Putnam
Municipal
Income Fund
SEMIANNUAL REPORT
September 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Municipal Income Fund searches low and long for returns, and
usually finds more than its share."
-- Morningstar Mutual Funds September 27, 1996
* "Diligent in-house research has enabled the fund to remain competitive
with funds solely dedicated to the higher-yielding sector of the
municipal bond market despite the fund's strict guidelines, which
dictate that a minimum of 65% of the fund's assets must remain in the
investment grade market."
-- Blake E. Anderson, Manager
Putnam Municipal Income Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
24 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
When the rest of the bond market took a rather steep drop last February,
just before the start of Putnam Municipal Income Fund's new fiscal year,
the decline in municipal bond prices was markedly milder. They had taken
their hit earlier in the wake of worry over how a flat tax might affect
the tax advantage of municipal bonds. The tax-exempt market has since
gained a modicum of stability, but prices remain mildly erratic.
Overall, Blake Anderson, who was recently appointed as your fund's
manager, believes positive forces at work in the municipal bond market
outweigh the negatives. Demand is strong, especially relative to fairly
modest supply. The economy, interest rates, and inflation remain
generally favorable.
Blake joined Putnam in 1987 and has eight years of investment
experience. In the report that follows, he discusses the performance of
your fund to date and what he sees in prospect for the months ahead.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
November 20, 1996
Report from the Fund Managers
Blake E. Anderson
Richard P. Wyke
It would be fair to say that bond investors exhibited a steady
preoccupation with the economy's accelerating growth for much of the six
months ended September 30, 1996. While the Federal Reserve Board, to the
surprise of many, held short-term interest rates steady, prices of
fixed-income investments seesawed as the markets tried to anticipate the
future course of rates. Despite this uneasiness, yields remained within
a limited range, evidenced by the bellwether 30-year Treasury bond whose
yield fluctuated between 6.99% and 7.12% during those six months.
Against this backdrop, municipal bond investments delivered respectable
performances. Putnam Municipal Income Fund's return of 2.47% at net
asset value for class A shares for the semiannual period was close to
its Lipper general municipal debt universe's average of 2.78%. The
fund's return for class A shares taking maximum sales charges into
account was -2.52%; returns for class B and class M shares, which can be
found on page 8, show a similar pattern.
* PROSPECT OF HIGHER INTEREST RATES UNNERVES MARKET
During the semiannual period, the fixed-income markets digested a
barrage of economic reports that generally suggested a strengthening
economy. Given the potential inflationary pressures of stronger growth,
bond investors kept nervous eyes on the policymakers at the Federal
Reserve Board. Each of the Fed's meetings was preceded by waves of
speculation about the possibility of a short-term rate increase.
Finally, at its September 24 meeting, the Fed decided to hold interest
rates steady, at least through the elections in November.
* SHIFTS POSITION FUND TO BENEFIT FROM POTENTIAL MARKET RALLY
While the housing market continues to be a surprising source of
strength, we see evidence of many sectors of the economy slowing,
including manufacturing, retail, and exports. It's our belief that the
economy will lose some of its momentum in the coming months, and
inflation will remain well behaved. Our more sanguine view led us to
position the fund to benefit from a market rally. In fact, since last
July, we've been lengthening the fund's duration by selling short-term
holdings. Duration is a measure of the portfolio's sensitivity to
interest-rate changes; a longer duration may offer greater appreciation
when interest rates are declining.
Concurrent with selling short-term holdings, we've been shifting assets
from the far end of the yield curve (25- to 30-year bonds) into the 10-
to 25-year sector of the curve. We began this process at the midpoint of
the period in anticipation of a steepening municipal bond yield curve. A
steep municipal bond yield curve reflects market expectations that
future rates will fall and bond prices will rise. Happily this event did
begin to take place in the later three months of the period. The overall
impact of the two strategies was a lengthening of the fund's duration by
the end of the period.
* SEEKING SECTORS WITH GREATEST PERFORMANCE POTENTIAL
During the period, we added approximately 3% to the fund's holdings of
state general obligation bonds. This was accomplished by selling
selected insured high-grade bonds that, in our opinion, had little room
for appreciation. We then reinvested the proceeds in uninsured state
general obligations (GOs), which have the ability to appreciate more
dramatically through improving credit quality. We also sold California
GOs, which had achieved significant appreciation as a result of the
state's credit upgrade and improving economy, and reinvested the
proceeds in uninsured Georgia GOs, which are expected to experience
greater appreciation relative to other high-grade sectors of the
municipal market.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*]
Utilities 22.7%
Health care 18.3%
Transportation 16.6%
Housing 6.1%
Education 4.7%
Footnote reads:
*Based on net assets as of 9/30/96. Allocations will vary over time.
The fund's investments in New York State were reduced during the period.
With New York City's finances weak, though stable, and concerns as to
how the city will handle indigent care in light of welfare reform, we
concluded that opportunities for appreciation were greater in other
locations. Investments in Texas municipal bonds were increased in
anticipation of strong seasonal demand. Our experience has shown that as
the end of the calendar year approaches, municipal bond investors
frequently move excess cash into Texas paper.
Health-care investments have made a viable contribution to the fund's
performance. The fund's relatively heavy weighting stems from our
perception that on a credit-by-credit and market-by-market basis,
hospitals continue to offer some of the best values across the nation.
In addition, the sector's high coupons are expected to continue to
provide a healthy boost to the fund's income stream, assuming the
current yield spreads between sectors remain fairly constant.
While we believe the future of the resource recovery and cogeneration
industries remains promising, this sector had a disappointing six
months. Paper recycling was negatively impacted by declining prices of
recycled pulp, largely the result of abundant supply. Some of the laws
and regulations written to provide for cogeneration and resource
recovery plants have come into question. In an effort to soften
volatility over the short term, we sold most of the holdings with weak
performance records but retained an interest in stronger projects that
suffered more as a result of guilt by association rather than as a
result of any specific fundamentals.
Like other investments in any new industry, bonds linked to these
sectors represent a certain degree of risk for investors. However,
intensive scrutiny of bond issuers' credit quality, funding sources, and
future prospects has guided the fund's investment process. These
businesses, which are devoted to recycling and converting trash into
fuel, should become more valuable as the nation becomes more
environmentally conscious. As they gain broader acceptability, it is
likely that their bonds will be considered more creditworthy
investments. Should upgrades occur, they could be expected to reflect
favorably on the bonds' prices.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: CREDIT QUALITY OVERVIEW*]
AAA/Aaa 33.5%
AA/Aa 7.3%
A/A 7.5%
BBB/Baa 21.0%
BB/Ba 12.7%
B/B 12.1%
Footnote reads:
*As a percentage of market value as of 9/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions, unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* BOND STRUCTURE BECOMING MORE IMPORTANT
The call structure of bonds has taken on increasing importance in recent
months. This is largely because in 1993 the municipal market witnessed
the largest issuance of tax-free bonds ever. With such a significant
portion of the municipal marketplace callable in 2003, just seven years
away, many of these bondholders are selling these bonds and purchasing
newer bonds issued in 1995 or 1996.
With an eye to call structure and in anticipation of ongoing yield curve
steepening, we plan to continue our push into the middle of the
municipal bond curve. If interest rates do eventually decline, we
believe the fund's focus on bonds in the 10- to 25-year belly of the
municipal bond curve could be a rewarding note after a somewhat choppy
start to the first half of fiscal 1997.
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 9/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
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 9/30/96
Class A Class B Class M
(inception date) (5/22/89) (1/4/93) (12/1/94)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
6 months 2.47% -2.52% 2.08% -2.89% 2.37% -0.96%
- -----------------------------------------------------------------------
1 year 5.72 0.74 5.08 0.10 5.44 2.00
- -----------------------------------------------------------------------
5 years 43.45 36.63 -- -- -- --
Annual average 7.48 6.44 -- -- -- --
- -----------------------------------------------------------------------
10 years -- -- -- -- -- --
Annual average -- -- -- -- -- --
- -----------------------------------------------------------------------
Life of class 75.34 67.07 21.62 18.65 19.80 15.84
Annual average 7.93 7.22 5.37 4.68 10.38 8.37
- -----------------------------------------------------------------------
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.
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.
COMPARATIVE INDEX RETURNS FOR
PERIODS ENDED 9/30/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- -----------------------------------------------------------------------
6 months 3.09% 1.35%
- -----------------------------------------------------------------------
1 year 6.04 3.00
- -----------------------------------------------------------------------
5 years 43.23 15.02
Annual average 7.45 2.84
- -----------------------------------------------------------------------
Life of class A 75.61 27.46
Annual average 7.98 3.35
- -----------------------------------------------------------------------
Life of class B 27.36 11.20
Annual average 6.66 2.88
- -----------------------------------------------------------------------
Life of class M 22.24 5.41
Annual average 11.58 2.92
- -----------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 9/30/96
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 6 6 6
- -----------------------------------------------------------------------
Income $0.259 $0.232 $0.247
- -----------------------------------------------------------------------
Capital gains1 -- -- --
- -----------------------------------------------------------------------
Total $0.259 $0.232 $0.247
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
3/31/96 $8.93 $9.38 $8.92 $8.92 $9.22
- -----------------------------------------------------------------------
9/30/96 8.88 9.32 8.87 8.88 9.18
- -----------------------------------------------------------------------
Current return
(end of period):
- -----------------------------------------------------------------------
Current dividend
rate2 5.80% 5.50% 5.20% 5.60% 5.40%
- -----------------------------------------------------------------------
Taxable equivalent3 9.60 9.11 8.61 9.27 8.94
- -----------------------------------------------------------------------
Current 30-day SEC
yield4 5.82 5.54 5.25 5.58 5.40
- -----------------------------------------------------------------------
Taxable equivalent3 9.64 9.17 8.69 9.24 8.94
- -----------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may be
subject to state and local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
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.
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
PSFG -- Permanent School Fund Guarantee
VRDN -- Variable Rate Demand Notes
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (99.6%) *
PRINCIPAL AMOUNT RATINGS ** VALUE
Arizona (2.1%)
- ---------------------------------------------------------------------------------------------------------------------
$955,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 AAA $1,082,731
7,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Asarco Inc. Project),
Ser. 85, 8.9s, 7/1/06 Baa 7,397,460
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 Aaa 8,172,500
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst. Rev.
Bonds (Env. Inc. & Phoenix Hosp. & Med. Ctr.),
7s, 7/1/16 Baa 2,285,000
4,950,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds
(Payson Regl. Med. Ctr. Inc. Project),
7.7s, 10/1/23 B/P 4,436,438
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 4,450,000
--------------
27,824,129
Arkansas (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
14,925,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge. Rev.
Bonds, Ser. 84A, zero %, 7/1/15 Aa 2,033,531
California (13.5%)
- ---------------------------------------------------------------------------------------------------------------------
9,420,000 CA Poll. Control Fin. Auth. Rev. Bonds (Atlantic
Ritchfield Project), 5s, 4/1/08 A 9,172,725
CA State G.O. Bonds
18,465,000 6.6s, 2/1/09 A 20,496,150
11,300,000 6 1/2s, 2/1/07 A 12,486,500
12,000,000 CA State Pub. Works Board Lease Rev.
Bonds (U. of CA Projects), Ser. A,
5 1/2s, 6/1/21 A 11,220,000
Corona, COP
2,500,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 B/P 2,625,000
5,800,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 B/P 6,039,250
33,435,000 Los Angeles, Convention & Exhib. Ctr. Rev.
Bonds, Ser. A, MBIA, 5 1/8s, 8/15/21 Aaa 30,425,850
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa 2,523,000
3,615,000 Monrovia Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevelopment Project Area-1),
Ser. B, AMBAC, 6.7s, 5/1/21 Aaa 3,881,606
6,150,000 Northern CA Pwr. Agcy. Multi. Cap. Fac.
IFB, MBIA, 10.105s, 8/15/17 Aaa 6,895,688
13,000,000 Orange Cnty. COP, Ser. A, MBIA, 6s, 7/1/26 Aaa 13,097,500
2,000,000 Orange Cnty., Rev. Bonds, Ser. A, MBIA, 6s, 6/1/10 Aaa 2,082,500
Orange Cnty., Local Trans. Auth. IFB
11,200,000 6.2s, 2/14/11 AA 11,522,000
4,000,000 AMBAC, 6.2s, 2/14/11 Aaa 4,215,000
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
10,710,000 5s, 1/1/33 BB/P 8,942,850
10,000,000 (Toll Road) zero %, 1/1/10 BB/P 7,812,500
7,250,000 Southern CA Pwr. Auth. Rev. Bonds,
Ser. A, MBIA, 5s, 1/1/20 Aaa 6,552,188
8,000,000 U. of CA Rev. Bonds (Multi-Purpose Projects),
Ser. B, MBIA, 5s, 9/1/16 Aaa 7,330,000
Valley Hlth. Syst. Hosp. Rev. Bonds
6,000,000 (Rfdg. & Impt. Project), 6 1/2s, 5/15/25 BBB 5,925,000
1,000,000 (Impt. Project), Ser. A, 6 1/8s, 5/15/05 BBB 998,750
4,300,000 Walnut Creek COP (John Muir Med. Ctr.
Project), MBIA, 5s, 2/15/16 Aaa 3,896,875
--------------
178,140,932
Colorado (3.7%)
- ---------------------------------------------------------------------------------------------------------------------
10,500,000 Arapahoe Cnty. Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Baa 11,287,500
Denver City & Cnty. Arpt Rev. Bonds
6,000,000 Ser. A 8 3/4s, 11/15/23 Baa 7,050,000
2,000,000 Ser. A 8s, 11/15/25 BBB 2,237,500
5,000,000 Ser. D, 7 3/4s, 11/15/13 BBB 5,956,250
4,000,000 Ser. A, 7 1/2s, 11/15/23 BBB 4,375,000
1,500,000 7 1/4s, 11/15/25 BBB 1,645,469
12,000,000 Ser. B, 7 1/4s, 11/15/23 BBB 12,930,000
3,000,000 Larimer Cnty., Sch. Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A 3,566,250
--------------
49,047,969
Connecticut (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 CT G.O. Bonds, Ser. A, 5.3s, 5/15/10 Aa 1,967,500
CT State Dev. Auth. 1st Mtge. Rev. Bonds
1,405,000 (Gladeview Hlth. Care Project),
9 3/4s, 12/15/16 BB/P 1,540,231
2,320,000 (East Hill Woods Project), 8 3/4s, 7/1/19 B/P 1,624,000
2,500,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.),
Ser. A, 10s, 8/15/21 Aaa 3,106,250
--------------
8,237,981
District of Columbia (0.8%)
- --------------------------------------------------------------------------------------------------------------------
Dist. of Columbia Rfdg. Rev. Bonds (American
Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,696,000
3,350,000 5 3/4s, 9/1/13 BBB 2,998,250
3,500,000 Dist. of Columbia Redev. Land Agcy. Rev. Bonds
(Wash. D. C. Sports Arena), 5 5/8s, 11/1/10 Baa 3,416,875
--------------
10,111,125
Florida (6.7%)
- ---------------------------------------------------------------------------------------------------------------------
10,000,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South Project),
7.95s, 12/1/08 A 11,012,500
10,000,000 Dade Cnty. Special Obligation Rev. Bonds,
AMBAC, 5s, 10/1/35 Aaa 8,912,500
4,025,000 FL State Board of Ed. Cap. Outlay Pub. Ed. Rev.
Bonds, Ser. E, 5s, 6/1/11 Aa 3,793,563
22,900,000 Hernando Cnty. Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 25,361,750
Largo, Sun Coast Hlth. Syst. Rev. Bonds
3,485,000 6.3s, 3/1/20 BBB 3,284,613
1,700,000 6.2s, 3/1/13 BBB 1,617,125
4,750,000 Orange Cnty. Hlth. Care Fac. Auth. IFB,
10.115s, 10/1/14 (acquired 4/19/95,
cost $6,261,830) ++ Aaa 6,198,750
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
5,000,000 (Orlando Hosp. Healthcare),
MBIA, 5s, 10/1/15 Aaa 4,600,000
10,000 (Pooled Hosp. Loan), Ser. B, MBIA
7 7/8s, 12/1/25 Aaa 10,440
10,000,000 (Adventist Hlth. Syst.), AMBAC,
5 1/2s, 11/15/15 Aaa 9,837,500
6,485,000 Palm Beach Cnty. Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College),
Ser. A, 8 1/2s, 3/1/23 B/P 5,188,000
990,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc. Project), 8 7/8s, 12/1/18 AAA 1,102,613
5,000,000 Reedy Creek Impt. Dist. Rev. Bonds, Ser. C,
AMBAC, 5s, 6/1/19 Aaa 4,543,750
Sanford Arpt. Auth. Indl. Dev. Rev. Bonds
(Terminals Inc. Project), Ser. A
2,000,000 7 1/2s, 5/1/10 BB/P 2,002,500
1,000,000 7.3s, 5/1/04 BB/P 1,010,000
--------------
88,475,604
Georgia (3.8%)
- ---------------------------------------------------------------------------------------------------------------------
5,000,000 Atlanta Metro. Rapid Tran. Auth. Sales Tax Rev.
Bonds, Ser. O, 6.55s, 7/1/20 AA 5,268,750
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds (Delta
Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 4,467,750
De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts. Project)
1,500,000 Ser. B, 10s, 4/1/17 Ba 1,556,250
3,700,000 Ser. A, 7 1/2s, 4/1/17 B/P 3,824,875
20,510,000 GA State G.O. Bonds, Ser. B, 6 1/4s, 4/1/08 Aaa 22,330,263
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc. Project), Ser. 84, 9 1/2s,
6/1/15 BBB/P 2,185,000
10,000,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc. Project),
7.4s, 1/1/16 BB/P 10,250,000
--------------
49,882,888
Illinois (4.8%)
- ---------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Rev. Bonds,
Ser. A, AMBAC
5,290,000 5.6s, 1/1/11 Aaa 5,197,425
8,580,000 5.6s, 1/1/10 Aaa 8,472,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev.
Bonds (United Air Lines, Inc.)
3,774,000 Ser. B, 8.95s, 5/1/18 BBB 4,255,185
1,830,000 Ser. 84A, 8.85s, 5/1/18 BBB 2,058,750
7,245,000 Ser. 84B, 8.85s, 5/1/18 BBB 8,150,625
10,150,000 Cook Cnty. Cmnty. College Dist. #508
Rev. Bonds, Ser. C, MBIA, 7.7s, 12/1/07 Aaa 12,091,188
3,000,000 Glenview VRDN, 5.4s, 12/1/97 VMIG1 3,039,870
2,500,000 IL Dev. Fin Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (In default)+ CCC/P 1,871,875
IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
1,975,000 (Cmnty. Rehab. Providers Fac.), 8 3/4s, 7/1/11 BB/P 2,098,438
1,400,000 (Cmnty. Rehab. Providers Fac.), 8 1/4s, 8/1/12 BB/P 1,449,000
4,955,000 (Cmnty. Rehab Facs.), Ser. A, 7 7/8s, 7/1/20 BB/P 4,787,769
1,925,000 (Mercy Hsg. Corp. Project), 7s, 8/1/24 Baa 2,002,000
IL Edl. Fac. Auth. Rev. Bonds
2,005,000 (Steppenwolf Theatre Project), 9.65s, 7/1/19 BB/P 2,102,712
6,000,000 (Northwestern U.), 5 1/2s, 12/1/13 AA 5,857,500
--------------
63,435,087
Indiana (1.7%)
- ---------------------------------------------------------------------------------------------------------------------
1,910,661 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB 2,065,903
19,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev.
Bonds (Federal Express Corp. Project),
7.1s, 1/15/17 BBB 20,163,750
--------------
22,229,653
Iowa (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 IA Fin. Auth. Hlth. Care Facs. Rev. Bonds
(Care Initiatives Project), 9 1/4s, 7/1/25 BB/P 4,715,000
Kansas (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
9,650,000 Kansas City Util. Sys. Rev. Bonds, FGIC,
6 3/8s, 9/1/23 Aaa 10,277,250
Louisiana (4.1%)
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds (Boise Cascade
Corp. Project), 7 3/4s, 6/1/21 Baa 4,305,000
4,500,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 BB 4,865,625
1,405,991 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds (Emily
Morten Foundation), 10 1/4s, 5/1/19 B 1,495,623
5,000,000 Lake Charles Harbor & Term. Dist. Port Facs.
Rev. Bonds (Trunkline LNG Co. Project)
7 3/4s, 8/15/22 Baa 5,600,000
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
1,000,000 14 1/2s, 1/1/02 BB 1,017,300
2,000,000 7 1/2s, 7/1/13 BB 2,075,000
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 8,725,450
6,995,000 (Union Carbide Project), 7.35s, 11/1/22 Baa 7,519,625
W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf States Util. Co. Project)
3,000,000 9s, 5/1/15 BB/P 3,337,500
4,000,000 7.7s, 12/1/14 BB 4,320,000
8,000,000 Ser. C, 7s, 11/1/15 B 8,260,000
3,000,000 W. Feliciana Parish Poll. Control VRDN
(Gulf States Utilities Co.), 3.95s, 12/1/15 Aa 3,000,000
--------------
54,521,123
Maryland (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
1,940,000 Denton 1st Mtge. Rev. Bonds (Wesleyan Hlth.
Care Ctr. Project), 10 1/4s, 4/1/20 B/P 1,746,000
Massachusetts (5.3%)
- ---------------------------------------------------------------------------------------------------------------------
2,450,000 Boston Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 BB 2,685,813
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. IFB,
Class A, AMBAC, 6.97s, 7/1/18 Aaa 4,431,250
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,970,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba 3,014,550
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Baa 2,895,750
3,930,000 (Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 4,490,025
17,600,000 MA State Hlth. & Edl. Fac. Auth. VRDN
(Capital Assets Program), Ser. D, 2 1/4s, 1/1/35 VMIG1 17,600,000
MA State Indl. Fin. Agcy. Rev. Bonds
3,900,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 3,748,875
1,000,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 961,250
1,540,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s,
10/1/20 B/P 1,516,900
1,019,314 (1st Mtge. Pioneer Valley Living Ctr.), Zero %,
10/1/20 (In default) + B/P 1,274
MA State Indl. Fin. Agcy. Resource Recvy. Rev.
Bonds (Southeastern MA Project)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB/P 3,393,750
13,000,000 Ser. A, 9s, 7/1/15 B/P 14,657,500
4,250,000 MA State Indl. Fin. Agcy. Solid Waste Disp. Rev.
Bonds (Molten Metal Technology Project),
8 1/4s, 8/1/14 B/P 4,494,375
2,360,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(Mass Tpk.,), 9s, 10/1/20 Aaa 2,770,050
3,000,000 MA State Wtr. Resources Auth. Rev. Bonds,
Ser. A, 6 1/2s, 7/15/21 Aaa 3,315,000
--------------
69,976,362
Michigan (5.8%)
- ---------------------------------------------------------------------------------------------------------------------
340,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev.
Bonds (Glacier Hills Inc. Project),
8 3/8s, 1/15/19 Bb 346,375
Detroit G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 BBB 2,662,500
3,000,000 Ser. B, 6 1/4s, 4/1/10 BBB 3,063,750
4,000,000 Ser. B, 6 1/4s, 4/1/08 BBB 4,085,000
4,055,000 Detroit Wtr. Supply Syst. Rev. Bonds,
Ser. B, MBIA, 5.4s, 7/1/11 Aaa 3,999,244
1,550,000 Detroit, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(MI Hlth. Care Corp. Project), 9.1s, 12/1/09 A 356,500
4,375,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20
(In Default) + B 1,006,250
5,705,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 8.72s, 5/1/21 BBB/P 7,017,150
10,000,000 MI Stragetic Fund Solid Waste Disp. Rev. Bonds
(Genesee Pwr. Station Project), 7 1/2s, 1/1/21 BB/P 9,887,500
10,500,000 MI Strategic Fund Ltd. Oblig. Rev. Bonds
(Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 7,875,000
MI State Hosp. Fin. Auth. Rev. Bonds
1,330,000 (Garden City Hosp.), 8 1/2s, 9/1/17 BB 1,399,825
670,000 (Garden City Project), 8 1/2s, 9/1/17 Aaa 791,438
7,795,000 (Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 BB 7,814,488
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,837,500
7,700,000 MI State Strategic Fund Rev. Bonds (Mercy
Svcs. for Aging Project), 9.4s, 5/15/20 BBB/P 8,691,375
11,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control
Rev. Bonds, Ser. B, 9 1/2s, 7/23/09 B/P 12,003,750
--------------
75,837,645
Minnesota (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade
Corp. Project), 7.2s, 10/1/24 Baa 5,406,250
5,000,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds
(Healtheast Project), Ser. A, 6 5/8s, 11/1/17 Baa 5,056,250
--------------
10,462,500
Mississippi (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
Claiborne Cnty. Poll. Control Rev. Bonds
(Middle South Energy, Inc.)
10,455,000 Ser. C, 9 7/8s, 12/1/14 Ba 11,657,325
2,400,000 Ser. A, 9 1/2s, 12/1/13 BB/P 2,658,000
--------------
14,315,325
Missouri (1.2%)
- ---------------------------------------------------------------------------------------------------------------------
8,705,000 MO State Environmental Impt. & Energy Res.
Auth. Poll. Control Rev. Bonds, 5 1/4s, 12/1/08 AA 8,661,475
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 7,359,344
--------------
16,020,819
Montana (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
4,450,000 Kansas City Sch. Dist. Bldg. Corp. Rev. Bonds
(Leasehold Rev. Cap. Ipmt. Project), FGIC,
5s, 2/1/14 Aaa 4,144,063
Nebraska (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,200,000 Ser. B, GNMA Coll., 9.452s, 3/15/22 Aaa 1,318,500
4,600,000 Ser. 2, GNMA Coll., 8.64s, 9/10/30 Aaa 5,111,750
--------------
6,430,250
Nevada (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
Clark Cnty. Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A
8,500,000 7.3s, 9/1/27 Baa 8,925,000
1,000,000 6 1/2s, 12/1/33 Baa 987,500
--------------
9,912,500
New Hampshire (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,900,000 (Havenwood-Heritage Heights),
9 3/4s, 12/1/19 AAA 3,411,125
4,000,000 (1st Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P 4,245,000
1,955,000 (Riverwoods 1st. Mtge. at Exeter), 8s, 3/1/01 B/P 2,010,581
2,960,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 2,904,500
--------------
12,571,206
New Jersey (3.8%)
- ---------------------------------------------------------------------------------------------------------------------
4,125,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P. Project),
7 7/8s, 6/1/19 BB 4,455,000
5,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
(Newrak Arpt. Marriot Hotel), 7s, 10/1/14 B/P 5,006,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 3,247,500
6,550,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 6,951,188
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA,
6 3/4s, 7/1/19 Aaa 6,562,500
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB,
Ser. I, 9.242s, 11/1/07(acquired 2/11/93,
cost $4,416,240) ++ A 4,120,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 10,057,500
10,650,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, MBIA, 5 1/2s, 6/15/11 Aaa 10,530,188
--------------
50,930,126
New York (7.0%)
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 Metro. Trans. Auth. Svcs. Contract Fac. Rev. Bonds
(Commuter Fac.), Ser. O, 5 1/2s, 7/1/17 Baa 2,378,125
NY City G.O. Bonds
2,760,000 Ser. F, 8 1/4s, 11/15/16 Aaa 3,239,550
5,000,000 Ser. D, 6 1/2s, 2/15/05 Baa 5,225,000
5,000,000 NY City Indl. Dev. Agcy. (Paper Inc. Project),
7.95s, 1/1/28 BB/P 5,293,750
5,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst.
IFB, MBIA, 8.076s, 6/15/19 Aaa 4,756,250
3,750,000 NY State Dorm. Auth. Rev. Bonds
(Court Facs. Lease), Ser. A, 5 3/8s, 5/15/16 Baa 3,426,563
1,800,000 NY State Local Govt. Assistance Corp. Rev.
Bonds, Ser. D, 7s, 4/1/18 Aaa 2,027,250
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/2s, 8/15/29 Aaa 11,931,563
10,000,000 NY State Thru-way Svc. Auth. Rev. Bonds,
5 3/4s, 4/1/16 Baa 9,750,000
10,075,000 NY State Thru-Way Auth. Svc. Contract Rev.
Bonds (Local Hwy. & Bridge Project),
5 1/4s, 4/1/13 Baa 9,281,594
16,500,000 NY State Triboro VRDN, 3.9s, 5 1/4s, 1/1/24 VMIG1 16,500,000
NY State Urban Dev. Corp. Rev. Bonds
3,000,000 (Correctional Fac.), 6 1/2s, 1/1/10 Aaa 3,311,250
5,000,000 (Sports Fac.), Ser. A, MBIA, 5 1/2s, 4/1/16 Aaa 4,887,500
4,335,000 (Correctional Cap. Fac.), Ser. 6, 5 1/4s, 1/1/12 Baa 4,031,550
5,990,000 Port Auth. NY & NJ Rev. Bonds, Ser. 103,
MBIA, 5 1/8s, 12/15/11 Aaa 5,675,525
--------------
91,715,470
North Carolina (2.6%)
- ---------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds
21,225,000 Ser. B, 6s, 1/1/22 A 20,959,688
5,250,000 AMBAC, 6s, 1/1/18 Aaa 5,433,750
3,000,000 NC Eastern Muni. Pwr. Agcy. Pwr. Syst. IFB,
FGIC, 9.278s, 1/1/25 (acquired
3/3/93 cost $3,116,820) ++ Aaa 3,161,250
6,000,000 NC Muni. Pwr. Agyc. No 1 Catawba Elec.
IFB, MBIA, 5.6s, 1/1/20 Aaa 5,512,500
--------------
35,067,188
Ohio (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
4,500,000 Dayton Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1/2s, 10/1/09 BB/P 5,135,625
1,220,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev.
Bonds, Ser. B, GNMA Coll., 8 1/4s, 12/15/19 Aaa 1,274,900
--------------
6,410,525
Oklahoma (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 Tulsa Muni. Arpt. Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa 2,117,500
Pennsylvania (7.0%)
- ---------------------------------------------------------------------------------------------------------------------
4,140,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr. Project),
8 5/8s, 10/15/13 BBB 4,662,675
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A, 7.2s,
7/1/23 BBB/P 1,190,325
3,000,000 Erie, Higher Ed. Bldg. Auth. College Rev. Bonds
(Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB 2,771,250
3,205,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.),
6 1/2s, 1/1/02 BBB/P 3,196,988
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Ctrl. IFB
(Pennsylvania Pwr. & Light Co. Project),
8.362s, 9/1/29 (acquired 6/20/95,
cost $1,655,190) ++ Aaa 1,621,875
9,000,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s, 7/1/03 Baa 9,090,000
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project), Ser. B
2,230,000 7 1/2s, 11/1/12 Baa 2,419,550
3,500,000 8 3/8s, 11/1/11 AAA 3,941,875
4,000,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 3,640,000
15,000,000 PA State Econ. Dev. Fin. Auth. Recycling
Rev. Bonds (Ponderosa Fibres Project),
Ser. A, 9 1/4s, 1/1/22 B/P 14,062,500
4,000,000 PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. E, 8.05s, 12/1/15 BBB 4,195,000
PA State G. O. Bonds FGIC
14,000,000 5 3/8s, 5/15/14 Aaa 13,632,500
10,000,000 5 3/8s, 5/15/13 Aaa 9,737,500
2,000,000 PA State Econ. 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, 8.253s, 3/1/20 Aaa 2,165,000
3,000,000 Philadelphia Gas Works Rev. Bonds, Ser. 13,
7.7s, 6/15/21 Aaa 3,431,250
6,000,000 Philadelphia Gas Works IFB, 7.615s, 8/1/21
(acquired 1/24/94, cost $5,621,520) ++ Aaa 5,032,500
3,250,000 Philadelphia, Wtr. & Wastewater Rev. Bonds,
FGIC, 7.22s, 6/15/12 Aaa 3,111,875
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 1,768,500
--------------
91,766,163
Puerto Rico (2.8%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 Cmnwlth. of Puerto Rico Govt. Dev. Bank VRDN,
6 5/8s, 12/1/15 Aaa 2,000,000
8,500,000 Cmnwlth. of Puerto Rico IFB, 7.384s, 7/1/24
(acquired 6/12/95, cost $8,912,590) ++ Aaa 8,616,875
Puerto Rico Elec. Pwr. Auth. Rev. Bonds
5,935,000 Ser. S, MBIA, 7s, 7/1/06 # Aaa 6,802,994
5,400,000 6 3/8s, 7/1/24 A 5,616,000
5,300,000 5 1/2s, 7/1/20 BBB 5,041,625
10,000,000 Ser. Z, 5 1/4s, 7/1/21 BBB 9,162,500
--------------
37,239,994
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 9,987,500
South Carolina (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty. Indl. Dev. Rev. Bonds
(Hoover Group Inc. Project), 8 1/2s, 11/1/02 Ba 8,574,375
5,500,000 Florence Cnty. Indl. Dev. Rev. Bonds (Stone
Container Corp.), 7 3/8s, 2/1/07 BB 5,706,250
Piedmont Muni. Pwr. Agcy. Rev. Bonds
8,000,000 (Elec. Project Rev.) FGIC, 5s, 1/1/22 Aaa 7,110,000
4,405,000 (SC Elec.Project), Ser. A, FGIC, 6 1/2s, 1/1/16 Aaa 4,867,525
--------------
26,258,150
Tennessee (1.2%)
- ---------------------------------------------------------------------------------------------------------------------
8,500,000 IVRC-Bristol TN Mem. Hosp. Rev. Bonds,
FGIC, 14.1s, 2/28/14 Aaa 8,149,375
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 7,472,500
--------------
15,621,875
Texas (6.7%)
- ---------------------------------------------------------------------------------------------------------------------
7,500,000 Dallas-Fort Worth Intl. Arpt. Fac. Impt. Rev.
Bonds (American Airlines, Inc.),
7 1/4s, 11/1/30 Baa 7,931,250
5,000,000 Houston G.O. Bonds, Ser. C, 5 1/4s, 4/1/14 Aa 4,806,250
17,800,000 Houston Wtr. & Swr. Syst. Rev. Bonds,
Ser. C, AMBAC, 6 3/8s, 12/1/17 Aaa 18,823,500
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
1,122,000 Ser. A, (Verex Mtg. Ins.) 10 7/8s, 2/15/16 Baa 1,126,331
1,530,000 10s, 9/15/14 B 1,528,088
3,035,000 Lamar Cons. Indpt. Sch. Dist. Rev. Bonds,
PSFG, 4 1/2s, 2/15/10 Aaa 2,735,294
10,850,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp. Project),
6.4s, 3/1/30 Aa 11,107,688
852,999 Maverick Cnty. COP (Jail Facility), 9.1s, 6/15/10 C/P 511,800
North Central TX Hlth. Fac. Dev. Corp. IFB
4,000,000 (Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
10.595s, 6/15/21 Aaa 4,455,000
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 8.12s, 5/15/08 Aa 3,198,750
North Central TX Hlth. Fac. Dev. Corp. Rev. Bonds
3,245,000 (U. Med. Ctr. Project), 8.2s, 4/1/19 BBB 3,358,770
7,500,000 (U. Med. Ctr. Project), 7 3/4s, 4/1/17 BB 7,640,625
9,000,000 (Baylor Hlth. Care Syst.), 5 1/4s, 5/15/16 Aa 8,448,750
Sam Rayburn, Muni. Pwr. Agcy. Rev. Bonds
(Pwr. Supply Syst.)
4,500,000 Ser. A, 6 1/4s, 10/1/17 BB 3,864,375
2,075,000 Ser. B, 6 1/8s, 10/1/13 BB 1,792,281
Southeast TX Multi-Fam. Hsg. Fin. Corp. Rev. Bonds
1,600,000 (Promenade Place Apts.),
Ser. B, 10.175s, 8/1/16 BB 1,760,000
4,000,000 Southeast TX Multi-Fam. Hsg. Corp. VRDN
(Pavilion Place Apts.), Ser. A, 7.6s, 7/1/16 BBB 4,000,000
2,000,000 Southeast TX Hsg. Fin. Corp. IFB Bonds
(Bayou Park Village Apts.),
Ser. B, 10.175s, 8/1/16 B/P 1,725,000
--------------
88,813,752
Utah (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,750,000 Intermountain Power Agcy. Power Supply Rev.
Bonds, Ser. D, AMBAC, 7 3/4s, 7/1/20 Aa 5,076,563
Virginia (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
2,875,000 Chesapeake Pub. Impt. G.O. Bonds, 5s, 5/1/14 Aa 2,670,156
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac.
IFB, FGIC, 8.354s, 8/15/23 Aaa 2,247,500
--------------
4,917,656
Washington (2.3%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,232,500
17,000,000 Port Walla Walla Pub. Corp. Solid Waste
Recycling Rev. Bonds (Ponderosa Fibres
Project), 9 1/8s, 1/1/26 B/P 15,703,750
1,200,000 WA State Hlth. Care Fac. VRDN (Sisters
Providence), Ser. C, 3 1/2s, 10/1/05 VMIG1 1,200,000
WA State Hlth. Care Fac. VRDN (Sisters
Providence)
3,500,000 Ser. E, 2s, 10/1/05 VMIG1 3,500,000
1,560,000 Ser. B, 3.8s, 10/1/05 VMIG1 1,560,000
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 5,768,750
--------------
29,965,000
West Virginia (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
Marion Cnty. Solid Waste Disp. Fac.
Rev. Bonds (American Pwr. Paper
Recycling Project)
3,000,000 9s, 12/1/11 B/P 1,800,000
9,000,000 8 1/4s, 12/1/11 B/P 5,400,000
5,000,000 WV State Pkwy. Economic Dev. & Tourism
Auth. IFB, FGIC, 8.893s, 5/16/19 Aaa 4,881,250
--------------
12,081,250
Wisconsin (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
3,245,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.475s, 10/25/22 Aa 3,447,813
Wyoming (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
8,400,000 Unita Cnty. Control VRDN,
3.6s, 12/1/22 Aa 8,400,000
- ---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,293,588,126) *** $1,310,165,467
- ---------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,314,895,478.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 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 September 30, 1996. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
The table below shows the percentage of the fund's investment on September 30, 1996 in securities assigned to various
rating categories by Moody's and Standard & Poor's and in unrated securities determined by Putnam Management to be of
comparable quality.
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
AAA/Aaa 33.2% 0.3%
AA/Aa 7.3 --
A/A 7.5 --
BBB/Baa 21.0 1.9
BB/Ba 6.3 6.4
B/B 0.9 11.2
Caa/CCC -- 0.2
Ca/CC -- --
C -- 0.1
D -- --
VMIG1/MIG1 3.3 --
++ Restricted, excluding 144A securities as to public resale. The total market value of restricted securities held
at September 30, 1996, was $36,900,625 or 2.8% of net assets.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $1,293,898,117, resulting in gross unrealized appreciation and
depreciation of $46,306,958 and $30,039,608, respectively, or net unrealized appreciation of $16,267,350.
# A portion of the security was pledged to cover margin requirements for futures contracts at September 30, 1996.
The market value of segregated securities with the custodian for transactions on futures contract is $2,326,889 or
0.2% of net assets.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes in
the market interest rates, and VRDN's are the current interest rates at September 30, 1996, which was subject to
change based on the terms of the security.
The fund had the following industry group concentrations greater than 10% at September 30, 1996 (as a percentage of
net assets):
Utilities 22.7%
Hospital/Health Care 18.3
Transportation 16.6
The fund had the following insurance concentration greater than 10% at September 30, 1996 (as a percentage of net assets):
MBIA 12.1%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Futures Contracts Outstanding at September 30, 1996
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Index
Futures (Buy) $36,687,875 $36,734,199 9-Dec-96 ($46,324)
U.S. Treasury Bond
Futures (Buy) 70,207,563 70,257,498 9-Dec-96 (49,935)
- ----------------------------------------------------------------------------------------------------------------------
($96,259)
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,293,588,126) (Note 1) $1,310,165,467
- ---------------------------------------------------------------------------------------------------------------------
Interest and other receivables 24,624,737
- ---------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,829,014
- ---------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 8,455,848
- ---------------------------------------------------------------------------------------------------------------------
Total assets 1,345,075,066
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 338,721
- ---------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,630,273
- ---------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 19,407,174
- ---------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,617,341
- ---------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,895,000
- ---------------------------------------------------------------------------------------------------------------------
Payable for variation margin on futures contracts 241,670
- ---------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 103,389
- ---------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,558
- ---------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,646
- ---------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 860,610
- ---------------------------------------------------------------------------------------------------------------------
Other accrued expenses 77,206
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 30,179,588
- ---------------------------------------------------------------------------------------------------------------------
Net assets $1,314,895,478
Represented by
- ---------------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,329,811,322
- ---------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,045,667
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (32,442,593)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 16,481,082
- ---------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,314,895,478
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($824,614,690 divided by 92,849,152 shares) $8.88
- ---------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.88)* $9.32
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($480,594,036 divided by 54,171,806 shares)** $8.87
- ---------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share ($9,686,752 divided by 1,091,299 shares) $8.88
- ---------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.88)* $9.18
- ---------------------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended September 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $44,332,874
- -----------------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,757,533
- -----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 516,933
- -----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,073
- -----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,145
- -----------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,025,062
- -----------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,002,957
- -----------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 22,298
- -----------------------------------------------------------------------------------------------------
Reports to shareholders 28,472
- -----------------------------------------------------------------------------------------------------
Registration fees 7,258
- -----------------------------------------------------------------------------------------------------
Auditing 23,469
- -----------------------------------------------------------------------------------------------------
Legal 28,108
- -----------------------------------------------------------------------------------------------------
Postage 60,212
- -----------------------------------------------------------------------------------------------------
Other 35,395
- -----------------------------------------------------------------------------------------------------
Total expenses 7,537,915
- -----------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (181,897)
- -----------------------------------------------------------------------------------------------------
Net expeneses 7,356,018
- -----------------------------------------------------------------------------------------------------
Net investment income 36,976,856
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (7,420,257)
- -----------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 2,109,017
- -----------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (1,885,333)
- -----------------------------------------------------------------------------------------------------
Net loss on investments (7,196,573)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $29,780,283
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
September 30 March 31
1996* 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income $36,976,856 $73,148,238
- --------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (5,311,240) 11,533,386
- --------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (1,885,333) 14,888,511
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,780,283 99,570,135
- --------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------------------------
Class A (24,018,474) (48,694,201)
- --------------------------------------------------------------------------------------------------------------
Class B (12,385,279) (23,969,020)
- --------------------------------------------------------------------------------------------------------------
Class M (248,785) (276,752)
- --------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 17,500,693 20,779,045
- --------------------------------------------------------------------------------------------------------------
Total increase in net assets 10,628,438 47,409,207
- --------------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------------
Beginning of period 1,304,267,040 1,256,857,833
- --------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$1,045,667 and $721,349 respectively) $1,314,895,478 $1,304,267,040
- --------------------------------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statemrents.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the Period
Six months December 1, 1994
ended (commencement
September 30 of operations)
(Unaudited) to March 31
--------------------------------------------------
1996+ 1996 1995
--------------------------------------------------
Class M
--------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.92 $8.75 $8.21
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .25 .50 .16
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.04) .17 .54
- ------------------------------------------------------------------------------------------------------------
Total from investment activities .21 .67 .70
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net investment income (.25) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.88 $8.92 $8.75
- ------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 2.37* 7.77 8.58*
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $9,687 $8,394 $1,224
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) .59* 1.18 .41*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.82* 5.45 1.78*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.18* 75.89 62.84
- ------------------------------------------------------------------------------------------------------------
See page 31 for Notes to Financial Highlights.
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Six months
ended
September 30
(Unaudited) Year ended March 31
-------------------------------------------------------
1996* 1996 1995
-------------------------------------------------------
Class B
-------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.92 $8.74 $8.73
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .48
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.05) .18 .01
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment activities .18 .65 .49
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.23) (.47) (.48)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.48)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.87 $8.92 $8.74
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 2.08* 7.55 5.94
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $480,594 $474,374 $427,086
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) .77* 1.54 1.55
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.66* 5.25 5.66
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.18* 75.89 62.84
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
For the Period
January 4, 1993 Six months
(commencement ended
of operations) September 30
to March 31 (Unaudited)
-------------------------------------------------------
1994 1993 1996
-------------------------------------------------------
Class B
-------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.12 $8.95 $8.93
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .44 .10 .26
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.32) .17 (.05)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment activities .12 .27 .21
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.44) (.10) (.26)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.01) -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.06) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.51) (.10) (.26)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.73 $9.12 $8.88
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 1.52 3.05* 2.47*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $369,006 $95,175 $824,615
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.54 .30* .47*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.02 1.21* 2.96*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47.08 31.05 30.18*
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year ended March 31
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
Class A
-------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.74 $8.73 $9.12
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .52 .54 .55
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .19 -- (.34)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment activities .71 .54 .21
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.52) (.53) (.54)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- (.05)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.53) (.60)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.93 $8.74 $8.73
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 8.31 6.55 2.15
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $821,500 $838,548 $852,281
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .95 .95 .97
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.86 6.28 5.73
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.89 62.84 47.08
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $8.65 $8.36
- ------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------
Net investment income .63 .67
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .51 .31
- ------------------------------------------------------------------------------------------------------
Total from investment activities 1.14 .98
- ------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------
From net investment income (.62) (.68)
- ------------------------------------------------------------------------------------------------------
In excess of net investment income -- --
- ------------------------------------------------------------------------------------------------------
From net realized gain on investments (.05) (.01)
- ------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (.67) (.69)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.12 $8.65
- ------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.67 12.11
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $638,971 $324,384
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.05 .91
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.83 7.80
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.05 44.34
- ------------------------------------------------------------------------------------------------------
* Not annualized.
+ Per share net invest ment income has been determinied on the basis of the weightred average number of
shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended March 31, 1996 and thereafter includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
September 30, 1996 (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 Management"), 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 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 capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -----------------------------------
$11,943,000 March 31, 2003
11,290,000 March 31, 2004
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. 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. 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.
F) Amortization of bond premium and accretion of bond 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 and original issue bonds are accreted according to the
effective yield method.
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 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.
As part of the custodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of
Putnam Investments, Inc., the subcustodian bank has a lien on the
securities of the fund to the extent permitted by the funds investment
restrictions to cover any advances made by the subcustodian bank for the
settlement of securities purchased by the fund. At September 30, 1996,
the payable to the subcustodian bank represents the amount due for cash
advance for the settlement of a security purchased.
Trustees of the fund receive an annual Trustees fee of $2,230 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.
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 PFTC, Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended September 30, 1996, fund expenses were reduced
by $181,897 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 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 six months ended September 30,1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $76,275 and $2,194
from the sale of class A and class M shares, respectively and received
$488,323 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 September 30,
1996, Putnam Mutual Funds Corp., acting as underwriter received $1,297
on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended September 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $391,299,859 and $375,412,085, 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.
Note 4
Capital shares
At September 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
September 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 19,067,584 $ 168,347,765
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,438,294 12,711,651
- ----------------------------------------------------
20,505,878 181,059,416
Shares
repurchased (19,676,936) (173,464,371)
- ----------------------------------------------------
Net increase 828,942 $ 7,595,045
- ----------------------------------------------------
Year ended
March 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
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)
- ----------------------------------------------------
Six months ended
September 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 8,128,465 $ 71,527,463
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 794,401 7,012,866
- ----------------------------------------------------
8,922,866 78,540,329
Shares
repurchased (7,945,543) (69,960,783)
- ----------------------------------------------------
Net increase 977,323 $ 8,579,546
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
September 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 302,728 $2,671,553
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 23,330 206,384
- ----------------------------------------------------
326,058 2,877,937
Shares
repurchased (175,300) (1,551,835)
- ----------------------------------------------------
Net increase 150,758 $1,326,102
- ----------------------------------------------------
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
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 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.
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
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
James E. Erickson
Vice President
Blake E. Anderson
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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. You can also learn more at Putnam Investments'
website: http://www.putnaminv.com.
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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28365-051/353/560 11/96
