Waste Syst. Inc. Project), 7 3\4s, 9/1/07 BB/P 4,280,813
------------
21,545,313
Oklahoma (0.8%)
- --------------------------------------------------------------------------------------------
20,000 McGee Creek Wtr. Auth. Rev. Bonds, MBIA,
6s, 1/1/23 AAA 18,950
Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.)
2,500,000 7.2s, 6/1/17 BBB 2,425,000
6,995,000 Ser. A, 7 5\8s, 6/1/17 BBB 7,091,181
------------
9,535,131
Pennsylvania (5.6%)
- --------------------------------------------------------------------------------------------
3,000,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Cleveland Elec. Illuminating Co.),
10 1\2s, 9/1/15 Ba 3,168,750
2,800,000 Cambria Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds, (Bethlehem Steel Corp. Project),
7 1\2s, 9/1/15 B/P 2,821,000
3,000,000 Erie, Higher Edl. Blg. Auth. College Rev. Bonds
(Mercyhurst College Project), Ser. A, 5 3\4s, 3/15/13 BBB 2,651,250
3,775,000 Greene Cnty. Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1\2s, 1/1/02 BBB/P 3,581,531
5,000,000 Harrisburg, Pkg. Auth. Rev. Bonds Ser. H,
AMBAC, 5 1\8s, 8/1/16 AAA 4,300,000
7,500,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1\4s, 7/1/03 Baa 7,246,875
Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project)
3,500,000 Ser. B, 8 3\8s, 11/1/11 Ba 3,635,625
2,230,000 Ser. B, 7 1\2s, 11/1/12 Ba 2,207,700
PA Economic Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
4,000,000 Ser. E, 8.05s, 12/1/15 BBB 3,945,000
3,000,000 (Colver Project), Ser. D, 7.15s, 12/1/18 BBB 2,951,250
5,000,000 PA State Certif. of Participation Ser. A, AMBAC,
5s, 7/1/15 AAA 4,150,000
5,300,000 PA State G.O. RIBS, Ser. A, 7.518s, 4/15/04
(acquired 4/28/93, cost $6,184,888)(c) AA 5,512,000
2,000,000 PA State Higher Edl. Assistance Agcy. Student
Loan RIBS, Ser. B, MBIA, 11.326s, 3/1/20 AAA 2,165,000
10,000,000 PA State Rev. Bonds, Ser. 2, 5 1\4s, 6/15/13 AA 8,800,000
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
PENNSYLVANIA (CONTINUED)
<S> <C> <C> <C>
$ 6,000,000 Philadelphia Gas Works RIBS,
FSA, 6.864s, 8/1/21 (acquired 1/24/94,
cost $5,621,520)(c) AAA $ 4,042,500
3,000,000 Philadelphia Gas Works Rev. Bonds,
Ser. 13, 7.7s, 6/15/21 AAA 3,442,500
3,500,000 Washington Cnty., Hosp. Auth. Rev. Bonds
(Canonsburg Gen. Hosp. Project), 7.35s, 6/1/13 BB/P 3,342,500
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st. Mtge.
Rev. Bonds (AHF/Central States Inc. Project),
10 1\4s, 11/1/19 B/P 1,746,000
------------
69,709,481
PUERTO RICO (3.5%)
5,000,000 Cmnwlth. of Puerto Rico, Hwy. & Trans.
Auth. Rev. Bonds Ser. W, 5 1\4s, 7/1/20 A 4,150,000
10,000,000 Cmnwlth. of Puerto Rico, Linked Pub. Offering RIBS,
AMBAC, 7s, 7/1/10 AAA 10,687,500
Cmnwlth. of Puerto Rico, Tel. Auth. Inverse Floaters
(SWAP)
10,000,000 AMBAC, 7.372s, 1/1/03 AAA 8,375,000
5,000,000 MBIA, 6.792s, 1/1/05 (acquired 4/23/93,
cost $5,218,300)(c) A 4,593,750
5,000,000 Puerto Rico Pub. Bldg. Auth. Rev. Bonds, Ser. L, 5.6s,
7/1/08 A 4,693,750
3,500,000 Puerto Rico, Elec. Pwr. Auth. Rev. Bonds, 5 1\2s,
7/1/20 A 3,049,375
9,200,000 Puerto Rico, Pub. Bldgs. Auth. Ed. & Hlth. Fac. Rev.
Bonds, Ser. M, 5 3\4s, 7/1/15 A 8,395,000
------------
43,944,375
RHODE ISLAND (0.5%)
1,500,000 RI Port Auth. & Economic Dev. Corp. Arpt. Rev.
Bonds, Ser. A, FSA 7s, 7/1/14 AAA 1,550,625
5,000,000 RI State Pub. Bldg. Auth. RIBS (Pub. Projects), 5.804s,
2/1/02 A 4,562,500
------------
6,113,125
SOUTH CAROLINA (1.7%)
5,000,000 Charleston Cnty., Hosp. Fac. Inverse Floating Rate
Notes (I/F) (Bon Secours Hlth. Ctr.), Ser. B, 7.979s,
8/15/13 AAA 3,850,000
8,500,000 Charleston Cnty., Indl. Dev. VRDN
(Hoover Group Inc. Project), 8 1\2s, 11/1/02 VMIG3 8,425,625
2,500,000 Darlington Cnty., Indl. Dev. Rev. Bonds
(Nucor Corp. Project), Ser. A, 5 3\4s, 8/1/23 AA 2,190,625
2,450,000 Lee Cnty., Indl. Rev. Bonds
(Mid-American Waste Syst. Project), 7s, 9/15/13 B/P 2,272,375
4,405,000 Piedmont, Muni. Pwr. Agcy. Rev. Bonds
(SC Elec. Project), Ser. A, FGIC, 6 1\2s, 1/1/16 AAA 4,482,088
------------
21,220,713
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
TENNESSEE (1.1%)
<S> <C> <C> <C>
$ 3,645,000 Chattanooga, Hlth. Edl. & Hsg. Fac. Board 1st. Mtge.
Rev. Bonds (Cambridge Hall Project), 8 5\8s, 2/1/13 B/P $ 3,727,012
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Sanders Alliance), Ser. C, MBIA, 6 1\4s, 1/1/13 AAA 6,930,000
2,500,000 Metro. Nashville Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 9 7\8s, 10/1/05 Baa 2,637,500
-----------
13,294,512
TEXAS (5.5%)
Austin, Util. Syst. Rev. Bonds
20,000,000 FGIC, zero %, 5/15/18 AAA 4,250,000
12,500,000 FGIC, zero %, 5/15/17 AAA 2,843,750
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 1,582,131
6,000,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Rev. Bonds
(American Airlines, Inc.), 7 1\4s, 11/1/30 Baa 5,685,000
900,000 Gulf Coast, Waste Disp. Auth. Poll. Control Rev.
Bonds (Monsanto Co. Project), 11 1\2s, 7/1/01 A 988,875
2,000,000 Gulf Coast, Waste Disp. Auth. Solid Waste Disp.
Rev. Bonds (Champion Intl. Corp. Project), 7 1\4s,
4/1/17 Baa 2,012,500
5,000,000 Harris Cnty., Indl. Dev. Corp. Rev. Bonds (Marine
Terminal GATX Corp. Project), 6.95s, 2/1/22 A 5,087,500
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
1,442,000 Ser. A, 10 7\8s, 2/15/16 Baa 1,472,643
1,760,000 10s, 9/15/14 Baa 1,793,000
5,000,000 Lower Colo. Riv. Auth. Rev. Bonds (Jr. Lien-4th
Supply), FSA, 5 5\8s, 1/1/17 AAA 4,512,500
913,252 Maverick Cnty., Certif. of Participation (Jail Facility),
9.1s, 6/15/10 CCC/P 547,951
North Central Hlth. Fac. Dev. Corp. Rev. Bonds
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 10.171s, 5/15/08 AA 3,037,500
4,000,000 (Presbyterian Hlth. Care Syst.), Ser. C, MBIA, 9.589s,
6/15/21 AAA 3,990,000
3,000,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB/P 3,101,250
7,500,000 (U. Med. Ctr. Project), 7 3\4s, 4/1/17 BBB/P 7,556,250
Sam Rayburn, Muni. Pwr. Agcy. Supply Syst.
Rev. Bonds
5,000,000 Ser. A, 6 1\2s, 10/1/08 Baa 4,756,250
4,500,000 Ser. A, 6 1\4s, 10/1/17 Baa 4,033,125
2,000,000 Ser. B, 6 1\8s, 10/1/13 Baa 1,782,500
Southeast TX Hsg. Fin. Corp. Multi-Fam. Hsg.
Rev. Bonds
2,000,000 (Bayou Park Village Apt. Project), Ser. B, 10.175s,
8/1/16 B/P 1,604,000
1,600,000 (Promenade Place Apts. Project), Ser. B, 10.175s,
8/1/16 BBB/P 4,035,000
4,000,000 (Pavilion Place Apts. Project), Ser. A, 7.6s, 7/1/16 B/P 2,022,500
-----------
68,534,225
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
UTAH (0.7%)
<S> <C> <C> <C>
Intermountain, Pwr. Supply Agcy. Rev. Bonds
$ 5,000,000 Ser. H, 9s, 7/1/19 AA $ 5,237,500
2,500,000 7.2s, 7/1/19 AA 2,637,500
1,340,000 UT State Hsg. Fin. Agcy. Rev. Bonds Ser. 93-A, 7.85s,
7/1/24 AA 1,407,000
--------------
9,282,000
VIRGINIA (0.6%)
2,875,000 Chesapeake, Pub. Imp. G.O. 5s, 5/1/14 AA 2,447,343
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. RIBS,
FGIC, 9.773s, 8/15/23 AAA 2,012,500
3,500,000 Peninsula Ports Auth. Rev. Bonds (Dominion
Terminal Assoc. Project), 7 3\8s, 6/1/20 Baa 3,587,500
--------------
8,047,343
WASHINGTON (1.7%)
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 91\4s, 9/1/10 BBB/P 2,215,000
5,425,000 Seattle, Wtr. Syst. Rev. Bonds, 5 1/2s, 6/1/18 AA 4,807,906
9,000,000 WA State G.O. Ser. B, 6.4s, 6/1/17 AA 9,022,500
5,000,000 WA State Pwr. Supply Syst. Rev. Bonds (Nuclear
Project No. 3), Ser. B, MBIA, 7 1\8s, 7/1/16 AAA 5,318,750
--------------
21,364,156
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 B/P 8,831,250
2,500,000 WV State Pkwy. Economic Dev. & Tourism Auth.
RIBS, FGIC, 8.163s, 5/16/19 AAA 2,103,125
--------------
10,934,375
WISCONSIN (0.1%)
1,800,000 WI Hsg. & Econ. Dev. Auth. RIBS
(Homeownership Dev. Program), 10.291s, 10/25/22 AA 1,800,000
Virgin Islands (0.6%)
7,750,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds
(Matching Funds Loan Notes), Ser. A, 7 1\4s,
10/1/18 BBB/P 7,924,376
TOTAL INVESTMENTS --------------
(cost $1,281,539,656)(g) $1,239,577,137
</TABLE>
22
<PAGE> 23
NOTES
---------------------------------------------------------------------------
(a) Percentages indicated are based on total net assets of
$1,250,314,333, which correspond to a net asset value per Class A
and Class B shares of $8.58 and $8.57, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September 30,
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 September 30, 1994. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(c) Restricted as to public resale. At the date of acquisition, these
secutities 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 September 30,
1994 was $33,168,250 or 2.7% of net assets.
(d) Non-Income-producing security.
(e) This security was pledged to cover margin requirements for futures
contracts at September 30, 1994. The market value of
segregated securities with the custodian for transactions on futures
contracts is $3,977,138.
(f) This security valued at $5,835,000 or 0.5% of net assets, has
been purchased on "forward commitment" basis--that is, the Fund has agreed
to take delivery of and make payment for this security 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 rate of
this security is fixed at the trade date, although the Fund does not earn
any interest on this security until settlement date.
(g) The aggregate identified cost on a tax basis is $1,281,562,216,
resulting in gross unrealized appreciation and
depreciation of $17,662,480, and $59,647,559 respectively, or net
unrealized depreciation of $41,985,079.
23
<PAGE> 24
The rates shown on Residual Interest Bonds (RIBS), which are securities
paying variable interest rates that vary inversely to changes in market
interest rate, Variable Rate Demand Notes and Inverse Rate (I/F) are the
current interest rates at September 30, 1994, which are subject to change
based on the terms of the security.
<TABLE>
U.S. TREASURY BOND FUTURES OUTSTANDING
(AT SEPTEMBER 30, 1994)
<CAPTION>
- -----------------------------------------------------------------------------------
AGGREGATE EXPIRATION UNREALIZED
TOTAL VALUE FACE VALUE DATE DEPRECIATION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S.Treasury Bond
Futures (Sell) $24,734,375 $24,711,563 Dec. 94 $(22,812)
- -----------------------------------------------------------------------------------
</TABLE>
The Fund had the following industry group concentrations greater than 10% on
September 30, 1994 (as a percentage of net assets):
<TABLE>
<S> <C>
Utilities 20.42%
Health Care 18.41
Transportation 13.74
</TABLE>
<TABLE>
The table below shows the percentages of the Fund's investments on September 30,
1994 in securities assigned to the various rating catagories by Moody's and
Standard & Poor's and in unrated securities determined by Putnam Investment
Management to be of comparable quality.
<CAPTION>
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY,
AS A PERCENTAGE OF AS A PERCENTAGE OF
RATING FUND'S NET ASSETS FUND'S NET ASSETS
- ---------------------------------------------------------------
<S> <C> <C>
"AAA"/"Aaa" 23.2% --
- ---------------------------------------------------------------
"AA"/"Aa" 9.1 --
- ---------------------------------------------------------------
"A"/"A" 10.0 --
- ---------------------------------------------------------------
"BAA"/"Baa" 20.2 0.2%
- ---------------------------------------------------------------
"BBB"/"BBB" 3.2 5.4
- ---------------------------------------------------------------
"BB"/Ba" 4.4 9.6
- ---------------------------------------------------------------
"B"/B" 0.9 10.7
- ---------------------------------------------------------------
CCC/P -- 0.1
- ---------------------------------------------------------------
"MIG1" 1.2 --
- ---------------------------------------------------------------
"VMIG" 0.9 --
- ---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
24
<PAGE> 25
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994 (Unaudited)
<S> <C>
ASSETS
Investments in securities, at value (identified cost $1,281,539,656) (Note 1) $1,239,577,137
Cash 3,603,368
Interest and other receivables 25,179,414
Receivable for shares of the fund sold 3,359,458
Receivable for securities sold 4,984,289
Other expenses 185,435
--------------
Total Assets 1,276,889,101
LIABILITIES
Payable for securities purchased 20,225,910
Payable for shares of the fund repurchased 2,432,828
Distributions payable to shareholders 825,905
Payable for compensation of Manager (Note 2) 1,832,250
Payable for administrative services (Note 2) 3,800
Payable for variation margin on short futures (Note 1) 45,011
Payable for distribution fees (Note 2) 1,133,206
Payable for investor servicing and custodian fees (Note 2) 75,858
--------------
Total liabilities 26,574,768
--------------
Net Assets $1,250,314,333
REPRESENTED BY
Paid-in capital (Note 4) $1,308,230,458
Distributions in excess of net investment income (637,605)
Accumulated net realized loss on investments and futures contract (15,293,189)
Net unrealized depreciation of investments (41,985,331)
--------------
Total--Representing net assets applicable to capital shares outstanding $1,250,314,333
--------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price of Class A shares
($842,614,699 divided by 98,231,389 shares) $ 8.58
Offering price per share (100/95.25 of $8.58)* $ 9.01
Net asset value and offering price of Class B shares
($407,699,634 divided by 47,567,733 shares) $ 8.57
<FN>
* 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
</TABLE>
25
<PAGE> 26
<TABLE>
STATEMENT OF OPERATIONS
Six months ended September 30, 1994 (Unaudited)
<S> <C>
TAX EXEMPT INTEREST INCOME $44,146,478
EXPENSES:
Compensation of Manager (Note 2) 3,621,788
Investor servicing and custodian fees (Note 2) 308,230
Compensation of Trustees (Note 2) 13,534
Reports to shareholders 16,620
Auditing 16,756
Legal 12,351
Postage 47,957
Registration fees 75,206
Administrative services (Note 2) 11,565
Amortization of organization expenses (Note 1) 807
Distribution fees--Class A (Note 2) 1,069,668
Distribution fees--Class B (Note 2) 1,669,837
Other 28,785
-----------
Total expenses 6,893,104
===========
Net investment income 37,253,374
===========
Net realized loss on investments (Notes 1 and 3) (11,879,991)
Net realized gain on futures contracts (Notes 1 and 3) 2,831,366
Net unrealized depreciation of investments during the year (13,289,547)
-----------
Net loss on investments (22,338,172)
===========
Net increase in net assets resulting from operations 14,915,202
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
SEPTEMBER 30 MARCH 31
------------------------------
1994* 1994
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income $ 37,253,374 $ 59,428,378
Net realized gain (loss) on investments (11,879,991) 466,569
Net realized gain (loss) on futures contracts 2,831,366 (911,305)
Net unrealized depreciation of investments (13,289,547) (56,353,269)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 14,915,202 2,630,373
============== ==============
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income--Class A (26,138,220) (46,353,540)
From net investment income--Class B (10,796,560) (13,074,838)
In excess of net Investment Income--Class A -- (542,155)
In excess of net Investment Income--Class B -- (165,144)
From net realized gain on investments--Class A -- (652,082)
From net realized gain on investments--Class B -- --
In excess of net realized gain on Investment--Class A -- (4,607,972)
In excess of net realized gain on Investment--Class B -- (1,973,895)
Increase from capital shares transactions (Note 4) 51,046,957 551,880,210
-------------- --------------
TOTAL INCREASE IN NET ASSETS 29,027,379 487,140,957
============== ==============
NET ASSETS
Beginning of year 1,221,286,954 734,145,997
END OF YEAR (including distributions
in excess of net investment income
of $637,605 and $956,199, respectively) $1,250,314,333 $1,221,286,954
============== ==============
<FN>
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
<TABLE>
Financial Highlights
(For a share outstanding throughout the period)
<CAPTION>
For the period
January 4, 1993
Six months Year (commencement Six months
ended ended of operations) to ended
September 30 March 31 March 31 September 30
------------ -----------------------------------------
1994* 1994 1993 1994*
------------ -------- -------- ---------
Class B
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.73 $ 9.12 $ 8.95 $ 8.73
Investment Operations:
Net Investment Income .24 .44 .10 .27
Net Realized and Unrealized Gain (Loss)
on Investments (.16) (.32) .17 (.15)
Total from Investment Activities .08 .12 .27 .12
Less Distributions:
From Net Investment Income (.24) (.44) (.10) (.27)
In Excess of Net Investment Income -- (.01) -- --
From Net Realized Gain on Investments -- -- -- --
In Excess of Net Realized Gain on Investments -- (.06) -- --
Total Distributions (.24) (.51) (.10) (.27)
Net Asset Value, End of Period $ 8.57 $ 8.73 $ 9.12 $ 8.58
Total Investment Return at NAV (%)(b) 0.93(c) 1.52 3.05(c) 1.34(c)
Net Assets, End of Period (in thousands) $407,699 $369,006 $ 95,175 $842,614
Ratio of Expenses to Average Net Assets (%) .76(c) 1.54 .30(c) .46(c)
Ratio of Net Investment Income to
Average Net Assets (%) 2.78(c) 5.02 1.19(c) 3.09(c)
Portfolio Turnover (%) 53.86(c) 47.08 31.05(c) 53.86(c)
</TABLE>
28
<PAGE> 29
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
For the period
May 22, 1989
Year (commencement
ended of operations) to
March 31 March 31
-------- -------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- ------- --------
Class A
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.12 $ 8.65 $ 8.36 $ 8.47 $ 8.50
Investment Operations:
Net Investment Income .55 .63 .67 .68 .57(a)
Net Realized and Unrealized Gain (Loss)
on Investments (.34) .51 .31 (.10) (.04)
Total from Investment Activities .21 1.14 .98 .58 .53
Less Distributions:
From Net Investment Income (.54) (.62) (.68) (.69) (.56)
In Excess of Net Investment Income -- -- -- -- --
From Net Realized Gain on Investments (.01) (.05) (.01) -- --
In Excess of Net Realized Gain on Investments (.05) -- -- -- --
Total Distributions (.60) (.67) (.69) (.69) (.56)
Net Asset Value, End of Period $ 8.73 $ 9.12 $ 8.65 $ 8.36 $ 8.47
Total Investment Return at NAV (%)(b) 2.15 13.67 12.11 7.16 6.41(c)
NET ASSETS, END OF PERIOD (IN THOUSANDS) $852,281 $638,971 $324,384 $244,508 $182,641
-------- -------- -------- -------- --------
Ratio of Expenses to Average Net Assets (%) .97 1.05 .91 .95 .73(a)(c)
Ratio of Net Investment Income to
Average Net Assets (%) 5.73 6.83 7.80 8.08 5.93(a)(c)
Portfolio Turnover (%) 47.08 31.05 44.34 49.80 41.84(c)
<FN>
* Unaudited
(a) Reflects an 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) Not annualized.
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
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 except 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-rated 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 futuresexchange. 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 recorded by the fund as unrealized
gains or losses. When the contract is closed, the fund records a realized
30
<PAGE> 31
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.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc. (formerly known as The
Putnam Management Company, Inc.), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc., (formerly known as The Putnam
Companies 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 to
reduction under current law 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 six months
ended September 30, 1994, the fund paid $3,621,788 for these services.
Trustees of the fund receive an annual Trustee's fee of $2,380 and an
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 six
months ended September 30, 1994 amounted to $308,230.
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
31
<PAGE> 32
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 period ended September 30, 1994, the fund paid $1,069,668 in
distribution fees for class A shares.
During the six months ended September 30, 1994, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $105,190 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 six months ended September 30, 1994, Putnam Mutual Funds Corp., acting
as the underwriter, received $6,813 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 under 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 six months
ended September 30, 1994, the fund paid Putnam Mutual Funds Corp.
distribution fees of $1,669,837 for class B shares.
Putnam Mutual Funds Corp. acting as the 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 $402,370 in contingent deferred sales
charges from such redemptions for the six months ended September 30, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended September 30, 1994, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$367,783,463 and $327,945,158, respectively. Purchases and sales of
short-term municipal obligations aggregated $133,696,150 and $136,446,800,
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
<TABLE>
SALES OF FUTURES CONTRACTS
----------------------------
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
--------- ----------
<S> <C> <C>
Outstanding at
beginning of year 581 $ 62,388,527
Contracts opened 2,745 275,955,502
Contracts closed (3,076) (313,632,466)
------ -------------
Contracts open
at end of year 250 24,711,563
====== =============
</TABLE>
NOTE 4
CAPITAL SHARES
<TABLE>
At September 30, 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:
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1994
-----------------------------------
CLASS A SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold 11,381,542 $ 99,254,013
Shares issued in
connection with
reinvestment of
distributions 1,557,508 13,573,896
---------- ------------
12,939,050 112,827,909
========== ============
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
Shares
repurchased (12,343,828) (107,630,459)
----------- -------------
Net increase 595,222 $ 5,197,450
=========== =============
</TABLE>
<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>
SIX MONTHS ENDED SEPTEMBER 30, 1994
-----------------------------------
CLASS B SHARES AMOUNT
- ------- ------ ------
<S> <C> <C>
Shares sold 9,451,131 82,285,231
Shares issued in
connection with
reinvestment of
distributions 712,708 6,204,468
---------- -----------
10,163,839 88,489,700
Shares
repurchased (4,888,449) (42,640,192)
---------- -----------
Net increase 5,275,390 45,849,507
========== ===========
</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>
33
<PAGE> 34
OUR COMMITMENT TO QUALITY SERVICE
- - 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.
- - HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account.*
- - 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.)
- - 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.
- - 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.
34
<PAGE> 35
FUND INFORMATION
<TABLE>
<S> <C>
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES Patricia C.Flaherty
Putnam Mutual Funds Corp. Senior Vice President
One Post Office Square Lawrence J. Lasser
Boston, MA 02109 Vice President
Gordon H. Silver
CUSTODIAN Vice President
Putnam Fiduciary Trust Company Gary N. Coburn
Vice President
LEGAL COUNSEL James E. Erickson
Ropes & Gray Vice President
Blake E. Anderson
TRUSTEES Vice President
George Putnam, Chairman Richard P. Wyke
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter William N. Shiebler
Hans H. Estin Vice President
John A. Hill John R. Verani
Elizabeth T. Kennan Vice President
Lawrence J. Lasser Paul M. O'Neil
Robert E. Patterson Vice President
Donald S. Perkins John D. Hughes
George Putnam, III Vice President and Treasurer
A.J.C. Smith Beverly Marcus
W. Nicholas Thorndike 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, and the most recent copy of
Putnam's Quarterly Performance Summary.
For more information or to request a
prospectus, call toll-free:
1-800-225-1581.
</TABLE>
35
<PAGE> 36
PUTNAM INVESTMENTS
__________________
The Putnam Funds Bulk Rate
One Post Office Square U.S. Postage
Boston, Massachusetts 02109 PAID
Putnam Investments
__________________
