Putnam
Municipal
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Perhaps the best way to look at fiscal 1999's first-half performance of
Putnam Municipal Income Fund -- and the rest of the bond market, for that
matter -- is to focus on the opportunities that should lie in the wake of
the market's second worst year on record. Rising interest rates have
pulled bond yields higher, but in so doing they have driven prices lower.
The result has been subdued total returns across the board, even though
your fund outperformed most other funds in its investment category. Please
see page 5 for Lipper rankings.
Municipal bonds are now yielding almost 97% as much as taxable bonds, with
attractive tax implications, especially for higher-income investors. Blake
Anderson, your fund's manager, took advantage of this situation during the
fiscal year. But he was not looking only at the current income stream. He
was also focusing on the attractive prices of some issues with solid
credentials -- and the potential positive effect on the portfolio that an
upswing in the bond market would have.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Manager
Blake E. Anderson
If history tells us anything about bond investing, it is this: buying a
bond fund after a bad year is often a smart thing to do. The bond market
has endured its toughest year since 1994 and the second-worst year on
record, the result of two moves by the Federal Reserve Board to raise
interest rates. Within this challenging market environment, Putnam
Municipal Income Fund met its goals of providing high current tax-exempt
income and a relatively stable net asset value. Although total return fell
slightly over the six-month period, we are pleased to report that your
fund outperformed most other municipal bond funds with similar investment
objectives. See Lipper performance rankings on page 5.
Total return for 6 months ended 9/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------
-2.32% -6.95% -2.62% -7.37% -2.69% -3.64% -2.44% -5.61%
- ------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and an explanation of performance
calculation methods begin on page 6.
* REASONS FOR CONFIDENCE IN MUNICIPAL BONDS
After the bond bear markets of 1989 and 1994, considerable buying
opportunities were available to investors. We believe that similar
opportunities are present now for several reasons. The first is that a
30-year AAA-rated municipal bond currently offers a 6% yield, an extremely
high level for the tax-free sector, registering almost 97% of the yield on
a 30-year taxable Treasury bond. With inflation still remarkably low at 3%
or less, after-tax, after-inflation returns are the highest they've been
in years.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 6.9%
A -- 4.3%
Baa/BBB -- 19.7%
Ba/BB -- 13.2%
B -- 12.8%
Other -- 0.4%
Aaa/AAA -- 42.7%
Footnote reads:
*As a percentage of market value as of 9/30/99. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Morningstar gave Putnam Municipal Income Fund's class A shares 5 out of 5 stars
for overall performance as of September 30, 1999. This rating put the fund
among the top 10% of the municipal bond funds rated.
Past performance is not indicative of future results. Morningstar ratings
reflect risk-adjusted performance through 9/30/99 and are subject to change
every month. Morningstar ratings are calculated from a fund's 3- and 5-year
returns (with fee adjustments) in excess of 90-day Treasury bill returns and a
risk factor that reflects performance below 90-day Treasury bill returns. For
3- , 5-, and 10-year performance, the fund received 4, 4, and 5 stars,
respectively, with 1,611, 1,241, and 375 funds rated. 10% of the funds in an
investment category receive 5 stars; the next 22.5% receive 4 stars; the middle
35% receive 3 stars. Performance of other share classes will vary.
Furthermore, after two interest-rate increases by the Fed and several
inflation scares, we believe that most of the potentially negative
developments have already been priced in. It is possible that most of the
damage has been done and the worst is over for the bond markets.
Many aspects of the current market environment can be explained by Y2K
issues, which have impacted all markets, except for Treasuries. Some
municipalities have accelerated their bond issues out of concern that Y2K
complications may affect the financial markets. Consequently, we expect a
supply drop in the fourth quarter. In the past, unusually low supply
combined with healthy demand by investors has been the recipe for strong
performance in the municipal bond market.
* OPPORTUNITY FROM LOWER-RATED CREDITS AND INTERMEDIATE MATURITIES
Although Putnam's municipal bond fund performance has been in line with
the overall direction of the municipal market, we have minimized the
impact of rising interest rates by maintaining some basic strategies. We
emphasized the lower-credit sectors (BB-rated and below) in which we were
rewarded with higher yield for taking on a bit more risk. Since credit
quality is at an all-time high, thanks to the strong economy, there is
much less risk associated with lower-rated bonds than in previous years.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
District of Columbia general obligation bonds
6.375%, 6/1/26
Hernando County, Florida Ind. Dev. revenue bonds
(FL Crushed Stone Co.)
8.50%, 12/1/14
Indianapolis, Indiana, Airport Authority revenue bonds (Federal Express)
7.1%, 1/15/17
California State general obligation bonds
6.6%, 2/1/09
Houston Water & Sewer System revenue bonds
6.375%, 12/1/17
Northwest Regional Airport Authority revenue bonds
7.625%, 2/1/27
Massachusetts State Water Resources Authority revenue bonds
4.75%, 8/1/37
Massachusetts State Ind. Development Authority revenue bonds (Southeastern
Massachusetts)
9.00%, 7/1/15
Indianapolis, Indiana, Airport Authority revenue bonds
(United Airlines)
6.50%, 11/15/31
Vallejo, California, certificates of participation (Marine World)
7.00%, 2/1/17
Footnote reads:
These holdings represent 15.3% of the fund's net assets as of 9/30/99.
Portfolio holdings will vary over time.
Another key strategy involves investing in intermediate to
long/intermediate maturities of 10 to 15 years. As interest rates have
fallen, the yield curve has steepened, and intermediate bonds have
outperformed other maturity ranges. Additionally, within each maturity
range, we rely on security selection and credit analysis as additional
tools to evaluate investments for the fund.
Over the course of the period, duration moved down to 7.54%, remaining
more conservative than that of many of its competitors and underscoring
our preference for limiting market risk. Duration is a measure of the
portfolio's sensitivity to interest-rate changes.
Thousands of projects financed by just two types of bonds
Municipal bonds are the most important means of financing thousands of
different public projects, but surprisingly, there are only two basic types
of bonds. General obligation bonds (GOs), secured by the full faith and
credit of the city or town, are repaid by either a limited or an unlimited
tax on property. Cities and towns usually issue general obligation bonds for
school, park, or public building projects. The voters in a community must
approve each issue of general obligation bonds.
Revenue bonds, on the other hand, are secured by fees derived from tolls,
charges or rents paid by the users of the facility. Highways, bridges, and
water and sewage treatment plants are typical projects financed or improved
by revenue, bond proceeds. Industrial revenue bonds are issued through an
Industrial Development Authority to finance projects for a private user
(usually a corporation), that also guarantees repayment of the principal and
interest. Hospital, dormitory, airport, and housing projects are commonly
financed with industrial revenue bonds.
The health-care industry is another sector in which higher yields are the
main attraction but credit quality is a key issue. Because of concerns
about the effects of Medicare reform proposals and of Y2K disruptions, we
have been cautious about any new purchases in this sector.
* STRONGER POTENTIAL FOR BONDS SEEN IN NEAR FUTURE
Although the Fed did not raise interest rates in October, they have
declared a bias toward tightening should inflation appear stronger. The
threat of inflation remains the primary force driving volatility in both
the bond and stock markets. The historical connection between prolonged
growth and inflation haunts the markets, even as actual reported inflation
lies dormant. Fortunately the tightening bias has already been priced into
the bond market's unfavorable behavior, clearing the way for better
performance.
Putnam Municipal Income Fund's class A shares were ranked in the top 10% by
Lipper for the one-year period ended September 30, 1999. The fund ranked 16
out of 258 municipal bond funds ranked.
Past performance is not indicative of future results. For the 5- and 10- year
periods, the fund ranked 32 out of 158 funds (21%) and 15 out of 75 funds
(20%), respectively. Lipper is an industry research firm whose rankings are
based on total return performance, vary over time, and do not reflect the
effects of sales charges. Performance of other share classes will vary.
Furthermore, with equities beginning to look vulnerable as the semiannual
period ended and with concern over Y2K likely to grow in the coming
months, bonds may gain appeal as a safe haven asset in the fourth quarter.
With this sentiment and the belief that bonds are fairly valued as of this
writing, we are more inclined to take slightly more risk in the fund
portfolios now, extending maturities as opportunities arise. Please
remember that choppy markets provide us with the opportunity to add yield,
find exceptional credits, and improve call protection -- strategies that
are potentially rewarding for shareholders over time.
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 9/30/99, there is no guarantee that 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Class A Class B Class C Class M
(inception dates) (5/22/89) (1/4/93) (2/1/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months -2.32% -6.95% -2.62% -7.37% -2.69% -3.64% -2.44% -5.61%
- ------------------------------------------------------------------------------------------
1 year -1.19 -5.90 -1.79 -6.47 -2.32 -3.26 -1.44 -4.68
- ------------------------------------------------------------------------------------------
5 years 36.05 29.56 32.07 30.07 30.47 30.47 34.19 29.81
Annual average 6.35 5.32 5.72 5.40 5.46 5.46 6.06 5.36
- ------------------------------------------------------------------------------------------
10 years 100.62 91.13 86.85 86.85 85.28 85.28 94.06 87.74
Annual average 7.21 6.69 6.45 6.45 6.36 6.36 6.85 6.50
- ------------------------------------------------------------------------------------------
Life of fund 104.60 94.95 89.90 89.90 88.53 88.53 97.44 91.07
Annual average 7.15 6.66 6.39 6.39 6.31 6.31 6.79 6.45
- ------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Lehman Brothers
Municipal Consumer
Bond Index price index
- --------------------------------------------------------------
6 months -2.16% 1.76%
- --------------------------------------------------------------
1 year -0.70 2.75
- --------------------------------------------------------------
5 years 38.78 12.38
Annual average 6.77 2.36
- --------------------------------------------------------------
10 years 103.85 34.32
Annual average 7.38 2.99
- --------------------------------------------------------------
Life of fund 106.76 35.62
Annual average 7.28 2.99
- --------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines 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 expenses applicable to such shares. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 9/30/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 6 6 6 6
- --------------------------------------------------------------------------------------
Income $0.247627 $0.220351 $0.213891 $0.236408
- --------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- --------------------------------------------------------------------------------------
Total $0.247627 $0.220351 $0.213891 $0.236408
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
3/31/99 $9.25 $9.71 $9.24 $9.25 $9.25 $9.56
- --------------------------------------------------------------------------------------
9/30/99 8.79 9.23 8.78 8.79 8.79 9.09
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate2 6.01% 5.72% 5.37% 5.19% 5.74% 5.55%
- --------------------------------------------------------------------------------------
Taxable equivalent3 9.95 9.47 8.89 8.59 9.50 9.19
- --------------------------------------------------------------------------------------
Current 30-day SEC yield4 4.96 4.72 4.36 4.20 4.71 4.55
- --------------------------------------------------------------------------------------
Taxable equivalent3 8.21 7.81 7.22 6.95 7.80 7.53
- --------------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state tax purposes.
For some investors, investment income may also be subject to the federal alternative
minimum tax. Investment income may be subject to state and local taxes.
2Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
3Assumes maximum 39.6% combined federal and state tax rate. Results for investors
subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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. Securities indexes assume reinvestment of all
distributions and interest payments and do not take in account brokerage
fees or taxes. Securities in the fund do not match those in the indexes
and performance of the fund will differ. It is not possible to invest
directly in the index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FRB -- Floating Rate Bonds
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
U.S. Govt Coll. -- U.S. Government Collateralized
MUNICIPAL BONDS AND NOTES (97.5%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 4,640,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- $ 4,286,200
3,750,000 Jefferson Cnty., Swr. Rev. Bond (Rites-PA),
Ser. 487 R, FRB, 8.2s, 2/1/38 (acquired 3/23/99
cost $4,290,150) (RES) AAA 3,520,313
--------------
7,806,513
Alaska (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
AK State Hsg. Fin. Corp. Rev. Bonds
3,240,000 7.7s, 12/1/35 (acquired 10/22/97
cost $3,447,360) (RES) AA/P 3,329,100
7,420,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97
cost $7,553,250) (RES) Aaa 7,058,275
--------------
10,387,375
Arizona (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
710,000 (Phoenix Mem. Hosp.), 8.2s, 6/1/21 BB 730,413
850,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa 923,313
Cochise Cnty., Indl. Dev. Auth. Rev. Bonds
(Sierra Vista Cmnty. Hosp.)
4,505,000 Ser. A, 6 3/4s, 12/1/26 BBB-/P 4,606,363
6,325,000 6.2s, 12/1/17 BBB-/P 6,332,906
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 Aaa 8,268,750
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst.
Rev. Bonds (Env. Inc. & Phoenix Hosp. &
Med. Ctr.), 7s, 7/1/16 Aaa 2,215,000
Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.)
6,800,000 7.4s, 4/1/26 B/P 7,284,500
2,500,000 7.2s, 6/1/27 B/P 2,662,500
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 4,145,000
--------------
37,168,745
Arkansas (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
14,915,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 16,313,281
California (9.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Public Improvements), Ser. A, FSA, 6s, 9/1/24 Aaa 5,262,500
CA State G.O. Bonds
18,465,000 6.6s, 2/1/09 AA- 20,842,369
6,300,000 6 1/2s, 2/1/07 AA- 7,040,250
Corona, COP
4,500,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20
(acquired various dates from 10/23/92 to
5/29/97, cost $4,725,000) (RES) B-/P 4,500,000
5,800,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11
(acquired 3/5/96, cost $5,800,000) (RES) B-/P 5,800,000
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds (United Airlines, Inc.),
6 7/8s, 11/15/12 Baa3 2,547,000
3,615,000 Monrovia, Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevelopment Project Area-1),
Ser. B, AMBAC, 6.7s, 5/1/21 Aaa 3,913,238
Northern CA Pwr. Agcy. Multi. Cap. Fac.
Rev. Bonds IFB
3,480,000 9.877s, 8/1/17 Aaa 3,988,950
2,630,000 9.877s, 8/1/17, (Prerefunded) Aaa 3,057,375
5,600,000 Orange Cnty., Local Trans. Auth. Sales Tax IFB,
7.807s, 2/14/11 AA+ 6,622,000
4,000,000 Orange Cnty., Local Trans. Auth. Sales Tax
Rev. Bonds, AMBAC, 6.2s, 2/14/11 Aaa 4,330,000
6,500,000 Orange Cnty., Rev. Bonds, Ser. A, MBIA, 6s, 6/1/10 Aaa 7,036,250
10,000,000 San Joaquin Hills, Trans. Corridor Agcy.
Rev. Bonds (Toll Rd.), 7.55s, 1/1/10 Aaa 10,237,500
3,600,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.),
8 3/8s, 7/1/29 (acquired 7/28/97,
cost $3,600,000) (RES) B-/P 3,600,000
3,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 2,823,750
8,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds
(Palo Verde), Ser. A, AMBAC, 6s, 7/1/07 Aaa 8,760,000
11,840,000 Vallejo, COP (Marine World Foundation),
7s, 2/1/17 BB+/P 12,624,400
Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt.)
6,000,000 Ser. A, 6 1/2s, 5/15/25 BBB- 6,045,000
1,000,000 Ser. A, 6 1/8s, 5/15/05 BBB- 1,021,250
--------------
120,051,832
Colorado (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470, 7s, 8/31/26 Aaa 6,862,500
10,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8 3/8s, 12/1/26 B/P 11,400,000
Denver, City & Cnty. Arpt. Rev. Bonds
4,410,000 Ser. A, 8 3/4s, 11/15/23 Baa1 4,795,875
1,590,000 Ser. A, 8 3/4s, 11/15/23, (Prerefunded) Aaa 1,760,925
1,470,000 Ser. A, 8s, 11/15/25 Baa1 1,550,850
530,000 Ser. A, 8s, 11/15/25, (Prerefunded) Aaa 569,088
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 5,881,250
3,310,000 Ser. A, 7 1/2s, 11/15/23 Baa1 3,632,725
690,000 Ser. A, 7 1/2s, 11/15/23, (Prerefunded) Aaa 789,188
1,075,000 Ser. A, 7 1/4s, 11/15/25 AAA 1,185,188
425,000 Ser. A, 7 1/4s, 11/15/25, (Prerefunded) AAA 468,563
9,550,000 Ser. B, 7 1/4s, 11/15/23 Baa1 10,218,500
2,450,000 Ser. B, 7 1/4s, 11/15/23, (Prerefunded) Aaa 2,691,938
3,000,000 Larimer Cnty., School Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A2 3,431,250
--------------
55,237,840
Connecticut (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,295,000 CT State Dev. Auth. 1st Mtge. Rev. Bonds
(Gladeview Hlth. Care), 9 3/4s, 12/15/16 AAA/P 1,370,835
2,420,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 2,737,625
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 5,602,500
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
1,594,354 Ser. A, 7 3/4s, 11/1/17 CCC/P 1,534,566
147,496 Ser. B, zero %, 3/1/21 CCC/P 27,471
4,000,000 CT State Hlth. & Edl. Fac. Auth. (Yale U.) IFB,
9.09s, 6/10/30 Aaa 4,020,000
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 4,110,000
--------------
19,402,997
District of Columbia (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 AAA 34,885,313
DC Rev. Bonds (American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 4,105,500
3,350,000 5 3/4s, 9/1/13 BBB 3,278,813
5,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 Aaa 4,081,250
2,590,000 DC Redev. Land Agcy. Rev. Bonds (Wash. D. C.
Sports Arena), 5 5/8s, 11/1/10 BBB+ 2,630,689
--------------
48,981,565
Florida (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,770,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 9,075,196
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 B+/P 25,619,375
3,140,000 Orange Cnty., School Board COP, Ser. 85, MBIA,
FRB, 7.219s, 8/1/22 (acquired 12/21/98
cost $3,356,597) (RES) Aaa 2,857,400
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB, 9.512s, 10/1/14
(acquired 4/19/95, cost $6,129,272) (RES) BBB+/P 6,204,688
5,053,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 4,806,666
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals, Inc.), Ser. A
2,000,000 7 1/2s, 5/1/10 BB/P 2,145,000
750,000 7.3s, 5/1/04 BB/P 785,625
--------------
51,493,950
Georgia (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Atlanta Metro. Rapid Tran. Auth. Sales Tax Rev. Bonds,
Ser. O, 6.55s, 7/1/20 AA- 5,287,500
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB- 4,299,792
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.)
1,500,000 Ser. B, 10s, 4/1/17 AAA/P 1,743,750
3,700,000 Ser. A, 7 1/2s, 4/1/17 AAA/P 4,042,250
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 2,130,520
4,675,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.), 7.4s, 1/1/16 BB/P 4,844,469
--------------
22,348,281
Hawaii (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,355,000 HI State G.O. Bonds, Ser. CN, FGIC, 6 1/4s, 3/1/08 Aaa 4,730,619
Illinois (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds, Ser. A, FGIC
5,400,000 zero %, 12/1/17 Aaa 1,842,750
7,750,000 zero %, 12/1/16 Aaa 2,828,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,544,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 3,789,776
1,715,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,832,169
6,795,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 7,259,234
5,300,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 6,022,125
10,150,000 Cook Cnty., Cmnty. College Dist. No. 508
Rev. Bonds, Ser. C, MBIA, 7.7s, 12/1/07 Aaa 12,027,750
2,000,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB/P 1,972,500
IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
2,500,000 (Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (acquired 5/10/90, cost $2,388,850) (RES) D/P 1,925,000
1,860,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 2,083,200
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
1,175,000 8 3/4s, 7/1/11 B/P 1,274,875
610,000 8 3/4s, 7/1/11, (Prerefunded) AAA/P 655,750
1,080,000 8 1/4s, 8/1/12 (acquired 8/13/91,
cost $609,824) (RES) B/P 1,139,400
1,670,000 Ser. A, 7 7/8s, 7/1/20 B/P 1,962,250
2,800,000 Ser. A, 7 7/8s, 7/1/20, (Prerefunded) AAA/P 3,279,500
IL Hlth. Fac. Auth. Rev. Bonds
7,540,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 AAA 8,859,500
5,000,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 Baa1 5,875,000
--------------
64,629,529
Indiana (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
21,000,000 (Federal Express Corp.), 7.1s, 1/15/17 Baa2 22,732,500
13,510,000 (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 13,678,875
--------------
36,411,375
Iowa (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 8,344,375
Louisiana (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds (Boise Cascade Corp.),
7 3/4s, 6/1/21 Baa3 4,210,000
4,500,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 4,642,605
5,000,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 5,500,000
2,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 1,992,500
6,995,000 St. Charles Parish, Poll. Control Rev. Bonds
(Union Carbide), 7.35s, 11/1/22 Baa2 7,440,931
W. Feliciana, Parish Poll. Control Rev. Bonds
5,000,000 (Gulf States Util. Co.) 9s, 5/1/15 BBB-/P 5,249,900
4,000,000 (Gulf States Util. Co.) Ser. II, 7.7s, 12/1/14 Ba1 4,290,000
8,000,000 (Gulf States Util. Co.) Ser. C, 7s, 11/1/15 Ba1 8,520,000
6,000,000 (Entergy Gulf States), Ser. B, 6.6s, 9/1/28 Ba1 6,000,000
--------------
47,845,936
Maryland (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,650,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B/P 1,792,313
Massachusetts (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,355,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 AAA/P 2,459,515
6,940,000 MA Bay Trans. Auth. Rev. Bonds (Gen. Trans. Syst.),
Ser. B, 5.9s, 6/1/24 AA- 7,451,825
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, AMBAC, 7.07s, 7/1/18 Aaa 4,568,750
MA State G.O. Bonds
7,730,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $9,592,157) (RES) Aa3 8,715,575
7,850,000 Ser. A, AMBAC, 5 3/4s, 8/1/09 Aaa 8,330,813
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 Aaa 5,569,069
MA State Dev. Fin. Agcy. Rev. Bonds
4,000,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,785,000
4,200,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 3,974,250
2,000,000 (Lasell Village PJ), Ser. A, 6 3/8s, 12/1/25 BB-/P 1,850,000
7,600,000 MA State Hlth. & Edl. Fac. Auth. G.O. Bonds,
Ser. C, FGIC, 6s, 8/1/09 Aaa 8,217,500
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Ba1 3,060,200
3,690,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 4,086,675
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 3,273,750
13,000,000 Ser. A, 9s, 7/1/15 BB-/P 14,153,750
MA State Indl. Fin. Agcy. Rev. Bonds
3,900,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 3,995,394
1,000,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 1,024,460
2,260,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,406,923
MA State Wtr. Resources Auth. Rev. Bonds, Ser. A
3,000,000 6 1/2s, 7/15/21 Aaa 3,228,750
19,540,000 FSA, 4 3/4s, 8/1/37 Aaa 15,754,125
--------------
105,906,324
Michigan (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
329,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 B+/P 334,961
Detroit, G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 A- 2,768,750
3,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/10 AAA 3,172,500
4,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/08 AAA 4,250,000
5,515,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 6,390,506
10,000,000 MI State Strategic Fund Solid Waste Disp.
Rev. Bonds (Genesee Pwr. Station), 7 1/2s, 1/1/21 BB/P 10,500,000
MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
1,330,000 8 1/2s, 9/1/17 Ba3 1,458,013
670,000 8 1/2s, 9/1/17, (Prerefunded) Ba3 734,488
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,741,875
7,400,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 7,788,796
5,000,000 MI State Strategic Fund Ltd. Rev. Bonds
(Detroit Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 4,693,750
11,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 11,527,780
--------------
58,361,419
Minnesota (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 5,368,750
4,875,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Hltheast), Ser. A, 6 5/8s, 11/1/17 Baa3 4,838,438
--------------
10,207,188
Missouri (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
800,000 MO State Env. Impt. & Energy Poll. Control
Rev. Bonds (Great Lakes Carbon Control),
6 3/4s, 9/1/02 B-/P 803,000
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 7,427,094
--------------
8,230,094
Nebraska (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
700,000 Ser. B, GNMA Coll., 9.452s, 3/15/22 Aaa 738,066
1,900,000 Ser. 2, GNMA Coll., 8.64s, 9/10/30 Aaa 2,032,164
--------------
2,770,230
Nevada (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa2 9,063,125
3,000,000 Clark Cnty., Passenger Fac. Arpt. Rev. Bonds
(Las Vegas-McCarran Intl. Arpt.), Ser. A,
AMBAC, 6s, 7/1/22 AAA 3,183,750
--------------
12,246,875
New Hampshire (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,785,000 (Havenwood-Heritage Heights), U. S. Govt. Coll.,
9 3/4s, 12/1/19 AAA/P 2,893,142
4,000,000 (1st Mtge.- Rivermead Peterborough),
8 1/2s, 7/1/24 AAA 4,690,000
2,435,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 2,602,406
5,600,000 (Lakes Region Hosp. Assn.), 6 1/4s, 1/1/18 A-/P 5,558,000
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 AAA 2,700,000
4,000,000 NH State Bus. Fin. Auth. Rev. Bonds (Franklin Regl.
Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 3,725,000
7,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 BBB- 6,685,000
--------------
28,853,548
New Jersey (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 3,820,000
3,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
(1st mtge.-Cranes Hill), Ser. A, 7s, 2/1/10 BB-/P 3,210,000
5,000,000 NJ Econ. Dev. Auth. Rev. Bonds (Newark Arpt.
Marriot Hotel), 7s, 10/1/14 BBB/P 5,425,000
5,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 4,850,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
2,870,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 3,004,201
6,230,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 AAA 6,543,244
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 6,630,000
3,800,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I, 8.025s,
11/1/07 (acquired 2/11/93 cost $3,938,928) (RES) A+ 4,085,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 9,958,230
--------------
47,525,675
New Mexico (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,160,000 Farmington, Poll. Control Rev. Bonds (Tucson Elec.
Pwr. Co. San Juan), Ser. A, 6.95s, 10/1/20 B2 8,680,200
New York (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Long Island Pwr. Auth. FRB, Ser. 66, MBIA, 7s, 4/1/10
(acquired 11/3/98 cost $11,298,800) (RES) Aaa 10,225,000
8,750,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 7.596s,
12/1/24 (acquired 5/19/98 cost $9,511,250) (RES) A-/P 8,356,250
7,405,000 New York, G.O. Bonds, Ser. C, 5 1/4s, 8/15/10 A3 7,377,231
2,760,000 NY City, G.O. Bonds, Ser. F, 8 1/4s, 11/15/16 Aaa 3,029,100
3,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Visy Paper Inc.),
7.95s, 1/1/28 B/P 3,217,500
5,000,000 NY City, Muni. Assistance Corp. Rev. Bonds
(PA 337A), 8.2s, 7/1/07 (acquired 3/19/98,
cost $6,169,900) (RES) AA 5,687,500
7,565,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev.
Bonds, Ser. B, FGIC, 5 1/8s, 6/15/30 AAA 6,704,481
7,000,000 NY State Dorm. Auth. Rev. Bonds (Rites-PA),
Ser. 434, 7.2s, 5/15/15 (acquired 10/6/98
cost $8,278,340) (RES) Aaa 6,711,250
5,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Lilco Project), Ser. B, 5.15s, 3/1/16 A- 4,656,250
5,000,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $6,012,500) (RES) Aaa 5,793,750
1,800,000 NY State Local Govt. Assistance Corp. Rev. Bonds,
Ser. D, 7s, 4/1/18 Aaa 1,948,500
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 12,307,031
NY State Urban Dev. Corp. Rev. Bonds
(Correctional Fac.)
3,000,000 Ser. A, FSA, 6 1/2s, 1/1/10 Aaa 3,337,500
11,000,000 Ser. B, AMBAC, 4 3/4s, 1/1/28 AAA 9,157,500
1,500,000 Oneida Cnty, Indl. Dev. Agcy. Rev. Bonds
(St. Elizabeth Med.), Ser. A, 5 7/8s, 12/1/29 B+/P 1,378,125
5,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 5,500,000
--------------
95,386,968
North Carolina (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,250,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA, 6s, 1/1/18 AAA 5,499,375
3,000,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC, 9.278s,
1/1/25 (acquired 3/3/93, cost $3,116,820) (RES) Aaa 3,202,500
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
10,000,000 Ser. B, MBIA, 6s, 1/1/22 Aaa 10,475,000
6,000,000 (No. 1, Catawba Elec.) IFB, MBIA, 5.6s, 1/1/20 Aaa 5,625,000
--------------
24,801,875
Ohio (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,595,000 OH Hsg. Finl. Agcy. Rev. Bonds, Ser. B-1, GNMA
Coll., 5.85s, 9/1/16 AAA 2,617,706
Oklahoma (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 OK Dev. Fin. Auth. Indl. Dev. Rev. Bonds
(Doane Products Co.), 6 1/4s, 7/15/23 BB-/P 5,482,500
4,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 BBB+ 3,787,813
4,505,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 4,713,356
--------------
13,983,669
Oregon (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 9,487,500
Pennsylvania (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.),
Ser. A, 6s, 1/15/25 BB-/P 7,003,125
3,850,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB- 4,432,313
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 AAA/P 1,308,325
1,840,000 Greene Cnty., Hosp. Auth. Rev. Bonds (Greene Cnty.
Memorial Hosp.), 6 1/2s, 1/1/02 BBB/P 1,847,746
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.648s, 9/1/29 (acquired
6/20/95 cost $1,651,825) (RES) AAA/P 1,676,250
5,235,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2 5,405,138
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B
3,500,000 8 3/8s, 11/1/11 AAA 3,581,410
2,230,000 7 1/2s, 11/1/12 AAA 2,235,999
PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds
4,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 4,505,000
2,000,000 Ser. D, 7.15s, 12/1/18 BBB- 2,172,500
4,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 4,462,500
3,000,000 (Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BBB- 3,086,250
2,000,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.94s, 3/1/20 Aaa 2,347,500
6,000,000 Philadelphia, Gas Works IFB, FSA, 6.609s, 8/1/21
(acquired 1/24/94 cost $5,621,520) (RES) AAA 5,130,000
Philadelphia, Gas Works Rev. Bonds
3,000,000 Ser. 13, 7.7s, 6/15/21 Aaa 3,228,750
6,740,000 Ser. 16, FSA, 5 1/2s, 7/1/13 AAA 6,765,275
Philadelphia, Wtr. & Wastewater IFB
1,950,000 7.23s, 6/15/12 (acquired 9/13/96
cost $1,850,511) (RES) AAA 1,991,438
1,300,000 7.23s, 6/15/12 (Prerefunded) (acquired 9/13/96
cost $1,233,674) (RES) AAA 1,454,375
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B-/P 1,851,750
--------------
64,485,644
Puerto Rico (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 7.673s, 7/1/24
(acquired 6/12/95 cost $8,912,590) (RES) AAA/P 8,510,625
4,180,000 Cmnwlth. of PR, Muni. Fin. Agcy. Rev. Bonds, Ser. A,
FSA, 6s, 7/1/11 AAA 4,556,200
PR Elec. Pwr. Auth. Rev. Bonds
5,935,000 Ser. S, MBIA, 7s, 7/1/06 (SEG) AAA 6,765,900
5,400,000 Ser. T, 6 3/8s, 7/1/24 Baa1 5,940,000
--------------
25,772,725
South Carolina (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 11/1/02 B/P 9,095,000
5,155,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B/P 5,399,863
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds
Ser. A, FGIC
3,775,000 6 1/2s, 1/1/16 Aaa 4,124,188
630,000 6 1/2s, 1/1/16, (Prerefunded) Aaa 700,875
5,000,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 5,275,000
--------------
24,594,926
Tennessee (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 IVRC-Bristol TN Mem. Hosp. Rev. Bonds, FGIC,
6.652s, 2/28/14 (acquired 6/16/95
cost $9,366,660) (RES) Aaa 7,660,625
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Ft. Sanders Alliance), MBIA, 6 1/4s, 1/1/13 Aaa 7,560,000
4,930,000 Metropolitan Nashville & Davidson Cnty., Wtr. &
Swr. Rev. Bonds, FGIC, 6 1/2s, 1/1/09 Aaa 5,466,138
--------------
20,686,763
Texas (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds
(Sears Methodist Ctr.), 6s, 11/15/29 BB+/P 2,328,125
7,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.),
7 1/4s, 11/1/30 Baa1 7,987,500
7,500,000 Georgetown, Hlth. Facs. Dev. Corp. Rev. Bonds,
6 1/4s, 8/15/29 BB+ 7,125,000
10,325,000 Harris Cnty., Hlth. Fac. Rev. Bonds (Hermann
Mem. Hosp.), FSA, 5 1/2s, 6/1/15 Aaa 10,260,469
6,100,000 Harris Cnty., Hlth. Facs. Dev. Corp. Rev. Bonds
(Christus Hlth.), Ser. A, 5 3/4s, 7/1/13 AAA 6,115,250
10,000,000 Houston, Indpt. School Dist., Ltd. G. O. Bonds,
Ser. A, PSF-GTD, 4 3/4s, 2/15/26 Aaa 8,350,000
16,730,000 Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C,
AMBAC, 6 3/8s, 12/1/17 Aaa 17,461,926
4,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
10.595s, 6/22/21 Aaa 4,460,000
North Central Hlth. Fac. Dev. Corp. Rev.
Bonds (Hosp.), Ser. B
2,710,000 7.861s, 5/15/08 Aa2 2,872,600
290,000 7.861s, 5/15/08, (Prerefunded) AA 309,213
Port Arthur Dist., Rev. Bonds (Great Lakes
Carbon Corp.)
685,000 Ser. A, 6 3/4s, 9/1/02 B-/P 685,158
220,000 Ser. B, 6 3/4s, 9/1/02 B-/P 219,989
5,000,000 San Antonio, Elec. & Gas Rev. Bonds, Ser. A,
5 1/4s, 2/1/15 Aa1 4,818,750
4,000,000 Tarrant Cnty., Hlth. Fac. Dev. Corp. Hlth. Syst.
(TX Hlth. Res. Sys.), Ser. A, MBIA, 5 3/4s, 2/15/12 AAA 4,115,000
3,500,000 TX State, Ser. B, FRB, 8.679s, 9/30/11 Aa2 4,086,250
--------------
81,195,230
Virginia (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
8.354s, 8/15/23 Aaa 2,250,000
5,000,000 Peninsula Ports Auth. Rev. Bonds (Port
Fac-Zeigler Coal), 6.9s, 5/2/22 B/P 4,862,500
5,000,000 Suffolk, Redev. & Hsg. Auth. Multi-Fam. Hsg.
Rev. Bonds (Beach/Oxford Apts.), 6.1s, 4/1/26 B+/P 4,668,750
--------------
11,781,250
Washington (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,895,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,000,419
WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3)
5,000,000 Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,825,000
5,000,000 Ser. A, FSA, 6s, 7/1/08 Aaa 5,350,000
--------------
13,175,419
West Virginia (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,600,000 WV State G.O. Bonds, Ser. D, FGIC, 6 1/2s, 11/1/26 Aaa 3,915,000
5,000,000 WV State Pkwy. Econ. Dev. & Tourism Auth. IFB,
FGIC, 7.778s, 5/16/19 Aaa 5,006,250
--------------
8,921,250
Wisconsin (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.753s, 10/25/22 Aa3 1,582,500
--------------
Total Municipal Bonds and Notes
(cost $1,213,973,722) $1,234,201,504
PREFERRED STOCKS (0.5%) (a) (cost $6,000,000)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A,
6 7/8s, 6/30/49 (acquired 5/7/99,
cost $6,000,000) (RES) BB/P $ 6,060,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,219,973,722) (b) $1,240,261,504
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,266,594,629.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1999 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, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,219,984,275, resulting in gross unrealized appreciation and
depreciation of $50,878,847 and $30,541,618, respectively, or net unrealized appreciation of $20,337,229.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
September 30, 1999 was $119,134,314 or 9.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at September 30, 1999.
The fund had the following industry group concentrations greater than 10% at September 30, 1999 (as a percentage of
net assets):
Health care 21.7%
Transportation 14.9
Utilities 10.1
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond Index
(long) $36,715,969 $36,870,731 12/21/99 $(154,762)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,219,973,722) (Note 1) $ 1,240,261,504
- -----------------------------------------------------------------------------------------------
Cash 924,823
- -----------------------------------------------------------------------------------------------
Interest and other receivables 24,263,049
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,250,129
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 4,812,050
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 173,719
- -----------------------------------------------------------------------------------------------
Total assets 1,271,685,274
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 746,361
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,454,335
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,879,122
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 69,940
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 27,803
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,533
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 853,239
- -----------------------------------------------------------------------------------------------
Other accrued expenses 55,312
- -----------------------------------------------------------------------------------------------
Total liabilities 5,090,645
- -----------------------------------------------------------------------------------------------
Net assets $1,266,594,629
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,295,627,138
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (746,245)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (48,419,284)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 20,133,020
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,266,594,629
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($768,804,137 divided by 87,451,138 shares) $8.79
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of 8.79)* $9.23
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($474,893,427 divided by 54,063,490 shares)*** $8.78
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($7,012,262 divided by 798,176 shares)*** $8.79
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,884,803 divided by 1,807,817 shares) $8.79
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.79)** $9.09
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 42,416,541
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,795,493
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 624,369
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,409
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,358
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,005,534
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,097,790
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 29,454
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 39,893
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,442
- -----------------------------------------------------------------------------------------------
Registration fees 3,546
- -----------------------------------------------------------------------------------------------
Legal 13,264
- -----------------------------------------------------------------------------------------------
Postage 36,645
- -----------------------------------------------------------------------------------------------
Other 55,390
- -----------------------------------------------------------------------------------------------
Total expenses 7,731,587
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (159,314)
- -----------------------------------------------------------------------------------------------
Net expenses 7,572,273
- -----------------------------------------------------------------------------------------------
Net investment income 34,844,268
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,769,318)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,059,522)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (64,302,402)
- -----------------------------------------------------------------------------------------------
Net loss on investments (67,131,242)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(32,286,974)
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 34,844,268 $ 67,878,425
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,828,840) 1,581,293
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (64,302,402) (5,642,049)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (32,286,974) 63,817,669
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (22,018,424) (43,971,728)
- ---------------------------------------------------------------------------------------------------------------
Class B (11,992,610) (23,753,785)
- ---------------------------------------------------------------------------------------------------------------
Class C (137,502) (13,628)
- ---------------------------------------------------------------------------------------------------------------
Class M (416,206) (770,005)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (24,692,797) 31,674,242
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (91,544,513) 26,982,765
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,358,139,142 1,331,156,377
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $746,245 and
$1,025,771, respectively) $1,266,594,629 $1,358,139,142
- ---------------------------------------------------------------------------------------------------------------
*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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.25 $9.28 $8.87 $8.93 $8.74 $8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .49(c) .50(c) .52 .52 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) (.02) .42 (.06) .19 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities (.21) .47 .92 .46 .71 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.50) (.51) (.52) (.52) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.50) (.51) (.52) (.52) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.79 $9.25 $9.28 $8.87 $8.93 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.32)* 5.14 10.54 5.24 8.31 6.55
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $768,804 $830,074 $816,444 $794,330 $821,500 $828,548
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .47* .98 .95 .96 .95 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.76* 5.29 5.43 5.80 5.86 6.28
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.64* 20.47 33.13 55.08 75.89 62.84
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
Per-share Sept. 30
operating performance (Unaudited) Year ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.24 $9.28 $8.86 $8.92 $8.74 $8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .44(c) .44(c) .46 .47 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) (.04) .43 (.06) .18 .01
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities (.24) .40 .87 .40 .65 .49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.44) (.45) (.46) (.47) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.45) (.46) (.47) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.78 $9.24 $9.28 $8.86 $8.92 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.62)* 4.40 10.00 4.61 7.55 5.94
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $474,893 $507,067 $499,594 $473,818 $474,374 $427,086
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .77* 1.58 1.55 1.56 1.54 1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.46* 4.70 4.83 5.19 5.25 5.66
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.64* 20.47 33.13 55.08 75.89 62.84
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 C
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Sept. 30 Feb. 1, 1999+
operating performance (Unaudited) to March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $9.25 $9.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .21 .05(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities (.25) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.79 $9.25
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.69)* (0.99)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,012 $4,327
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .85* .28*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.38* .73*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.64* 20.47
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.25 $9.28 $8.86 $8.92 $8.75 $8.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .47(c) .47(c) .49 .50 .16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) (.03) .43 (.06) .17 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities (.22) .44 .90 .43 .67 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.47) (.48) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.48) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.79 $9.25 $9.28 $8.86 $8.92 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.44)* 4.88 10.39 4.97 7.77 8.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,885 $16,671 $15,118 $11,773 $8,394 $1,224
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .60* 1.23 1.20 1.21 1.18 .41*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.64* 5.04 5.16 5.51 5.45 1.78*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 5.64* 20.47 33.13 55.08 75.89 62.84
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, 1999 (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, class C 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 C
shares pay a higher ongoing distribution fee than class B and have a
one-year 1.00% contingent deferred sales charge. Class M shares are sold
with a maximum front end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class B
and class C 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 that 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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Securities purchased or
sold on a when-issued or delayed delivery basis may be settled a month or
more after the trade date; interest income is accrued based on the terms
of the security. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform under
the contract.
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. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
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 ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended September 30, 1999, the fund had no borrowings against the 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, as amended. 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, 1999, the fund had a capital loss carryover of approximately
$33,385,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ---------------
$11,838,000 March 31, 2003
11,290,000 March 31, 2004
8,494,000 March 31, 2006
1,763,000 March 31, 2007
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 are
accreted according to the yield-to-maturity basis.
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, 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 an allocated amount 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 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, 1999, fund expenses were reduced by
$159,314 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested 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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,593
has been allocated to the fund, 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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 0.85%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the six months ended September 30, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $58,121 and $2,285 from
the sale of class A and class M shares, respectively and received $317,190
and $6,456 in contingent deferred sales charges from redemptions of class
B and class C shares, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the six months
ended September 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $54,106 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended September 30, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $72,968,102 and $93,046,391, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended September 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,554,426 $204,503,451
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,302,740 11,724,598
- -----------------------------------------------------------------------------
23,857,166 216,228,049
Shares
repurchased (26,150,078) (236,701,164)
- -----------------------------------------------------------------------------
Net decrease (2,292,912) $(20,473,115)
- -----------------------------------------------------------------------------
Year ended March 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 34,004,902 $316,595,104
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,518,729 23,442,098
- -----------------------------------------------------------------------------
36,523,631 340,037,202
Shares
repurchased (34,725,222) (323,665,264)
- -----------------------------------------------------------------------------
Net increase 1,798,409 $ 16,371,938
- -----------------------------------------------------------------------------
Six months ended September 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,607,547 $ 32,596,029
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 745,896 6,706,144
- -----------------------------------------------------------------------------
4,353,443 39,302,173
Shares
repurchased (5,161,025) (46,535,032)
- -----------------------------------------------------------------------------
Net decrease (807,582) $ (7,232,859)
- -----------------------------------------------------------------------------
Year ended March 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,363,542 $ 68,448,589
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,443,740 13,423,393
- -----------------------------------------------------------------------------
8,807,282 81,871,982
Shares
repurchased (7,798,611) (72,530,480)
- -----------------------------------------------------------------------------
Net increase 1,008,671 $ 9,341,502
- -----------------------------------------------------------------------------
Six months ended September 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 534,762 $4,839,656
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,769 96,643
- -----------------------------------------------------------------------------
545,531 4,936,299
Shares
repurchased (215,261) (1,948,340)
- -----------------------------------------------------------------------------
Net increase 330,270 $2,987,959
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to March 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 488,361 $4,536,840
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 977 9,050
- -----------------------------------------------------------------------------
489,338 4,545,890
Shares
repurchased (21,432) (198,557)
- -----------------------------------------------------------------------------
Net increase 467,906 $4,347,333
- -----------------------------------------------------------------------------
Six months ended September 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 194,175 $1,752,675
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 32,941 296,271
- -----------------------------------------------------------------------------
227,116 2,048,946
Shares
repurchased (222,493) (2,023,728)
- -----------------------------------------------------------------------------
Net increase 4,623 $ 25,218
- -----------------------------------------------------------------------------
Year ended March 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 453,014 $4,209,863
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 62,934 585,289
- -----------------------------------------------------------------------------
515,948 4,795,152
Shares
repurchased (342,038) (3,181,683)
- -----------------------------------------------------------------------------
Net increase 173,910 $1,613,469
- -----------------------------------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity 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 [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
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
ASSET ALLOCATION 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 Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA040 56142 051/353/560 11/99
