PUTNAM
MUNICIPAL
INCOME
FUND
SEMIANNUAL REPORT
September 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"The deterioration in muni prices is simply not supported by the
facts. . . . The market is discounting something [the flat tax] that
likely will never occur."
- -- Smart Money, September 1995
SEMIANNUAL 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
- ----------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
6 months ended
9/30/95 4.90% -0.13% 4.48%-0.53% 4.63% 1.27%
- ----------------------------------------------------------------------
SHARE VALUE: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
3/31/95 $8.74 $9.18 $8.74 $8.75 $9.04
9/30/95 8.90 9.34 8.89 8.90 9.20
- ----------------------------------------------------------------------
DISTRIBUTIONS: NO. INCOME TOTAL
- ----------------------------------------------------------------------
Class A 6 $0.262725 $0.262725
Class B 6 0.236816 0.236816
Class M 6 0.250464 0.250464
- ----------------------------------------------------------------------
Class A Class B Class M
Current return: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
End of period
Current dividend rate(1) 6.14% 5.85% 5.51% 5.77% 5.58%
Taxable equivalent(2) 10.17 9.69 9.12 9.55 9.24
Current 30-day SEC yield(3) 6.05 5.76 5.37 5.52 5.32
Taxable equivalent(2) 10.02 9.54 8.89 9.14 8.81
- ----------------------------------------------------------------------
<FN>
Performance data above represent past results and are not indicative
of future performance. For performance over longer periods, see pages
8 and 9. POP assumes 4.75% maximum sales charge for class A and 3.25%
for class M shares. CDSC assumes 5% maximum contingent deferred sales
charge. Capital gains are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may
be subject to state and local taxes. (1)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period.
(2)Assumes maximum 39.6% federal tax rate. Results for investors
subject to lower tax rates would not be as advantageous. (3)Based on
investment income, calculated using SEC guidelines.
</TABLE>
<PAGE>
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
WITH PLENTY TO BE POSITIVE ABOUT, TAX-EXEMPT INVESTORS ARE FINALLY
PUTTING THEIR SUMMER FEARS BEHIND THEM. A FEW MONTHS AGO FLAT-TAX
PROPOSALS WERE FLOATED IN THE PRE-ELECTION WIND. THE MERE TALK OF SUCH
A TAX, WHICH WOULD END THE BENEFICIAL TREATMENT NOW ACCORDED MUNICIPAL
BONDS, WAS ENOUGH TO SEND THE MARKET INTO DECLINE.
INTEREST RATES ARE STILL MODERATE, INFLATION REMAINS LOW, AND THE
ECONOMY SEEMS TO HAVE SLOWED TO A MORE COMFORTABLE PACE, ALL FACTORS
THAT GLADDEN FIXED-INCOME INVESTORS' HEARTS. MUNICIPAL-BOND INVESTORS
HAVE BEEN FURTHER BLESSED WITH YIELDS VIRTUALLY AT THE SAME LEVEL AS
THOSE OF TAXABLE BONDS AND A FAVORABLE RATIO OF SUPPLY TO DEMAND.
AS PUTNAM MUNICIPAL INCOME FUND'S FISCAL YEAR REACHED ITS MIDPOINT ON
SEPTEMBER 30, 1995, THE MUNICIPAL-BOND MARKET WAS SHOWING NEW SIGNS OF
STRENGTH, POISED FOR WHAT COULD BE ANOTHER POSITIVE PERIOD OF ADVANCE.
IN THE REPORT THAT FOLLOWS, FUND MANAGER RICHARD WYKE REVIEWS FISCAL
1996 PERFORMANCE TO DATE AND PROSPECTS FOR THE REMAINDER OF THE YEAR.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 22, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
Thanks to a combination of astute positioning and positive market
trends, Putnam Municipal Income Fund was able to offset the negative
effects of recent flat-tax fears. As a result, your fund has completed
the first half of fiscal 1996 with a total return of 4.90% for class A
shares at net asset value. The fund also offers class B and class M
shares, whose performance, while different, is in the same range.
The fund continued to produce attractive tax-free income for
shareholders during the six months ended September 30, 1995. An
investor in the maximum 39.6% federal tax rate would have to receive
10.17% current dividends from an equivalent taxable investment to
match the 6.14% current dividend rate provided by the class A shares
of your fund at net asset value.
LONGER-TERM BONDS OFFER BEST VALUE; MODEST CHANGES IN SECTOR STRATEGY
For much of the semiannual period, we believed that tax-free bonds
with 15- to 20-year maturities offered the best value. As a result, we
sold selected bonds with 15-year or shorter maturities as well as
selected bonds with 30-year maturities to help capture what, in our
view, is the greater appreciation potential of the 15- to 20-year
bonds.
Three factors are contributing to the attractiveness of these bonds.
First, individual investors are drawn to the bonds' balance of income
and market risk, and this heightened demand is helping push prices
higher. Secondly, when interest rates are declining, longer-term bonds
appreciate more noticeably than shorter-term bonds. Lastly, using a
common measurement of the municipal-bond market's performance
potential, this segment of the municipal-bond market is yielding a
high percentage of its Treasury bond counterpart.
The fund continues to be well diversified throughout the country, with
a greater emphasis on higher-tax states such as New York and
California. The portfolio is invested in more
<PAGE>
than 95 issues in 38 states, Washington, D.C., and Puerto Rico. With
minor modifications, utilities, hospitals and health care, and
transportation remain the largest sectors on a net asset basis. The
average portfolio quality rating remains A.
Within the transportation sector, airport bonds have performed
particularly well. Airlines pay fees for the use of space at airports,
and it is this revenue that is the source of interest and payments on
the debt of these airport bonds. When airport traffic increases, there
is a commensurate rise in fees for airport usage. The Denver Airport
bonds, initially plagued by problems with the facility's automated
baggage system, have appreciated nicely as solid traffic growth has
led to improving revenues and renewed investor interest.
Interestingly, the resource-recovery and cogeneration sectors have
increased substantially since our last report. (The former deals with
facilities used in materials recycling, the latter with facilities
that convert trash into energy.) Unlike most other sectors of the
market, these two experienced sizable issuance this year. In our
search for the most attractive opportunities, we rely heavily on
stringent internal analysis and on-site meetings with the management
of these companies.
BOND RETURNS: MUNICIPALS VERSUS TREASURERS
[MOUNTAIN CHART]
U.S. TREASURY U.S. TREASURY
SECURITIES SECURITIES
DATE MUNICIPAL BONDS BEFORE TAX AFTER TAXES
9/30/90 $10,000 $10,000 $10,000
9/30/91 $11,318 $11,540 $11,179
9/30/92 12,501 $13,042 $12,275
9/30/93 14,095 $14,486 $13,281
9/30/94 13,751 $13,899 $12,422
9/30/95 15,288 $15,782 $13,733
Sources: Lehman Brothers Municipal Bond Index, Lehman Brothers
Treasury Bond Index. Graph compares the growth of a hypothetical
$10,000 investment in tax-free municipal bonds with a similar
investment in U.S. Treasury bonds, and shows the effective after-tax
returns of the fully taxable Treasury securities for an individual
paying the maximum 39.6% federal income tax.
<PAGE>
Generally, resource-recovery and cogeneration bonds are not followed
by the rating agencies because of their short operating histories and
relatively new technology. However, any bond not otherwise rated by a
rating agency undergoes close scrutiny by Putnam's credit analysts and
receives an internal rating. The bonds purchased by the fund pay
relatively high yields, ranging from 8.5% to 9.5%. The yields reflect
the additional risk posed by the internal ratings of B or BB, which
are below investment grade.
INVESTMENT APPROACH CAUTIOUS BUT OPPORTUNISTIC
Investment decisions continue to reflect our conviction that the
rising interest rate environment of 1994 is not likely to be repeated
in 1995. Our cautious but more sanguine approach is supported by three
additional factors.
The ongoing debate about tax reform, especially the flat-tax proposal,
has generated much concern about the future of the tax-free market.
While passage of any tax reform package in its current form is far
from certain, the perceived effects on the tax-exempt status of
municipal bonds continue to pressure municipal-bond prices. However,
much like the fallout from the Orange County, California, scare in
late 1994, the tax reform debate is providing ample buying
opportunities as the proverbial dust settles.
Secondly, the Federal Reserve Board has successfully engineered a soft
landing, that is, the slowing of economic growth to a sustainable
level. While the Fed's pace and degree of interest rate increases in
1994 sorely tested the patience of bond investors, today's
noninflationary environment is providing a much more hospitable
climate for municipal securities.
<PAGE>
TOP INDUSTRY SECTORS
[BAR CHART]
Utilities 21.1%
Hospital/Health care 19.1%
Transportation 13.2%
*Based on net assets on 9/30/95. Holdings will vary over time.
Lastly, Congress's current efforts to reduce the deficit and to
balance the budget provide yet another reason for our increasingly
positive outlook. In all likelihood, the financial markets would
respond favorably to a bipartisan agreement to reduce federal
spending.
Tax-free securities have underperformed the entire fixed income market
for much of 1995, suggesting that municipal bonds appear quite
attractive relative to alternative investments on a valuation basis.
We will continue to take advantage of the opportunity that this market
environment represents, while positioning the portfolio to benefit
from longer-term trends.
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 9/30/95, 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.
Performance should always be considered in light of a fund's
investment strategy. Putnam Municipal Income Fund is designed for
investors seeking as high a level of current income exempt from
federal income tax as is consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 9/30/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
- -
6 months 4.90% -0.13% 4.48% -0.53% 4.63% 1.27%
- ----------------------------------------------------------------------
- -
1 year 10.29 5.02 9.66 4.66 -- --
- ----------------------------------------------------------------------
- -
5 years 51.91 44.62 -- -- -- --
Annual average 8.72 7.66 -- -- -- --
- ----------------------------------------------------------------------
- -
Life of class A 65.85 58.03 -- -- -- --
Annual average 8.28 7.46 -- -- -- --
- ----------------------------------------------------------------------
- -
Life of class B -- -- 15.74 12.76 -- --
- ----------------------------------------------------------------------
- -
Annual average -- -- 5.48 4.48 -- --
- ----------------------------------------------------------------------
- -
Life of class M -- -- -- -- 13.62 9.87
- ----------------------------------------------------------------------
- -
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/95
<S> <C> <C>
LEHMAN BROS.
MUNICIPAL CONSUMER
BOND INDEX PRICE INDEX
- ----------------------------------------------------------------------
- -
6 months 5.35% 1.19%
- ----------------------------------------------------------------------
- -
1 year 11.18 2.54
- ----------------------------------------------------------------------
- -
5 years 52.88 15.45
Annual average 8.86 2.91
- ----------------------------------------------------------------------
- -
Life of class A 65.61 23.75
Annual average 8.25 3.41
- ----------------------------------------------------------------------
- -
Life of class B 20.11 7.96
Annual average 6.92 2.84
- ----------------------------------------------------------------------
- -
Life of class M 15.28 2.34
- ----------------------------------------------------------------------
- -
<FN>
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. Fund performance data do not take into
account any adjustment for taxes payable on reinvested distribution
or, for class A shares, to the implementation of the class A
distribution plan in 1992. Performance data represent past results and
differ for each share class. Investment returns and net asset value
will fluctuate so an investor's shares, when sold, may be worth more
or less than their original cost. Performance data prior to 5/11/92 do
not reflect operation under the fund's current investment objective
and policies.
</TABLE>
<PAGE>
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 a higher 12b-1
fee than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the 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.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1995 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association
Collateralized
GO Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA Municipal Bond Investors Assurance Corporation
VRDN Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
ALABAMA (0.1%)
- ----------------------------------------------------------------------
$ 645,000Cullman, Med. Pk. South Med. Clinic Board Rev.
Bonds (Cullman Regl. Med. Ctr.), Ser. A, 6 1/4s,
2/15/02 Baa $652,256
ALASKA (1.0%)
- ----------------------------------------------------------------------
14,250,000Valdez, Marine Term. Rev. Bonds (BP Pipeline,
Inc. Project), Ser. B, 5 1/2s, 10/1/28 AA 13,074,375
ARIZONA (2.0%)
- ----------------------------------------------------------------------
1,000,000 AZ Edl. Loan. Marketing Corp. VRDN Ser. A,
zero %, 12/1/20 VMIGI 1,000,000
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
2,870,000 (St. Luke's Hosp. Syst.), Ser. A,
10 1/8s, 11/1/15 Aaa 2,941,750
980,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa 1,145,375
7,000,000Gila Cnty., Indl. Dev. Auth. Rev. Bonds
(Asarco Inc. Project), 8.9s, 7/1/06 Baa 7,638,750
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp.
Syst. Rev. Bonds (Env. Inc. & Phoenix Hosp.
& Med. Ctr.), 7s, 7/1/16 Baa 2,302,500
5,000,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds
(Payson Regl. Med. Ctr. Inc. Project),
7.7s, 10/1/23 B/P 4,356,250
2,100,000 Phoenix, Civic Impt. Corp. Excise Tax Sr. Lien
Rev. Bonds (New City Hall Projects),
5.1s, 7/1/18 AA 1,913,625
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 4,240,000
-----------
25,538,250
ARKANSAS (0.4%)
- ----------------------------------------------------------------------
19,275,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge.
Rev. Bonds Ser. 84A, zero %, 7/1/15 AA 2,313,000
2,150,000 Pope Cnty., Poll. Control Rev. Bonds
(Arkansas Pwr. & Lt. Co. Project), 11s,
12/1/15 Baa 2,211,813
-----------
4,524,813
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
CALIFORNIA (12.1%)
- ----------------------------------------------------------------------
$4,500,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Med. Ctr.), Ser. A, 6.55s,
12/1/22 Baa $4,415,625
CA State Pub. Works Board Lease Rev. Bonds
12,000,000 (U. of CA Projects), Ser. A, 5 1/2s, 6/1/21 A 10,770,000
8,500,000 (Dept. of Corrections-State Prisons),
Ser. B, MBIA, 5 3/8s, 12/1/19 AAA 7,841,250
10,000,000 California State G. O. Bonds 5 3/4s,
3/1/19 A 9,520,477
5,000,000 Calleguas-Las Virgines Pub. Fing. Auth.
Rev. Bonds (Calleguas Muni. Wtr. Dist.
Project), FGIC, 5 1/8s, 7/1/21 AAA 4,437,500
2,500,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 BB/P 2,634,375
1,400,000 Los Angeles Regl. Arpts. Impt. Corp.
Lease VRDN (American Airlines LA
International Arpt.),Ser. A, 4 3/4s, 12/1/24Aa 1,400,000
2,400,000 Los Angeles Regl. Arpts. Impt. Corp.
Lease Rev. Bonds (United Airlines, Inc.-
Los Angeles Intl.), 6 7/8s, 11/15/12 Baa 2,457,000
12,400,000 Metropolitan Wtr. Dist Southn. Calif.
Wtrwks. IFB, 5.55s, 10/30/20 AA 11,764,500
3,615,000 Monrovia Redev. Agcy. Tax Allocation
Rev. Bonds (Central Redevelopment Project
Area- 1), Ser. B, AMBAC, 6.7s, 5/1/21 AAA 3,831,900
6,150,000 Northern CA Pwr. Agcy. Multi. Cap. Fac.
IFB MBIA, 8.899s, 8/15/17 AAA 6,711,188
Orange Cnty., Local Trans. Auth. IFB
11,200,000 6.2s, 2/14/11 AA 11,186,000
4,000,000 AMBAC, 6.2s, 2/14/11 AAA 4,140,000
22,160,000 Orange Cnty., Recv. Rev. Bonds Ser. A,
MBIA, 5 3/4s, 6/1/15 AAA 21,301,300
5,000,000 Paramount Redev. Agy. Tax Allocation Rev.
Bonds MBIA, 6 1/4s, 8/1/23 AAA 5,106,250
5,000,000 Sacramento, City Fin. Auth. Lease Rev.
Bonds Ser. A, AMBAC, 5 3/8s, 11/1/14 AAA 4,737,500
15,000,000 San Bernardino Cnty., COP (Med. Ctr. Fing.
Project), Ser. A, MBIA, 5 1/2s, 8/1/15 AAA 14,156,250
San Joaquin Hills, Trans. Corridor Agcy.
Rev. Bonds
10,000,000 (Toll Rd.), Sr. Lien, zero %, 1/1/10 BBB/P 7,187,500
10,000,000 5s, 1/1/33 BB/P 7,900,000
8,000,000 U. of California COP (UCLA Ctr./ Cogen.
Project) 5 1/2s, 11/1/17 Aa 7,370,000
8,000,000 U. of CA Rev. Bonds (Multi. Purpose
Projects), Ser. B, MBIA, 5s, 9/1/16 AAA 7,110,000
-----------
155,978,615
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
COLORADO (4.7%)
- ----------------------------------------------------------------------
$10,500,000 Arapahoe Cnty., Cap. Impt Tr. Fund Hwy.
Rev. Bonds Ser E-470, 7s, 8/31/26 Baa $10,906,875
Denver, City & Cnty. Arpt. Rev. Bonds
6,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 6,922,500
2,000,000 Ser. A, 8s, 11/15/25 Baa 2,187,500
4,000,000 Ser. A, 7 1/2s, 11/15/23 Baa 4,270,000
1,500,000 Ser. A, 7 1/4s, 11/15/25 Baa 1,584,375
12,000,000 Ser. B, 7 1/4s, 11/15/23 Baa 12,495,000
2,770,000 Ser. C, 6 3/4s, 11/15/13 Baa 2,783,850
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 5,731,250
10,000,000 Denver, City & Cnty. Arpt. Special Fac.
Rev. Bonds (United Air Lines, Inc. Project),
Ser. A, 6 7/8s, 10/1/32 Baa 10,087,500
3,000,000 Larimer Cnty., School Dist. No. 1 Rev.
Bonds (Poudre Impt.) 7s, 12/15/16 A 3,506,250
-----------
60,475,100
CONNECTICUT (0.5%)
- ----------------------------------------------------------------------
1,440,000 CT State Dev. Auth. 1st. Mtge. Rev. Bonds
(Gladeview Hlth. Care Project), 9 3/4s,
12/15/16 BB/P 1,591,200
2,320,000 CT State Dev. Auth. 1st. Mtge. Rev.
Bonds (East Hill Woods Project),
8 3/4s, 7/1/19 B/P 2,404,100
2,500,000 CT State Dev. Auth. Hlth. Care Rev.
Bonds (Alzheimers Resource Ctr.),
Ser. A, 10s, 8/15/21 AAA/P 3,215,625
-----------
7,210,925
DELAWARE (0.3%)
- ----------------------------------------------------------------------
4,000,000 DE Trans. Auth. Trans. Syst. Rev. Bonds
Ser. A, 5s, 7/1/14 AA 3,610,000
DISTRICT OF COLUMBIA (0.5%)
- ----------------------------------------------------------------------
Dist. of Columbia Rfdg. Rev. Bonds
(American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,738,000
3,350,000 5 3/4s, 9/1/13 BBB 3,019,188
-----------
6,757,188
FLORIDA (7.1%)
- ----------------------------------------------------------------------
9,325,000 FL State Brd. Ed. Cap. Outlay Pub. Ed.
Rev. Bonds Ser. B, 5 7/8s, 6/1/24 AA 9,126,844
3,000,000 FL State Tpk. Auth. Rev. Bonds Ser. A,
FGIC, 5s, 7/1/19 AAA 2,666,250
6,865,000 FL Tpk. Auth. Rev. Bonds (Department
of Transportation), Ser. A, FGIC, 5 1/2s,
7/1/21 AAA 6,504,588
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 24,789,250
Largo, Sun Coast Hlth. Syst. Rev. Bonds
3,485,000 6.3s, 3/1/20 BBB 3,153,925
1,700,000 6.2s, 3/1/13 BBB 1,561,875
2,450,000 Levy Cnty., Indl. Dev. Rev. Bonds
(National Med. Assn. Inc. Project), 10s,
7/1/19 B/P 2,443,875
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
FLORIDA (continued)
- ----------------------------------------------------------------------
Orange Cnty. Hlth. Care Facs. Auth. Rev. Bonds
$4,750,000 9.684s, 10/1/14 (acquired 4/19/95,
cost $6,261,830)++ AAA/P $ 6,264,063
5,000,000 (Orlando Hosp. Healthcare),
Ser. B, MBIA, 5s, 10/1/15 AAA 4,487,500
Palm Beach Cnty., Hlth. Fac. Auth.
Rev. Bonds
1,415,000 (JFK Med. Ctr. Inc. Project), (Refunded),
8 7/8s, 12/1/18 AAA/P 1,627,250
1,030,000 (JFK Med. Ctr. Inc. Project), 8 7/8s,
12/1/18 BBB 1,123,988
4,000,000 Palm Beach Cnty., Student Hsg. Rev.
Bonds (Palm Beach Cmnty. College),
Ser. A, 8 1/2s, 3/1/23 B/P 3,935,000
21,960,000 Tampa, Cap. Impt. Rev. Bonds Ser. B,
8 3/8s, 10/1/18 BBB 23,579,550
-----------
91,263,958
GEORGIA (2.5%)
- ----------------------------------------------------------------------
8,790,000 Atlanta, Board of Ed. COP, FGIC,
5 1/8s, 6/1/12 AAA 8,152,725
4,200,000 Atlanta, Special Purpose Fac. Rev.
Bonds (Delta Air Lines, Inc. Project),
Ser. B, 7.9s, 12/1/18 Ba 4,462,500
2,000,000 Burke Cnty. Dev. Auth. Poll. Control
VRDN (Ogelthorpe Pwr. Corp.), Ser. A,
FGIC, 4.35s, 1/1/16 VMIGI 2,000,000
De Kalb Cnty., Muni. Hsg. Auth. Rev.
Bonds (Briarcliff Park Apts. Project)
3,700,000 Ser. A, 7 1/2s, 4/1/17 A/P 3,783,250
1,500,000 Ser. B, 10s, 4/1/17 BB/P 1,560,000
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev.
Bonds (Kawneer Co. Inc. Project),
Ser. 1984, 9 1/2s, 6/1/15 BBB/P 2,167,500
10,000,000 Rockdale Cnty., Dev. Auth. Solid Waste
Disp. Rev. Bonds (Visay Paper Inc. Project),
7.4s, 1/1/16 B/P 10,262,500
-----------
32,388,475
ILLINOIS (4.2%)
- ----------------------------------------------------------------------
9,800,000 Chicago, O'Hare Intl. Arpt. Rev.
Bonds (Senior Lien), Ser. C-1, MBIA, 5s,
1/1/11 AAA 9,224,250
Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (United Air Lines, Inc.)
3,839,000 Ser. B, 8.95s, 5/1/18 Baa 4,390,856
1,865,000 Ser. 84A, 8.85s, 5/1/18 Baa 2,140,088
7,375,000 Ser. 84B, 8.85s, 5/1/18 Baa 8,462,813
2,500,000 IL Dev. Fin. Auth. Retirement Hsg.
Rev. Bonds (Regency Park-Lincolnwood),
Ser. A, 10 1/4s, 4/15/19+ B/P 1,875,000
IL Dev. Fin. Auth. Rev. Bonds
2,040,000 (Cmnty. Rehab. Providers Fac.), 8 3/4s,
7/1/11 BBB/P 2,193,000
1,405,000 (Cmnty. Rehab. Providers Fac.), 8 1/4s,
8/1/12 BBB/P 1,454,175
1,945,000 (Mercy Hsg. Corp. Project), 7s, 8/1/24 Baa 2,015,506
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
ILLINOIS (continued)
- ----------------------------------------------------------------------
IL Edl. Fac. Auth. Rev. Bonds
$2,035,000 (Steppenwolf Theatre Project), 9.65s,
7/1/19 BB/P $ 2,146,925
6,000,000 (Northwestern U.), 5 1/2s, 12/1/13 AA 5,850,000
3,000,000 IL Hlth. Fac. Auth. Rev. Bonds
(Grant Hosp. of Chicago), 7 1/2s, 6/1/13 AAA 3,176,250
10,000,000 Robbins Res. Recvy. Rev. Bonds (Res. Rcvy.
Partners), Ser. A, 9 1/4s, 10/15/14 B/P 10,750,000
-----------
53,678,863
INDIANA (1.7%)
- ----------------------------------------------------------------------
East Chicago, Indl. Poll. Control Rev. Bonds
2,160,000 (Inland Steel Co. Project No. 9), 10s,
11/1/11 Ba 2,303,100
3,000,000 (Inland Steel Co. Project No. 11), 7 1/8s,
6/1/07 Ba 3,142,500
1,947,909 Hammond, Indl. Port Auth. COP 9.65s,
6/1/14 BB/P 2,062,349
3,000,000 IN U. Rev. Student Fee Rev. Bonds Ser. K,
FGIC, 6s, 8/1/15 AA 3,060,000
11,000,000 Indianapolis Indl. Arpt. Auth. Special
Fac. Rev. Bonds (Federal Express Corp. Project),
7.1s, 1/15/17 BBB 11,632,500
-----------
22,200,449
IOWA (0.3%)
- ----------------------------------------------------------------------
4,000,000 IA Fin. Auth. Hlth. Care Fac. Rev.
Bonds (Mercy Hlth. Initiatives Project),
9.95s, 7/1/19 B/P 4,000,000
LOUISIANA (4.5%)
- ----------------------------------------------------------------------
Beauregard, Parish Rev. Bonds
(Boise Cascade Corp. Project)
4,000,000 7 3/4s, 6/1/21 Baa 4,320,000
2,200,000 6 1/8s, 3/1/23 Baa 2,123,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,882,500
1,435,539 LA Pub. Fac. Auth. 1st Mtge. Rev.
Bonds (Emily Morten Foundation), 10 1/4s,
5/1/19 B/P 1,527,055
500,000 LA State Recvy. Dist. Sales Tax VRDN,
FGIC, 4 3/4s, 7/1/97 VMIGI 500,000
5,000,000 Lake Charles, Harbor & Term. Dist. Port
Facs. Rev. Bonds (Trunkline Co. Project),
7 3/4s, 8/15/22 Baa 5,575,000
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
1,000,000 14 1/2s, 1/1/02 BB 1,088,750
2,000,000 7 1/2s, 7/1/13 BB 2,050,000
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 8,845,525
6,995,000 (Union Carbide Project), 7.35s, 11/1/22 BBB 7,405,956
2,000,000 St. James Parish, Solid Waste Disp. Rev.
Bonds (Kaiser Aluminum Project), 7 3/4s,
8/1/22 B/P 2,095,000
W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf States Utils. Co. Project)
3,000,000 9s, 5/1/15 BB 3,375,000
4,000,000 7.7s, 12/1/14 BB 4,245,000
1,300,000 3.41s, 12/1/15 A 1,300,000
8,000,000 Ser. C, 7s, 11/1/15 Ba 8,130,000
-----------
57,462,786
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MARYLAND (0.2%)
- ----------------------------------------------------------------------
$1,955,000 Denton, 1st. Mtge. Rev. Bonds
(Wesleyan Hlth. Care Ctr. Project),
10 1/4s, 4/1/20 B/P $ 2,057,638
MASSACHUSETTS (3.9%)
- ----------------------------------------------------------------------
2,475,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.),
10s, 1/1/20 BB/P 2,741,063
3,500,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Beth Israel Hosp.) AMBAC, 7.863s, 7/1/25 AAA 3,508,750
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,970,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba 2,981,138
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s,
7/1/04 Baa 2,849,275
4,000,000 (Cooley Dickinson Hosp. Issue-A),
7 1/8s, 11/15/18 BB/P 3,855,000
MA State Indl. Fin. Agcy. Res. Recvy.
Rev. Bonds (Southeastern MA Project)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB/P 3,360,000
13,000,000 Ser. A, 9s, 7/1/15 BB/P 14,511,250
MA State Indl. Fin. Agcy. Rev. Bonds
3,900,000 (Atlanticare Med. Ctr.), Ser. A,
10 1/8s, 11/1/14 BB/P 3,588,000
1,000,000 (Atlanticare Med. Ctr.), Ser. B,
10 1/8s, 11/1/14 BB/P 920,000
1,540,000 (1st. Mtge. Pioneer Valley Living Ctr.),
7s, 10/1/20 B/P 1,486,100
1,019,314 (1st. Mtge. Pioneer Valley Living Ctr.),
zero %, 10/1/20 B/P 1,274
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 4,457,188
2,390,000 MA State Indl. Fin. Agcy. Tunnel Rev.
Bonds (MA Tpk.) 9s, 10/1/20 BBB/P 2,614,063
3,000,000 MA Wtr. Resource Auth. Rev. Bonds
Ser. A, 6 1/2s, 7/15/21 AAA 3,352,500
-----------
50,225,601
MICHIGAN (7.7%)
- ----------------------------------------------------------------------
343,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig.
Rev. Bonds (Glacier Hills Inc. Project),
8 3/8s, 1/15/19 B/P 352,004
Detroit G.O Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 BBB 2,575,000
1,000,000 Ser. A, 5.7s, 4/1/01 BBB 1,005,000
500,000 Ser. A, 5.45s, 4/1/00 BBB 502,500
3,000,000 Ser. B, 6 1/4s, 4/1/10 BBB 2,985,000
4,000,000 Ser. B, 6 1/4s, 4/1/08 BBB 4,005,000
1,600,000 Detroit, Econ. Dev. Corp. Ltd. Oblig.
Rev. Bonds (MI Hlth. Care Corp. Project),
9.1s, 12/1/09 (In default)+ B/P 608,000
4,395,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20
(In default)+ Caa 1,670,100
5,770,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds Ser. A, 8.72s, 5/1/21 BBB/P 7,162,013
Greater Detroit Resource Recvy. Auth. Rev.
Bonds
6,000,000 Ser. E, 9 1/4s, 12/13/08 BBB 6,217,500
4,030,000 Ser. G, 9 1/4s, 12/13/08 BBB 4,176,088
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MICHIGAN (CONTINUED)
- ----------------------------------------------------------------------
$5,530,000 Livonia, Pub. Sch. Dist. Rev. Bonds FGIC,
5 1/2s, 5/1/14 AAA $ 5,322,625
MI State Hosp. Fin. Auth. Rev. Bonds
1,330,000 (Garden City Hosp.) 8 1/2s, 9/1/17 BBB 1,418,113
670,000 (Garden City Project), 8 1/2s, 9/1/17 AAA 813,213
2,760,000 (Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 BB 2,697,900
4,500,000 MI State Hsg. Dev. Auth. Rental
Hsg. Rev. Bonds Ser. A, FSA, 7.55s, 4/1/23AAA 4,781,250
10,000,000 MI State Strategic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr. Station Project),
7 1/2s, 1/1/21 BB/P 10,075,000
MI State Strategic Fund Ltd. Oblig.
Rev. Bonds
10,500,000 (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 10,040,625
3,000,000 (Mercy Svcs. for Aging Project),
9.4s, 5/15/20 BBB/P 3,277,500
10,000,000 MI, Strategic Fund Poll. Control Rev. Bonds
(General Motors Corp.), 6.2s, 9/1/20 AAA 10,100,000
11,000,000 Midland Cnty., Econ. Dev. Corp. Poll.
Control Rev. Bonds Ser. B, 9 1/2s, 7/23/09B/P 11,893,750
1,500,000 Monroe Cnty., Poll. Control Rev. Bonds
(Detroit Edison Co.), Ser. A, 10 1/2s,
12/1/16 Baa 1,560,000
2,250,000 Pontiac Hosp. Fin. Auth. Rev. Bonds
6s, 8/1/23 Baa 1,937,813
3,400,000 Wayne Charter Cnty., Special Arpt. Fac.
Rev. Bonds (Republic Air Lines, Inc. Project),
10 3/8s, 12/1/15 B/P 3,519,000
-----------
98,694,994
MINNESOTA (1.4%)
- ----------------------------------------------------------------------
3,500,000 Bass Brook, Poll. Control, Rev. Bonds
(Pwr. & Lt. Co. Project), 6s, 7/1/22 A 3,408,125
1,970,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc. Project),
10 1/4s, 9/1/20 BB/P 2,280,275
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp. Project),
7.2s, 10/1/24 Baa 5,368,750
2,500,000 St Louis Pk., Hlth. Care Fac.
Rev. Bonds (Hlth. Syst. Project), Ser. A,
AMBAC, 5.2s, 7/1/16 AAA 2,300,000
5,000,000 St. Paul, Hsg. & Redev. Auth. Hosp.
Rev. Bonds (Healtheast Project), Ser.A,
6 5/8s, 11/1/17 Baa 4,906,250
-----------
18,263,400
MISSISSIPPI (1.3%)
- ----------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
2,400,000 (Middle South Energy, Inc.), Ser. A,
9 1/2s, 12/1/13 BBB/P 2,742,000
8,455,000 (Middle South Energy, Inc.), Ser. C,
9 7/8s, 12/1/14 BBB/P 9,744,388
4,380,000 (Syst. Energy Resources Inc.), 9 1/2s,
4/1/16 Baa 4,604,475
-----------
17,090,863
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MISSOURI (0.5%)
- ----------------------------------------------------------------------
$6,775,000 MO State Hlth. & Edl. Fac. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 AA $7,147,625
NEBRASKA (0.5%)
- ----------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
4,700,000 Ser. 2, GNMA Coll., 11.253s, 9/10/30 AAA 5,369,750
1,400,000 Ser. B, GNMA Coll., 10.557s, 3/15/22 AAA 1,571,500
-----------
6,941,250
NEVADA (0.7%)
- ----------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A, 7.3s, 9/1/27Baa 8,871,875
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 3,182,713
4,000,000 (1st. Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P 4,085,000
1,955,000 (Riverwoods 1st. Mtge. at Exeter),
8s, 3/1/01 B/P 2,013,650
2,000,000 (1st. Mtge. River Woods at Exeter),
8s, 3/1/00 B/P 2,045,000
-----------
11,326,363
NEW JERSEY (2.3%)
- ----------------------------------------------------------------------
3,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac.
Rev. Bonds (Vineland Cogeneration L.P. Project),
7 7/8s, 6/1/19 BB/P 3,213,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s,
7/1/20 Baa 3,210,000
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.),
FSA, 6 3/4s, 7/1/19 AAA 6,502,500
3,000,000 (Union Hosp./Mega Care Inc.),
5 7/8s, 7/1/14 Baa 2,763,750
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy.
Rev. IFB Ser. I, 9.975s, 11/1/07
(acquired 2/11/93, cost $4,416,240)++ AAA/P 4,260,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds Ser. C,
MBIA, 6 1/2s, 1/1/16 AAA 9,888,750
-----------
29,838,750
NEW MEXICO (0.2%)
- ----------------------------------------------------------------------
3,000,000 Farmington, Poll. Control Rev. Bonds
(Arizona Public Services Co.),
Ser. B, 3 1/2s, 9/1/24 A 3,000,000
NEW YORK (10.6%)
- ----------------------------------------------------------------------
3,000,000 Albany Muni. Wtr. Fin. Auth. Wtr. & Swr.
Sys. Rev. Bonds Ser. A, FGIC, 5 1/2s, 12/1/22 AAA 2,861,250
Metro. Trans. Auth. Svcs. Contract
Fac. Rev. Bonds
5,000,000 (Trans. Fac.), Ser. 7, 5 5/8s, 7/1/16 Baa 4,650,000
2,500,000 (Commuter Fac.), Ser. O, 5 1/2s, 7/1/17 Baa 2,318,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW YORK (CONTINUED)
- ----------------------------------------------------------------------
$2,760,000 NY City G.O. Bonds Ser. F, 8 1/4s, 11/15/16AAA $3,332,700
8,000,000 NY City, Hlth. & Hosp. Corp. Rev. Bonds
Ser. A, 6s, 2/15/05 Baa 7,810,000
10,000,000 NY City, Muni. Wtr. Fin. Wtr. & Swr.
System Rev. Bonds MBIA, 5 5/8s, 6/15/19 AAA 9,737,500
NY State Dorm Auth. Rev. Bonds
6,750,000 (State U. Edl. Facs.) Ser. A, 5 1/2s,
5/15/10 BBB 6,395,625
3,750,000 Ser. A, 5 3/8s, 5/15/16 Baa 3,365,625
17,075,000 (Court Fac. Lease) Ser. A, 5 1/4s, 5/15/21Baa 14,769,875
3,500,000 (Upstate Cmnty. Colleges), Ser. A, 5.7s,
7/1/21 Baa 3,268,125
10,000,000 (City U.), Ser. F, FGIC, 5s, 7/1/20 AAA 8,725,000
4,500,000 NY State G.O.Bonds 5 5/8s, 3/1/13 A 4,410,000
1,800,000 NY State Local Govt. Assistance Corp.
Rev. Bonds Ser. D, 7s, 4/1/18 AAA 2,067,750
NY State Med. Care Facs. Fin. Agcy. Rev. Bonds
11,125,000 Ser. A, AMBAC, 6 1/2s, 8/15/29 AAA 11,611,719
5,000,000 Ser. F, FGIC, 5 1/4s, 2/15/19 AAA 4,568,750
3,545,000 (Mental Hlth Svcs.), Ser. D, FGIC,
5 1/4s, 8/15/23 AAA 3,186,069
2,000,000 (Local Hwy. & Bridge), MBIA, 5 3/4s, 4/1/13AAA 1,982,500
NY State Thruway Auth Svc. Contract Rev. Bonds
10,075,000 (Local Hwy. & Bridge), 5 1/4s, 4/1/13 Baa 9,105,281
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
4,750,000 Ser. A, 5 1/2s, 1/1/14 Baa 4,393,750
5,000,000 Ser. A, 5 1/4s, 1/1/21 Baa 4,337,500
2,800,000 Ser. A, FSA, 5 1/4s, 1/1/14 AAA 2,597,000
3,000,000 MBIA, 5 3/8s, 1/1/12 AAA 2,865,000
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Swr.
Fac. Rev. Bonds (Bristol-Meyers Squibb Co.
Project), 5 3/4s, 3/1/24 AAA 5,006,250
Triboro Bridge & Tunnel Auth. G.O. Bonds
10,000,000 Ser. A, MBIA, 5.2s, 1/1/20 AAA 9,125,000
5,000,000 MBIA, 4 3/4s, 1/1/19 AAA 4,287,500
-----------
136,778,519
NORTH CAROLINA (1.9%)
- ----------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev. Bonds
5,250,000 AMBAC, 6s, 1/1/18 AAA 5,361,563
4,725,000 Ser. B, 6s, 1/1/22 A 4,482,844
3,500,000 Ser. D, 5.6s, 1/1/16 A 3,163,125
3,000,000 Ser. G, 5 3/4s, 12/1/16 A 2,756,250
3,000,000 FGIC, 7.318s, 1/1/25 (acquired 3/3/93,
cost $3,116,820)++ AAA 3,026,250
6,000,000 NC Muni. Pwr. Agy. (No 1 Catawba Elec.)
IFB MBIA, 5.6s, 1/1/20 AAA 5,355,000
-----------
24,145,032
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OHIO (2.3%)
- ----------------------------------------------------------------------
$4,500,000 Dayton, Special Fac. Rev. Bonds
(Emery Air Freight Corp.), Ser. A,
12 1/2s, 10/1/09 B/P $5,270,625
1,385,000 OH Hsg. Fin. Agy. Single Fam. Mtge.
Rev. Bonds Ser. B, GNMA Coll.,
8 1/4s, 12/15/19 AAA 1,455,981
14,000,000 OH State Air Quality Dev. Auth.
Rev. Bonds (Poll. Ctl. OH Edison),
Ser. B, AMBAC, 5 5/8s, 11/15/29 AAA 13,335,000
4,155,000 OH State Wtr. Dev. Auth. Rev. Bonds
(Mid-American Waste Syst. Inc. Project),
7 3/4s, 9/1/07 BB/P 4,051,125
5,000,000 Ohio State Wtr. Dev. Auth. Solid Waste Disp.
Rev. Bonds (North Star Broken Hill Steel Project),
6.45s, 9/1/20 A 5,050,000
-----------
29,162,731
OKLAHOMA (0.8%)
- ----------------------------------------------------------------------
6,995,000 Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.), Ser. A,
7 5/8s, 6/1/17 BBB 7,633,294
2,000,000 Tulsa, Muni. Arpt. Rev. Bonds
(American Airlines, Inc.), 7 3/8s, 12/1/20Baa 2,087,500
-----------
9,720,794
PENNSYLVANIA (6.4%)
- ----------------------------------------------------------------------
3,750,000 Beaver Cnty. Indl. Dev. Poll. Control Rev.
Bonds (Toledo Edison Co. Project),
7 5/8s, 5/1/20 Ba 3,862,500
4,160,000 Dauphin Cnty., Gen. Auth. Hosp. Rev.
Bonds (Northwest Med. Ctr. Project),
8 5/8s, 10/15/13 Ba 4,409,600
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB/P 1,174,100
3,000,000 Erie, Higher Ed. Bldg. Auth. College
Rev. Bonds (Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB 2,808,750
3,525,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s,
1/1/02 BBB/P 3,414,844
5,000,000 Harrisburg, Pkg. Auth. Rev. Bonds Ser.
H, AMBAC, 5 1/8s, 8/1/16 AAA 4,606,250
1,500,000 Lehigh Cnty. Indl. Dev. Auth. Poll.
Control IFB (Pennsylvania Pwr. & Light
Co. Project), 8.362s, 9/1/29
(acquired 6/20/95, cost $1,655,190)++ AAA/P 1,625,625
McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project)
1,200,000 6 1/2s, 7/1/08 Baa 1,188,000
7,500,000 6 1/4s, 7/1/03 Baa 7,453,125
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (continued)
- ----------------------------------------------------------------------
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project)
$3,500,000 Ser. B, 8 3/8s, 11/1/11 Ba $3,648,750
2,230,000 Ser. B, 7 1/2s, 11/1/12 Ba 2,190,975
15,000,000 PA Economic Dev. Fing. Auth. Recycling
Rev. Bonds (Ponderosa Fibres Project),
Ser. A, 9 1/4s, 1/1/22 B/P 15,843,750
4,000,000 PA Economic Dev. Fing. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. E, 8.05s, 12/1/15 BBB 4,235,000
2,000,000 PA State Higher Ed. Assistance Agcy.
IFB Ser. B, MBIA, 10.342s, 3/1/20 AAA 2,217,500
10,000,000 PA State Rev. Bonds Ser. 2, 5 1/4s,
6/15/13 AA 9,450,000
Philadelphia Gas Works Bonds
3,000,000 Ser. 13, 7.7s, 6/15/21 AAA 3,517,500
6,000,000 FSA, 5.94s, 8/1/21 (acquired 1/24/94 cost,
$5,621,520)++ AAA 4,875,000
3,500,000 WA Cnty., Hosp. Auth. Rev. Bonds
(Canonsburg Gen. Hosp. Project), 7.35s,
6/1/13 BB/P 3,447,500
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st.
Mtge. Rev. Bonds (AHF/Central States Inc.
Project), 10 1/4s, 11/1/19 B/P 1,746,000
-----------
81,714,769
PUERTO RICO (0.6%)
- ----------------------------------------------------------------------
8,500,000 Cmnwlth. of Puerto Rico G.O. Bonds 7.384s,
7/1/24 (acquired 6/12/95, cost $8,912,500)++A 8,223,750
RHODE ISLAND (0.4%)
- ----------------------------------------------------------------------
5,000,000 RI State Pub. Bldg. Auth. IFB (Pub. Projects),
AMBAC, 5.853s, 2/1/02 AAA 5,018,750
SOUTH CAROLINA (1.2%)
- ----------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev. VRDN
(Hoover Group Inc. Project), 8 1/2s,
11/1/02 VMIGI 8,627,500
3,040,000 Lee Cnty., Indl. Rev. Bonds
(Mid-American Waste Syst. Project),
7s, 9/15/13 B/P 2,568,800
4,405,000 Piedmont, Muni. Pwr. Agcy. Rev. Bonds
(SC Elec. Project), Ser. A, FGIC,
6 1/2s, 1/1/16 AAA 4,801,450
-----------
15,997,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
TENNESSEE (1.8%)
- ----------------------------------------------------------------------
Chattanooga, Hlth. Edl. & Hsg. Fac. Board
1st. Mtge. Rev. Bonds
$3,645,000 (Cambridge Hall Project), 8 5/8s, 2/1/13 B/P $3,645,000
8,500,000 IVRC-Bristol, TN Mem. Hosp. Rev.
Bonds FGIC, 14.1s, 3/1/14 (acquired
6/16/95, cost $9,366,660)++ AAA 9,169,375
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 7,367,500
2,500,000 Metropolitan Nashville Arpt. Auth.
Special Fac. Rev. Bonds (American
Airlines, Inc. Project), 9 7/8s, 10/1/05 Baa 2,606,250
-----------
22,788,125
TEXAS (5.4%)
- ----------------------------------------------------------------------
Austin, Util. Syst. Rev. Bonds FGIC, zero %
20,000,000 5/15/18 AAA 5,100,000
12,500,000 5/15/17 AAA 3,375,000
1,910,000 Bell Cnty., Hlth. Fac. Dev. Corp. Rev.
Bonds (Adv. Living Tech. Inc. Project),
Ser. A, 10 1/2s, 6/15/18 B/P 1,661,700
385,000 Central TX Hsg. Fin. Corp., Single Fam.
Mtge. Rev. Bonds FGIC, 10s, 10/15/07 AAA 408,581
6,000,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt.
Rev. Bonds (American Airlines, Inc.),
7 1/4s, 11/1/30 Baa 6,285,000
900,000 Gulf Coast, Waste Disp. Auth. Poll.
Control Rev. Bonds (Monsanto Co. Project),
11 1/2s, 7/1/01 A 943,875
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
1,267,000 Ser. A, Verex Mtg. Ins., 10.87s, 2/15/16 A 1,286,005
1,635,000 10s, 9/15/14 B 1,632,956
886,355 Maverick Cnty., COP (Jail Facility),
9.1s, 6/15/10 CCC/P 531,813
North Central TX Hlth. Fac. Dev. Corp.
Hosp. Rev. Bonds
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 8.08s,
5/15/08 AA 3,243,750
4,000,000 (Presbyterian Hlth. Care Syst.), Ser. C,
MBIA, 8.795s, 6/15/21 AAA 4,280,000
1,100,000 (Presbyterian Med. Ctr.), Ser. D, MBIA,
4 3/4s, 12/1/15 AAA 1,100,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
TEXAS (CONTINUED)
- ----------------------------------------------------------------------
North Central TX Hlth. Fac. Dev. Corp.
Hosp. Rev. Bonds
$3,000,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB/P $3,138,750
7,500,000 (U. Med. Ctr. Project), 7 3/4s, 4/1/17 BBB/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 3,802,500
6,800,000 Ser. B, 6 1/8s, 10/1/13 Ba 5,780,000
2,000,000 Southeast TX Multi-Fam. Hsg. Fin.
Corp. Rev. Bonds (Bayou Pk. Village Apt.
Project), Ser. B, 10.17s, 8/1/16 B/P 2,032,500
Southeast TX Multi-Fam. Hsg. Fin. Corp.
Rev. Bonds
4,000,000 (Pavilion Place Apts. Project),
Ser. A, 7.6s, 7/1/16 BBB/P 3,975,000
1,600,000 (Promenade Place Apts. Project),
Ser. B, 10.175s, 8/1/16 B/P 1,614,000
12,700,000 Texas State G.O. Bonds Ser.C,
5 1/2s, 4/1/20 AA 12,112,625
-----------
70,019,680
VIRGINIA (0.4%)
- ----------------------------------------------------------------------
2,875,000 Chesapeake, Pub. Imp. G.O. 5s, 5/1/14 AA 2,637,813
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp.
Fac. IFB FGIC, 9.114s, 8/15/23 AAA 2,167,500
-----------
4,805,313
WASHINGTON (3.6%)
- ----------------------------------------------------------------------
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev.
Bonds (Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,217,500
12,000,000 Port Walla Walla Pub. Corp. Solid Waste
Recycling Rev. Bonds (Ponderosa Fibres
Project), 9 1/8s, 1/1/26 B/P 12,270,000
5,425,000 Seattle, Wtr. Syst. Rev. Bonds 5 1/2s,
6/1/18 AA 5,187,656
10,600,000 WA State Hlth. Care Facs. Auth. Rev.
Bonds (Swedish Hosp. Med. Center),
AMBAC, 6.3s, 11/15/22 AAA 10,785,500
WA State Pub. Pwr. Supply Syst. Rev. Bonds
10,650,000 (Nuclear Project No. 1), Ser. A,
MBIA, 5.7s, 7/1/17 AAA 10,144,125
5,000,000 (Nuclear Project No. 3), Ser. B,
MBIA, 7 1/8s, 7/1/16 AAA 5,693,750
-----------
46,298,531
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
WEST VIRGINIA (1.3%)
- ----------------------------------------------------------------------
Marion Cnty., Cmnty. Solid Waste Disp.
Fac. Rev. Bonds (American Pwr. Paper Recycling Project)
$3,000,000 9s, 12/1/11 B/P $3,011,250
9,000,000 8 1/4s, 12/1/11 B/P 8,572,500
5,000,000 WV State Pkwy. Economic Dev. & Tourism
Auth. IFB, FGIC, 7.119s, 5/16/19 AAA 4,812,500
-----------
16,396,250
WISCONSIN (0.1%)
- ----------------------------------------------------------------------
1,663,000 WI Hsg. & Econ. Dev. Auth. Home Ownership
IFB 9.449s, 10/25/22 AA 1,781,489
-----------
TOTAL INVESTMENTS (cost $1,236,049,776) ***$1,265,125,895
- ----------------------------------------------------------------------
<PAGE>
[FN]
NOTES
* Percentages indicated are based on net assets of $1,286,422,006,
which correspond to a net asset value per class A, class B and
class M share of $8.90, $8.89 and $8.90, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at September 30, 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 September 30, 1995.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated.
++ Restricted as to public resale. At the date of acquisition these
securities were valued at cost. There were no outstanding
securities of the same class as those held. Total market value of
restricted securities owned at September 30, 1995 was $37,344,063
or 2.9% of net assets.
+ Non-income-producing security.
*** The aggregate identified cost for federal income tax purposes is
$1,236,279,378, resulting in gross unrealized depreciation and
gross unrealized appreciation of $20,861,892 and $49,708,409,
respectively, or net unrealized appreciation of $28,846,517.
The rates shown on IFB's, which are securities paying variable
interest rates that vary inversely to changes in the market
interest rates and VRDN's, are the current interest rates at
September 30, 1995, which are subject to change based on the
terms of the security.
The fund had the following insurance concentration greater than
10% at September 30, 1995 (as a percentage of net assets):
MBIA 11.7%
The fund had the following industry group concentrations greater
than 10% at September 30, 1995 (as a percentage of net assets):
Utilities 21.1%
Hospitals/Health Care 19.1%
Transportation 13.2
The table below shows the percentages of the fund's investment on
September 30, 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
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fundOs net assets fundOs net assets
- ----------------------------------------------------------------------
"AAA"/"Aaa" 28.1 1.4
"AA"/"Aa" 8.7 --
"A"/"A" 4.8 0.3
"BBB"/"Baa" 25.1 4.7
"BB"/"Ba" 4.5 5.8
"B"/"B" 0.1 13.8
"Caa"/"CCC" 0.1 --
"VMIG1" 0.9 --
----- -----
72.3 26.0
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,236,049,776) (Note 1) $1,265,125,895
- ----------------------------------------------------------------------
Cash 150,887
- ----------------------------------------------------------------------
Interest and other receivables 25,685,632
- ----------------------------------------------------------------------
Receivable for shares of the fund sold 9,718,363
- ----------------------------------------------------------------------
Receivable for securities sold 32,746,100
- ----------------------------------------------------------------------
TOTAL ASSETS $1,333,426,877
LIABILITIES
- ----------------------------------------------------------------------
Payable for securities purchased $42,110,513
- ----------------------------------------------------------------------
Payable for shares of the fund repurchased 991,270
- ----------------------------------------------------------------------
Distributions payable to shareholders 1,007,145
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,852,153
- ----------------------------------------------------------------------
Payable for administrative services (Note 2) 6,746
- ----------------------------------------------------------------------
Payable for distribution fees (Note 2) 840,437
- ----------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 108,657
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,505
- ----------------------------------------------------------------------
Other accrued expenses 86,445
- ----------------------------------------------------------------------
TOTAL LIABILITIES 47,004,871
- ----------------------------------------------------------------------
NET ASSETS $1,286,422,006
- ----------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------
Paid-in capital (Note 1 and 4) $1,298,543,807
- ----------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (561,038)
- ----------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (40,636,882)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 29,076,119
- ----------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,286,422,006
- ----------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
Net asset value and redemption price of class A shares ($826,270,765
divided by 92,846,571 shares) $8.90
- ----------------------------------------------------------------------
Offering price per share (100/95.25 of $8.90)* $9.34
- ----------------------------------------------------------------------
Net asset value and offering price of class B shares
($454,747,207 divided by 51,154,459 shares)+ $8.89
- ----------------------------------------------------------------------
Net asset value and redemption price of class M shares
($5,404,034 divided by 607,412) $8.90
- ----------------------------------------------------------------------
Offering price per share of class M (100/96.75) of $8.90** $9.20
- ----------------------------------------------------------------------
<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.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Six months ended September 30, 1995 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $43,908,160
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) 3,719,689
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 449,196
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,792
- ----------------------------------------------------------------------
Reports to shareholders 58,760
- ----------------------------------------------------------------------
Auditing 11,147
- ----------------------------------------------------------------------
Legal 28,803
- ----------------------------------------------------------------------
Postage 75,399
- ----------------------------------------------------------------------
Administrative services (Note 2) 13,796
- ----------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,039,365
- ----------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,886,350
- ----------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 8,098
- ----------------------------------------------------------------------
Other 3,735
- ----------------------------------------------------------------------
TOTAL EXPENSES 7,314,130
- ----------------------------------------------------------------------
FEES PAID INDIRECTLY (NOTE 2) (69,259)
- ----------------------------------------------------------------------
NET EXPENSES 7,244,871
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 36,663,289
- ----------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,586,734
- ----------------------------------------------------------------------
Net realized loss on written options (Notes 1 and 3) (299,043)
- ----------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (4,199,351)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments, written options and
futures contracts during the period 25,598,215
- ----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 22,686,555
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $59,349,844
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 MARCH 31
- ----------------------------------------------------------------------
1995* 1995
- ----------------------------------------------------------------------
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $36,663,289 $74,642,060
- ----------------------------------------------------------------------
Net realized loss on investment transactions(2,911,660) (31,374,804)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 25,598,215 32,173,688
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 59,349,844 75,440,944
- ----------------------------------------------------------------------
Distributions to shareholders
- ----------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------
Class A (24,778,747) (51,832,348)
- ----------------------------------------------------------------------
Class B (11,902,232) (22,403,596)
- ----------------------------------------------------------------------
Class M (88,382) (11,827)
- ----------------------------------------------------------------------
Increase from capital shares transactions
(Note 4) 6,983,690 34,377,706
- ----------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 29,564,173 35,570,879
NET ASSETS
- ----------------------------------------------------------------------
Beginning of period 1,256,857,833 1,221,286,954
- ----------------------------------------------------------------------
END OF PERIOD (including distributions in
excess of net investment income of
$561,038 and $454,966, respectively) $1,286,422,006 $1,256,857,833
- ----------------------------------------------------------------------
<FN>
* Unaudited.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD
DECEMBER 1, 1994
SIX MONTHS (COMMENCEMENT SIX MONTHS
ENDED OF OPERATIONS) ENDED
SEPTEMBER 30 TO MARCH 31 SEPTEMBER 30 YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
- --------------
1995* 1995 1995* 1995 1994
- --------------------------------------------------------------------------------
- --------------
CLASS M CLASS B
- --------------------------------------------------------------------------------
- --------------
NET ASSET VALUE,
BEGINNING OF PERIOD $8.75 $8.21 $8.74 $8.73 $9.12
- --------------------------------------------------------------------------------
- --------------
INVESTMENT OPERATIONS
Net investment income .25 .16 .24 .48 .44
Net realized and unrealized
gain (loss) on investments .15 .54 .15 .01 (.32)
- --------------------------------------------------------------------------------
- --------------
TOTAL FROM INVESTMENT
ACTIVITIES .40 .70 .39 .49 .12
- --------------------------------------------------------------------------------
- --------------
LESS DISTRIBUTIONS:
From net investment income (.25) (.16) (.24) (.48) (.44)
In excess of net investment
income -- -- -- -- (.01)
From net realized gain on
investments -- -- -- -- --
Net realized gain on
investments -- -- -- -- (.06)
- --------------------------------------------------------------------------------
- --------------
TOTAL DISTRIBUTIONS (.25) (.16) (.24) (.48) (.51)
NET ASSET VALUE,
END OF PERIOD $8.90 $8.75 $8.89 $8.74 $8.73
- --------------------------------------------------------------------------------
- --------------
TOTAL INVESTMENT
RETURN AT NAV (%)(B) 4.63(C) 8.58(C) 4.48(C) 5.94 1.52
- --------------------------------------------------------------------------------
- --------------
NET ASSETS, END OF PERIOD
(in thousands) $5,404 $1,224 $454,747 $427,086 $369,006
- --------------------------------------------------------------------------------
- --------------
Ratio of expenses to
average net assets (%)(a) .58(c) .41(c) .77(c) 1.55 1.54
- --------------------------------------------------------------------------------
- --------------
Ratio of net investment
income to average net assets (%)2.71(c) 1.78(c) 2.68(c) 5.66 5.02
- --------------------------------------------------------------------------------
- --------------
Portfolio turnover (%) 27.06(c) 62.84 27.06(c) 62.84 47.08
- --------------------------------------------------------------------------------
- --------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C>
For the period
January 4, 1993
(commencement Six months
of operations ended
to March 31 September 30 Year ended March 31
- --------------------------------------------------------------------------------
- --------------
1993 1995* 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
- --------------
Class A
- --------------------------------------------------------------------------------
- --------------
$8.95 $8.74 $8.73 $9.12 $8.65 $8.36 $8.47
- --------------------------------------------------------------------------------
- --------------
.10 .26 .54 .55 .63 .67 .68
.17 .16 -- (.34) .51 .31 (.10)
- --------------------------------------------------------------------------------
- --------------
.27 .42 .54 .21 1.14 .98 .58
- --------------------------------------------------------------------------------
- --------------
(.10) (.26) (.53) (.54) (.62) (.68) (.69)
-- -- -- -- -- -- --
-- -- -- (.01) (.05) (.01) --
-- -- -- -- -- -- --
- --------------------------------------------------------------------------------
- --------------
(.10) (.26) (.53) (.60) (.67) (.69) (.69)
- --------------------------------------------------------------------------------
- --------------
$9.12 $8.90 $8.74 $8.73 $9.12 $8.65 $8.36
- --------------------------------------------------------------------------------
- --------------
3.05(c) 4.90(c) 6.55 2.15 13.67 12.11 7.16
- --------------------------------------------------------------------------------
- --------------
$95,175 $826,271 $828,548 $852,281 $638,971 $324,384 $244,508
- --------------------------------------------------------------------------------
- --------------
.30(c) .47(c) .95 .97 1.05 .91 .95
- --------------------------------------------------------------------------------
- --------------
1.21(c) 3.00(c) 6.28 5.73 6.83 7.80 8.08
- --------------------------------------------------------------------------------
- --------------
31.05 27.06(c) 62.84 47.08 31.05 44.34 49.80
- --------------------------------------------------------------------------------
- --------------
<FN>
* Unaudited.
(a) The ratio of expenses to average net assets for the year ended
September 30, 1995 includes amounts paid through brokerage service and
expense offset arrangements. Prior period ratios exclude these amounts.
(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
September 30, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks as high a level of current income exempt from federal
income tax as Putnam Investment Management, Inc. ("Putnam Managment"),
the fund's manager, a wholly owned subsidiary of Putnam Invesments,
Inc., 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. 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.
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.
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. 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, original issue, stepped-coupon bonds and payment
in kind bonds is accreted according to the effective yield method.
C FEDERAL TAXES It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise
<PAGE>
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 for
excise tax on income and capital gains.
At March 31, 1995, the fund had a capital loss carryover of
$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.
E FUTURES AND OPTIONS CONTRACTS The fund may use futures and options
contracts to hedge against changes in the values of securities the
fund owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invests to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded
options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by dealers.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% 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 Putnam Management on
the fund's portfolio transactions.
<PAGE>
The fund reimburses Putnam Management 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 $2,380 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
During the six months ended September 30, 1995, the fund adopted a
Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to
defer the receipt of all or a portion of Trustees fees payable on or
after July 1, 1995. The deferred fees remain in the fund and are
invested in the fund or in other Putnam funds until distribution in
accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
For the six months ended September 30, 1995, fund expenses were
reduced by $69,259 under expense offset arrangements with PFTC and
brokerage service arrangements. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The
fund could have invested a portion of the assets utilized in
connection with the offset arrangements in an income- producing asset
if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred
by it in distributing shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate up
to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees 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.
For the six months ended September 30, 1995, Putnam Mutual Funds
Corp., acting as underwriter received net commissions of $75,404 and
$2,464 from the sale of class A and class M shares, respectively.
There was $465,417 in contingent deferred sales charges from
redemptions of class B shares. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the six months
ended Sptember 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received $4,312 on class A redemptions.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended September 30, 1995, purchases and sales of
investment securities other than short-term investments aggregated
$670,358,529 and $654,696,041, 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 CONTRACTS
PREMIUMS RECEIVED
- ----------------------------------------------------------------------
- -
Outstanding at beginning of period 49,800 $1,258,088
Contracts opened EE-- EE--
Contracts closed (49,800) (1,258,088)
- ----------------------------------------------------------------------
- -CONTRACTS OPEN AT END OF PERIOD EE-- $E--
- ----------------------------------------------------------------------
- -
</TABLE>
NOTE 4
CAPITAL SHARES
At September 30, 1995, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
SIX MONTHS ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
- -
1995
- ----------------------------------------------------------------------
- -
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- -
Shares sold 11,014,215 $97,273,018
Shares issued in connection
with reinvestment of distributions 1,463,909 12,928,975
- ----------------------------------------------------------------------
- -
12,478,124 110,201,993
- ----------------------------------------------------------------------
- -
Shares repurchased (14,377,840) (127,334,679)
- ----------------------------------------------------------------------
- -
NET DECREASE (1,899,716) $(17,132,686)
- ----------------------------------------------------------------------
- -
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -
1994
- ----------------------------------------------------------------------
- -
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 DECREASE (2,889,880) $(23,817,826)
SIX MONTHS ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
- -
1995
- ----------------------------------------------------------------------
- -
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- -
Shares sold 7,206,963 $63,642,770
Shares issued in connection
with reinvestment of distributions 765,549 6,757,192
- ----------------------------------------------------------------------
- -
7,972,512 70,399,962
- ----------------------------------------------------------------------
- -
Shares repurchased (5,701,666) (50,412,203)
- ----------------------------------------------------------------------
- -
NET INCREASE 2,270,846 $19,987,759
- ----------------------------------------------------------------------
- -
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -
1994
- ----------------------------------------------------------------------
- -
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 6,591,270 $57,015,827
- ----------------------------------------------------------------------
- -
SIX MONTHS ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
- -
1995
- ----------------------------------------------------------------------
- -
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
- -
Shares sold 630,349 $5,589,384
Shares issued in connection
with reinvestment of distributions 7,809 68,976
- ----------------------------------------------------------------------
- -
638,158 5,658,360
- ----------------------------------------------------------------------
- -
Shares repurchased (170,674) (1,529,743)
- ----------------------------------------------------------------------
- -
NET INCREASE 467,484 $4,128,617
- ----------------------------------------------------------------------
- -
FOR PERIOD
DECEMBER 1, 1994
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31
- ----------------------------------------------------------------------
- -
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
- ----------------------------------------------------------------------
- -
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service
Seal for the past five years. In 1994, over 80,000 tests of 55
shareholder service components demonstrated that Putnam outperformed
the industry standard in every category.
HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a
month from a Putnam money market fund or from your checking or savings
account.*
SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change
or termination.)
ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and speak
with a helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing, of course, does not guarantee a profit or
protect against a loss in a declining market.
<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
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
20986-051/353/560 11/95
<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.
