Putnam
Municipal
Income Fund
SEMIANNUAL REPORT
September 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, gave the fund's class A
shares 3 out of a possible 5 stars for the 3-year period ended September
30, 1997 and 4 out of a possible 5 stars for the 5-year period ended
September 30, 1997. This places the fund among the top 32.5% of the 1,374
and 668 municipal funds rated respectively.*
* "[Municipal bond funds] are more liquid than actual munis. And you
get access to a manager who may be able to play the credit-rating changes
of a locality to your advantage."
-- Fortune, August 18, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
24 Financial statements
* Morningstar rates a fund in relation to other funds with similar
investment objectives based on the fund's 3- and 5-year returns, adjusted
for risk factors and sales charges. Ratings are updated monthly. 10% of
the funds in an investment category receive 5 stars; the next 22.5%
receive 4 stars; the middle 35% receive 3 stars; the next 22.5% receive 2
stars; and the bottom 10% receive 1 star. Performance of other share
classes will vary. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The municipal bond market maintained a relatively calm demeanor during the
first half of Putnam Municipal Income Fund's fiscal year with investors still
willing to absorb virtually all of the new offerings presented to them.
However, a palpable undercurrent of concern persisted about whether the
still-vibrant economy would finally heat inflation to the flash point.
In deference to the market's mood, Fund Manager Blake Anderson maintained a
slightly defensive portfolio position, which he regarded as worthwhile
insurance against any real or imagined threat that might affect the market.
Nevertheless, the fund's class A shares were able to end the period with a
total return just under the benchmark Lehman Brothers Municipal Bond Index.
As he explains in the following report, Blake currently expects to keep his
strategy in place during the fiscal year's second half. He also discusses in
detail the fund's performance during the first half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 19, 1997
Report from the Fund Manager
Blake E. Anderson
For the past six months, municipal bonds have been caught in a seesaw market,
bolstered by strong investor demand and a historically low default rate on the
one hand and buffeted by solid economic growth, which is raising fears of
inflation, on the other. With its slightly defensive portfolio structure,
Putnam Municipal Income Fund delivered a total return of 6.31% for class A
shares at net asset value and 1.28% at public offering price for the
semiannual period ended September 30, 1997. The results were just a few basis
points shy of the Lehman Brothers Municipal Bond Index's return of 6.57%. More
performance details begin on page 8.
* DESPITE POSITIVE FUNDAMENTALS, STRONG ECONOMY WARRANTS DEFENSIVE TONE
Low volatility and narrow trading ranges characterized the fixed-income
markets during the period. Bond prices, in fact, have not moved more than
three quarters of a percentage point in either direction over the past two
years. This lack of direction stems from a strong tug of war between high
economic growth (negative for the bond market) and low inflation (positive for
the bond market). This is not to say that we haven't seen days of volatile
trading, of course; they exist. But over time, the markets have not traveled
very far in either direction.
What makes today's municipal bond market different from that of six months ago
is that tax-exempt yields have recently become much more attractive relative
to Treasury yields. This, in turn, has made the after-tax advantages of
municipal bonds even more pronounced. Furthermore, relative prices have not
been this low since early 1996 -- implying that tremendous value still exists
in today's market. During September, the market experienced a dramatic surge
in supply from refundings and new issues. This boost in supply was easily
absorbed by the market's vigorous demand, much of which is coming from
nontraditional buyers and insurance companies.
* BARBELL STRATEGY HELPS FUND SEEK INCOME AND RELATIVE STABILITY
Our portfolio decisions over the period have focused on building high coupon
income and maintaining a stable net asset value. Accordingly we are
maintaining the fund's barbell configuration with holdings concentrated at the
higher-quality and higher-yielding ends of the municipal market. Our goal is
to select issues that produce high income while maintaining relatively stable
prices. Nearly 39% of the fund's net assets are securities of the highest
credit quality, Aaa and Aa, while approximately 49% of the holdings are
invested in bonds rated Baa, Ba, and B. This translates into an average
quality rating of A.
During the period, the gap between yields of lower-rated and higher-rated
securities narrowed. When interest rates are low and bond investors'
confidence level is strong, investors are often more comfortable with
higher-risk investments such as lower-rated higher-yielding bonds. As a
result, lower-quality bonds outperformed higher-quality bonds and investors
were rewarded for taking on the extra credit risk. We believe the in-depth
credit research that is a hallmark of our investment process is invaluable in
allowing the fund to take advantage of these bonds' potential.
[GRAPHIC OMITTED: worm chart BOND RETURNS: MUNICIPALS VERSUS TREASURIES]
Lehman Bros. Lehman Bros.
Lehman Bros. Treasury Treasury
Municipal Bond Index Bond Index
Bond Index (pre tax) (after tax)
----------- ----------- -----------
9/30/90 10000 10000 6040
9/30/91 11318 12057 7282
9/30/92 12501 13767 8315
9/30/93 14093 16553 9998
9/30/94 13752 14787 8931
9/30/95 15291 18185 10984
9/30/96 16215 18607 11238
9/30/97 17679 21014 12693
Footnote reads:
Sources: Lehman Brothers Municipal Bond Index; Lehman Brothers Treasury Bond
Index. This graph compares the growth of a hypothetical $10,000 investment in
tax-free municipal bonds with a similar investment in U.S. Treasury bonds and
shows the effective after-tax returns of the fully taxable Treasury securities
for an individual paying the maximum 39.6% federal income tax rate. Results
for investors subject to lower tax rates would not be as advantageous.The
performance is not indicative of any Putnam fund and past performance is not
indicative of future results.
* SECTOR STRATEGY EMPHASIZES TRANSPORTATION, HOSPITALS, AND STATE GOs
As part of the fund's sector strategy, we've sought to add securities that we
believed were undervalued or whose issuers were in turnaround situations while
taking profits on those that have undergone marked appreciation. At period's
end, the portfolio's top three sectors were transportation, hospitals, and
state government general obligation bonds (GOs).
The transportation sector, which accounts for 16.9% of total net assets,
consists mainly of airport bonds. Years of cost cutting and industry
consolidation have created healthier, more stable airline companies.
Furthermore, a strong economy accompanied by healthy capacity levels and
strong consumer demand is also boosting profits.
Such positive fundamentals resulted in several upgrades for your fund --
including Denver International Airport bonds. Along with the increased
passenger capacity on the airlines has come increased fees and cash flow from
airport operations and associated facilities such as restaurants, parking,
hotels, and retail outlets.
Strong economic growth is also improving prospects for tax-based general
obligation bonds. Backed by the full faith and credit and taxing power of
state and local governments, these bonds are issued to pay for public
projects. GOs are enjoying a surge in popularity as state governments reap the
benefits of increased tax collections and budget surpluses, increasing the
likelihood of credit upgrades. GOs from California, Massachusetts, and Georgia
are playing an important role in the portfolio's barbell strategy.
Hospitals and health care represent another major sector, making up 15.4% of
total net assets. In an era of cost cutting and reform, new issuance has been
low, since the industry is beset by consolidations between not-for-profit and
for-profit institutions and struggling with the need to eliminate surplus
capacity. The scarcity of new issues has provided a natural price support for
existing bonds such as those in your portfolio, resulting in substantial
appreciation in addition to their attractive coupons.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 16.9%
Hospitals/health care 15.4%
Utilities 14.9%
Water and sewerage 2.8%
Housing 2.6%
Footnote reads:
*Based on net assets as of 9/30/97. Holdings will vary over time.
* OUTLOOK REMAINS CAUTIOUS BUT OPPORTUNISTIC
As time goes on, we believe there will be moderate upward pressure on interest
rates, most likely in the form of wage pressures. We anticipate that the good
news on inflation will slowly deteriorate. With that expectation, we believe
that taking on excessive risk would not reward the fund and we plan to
maintain our defensive strategies. More specifically we will keep a slightly
shorter-than-market duration of 6-1/2 to 7 years with maturities falling in the
10- to 20-year range. As we've stated before, shorter durations can help
preserve principal value if interest rates gradually move upward.
Fund management will also keep a vigilant eye on the economy and continue to
rely on in-depth research to evaluate new and existing holdings. When the rope
in the strong economy/low inflation tug of war slowly begins to fray, we
believe our management strategies will be rewarded.
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 9/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Municipal Income Fund is designed for investors seeking as high a level of
current income exempt from federal income tax as is consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
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 6.31% 1.28% 5.99% 0.99% 6.29% 2.81%
- ------------------------------------------------------------------------------
1 year 9.27 4.11 8.62 3.62 8.99 5.43
- ------------------------------------------------------------------------------
5 years 39.70 33.00 34.91 32.91 37.71 33.28
Annual average 6.92 5.87 6.17 5.86 6.61 5.91
- ------------------------------------------------------------------------------
Life of fund 91.60 82.56 79.97 79.97 85.81 79.82
Annual average 8.09 7.47 7.28 7.28 7.69 7.27
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/97
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 6.57% 0.75%
- ------------------------------------------------------------------------------
1 year 9.03 2.15
- ------------------------------------------------------------------------------
5 years 41.44 14.08
Annual average 7.18 2.67
- ------------------------------------------------------------------------------
Life of fund 91.53 30.21
Annual average 8.11 3.22
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One-, five-, and ten-year (when available) and life-of-fund returns for
class B shares reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declines each year to 1% in the
sixth year, and is eliminated thereafter. Returns shown for class B and
class M shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and, in the case of class B and class M shares, the higher operating costs
applicable to such shares. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares when redeemed may be worth more or less than
their original cost. Performance data prior to 5/11/92 do not reflect
operation under the fund's current investment objectives and policies.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 9/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.253133 $0.225678 $0.241516
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term -- -- --
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $0.253133 $0.225678 $0.241516
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
3/31/97 $8.87 $9.31 $8.86 $8.86 $9.16
- ------------------------------------------------------------------------------
9/30/97 $9.17 $9.63 $9.16 $9.17 $9.48
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 5.56% 5.30% 4.98% 5.31% 5.13%
- ------------------------------------------------------------------------------
Taxable equivalent2 9.21 8.77 8.25 8.79 8.49
- ------------------------------------------------------------------------------
Current 30-day SEC yield3 5.33 5.07 4.75 5.08 4.92
- ------------------------------------------------------------------------------
Taxable equivalent2 8.82 8.39 7.86 8.41 8.15
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
3 Based only on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
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.
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 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.
Lehman Brothers Treasury Bond Index is an unmanaged list of long-term
Treasury bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*RECENTLY APPROVED PROPOSAL
The Trustees of the fund have recently approved a proposal to increase the
investment flexibility of the fund to allow a small portion (10% of
assets) to be invested in the lowest rating categories, including
securities rated as low as "D" which may be in default. Although such
distressed securities may involve additional credit risk, they can
contribute over time to both the yield and total return of the fund.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGERS]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE[SECTION MARK] FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed
to maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Note
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.9%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Arizona (3.5%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 935,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa $1,068,238
4,505,000 Cochise Cnty., Indl. Dev. Rev. Bonds (Sierra Vista
Cmnty. Hosp.), Ser. A, 6 3/4s, 12/1/26 BBB/P 4,741,513
7,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Asarco Inc.), Ser. 85, 8.9s, 7/1/06 Baa 7,245,000
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 Aaa 8,548,750
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst. Rev. Bonds
(Env. Inc. & Phoenix Hosp. & Med. Ctr.), 7s, 7/1/16 Aaa 2,307,500
Navajo Cnty., Indl. Dev. Rev. Bonds (Stone
Container Corp.)
6,800,000 7.4s, 4/1/26 B/P 7,378,000
2,500,000 7.2s, 6/1/27 B/P 2,687,500
8,000,000 Pima Cnty., Indl. Dev. Auth. Rev. Bonds
(Tucson Elec. Pwr.), 6s, 9/1/29 B 8,070,000
4,000,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds (Casa Grande
Regl. Med. Ctr.), Ser. A, 8 1/8s, 12/1/22 B/P 4,450,000
-----------
46,496,501
Arkansas (0.8%)
- ------------------------------------------------------------------------------------------------------------
10,875,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge. Rev.
Bonds, Ser. 84A, zero %, 7/1/15 Aa 1,658,438
9,500,000 Northwest Regl. Apt. Auth. Apt. Rev. Bonds,
7 5/8s, 2/1/27 B/P 9,808,750
-----------
11,467,188
California (13.4%)
- ------------------------------------------------------------------------------------------------------------
2,800,000 Anaheim, Hsg. Auth. VRDN (Harbor Cliff),
Ser. 85A, 3.65s, 7/1/06 VMIG1 2,800,000
5,000,000 Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Public Improvements), Ser. A, FSA, 6s, 9/1/24 Aaa 5,531,250
6,000,000 CA Pub. Wks. Board Lease Rev. Bonds, Ser. A,
AMBAC, 5 1/4s, 1/1/21 Aaa 5,872,500
CA State G.O. Bonds
18,465,000 6.6s, 2/1/09 A+ 21,488,644
11,300,000 6 1/2s, 2/1/07 A+ 12,980,875
5,500,000 AMBAC, 6 1/2s, 9/1/06 Aaa 6,325,000
Corona, COP
4,500,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 B/P 5,141,250
5,800,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 B/P 6,459,750
10,000,000 Los Angeles, Cnty., Pub. Wks. Fin. Auth. Lease Rev.
Bonds, Ser. B, AMBAC, 5 1/8s, 12/1/29 Aaa 9,587,500
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa 2,637,000
5,000,000 Metropolitan Wtr. Dist. Rev. Bonds, Ser. C, 5s, 7/1/27 Aa 4,725,000
3,615,000 Monrovia, Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevolpment Project Area-1),
Ser. B, AMBAC, 6.7s, 5/1/21 Aaa 3,944,869
6,150,000 Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB,
MBIA, 8.99s, 8/15/17 Aaa 7,341,563
2,000,000 Orange Cnty., Rev. Bonds, Ser. A, MBIA, 6s, 6/1/10 Aaa 2,205,000
Orange Cnty., Local Trans. Auth. IFB Bonds
11,200,000 6.2s, 2/14/11 Aa 12,250,000
4,000,000 AMBAC, 6.2s, 2/14/11 Aaa 4,440,000
3,000,000 Palo Alto, School Dist. Rev. Bonds, Ser. B.,
5 3/8s, 8/1/21 Aa 3,011,250
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
10,710,000 5s, 1/1/33 BB+/P 9,826,425
10,000,000 (Toll Rd.), zero %, 1/1/10 BB+/P 9,487,500
3,600,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.),
8 3/8s, 7/1/29 B/P 3,685,500
2,000,000 Santa Clara Cnty., Hsg. Auth. VRDN (Foxchase Apt.),
FGIC, 3.85s, 11/1/07 VMIG1 2,000,000
8,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds (Palo Verde),
Ser. A, AMBAC, 6s, 7/1/07 Aaa 8,960,000
7,250,000 Southern CA Pwr. Auth. Rev. Bonds, Ser. A, MBIA,
5s, 1/1/20 Aaa 6,887,500
11,840,000 Vallejo, COP (Marine World Foundation), 7s, 2/1/17 BB+/P 12,520,800
Valley Hlth. Syst. Hosp. Rev. Bonds
6,000,000 (Rfdg. & Impt.), 6 1/2s, 5/15/25 BBB 6,345,000
1,000,000 (Impt.), Ser. A, 6 1/8s, 5/15/05 BBB 1,043,750
-----------
177,497,926
Colorado (4.3%)
- ------------------------------------------------------------------------------------------------------------
Arapahoe Cnty., Cap. Impt. Rev. Bonds
6,000,000 Ser. E-470, 7s, 8/31/26 Baa3 7,110,000
1,075,000 Ser. C, A, 7 1/4s, 11/15/25 Baa 1,234,906
10,000,000 CO Edl. Fac. Auth. Rev. Bonds (CO Ocean
Journey, Inc.), 8 3/8s, 12/1/26 B+/P 10,650,000
Denver, City & Cnty. Arpt. Rev. Bonds
4,410,000 Ser. A, 8 3/4s, 11/15/23 Baa 5,187,263
1,590,000 Ser. A, Prerefunded, 8 3/4s, 11/15/23 Baa 1,876,200
1,470,000 Ser. A, 8s, 11/15/25 Baa 1,642,725
530,000 Ser. A, Prerefunded, 8s, 11/15/25 Baa 601,550
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 6,212,500
3,310,000 Ser. A, 7 1/2s, 11/15/23 Baa 3,785,813
690,000 Ser. A, 7 1/2s, 11/15/23 Baa 816,788
425,000 Ser. A, 7 1/4s, 11/15/25 Aaa 488,219
9,550,000 Ser. B, 7 1/4s, 11/15/23 Baa 10,624,376
2,450,000 Ser. B, Prerefunded, 7 1/4s, 11/15/23 Baa 2,789,938
3,000,000 Larimer Cnty., School Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A 3,693,750
----------
56,714,028
Connecticut (1.3%)
- ------------------------------------------------------------------------------------------------------------
CT State Dev. Auth. 1st Mtge. Rev. Bonds
1,375,000 (Gladeview Hlth. Care), 9 3/4s, 12/15/16 BB+/P 1,505,625
2,320,000 (East Hill Woods), 8 3/4s, 7/1/19 (In default) + D/P 1,392,000
2,475,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 3,038,063
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB/P 4,100,000
6,500,000 Mashantucket, Western Pequot Tribe Rev. Bonds,
Ser. B, 5 3/4s, 9/1/27 Baa 6,451,250
-----------
16,486,938
District of Columbia (3.5%)
- ------------------------------------------------------------------------------------------------------------
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 B 33,615,313
DC Rev. Bonds (American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 4,011,000
3,350,000 5 3/4s, 9/1/13 BBB 3,220,188
4,730,000 DC Redev. Land Agcy. Rev. Bonds (Wash. D. C.
Sports Arena), 5 5/8s, 11/1/10 Baa 4,795,038
-----------
45,641,539
Florida (4.8%)
- ------------------------------------------------------------------------------------------------------------
9,630,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 10,508,738
Dade Cnty., Rev. Bonds (School Dist.)
3,170,000 MBIA, 6 1/2s, 2/15/06 Aaa 3,593,988
5,885,000 MBIA, 6 1/2s, 2/15/05 Aaa 6,635,338
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 B+/P 26,363,625
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB, 9.512s, 10/1/14
(acquired 4/19/95, cost $6,261,830) [DBL. DAGGER] B-/P 6,869,688
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
950,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc.), 8 7/8s, 12/1/18 AAA/P 1,020,063
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(Terminals Inc.), Ser. A
2,000,000 7 1/2s, 5/1/10 BB-/P 2,117,500
1,000,000 7.3s, 5/1/04 BB-/P 1,051,250
-----------
63,348,190
Georgia (4.0%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Atlanta, Metro. Rapid Tran. Auth. Sales Tax Rev. Bonds,
Ser. O, 6.55s, 7/1/20 AA 5,487,500
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds (Delta Air
Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB 4,525,500
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.)
1,500,000 Ser. B, 10s, 4/1/17 B/P 1,661,250
3,700,000 Ser. A, 7 1/2s, 4/1/17 BBB/P 3,977,500
GA State G. O. Bonds
5,000,000 Ser. A, 6 1/4s, 4/1/08 Aaa 5,687,500
20,510,000 Ser. B, 6 1/4s, 4/1/08 Aaa 23,330,125
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co., Inc.), Ser. 84, 9 1/2s, 6/1/15 A 2,180,000
4,940,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper, Inc.), 7.4s, 1/1/16 BB/P 5,366,075
-----------
52,215,450
Hawaii (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,355,000 HI State G.O. Bonds, Ser. CN, FGIC, 6 1/4s, 3/1/08 Aaa 4,910,263
Illinois (5.9%)
- ------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,704,000 (United Airlines, Inc.), Ser. B, 8.95s, 5/1/18 Baa 4,190,150
1,795,000 (United Airlines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 2,023,863
7,105,000 (United Airlines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa 8,010,888
5,300,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa 6,326,875
5,600,000 Chicago, O'Hare Intl. Arpt. VRDN (American
Airlines, Inc.), Ser. B, 3.9s, 12/1/17 Aa 5,600,000
10,150,000 Cook Cnty., Cmnty. College Dist. #508 Rev. Bonds,
Ser. C, MBIA, 7.7s, 12/1/07 Aaa 12,712,875
3,000,000 Glenview, BAN, 5.4s, 12/1/97 MIG1 3,007,890
7,540,000 Hinsdale, Hlth. Fac. Rev. Bonds (Glen Oaks
Medical Ctr., Inc.), 6.95s, 11/15/13 BBB 9,151,675
IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
2,500,000 (Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (In default) + D/P 1,800,000
1,915,000 (Cmnty. Rehab. Providers Fac.), 8 3/4s, 7/1/11 BB/P 2,149,588
1,400,000 (Cmnty. Rehab. Providers Fac.), 8 1/4s, 8/1/12 BB/P 1,562,750
4,650,000 (Cmnty. Rehab. Providers Fac.), Ser. A, 7 7/8s, 7/1/20 BB/P 5,271,938
1,905,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa 2,090,738
IL Edl. Fac. Auth. Rev. Bonds
1,980,000 (Steppenwolf Theatre), 9.65s, 7/1/19 BB/P 2,067,417
6,000,000 (Northwestern U.), 5 1/2s, 12/1/13 Aa 6,150,000
5,000,000 IL Hlth. Fac. Auth. Rev. Bonds (Hinsdale Hosp.),
Ser. A, 6.95s, 11/15/13 Baa 6,068,750
-----------
78,185,397
Indiana (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,867,917 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB+/P 2,015,016
21,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 BBB 23,415,000
-----------
25,430,016
Iowa (0.7%)
- ------------------------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 8,645,000
Louisiana (4.5%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds (Boise Cascade Corp.),
7 3/4s, 6/1/21 Baa 4,445,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,876,875
1,388,744 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(Emily Morten Foundation), 10 1/4s, 5/1/19 CCC/P 1,393,963
5,000,000 Lake Charles, Harbor & Term. Dist. Port Fac. Rev.
Bonds (Trunkline LNG Co.), 7 3/4s, 8/15/22 Baa 5,712,500
2,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB 2,192,500
St. Charles, Parish Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa 8,635,394
6,995,000 (Union Carbide), 7.35s, 11/1/22 Baa 7,729,475
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
5,000,000 9s, 5/1/15 BB+/P 5,575,000
4,000,000 7.7s, 12/1/14 BB+ 4,475,000
8,000,000 Ser. C, 7s, 11/1/15 BB+ 8,740,000
5,600,000 W. Feliciana, Parish Poll. Control VRDN
(Gulf States Util. Co.), 3.85s, 12/1/15 A-1+ 5,600,000
-----------
59,375,707
Maryland (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,650,000 Denton, 1st. Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B/P 1,718,063
Massachusetts (7.2%)
- ------------------------------------------------------------------------------------------------------------
2,420,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr., Inc.), 10s, 1/1/20 BB/P 2,643,850
11,940,000 MA Bay Trans. Auth. Rev. Bonds (Gen. Trans. Syst.),
Ser. B, 5.9s, 6/1/24 A+ 13,059,375
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. IFB,
AMBAC, 6.97s, 7/1/18 Aaa 4,900,000
MA State G.O. Bonds
15,460,000 Ser. A, 6s, 11/1/11 A+ 17,006,000
7,850,000 AMBAC, 5 3/4s, 8/1/09 Aaa 8,527,063
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 Aaa 5,707,800
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,970,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba 3,078,969
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 BBB- 3,028,025
3,855,000 (Rev. Cooley Dickinson Hosp.), Ser. A, 7 1/8s,
11/15/18 AAA/P 4,438,069
MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Pioneer Valley Ctr.)
1,540,000 7s, 10/1/20 B/P 1,547,700
1,019,314 zero %, 10/1/20 B/P 1,274
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 3,416,250
13,000,000 Ser. A, 9s, 7/1/15 BB-/P 14,755,000
MA State Indl. Fin. Agcy. Rev. Bonds
(Atlanticare Med. Ctr.)
3,900,000 Ser. A, 10 1/8s, 11/1/14 B/P 4,182,750
1,000,000 Ser. B, 10 1/8s, 11/1/14 B/P 1,072,500
1,000,000 MA State Indl. Fin. Agcy. Solid Waste Disp. Rev.
Bonds (Molten Metal Technology), 8 1/4s, 8/1/14 B-/P 900,000
2,325,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(Mass Tpk.), 9s, 10/1/20 AAA/P 2,679,563
3,000,000 MA State Wtr. Resources Auth. Rev. Bonds, Ser. A,
6 1/2s, 7/15/21 Aaa 3,333,750
-----------
94,277,938
Michigan (5.6%)
- ------------------------------------------------------------------------------------------------------------
337,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills, Inc.), 8 3/8s, 1/15/19 B/P 347,969
2,200,000 Dearborn, MI Econ. Dev. Corp. Ltd. Oblig. VRDN
(Oakbrook Common), 4.05s, 3/1/25 A-1 2,200,000
Detroit, G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 BBB 2,756,250
3,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/10 Aaa 3,285,000
4,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/08 Aaa 4,410,000
1,550,000 Detroit, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(MI Hlth. Care Corp.), 9.1s, 12/1/09 (In default) + D/P 279,000
4,375,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20 (In default) + C 787,500
5,640,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 8.72s, 5/1/21 BBB+/P 7,113,450
10,000,000 MI State Stragetic Fund Solid Waste Disp. Rev. Bonds
(Genesee Pwr. Station), 7 1/2s, 1/1/21 BB/P 10,500,000
7,795,000 MI State Hosp. Fin. Auth. Adj. Rate Rev. Bonds
(Detroit-Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 BB 7,863,206
MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
1,330,000 8 1/2s, 9/1/17 BB 1,444,713
670,000 Prerefunded, 8 1/2s, 9/1/17 Ba 783,900
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,966,875
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
7,600,000 (Mercy Svcs. for Aging), 9.4s, 5/15/20 AAA/P 8,635,500
10,500,000 (Blue Wtr. Fiber), 8s, 1/1/12 (In default) + D/P 6,510,000
11,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B/P 12,141,250
-----------
74,024,613
Minnesota (1.4%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Duluth, Tax Increment VRDN (Lake Superior Paper),
4.05s, 9/1/10 VMIG1 2,000,000
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 5,637,500
5,000,000 St. Paul, Hsg. & Hosp. Redev. Auth. Hosp. Rev. Bonds
(Healtheast), Ser. A, 6 5/8s, 11/1/17 BBB 5,275,000
5,000,000 Western MN Muni. Pwr. Agcy. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 1/1/05 Aaa 5,568,750
-----------
18,481,250
Mississippi (1.1%)
- ------------------------------------------------------------------------------------------------------------
Clairborne Cnty., Poll. Ctrl. Rev. Bonds
(Middle South Energy, Inc.)
10,455,000 Ser. C, 9 7/8s, 12/1/14 Ba 11,369,813
2,400,000 Ser. A, 9 1/2s, 12/1/13 Ba 2,601,000
-----------
13,970,813
Missouri (1.4%)
- ------------------------------------------------------------------------------------------------------------
1,855,000 MO State Env. Impt. & Energy & Poll. Rev. Bonds
(Great Lakes Carbon Ctl.), 6 3/4s, 9/1/02 B+/P 1,885,144
8,705,000 MO State Env. Impt. & Energy Res. Auth. Poll.
Control Rev. Bonds, 5 1/4s, 12/1/08 A 8,998,794
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa 7,562,594
-----------
18,446,532
Nebraska (0.4%)
- ------------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
3,400,000 Ser. 2, GNMA Coll., 11.226s, 9/10/30 Aaa 3,867,500
1,000,000 Ser. B, GNMA Coll., 10.963s, 3/15/22 Aaa 1,123,750
-----------
4,991,250
Nevada (0.7%)
- ------------------------------------------------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa 9,403,125
New Hampshire (1.0%)
- ------------------------------------------------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,865,000 (Havenwood-Heritage Heights), 9 3/4s, 12/1/19 AAA/P 3,273,263
4,000,000 (1st Mtge. Rivermead Peterborough), 8 1/2s, 7/1/24 B+/P 4,430,000
1,955,000 (Riverwoods 1st. Mtge. at Exeter), 8s, 3/1/01 B+/P 2,006,710
2,910,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 3,073,688
-----------
12,783,661
New Jersey (3.1%)
- ------------------------------------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
5,000,000 (Newark Arpt. Marriot Hotel), 7s, 10/1/14 B+/P 5,387,500
3,000,000 7s, 2/1/10 BB-/P 3,078,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 AAA 3,375,000
6,550,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 7,041,250
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 6,652,500
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) [DBL. DAGGER] A+ 4,380,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 10,507,500
-----------
40,422,500
New Mexico (0.5%)
- ------------------------------------------------------------------------------------------------------------
6,160,000 Farmington, Poll. Control Rev. Bonds (Tucson Elec.
Pwr Co. San Juan), Ser. A, 6.95s, 10/1/20 B+ 6,799,100
New York (5.2%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 Metropolitan Trans. Auth. Svcs. Contract Fac. Rev.
Bonds (Commuter Fac.), Ser. O, 5 1/2s, 7/1/17 Baa 2,537,500
2,760,000 NY City, G.O. Bonds, Ser. F, 8 1/4s, 11/15/16 Aaa 3,215,400
3,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Visay Paper, Inc.),
7.95s, 1/1/28 BB-/P 3,423,750
NY City., Muni. Assistance Corp. Rev. Bonds
10,000,000 Ser. G, 6s, 7/1/07 Aa 11,075,000
10,000,000 Ser. L, 6s, 7/1/06 Aa 11,025,000
10,000,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(State Wtr. Revolving Fund), Ser. E, MBIA,
6s, 6/15/10 Aaa 11,100,000
1,800,000 NY State Local Govt. Assistance Corp. Rev. Bonds,
Ser. D, 7s, 4/1/18 Aaa 2,029,500
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/2s, 8/15/29 Aaa 12,279,219
3,000,000 NY State Urban Dev. Corp. Rev. Bonds (Correctional
Cap. Fac.), FSA, 6 1/2s, 1/1/10 Aaa 3,450,000
7,000,000 Port Auth. NY & NJ Rev. Bonds (Delta Airlines, Inc.),
Ser. 1R, 6.95s, 6/1/08 Baa 7,621,250
-----------
67,756,619
North Carolina (2.4%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Columbus Cnty., Indl. Fac. & Poll. Control Fin. Auth.
Rev. Bonds (Intl. Paper Co.), Ser. A, 5.85s, 12/1/20 A- 5,118,750
5,250,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA, 6s, 1/1/18 Aaa 5,748,750
3,000,000 NC Eastern Muni. Pwr. Agcy. Serv. IFB, FGIC, 9.278s,
1/1/25 (acquired 3/3/93 cost $3,116,820) [DBL. DAGGER] Aaa 3,570,000
10,000,000 NC Eastern Muni. Pwr. Syst. Rev. Bonds, MBIA,
6s, 1/1/22 AAA 10,937,500
6,000,000 NC Muni. Pwr. Agcy. IFB (No 1 Catawba Elec.),
MBIA, 7.02s, 1/1/20 Aaa 6,045,000
-----------
31,420,000
Ohio (0.7%)
- ------------------------------------------------------------------------------------------------------------
4,500,000 Dayton, Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1/2s, 10/1/09 BBB 4,922,190
1,105,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
Ser. B, GNMA Coll., 8 1/4s, 12/15/19 Aaa 1,154,725
2,965,000 OH Hsg. Fin. Agcy. Rev. Bonds, 5.85s, GNMA
Coll., 9/1/16 AAA 3,091,013
-----------
9,167,928
Oklahoma (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,505,000 Tulsa, Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa2 4,893,556
Oregon (0.9%)
- ------------------------------------------------------------------------------------------------------------
Washington Cnty., G.O. Bonds (Criminal Justice Fac.)
5,870,000 6s, 12/1/11 Aa 6,251,550
5,535,000 6s, 12/1/10 Aa 5,929,369
-----------
12,180,919
Pennsylvania (4.6%)
- ------------------------------------------------------------------------------------------------------------
4,115,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB-/P 4,876,275
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 BBB/P 1,250,800
2,855,000 Greene Cnty., Hosp. Auth. Rev. Bonds (Greene
Cnty. Memorial Hosp.), 6 1/2s, 1/1/02 BBB-/P 2,868,618
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(Pennsylvania Pwr. & Light Co.), MBIA, 8.362s,
9/1/29 (acquired 6/20/95, cost $1,655,190) [DBL. DAGGER] Aaa 1,790,625
7,815,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp.), 6 1/4s, 7/1/03 Baa 8,195,981
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B
3,500,000 8 3/8s, 11/1/11 AA 3,858,750
2,230,000 7 1/2s, 11/1/12 AAA 2,380,525
3,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (Northampton
Generating), Ser. A, 6 1/2s, 1/1/13 BB+/P 3,097,500
4,000,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 3,835,000
PA State Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Clover)
4,000,000 Ser. E, 8.05s, 12/1/15 BBB 4,535,000
2,000,000 Ser. D, 7.15s, 12/1/18 BBB 2,182,500
4,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BB/P 4,536,875
2,000,000 PA State Higher Ed. Assistance Agcy. IFB (Graduate
Hlth. Syst. Oblig.), Ser. B, MBIA, 10.739s, 3/1/20 Aaa 2,250,000
6,000,000 Philadelphia, Gas Works IFB, FSA, 7.615s, 8/1/21
(acquired 1/24/94, cost $5,621,520) [DBL. DAGGER] Aaa 5,647,500
3,000,000 Philadelphia, Gas Works Rev. Bonds, Ser. 13,
7.7s, 6/15/21 Aaa 3,405,000
3,250,000 Philadelphia, Wtr & Wastewater IFB, FGIC,
6.87s, 6/15/12 Aaa 3,412,500
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B-/P 1,831,500
-----------
59,954,949
Puerto Rico (2.0%)
- ------------------------------------------------------------------------------------------------------------
4,180,000 Cmnwlth. of PR, Muni. Fin. Agcy. Rev. Bonds, Ser. A,
FSA, 6s, 7/1/11 Aaa 4,645,025
8,500,000 Cmnwlth. of PR, VRDN, MBIA, 7.407s, 7/1/24
(acquired 6/12/95, cost $8,912,500) [DBL. DAGGER] A 9,158,750
PR Elec. Pwr. Auth. Rev. Bonds
5,935,000 Ser. S, MBIA, 7s, 7/1/06 # Aaa 6,988,463
5,400,000 6 3/8s, 7/1/24 A- 5,818,500
-----------
26,610,738
South Carolina (2.6%)
- ------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev. VRDN (Hoover
Group Inc.), 8 1/2s, 11/1/02 B/P 9,031,250
6,150,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds (Stone
Container Corp.), 7 3/8s, 2/1/07 B/P 6,542,063
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds, Ser. A
3,775,000 FGIC, 6 1/2s, 1/1/16 Aaa 4,317,656
630,000 Prerefunded, FGIC, 6 1/2s, 1/1/16 Aaa 741,825
8,000,000 Piedmont, Muni. Pwr. Agcy. Rev. Bonds (Elec. Rev.),
FGIC, 5s, 1/1/22 Aaa 7,560,000
5,000,000 SC Jobs Econ. Dev. Auth. Econ. Dev. Rev. Bonds
(St. Francis Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa 5,381,250
-----------
33,574,044
Tennessee (1.7%)
- ------------------------------------------------------------------------------------------------------------
8,500,000 IVRC-Bristol, Mem. Hosp. VRDN, FGIC, 13.228s,
2/28/14 (acquired 6/16/95, cost $9,366,660) [DBL. DAGGER] Aaa 8,850,625
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 7,857,500
4,930,000 Metropolitan Nashville & Davidson Cnty.,
Wtr. & Swr. Rev. Bonds, FGIC, 6 1/2s, 1/1/09 Aaa 5,700,313
-----------
22,408,438
Texas (2.8%)
- ------------------------------------------------------------------------------------------------------------
7,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.), 7 1/4s, 11/1/30 Baa 8,268,750
Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C
16,730,000 AMBAC, 6 3/8s, 12/1/17 Aaa 18,047,488
1,070,000 Prerefunded, AMBAC, 6 3/8s, 12/1/17 Aaa 1,175,663
North Central Hlth. Fac. Dev. Corp. IFB
4,000,000 (Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
9.295s, 6/15/21 Aaa 4,765,000
3,000,000 (Baylor Hlth. Care Syst.), Ser. B, 9s, 5/15/08 Aa 3,255,000
Port Arthur Dist., Rev. Bonds (Great Lakes
Carbon Corp.)
350,000 Ser. A, MBIA, 6 3/4s, 9/1/02 B+/P 355,688
1,195,000 Ser. B, 6 3/4s, 9/1/02 B+/P 1,211,431
-----------
37,079,020
Utah (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,750,000 Intermountain Pwr. Agcy. Rev. Bonds, Ser. D,
AMBAC, 7 3/4s, 7/1/20 A+ 4,970,068
Virginia (0.4%)
- ------------------------------------------------------------------------------------------------------------
2,875,000 Chesapeake, Pub. Impt. G.O. Bonds, 5s, 5/1/14 Aa 2,857,031
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
9.326s, 8/15/23 Aaa 2,397,500
-----------
5,254,531
Washington (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,895,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,101,081
17,000,000 Port Walla Walla, Pub. Corp. Solid Waste Recycling
Rev. Bonds (Ponderosa Fibres), 9 1/8s, 1/1/26 CCC/P 11,050,000
5,000,000 WA State Pub. Pwr. Rev. Bonds (Nuclear No. 3),
Ser. A, FSA, 6s, 7/1/08 Aaa 5,518,750
5,000,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 6,006,250
-----------
24,676,081
West Virginia (1.2%)
- ------------------------------------------------------------------------------------------------------------
Marion Cnty., Commn. Solid Waste Disp.
Fac. Rev. Bonds
9,000,000 (American Pwr. Paper Recycling), 8 1/4s, 12/1/11
(In default) + D/P 4,500,000
3,000,000 (Nuclear No. 3), 9s, 12/1/11 (In default) + D/P 1,500,000
3,600,000 WV State G.O. Bonds, Ser. D, FGIC, 6 1/2s, 11/1/26 Aaa 4,149,000
5,000,000 WV State Pkwy. Econ. Dev. & Tourism Auth. IFB,
FGIC, 7.423s, 5/16/19 Aaa 5,274,981
-----------
15,423,981
Wisconsin (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,930,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.895s, 10/25/22 Aa 3,266,950
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1.243,674,044) *** $1,300,370,810
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,314,994,872.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at September 30, 1997,
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, 1997.
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, 1997 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 28.7% 1.8%
AA/Aa 7.8 --
A/A 9.0 --
BBB/Baa 18.9 1.5
BB/Ba 3.4 9.8
B/B 4.4 10.7
Caa/CCC 0.1 0.9
Ca/CC -- --
C -- --
D -- 1.2
A-1/VMIGI 0.7 --
---- ----
73.0% 25.9%
*** The aggregate identified cost on a tax basis is $1,243,701,991,
resulting in gross unrealized appreciation and depreciation of
$83,350,749 and $26,681,930, respectively, or net unrealized
appreciation of $56,668,819.
+ Non-income-producing security.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
September 30, 1997, was $40,267,188 or 3.1% of net assets.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts
at September 30, 1997.
The rates shown on IFBs, which are securities paying interest rates that
vary inversely to changes in the market interest rates, and VRDNs are the
current interest rates at September 30, 1997.
The fund had the following industry group concentrations greater than 10%
at September 30, 1997 (as a percentage of net assets):
Transportation 16.9%
Hospitals/Health Care 15.4
Utilities 14.9
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1997 (Unaudited)
(aggregate face value $52,611,402)
<S> <C> <C> <C> <C>
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds (short) 48,418,125 47,687,558 Dec 97 (730,567)
Municipal Bond Index (short) 4,927,688 4,923,844 Dec 97 (3,844)
- ------------------------------------------------------------------------------------------------------------
$(734,411)
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,243,674,044) (Note 1) $1,300,370,810
- ---------------------------------------------------------------------------------------------------
Cash 1,113,382
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 23,246,421
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 901,689
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 10,184,070
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 157,188
- ---------------------------------------------------------------------------------------------------
Total assets 1,335,973,560
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,249,625
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 11,517,104
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,224,587
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,909,057
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 127,645
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 513
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,992
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 870,759
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 74,406
- ---------------------------------------------------------------------------------------------------
Total liabilities 20,978,688
- ---------------------------------------------------------------------------------------------------
Net assets $1,314,994,872
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,288,091,905
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 419,551
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (29,478,939)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 55,962,355
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,314,994,872
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($814,096,517 divided by 88,756,058 shares) $9.17
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.17)* $9.63
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($487,881,136 divided by 53,246,236 shares)*** $9.16
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,017,219 divided by 1,419,917 shares) $9.17
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.17)** $9.48
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more
and on group sales the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
*** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended September 30,1997 (Unaudited)
<S> <C>
Tax exempt interest income: 42,083,424
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,766,657
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 546,133
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,784
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,038
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,013,707
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,054,551
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 30,605
- --------------------------------------------------------------------------------------------------
Reports to shareholders 23,109
- --------------------------------------------------------------------------------------------------
Registration fees 75
- --------------------------------------------------------------------------------------------------
Auditing 26,031
- --------------------------------------------------------------------------------------------------
Legal 36,715
- --------------------------------------------------------------------------------------------------
Other 11,650
- --------------------------------------------------------------------------------------------------
Total expenses 7,532,055
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (87,860)
- --------------------------------------------------------------------------------------------------
Net expenses 7,444,195
- --------------------------------------------------------------------------------------------------
Net investment income 34,639,229
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,995,840)
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,261,908)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and futures during the period 47,587,005
- --------------------------------------------------------------------------------------------------
Net gain on investments 44,329,257
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $78,968,486
- --------------------------------------------------------------------------------------------------
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
1997* 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 34,639,229 $ 72,706,997
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (3,257,748) 1,570,079
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 47,587,005 (9,991,065)
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 78,968,486 64,286,011
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------
From net investment income
Class A (23,454,967) (47,379,439)
- ------------------------------------------------------------------------------------------------------------
Class B (11,217,003) (24,747,071)
- ------------------------------------------------------------------------------------------------------------
Class M (315,763) (540,669)
- ------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (8,907,693) (15,964,060)
- ------------------------------------------------------------------------------------------------------------
Total increase in net assets 35,073,060 (24,345,228)
Net assets
- ------------------------------------------------------------------------------------------------------------
Beginning of period 1,279,921,812 1,304,267,040
- ------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $419,551 and $768,055, respectively) $1,314,994,872 $1,279,921,812
- ------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Sept. 30
operating performance (Unaudited) Year ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.87 $8.93 $8.74 $8.73 $9.12 $8.65
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 (c) .52 .52 .54 .55 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.06) .19 -- (.34) .51
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .55 .46 .71 .54 .21 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.52) (.52) (.53) (.54) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.01) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.52) (.52) (.53) (.60) (.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.17 $8.87 $8.93 $8.74 $8.73 $9.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 6.27 * 5.24 8.31 6.55 2.15 13.67
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $814,097 $794,330 $821,500 $828,548 $852,281 $638,971
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .47 * .96 .95 .95 .97 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.77 * 5.80 5.86 6.28 5.73 6.83
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.37 * 55.08 75.89 62.84 47.08 31.05
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Sept. 30 January 4, 1993+
operating performance (Unaudited) Year ended March 31 to March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.86 $8.92 $8.74 $8.73 $9.12 $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 (c) .46 .47 .48 .44 .10
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 (.06) .18 .01 (.32) .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .53 .40 .65 .49 .12 .27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.46) (.47) (.48) (.44) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.46) (.47) (.48) (.51) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.16 $8.86 $8.92 $8.74 $8.73 $9.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.96 * 4.61 7.55 5.94 1.52 3.05 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $487,881 $473,818 $474,374 $427,086 $369,006 $95,175
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .77 * 1.56 1.54 1.55 1.54 .30 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.47 * 5.19 5.25 5.66 5.02 1.21 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.37 * 55.08 75.89 62.84 47.08 31.05
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the Period
Per-share Sept. 30 Dec. 1, 1994+
operating performance (Unaudited) Year ended March 31 to March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.86 $8.92 $8.75 $8.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 (c) .49 .50 .16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 (.06) .17 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .55 .43 .67 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.17 $8.86 $8.92 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 6.26 * 4.97 7.77 8.58 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,017 $11,773 $8,394 $1,224
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .59 * 1.21 1.18 .41 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.64 * 5.51 5.45 1.78 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.37 * 55.08 75.89 62.84
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
September 30, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Municipal Income Fund (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 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 in which it may invest 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage of at least 300% and borrowings must not
exceed prospectus limitations. For the period ended September 30, 1997, the
fund had no borrowings against this line of credit.
E) 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 nor for excise tax
on income and capital gains.
At March 31, 1997, the fund had a capital loss carryover of approximately
$23,134,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------------------------------------
$11,844,000 March 31, 2003
11,290,000 March 31, 2004
F) 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 at least 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.
G) 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 discount 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 the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, 0.38%
thereafter.
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.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended September 30, 1997, fund expenses were reduced by
$87,860 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,278 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $46,438 and $1,059 from the sale of
class A and class M shares, respectively and $459,150 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended September 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $1,907 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended September 30, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$593,013,638 and $599,930,486, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
September 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 10,862,679 $97,769,330
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,329,561 12,039,154
- ------------------------------------------------------------
12,192,240 109,808,484
Shares
repurchased (13,014,737) (117,375,523)
- ------------------------------------------------------------
Net decrease (822,497) $(7,567,039)
- ------------------------------------------------------------
Year ended
March 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 29,553,613 $262,293,616
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,814,944 25,040,900
- ------------------------------------------------------------
32,368,557 287,334,516
Shares
repurchased (34,810,212) (309,150,139)
- ------------------------------------------------------------
Net decrease (2,411,655) $(21,815,623)
- ------------------------------------------------------------
Six months ended
September 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,846,773 $43,721,260
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 755,261 6,831,399
- ------------------------------------------------------------
5,602,034 50,552,659
Shares
repurchased (5,842,239) (52,727,926)
- ------------------------------------------------------------
Net decrease (240,205) $(2,175,267)
- ------------------------------------------------------------
Year ended
March 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 13,127,756 $116,315,353
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,569,930 13,950,500
- ------------------------------------------------------------
14,697,686 130,265,853
Shares
repurchased (14,405,728) (127,862,355)
- ------------------------------------------------------------
Net increase 291,958 $2,403,498
- ------------------------------------------------------------
Six months ended
September 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 205,450 $1,858,961
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 28,494 257,890
- ------------------------------------------------------------
233,944 2,116,851
Shares
repurchased (142,389) (1,282,238)
- ------------------------------------------------------------
Net increase 91,555 $834,613
- ------------------------------------------------------------
Year ended
March 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 648,726 $5,771,764
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 49,736 442,780
- ------------------------------------------------------------
698,462 6,214,544
Shares
repurchased (310,641) (2,766,479)
- ------------------------------------------------------------
Net increase 387,821 $3,448,065
- ------------------------------------------------------------
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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
A.J.C. Smith
W. Thomas Stephens
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
Jerome J. Jacobs
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 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 the 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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SA040-36841 11/97
