PUTNAM
MUNICIPAL
INCOME
FUND
ANNUAL REPORT
March 31, 1996
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
FUND HIGHLIGHTS
According to Lipper Analytical Services, Putnam Municipal Income
Fund's class A share total return ranked 11 out of 100 general
municipal debt funds for the 5-year period ended March 31, 1996,
placing the fund in the top 11% in this category.*
Of course, if you think that the stock market will continue to
generate double-digit returns, by all means bet the store on equities.
But if you are in the market for bonds, even for part of your
portfolio, munis offer superior value. . . . If you want to own bonds
and you are in a high tax bracket, it's municipal bonds -- no
contest."
-- Forbes, February 26, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
27 Financial statements
* Lipper Analytical Services, an independent research organization,
ranks funds according to total-return performance. Their rankings
vary over time and do not reflect the effects of sales charges.
For periods ended 3/31/96, the fund's class A shares ranked 44
out of 228 and 11 out of 100 general municipal debt funds for 1-
and 5-year performance, respectively. Class B and class M shares
ranked 87 and 73, respectively, out of 228 funds for 1 year ended
3/31/96, and were not ranked over longer periods. Past
performance is not indicative of future results.
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
FOR MOST OF PUTNAM MUNICIPAL INCOME TRUST'S FISCAL YEAR, THE 12 MONTHS
ENDED MARCH 31, 1996, TAX-EXEMPT BONDS ROSE IN THE UPDRAFT OF ONE OF
THE MOST VIBRANT BOND MARKETS IN RECENT MEMORY. CONCERN OVER THE
POSSIBLE NEGATIVE EFFECTS OF A FLAT TAX ON MUNICIPAL BONDS, HOWEVER,
DAMPENED PERFORMANCE RELATIVE TO OTHER FIXED-INCOME INVESTMENTS.
ON THE OTHER HAND, WHEN THE BOND MARKET TURNED ABRUPTLY DOWNWARD
TOWARD THE END OF THE PERIOD, FLAT-TAX FEARS WERE ABATING. THIS
IMPROVED OUTLOOK FOR MUNICIPAL BONDS TENDED TO CUSHION THEIR DECLINE.
THE BOND MARKET WAS REACTING TO CONCERN OVER A PICKUP IN INFLATION
RESULTING FROM ECONOMIC OVERHEATING. PUTNAM MANAGEMENT BELIEVES THIS
NEW WORRY IS PREMATURE AND THAT THE REST OF 1996 WILL BRING STEADY BUT
MANAGEABLE GROWTH.
FUND MANAGER RICHARD WYKE PROVIDES A FULL DISCUSSION OF YOUR FUND'S
PERFORMANCE AND OUTLOOK IN THE REPORT THAT FOLLOWS.
RESPECTFULLY YOURS,
/s/GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
MAY 15, 1996
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
With the clamor surrounding a proposed flat tax currently reduced to a
whisper, the tax-free municipal bond market has begun to regain its
bearings. Since the beginning of calendar 1996, municipal bonds have
rebounded impressively from the doldrums brought on by investors'
fears of a flat tax, which would jeopardize the tax advantages enjoyed
by municipal bonds.
For the fiscal year ended March 31, 1996, Putnam Municipal Income
Fund's class A shares generated an 8.31% total return at net asset
value (3.12% at public offering price), nearly matching the benchmark
Lehman Brothers Municipal Bond Index. Among the contributors to the
fund's sturdy performance were effective management of the portfolio's
duration, emphasis on securities in attractive maturity ranges, and
prudent state and sector allocations.
DURATION MANAGEMENT LEADS THE WAY
Chiefly responsible for your fund's performance over the fiscal year
was our careful management of the portfolio's duration. Duration is a
measure of the price sensitivity of a portfolio of bonds to changes in
interest rates. Like maturity, with which it is often confused,
duration is measured in years.
Throughout much of the fiscal year, we kept the portfolio's duration
substantially longer than the duration of the average municipal bond
fund. In the last several months of calendar 1995, this strategy
proved beneficial to the fund. During this period, as the bond-market
rally picked up steam in response to slowing economic growth and
moderate inflation, investors' concerns about inflation gradually
dissipated. This, in turn, pushed long-term interest rates lower. In
this environment, the portfolio's relatively long duration enabled its
value to appreciate significantly.
Just as a strategy of longer duration can boost the fund's
appreciation potential during bond-market rallies, it can restrict
<PAGE>
total return when interest rates increase. Such a turnaround in rates
took place unexpectedly in early 1996, and the fund returned a portion
of the gains it had earned during the preceding rally. Since then, we
have gradually shortened the fund's duration. Currently, with interest
rates intermittently rising and falling, we have equipped the
portfolio with a duration roughly the same as that of the average
municipal bond fund.
EFFECTIVE YIELD-CURVE POSITIONING CONTRIBUTES TO PERFORMANCE
As interest-rate trends shift, a portfolio's position on the municipal-
bond yield curve becomes increasingly important. The yield curve
depicts the interest rates of the full spectrum of tax-free municipal
bonds. Rates tend to increase with the length of time until a bond's
maturity, typically giving the curve an upward slope. However, the
steepness of this slope fluctuates daily as a result of economic and
bond-market activity.
Because of the ongoing changes to the shape of the yield curve, we pay
close attention to the maturity dates of the bonds in which your
portfolio invests. For much of calendar 1995, we believed that bonds
with 15- to 20-year maturities offered the best
BOND RETURNS: MUNICIPALS VERSUS TREASURIES
[MOUNTAIN CHART]
Monthly 1990-1996
U.S. TREASURY
DATE AFTER TAX TREASURY BOND MUNICIPAL BOND
- ----------------------------------------------------------------------
3/31/90 10,000 10,000 10,000
3/31/91 10,892 11,236 10,923
3/31/92 11,726 12,455 12,013
3/31/93 13,056 14,218 13,518
3/31/94 13,052 14,597 13,832
3/31/95 13,239 15,223 14,859
3/31/96 14,274 16,819 16,105
- ----------------------------------------------------------------------
Sources: Lehman Brothers Municipal Bond Index, Lehman Brothers
Treasury Bond Index. This 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 rate. The performance is
not indicative of any Putnam fund and past performance is not
indicative of future results.
<PAGE>
capital appreciation potential. Interest rates steadily declined
during this period, enabling these relatively long-term bonds to
appreciate more noticeably than shorter-term bonds. In addition, bonds
from this segment of the municipal-bond market offered particularly
high yields relative to Treasury bonds with equivalent maturities,
which made them very attractive to investors. Taking advantage of this
demand, we emphasized these securities while selling selected bonds
with maturities outside this range.
Toward the end of the fiscal year, as interest rates climbed in
response to indicators of sturdy economic growth, we shifted a small
portion of the portfolio to bonds with maturities of roughly 12 years.
This modestly defensive positioning helped to protect the portfolio's
overall value as the prevailing selloff in bonds -- and particularly
those with longer maturities -- drove prices lower.
STATE AND SECTOR ALLOCATION ADDS A BOOST
We continued to keep the fund diversified across many states, with the
greatest emphasis on California municipal bonds. During the past year,
California's economy recovered convincingly from a recession that was
aggravated by military base closings, the Orange County bankruptcy,
and the accelerating welfare costs of intense immigration. This
incipient economic revitalization boosted a wide range of industries
across the state, making California's municipal bonds more attractive
to investors.
In addition to its near countrywide diversification, the fund held
securities in over 30 sectors. Among these, bonds in the
transportation sector were especially beneficial to the fund. Within
this sector, airport bonds performed particularly well. Airlines pay
fees for the use of space at airports, and this revenue is the source
of interest and payments on airport bonds. When airport traffic
increases, airports benefit from a commensurate rise in income from
usage fees. Denver International Airport, initially plagued by
problems with the facility's baggage system, saw its bonds appreciate
substantially as traffic growth increased revenues and investor demand
for its bonds.
In addition to transportation bonds, the fund's investments in
hospital and health-care bonds contributed to the fund's performance.
<PAGE>
TOP INDUSTRY SECTORS*
[BAR CHART]
- ----------------------------------------------------------------------
Utilities 18.9%
Hospitals/Health care 18.8%
Transportation 16.4%
Education 7.8%
Housing 3.2%
- ----------------------------------------------------------------------
*Based on net assets on 3/31/96. Holdings will vary over time.
During the period, your fund's portfolio was overweighted relative to
the industry average in bonds from this sector. Many hospitals are
benefiting from the creation of health-care network affiliations.
OUTLOOK: MODERATE GROWTH AND ATTRACTIVE OPPORTUNITIES
Since February of this year, evidence of rapid employment growth has
fueled fears of inflation and a possible end to the Federal Reserve's
program of lowering short-term interest rates, bringing the bond-
market rally to a halt. In our opinion, investor anxieties concerning
an overheating economy are premature. We anticipate that the remainder
of 1996 will be marked by steady but manageable economic growth and
limited risk of a sharp increase in inflation. In such an environment,
we believe that coupon income, rather than price appreciation, will
provide the bulk of the total return for fixed-income investors.
We believe that the diminished focus on a flat tax and the
corresponding market correction may offer investors who have shied
away from municipals an attractive opportunity to retest the waters.
Furthermore, municipal yields remain generous on a taxable-equivalent
basis, providing an attractive alternative to Treasuries and
investment-grade corporate bonds.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings were viewed favorably as of 3/31/96, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
<TABLE><CAPTION>
(INCEPTION DATE) CLASS A CLASS B CLASS M
(5/22/89) (1/4/93) (12/1/94)
- ----------------------------------------------------------------------
NAV POP NAV CDSC NAV POP
<S> <C> <C> <C> <C> <C> <C>
1 year 8.31% 3.12% 7.55% 2.55% 7.77%
4.32%
5 years 50.17 42.99 -- -- -- --
Annual average 8.47 7.42 -- -- -- --
Life of class 71.25 63.18 19.15 16.16 17.03 13.16
Annual average 8.16 7.40 5.56 4.73 12.55 9.74
- ----------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/96
<TABLE><CAPTION>
LEHMAN BROS. CONSUMER
MUNICIPAL PRICE
BOND INDEX INDEX
- -------------------------------------------------------------------
<S> <C> <C>
1 year 8.38% 2.84%
5 years 44.68 15.33
Annual average 7.66 2.89
Life of class A 67.18 25.77
Annual average 7.81 3.40
Life of class B 21.24 9.72
Annual average 6.11 2.91
Life of class M 16.35 4.01
Annual average 12.03 3.00
- -------------------------------------------------------------------
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment
returns and principal value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original cost.
POP assumes 4.75% maximum sales charge for class A shares and 3.25%
for class M shares. CDSC for class B shares assumes the applicable
sales charge, with the maximum being 5%. Performance data prior to
5/11/92 do not reflect operation under the fund's current investment
objective and policies.
</TABLE>
<PAGE>
GROWTH OF A $10,000 INVESTMENT
[MOUNTAIN CHART]
LEHMAN BROS.
FUNDOS CLASS A MUNICIPAL CONSUMER PRICE
DATE SHARES AT POP BOND INDEX INDEX (CPI)
- ----------------------------------------------------------------------
5/22/89 $10,000 $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 $15,066 $15,425 $12,229
3/31/96 $16,305 $16,718 $12,577
- ----------------------------------------------------------------------
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 $11,915 at 3/31/96 ($11,616 with a redemption at
the end of the period). A $10,000 investment in the fundOs class M
shares at inception on 12/1/94 would have been valued at $11,716 at
net asset value on 3/31/96 ($11,329 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 3/31/96
<TABLE><CAPTION>
CLASS A CLASS B CLASS M
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distributions (number) 12 12 12
- ----------------------------------------------------------------------
Income(1) $0.523950 $0.470251 $0.499437
- ----------------------------------------------------------------------
Total $0.523950 $0.470251 $0.499437
- ----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
3/31/95 $8.74 $9.18 $8.74 $8.75 $9.04
- ----------------------------------------------------------------------
3/31/96 8.93 9.38 8.92 8.92 9.22
- ----------------------------------------------------------------------
Current return: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
End of period
Current dividend
rate(2) 5.81% 5.53% 5.21% 5.56%
5.38%
- ----------------------------------------------------------------------
Taxable equivalent(3) 9.62 9.16 8.62 9.20 8.90
- ----------------------------------------------------------------------
Current 30-day
SEC yield(4) 5.72 5.45 5.06 5.43 5.25
- ----------------------------------------------------------------------
Taxable equivalent(3) 9.47 9.02 8.38 8.99 8.69
- ----------------------------------------------------------------------
<FN>
(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% combined federal and state 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.
</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. It is not
possible to invest directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended March 31, 1996
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, 1996, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for 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, 1996, 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,
1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 16, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
March 31, 1996
KEY TO ABBREVIATIONS
AMBAC -AMBAC Indemnity Corporation
BIGI -Bond Investor Guarantee Insurance
COP -Certificate of Participation
FGIC -Federal Guaranty Insurance Corporation
FSA -Financial Security Assurance
G.O. Bonds -General Obligation Bonds
IFB -Inverse Floating Bonds
MBIA -Municipal Bond Investors Assurance Corporation
PSFG -Permanent School Fund Guarantee
TRAN -Tax Revenue Anticipation Notes
VRDN -Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (99.5%)*
<TABLE><CAPTION>
PRINCIPAL AMOUNT RATINGS** VALUE
ARIZONA (1.5%)
- ----------------------------------------------------------------------
- -
<C> <S> <C> <C>
$ 955,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (St. Luke's Hlth. Syst.),
7 1/4s, 11/1/14 Aaa $ 1,105,400
7,000,000 Gila Cnty., Indl. Dev. Auth.
Poll Control Rev. Bonds (Asarco Inc.
Project), Ser. 85, 8.9s, 7/1/06 BBB 7,507,500
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp.
Syst. Rev. Bonds (Env. Inc. & Phoenix
Hosp. & Med. Ctr.), 7s, 7/1/16 AAA 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 4,331,250
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 4,265,000
--------------
19,511,650
ARKANSAS (0.2%)
- ----------------------------------------------------------------------
- -
17,150,000 AR Hsg. Dev. Agcy. Res. Single
Fam. Mtge. Rev. Bonds, Ser. 84A,
zero %, 7/1/15 A 2,100,875
CALIFORNIA (14.0%)
- ----------------------------------------------------------------------
- -
9,420,000 CA Poll. Control Fing. Auth. Rev.
Bonds (Wachovia Bank Project), 5s, 4/1/08AA 9,054,975
CA State G.O. Bonds
18,465,000 6.6s, 2/1/09 A 20,634,638
11,300,000 6 1/2s, 2/1/07 A 12,585,375
12,000,000 CA State Pub. Works Board Lease Rev. Bonds
(U. of CA
Pro*******************************************************************
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***********************************************21s, 8/15/17 AAA 6,765,000
2,000,000 Orange Cnty., Rev. Bonds, Ser. A, MBIA,
6s, 6/1/10 AAA 2,092,500
Orange Cnty., Local Trans. Auth. IFB
11,200,000 6.2s, 2/14/11 AA 11,704,000
4,000,000 AMBAC, 6.2s, 2/14/11 AAA 4,200,000
5,000,000 Orange Cnty., TRAN, Ser. A, 4 1/4s,
6/30/96 (In default)+ D 4,937,500
5,000,000 Paramount, Redev. Agy. Tax Allocation
Rev. Bonds, MBIA, 6 1/4s, 8/1/23 AAA 5,168,750
5,000,000 Sacramento, City Fin. Auth. Lease Rev.
Bonds, Ser. A, AMBAC, 5 3/8s, 11/1/14 AAA 4,825,000
San Joaquin Hills, Trans. Corridor Agcy.
Rev. Bonds
10,000,000 (Toll Rd.), Sr. Lien, zero %, 1/1/10 BBB/P 7,587,500
10,710,000 5s, 1/1/33 BB/P 8,715,263
8,000,000 U. of CA Rev. Bonds (Multi. Purpose
Projects), Ser. B, MBIA, 5s, 9/1/16 AAA 7,260,000
Valley Hlth. Syst. Hosp. Rev. Bonds
6,000,000 (Rfdg. & Impt. Project), 6 1/2s, 5/15/25BBB 5,647,500
1,000,000 (Impt. Project), Ser. A, 6 1/8s, 5/15/05BBB 975,000
4,300,000 Walnut Creek, COP (John Muir Med. Ctr.
Project), MBIA, 5s, 2/15/16 AAA 3,880,750
--------------
184,086,120
COLORADO (4.3%)
- ----------------------------------------------------------------------
- -
10,500,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470, 7s, 8/31/26 Baa 11,130,000
Denver City & Cnty. Arpt. Rev. Bonds
6,000,000 Ser. A, 8 3/4s, 11/15/23 BBB 7,140,000
2,000,000 Ser. A, 8s, 11/15/25 BBB 2,262,500
5,000,000 Ser. D, 7 3/4s, 11/15/13 BBB 5,893,750
4,000,000 Ser. A, 7 1/2s, 11/15/23 BBB 4,480,000
1,500,000 Ser. A, 7 1/4s, 11/15/25 BBB 1,728,750
12,000,000 Ser. B, 7 1/4s, 11/15/23 BBB 12,915,000
2,770,000 Ser. C, 6 3/4s, 11/15/13 BBB 2,873,875
5,000,000 Ser. C, 5 1/2s, 11/15/16 BBB 4,606,250
3,000,000 Larimer Cnty., School Dist. No. 1
Rev. Bonds (Poudre Impt.), 7s, 12/15/16 A 3,532,500
--------------
56,562,625
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
CONNECTICUT (0.5%)
- ----------------------------------------------------------------------
- -
CT State Dev. Auth. 1st Mtge. Rev. Bonds
$2,320,000 (East Hill Woods Project), 8 3/4s,
7/1/19 B/P $ 2,409,900
1,440,000 (Gladeview Hlth. Care Project), 9 3/4s,
12/15/16 BB/P 1,589,400
2,500,000 CT State Dev. Auth. Hlth. Care Rev.
Bonds (Alzheimer's Resource Ctr.),
Ser. A, 10s, 8/15/21 AAA/P 3,153,125
--------------
7,152,425
DISTRICT OF COLUMBIA (0.8%)
- ----------------------------------------------------------------------
- -
Dist. of Columbia Rfdg. Rev. Bonds
(American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,711,750
3,350,000 5 3/4s, 9/1/13 BBB 3,002,438
3,500,000 Dist. of Columbia Redev. Land Agcy.
Rev. Bonds (Wash. D.C. Sports Arena),
5 5/8s, 11/1/10 Baa 3,342,500
--------------
10,056,688
FLORIDA (5.5%)
- ----------------------------------------------------------------------
- -
4,025,000 FL State Brd. Ed. Capital Outlay Pub.
Ed. Rev. Bonds, Ser. E, 5s, 6/1/11 AA 3,818,719
4,200,000 FL State Tpke. Auth. Rev. Bonds, Ser. A,
FGIC, 5s, 7/1/19 AAA 3,774,750
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 25,075,500
Largo, Sun Coast Hlth. Syst. Rev. Bonds
3,485,000 6.3s, 3/1/20 BBB 3,127,788
1,700,000 6.2s, 3/1/13 BBB 1,551,250
2,000,000 Martin Cnty., Indl. Dev. Auth. Rev.
Bonds (Indiantown Cogeneration Project),
Ser. A, 7 7/8s, 12/15/25 BBB 2,245,000
Orange Cnty., Hlth. Care Facs. Auth. Rev.
Bonds
5,000,000 (Orlando Hosp. Healthcare), Ser. B, MBIA,
5s, 10/1/15 AAA 4,518,750
6,000,000 (Pooled Hosp. Loan), Ser. B, BIGI, 7 7/8s,
12/1/25 AAA 6,315,000
4,750,000 9.512s, 10/1/14 (acquired 4/19/95, cost
$6,261,830)++ AAA 6,163,125
990,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev.
Bonds (JFK Med. Ctr. Inc. Project), 8 7/8s,
12/1/18 AAA 1,122,413
6,485,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A,
8 1/2s, 3/1/23 B/P 6,330,981
5,000,000 Reedy Creek, Impt. Dist. Rev. Bonds,
Ser. C, AMBAC. 5s, 6/1/19 AAA 4,487,500
Sanford, Arpt. Auth. Indl. Dev. Rev.
Bonds (Terminals Inc. Project), Ser. A
2,000,000 7 1/2s, 5/1/10 BB 1,930,000
1,000,000 7.3s, 5/1/04 BB 983,750
--------------
71,444,526
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
GEORGIA (5.3%)
- ----------------------------------------------------------------------
- -
$5,000,000 Atlanta Metro. Rapid Tran. Auth. Sales
Tax Rev. Bonds, Ser. O, 6.55s, 7/1/20 AA $ 5,262,500
8,790,000 Atlanta, Board of Ed. COP, FGIC, 5 1/8s,
6/1/12 AAA 8,218,650
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc. Project), Ser. B,
7.9s, 12/1/18 BB 4,473,000
10,000,000 De Kalb Cnty. Dev. Auth. Rev. Bonds
(Emory U. Project), Ser. A, 5 3/8s, AA 10,337,500
11/1/05 De Kalb Cnty., Hsg. Auth. Muni.
Rev. Bonds (Briarcliff Park Apts. Project)
1,500,000 Ser. B, 10s, 4/1/17 B/P 1,550,625
3,700,000 Ser. A, 7 1/2s, 4/1/17 A/P 3,764,750
20,510,000 Georgia State G. O. Bonds, Ser. B, 6 1/4s,
4/1/08 AA 22,509,725
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc. Project), Ser. 84,
9 1/2s, 6/1/15 A 2,202,500
10,000,000 Rockdale Cnty., Dev. Auth. Solid Waste
Disp. Rev. Bonds (Visay Paper Inc. Project),
7.4s, 1/1/16 B/P 10,212,500
--------------
68,531,750
ILLINOIS (4.1%)
- ----------------------------------------------------------------------
- -
Chicago, O'Hare Intl. Arpt. Special Fac.
Rev. Bonds (United Air Lines, Inc.)
3,774,000 Ser. B, 8.95s, 5/1/18 Baa 4,245,750
7,375,000 Ser. 84B, 8.85s, 5/1/18 Baa 8,269,219
1,865,000 Ser. 84A, 8.85s, 5/1/18 Baa 2,091,131
10,150,000 Cook Cnty. Cmnty. College Dist. No. 508
Rev. Bonds, Ser. C, MBIA, 7.7s, 12/1/07 AAA 12,256,125
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev.
Bonds (Regency Park-Lincolnwood), Ser. A,
10 1/4s, 4/15/19 (In default)+ B/P 1,875,000
IL Dev. Fin. Auth. Rev. Bonds (Cmnty.
Rehab. Providers Fac.)
2,040,000 8 3/4s, 7/1/11 BB/P 2,177,700
1,405,000 8 1/4s, 8/1/12 BB/P 1,459,444
IL Dev. Fin. Auth. Rev. Bonds
5,000,000 (Community Rehab Facs.), Ser. A, 7 7/8s,
7/1/20 BB/P 4,850,000
1,945,000 (Mercy Hsg. Corp. Project), 7s, 8/1/24 Baa 2,005,781
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 5,842,500
8,000,000 Robbins Res. Recvy. Rev. Bonds (Recov.
Partners), Ser. A, 9 1/4s, 10/15/14 B/P 6,240,000
--------------
53,459,575
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
INDIANA (1.1%)
- ----------------------------------------------------------------------
- -
$1,930,079 Hammond, Indl. Port Auth. COP, 9.65s,
6/1/14 BB/P $ 2,031,409
11,000,000 Indianapolis Indl. Arpt. Auth. Special
Fac. Rev. Bonds (Federal Express Corp.
Project), 7.1s, 1/15/17 BBB 11,715,000
--------------
13,746,409
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 4,080,000
LOUISIANA (4.0%)
- ----------------------------------------------------------------------
- -
4,000,000 Beauregard, Parish Rev. Bonds
(Boise Cascade Corp. Project), 7 3/4s,
6/1/21 Baa 4,300,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 BB/P 4,899,375
1,421,996 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(Emily Morten Foundation), 10 1/4s,
5/1/19 B/P 1,519,759
5,000,000 Lake Charles, Harbor & Term. Dist. Port
Facs. Rev. Bonds (Trunkline LNG Co.
Project), 7 3/4s, 8/15/22 Baa 5,581,250
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
1,000,000 14 1/2s, 1/1/02 BB 1,053,180
2,000,000 7 1/2s, 7/1/13 BB 2,082,500
St. Charles Parish, Poll. Control
Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 8,775,481
6,995,000 (Union Carbide Project), 7.35s, 11/1/22 BBB 7,484,650
W. Feliciana Parish, Poll. Control Rev.
Bonds (Gulf States Util. Co. Project)
3,000,000 9s, 5/1/15 BB 3,356,250
4,000,000 7.7s, 12/1/14 BB 4,310,000
8,000,000 Ser. C, 7s, 11/1/15 Ba 8,200,000
--------------
51,562,445
MARYLAND (0.2%)
- ----------------------------------------------------------------------
- -
1,940,000 Denton, 1st Mtge. Rev. Bonds
(Wesleyan Hlth. Care Ctr. Project),
10 1/4s, 4/1/20 B/P 2,044,275
MASSACHUSETTS (5.0%)
- ----------------------------------------------------------------------
- -
2,450,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.),
10s, 1/1/20 BB/P 2,704,188
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply
Syst. Rev. Bonds, Ser. A, AMBAC, 6.97s,
7/1/18 AAA 4,381,250
3,500,000 MA State Hlth. & Edl. Fac. Auth. IFB
(Beth Israel Hosp.), AMBAC, 8.624s, 7/1/25AAA 3,530,625
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (CONTINUED)
- ----------------------------------------------------------------------
- -
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
$2,970,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba $ 3,021,975
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s,
7/1/04 Ba 2,834,975
3,930,000 (Cooley Dickinson Hosp. Issue-A), 7 1/8s,
11/15/18 Aaa 4,519,500
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 3,352,500
13,000,000 Ser. A, 9s, 7/1/15 BB/P 14,478,750
MA State Indl. Fin. Agcy. Rev. Bonds
(Atlanticare Med. Ctr.)
3,900,000 Ser. A, 10 1/8s, 11/1/14 B/P 3,705,000
1,000,000 Ser. B, 10 1/8s, 11/1/14 B/P 950,000
MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Pioneer Valley Living Ctr.)
1,540,000 7s, 10/1/20 B/P 1,505,350
1,019,314 zero %, 10/1/20 (In default)+ 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 4,446,563
2,390,000 MA State Indl. Fin. Agcy. Tunnel Rev.
Bonds (Mass. Tpk.), 9s, 10/1/20 AAA/P 2,847,088
10,100,000 MA State VRDN, Ser. B, 2.45s, 12/1/97 A 10,100,000
3,000,000 MA Wtr. Resource Auth. Rev. Bonds,
Ser. A, 6 1/2s, 7/15/21 AAA 3,333,750
--------------
65,712,788
MICHIGAN (6.1%)
- ----------------------------------------------------------------------
- -
340,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig.
Rev. Bonds (Glacier Hills Inc. Project),
8 3/8s, 1/15/19 B/P 348,075
Detroit G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 BBB 2,618,750
3,000,000 Ser. B, 6 1/4s, 4/1/10 BBB 3,037,500
4,000,000 Ser. B, 6 1/4s, 4/1/08 BBB 4,080,000
1,000,000 Ser. A, 5.7s, 4/1/01 BBB 1,008,750
500,000 Ser. A, 5.45s, 4/1/00 BBB 500,625
4,055,000 Detroit Wtr. Supply Syst. Rev. Bonds,
Ser. B, MBIA, 5.4s, 7/1/11 AAA 4,019,519
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, 9 1/2s,
5/1/21 BBB/P 7,068,250
MI State Hosp. Fin. Auth. Rev. Bonds
7,795,000 (Detroit-Macomb Hosp. Corp.), Ser. A,
7.4s, 6/1/13 BB 7,804,744
1,330,000 (Garden City Hosp.), 8 1/2s, 9/1/17 BBB 1,408,138
670,000 (Garden City Project), 8 1/2s, 9/1/17 AAA 800,650
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MICHIGAN (CONTINUED)
- ----------------------------------------------------------------------
- -
$4,500,000 MI State Hsg. Dev. Auth. Rental Hsg.
Rev. Bonds, Ser. A, FSA, 7.55s, 4/1/23 AAA $ 4,747,500
10,000,000 MI State Stragetic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr. Station
Project), 7 1/2s, 1/1/21 BB/P 10,087,500
MI State Strategic Fund Ltd. Oblig. Rev.
Bonds
7,800,000 (Mercy Svcs. for Aging Project), 9.4s,
5/15/20 BBB/P 8,853,000
10,500,000 (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 9,922,500
11,000,000 Midland Cnty., Econ. Dev. Corp. Poll.
Control Rev. Bonds, Ser. B, 9 1/2s,
7/23/09 B/P 12,113,750
--------------
80,697,351
MINNESOTA (1.0%)
- ----------------------------------------------------------------------
- -
1,970,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc. Project), 10 1/4s, 9/1/20BB/P 2,260,575
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp. Project), 7.2s,
10/1/24 Baa 5,368,750
5,000,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev.
Bonds (Healtheast Project), Ser. A, 6 5/8s,
11/1/17 Baa 4,968,750
--------------
12,598,075
MISSISSIPPI (1.3%)
- ----------------------------------------------------------------------
- -
Claiborne Cnty., Poll. Control Rev. Bonds
8,455,000 (Middle South Energy, Inc.), Ser. C,
9 7/8s, 12/1/14 BBB/P 9,606,994
4,380,000 (Syst. Energy Resources Inc.), 9 1/2s,
4/1/16 Ba 4,511,400
2,400,000 (Middle South Energy, Inc.), Ser. A,
9 1/2s, 12/1/13 BBB/P 2,706,000
--------------
16,824,394
MISSOURI (0.6%)
- ----------------------------------------------------------------------
- -
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev.
Bonds (BJC Hlth. Syst.), Ser. A, 6 1/2s,
5/15/20 AA 7,257,719
MONTANA (0.3%)
- ----------------------------------------------------------------------
- -
4,450,000 Kansas City , School Dist. Bldg. Corp.
Rev. Bonds (Leasehold Rev. Cap. Ipmt.
Project), FGIC, 5s, 2/1/14 AAA 4,121,813
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEBRASKA (0.5%)
- ----------------------------------------------------------------------
- -
NE Investment Fin. Auth. Single Fam.
Mtge. IFB
$4,600,000 Ser. 2, GNMA Coll., 11.441s, 9/10/30 AAA $ 5,180,750
1,300,000 Ser. B, GNMA Coll., 11.196s, 3/15/22 AAA 1,460,875
--------------
6,641,625
NEVADA (0.7%)
- ----------------------------------------------------------------------
- -
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A, 7.3s,
9/1/27 BBB 8,871,875
NEW HAMPSHIRE (1.0%)
- ----------------------------------------------------------------------
- -
NH Higher Edl. & Health Facs. Auth. Rev. Bonds
2,900,000 (Havenwood/Heritage Heights),
9 3/4s, 12/1/19 AAA/P 3,472,750
2,960,000 (Havenwood/Heritage Heights),
7.1s, 1/1/06 BB/P 2,911,900
4,000,000 (1st Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P 4,180,000
1,955,000 (Riverwoods 1st Mtge. at Exeter), 8s,
3/1/01 B/P 2,018,538
--------------
12,583,188
NEW JERSEY (3.1%)
- ----------------------------------------------------------------------
- -
4,125,000 NJ Econ. Dev. Auth. Elec. Energy Fac.
Rev. Bonds (Vineland Cogeneration L.P.
Project), 7 7/8s, 6/1/19 BB/P 4,429,219
5,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev.
Bonds (Newark Arpt. Marriott Hotel),
7s, 10/1/14 B/P 5,006,250
3,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev.
Bonds (St. Elizabeth Hosp.), Ser. B,
8 1/4s, 7/1/20 BBB 3,281,250
6,550,000 NJ Hlth. Care Fac. Fin. Auth. Rev.
Bonds (Kimball Med. Ctr.), Ser. C, 8s,
7/1/13 BBB 6,992,125
6,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Gen. Hosp. Ctr.-Passaic Inc.), FSA,
6 3/4s, 7/1/19 AAA 6,525,000
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB,
Ser. I, 8.381s, 11/1/07 (acquired 2/11/93,
cost $4,416,240)++ A 4,155,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C,
MBIA, 6 1/2s, 1/1/16 AAA 10,023,750
--------------
40,412,594
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW YORK (10.6%)
- ----------------------------------------------------------------------
- -
$2,500,000 Metro. Trans. Auth. Svcs. Contract
Fac. Rev. Bonds (Commuter Fac.), Ser. O,
5 1/2s, 7/1/17 Baa $ 2,359,375
5,000,000 NY City , Muni. Wtr. Fin. Auth. Wtr. &
Swr. Syst. IFB, MBIA, 7.524s, 6/15/19 AAA 4,725,000
NY City, G.O. Bonds
2,760,000 Ser. F, 8 1/4s, 11/15/16 AAA 3,294,750
5,000,000 Ser. D, 6 1/2s, 2/15/05 BBB 5,225,000
8,500,000 Ser. J, 6s, 2/15/24 BBB 8,043,125
7,000,000 Ser. G, 5 3/4s, 2/1/14 BBB 6,545,000
10,000,000 Ser. I, 5 3/4s, 3/15/09 BBB 9,587,500
5,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Paper Inc. Project), 7.95s, 1/1/28 BB 5,056,250
10,000,000 NY City, Muni. Wtr. Fin. Auth. VRDN,
3.7s, 6/15/24 A 10,000,000
NY State Dorm. Auth. Rev. Bonds
(Court Facs. Lease)
3,750,000 Ser. A, 5 3/8s, 5/15/16 Baa 3,375,000
17,075,000 Ser. A, 5 1/4s, 5/15/21 Baa 14,833,906
2,000,000 NY State Dorm. Auth. VRDN (Osborn Mem.
Home), Ser. A, 3.3s, 7/1/24 A 2,000,000
1,800,000 NY State Local Govt. Assistance Corp.
Rev. Bonds, Ser. D, 7s, 4/1/18 AAA 2,052,000
11,125,000 NY State Med. Care Facs. Fin. Agcy.
Rev. Bonds, Ser. A, AMBAC, 6 1/2s,
8/15/29 AAA 11,820,313
1,600,000 NY State Med. Care Facs. Fin. Agcy.
VRDN (Lenox Hill Hosp.), Ser. A, 3.1s,
11/1/08 VMIGI 1,600,000
8,500,000 NY State Medical Care Facs. Fin. Agcy.
Rev. Bonds (Mental Hlth. Svcs.), Ser. F,
FSA, 4.8s, 8/15/05 AAA 8,276,875
10,075,000 NY State Thru-Way Auth. Svc. Contract
Rev. Bonds (Local Hwy. & Bridge Project),
5 1/4s, 4/1/13 Baa 9,092,688
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
4,750,000 Ser. A, 5 1/2s, 1/1/14 Baa 4,494,688
2,800,000 Ser. A, FSA, 5 1/4s, 1/1/14 AAA 2,677,500
4,335,000 NY State Urban Dev. Corp. Rev. Bonds
(Correctional Cap. Facs.), Ser. 6,
5 1/4s, 1/1/12 Baa 3,961,106
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Swr.
Fac. Rev. Bonds (Bristol-Meyers Squibb
Co. Project), 5 3/4s, 3/1/24 AAA 5,025,000
Port Auth. NY & NJ Rev. Bonds
5,990,000 Ser. 103, MBIA, 5 1/8s, 12/15/11 AAA 5,757,888
4,795,000 Ser. 103, MBIA, 5 1/8s, 12/15/10 AAA 4,645,156
4,925,000 Ser. 103, MBIA, 5 1/8s, 12/15/09 AAA 4,820,344
--------------
139,268,464
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NORTH CAROLINA (2.7%)
- ----------------------------------------------------------------------
- -
NC Eastern Muni. Pwr. Agcy. Pwr. Sys.
Rev. Bonds
$21,225,000 Ser. B, 6s, 1/1/22 A $ 20,773,969
3,000,000 FGIC, 7.892s, 1/1/25 (acquired 3/3/93,
cost $3,116,820)++ AAA 3,161,250
5,250,000 AMBAC, 6s, 1/1/18 AAA 5,400,938
6,000,000 NC Muni. Pwr. Agy. No. 1 Catawba Elec.
Rev. Bonds, MBIA, 7.02s, 1/1/20 AAA 5,475,000
--------------
34,811,157
OHIO (0.7%)
- ----------------------------------------------------------------------
- -
4,500,000 Dayton, Special Fac. Rev. Bonds
(Emery Air Freight Corp.), Ser. A,
12 1/2s, 10/1/09 BB/P 5,253,750
1,325,000 OH Hsg. Fin. Agy. Single Fam. Mtge.
Rev. Bonds, Ser. B, GNMA Coll., 8 1/4s,
12/15/19 AAA 1,384,625
2,935,000 OH State Wtr. Dev. Auth. Rev. Bonds
(Mid-American Waste Syst. Inc. Project),
7 3/4s, 9/1/07 BB/P 2,527,769
--------------
9,166,144
OKLAHOMA (0.7%)
- ----------------------------------------------------------------------
- -
OK State Inds. Auth. Rev. Bonds
(Hlth. Syst. Integris Baptist), AMBAC
4,465,000 6s, 8/15/08 AAA 4,721,738
2,105,000 6s, 8/15/07 AAA 2,236,563
2,000,000 Tulsa, Muni. Arpt. Rev. Bonds
(American Airlines, Inc.), 7 3/8s,
12/1/20 Baa 2,120,000
--------------
9,078,301
PENNSYLVANIA (5.7%)
- ----------------------------------------------------------------------
- -
3,750,000 Beaver Cnty. Indl. Dev. Poll. Control
Rev. Bonds (Toledo Edison Co. Project),
7 5/8s, 5/1/20 Ba 3,825,000
4,160,000 Dauphin Cnty., Gen. Auth. Hosp. Rev.
Bonds (Northwest Med. Ctr. Project),
8 5/8s, 10/15/13 BBB 4,716,400
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB/P 1,184,425
3,000,000 Erie, Higher Ed. Bldg. Auth. College
Rev. Bonds (Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB 2,868,750
3,205,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s,
1/1/02 BBB/P 3,205,000
1,500,000 Lehigh Cnty. Indl. Dev. Auth. Poll.
Control IFB, MBIA, (Pennsylvania Pwr.
& Light Co. Project), 8.611s, 9/1/29
(acquired 6/20/95, cost $1,655,190)++ AAA 1,623,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (CONTINUED)
- ----------------------------------------------------------------------
- -
$7,500,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s,
7/1/03 Baa $ 7,434,375
Montgomery Cnty., Higher Ed. & Hlth.
Auth. Hosp. Rev. Bonds (UTD Hosp. Project),
Ser. B
3,500,000 8 3/8s, 11/1/11 Ba 3,740,625
2,230,000 7 1/2s, 11/1/12 Ba 2,252,300
6,000,000 PA Auth. for Indl. Dev. Rev. (Coml. Dev.
Phil. Arpt), 7 3/4s, 12/1/17 B 6,150,000
15,000,000 PA Economic Dev. Fing. Auth. Recycling
Rev. Bonds (Ponderosa Fibres Project),
Ser. A, 9 1/4s, 1/1/22 B/P 15,487,500
4,000,000 PA Economic Dev. Fing. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. E, 8.05s, 12/1/15 BBB 4,215,000
4,000,000 PA State COP Ser. A, AMBAC, 5s, 7/1/15 AAA 3,595,000
2,000,000 PA State Economic Dev. Fin. Auth.
Resource Recvy. Rev. Bonds (Colver
Project), Ser. D, 7.15s, 12/1/18 BBB 2,095,000
2,000,000 PA State Higher Ed. Assistance Agcy. IFB,
Ser. B, MBIA, 10.052s, 3/1/20 AAA 2,185,000
Philadelphia Gas Works Rev. Bonds
3,000,000 Ser. 13, 7.7s, 6/15/21 AAA 3,465,000
6,000,000 FSA, 6.216s, 8/1/21 (acquired 1/24/94,
cost $5,621,520)++ AAA 4,987,500
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
--------------
74,776,625
PUERTO RICO (2.2%)
- ----------------------------------------------------------------------
- -
4,500,000 Cmnwlth. of Puerto Rico Aqueduct &
Swr. Rev. Bonds, 5s, 7/1/19 A 3,976,875
8,500,000 Cmnwlth. of Puerto Rico, VRDN, MBIA,
7.541s, 7/1/24 (acquired 6/12/95, cost
$8,912,500)++ A 8,361,875
Puerto Rico Elec. Pwr. Auth. Rev. Bonds
2,315,000 Ser. R, 6 1/4s, 7/1/17 A 2,375,769
5,400,000 6 3/8s, 7/1/24 A 5,541,750
10,000,000 5 1/4s, 7/1/21 A 9,016,100
--------------
29,272,369
RHODE ISLAND (0.8%)
- ----------------------------------------------------------------------
- -
10,000,000 RI State Pub. Bldgs. Auth. Rev. Bonds
(State Pub. Projects), Ser. A, 4.85s,
2/1/02 AAA 10,025,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
SOUTH CAROLINA (1.6%)
- ----------------------------------------------------------------------
- -
$8,500,000 Charleston Cnty., Indl. Dev. VRDN
(Hoover Group Inc. Project), 8 1/2s,
11/1/02 Ba $ 8,595,625
Piedmont, Muni. Pwr. Agcy. Rev. Bonds
8,000,000 (Elec. Rev.), FGIC, 5s, 1/1/22 AAA 7,000,000
4,405,000 (SC Elec. Project), Ser. A, FGIC,
6 1/2s, 1/1/16 AAA 4,828,981
--------------
20,424,606
TENNESSEE (1.3%)
- ----------------------------------------------------------------------
- -
8,500,000 IVRC-Bristol, TN Mem. Hosp. Rev. Bonds,
FGIC, 13.869s, 2/28/14 (acquired 6/16/95,
cost $9,366,660)++ AAA 9,265,000
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 7,463,750
--------------
16,728,750
TEXAS (5.1%)
- ----------------------------------------------------------------------
- -
1,910,000Bell 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 406,175
7,500,000 Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Rev. Bonds (American Airlines, Inc.),
7 1/4s, 11/1/30 Baa 7,875,000
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
1,187,000 Ser. A, Verex Mtg. Ins., 10 7/8s, 2/15/16 A 1,202,704
1,605,000 10s, 9/15/14 B 1,605,000
3,035,000 Lamar Cons. Indpt Sch. Dist. Rev. Bonds,
PSFG, 4 1/2s, 2/15/10 AAA 2,773,231
1,400,000 Lone Star Arpt. Impt. Auth. VRDN
(American Airlines), 3.8s, 12/1/14 VMIGI 1,400,000
872,011 Maverick Cnty., COP (Jail Facility),
9.1s, 6/15/10 CCC/P 523,207
4,000,000 North Central TX Hlth. Fac. Dev. Corp.
IFB (Presbyterian Hlth. Care Syst.),
Ser. C, MBIA, 9.645s, 6/15/21 AAA 4,455,000
North Central TX Hlth. Fac. Dev. Corp.
Rev. Bonds
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 8.12s,
5/15/08 AA 3,236,250
3,000,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB/P 3,121,260
7,500,000 (U. Med. Ctr. Project), 7 3/4s, 4/1/17BBB/P 7,696,875
Sam Rayburn, Muni. Pwr. Agcy. Rev. Bonds
(Pwr. Supply Syst.)
4,500,000 Ser. A, 6 1/4s, 10/1/17 BB 3,875,625
6,800,000 Ser. B, 6 1/8s, 10/1/13 BB 5,882,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
TEXAS (CONTINUED)
- ----------------------------------------------------------------------
- -
$2,000,000 Southeast TX Multi-Fam. Hsg. Fin. Corp.
IFB (Bayou Pk. Village Apt. Project),
Ser. B, 10.175s, 8/1/16 B/P $ 2,025,000
4,000,000 (Pavilion Place Apts. Project),
Ser. A, 7.6s, 7/1/16 BBB/P 4,085,000
1,600,000 (Promenade Place Apts. Project),
Ser. B, 10.175s, 8/1/16 B/P 1,608,000
10,000,000 TX State Tpk Auth. Rev. Bonds
(George Bush Tpk. Project), FGIC,
5s, 1/1/25 AAA 8,812,500
4,620,000 Waco, Hlth. Facs. Dev. Corp. Hosp.
Rev. Bonds (Daughters Charity Hlth.),
5s, 11/1/20 AA 4,036,725
--------------
66,281,252
UTAH (0.4%)
- ----------------------------------------------------------------------
- -
4,750,000 Intermountain Power Agcy. Power Supply
Rev. Bonds, Ser. D, AMBAC, 7 3/4s,
7/1/20 AA 5,124,063
VIRGINIA (1.3%)
- ----------------------------------------------------------------------
- -
2,875,000 Chesapeake, Pub. Imp. G.O. Bonds, 5s,
5/1/14 AA 2,648,594
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp.
Fac. IFB, FGIC, 9.423s, 8/15/23 AAA 2,222,500
Virginia State Pub. Bldg. Auth. Rev. Bonds
4,405,000 5.1s, 8/1/06 AA 4,443,544
7,605,000 5.1s, 8/1/04 AA 7,757,100
--------------
17,071,738
WASHINGTON (2.4%)
- ----------------------------------------------------------------------
- -
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev.
Bonds (Samaritan Hosp.), 9 1/4s, 9/1/10BBB/P 2,257,500
12,000,000 Port Walla Walla, Pub. Corp. Solid Waste
Recycling Rev. Bonds (Ponderosa Fibres
Project), 9 1/8s, 1/1/26 B/P 12,300,000
10,600,000 WA State Hlth. Care Facs. Auth. Rev.
Bonds (Swedish Hosp. Med. Center), AMBAC,
6.3s, 11/15/22 AAA 10,957,750
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 5,762,500
--------------
31,277,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
WEST VIRGINIA (1.2%)
- ----------------------------------------------------------------------
- -
Marion Cnty., Cmnty. Solid Waste Disp.
Fac. Rev. Bonds (American Pwr. Paper
Recycling Project)
$3,000,000 9s, 12/1/11 B/P $ 2,887,500
9,000,000 8 1/4s, 12/1/11 B/P 8,122,500
5,000,000 WV State Pkwy. Economic Dev. & Tourism
Auth. IFB, FGIC, 7.849s, 5/16/19 AAA 4,850,000
--------------
15,860,000
WISCONSIN (0.1%)
- ----------------------------------------------------------------------
- -
1,633,000 WI Hsg. & Econ. Auth. IFB
(Home Ownership Dev.), 10.321s, 10/25/22 AA 1,743,228
WYOMING (1.3%)
- ----------------------------------------------------------------------
- -
17,125,000 Uinta Cnty., Poll. Control VRDN
(Chevron USA Inc. Project), 3.7s, 8/15/20Aa 17,125,000
--------------
TOTAL INVESTMENTS
(cost $1,279,728,817)*** $1,298,095,232
- ----------------------------------------------------------------------
<FN>
NOTES
* Percentages indicated are based on net assets of $1,304,267,040.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at March 31, 1996 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, 1996. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
The table below shows the percentages of the fund's investments
on March 31, 1996 in securities assigned to various rating
categories by Moody's and Standard & Poor's and in unrated
securities determined by Putnam's Management to be of comparable
quality.
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
fund's net assets fund's net assets
Rating
"AAA"/"Aaa" 26.6% 0.7%
"AA"/"Aa" 9.3 --
"A"/"A" 10.4 0.3
"BBB"/"Baa" 21.7 4.4
"BB"/"Ba" 5.9 6.1
"B"/"B" 0.6 12.7
"Caa"/"CCC" 0.1 0.1
"D" 0.4 --
"VMIGI" 0.2 --
Ratings are not covered by the Report of Independent Accountants.
++ 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 March 31, 1996 was $37,717,500 or
2.9% of net assets.
+ Non-income-producing security.
*** The aggregate identified cost for federal income tax purposes is
$1,280,038,808, resulting in gross unrealized appreciation and
gross unrealized depreciation of $44,911,932 and $26,855,508,
respectively, or net unrealized appreciation of $18,056,424.
The rates shown on IFBs, which are securities paying variable
interest rates that vary inversely to changes in the market
interest rates and VRDNs, are the current interest rates at March
31, 1996, which are subject to change based on the terms of the
security.
The fund had the following industry group concentrations greater
than 10% at March 31, 1996 (as a percentage of net assets):
Utilities 18.9%
Hospitals/Health Care 18.8
Transportation 16.4
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
- -
Investments in securities, at value
(identified cost $1,279,728,817) (Note 1) $1,298,095,232
- ----------------------------------------------------------------------
- -
Cash 75,295
- ----------------------------------------------------------------------
- -
Interest receivable 24,200,349
- ----------------------------------------------------------------------
- -
Receivable for shares of the fund sold 6,636,836
- ----------------------------------------------------------------------
- -
Receivable for securities sold 11,801,403
- ----------------------------------------------------------------------
- -
TOTAL ASSETS $1,340,809,115
LIABILITIES
- ----------------------------------------------------------------------
- -
Distributions payable to shareholders 981,700
- ----------------------------------------------------------------------
- -
Payable for securities purchased 31,767,276
- ----------------------------------------------------------------------
- -
Payable for shares of the fund repurchased 846,602
- ----------------------------------------------------------------------
- -
Payable for compensation of Manager (Note 2) 1,897,113
- ----------------------------------------------------------------------
- -
Payable for investor servicing and custodian fees (Note 2) 109,794
- ----------------------------------------------------------------------
- -
Payable for compensation of Trustees (Note 2) 1,778
- ----------------------------------------------------------------------
- -
Payable for administrative services (Note 2) 6,065
- ----------------------------------------------------------------------
- -
Payable for distribution fees (Note 2) 872,068
- ----------------------------------------------------------------------
- -
Other accrued expenses 59,679
- ----------------------------------------------------------------------
- -
TOTAL LIABILITIES 36,542,075
- ----------------------------------------------------------------------
- -
NET ASSETS $1,304,267,040
- ----------------------------------------------------------------------
- -
REPRESENTED BY
- ----------------------------------------------------------------------
- -
Paid-in capital (Notes 1 and 4) $1,312,310,629
- ----------------------------------------------------------------------
- -
Undistributed net investment income (Note 1) 721,349
- ----------------------------------------------------------------------
- -
Accumulated net realized loss on investments (Note 1) (27,131,353)
- ----------------------------------------------------------------------
- -
Net unrealized appreciation of investments 18,366,415
- ----------------------------------------------------------------------
- -
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $1,304,267,040
- ----------------------------------------------------------------------
- -
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
- -
Net asset value and redemption price per class A share
($821,499,945 divided by 92,020,210 shares) $8.93
- ----------------------------------------------------------------------
- -
Offering price per class A share (100/95.25 of $8.93)* $9.38
- ----------------------------------------------------------------------
- -
Net asset value and offering price per class B share
($474,373,508 divided by 53,194,483 shares)+ $8.92
- ----------------------------------------------------------------------
- -
Net asset value and redemption price per class M share
($8,393,587 divided by 940,541 shares) $8.92
- ----------------------------------------------------------------------
- -
Offering price per class M share (100/96.75 of $8.92)* $9.22
- ----------------------------------------------------------------------
- -
<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, 1996
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $87,620,256
- ----------------------------------------------------------------------
- -
EXPENSES:
- ----------------------------------------------------------------------
- -
Compensation of Manager (Note 2) 7,512,459
- ----------------------------------------------------------------------
- -
Investor servicing and custodian fees (Note 2) 1,136,046
- ----------------------------------------------------------------------
- -
Compensation of Trustees (Note 2) 39,502
- ----------------------------------------------------------------------
- -
Administrative services (Note 2) 25,582
- ----------------------------------------------------------------------
- -
Distribution fees--Class A (Note 2) 2,089,472
- ----------------------------------------------------------------------
- -
Distribution fees--Class B (Note 2) 3,900,956
- ----------------------------------------------------------------------
- -
Distribution fees--Class M (Note 2) 25,470
- ----------------------------------------------------------------------
- -
Reports to shareholders 76,792
- ----------------------------------------------------------------------
- -
Registration fees 425
- ----------------------------------------------------------------------
- -
Auditing 65,403
- ----------------------------------------------------------------------
- -
Legal 52,421
- ----------------------------------------------------------------------
- -
Postage 118,093
- ----------------------------------------------------------------------
- -
Other 19,950
- ----------------------------------------------------------------------
- -
TOTAL EXPENSES 15,062,571
- ----------------------------------------------------------------------
- -
Expense reduction (Note 2) (590,553)
- ----------------------------------------------------------------------
- -
NET EXPENSES 14,472,018
- ----------------------------------------------------------------------
- -
NET INVESTMENT INCOME 73,148,238
- ----------------------------------------------------------------------
- -
Net realized gain on investments (Notes 1 and 3) 16,059,962
- ----------------------------------------------------------------------
- -
Net realized loss on futures contracts (Note 1) (4,227,533)
- ----------------------------------------------------------------------
- -
Net realized loss on written options (Notes 1 and 3) (299,043)
- ----------------------------------------------------------------------
- -
Net unrealized appreciation of investments during the year 14,888,511
- ----------------------------------------------------------------------
- -
NET GAIN ON INVESTMENTS 26,421,897
- ----------------------------------------------------------------------
- -
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $99,570,135
- ----------------------------------------------------------------------
- -
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
YEAR ENDED MARCH 31
- ----------------------------------------------------------------------
- -
1996 1995
- ----------------------------------------------------------------------
- -
<S> <C> <C>
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
- -
Operations:
- ----------------------------------------------------------------------
- -
Net investment income $73,148,238 $74,642,060
- ----------------------------------------------------------------------
- -
Net realized gain (loss) on investment
transactions 11,533,386 (31,374,804)
- ----------------------------------------------------------------------
- -
Net unrealized appreciation of investment
transactions 14,888,511 32,173,688
- ----------------------------------------------------------------------
- -
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 99,570,135 75,440,944
- ----------------------------------------------------------------------
- -
DISTRIBUTIONS TO SHAREHOLDERS:
- ----------------------------------------------------------------------
- -
From net investment income
- ----------------------------------------------------------------------
- -
Class A (48,694,201) (51,832,348)
- ----------------------------------------------------------------------
- -
Class B (23,969,020) (22,403,596)
- ----------------------------------------------------------------------
- -
Class M (276,752) (11,827)
- ----------------------------------------------------------------------
- -
Increase from capital share transactions
(Note 4) 20,779,045 34,377,706
- ----------------------------------------------------------------------
- -
TOTAL INCREASE IN NET ASSETS 47,409,207 35,570,879
- ----------------------------------------------------------------------
- -
NET ASSETS
- ----------------------------------------------------------------------
- -
Beginning of year 1,256,857,833 1,221,286,954
- ----------------------------------------------------------------------
- -
END OF YEAR (including undistributed
net investment income of $721,349
and $454,966, respectively) $1,304,267,040 $1,256,857,833
- ----------------------------------------------------------------------
- -
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
FOR THE PERIOD
DECEMBER 1, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
MARCH 31 TO MARCH 31 YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
- ---------
1996 1995 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- ---------
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 .50 .16 .47 .48 .44
Net realized and unrealized
gain (loss) on investments .17 .54 .18 .01 (.32)
- --------------------------------------------------------------------------------
- ---------
TOTAL FROM INVESTMENT
ACTIVITIES .67 .70 .65 .49 .12
- --------------------------------------------------------------------------------
- ---------
LESS DISTRIBUTIONS:
From net investment income (.50) (.16) (.47) (.48) (.44)
- --------------------------------------------------------------------------------
- ---------
In excess of net investment
income -- -- -- -- (.01)
- --------------------------------------------------------------------------------
- ---------
From net realized gain on
investments -- -- -- -- --
- --------------------------------------------------------------------------------
- ---------
In excess of net realized
gain on investments -- -- -- -- (.06)
- --------------------------------------------------------------------------------
- ---------
TOTAL DISTRIBUTIONS (.50) (.16) (.47) (.48) (.51)
- --------------------------------------------------------------------------------
- ---------
NET ASSET VALUE, END OF
PERIOD $8.92 $8.75 $8.92 $8.74 $8.73
- --------------------------------------------------------------------------------
- ---------
TOTAL INVESTMENT RETURN AT
- --------------------------------------------------------------------------------
- ---------
NET ASSET VALUE (%)(A) 7.77 8.58(B) 7.55 5.94 1.52
- --------------------------------------------------------------------------------
- ---------
NET ASSETS, END OF PERIOD
(in thousands) $8,394 $1,224 $474,374 $427,086 $369,006
- --------------------------------------------------------------------------------
- ---------
Ratio of expenses to
average net assets (%)(c) 1.18 .41(b) 1.54 1.55 1.54
- --------------------------------------------------------------------------------
- ---------
Ratio of net investment
income to average net assets (%) 5.45 1.78(b) 5.25 5.66 5.02
- --------------------------------------------------------------------------------
- ---------
Portfolio turnover (%) 75.89 62.84 75.89 62.84 47.08
- --------------------------------------------------------------------------------
- ---------
<PAGE>
FOR THE PERIOD
JANUARY 4, 1993
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31 YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
- -----------
1993 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
- -----------
CLASS A
- --------------------------------------------------------------------------------
- -----------
<C> <C> <C> <C> <C> <C>
$8.95 $8.74 $8.73 $9.12 $8.65 $8.36
- --------------------------------------------------------------------------------
- -----------
.10 .52 .54 .55 .63 .67
- --------------------------------------------------------------------------------
- -----------
.17 .19 -- (.34) .51 .31
- --------------------------------------------------------------------------------
- -----------
.27 .71 .54 .21 1.14 .98
- --------------------------------------------------------------------------------
- -----------
(.10) (.52) (.53) (.54) (.62) (.68)
-- -- -- -- -- --
- --------------------------------------------------------------------------------
- -----------
-- -- -- (.01) (.05) (.01)
- --------------------------------------------------------------------------------
- -----------
-- -- -- (.05) -- --
- --------------------------------------------------------------------------------
- -----------
(.10) (.52) (.53) (.60) (.67) (.69)
- --------------------------------------------------------------------------------
- -----------
$9.12 $8.93 $8.74 $8.73 $9.12 $8.65
- --------------------------------------------------------------------------------
- -----------
3.05(b) 8.31 6.55 2.15 13.67 12.11
- --------------------------------------------------------------------------------
- -----------
$95,175 $821,500 $828,548 $852,281 $638,971 $324,384
- --------------------------------------------------------------------------------
- -----------
.30(b) .95 .95 .97 1.05 .91
- --------------------------------------------------------------------------------
- -----------
1.21(b) 5.86 6.28 5.73 6.83 7.80
- --------------------------------------------------------------------------------
- -----------
31.05 75.89 62.84 47.08 31.05 44.34
- --------------------------------------------------------------------------------
- -----------
<FN>
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Not annualized
(c) The ratio of expenses to average net assets for the period ended March 31,
1996 includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts (Note 2).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
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 Investments,
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, which convert to class A shares after approximately eight
years, do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years
of purchase. Class 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 preparation of financial statements is in conformity
with generally accepted accounting principles and requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value,
and other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis.
C FUTURES AND OPTIONS CONTRACTS The fund may use futures and options
contracts to hedge against changes in the values of securities the
fund owns
<PAGE>
or expects to purchase. The fund may also write options on securities
it owns or which it 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.
D FEDERAL TAXES It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held and for excise tax on
income and capital gains.
At March 31, 1996, the fund had a capital loss carryover of
approximately $23,233,000 available to offset future net capital gain,
if any, which will expire on March 31, 2004.
The amount of the carryover and the expiration are:
LOSS CARRYOVER EXPIRATION
- --------------------------------------------------
$11,943,000 March 31, 2003
11,290,000 March 31, 2004
- --------------------------------------------------
E DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend
date and paid semiannually. 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 treatment of realized gains and losses on
certain futures contracts, market discount, and defaulted interest.
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, 1996, the fund reclassified $968,050 to
increase undistributed net investment income and $28,533 to decrease
paid-in-capital, with an increase to accumulated net realized loss on
investments of $939,517. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from
the purchase of securities in excess of maturity value is amortized on
a yield-to-maturity basis. Discounts on zero coupon bonds, original
issue, stepped-coupon bonds and payment in kind bonds are accreted
according to the effective yield method.
<PAGE>
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND OTHER TRANSACTIONS
Compensation of Putnam Management, for managment and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of
the first $500 million of the fund's average net assets, 0.55% of the
next $500 million, 0.50% of the next $500 million and 0.45% of any
amount over $1.5 billion. Fees are subject to reduction 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.
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 Trustees fee of $2,310 and an
additional fee for each Trustee's meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
During the year ended March 31,
1996, 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 wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.For the year ended March 31, 1996, fund
expenses were reduced by $590,553 under expense offset arrangements
with PFTC. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested the assets utilized in connection with the expense 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 year ended March 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $162,997 and $4,797 from the
sale of class A and class M shares, respectively and received $954,983
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 year ended ended March 31,
1996, Putnam Mutual Funds Corp., acting as underwriter received $6,315
on class A redemptions.NOTE 3PURCHASES AND SALES OF SECURITIES During
the year ended March 31, 1996, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $946,124,520 and $959,400,099, respectively.
There were no purchases and sales of U.S. government obligations. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.Written
option transactions during the year are summarized as follows:
<TABLE><CAPTION> CONTRACTS PREMIUMS AMOUNTS RECEIVED -----------
- ------------------------------------------------------------<S> <C>
<C>Contracts outstanding at beginning of year 49,800 $1,258,088-
- ----------------------------------------------------------------------
Options expired 49,800 1,258,088-------------------------------
- ----------------------------------------WRITTEN OPTIONS OUTSTANDING AT
END OF YEAR -- $-------------------------------------------------
- ------------------------</TABLE>
<PAGE> NOTE 4 CAPITAL SHARESAt March 31, 1996, there was an unlimited
number of shares of beneficial interest authorized. Transactions in
capital shares were as follows: <TABLE><CAPTION> YEAR ENDED MARCH 31-
- ---------------------------------------------------------------------
1996------------------------------------------------------------------
- ----CLASS A SHARES AMOUNT---------------------------------------
- -------------------------------<S> <C> <C>Shares sold 22,972,217
$206,082,849----------------------------------------------------------
- ------------Shares issued in connection with reinvestment of
distributions 2,848,087 25,521,274 25,820,304 231,604,123----
- ------------------------------------------------------------------
Shares repurchased (28,546,381) (256,375,731)----------------------
- ------------------------------------------------NET DECREASE
(2,726,077) $(24,771,608)------------------------------------------
- ---------------------------- 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 DECREASE (2,889,880) $(23,817,826)------------
- ---------------------------------------------------------- YEAR ENDED
MARCH 31--------------------------------------------------------------
- -------- 1996---------------------------------------------------
- -------------------CLASS B SHARES AMOUNT------------------------
- ----------------------------------------------Shares sold 15,231,262
$136,480,171----------------------------------------------------------
- ------------Shares issued in connection with reinvestment of
distributions 1,519,823 13,611,548-----------------------------------
- ----------------------------------- 16,751,085 150,091,719----
- ------------------------------------------------------------------
Shares repurchased (12,440,215) (111,692,879)----------------------
- ------------------------------------------------NET INCREASE
4,310,870 $38,398,840-------------------------------------------------
- --------------------- YEAR ENDED MARCH 31--------------------------
- -------------------------------------------- 1995CLASS 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------------------------
- ----------------------------------------------
<PAGE> YEAR ENDED MARCH 31-----------------------------------------
- ----------------------------- 1996-------------------------------
- ---------------------------------------CLASS M SHARES AMOUNT----
- ------------------------------------------------------------------
Shares sold 1,010,198 $9,040,052-----------------------------------
- -----------------------------------Shares issued in connection with
reinvestment of distributions 24,528 221,006-----------------------
- ----------------------------------------------- 1,034,726 9,261,058-
- ---------------------------------------------------------------------
Shares repurchased (234,113) (2,109,245)-----------------------------
- -----------------------------------------NET INCREASE 800,613
$7,151,813------------------------------------------------------------
- ---------- FOR THE PERIOD ENDED 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------------------------------------------------------------
- ----------</TABLE>
<PAGE> FEDERAL TAX INFORMATION (Unaudited)The fund has designated 100%
of dividends paid from net investment income during the fiscal year as
tax exempt for Federal income tax purposes.The Form 1099 you receive
in January 1997 will show the tax status of all distributions paid to
your account in calendar 1996.
<PAGE> FUND INFORMATIONINVESTMENT MANAGERPutnam InvestmentManagement,
Inc.One Post Office SquareBoston, MA 02109MARKETING SERVICESPutnam
Mutual Funds Corp.One Post Office SquareBoston, MA
02109CUSTODIANPutnam Fiduciary Trust CompanyLEGAL COUNSELRopes &
GrayINDEPENDENT ACCOUNTANTSCoopers & Lybrand L.L.P.TRUSTEESGeorge
Putnam, ChairmanWilliam F. Pounds, Vice ChairmanJameson Adkins
BaxterHans H. EstinJohn A. HillElizabeth T. KennanLawrence J.
LasserRobert E. PattersonDonald S. PerkinsGeorge Putnam, IIIEli
ShapiroA.J.C. SmithW. Nicholas ThorndikeOFFICERSGeorge
PutnamPresidentCharles E. PorterExecutive Vice PresidentPatricia C.
FlahertySenior Vice PresidentJohn D. HughesSenior Vice President and
TreasurerLawrence J. LasserVice PresidentGordon H. SilverVice
PresidentGary N. CoburnVice PresidentJames E. EricksonVice
PresidentRichard P. WykeVice President and Fund ManagerWilliam N.
ShieblerVice PresidentJohn R. VeraniVice PresidentPaul M. O'NeilVice
PresidentBeverly MarcusClerk and Assistant TreasurerThis 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 INVESTMENTSThe Putnam FundsOne Post Office SquareBoston,
Massachusetts 02109Bulk RateU.S. PostagePAIDPutnamInvestments24532-
051/353/560 5/96
<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
