<PAGE>
PUTNAM MUNICIPAL INCOME FUND
ANNUAL REPORT
MARCH 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
The fund's class A shares earned four out of five stars from
Morningstar for risk-adjusted performance as of March 31, 1995.*
Performance should always be considered in light of a fund's
investment strategy. This fund is designed for investors seeking as
high a level of current income exempt from federal income tax as is
consistent with preservation of capital.
ANNUAL RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M(+)
TOTAL RETURN: NAV POP NAV CDSC NAV POP
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- -----------------------
(change in value during
period plus reinvested
distributions) 12 months
ended 3/31/95 6.55% 1.44% 5.94% 0.94% 8.58% 5.00%
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- -----------------------
SHARE VALUE:
- ----------------------------------------------------------------------
- -----------------------
3/31/94 $8.73 $9.17 $8.73 -- -- --
12/1/94(+) -- -- -- $8.21 $8.49
3/31/95 8.74 9.18 8.74 -- 8.75 9.04
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DISTRIBUTIONS: NO. INCOME(1) TOTAL
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- -----------------------
Class A 12 $0.534848 $0.534848
Class B 12 $0.484799 $0.484799
Class M 4 $0.160122 $0.160122
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CLASS A CLASS B
CURRENT RETURN NAV POP NAV
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Current dividend rate(2) 6.03% 5.74% 5.45%
Taxable equivalent(3) 9.98 9.50 9.02
Current 30-day SEC yield(4) 6.32 6.02 5.55
Taxable equivalent(3) 10.46 9.97 9.19
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- -----------------------
<FN>
Performance data represent past results. For performance over longer
periods, see page 8. POP assumes 4.75% maximum sales charge for class
A shares and 3.25% for class M shares. CDSC assumes 5% maximum
contingent deferred sales charge. (1)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. (2)Income
portion of most recent distribution, annualized and divided by NAV or
POP at end of period. (3)Assumes maximum 39.6% federal tax rate.
Results for investors subject to lower tax rates would not be as
advantageous. (4)Based only on investment income, calculated using SEC
guidelines.
* Morningstar, an independent rating agency, rates funds relative
to others with similar investment objectives, based on the fund's
class A 3- and 5-year average annual returns and adjusted for
risk factors and sales charges. Ratings are updated monthly. The
4-star overall rating puts the fund's class A shares in the top
32.5% among all 638 municipal funds rated. For the 3-year period,
out of 638 municipal funds, the fund's class A shares received 3
stars. For the 5-year period ended 3/31/95 there were 458 funds
in the municipal category. The fund received 4 stars for the five-
year period. Other share classes will vary. Past performance is
not indicative of future results.
+ The fund began offering class M shares on 12/1/94.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
THE MUNICIPAL BOND MARKET'S VOLATILE ENVIRONMENT IN 1994 HAS FINALLY
GIVEN WAY TO A MORE AGREEABLE CLIMATE. DURING THE FIRST QUARTER OF
1995, THE MARKET -- AND PUTNAM MUNICIPAL INCOME TRUST -- MADE
IMPRESSIVE GAINS. THE MARKET'S EXUBERANT PERFORMANCE DURING THE
QUARTER MADE A SIGNIFICANT CONTRIBUTION TO THE FUND'S POSITIVE RESULTS
FOR THE FISCAL YEAR THAT ENDED ON MARCH 31, 1995.
TAX-CONSCIOUS INVESTORS FINALLY SEEMED READY TO CONCEDE THAT THE
FEDERAL RESERVE BOARD'S SUSTAINED BOOST IN SHORT- TERM INTEREST RATES
THROUGHOUT 1994 IS HAVING THE DESIRED DAMPENING EFFECT ON INFLATION
WITHOUT CHOKING OFF ECONOMIC GROWTH. THE EXPECTATION OF SHARPLY
REDUCED VOLUME IN NEW BONDS COMING TO MARKET IN 1995 RAISED THE
PROSPECT OF BRISK DEMAND, AND HIGHER PRICES, FOR EXISTING ISSUES.
FOR THE PAST SEVERAL MONTHS, FUND MANAGER RICHARD P. WYKE HAS BEEN
POSITIONING THE PORTFOLIO IN ANTICIPATION OF THE BRIGHTER MOOD THAT
NOW SEEMS TO BE EMERGING. IN THE REPORT THAT FOLLOWS, RICK DISCUSSES
THE FUND'S FISCAL 1995 PERFORMANCE AND WHAT HE SEES IN STORE FOR
FISCAL 1996.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
MAY 12, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
For the first three months of 1995, the municipal bond market has
proved that good things can come to those who wait. The same can also
be said for shareholders of Putnam Municipal Income Fund. The fund not
only shared in the current three- month-old municipal bond rally, it
outperformed the industry benchmark, the Lehman Brothers Municipal
Bond Index.*
For the three months ended March 31, 1995, the fund's 7.56% total
return for class A shares outperformed the index's 7.07%. The fund's
class B and class M shares also outshone the index, returning 7.41%
and 7.46%, respectively. For one year, the fund's class A shares
posted a 6.55% return at NAV. Fund returns are shown at net asset
value.
ELEMENTS OF A RALLY
The municipal bond market's mood swing from depression to euphoria was
fueled mainly by the belief that the Federal Reserve Board is at or
near the end of the latest interest-rate tightening cycle. Underlying
the current rally, however, was investors' recognition of several
positive factors.
The supply and demand imbalance we discussed in the fund's semiannual
report has finally begun to manifest itself. Following the 44% drop in
municipal bond issuance to $162 billion in 1994, analysts were
predicting at least an additional 20% drop this year to $120 billion
(see chart on page 5).
The market's resilience following the Orange County, California,
bankruptcy has also added to investors' confidence. Flying in the face
of the doomsday predictions, the market's response over the first
quarter of 1995 was a drop of more than 90 basis
[FN]
* Please see page 8 for an explanation of this index.
<PAGE>
points (nine-tenths of one percentage point) in the average municipal
bond yield. Bond yields move in the opposite direction from their
prices.
A PATIENT, DELIBERATE STRATEGY
In the day-to-day management of the fund, we continually search for
municipal bonds that offer the right balance of credit quality, yield,
and relative price stability. We invest the fund's assets on an issue-
by-issue, credit-by-credit basis. Thus, we often will invest rather
heavily in what we believe to be the potential of a certain project
rather than investing broadly across a certain sector of the market.
One example was the fund's interest in the new Denver Airport.
Problems with the facility's automated baggage system and various
delays caused many investors to ignore what we believe to be a
valuable project for a major Western air-traffic hub. Because of the
fund's investment in the bonds, the fund was able to participate in
their recent rally following the long- awaited opening of the airport.
[BAR CHART]
A DECLINE IN SUPPLY
PLOT POINTS
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- -----------------------
Date
1/94 977
2/94 961
3/94 1,056
4/94 782
5/94 986
6/94 1,008
7/94 751
8/94 865
9/94 774
10/94 867
11/94 870
12/94 868
1/95 584
2/95 573
3/95 687
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- -----------------------
[FN]
Chart shows monthly volume of municipal bond issuance. Source:
Securities Data Co. Used by permission.
<PAGE>
Broadly speaking, however, shareholders may notice a slight shift in
emphasis from the health-care industry to utilities. Health-care
providers have experienced a good deal of restructuring as a result of
fierce competition, cost-cutting demands, and the growth of managed
care. To the fund's benefit, these events have at times resulted in
opportunities to sell many hospital bonds at a profit. We then pursued
further investment in BBB-rated utility issues, which historically
have experienced less price volatility in declining markets and have
the potential to gain the most in a rising market.
SOME MODEST CHANGES
In terms of the portfolio's state-by-state allocation, shareholders
may observe an increase in the fund's exposure to New York municipal
bonds, a decision that benefited the fund. According to the April 17,
1995, edition of The Wall Street Journal, long- term issuance in New
York is down more than 50% from the same period last year. The dearth
of new issues, coupled with mergers and consolidation among municipal-
bond issuers, has served to drive prices higher as investors chased
fewer and fewer bonds.*
The fund has continued to employ a strategy of spreading assets on
opposite ends of the credit quality spectrum. This has given the
portfolio somewhat of a high-yield appearance, a strategy that
provided some price stability in the first half of the fiscal year.
Many of the higher-yielding, lower-rated bonds purchased during this
time also support projects that Putnam Management believes hold great
potential.
Lastly, it appears the rising-interest-rate environment we detailed in
the fund's semiannual report may be drawing to a close. Therefore, we
have lengthened the fund's duration. Duration is a measure of how much
the fund's value is expected to move with each percentage point shift
in interest rates.
[FN]
* Despite a favorable supply/demand situation, municipal bonds can
be affected by many factors including changes in interest rates.
<PAGE>
[BAR CHART]
TOP INDUSTRY SECTORS*
PLOT POINTS
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Utilities 24.8%
Hospitals/Health Care 18.2%
Transportation 13.2%
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[FN]
*Based on a percentage of net assets on 3/31/95. Holdings will vary
over time.
A LOOK AHEAD
As the fund enters a new fiscal year, we are very optimistic about the
prospects for the fund and the municipal bond market as a whole. While
there can be no guarantees, we also believe the municipal bond market
will continue to offer an attractive investment alternative for tax-
conscious investors.
Despite the market's current rally, however, we recognize that
uncertainty lingers. Stronger-than-expected inflation and economic
data could be forthcoming. Its appearance could prompt the Fed to
raise rates again. Therefore, while compelling evidence exists for a
long-lasting turnaround in the municipal bond market, we will proceed
in a cautiously optimistic manner.
As always, we will continue to monitor political and economic events
for developments that could affect the fund's holdings. As a matter of
course, we will also use Putnam Management's strong credit research
and analytical abilities to pinpoint securities that we believe offer
the best combinations of current income and appreciation potential.
[FN]
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 3/31/95, there is no
guarantee the fund will continue to hold these securities in the
future.
<PAGE>
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B LEHMAN
BROS.
MUNICIPAL
NAV POP NAV CDSCBOND INDEX CPI
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- -----------------------
1 year 6.55% 1.44% 5.94% 0.94% 7.43% 2.85%
- ----------------------------------------------------------------------
- -----------------------
5 years 48.59 41.56 -- -- 48.59 17.64
Annual average 8.24 7.20 -- -- 8.24 3.30
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- -----------------------
Life of class A58.11 50.65 -- -- 57.20 22.29
Annual average 8.13 7.24 -- -- 8.02 3.49
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- -----------------------
Life of class B -- -- 10.78 7.85 14.01 6.70
Annual average -- -- 4.68 3.43 6.03 2.94
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- -----------------------
<FN>
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 1992. The fund began operations on 5/22/89, offering shares
now known as class A. Effective 1/4/93, the fund began offering class
B shares and on 12/1/94, class M 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. Performance data
prior to 5/11/92 does not reflect operation under the fund's current
investment objective and policies.
</TABLE>
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.
<PAGE>
[MOUNTAIN CHART]
GROWTH OF A $10,000 INVESTMENT
PLOT POINTS
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- -----------------------
Date POP Lehman CPI
5/22/89 $9,595 $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 $14,140 $14,632 $11,890
3/31/95 $15,065 $15,720 $12,229
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- -----------------------
[FN]
Past performance is no assurance of future results. A $10,000
investment in the fundOs class B shares at inception on 1/4/93 would
have been valued at $11,079 on 3/31/95 ($10,786 with a redemption at
the end of the period).
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.
CLASS M SHARES have a lower initial sales charge and higher 12b-1 fees
than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales charge
for class A shares and 3.25% for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
for the year ended March 31, 1995
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, 1995, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each for the two years in the period then ended, and the
"Financial Highlights" for each of the periods indicated therein.
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, 1995 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,
1995, the results of its operations for the year ended, the changes in
its net assets for each of the two years in the period then ended, and
the "Financial Highlights" for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 12, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
March 31, 1995
<TABLE><CAPTION>
<C> <S> <C> <C>
MUNICIPAL BONDS AND NOTES (97.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
ALABAMA (0.4%)
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- -----------------------
$2,000,000 Alabama A&M U. Rev. Bonds, Municipal
Bond Insurance Association (MBIA),
5 1/2s, 11/1/20 AAA $ 1,850,382
2,000,000 Cortland, Indl. Dev. Board Rev. Bonds
(Champion Intl. Corp.), Ser. A, 7.2s, 12/1/13 Baa 2,125,000
645,000 Cullman, Med. Pk. South Med. Clinic Board
Rev. Bonds (Cullman Regl. Med. Ctr.),
Ser. A, 6 1/4s, 2/15/02 Baa 656,287
------------
4,631,669
ALASKA (1.0%)
- ----------------------------------------------------------------------
- -----------------------
14,250,000 Valdez, Marine Term. Rev. Bonds
(BP Pipeline, Inc. Project),
Ser. B, 5 1/2s, 10/1/28 AA 12,611,250
ARIZONA (2.0%)
- ----------------------------------------------------------------------
- -----------------------
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hosp. Syst.)
980,000 7 1/4s, 11/1/14 Ba 1,125,775
2,870,000 Ser. A, 10 1/8s, 11/1/15 AAA 3,017,087
7,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds, Ser. 85, 8.9s, 7/1/06 Baa 7,621,250
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst.
Rev. Bonds (Env. Inc. & Phoenix Hosp. &
Med. Ctr.), 7s, 7/1/16 Baa 1,957,500
5,000,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds
(Payson Regl. Med. Ctr. Inc. Project),
7.7s, 10/1/23 B/P 4,950,000
2,100,000 Phoenix, Civic Impt. Corp. Excise Tax Sr.
Lien Rev. Bonds (New City Hall Projects),
5.1s, 7/1/18 AA 1,845,375
4,000,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.),
Ser. A, 8 1/8s, 12/1/22 BB/P 4,190,000
------------
24,706,987
ARKANSAS (0.4%)
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- -----------------------
19,275,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge.
Rev. Bonds, Ser. 84A, zero %, 7/1/15 AA 2,192,531
2,150,000 Pope Cnty., Poll. Control Rev. Bonds
(AR Pwr. & Lt. Co. Project), 11s, 12/1/15Baa 2,262,875
------------
4,455,406
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
CALIFORNIA (11.2%)
- ----------------------------------------------------------------------
- -----------------------
4,500,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates
Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa 4,213,125
CA State Pub. Works Board Lease Rev. Bonds
12,000,000 (U. of CA Projects), Ser. A, 5 1/2s, 6/1/21 A 10,620,000
8,500,000 (Dept. of Corrections-State Prisons),
Ser. B, MBIA, 5 3/8s, 12/1/19 AAA 7,713,750
5,000,000 CA Statewide Cmntys. Dev. Auth. Certif. of
Participation (COP) (Childrens Hosp.),
MBIA, 4 3/4s, 6/1/21 AAA 4,062,500
6,300,000 Central Valley, Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration Project),
6.2s, 7/1/20 BBB 6,016,500
2,500,000 Corona COP (Vista Hosp. Syst.),
Ser. B, 9 1/2s, 7/1/20 BB/P 2,609,375
LA Habra COP (Friendly Hills Hlth.
Care Foundation), Ser. A
3,370,000 7.15s, 7/1/23 BB/P 3,572,200
4,875,000 7.05s, 7/1/13 BB/P 5,167,500
4,500,000 Loma Linda, Hosp. Rev. Bonds (Loma Linda
U. Med. Ctr.), Ser. C, MBIA, 5 3/8s, 12/1/22 AAA 4,033,125
4,500,000 Los Angeles Cnty. COP (Correctional Facs.
Project), MBIA, 6 1/2s, 9/1/13 AAA 4,629,375
3,000,000 Los Angeles, Convention & Exhib. Ctr.
Rev. Bonds, Ser. A, MBIA, 5 1/8s, 8/15/21AAA 2,613,750
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds (United Airlines, Inc.),
6 7/8s, 11/15/12 Baa 2,373,000
12,400,000 Metropolitan Wtr. Dist. Inverse Floating
Bonds (IFB), 5.408s, 10/30/20 AA 11,454,500
6,150,000 Northern CA Pwr. Agcy. Multi. Cap. Fac.
IFB, MBIA, 8.685s, 8/15/17 AAA 6,595,875
6,750,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
(Geothermal Project No. 3), Ser. A, Federal
Guaranty Insurance Corp. (FGIC), 5.8s, 7/1/09 A 6,463,125
Orange Cnty., Local Trans. Auth. IFB, American
Municipal Bond Assurance Corp. (AMBAC)
4,000,000 6.2s, 2/14/11 AAA 4,040,000
11,200,000 6.2s, 2/14/11 AA 10,850,000
5,000,000 Redding, Joint Pwr. Fing. Auth. Rev. Bonds
(Solid Waste Corp. Yard Project),
Ser. A, 5s, 1/1/23 BBB 3,856,250
5,000,000 Sacramento, City Fin. Auth. Lease Rev. Bonds,
Ser. A, AMBAC, 5 3/8s, 11/1/14 AAA 4,637,500
5,000,000 San Diego, Local Govt. COP, Tax Anticipation
Notes, 4 1/2s, 6/30/95 SP1 4,950,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
(Toll Rd.), Sr. Lien
6,000,000 6 3/4s, 1/1/32 BB/P $ 5,745,000
10,000,000 5s, 1/1/33 BB/P 7,337,500
10,000,000 zero %, 1/1/10 BBB/P 6,400,000
8,000,000 U. of CA Rev. Bonds (Multi. Purpose
Projects), Ser. B, MBIA, 5s, 9/1/16 AAA 6,950,000
5,000,000 Walnut Creek COP (John Muir Med. Ctr.
Project), MBIA, 5s, 2/15/16 AAA 4,325,000
------------
141,228,950
COLORADO (4.8%)
- ----------------------------------------------------------------------
- -----------------------
Denver, City & Cnty. Arpt. Rev. Bonds
6,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 6,622,500
2,000,000 Ser. A, 8s, 11/15/25 Baa 2,102,500
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 5,337,500
4,000,000 Ser. A, 7 1/2s, 11/15/23 Baa 4,085,000
1,500,000 Ser. A, 7 1/4s, 11/15/25 Baa 1,537,500
12,000,000 Ser. B, 7 1/4s, 11/15/23 Baa 12,045,000
9,900,000 Ser. D, 7s, 11/15/25 Baa 9,664,875
1,500,000 Ser. C, 6 3/4s, 11/15/22 Baa 1,438,125
2,000,000 Ser. C, 6 3/4s, 11/15/13 Baa 1,950,000
12,700,000 Denver, City & Cnty. Arpt. Special Fac. Rev.
Bonds (United Airlines, Inc. Project),
Ser. A, 6 7/8s, 10/1/32 Baa 12,112,625
3,000,000 Larimer Cnty., Sch. Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A 3,427,500
------------
60,323,125
CONNECTICUT (0.6%)
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- -----------------------
1,440,000 CT State Dev. Auth. 1st. Mtge. Rev. Bonds
(Gladeview Hlth. Care Project),
9 3/4s, 12/15/16 BB/P 1,578,600
2,320,000 CT State Dev. Auth. 1st. Mtge. Rev. Bonds
(East Hill Woods Project), 8 3/4s, 7/1/19B/P 2,366,400
2,500,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.),
Ser. A, 10s, 8/15/21 AAA/P 3,171,875
------------
7,116,875
DELAWARE (0.3%)
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- -----------------------
4,000,000 DE Trans. Auth. Trans. Syst. Rev. Bonds,
Ser. A, 5s, 7/1/14 AA 3,560,000
DISTRICT OF COLUMBIA (0.5%)
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- -----------------------
Dist. of Columbia Rfdg. Rev. Bonds (American Geophysical
Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,606,750
3,350,000 5 3/4s, 9/1/13 BBB 2,927,062
------------
6,533,812
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
FLORIDA (4.5%)
- ----------------------------------------------------------------------
- -----------------------
$3,740,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South Project),
7.95s, 12/1/08 A $ 4,057,900
2,680,000 FL State Brd. of Ed. Rev. Bonds (Capital
Outlay), Ser. F, 6s, 6/1/20 AA 2,663,250
3,000,000 FL State Tpk. Auth. Rev. Bonds, Ser. A,
FGIC, 5s, 7/1/19 AAA 2,613,750
21,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14B/P 23,049,750
3,100,000 Hillsborough Cnty., Aviation Auth. Special
Purpose Fac. Rev. Bonds (U.S. Air Inc.
Project), 8.6s, 1/15/22 B 3,010,875
Largo, Sun Coast Hlth. Syst. Rev. Bonds
3,485,000 6.3s, 3/1/20 BBB 3,018,881
1,700,000 6.2s, 3/1/13 BBB 1,500,250
2,475,000 Levy Cnty., Indl. Dev. Rev. Bonds (National
Med. Assn. Inc. Project), 10s, 7/1/19 B/P 2,419,312
3,500,000 Orange Cnty., Hlth. Fac. Auth. 1st. Mtge.
Rev. Bonds (Princeton Hosp.), 9s, 7/1/21B/P 3,171,875
2,445,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc. Project)
8 7/8s, 12/1/18 BBB 2,747,699
4,700,000 Palm Beach Cnty., Solid Waste Indl. Dev. Rev.
Bonds (Okeelanta Pwr. & Lt. Project),
Ser. A, 6.7s, 2/15/15 BB/P 4,465,000
4,000,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College),
Ser. A, 8 1/2s, 3/1/23 BB/P 3,930,000
------------
56,648,542
GEORGIA (2.4%)
- ----------------------------------------------------------------------
- -----------------------
8,790,000 Atlanta, Board of Ed. COP, FGIC,
5 1/8s, 6/1/12 AAA 8,031,862
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc. Project),
Ser. B, 7.9s, 12/1/18 Ba 4,341,750
De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts. Project)
1,500,000 Ser. B, 10s, 4/1/17 BB/P 1,560,000
3,700,000 Ser. A, 7 1/2s, 4/1/17 A/P 3,787,875
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc. Project), Ser. 84,
9 1/2s, 6/1/15 BBB/P 2,147,500
10,000,000 Rockdale Cnty., Dev. Auth. Solid Waste
Disp. Rev. Bonds (Visay Paper Inc. Project),
7.4s, 1/1/16 B/P 10,025,000
------------
29,893,987
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
HAWAII (0.7%)
- ----------------------------------------------------------------------
- -----------------------
$8,820,00 Honolulu, City & Cnty. General Obligation
(G.O.) Bonds Ser. A, 6 1/4s, 4/1/14 AA $ 9,172,800
ILLINOIS (6.0%)
- ----------------------------------------------------------------------
- -----------------------
9,800,000 Chicago, O'Hare Intl. Arpt. Rev. Bonds
(Senior Lien), Ser. C-1, MBIA, 5s, 1/1/11AAA 8,832,250
Chicago, O'Hare Intl. Arpt. Special Fac.
Rev. Bonds (United Air Lines, Inc.)
3,894,000 Ser. B, 8.95s, 5/1/18 Baa 4,288,267
1,895,000 Ser. 84A, 8.85s, 5/1/18 Baa 2,105,819
7,495,000 Ser. 84B, 8.85s, 5/1/18 Baa 8,328,818
4,000,000 Chicago, School Fin. Auth. IFB, 4.25s, 6/1/05 AA 3,810,000
7,000,000 Cook Cnty., Cmty. College Dist. No. 508 IFB,
12.02s, 12/1/07 # AAA 9,581,250
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.)
2,100,000 8 3/4s, 7/1/11 BBB/P 2,160,375
1,405,000 8 1/4s, 8/1/12 BBB/P 1,403,243
1,945,000 (Mercy Hsg. Corp. Project), 7s, 8/1/24 A 1,979,037
IL Edl. Fac. Auth. Rev. Bonds
2,060,000 (Steppenwolf Theatre Project), 9.65s, 7/1/19 BB/P 2,155,275
6,000,000 (Northwestern U.), 5 1/2s, 12/1/13 AA 5,632,500
IL Hlth. Fac. Auth. Rev. Bonds
3,570,000 (St. Elizabeth's Hosp.), 10 1/8s, 7/1/16AAA 3,726,187
3,000,000 (Grant Hosp. of Chicago), 7 1/2s, 6/1/13AAA 3,198,750
15,000,000 Robbins Res. Recvy. Rev. Bonds,
Ser. A, 9 1/4s, 10/15/14 B/P 16,237,500
------------
75,189,271
INDIANA (1.9%)
- ----------------------------------------------------------------------
- -----------------------
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 2,092,500
2,160,000 (Inland Steel Co. Project No. 9),
10s, 11/1/11 Ba 2,327,400
3,000,000 (Inland Steel Co. Project No. 11),
7 1/8s, 6/1/07 Ba 3,056,250
1,983,937 Hammond, Indl. Port Auth. COP,
9.65s, 6/1/14 BB/P 2,070,734
3,000,000 IN Trans. Fin. Auth. Hwy. Rev. Bonds
Ser. A, AMBAC, 5 3/4s, 6/1/12 AAA 2,962,500
11,000,000 Indianapolis Indl. Arpt. Auth. Special Fac.
Rev. Bonds (Federal Express Corp. Project),
7.1s, 1/15/17 BBB 11,302,500
------------
23,811,884
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
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 3,920,000
LOUISIANA (3.8%)
- ----------------------------------------------------------------------
- -----------------------
Beauregard, Parish Rev. Bonds (Boise Cascade Corp.
Project)
4,000,000 7 3/4s, 6/1/21 Baa 4,170,000
2,200,000 6 1/8s, 3/1/23 Baa 1,980,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,758,750
1,435,539 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(Emily Morten Foundation), 10 1/4s, 5/1/19 B/P 1,510,904
5,000,000 Lake Charles, Harbor & Term. Dist. Port Facs.
Rev. Bonds (Trunkline LNG Co. Project),
7 3/4s, 8/15/22 Baa 5,381,250
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
1,000,000 14 1/2s, 1/1/02 BB 1,113,750
2,000,000 7 1/2s, 7/1/13 BB 2,035,000
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 8,625,387
6,995,000 (Union Carbide Project), 7.35s, 11/1/22BBB 7,231,081
2,000,000 St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum Project), 7 3/4s, 8/1/22B/P 2,050,000
West Feliciana Parish, Poll. Control Rev. Bonds
(Gulf States Util. Co. Project)
1,500,000 9s, 5/1/15 BB 1,646,250
8,000,000 7s, 11/1/15 Ba 7,870,000
------------
48,372,372
MARYLAND (0.2%)
- ----------------------------------------------------------------------
- -----------------------
1,975,000 Denton, 1st. Mtge. Rev. Bonds (Wesleyan Hlth.
Care Ctr. Project), 10 1/4s, 4/1/20 B/P 2,049,062
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (3.6%)
- ----------------------------------------------------------------------
- -----------------------
2,475,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.),
10s, 1/1/20 BB/P 2,716,312
2,970,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba 2,880,900
4,000,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds
(Rev. Cooley Dickinson Hosp.),
Ser. A, 7 1/8s, 11/15/18 BB/P 3,735,000
2,860,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary),
Ser. A, 7.3s, 7/1/04 Baa 2,777,775
MA State Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds
(Pioneer Valley Living Ctr.)
1,540,000 7s, 10/1/20 B/P 1,372,525
1,019,314 zero %, 10/1/20 B/P 1,274
MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds
(Southeastern MA Project)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB/P $ 3,288,750
13,000,000 Ser. A, 9s, 7/1/15 BB/P 14,202,500
MA State Indl. Fin. Agcy. Rev. Bonds
(Atlanticare Med. Ctr.)
3,900,000 Ser. A, 10 1/8s, 11/1/14 BB/P 3,588,000
1,000,000 Ser. B, 10 1/8s, 11/1/14 BB/P 920,000
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 4,356,250
2,415,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(MA Tpk.), 9s, 10/1/20 BBB/P 2,605,181
3,000,000 MA Wtr. Resource Auth. Rev. Bonds
Ser. A, 6 1/2s, 7/15/21 AAA 3,292,500
------------
45,736,967
MICHIGAN (6.1%)
- ----------------------------------------------------------------------
- -----------------------
343,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev.
Bonds (Glacier Hills Inc. Project),
8 3/8s, 1/15/19 B/P 348,573
1,600,000 Detroit, Econ. Dev. Corp. Ltd. Oblig. Rev.
Bonds (MI Hlth. Care Corp. Project),
9.1s, 12/1/09 B/P 640,000
4,395,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20 B 1,758,000
6,095,000 Detroit, Local Dev. Fin. Auth. Tax Increment
Rev. Bond, Ser. A, 9 1/2s, 5/1/21 BBB/P 7,504,468
Greater Detroit Resource Recvy. Auth. Rev. Bonds
6,000,000 Ser. E, 9 1/4s, 12/13/08 BBB 6,270,000
4,030,000 Ser. G, 9 1/4s, 12/13/08 BBB 4,211,350
5,530,000 Livonia, Pub. Sch. Dist. Rev. Bonds, FGIC,
5 1/2s, 5/1/14 AAA 5,198,200
MI Hosp. Fin. Auth. Rev. Bonds
2,000,000 (Garden City Hosp.), 8 1/2s, 9/1/17 BBB 2,097,500
2,760,000 (Detroit Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 B 2,566,800
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev.
Bonds, Ser. A, Financial Security Association
Corp. (FSA), 7.55s, 4/1/23 AAA 4,747,500
10,000,000 MI State Strategic Fund Solid Waste Disp.
Rev. Rfdg. Bonds (Genesee Pwr. Station
Project), 7 1/2s, 1/1/21 BB/P 9,700,000
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev.
Bonds (Mercy Svcs. for Aging Project),
9.4s, 5/15/20 BBB/P 3,183,750
10,500,000 MI State Strategic Fund Ltd. Oblig. Rev.
Bonds (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 9,830,625
11,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control
Rev. Bonds, Ser. B, 9 1/2s, 7/23/09 B/P 11,797,500
1,500,000 Monroe Cnty., Poll. Control Rev. Bonds (Detroit
Edison Co.), Ser. A, 10 1/2s, 12/1/16 Baa 1,595,625
2,250,000 Pontiac Hosp. Fin. Auth. Rev. Bonds,
6s, 8/1/23 Baa 1,839,375
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
3,400,000 Wayne Charter Cnty., Special Arpt. Fac. Rev.
Bonds (Republic Air Lines, Inc. Project),
10 3/8s, 12/1/15 B/P 3,561,500
------------
76,850,766
MINNESOTA (1.1%)
- ----------------------------------------------------------------------
- -----------------------
1,985,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc. Project), 10 1/4s, 9/1/20BB/P 2,282,750
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise
Cascade Corp. Project), 7.2s, 10/1/24 BAA 5,150,000
2,500,000 St Louis Pk., Hlth. Care Fac. Rev. Bonds (Hlth.
Syst. Project), Ser. A, AMBAC, 5.2s, 7/1/16 AAA 2,253,125
5,000,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev.
Bonds (Healtheast Project),
Ser.A, 6 5/8s, 11/1/17 Baa 4,656,250
------------
14,342,125
MISSISSIPPI (1.8%)
- ----------------------------------------------------------------------
- -----------------------
Claiborne Cnty., Poll. Control Rev. Bonds
5,780,000 (Syst. Energy Resources Inc.), 12 1/2s, 6/15/15 Baa 6,025,650
8,455,000 (Middle South Energy, Inc.),
Ser. C, 9 7/8s, 12/1/14 BBB/P 9,638,700
4,380,000 (Syst. Energy Resources Inc.), 9 1/2s, 4/1/16 Baa 4,670,175
2,400,000 (Middle South Energy, Inc.),
Ser. A, 9 1/2s, 12/1/13 BBB/P 2,706,000
------------
23,040,525
MISSOURI (0.4%)
- ----------------------------------------------------------------------
- -----------------------
5,000,000 MO State Hlth. & Edl. Facs. Auth. Rev. Bonds
(BJC Hlth. Sys.), Ser. A, 6 1/2s, 5/15/20AA 5,193,750
NEBRASKA (0.6%)
- ----------------------------------------------------------------------
- -----------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,500,000 Ser. B, Government National Mortgage Assn.
Coll. (GNMA), 10.679s, 3/15/22 AAA 1,680,000
4,900,000 Ser. 2, GNMA Coll., 10.923s, 9/10/30 AAA 5,555,375
------------
7,235,375
NEVADA (0.7%)
- ----------------------------------------------------------------------
- -----------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa 8,680,625
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW HAMPSHIRE (0.9%)
- ----------------------------------------------------------------------
- -----------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,930,000 (Havenwood/Heritage Heights), 9 3/4s, 12/1/19 B/P 3,120,450
4,000,000 (1st. Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P 3,925,000
1,955,000 (Riverwoods 1st. Mtge. at Exeter), 8s, 3/1/01 B/P 1,998,987
2,000,000 (1st. Mtge. River Woods at Exeter), 8s, 3/1/00 B/P 2,045,000
------------
11,089,437
NEW JERSEY (1.6%)
- ----------------------------------------------------------------------
- -----------------------
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 3,135,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
4,000,000 (Jersey Shore Med. Ctr.), AMBAC,
5 7/8s, 7/1/24 AAA 3,885,000
3,000,000 (Union Hosp./Mega Care Inc.),
5 7/8s, 7/1/14 Baa 2,662,500
NJ Hlth. Care Fac. Fing. Auth. Rev. Bonds
3,400,000 (Mountainside Hosp.), Ser. A, 9s, 8/1/25AA 3,519,000
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 3,183,750
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB
Ser. I, 7.665s, 11/1/07 A 4,220,000
------------
20,605,250
NEW YORK (14.9%)
- ----------------------------------------------------------------------
- -----------------------
6,500,000 Battery Park, City Auth. Rev. Bonds
Ser. A, 4 3/4s, 11/1/19 AA 5,191,875
5,000,000 Metro. Trans. Auth. Svcs. Contract Fac. Rev.
Bonds (Trans. Fac.), Ser. 7, 5 5/8s, 7/1/16 Baa 4,531,250
2,500,000 (Commuter Fac.), Ser. O, 5 1/2s, 7/1/17Baa 2,225,000
NY City G.O. Bonds
2,760,000 Ser. F, 8 1/4s, 11/15/16 A 3,284,400
15,000,000 Ser. A, 6 1/4s, 8/1/08 A 14,493,750
5,420,000 Ser. D, 5 3/4s, 8/15/10 A 4,911,875
8,000,000 NY City Hlth. & Hosp. Corp. Rev. Bonds,
Ser. A, 6s, 2/15/05 BBB 7,500,000
NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr.
Syst. Variable Rate Demand Notes (VRDN)
1,500,000 Ser. G, FGIC, 4.4s, 6/15/24 VMIG1 1,500,000
10,000,000 (MBIA), 5 3/4s, 6/15/19 AAA 9,550,000
NY State Dorm. Auth. Rev. Bonds
3,500,000 (Upstate Cmnty. Colleges),
Ser. A, 5.7s, 7/1/21 Baa 3,206,875
11,910,000 (State U. Edl. Facs.), Ser. A, 5 1/2s, 5/15/10 BBB 11,016,750
4,725,000 (State U. Edl. Facs.), Ser. C, 5.4s, 5/15/23 BBB 4,104,843
3,750,000 Ser. A, 5 3/8s, 5/15/16 Baa 3,290,625
12,800,000 (Court Fac. Lease), Ser. A, 5 1/4s, 5/15/21 BBB 10,928,000
10,000,000 (City U.), Ser. F, FGIC, 5s, 7/1/20 AAA 8,587,500
NY State Energy Research & Dev. Auth. Elec.
Fac. Rev. Bonds (Long Island Ltg.), Ser. A
5,235,000 7.15s, 6/1/20 Ba 4,894,725
5,300,000 7.15s, 12/1/20 Ba 4,955,500
NY State Local Govt. Assistance Corp. Rev. Bonds
1,800,000 Ser. D, 7s, 4/1/18 AAA 2,029,500
9,325,000 Ser. A, 6s, 4/1/24 A 9,033,593
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NY State Med. Care Facs. Fin. Agcy. Rev. Bonds
11,125,000 Ser. A, AMBAC, 6 1/2s, 8/15/29 AAA 11,458,750
3,000,000 (Mental Hlth. Svcs. Fac.), Ser A,
AMBAC, 5.8s, 8/15/22 AAA 2,883,750
7,000,000 NY State Thruway Auth Rev. Bonds (Local Hwy.
& Bridge), MBIA, 5 3/4s, 4/1/13 AAA 6,851,250
10,000,000 NY State Thruway Auth. G.O. Bonds, Ser. C,
FGIC, 6s, 1/1/25 AAA 9,875,000
10,075,000 NY State Thruway Auth. Svc. Contract Rev.
Bonds (Local Hwy. & Bridge Project),
5 1/4s, 4/1/13 Baa 8,916,375
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
4,750,000 Ser. A, 5 1/2s, 1/1/14 Baa 4,280,937
3,000,000 MBIA, 5 3/8s, 1/1/12 AAA 2,805,000
5,000,000 Ser. A, 5 1/4s, 1/1/21 Baa 4,256,250
2,800,000 Ser. A, FSA, 5 1/4s, 1/1/14 AAA 2,551,500
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Swr. Fac.
Rev. Bonds (Bristol-Meyers Squibb Co.
Project), 5 3/4s, 3/1/24 AAA 4,750,000
Triboro Bridge & Tunnel Auth. G.O. Bonds
10,000,000 Ser. A, MBIA, 5.2s, 1/1/20 AAA 8,925,000
5,000,000 MBIA, 4 3/4s, 1/1/19 AAA 4,193,750
------------
186,983,623
NORTH CAROLINA (1.9%)
- ----------------------------------------------------------------------
- -----------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds
3,000,000 FGIC, 7.344s, 1/1/25 AAA 2,872,500
4,725,000 Ser. B, 6s, 1/1/22 A 4,388,343
5,250,000 AMBAC, 6s, 1/1/18 AAA 5,243,437
3,000,000 Ser. G, 5 3/4s, 12/1/16 A 2,700,000
3,500,000 NC Eastern Muni. Pwr. Agcy. Serv. Rev.
Bonds, Ser. D, 5.6s, 1/1/16 A 3,101,875
6,000,000 NC Muni. Pwr. Agcy. Rev. Bonds (No. 1 Catawba
Electric), MBIA, 5.6s, 1/1/20 AAA 5,692,500
------------
23,998,655
OHIO (0.9%)
- ----------------------------------------------------------------------
- -----------------------
4,500,000 Dayton, Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1/2s, 10/1/09B/P 5,298,750
1,475,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev.
Bonds, Ser. B, GNMA Coll., 8 1/4s, 12/15/19 AAA 1,537,687
4,335,000 OH State Wtr. Dev. Auth. Rev. Bonds (Mid-
American Waste Syst. Inc. Project),
7 3/4s, 9/1/07 BB/P 4,367,512
------------
11,203,949
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OKLAHOMA (0.6%)
- ----------------------------------------------------------------------
- -----------------------
Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regl. Med.
Ctr.)
6,995,000 Ser. A, 7 5/8s, 6/1/17 BBB 7,222,337
250,000 7.2s, 6/1/17 BBB 250,937
------------
7,473,274
PENNSYLVANIA (7.8%)
- ----------------------------------------------------------------------
- -----------------------
3,000,000 Beaver Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Cleveland Elec. Illuminating Co.),
10 1/2s, 9/1/15 Ba 3,093,750
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run),
Ser. A, 7.2s, 7/1/23 BBB/P 1,106,250
3,000,000 Erie, Higher Edl. Blg. Auth. College Rev.
Bonds (Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB 2,733,750
3,525,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.),
6 1/2s, 1/1/02 BBB/P 3,375,187
5,000,000 Harrisburg, Pkg. Auth. Rev. Bonds,
Ser. H, AMBAC, 5 1/8s, 8/1/16 AAA 4,518,750
McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project)
1,200,000 6 1/2s, 7/1/08 Baa 1,146,000
7,500,000 6 1/4s, 7/1/03 Baa 7,256,250
Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds, (UTD Hosp. Project), Ser. B
3,500,000 8 3/8s, 11/1/11 Ba 3,640,000
2,230,000 7 1/2s, 11/1/12 Ba 2,157,525
15,000,000 PA Econ. Dev. Fing. Auth. Recycling Rev. Bonds
(Ponderosa Fibres Project),
Ser. A, 9 1/4s, 1/1/22 B 15,150,000
PA Econ. Dev. Fing. Auth. Resource Recvy.
Rev. Bonds (Colver Project)
4,000,000 Ser. E, 8.05s, 12/1/15 BBB 4,085,000
3,000,000 Ser. D, 7.15s, 12/1/18 BBB 3,041,250
18,000,000 PA Inter-governmental Coop Auth. Rev. Bonds
(Special Tax-City of Philadelphia Funding
Program), MBIA, 5 5/8s, 6/15/23 AAA 16,852,500
2,000,000 PA State Higher Edl. Assistance Agcy. IFB,
Ser. B, MBIA, 10.454s, 3/1/20 AAA 2,197,500
PA State IFB
5,300,000 Ser. A, 7.294s, 4/15/04 A 5,777,000
10,000,000 Ser. 2, 5 1/4s, 6/15/13 AA 9,175,000
3,000,000 Philadelphia Gas Works Bonds,
Ser. 13, 7.7s, 6/15/21 AAA 3,461,250
6,000,000 Philadelphia Penn Gas Works IFB,
6.089s, 8/1/21 BBB 4,605,000
3,500,000 Washington Cnty., Hosp. Auth. Rev. Bonds
(Canonsburg Gen. Hosp. Project),
7.35s, 6/1/13 BB/P 3,364,375
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
------------
98,482,337
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PUERTO RICO (0.9%)
- ----------------------------------------------------------------------
- -----------------------
$10,000,000 Cmnwlth. of Puerto Rico, Tel. Auth. IFB
(SWAP), AMBAC, 5.56s, 1/1/03 AAA $ 8,650,000
3,500,000 Puerto Rico, Elec. Pwr. Auth. Rev. Bonds,
5 1/2s, 7/1/20 A 3,158,750
------------
11,808,750
RHODE ISLAND (0.4%)
- ----------------------------------------------------------------------
- -----------------------
5,000,000 RI State Pub. Bldg. Auth. IFB (Pub. Projects),
AMBAC, 5.262s, 2/1/02 AAA 4,656,250
SOUTH CAROLINA (1.3%)
- ----------------------------------------------------------------------
- -----------------------
8,500,000 Charleston Cnty., Indl. Dev. VRDN
(Hoover Group Inc. Project),
8 1/2s, 11/1/02 VMIG1 8,723,125
3,040,000 Lee Cnty., Indl. Rev. Bonds
(Mid-American Waste Syst. Project),
7s, 9/15/13 B/P 2,891,800
4,405,000 Piedmont, Muni. Pwr. Agcy. Rev. Bonds
(SC Elec.Project), Ser. A, FGIC,
6 1/2s, 1/1/16 AAA 4,724,362
------------
16,339,287
TENNESSEE (1.1%)
- ----------------------------------------------------------------------
- -----------------------
3,645,000 Chattanooga, Hlth. Edl. & Hsg. Fac. Board
1st. Mtge. Rev. Bonds, (Cambridge Hall
Project), 8 5/8s, 2/1/13 B/P 3,731,568
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board
Rev. Bonds (Ft. Sanders Alliance), Ser. C,
MBIA, 6 1/4s, 1/1/13 AAA 7,236,250
2,500,000 Metropolitan Nashville Arpt. Auth. Special
Fac. Rev. Bonds (American Airlines, Inc.
Project), 9 7/8s, 10/1/05 Baa 2,600,000
------------
13,567,818
TEXAS (4.9%)
- ----------------------------------------------------------------------
- -----------------------
Austin, Util. Syst. Rev. Bonds, FGIC
20,000,000 zero %, 5/15/18 AAA 4,825,000
12,500,000 zero %, 5/15/17 AAA 3,203,125
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
775,000 Central TX Hsg. Fin. Corp., Single Fam. Mtge.
Rev. Bonds, FGIC, 10s, 10/15/07 AAA 823,437
6,000,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt.
Rev. Bonds (American Airlines, Inc.),
7 1/4s, 11/1/30 Baa 6,030,000
900,000 Gulf Coast, Waste Disp. Auth. Poll. Control Rev.
Bonds (Monsanto Co. Project), 11 1/2s, 7/1/01 A 967,500
Houston, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds
1,372,000 Ser. A, Verex Mtge. Ins., 10 7/8s, 2/15/16 A 1,402,870
1,685,000 10s, 9/15/14 B 1,716,593
5,000,000 Lower Colo. Riv. Auth. Rev. Bonds (Jr. Lien-
4th Supply), FSA, 5 5/8s, 1/1/17 AAA 4,675,000
913,252 Maverick Cnty. COP (Jail Facility),
9.1s, 6/15/10 CCC/P 547,951
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
North Central TX Hlth. Fac. Dev. Corp.
4,000,000 IFB (Presbyterian Hlth. Care Syst.),
Ser. C, MBIA, 9.055s, 6/15/21 AAA 4,190,000
3,000,000 (Baylor Hlth. Care Syst.),
Ser. B, 7.56s, 5/15/08 AA 3,172,500
3,000,000 (U. Med. Ctr. Project), 8.2s, 4/1/19BBB/P 3,146,250
7,500,000 (U. Med. Ctr. Project), 7 3/4s, 4/1/17BBB/P 7,715,625
Sam Rayburn, Muni. Pwr. Agcy. Rev. Bonds
(Pwr. Supply Syst.)
4,500,000 Ser. A, 6 1/4s, 10/1/17 Ba 3,768,750
6,800,000 Ser. B, 6 1/8s, 10/1/13 Ba 5,669,500
Southeast TX Hsg. Fin. Corp. Rev. Bonds
1,600,000 (Multi-Family Hsg., Promenade Place Apts.
Project), Ser. B, 10.175s, 8/1/16 B/P 1,614,000
4,000,000 (Multi-Family Hsg., Pavilion Place Apts.
Project), Ser. A, 7.6s, 7/1/16 BBB/P 3,955,000
2,000,000 (Multi-Family Hsg., Bayou Park Village Apt.
Project), Ser. B, 10.175s, 8/1/16 B/P 2,035,000
------------
61,298,101
UTAH (0.4%)
- ----------------------------------------------------------------------
- -----------------------
5,000,000 Intermountain, Pwr. Supply Agcy. Rev.
Bonds, Ser. H, 9s, 7/1/19 AA 5,118,750
335,000 UT State Hsg. Fin. Agcy. Rev. Bonds (Multi-
Family Hsg.), Ser. 93-A, Federal Housing
Authority (FHA), 7.85s, 7/1/24 AA 355,100
------------
5,473,850
VIRGINIA (0.4%)
- ----------------------------------------------------------------------
- -----------------------
2,875,000 Chesapeake, Pub. Imp. G.O. Bonds, 5s, 5/1/14 AA 2,573,125
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac.
IFB, FGIC, 8.759s, 8/15/23 # AAA 2,135,000
------------
4,708,125
WASHINGTON (2.8%)
- ----------------------------------------------------------------------
- -----------------------
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev.
Bonds (Samaritan Hosp.), 9 1/4s, 9/1/10BBB/P 2,212,500
2,500,000 Pub. Indl. Corp. Rev. Bonds (Port Camas-
Washougal Poll. Cntl., James River Project),
6.7s, 4/1/23 BBB 2,443,750
5,425,000 Seattle, Wtr. Syst. Rev. Bonds, 5 1/2s, 6/1/18 AA 4,984,218
9,000,000 WA State G.O. Bonds, Ser. B, 6.4s, 6/1/17AA 9,371,250
5,000,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear Project No. 3), Ser. B, MBIA,
7 1/8s, 7/1/16 AAA 5,643,750
10,650,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear Project No. 1), Ser A, MBIA,
5.7s, 7/1/17 AAA 10,024,312
------------
34,679,780
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
WEST VIRGINIA (1.1%)
- ----------------------------------------------------------------------
- -----------------------
Marion Cnty., Cmnty. Solid Waste Disp. Fac. Rev. Bonds
(American Pwr. Paper Recycling Project)
3,000,000 9s, 12/1/11 B/P 2,966,250
9,000,000 8 1/4s, 12/1/11 B/P 8,437,500
2,500,000 WV State Pkwy. Economic Dev. & Tourism Auth.
IFB, FGIC, 7.271s, 5/16/19 AAA 2,321,875
------------
13,725,625
WISCONSIN (0.1%)
- ----------------------------------------------------------------------
- -----------------------
1,700,000 WI Hsg. & Econ. Dev. Auth. Home Ownership
IFB, 9.642s, 10/25/22 AA 1,810,500
- ----------------------------------------------------------------------
- -----------------------
TOTAL MUNICIPAL BONDS AND NOTES (cost $1,217,947,676) $1,223,210,736
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
PUT OPTIONS PURCHASED
<TABLE><CAPTION>
<C> <S> <C> <C>
(FUTURE CONTRACTS) (--%) EXPIRATION DATE/
NUMBER OF CONTRACTS STRIKE PRICE VALUE
- ----------------------------------------------------------------------
- -----------------------
496,000 U.S. Treasury Bond Futures
(cost $933,224) June 1995/$102.00 $ 322,400
- ----------------------------------------------------------------------
- -----------------------
TOTAL INVESTMENTS (cost $1,218,880,900) $1,223,533,136
- ----------------------------------------------------------------------
- -----------------------
<PAGE>
<FN>
NOTES
- ----------------------------------------------------------------------
- -----------------------
* Percentages indicated are based on net assets of $1,256,857,833,
which correspond to a net asset value per class A, class B, and
class M shares of $8.74, $8.74 and $8.75, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at March 31, 1995 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, 1995. Securities rated
by Putnam are indicated by "/P" and are not publicly rated. The
ratings are not covered by the Report of Independent Accountants.
*** The aggregate identified cost for federal income tax purposes is
$1,219,163,871, resulting in gross unrealized depreciation and
gross unrealized appreciation of $66,098,453 and $70,467,718,
repectively, or net unrealized appreciation of $4,369,265.
# A portion of this security was pledged to cover margin
requirements for futures contracts at March 31, 1995. The market
value of segregated securities with the custodian for
transactions on futures contract is $7,183,000.
The rates shown on Inverse Floating Bonds (IFB), which are
securities paying variable interest rates that vary inversely to
changes in market interest rates, and Variable Rate Demand Notes
(VRDN) are the current interest rates at March 31, 1995, 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, 1995 (as a percentage of net assets):
Utilities 24.8%
Hospitals/Health Care18.2
Transportation 13.2%
The fund had the following insurance concentrations greater than
10% on March 31, 1995, as a percentage of net assets:
MBIA 10.8%
</TABLE>
<PAGE>
WRITTEN CALL OPTIONS OUTSTANDING AT MARCH 31, 1995
(PREMIUM RECEIVED $1,258,088)
<TABLE><CAPTION>
<C> <S> <C> <C>
NUMBER OF EXPIRATION DATE/ UNREALIZED
CONTRACTS STRIKE PRICE DEPRECIATION
- ----------------------------------------------------------------------
- -----------------------
49,800 U.S. Treasury Bond
Futures (Sell) June 1995/$102.00 ($6,832)
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
FUTURES CONTRACTS OUTSTANDING
AT MARCH 31, 1995
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
AGGREGATE
TOTAL FACE EXPIRATION UNREALIZED
VALUE VALUE DATE DEPRECIATION
- ----------------------------------------------------------------------
- -----------------------
U.S. Treasury
Bond Futures
(Sell) $66,500,000 $65,332,500 June 1995 $(1,167,500)
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
The table below shows the percentages of the Fund's investments on
March 31, 1995 in securities assigned to the various rating categories
by Moody's and Standard & Poor's and in unrated securities determined
by Putnam's Management to be of comparable quality.
<TABLE><CAPTION
<S> <C> <C>
Unrated securities
Rate securities of comparable quality,
as a percentage of as a percentage of
FundOs net assets FundOs net assets
- ----------------------------------------------------------------------
- -----------------------
"AAA"/"Aaa" 23.8 0.3
- ----------------------------------------------------------------------
- -----------------------
"AA"/"Aa" 9.1 --
- ----------------------------------------------------------------------
- -----------------------
"A"/"A" 6.7 0.3
- ----------------------------------------------------------------------
- -----------------------
"BBB"/"Baa" 25.1 4.7
- ----------------------------------------------------------------------
- -----------------------
"BB"/"Ba" 4.5 7.6
- ----------------------------------------------------------------------
- -----------------------
"B"/"B" 1.9 12.1
- ----------------------------------------------------------------------
- -----------------------
"SPI" 0.4 --
- ----------------------------------------------------------------------
- -----------------------
"VMIGI" 0.8 --
- ----------------------------------------------------------------------
- -----------------------
72.3 25.0
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
- -----------------------
Investments in securities, at value (identified cost
$1,218,880,900 ) (Note 1) $1,223,533,136
- ----------------------------------------------------------------------
- -----------------------
Cash 1,973,791
- ----------------------------------------------------------------------
- -----------------------
Interest and other receivables 25,629,895
- ----------------------------------------------------------------------
- -----------------------
Receivable for shares of the fund sold 3,652,737
- ----------------------------------------------------------------------
- -----------------------
Receivable for securities sold 16,815,633
- ----------------------------------------------------------------------
- -----------------------
Total assets 1,271,605,192
- ----------------------------------------------------------------------
- -----------------------
LIABILITIES
- ----------------------------------------------------------------------
- -----------------------
Payable for securities purchased 7,643,571
- ----------------------------------------------------------------------
- -----------------------
Payable for shares of the fund repurchased 1,826,999
- ----------------------------------------------------------------------
- -----------------------
Distributions payable to shareholders 1,008,796
- ----------------------------------------------------------------------
- -----------------------
Payable for compensation of Manager (Note 2) 1,736,098
- ----------------------------------------------------------------------
- -----------------------
Payable for administrative services (Note 2) 6,833
- ----------------------------------------------------------------------
- -----------------------
Payable for distribution fees (Note 2) 811,550
- ----------------------------------------------------------------------
- -----------------------
Payable for investor servicing and custodian fees (Note 2) 329,554
- ----------------------------------------------------------------------
- -----------------------
Payable for compensation of Trustees (Note 2) 1,116
- ----------------------------------------------------------------------
- -----------------------
Other accrued expenses 117,922
- ----------------------------------------------------------------------
- -----------------------
Written options outstanding at value (premiums received $1,258,088)1,264,920
- ----------------------------------------------------------------------
- -----------------------
TOTAL LIABILITIES 14,747,359
- ----------------------------------------------------------------------
- -----------------------
NET ASSETS $1,256,857,833
- ----------------------------------------------------------------------
- -----------------------
REPRESENTED BY
- ----------------------------------------------------------------------
- -----------------------
Paid-in capital (Notes 1 and 4) $1,291,560,117
- ----------------------------------------------------------------------
- -----------------------
Distributions in excess of net investment income (454,966)
- ----------------------------------------------------------------------
- -----------------------
Accumulated net realized loss on investments, written options and
futures contract (Note 1) (37,725,222)
- ----------------------------------------------------------------------
- -----------------------
Net unrealized appreciation of investments, written options and
futures contracts (Note 1) 3,477,904
- ----------------------------------------------------------------------
- -----------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $1,256,857,833
- ----------------------------------------------------------------------
- -----------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
- -----------------------
Net asset value and redemption price of class A shares
($828,548,034 divided by 94,746,287 shares) $8.74
- ----------------------------------------------------------------------
- -----------------------
Offering price per share (100/95.25 of $8.74)* $9.18
- ----------------------------------------------------------------------
- -----------------------
Net asset value and offering price of class B shares
($427,085,838 divided by 48,883,613 shares)+ $8.74
- ----------------------------------------------------------------------
- -----------------------
Net asset value and redemption price of class M shares
($1,223,961 divided by 139,928) $8.75
- ----------------------------------------------------------------------
- -----------------------
Offering price per share of class M (100/96.75 of $8.75)* $9.04
- ----------------------------------------------------------------------
- -----------------------
<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.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $88,707,914
- ----------------------------------------------------------------------
- -----------------------
EXPENSES:
- ----------------------------------------------------------------------
- -----------------------
Compensation of Manager (Note 2) 7,114,310
- ----------------------------------------------------------------------
- -----------------------
Investor servicing and custodian fees (Note 2) 964,206
- ----------------------------------------------------------------------
- -----------------------
Compensation of Trustees (Note 2) 38,213
- ----------------------------------------------------------------------
- -----------------------
Reports to shareholders 70,179
- ----------------------------------------------------------------------
- -----------------------
Auditing 56,234
- ----------------------------------------------------------------------
- -----------------------
Legal 69,145
- ----------------------------------------------------------------------
- -----------------------
Postage 153,413
- ----------------------------------------------------------------------
- -----------------------
Registration fees 13,510
- ----------------------------------------------------------------------
- -----------------------
Administrative services (Note 2) 28,326
- ----------------------------------------------------------------------
- -----------------------
Amortization of organization expenses (Note 1) 807
- ----------------------------------------------------------------------
- -----------------------
Distribution fees -- Class A (Note 2) 2,070,445
- ----------------------------------------------------------------------
- -----------------------
Distribution fees -- Class B (Note 2) 3,357,615
- ----------------------------------------------------------------------
- -----------------------
Distribution fees -- Class M (Note 2) 1,069
- ----------------------------------------------------------------------
- -----------------------
Other 128,382
- ----------------------------------------------------------------------
- -----------------------
TOTAL EXPENSES 14,065,854
- ----------------------------------------------------------------------
- -----------------------
NET INVESTMENT INCOME 74,642,060
- ----------------------------------------------------------------------
- -----------------------
Net realized loss on investments (Notes 1 and 3) (31,162,304)
- ----------------------------------------------------------------------
- -----------------------
Net realized loss on written options (Notes 1 and 3) (624,430)
- ----------------------------------------------------------------------
- -----------------------
Net realized gains on futures contracts 411,930
- ----------------------------------------------------------------------
- -----------------------
Net unrealized appreciation of investments, written options and
futures contracts during the year 32,173,688
- ----------------------------------------------------------------------
- -----------------------
NET GAIN ON INVESTMENTS 798,884
- ----------------------------------------------------------------------
- -----------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $75,440,944
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION
<S> <C> <C>
YEAR ENDED MARCH 31
-------------------------------------
1995 1994
- ----------------------------------------------------------------------
- -----------------------
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
- -----------------------
Operations:
- ----------------------------------------------------------------------
- -----------------------
Net investment income $74,642,060 $59,428,378
- ----------------------------------------------------------------------
- -----------------------
Net realized loss on investments, written
options and futures contracts (31,374,804) (444,736)
- ----------------------------------------------------------------------
- -----------------------
Net unrealized appreciation (depreciation) of
investments, written options and futures
contracts 32,173,688 (56,353,269)
- ----------------------------------------------------------------------
- -----------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 75,440,944 2,630,373
- ----------------------------------------------------------------------
- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- ----------------------------------------------------------------------
- -----------------------
From net investment income
- ----------------------------------------------------------------------
- -----------------------
Class A (51,832,348) (46,353,540)
- ----------------------------------------------------------------------
- -----------------------
Class B (22,403,596) (13,074,838)
- ----------------------------------------------------------------------
- -----------------------
Class M (11,827) --
- ----------------------------------------------------------------------
- -----------------------
In excess of net investment income
- ----------------------------------------------------------------------
- -----------------------
Class A -- (542,155)
- ----------------------------------------------------------------------
- -----------------------
Class B -- (165,144)
- ----------------------------------------------------------------------
- -----------------------
From net realized gain on investments
- ----------------------------------------------------------------------
- -----------------------
Class A -- (652,082)
- ----------------------------------------------------------------------
- -----------------------
In excess of net realized gain on investment
- ----------------------------------------------------------------------
- -----------------------
Class A -- (4,607,972)
- ----------------------------------------------------------------------
- -----------------------
Class B -- (1,973,895)
- ----------------------------------------------------------------------
- -----------------------
Increase from capital shares transactions
(Note 4) 34,377,706 551,880,210
- ----------------------------------------------------------------------
- -----------------------
TOTAL INCREASE IN NET ASSETS 35,570,879 487,140,957
- ----------------------------------------------------------------------
- -----------------------
NET ASSETS
- ----------------------------------------------------------------------
- -----------------------
Beginning of year 1,221,286,954 734,145,997
- ----------------------------------------------------------------------
- -----------------------
END OF year (including distributions in
excess of net investment income of $454,966
and $956,199, respectively) $1,256,857,833 $1,221,286,954
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 1, 1994 JANAURY 4, 1993
(COMMENCEMENT (COMMENCEMENT OF
OF OPERATIONS) TO OPERATIONS) TO
MARCH 31 YEAR ENDED MARCH 31 MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1995 1995 1994 1993
- ----------------------------------------------------------------------
- -----------------------
CLASS M CLASS B
- ----------------------------------------------------------------------
- -----------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $8.21 $8.73 $9.12 $8.95
- ----------------------------------------------------------------------
- -----------------------
INVESTMENT OPERATIONS
Net investment income .16 .48 .44 .10
Net realized and unrealized
gain (loss) on investments,
options and futures contracts .54 .01 (.32) .17
- ----------------------------------------------------------------------
- -----------------------
TOTAL FROM INVESTMENT ACTIVITIES.70 .49 .12 .27
- ----------------------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS:
From net investment income (.16) (.48) (.44) (.10)
In excess of net investment income-- -- (.01) --
From net realized gain
on investments -- -- -- --
In excess of net realized
gain on investments -- -- (.06) --
- ----------------------------------------------------------------------
- -----------------------
TOTAL DISTRIBUTIONS (.16) (.48) (.51) (.10)
- ----------------------------------------------------------------------
- -----------------------
NET ASSET VALUE, END OF PERIOD$8.75 $8.74 $8.73 $9.12
- ----------------------------------------------------------------------
- -----------------------
TOTAL INVESTMENT RETURN
AT NAV (%)(b) 8.58(c) 5.94 1.52 3.05(c)
- ----------------------------------------------------------------------
- -----------------------
NET ASSETS, END OF PERIOD
(in thousands) $1,224 $427,086 $369,006 $95,175
- ----------------------------------------------------------------------
- -----------------------
Ratio of expenses to average
net assets (%) .41(c) 1.55 1.54 .30(c)
- ----------------------------------------------------------------------
- -----------------------
Ratio of net investment income to
average net assets (%) 1.78(c) 5.66 5.02 1.21(c)
- ----------------------------------------------------------------------
- -----------------------
Portfolio turnover (%) 62.84 62.84 47.08 31.05(c)
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C>
FOR THE PERIOD
MAY 22, 1989
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
MARCH 31 MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------
- -----------------------
Class A
- ----------------------------------------------------------------------
- -----------------------
$8.73 $9.12 $8.65 $8.36 $8.47 $8.50
- ----------------------------------------------------------------------
- -----------------------
.54 .55 .63 .67 .68 .57(a)
-- (.34) .51 .31 (.10) (.04)
- ----------------------------------------------------------------------
- -----------------------
.54 .21 1.14 .98 .58 .53
- ----------------------------------------------------------------------
- -----------------------
(.53) (.54) (.62) (.68) (.69) (.56)
-- -- -- -- -- --
-- (.01) (.05) (.01) -- --
-- (.05) -- -- -- --
- ----------------------------------------------------------------------
- -----------------------
(.53) (.60) (.67) (.69) (.69) (.56)
- ----------------------------------------------------------------------
- -----------------------
$8.74 $8.73 $9.12 $8.65 $8.36 $8.47
- ----------------------------------------------------------------------
- -----------------------
6.55 2.15 13.67 12.11 7.16 6.41(c)
- ----------------------------------------------------------------------
- -----------------------
$828,548 $852,281 $638,971 $324,384 $244,508 $182,641
- ----------------------------------------------------------------------
- -----------------------
.95 .97 1.05 .91 .95 .73(a)(c)
- ----------------------------------------------------------------------
- -----------------------
6.28 5.73 6.83 7.80 8.08 5.95(a)(c)
- ----------------------------------------------------------------------
- -----------------------
62.84 47.08 31.05 44.34 49.80 41.84(c)
- ----------------------------------------------------------------------
- -----------------------
<FN>
(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>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
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 class A, class B and class M shares. The fund
commenced its public offering of class M on December 1, 1994. 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. Class M shares are sold with a maximum front
end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares. Class M
shares are not subject to any contingent deferred sales charge when
they are redeemed. Expenses of the fund are borne pro-rata by the
holders of each class of shares, except that each class bears expenses
unique to that class (including the distribution fees applicable to
such class). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. Shares of each class would
receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The 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.
<PAGE>
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 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.
At March 31, 1995, the fund had a capital loss carryover of
approximately $12,346,000 which expires March 31, 2003. This capital
loss carryover may be available to offset realized gains, if any, to
the extent provided by regulations.
D 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.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences
include the treatment of post October loss deferral, capital loss
carryover, and market discount. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended March 31, 1995, the fund reclassified
$106,944 to decrease distribution in excess of net investment income,
$105,854 to increase accumulated net realized loss on investments and
$1,090 to decrease paid-in-capital. The calculation of net investment
income per share in the financial highlights table excludes these
adjustments.
E 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.
F UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in
connection with its organization aggregated $42,571. These expenses
were amortized on a straight-line basis over a five year period.
G OPTION ACCOUNTING PRINCIPLES The fund may, to the extent
consistent with its investment objectives and policies, seek to
increase its current returns by writing covered call and put options
on securities it owns or in which it may invest. When a fund writes a
call option, an amount equal to the premium received by the fund is
included in the fund's "Statement of assets and liabilities" as an
asset and an equivalent liability. The amount of the liability is
subsequently "marked-to- market" to reflect the current market value
of an option written. The current market value of an option is the
last sale price or, in the absence of a sale,
<PAGE>
the last offering price. If an option expires on its stipulated
expiration date, or if the fund enters into a closing purchase
transaction, the fund realizes a gain (or loss if the cost of a
closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the fund realizes
a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security that the fund
purchases upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the
opportunity to profit if the market price of the underlying security
increases and the option is exercised. In writing a put option, the
fund assumes the risk of incurring a loss if the market price of the
underlying security decreases and the option is exercised. In
addition, there is the risk the fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment
objectives and policies, buy put options to protect its portfolio
holdings in an underlying security against a decline in market value.
A fund may buy call options to hedge against an increase in the price
of the securities that the fund ultimately wants to buy. These funds
may also buy and sell combinations of put and call options on the same
underlying security to earn additional income. The premium paid by a
fund for the purchase of a put and call option is included in the
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of
the option. If an option the fund has purchased expires on the
stipulated expiration date, the fund realizes a loss in the amount of
the cost of the option. If the fund enters into a closing sale
transaction, the fund realizes a gain or loss, depending on whether
proceeds from the closing sale transaction are greater or less than
the cost of the option. If the fund exercises a call option, the cost
of the securities acquired by exercising the call is increased by the
premium paid to buy the call. If the fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security and
the proceeds from such a sale are decreased by the premium originally
paid. The risk associated with purchasing options is limited to the
premium originally paid.
<PAGE>
H FUTURES A futures contract is an agreement between two parties to
buy or sell units of a particular index or a certain amount of a U.S.
Government security 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. The fund may buy and sell index and U.S.
Government futures contracts to hedge its portfolio securities against
fluctuations in the market. Buying futures tends to increase the
fund's exposure to the underlying index or instrument. Selling futures
tends to decrease the fund's exposure to the underlying index or
instrument, or hedge other fund instruments.
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 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.
The potential risk to the fund is that the change in value of futures
contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in value of the
hedged instruments. In addition, there is a risk that the fund may not
be able to close out its futures positions due to an illiquid
secondary market.
I OPTIONS ON FUTURES Options on futures generally operate in the
same manner as options purchased or written directly on the underlying
debt securities. The fund is required to deposit, in a manner similar
to futures contracts as described below, "initial margin" and
"variation margin" with respect to put and call options written on
futures contracts. In addition, upon exercise, net premiums will
decrease the unrealized loss or increase the unrealized gain on the
future. The writing of an option on a futures contract involves risk
similar to those described below relating to the sale of such
contacts.
<PAGE>
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.
Trustees of the fund receive an annual Trustee's fee of $2,350 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.
Investor servicing and custodian fees reported in the Statement of
operations for the year ended March 31, 1995 have been reduced by
credits allowed by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, B and M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred
by it in distributing shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate of
0.35%, 1.00% and 1.00% of the average net assets attributable to class
A, B and M shares, respectively. The Trustees have approved payment by
the fund at an annual rate of 0.25%, 0.85% and 0.50% of the average
net assets attributable to class A, class B and class M shares
respectively. Should the Trustees decide in the future to approve
payments in excess of these amounts, shareholders will be notified.
For the year ended March 31, 1995, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $172,961 and $777 from the
sale of class A and M shares, respectively, and $1,115,633 in
contingent deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions
of class A shares purchased as part of an investment of $1 million or
more. For the year ended March 31, 1995, Putnam Mutual Funds Corp.,
acting as underwriter received $28,100 on class A redemptions.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 1995, purchases and sales of
investment securities other than short-term municipal obligations
aggregated $1,256,001,109 and $1,217,947,676, 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>
<S> <C> <C>
WRITTEN CALL OPTIONS
- ----------------------------------------------------------------------
- -----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------------------
- -----------------------
Outstanding at beginning of year -- --
Contracts opened 49,800 $1,258,088
Contracts closed -- --
- ----------------------------------------------------------------------
- -----------------------
CONTRACTS OPEN AT END OF YEAR 49,800 $1,258,088
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
NOTE 4
CAPITAL SHARES
At March 31, 1995, there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, class A,
class B and class M capital stock. Transactions in capital shares were
as follows:
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1995
- ----------------------------------------------------------------------
- -----------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- -----------------------
Shares sold 22,525,474 $192,674,350
Shares issued in connection with
reinvestment of distributions 3,137,745 26,887,634
- ----------------------------------------------------------------------
- -----------------------
25,663,219 219,561,984
- ----------------------------------------------------------------------
- -----------------------
Shares repurchased (28,553,099) (243,379,810)
- ----------------------------------------------------------------------
- -----------------------
NET INCREASE (DECREASE) (2,889,880) $(23,817,826)
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1994
- ----------------------------------------------------------------------
- -----------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- -----------------------
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 (DECREASE) 27,582,215 $256,070,332
- ----------------------------------------------------------------------
- -----------------------
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1995
- ----------------------------------------------------------------------
- -----------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- -----------------------
Shares sold 16,775,323 $143,773,959
Shares issued in connection with
reinvestment of distributions 1,494,123 12,783,293
- ----------------------------------------------------------------------
- -----------------------
18,269,446 156,557,252
- ----------------------------------------------------------------------
- -----------------------
Shares repurchased (11,678,176) (99,541,425)
- ----------------------------------------------------------------------
- -----------------------
NET INCREASE (DECREASE) 6,591,270 $57,015,827
- ----------------------------------------------------------------------
- -----------------------
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -----------------------
1994
- ----------------------------------------------------------------------
- -----------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- -----------------------
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 (DECREASE) 31,859,966 $295,809,878
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<TABLE><CAPTION>
<S> <C> <C>
FOR PERIOD DECEMBER 1,
1994 (COMMENCEMENT
OF OPERATIONS) TO
MARCH 31, 1995
- ----------------------------------------------------------------------
- -----------------------
1995
- ----------------------------------------------------------------------
- -----------------------
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
- -----------------------
Shares sold 140,335 $1,183,094
Shares issued in connection with
reinvestment of distributions 1,216 10,581
- ----------------------------------------------------------------------
- -----------------------
141,551 1,193,675
- ----------------------------------------------------------------------
- -----------------------
Shares repurchased (1,623) (13,970)
- ----------------------------------------------------------------------
- -----------------------
NET INCREASE 139,928 $1,179,705
- ----------------------------------------------------------------------
- -----------------------
</TABLE>
<PAGE>
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 did not pay any short or long-term capital gains for the year
ended March 31, 1995.
<PAGE>
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 L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
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 M. 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,
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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
BULK RATE
U.S. POSTAGE
PAID
PUTNAM
INVESTMENTS
051/353/560-17774
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
