Putnam
Municipal
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Municipal bonds have enjoyed a period of relative calm as most of the
world's other securities markets continue to experience varying degrees of
volatility. Popular with investors because their income is not subject to
federal taxes, these bonds have also been beneficiaries of an environment
that considerably narrowed the gap between their yields and the yields on
taxable U.S. Treasury bonds. The gap has widened in recent weeks to a more
traditional 90% of Treasury bond yields, but the disparity still provides
a significant advantage on a taxable-equivalent basis, especially for
taxpayers in the higher tax brackets.
In this environment, I am pleased to report that Putnam Municipal Income
Fund delivered competitive results during the fiscal year that ended on
March 31, 1999. It is encouraging also to note that your fund's management
team believes continued heavy demand for municipals in a strong economy
with low inflation augurs well as the fund enters fiscal 2000. In the
following report, Fund Manager Blake E. Anderson reviews performance
during the fiscal year just ended and takes a look at prospects for the
year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 1999
Report from the Fund Manager
Blake E. Anderson
A wonderful thing happened in the municipal bond market during last fall's
dramatic correction. Credit spreads between higher-rated and lower-rated
bonds widened, forcing prices to fall and yields to rise on municipal
bonds with a Standard & Poors' rating of BBB and below. To the trained eye
with the discipline to separate emotion from reality, this created
significant buying opportunities.
Putnam Municipal Income Fund was well positioned to take advantage of this
market environment. The ensuing price appreciation helped the fund produce
a favorable total return of 5.14% for class A shares at net asset value
for the 12 months ended March 31, 1999.
Total return for 12 months ended 3/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------
5.14% 0.17% 4.40% -0.58% 3.96% 2.97% 4.88% 1.49%
- ---------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* MUNICIPAL MARKET REMAINS CALM AMID GLOBAL VOLATILITY
In a financial world in which new highs and lows are making the headlines
every day, the municipal market has unquestionably been one of the
calmest. A case in point: Municipal bond yields -- which rise as bond
prices fall -- have moved up less than 20 basis points since the beginning
of the year, while Treasury yields rose more in February than in any other
single month in 10 years. Although this means that municipal yields have
returned to more traditional ratios (90% of Treasury yields as of April 5,
1999), they still offer exceptionally attractive income to many
tax-conscious investors.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospital/health care 18.1%
Utilities 14.6%
Transportation 14.4%
Water and sewer 4.0%
Housing 3.4%
Footnote reads:
*Based on net assets as of 3/31/99. Holdings will vary over time.
As expected, with the slight rise in yields, the supply of new municipal
bonds has tapered off. The calendar of new issues shows about 20% to 30%
fewer bonds coming to market now in comparison to year-earlier levels. On
the demand side, cash flow into municipal bonds has increased -- a
byproduct of a volatile stock market and investors' need to rebalance
their portfolios. The ensuing supply/demand relationship is positive for
municipal bonds.
* OUR APPROACH TO INCOME, TOTAL RETURN, AND RISK EQUATION
Interest-rate forecasting, also known as duration management, can be
rewarding when implemented correctly. However, to call interest-rate
movements consistently is difficult at best. Quite simply, one either wins
or loses.
We prefer to take a less risky, more predictable route. We scour the
municipal bond market for undervalued bonds with hidden credit potential.
In essence, we spread the credit risk of each security across a portfolio
of more than 200 bonds. Our selection process weighs factors such as
price, call date, and the yield spread between long- and short-term
municipal securities as well as between higher- and lower-quality bonds.
It is a delicate balancing act that seeks attractive tax-free income,
consistent returns, and below-market risk.
[GRAPHIC OMITTED: worm chart BOND RETURNS: MUNICIPALS VERSUS TREASURIES]
BOND RETURNS:
MUNICIPALS VERSUS TREASURIES
Monthly 1994-1999
Lehman Bros. Lehman Bros. Lehman Bros.
Municipal Bond Treasury Bond Treasury Bond
Date Index Index (pretax) Index (after tax)
3/31/94 10,000 10,000 10,000
9/30/94 10,180 9,929 9,797
3/31/95 10,743 10,430 10,150
9/30/95 11,319 11,274 10,826
3/31/96 11,644 11,523 10,923
9/30/96 12,002 11,769 11,010
3/31/97 12,279 12,006 11,087
9/30/97 13,087 12,840 11,704
3/31/98 13,596 13,469 12,124
9/30/98 14,227 14,623 13,001
3/31/99 $14,440 $15,932 $13,451
Footnote reads:
Sources: Lehman Brothers Municipal Bond Index; Lehman Brothers Treasury
Bond Index. This graph compares the growth of a hypothetical $10,000
investment in tax-free municipal bonds with a similar investment in U.S.
Treasury bonds and shows the effective after-tax returns of the fully
taxable Treasury securities for an individual paying the maximum 39.6%
federal income tax rate. The performance is not indicative of any Putnam
fund and past performance is not indicative of future results. You
cannot invest directly in an index.
* WIDENING CREDIT SPREAD PRESENTS SECTOR OPPORTUNITIES
Through July 1998, credit spreads between high-quality and lower-quality
bonds narrowed dramatically. Investors were not being rewarded for taking
on the additional risk associated with bonds rated BBB or below by S&P. In
August, however, the credit relationship reversed. Russia's financial
markets collapsed, setting in motion a chain of events that shook
investors' faith in currency and stock markets worldwide. Investors sought
the safety of U.S. Treasury bonds, driving their prices up while pushing
their yields down. The impact on the tax-free market was slower and less
extreme, since foreign investors do not enjoy the bonds' tax-free
advantages. By October, the credit gap created some very unique buying
opportunities in the commodity- related and hospital sectors.
". . .investors looking for a high-yield option would do well to consider
this fund's appealing mix of strong yield, good total returns, and
moderate volatility."
- --Morningstar, March 5, 1999
The Asian economic slowdown is reducing demand for commodities, which, in
turn, is depressing prices of industrial development bonds (IDBs) issued
by commodity-related businesses. Investors, reacting to current events,
are shunning these companies, which are facing temporary pressures. Using
extensive research, we identified a handful of companies whose issues we
expected would rebound strongly in price once the crisis passed. The
fund's investments in Solvay Paper have outperformed the market in recent
months, as investor fears subsided and the municipal market rallied. While
this holding, as well as others discussed in this report, was viewed
favorably during the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
Why is low inflation good for the bond market?
Inflation has always had a bad rap among investors. After positive economic
news about job growth, rising wages or a higher number of housing starts,
prices in the bond market usually fall. This is because as a general rule,
steep rises in economic growth lead to higher inflation, which raises the
costs of goods and services, leading to higher interest rate -- and lower
bond prices.
Over the long term, inflation erodes a bond's value. This explains why the
bond market tends to react negatively to reports of stronger economic growth.
However, the stable, low inflation rates of the past few years have been
favorable for bonds and the value of your investment. While inflation fears
arise often and affect the markets in the short term, current economic
indicators do not substantiate higher inflation. Ultimately, low inflation
means more money in a bond investor's pocket.
"Every portfolio decision strikes a balance between current income and
consistent total return with the lowest risk possible."
- -- Blake E. Anderson, manager
Putnam Municipal Income Fund
The health-care industry is another sector in which widening credit
spreads are creating some promising opportunities. Concerns are gradually
beginning to surface about the effects of Medicare reform proposals and
year 2000 (Y2K) disruptions. In addition, the sector was jolted by the
Philadelphia Healthcare System bankruptcy last fall. Many of these
hospital bonds were insured by the Municipal Bond Investors Assurance
Corporation (MBIA), allowing investors to receive timely payment of their
principal and interest. However, the default made all insurers of
municipal bonds more cautious and less willing to insure BBB-rated
hospitals. As short-term fears sideline many investors, we are taking
advantage of the resulting values, confident that the insurers will
eventually return to the market. During this period, we bought Franklin
Regional Hospital bonds in New Hampshire, which carry a 6% coupon. This
state is traditionally tax averse and rarely issues municipal debt, making
this a rare opportunity to purchase bonds in a market that is not closely
followed.
* LOWER INFLATION, HIGHER REAL RATES OF RETURN
With core inflation in the United States remaining unusually low despite
strong economic growth and low unemployment, a new awareness is emerging:
strong growth does not necessarily translate to higher prices or
inflation. Since upward pressure on inflation is quite negative for bonds,
this new insight is positive news for all bond markets. With inflation
ranging from 0% to 2% over the past 12 months depending on the measure
used, investors have not yet realized that real rates of return are
actually very high. Accustomed to higher rates of inflation hovering in
the 3% to 4% range, investors need to reset their expectations as to what
constitutes a good rate of return. Simply put, a tax-free yield of 5% with
1% inflation is better than a 6% return with 3% inflation. It is always
important to factor in the effects of inflation -- in this case, positive
effects -- as you evaluate your fund's performance.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Municipal Income Fund is designed for investors seeking as high a level of
current income exempt from federal income tax as is consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 3/31/99
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
- -----------------------------------------------------------------------------
1 year 5.14% 0.17% 4.40% -0.58% 3.96% 2.97% 4.88% 1.49%
- -----------------------------------------------------------------------------
5 years 41.16 34.38 36.89 34.89 35.43 35.43 39.22 34.75
Annual average 7.14 6.09 6.48 6.17 6.25 6.25 6.84 6.15
- -----------------------------------------------------------------------------
Life of fund 109.47 99.58 95.01 95.01 93.73 93.73 102.39 95.85
Annual average 7.79 7.26 7.01 7.01 6.94 6.94 7.41 7.05
- -----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/99
Lehman Bros. Municipal Consumer
Bond Index price index
- -----------------------------------------------------------------------------
1 year 6.20% 1.73%
- -----------------------------------------------------------------------------
5 years 44.43 12.09
Annual average 7.63 2.31
- -----------------------------------------------------------------------------
Life of fund 111.33 33.28
Annual average 7.91 2.97
- -----------------------------------------------------------------------------
Past performance is not indicative 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 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 5/22/89
Lehman Bros.
Fund's class A Municipal Bond Consumer Price
Date shares at POP Index Index
5/22/89 9,525 10,000 10,000
3/31/90 10,136 10,579 10,396
3/31/91 10,861 11,555 10,905
3/31/92 12,177 12,709 11,252
3/31/93 13,843 14,301 11,599
3/31/94 14,133 14,632 11,890
3/31/95 15,059 15,723 12,229
3/31/96 16,312 17,041 12,577
3/31/97 17,166 17,973 12,924
3/31/98 18,975 19,899 13,102
3/31/99 $19,958 $21,133 $13,328
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares and class C
shares would have been valued at $19,501 and $19,373, respectively, and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $20,239 ($19,585 at public
offering price). See first page of performance section for performance
calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 MONTHS ENDED 3/31/99
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 1 12
- ------------------------------------------------------------------------------
Income $0.497645 $0.441371 $0.036874 $0.474085
- ------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- ------------------------------------------------------------------------------
Total $0.497645 $0.441371 $0.036874 $0.474085
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
3/31/98 $9.28 $9.74 $9.28 $ -- $9.28 $9.59
- ------------------------------------------------------------------------------
2/1/995 -- -- -- 9.38 -- --
- ------------------------------------------------------------------------------
3/31/99 9.25 9.71 9.24 9.25 9.25 9.56
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.39% 5.13% 4.79% 4.70% 5.14% 4.98%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.92 8.49 7.93 7.78 8.51 8.25
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.21 4.01 3.61 3.20 3.96 3.83
- ------------------------------------------------------------------------------
Taxable equivalent3 6.97 6.64 5.98 5.30 6.56 6.34
- ------------------------------------------------------------------------------
1 Capital 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
5 Inception of class C shares.
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 an 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, preceded by the Report of independent
accountants, 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 is 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.
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 amounts 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. A separate table is provided for
each share class, reflecting the five most recent reporting periods. In a
semiannual report, the highlight table also includes the current reporting
period.
Report of independent accountants
For the fiscal year ended March 31, 1999
To the Trustees and Shareholders of
Putnam Municipal Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings),
and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the
financial position of Putnam Municipal Income Fund (the "fund") at March
31, 1999, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at March 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 11, 1999
The fund's portfolio
March 31, 1999
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
PSF-GTD -- Permanent School Fund-Guaranteed
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.8%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C> <C>
Alabama (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 4,640,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- $ 4,674,800
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 4,260,938
--------------
8,935,738
Alaska (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
AK State Hsg. Fin. Corp. Rev. Bonds
3,440,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $3,968,720) (RES) AA/P 3,685,100
7,460,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97,
cost $7,553,250) (RES) Aaa 7,646,500
--------------
11,331,600
Arizona (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
880,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
(St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa 980,100
Cochise Cnty., Indl. Dev. Auth. Rev. Bonds
(Sierra Vista Cmnty. Hosp.)
4,505,000 Ser. A, 6 3/4s, 12/1/26 BBB-/P 4,842,875
6,325,000 6.2s, 12/1/17 BBB-/P 6,688,688
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 AAA 8,697,500
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst.
Rev. Bonds (Env. Inc. & Phoenix Hosp. &
Med. Ctr.), 7s, 7/1/16 Aaa 2,282,500
Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.)
6,800,000 7.4s, 4/1/26 B+/P 7,514,000
2,500,000 7.2s, 6/1/27 B+/P 2,756,250
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 4,270,000
--------------
38,031,913
Arkansas (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,350,000 AR Hsg. Dev. Agcy. Res. Single Fam. Mtge.
Rev. Bonds, Ser. 84A, zero %, 7/1/15 AA 1,135,063
14,700,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB-/P 17,217,375
--------------
18,352,438
California (9.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Public Improvements), Ser. A, FSA, 6s, 9/1/24 Aaa 5,768,750
CA State G.O. Bonds
18,465,000 6.6s, 2/1/09 Aa3 21,857,944
11,300,000 6 1/2s, 2/1/07 Aa3 13,108,000
4,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 3,915,000
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 4,590,000
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 5,916,000
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 2,619,000
3,615,000 Monrovia, Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevelopment Area-1), Ser. B, AMBAC,
6.7s, 5/1/21 Aaa 4,008,131
Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB, MBIA
3,480,000 9.76s, 8/1/17 Aaa 4,176,000
2,630,000 9.76s, 8/1/17 (Prerefunded) Aaa 3,208,600
5,600,000 Orange Cnty., Local Trans. Auth. Sales Tax IFB,
8.668s, 2/14/11 AA+ 7,329,000
4,000,000 Orange Cnty., Local Trans. Auth. Sales Tax
Rev. Bonds, AMBAC, 6.2s, 2/14/11 Aaa 4,605,000
6,500,000 Orange Cnty., Rev. Bonds, Ser. A, MBIA, 6s, 6/1/10 Aaa 7,410,000
10,000,000 San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
(Toll Rd.), 7.55s, 1/1/02 Aaa 10,462,500
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 3,672,000
3,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 3,000,000
8,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds
(Palo Verde), Ser. A, AMBAC, 6s, 7/1/07 AAA 9,120,000
11,840,000 Vallejo, COP (Marine World Foundation), 7s,
2/1/17 BB+/P 12,831,600
Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt.), Ser. A
6,000,000 6 1/2s, 5/15/25 BBB- 6,405,000
1,000,000 6 1/8s, 5/15/05 BBB- 1,052,500
--------------
135,055,025
Colorado (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470, 7s, 8/31/26 Aaa 7,132,500
10,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8 3/8s, 12/1/26 B/P 11,812,500
Denver, City & Cnty. Arpt. Rev. Bonds
4,410,000 Ser. A, 8 3/4s, 11/15/23 Baa1 4,928,175
1,590,000 Ser. A, 8 3/4s, 11/15/23 (Prerefunded) Aaa 1,816,575
1,470,000 Ser. A, 8s, 11/15/25 Baa1 1,587,600
530,000 Ser. A, 8s, 11/15/25 (Prerefunded) Aaa 586,313
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 6,287,500
3,310,000 Ser. A, 7 1/2s, 11/15/23 Baa1 3,785,813
690,000 Ser. A, 7 1/2s, 11/15/23 (Prerefunded) AAA 818,513
1,075,000 Ser. A, 7 1/4s, 11/15/25 AAA 1,220,125
425,000 Ser. A, 7 1/4s, 11/15/25 (Prerefunded) AAA 482,375
9,550,000 Ser. B, 7 1/4s, 11/15/23 Baa1 10,445,313
2,450,000 Ser. B, 7 1/4s, 11/15/23 (Prerefunded) Aaa 2,765,438
3,000,000 Larimer Cnty., School Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 Aa3 3,742,500
--------------
57,411,240
Connecticut (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,295,000 CT State Dev. Auth. 1st Mtge. Rev. Bonds
(Gladeview Hlth. Care), 9 3/4s, 12/15/16 AAA/P 1,411,550
2,450,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 2,866,500
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba3 6,015,000
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
1,594,354 Ser. A, 7 3/4s, 10/1/17 CCC/P 1,593,987
147,496 Ser. B, zero %, 3/1/21 CCC/P 28,762
4,000,000 CT. State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 4,290,000
--------------
16,205,799
District of Columbia (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 AAA 36,472,813
DC Rev. Bonds (American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB- 4,284,000
3,350,000 5 3/4s, 9/1/13 BBB- 3,396,062
5,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 AAA 4,675,000
3,435,000 DC Redev. Land Agcy. Rev. Bonds (Wash. DC
Sports Arena), 5 5/8s, 11/1/10 Baa 3,555,225
--------------
52,383,100
Florida (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,770,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 9,248,491
5,885,000 Dade Cnty., Rev. Bonds (School Dist.), MBIA,
6 1/2s, 2/15/05 Aaa 6,642,694
1,000,000 FL Hsg. Fin. Agcy. VRDN (Woodlands), 3.2s, 12/1/17 A-1+ 1,000,000
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 26,363,625
3,140,000 Orange Cnty., School Board COP, Ser. 85, MBIA,
FRB, 7.43s, 8/1/22 Aaa 3,293,075
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB, 11.926s, 10/1/14
(acquired 4/19/95, cost $6,261,830) (RES) BBB+/P 6,964,688
Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College)
5,053,000 Ser. A, 8s, 3/1/23 B-/P 5,053,000
25,000 Ser. B, zero %, 3/1/23 B-/P 23,000
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals, Inc.), Ser. A
2,000,000 7 1/2s, 5/1/10 BB/P 2,205,000
750,000 7.3s, 5/1/04 BB/P 804,375
--------------
61,597,948
Georgia (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Atlanta Metro. Rapid Tran. Auth. Sales Tax
Rev. Bonds, Ser. O, 6.55s, 7/1/20 A1 5,406,250
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB- 4,370,940
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.)
1,500,000 Ser. B, 10s, 4/1/17 AAA 1,807,500
3,700,000 Ser. A, 7 1/2s, 4/1/17 AAA 4,157,875
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 2,192,500
4,745,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.), 7.4s, 1/1/16 BB/P 5,047,494
--------------
22,982,559
Hawaii (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,355,000 HI State G.O. Bonds, Ser. CN, FGIC, 6 1/4s, 3/1/08 Aaa 4,948,369
Illinois (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds, Ser. A, FGIC
5,400,000 zero %, 12/1/17 AAA 2,058,750
7,750,000 zero %, 12/1/16 AAA 3,138,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,544,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 3,889,540
1,715,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,880,069
6,795,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 7,449,019
5,300,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 6,280,500
10,150,000 Cook Cnty., Cmnty. College Dist. No. 508
Rev. Bonds, Ser. C, MBIA, 7.7s, 12/1/07 Aaa 12,535,250
2,000,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB-/P 2,042,500
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)
(In default) (NON)(RES) D/P 1,925,000
1,885,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 2,186,600
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
1,225,000 8 3/4s, 7/1/11 BB/P 1,329,125
630,000 8 3/4s, 7/1/11 (Prerefunded) AAA/P 697,725
1,400,000 8 1/4s, 8/1/12 (acquired 8/13/91, cost $609,824) (RES) BB/P 1,377,250
1,710,000 Ser. A, 7 7/8s, 7/1/20 BB/P 1,932,300
2,855,000 IL Dev. Fin. Auth. Rev. Bonds, (Cmnty. Rehab.
Providers Fac.), Ser. A, 7 7/8s, 7/1/20 AAA/P 3,490,238
IL Hlth. Fac. Auth. Rev. Bonds
7,540,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 Baa1 9,104,550
5,000,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 AAA/P 6,037,500
--------------
67,354,666
Indiana (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,796,474 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB+/P 1,899,933
Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
21,000,000 (Federal Express Corp.), 7.1s, 1/15/17 Baa2 23,388,750
13,510,000 (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa2 14,540,138
--------------
39,828,821
Iowa (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 8,734,375
Kansas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Kansas City, KS Indl. VRDN, 3.15s, 8/1/15 VMIG1 4,000,000
Louisiana (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds
(Boise Cascade Corp.), 7 3/4s, 6/1/21 Baa3 4,310,000
4,500,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,727,070
5,000,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline LNG Co.), 7 3/4s, 8/15/22 A3 5,637,500
2,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 B- 2,130,000
St. Charles Parish, Poll. Control Rev. Bonds
8,005,000 (LA Pwr. & Lt.), 8 1/4s, 6/1/14 Baa3 8,289,338
6,995,000 (Union Carbide), 7.35s, 11/1/22 Baa2 7,642,038
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
5,000,000 9s, 5/1/15 BB+/P 5,370,700
4,000,000 Ser. II, 7.7s, 12/1/14 Ba1 4,395,000
8,000,000 Ser. C, 7s, 11/1/15 Ba1 8,740,000
--------------
51,241,646
Maryland (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,650,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B/P 1,889,250
Massachusetts (9.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,355,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 AAA/P 2,538,455
11,940,000 MA Bay Trans. Auth. Rev. Bonds (Gen. Trans. Syst.),
Ser. B, 5.9s, 6/1/24 Aa3 13,178,775
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, AMBAC, 6.87s, 7/1/18 Aaa 5,337,500
7,730,000 MA State G. O. Bonds, Ser. 25, 8.22s, 11/1/11
(acquired 8/13/98, cost $9,592,157) (RES) Aa3 9,846,088
MA State G.O. Bonds
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 AAA 5,905,988
7,850,000 Ser. A, AMBAC, 5 3/4s, 8/1/09 AAA 8,733,125
MA State Dev. Fin. Agcy. Rev. Bonds
4,000,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,980,000
4,200,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 4,179,000
2,000,000 (Lasell Village PJ), Ser. A, 6 3/8s, 12/1/25 BB-/P 1,962,500
7,600,000 MA State Hlth. & Edl. Fac. Auth. G.O. Bonds, Ser. C,
FGIC, 6s, 8/1/09 AAA 8,597,500
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,750,000 (Norwood Hosp.), Ser. E, 8s, 7/1/05 Ba2 2,819,080
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Baa3 3,138,850
3,690,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 4,206,600
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 3,337,500
13,000,000 Ser. A, 9s, 7/1/15 BB-/P 14,430,000
MA State Indl. Fin. Agcy. Rev. Bonds
3,900,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 4,094,337
1,000,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 1,049,830
2,295,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,518,763
1,540,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B-/P 1,478,400
1,019,314 (1st Mtge. Pioneer Valley Living Ctr.), zero %,
10/1/20 B-/P 1
MA State Wtr. Resources Auth. Rev. Bonds, Ser. A
3,000,000 6 1/2s, 7/15/21 Aaa 3,303,750
19,540,000 FSA, 4 3/4s, 8/1/37 Aaa 18,025,650
--------------
122,661,692
Michigan (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
329,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 B+/P 356,965
Detroit, G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 Aaa 2,871,875
3,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/10 AAA 3,300,000
4,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/08 AAA 4,450,000
5,575,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 6,717,875
10,000,000 MI State Stragetic Fund Solid Waste Disp. Rev.
Bonds (Genesee Pwr. Station), 7 1/2s, 1/1/21 BB/P 10,762,500
MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
1,330,000 8 1/2s, 9/1/17 BB 1,502,900
670,000 8 1/2s, 9/1/17 (Prerefunded) BB 757,100
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,837,500
5,000,000 MI State Strategic Fund Ltd. Rev. Bonds
(Detroit Edison Co.), Ser. A, MBIA, 5.55s,
9/1/29 Aaa 5,043,750
7,500,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 8,043,750
11,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control
Rev. Bonds, Ser. B, 9 1/2s, 7/23/09 B+/P 11,770,000
--------------
60,414,215
Minnesota (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 5,575,000
4,875,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. A, 6 5/8s, 11/1/17 Baa3 5,045,625
5,000,000 Western MN Muni. Pwr. Agcy. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 1/1/05 AAA 5,562,500
--------------
16,183,125
Mississippi (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,915,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.), Ser. A, 9 1/2s, 12/1/13 Ba1 1,976,855
Missouri (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,170,000 MO State Env. Impt. & Energy Poll. Control
Rev. Bonds (Great Lakes Carbon Control),
6 3/4s, 9/1/02 B+/P 1,193,400
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 7,664,219
--------------
8,857,619
Nebraska (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
700,000 Ser. B, GNMA Coll., 9.452s, 3/15/22 Aaa 755,727
2,200,000 Ser. 2, GNMA Coll., 8.64s, 9/10/30 Aaa 2,411,750
--------------
3,167,477
Nevada (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa2 9,318,125
3,000,000 Clark Cnty., Passenger Fac. Arpt. Rev. Bonds
(Las Vegas-McCarran Intl. Arpt.), Ser. A, AMBAC,
6s, 7/1/22 AAA 3,262,500
--------------
12,580,625
New Hampshire (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,785,000 (Havenwood-Heritage Heights), 9 3/4s, 12/1/19 AAA/P 2,984,490
4,000,000 (1st Mtge.-Rivermead Peterborough),
8 1/2s, 7/1/24 AAA/P 4,825,000
2,435,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 2,672,413
5,600,000 (Lakes Region Hosp. Assn.), 6 1/4s, 1/1/18 A-/P 5,873,000
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 2,977,500
4,000,000 NH State Bus. Fin. Auth. Rev. Bonds (Franklin Regl.
Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 3,985,000
7,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 Ba3 7,122,500
--------------
30,439,903
New Jersey (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
(1st mtge.-Cranes Hill), Ser. A, 7s, 2/1/10 BB-/P 3,330,000
5,000,000 NJ Econ. Dev. Auth. Rev. Bonds (Newark Arpt.
Marriot Hotel), 7s, 10/1/14 BBB/P 5,581,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 3,232,500
6,550,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 7,041,250
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 AAA 7,095,000
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I, 8.953s,
11/1/07 (acquired 2/11/93, cost $4,416,240) (RES) A+/P 4,470,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 10,698,750
--------------
41,448,750
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 B 9,006,600
New York (8.8%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Long Island Pwr. Auth. FRB, Ser. 66, MBIA, 6.92s,
4/1/10 (acquired 11/3/98, cost $11,298,800) (RES) AAA 11,287,500
8,750,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 10.285s,
12/1/24 (acquired 5/19/98, cost $9,511,250) (RES) A-/P 9,854,688
1,900,000 Long Island, Pwr. Auth. NY Elec. Syst. VRDN, Ser. A,
2.8s, 5/1/33 VMIG1 1,900,000
11,000,000 Metropolitan Trans. Auth. NY Commuter Facs.
Rev. Bonds, Ser. B, FGIC, 4 3/4s, 7/1/26 AAA 10,422,500
7,405,000 New York, G.O. Bonds, Ser. C, 5 1/4s, 8/15/10 A3 7,756,738
7,000,000 NY & NJ Port Auth. Rev. Bonds (Delta Airlines, Inc.),
Ser. 1R, 6.95s, 6/1/08 Baa3 7,586,250
2,760,000 NY City, G.O. Bonds, Ser. F, 8 1/4s, 11/15/16 Aaa 3,118,800
1,300,000 NY City, Hlth. & Hosp. Corp. VRDN (Hlth. Syst.),
Ser. D, 2.8s, 2/15/26 VMIG1 1,300,000
3,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Visy Paper Inc.),
7.95s, 1/1/28 B/P 3,352,500
NY City, Muni. Assistance Corp. Rev. Bonds
5,000,000 (PA 337A), 8.2s, 7/1/07 (acquired 3/19/98,
cost $6,169,900) (RES) AA/P 6,225,000
10,000,000 Ser. L, 6s, 7/1/06 Aa2 11,162,500
5,000,000 NY State Energy Research & Dev. Auth. Pollution
Control Rev. Bonds (Lilco Project), Ser. B,
5.15s, 3/1/16 A- 5,006,650
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 6,331,250
1,900,000 NY State Hsg. Fin. Agcy. VRDN (Special Surgery
Hosp. Staff), Ser. A, 2.95s, 11/1/10 VMIG1 1,900,000
1,800,000 NY State Local Govt. Assistance Corp. Rev. Bonds,
Ser. D, 7s, 4/1/18 Aaa 1,998,000
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 12,724,219
3,000,000 NY State Urban Dev. Corp. Rev. Bonds
(Correctional Cap. Fac.), Ser. A, FSA,
6 1/2s, 1/1/10 Aaa 3,513,750
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 7,743,750
5,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 5,720,000
--------------
118,904,095
North Carolina (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC, 8.139s,
1/1/25 (acquired 3/3/93, cost $3,116,820) (RES) Aaa 3,802,500
10,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B,
MBIA, 6s, 1/1/22 Aaa 11,425,000
6,000,000 NC Muni. Pwr. Agcy. IFB (No. 1, Catawba Elec.),
MBIA, 7.42s, 1/1/20 Aaa 6,322,500
--------------
21,550,000
Ohio (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,750,000 OH Hsg. Finl. Agcy. Rev. Bonds, Ser. B-1, GNMA
Coll., 5.85s, 9/1/16 AAA 2,897,813
Oklahoma (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 BBB+ 4,228,750
4,505,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 4,797,825
--------------
9,026,575
Oregon (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 10,000,000
Washington Cnty., G.O. Bonds (Criminal Justice Fac.)
5,870,000 6s, 12/1/11 Aa1 6,479,013
5,535,000 6s, 12/1/10 Aa1 6,109,256
--------------
22,588,269
Pennsylvania (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 7,556,250
3,990,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB- 4,753,088
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 AAA/P 1,352,575
1,840,000 Greene Cnty., Hosp. Auth. Rev. Bonds (Greene Cnty.
Memorial Hosp.), 6 1/2s, 1/1/02 BBB/P 1,849,715
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.888s, 9/1/29
(acquired 6/20/95, cost $1,655,190) (RES) AAA/P 1,848,750
6,565,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2 6,958,900
Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp.), Ser. B
3,500,000 8 3/8s, 11/1/11 AAA 3,673,110
2,230,000 7 1/2s, 11/1/12 AAA 2,285,527
1,100,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. VRDN
(Philadelphia Presbytery), 3.15s, 7/1/25 VMIG1 1,100,000
2,000,000 PA Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds, Ser. D, 7.15s, 12/1/18 BBB- 2,210,000
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
4,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 4,590,000
4,250,000 (Northampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 4,616,563
3,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Northampton Generating), Ser. A,
6 1/2s, 1/1/13 BBB- 3,176,250
2,000,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 11.355s, 3/1/20 AAA 2,240,000
6,000,000 Philadelphia, Gas Works IFB, FSA, 7.615s, 8/1/21
(acquired 1/24/99, cost $5,621,520) (RES) Aaa 6,030,000
3,000,000 Philadelphia, Gas Works Rev. Bonds, Ser.
13, 7.7s, 6/15/21 Aaa 3,315,000
3,250,000 Philadelphia, Wtr. & Wastewtr. IFB, FGIC,
7.63s, 6/15/12 Aaa 3,672,500
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B-/P 1,833,750
--------------
63,061,978
Puerto Rico (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,180,000 Cmnwlth of PR, Muni. Fin. Agcy. Rev. Bonds, Ser. A,
FSA, 6s, 7/1/11 Aaa 4,791,325
8,500,000 Cmnwlth. of PR, Ser. PA-97, 7.384s, 7/1/24
(acquired 6/12/95, cost $8,912,590) (RES) A 9,541,250
PR Elec. Pwr. Auth. Rev. Bonds
5,935,000 Ser. S, MBIA, 7s, 7/1/06 (SEG) AAA 7,018,138
5,400,000 Ser. T, 6 3/8s, 7/1/24 Baa1 6,135,750
--------------
27,486,463
South Carolina (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev.
(Hoover Group Inc.), 8 1/2s, 11/1/02 B/P 9,318,125
5,155,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B+/P 5,502,962
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds FGIC
3,775,000 6 1/2s, 1/1/16 Aaa 4,435,625
630,000 6 1/2s, 1/1/16 (Prerefunded) Aaa 751,275
5,000,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 5,412,500
--------------
25,420,487
Tennessee (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,300,000 Chattanooga, Indl. Dev. Board Rev. Bonds, VRDN
(Warehouse Row Ltd.), 3s, 12/15/12 A-1+ 3,300,000
8,500,000 IVRC-Bristol TN Mem. Hosp. Rev. Bonds, IFB, FGIC,
7.252s, 2/28/14 (acquired 6/16/95,
cost $9,366,660) (RES) Aaa 8,797,500
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Ft. Sanders Alliance), MBIA, 6 1/4s, 1/1/13 Aaa 8,067,500
4,930,000 Metropolitan Nashville & Davidson Cnty., Wtr. &
Swr. Rev. Bonds, FGIC, 6 1/2s, 1/1/09 Aaa 5,718,800
--------------
25,883,800
Texas (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Abilene, Hlth. Fac. Dev. Rev. Bonds
(Sears Methodist Ctr.), 6s, 11/15/29 BB+/P 2,503,125
7,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.), 7 1/4s, 11/1/30 Baa1 8,231,250
10,325,000 Harris Cnty., Hlth. Fac. Rev. Bonds
(Hermann Mem. Hosp.), FSA, 5 1/2s, 6/1/11 AAA 11,034,844
10,000,000 Houston, Indpt. School Dist., Ltd. G. O. Bonds,
Ser. A, PSF-GTD, 4 3/4s, 2/15/26 AAA 9,425,000
Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C
16,730,000 AMBAC, 6 3/8s, 12/1/17 Aaa 17,963,823
1,070,000 AMBAC, 6 3/8s, 12/1/17 (Prerefunded) Aaa 1,166,300
4,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Presbyterian Hlth. Care Syst.), Ser. C, MBIA,
10.595s, 6/22/21 Aaa 4,655,000
North Central Hlth. Fac. Dev. Corp. Rev. Bonds
(Hosp.), Ser. B
2,710,000 7.861s, 5/15/08 Aa2 2,964,063
290,000 7.861s, 5/15/08 (Prerefunded) AA 319,725
Port Arthur Dist., Rev. Bonds
(Great Lakes Carbon Corp.)
940,000 Ser. A, 6 3/4s, 9/1/02 B+/P 942,068
285,000 Ser. B, 6 3/4s, 9/1/02 B+/P 285,701
5,000,000 San Antonio, Elec. & Gas Rev. Bonds, Ser. A,
5 1/4s, 2/1/15 Aa1 5,156,250
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 4,380,000
3,500,000 TX State IFB, Ser. B, 8.516s, 9/30/11 Aa2 4,571,875
--------------
73,599,024
Utah (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,250,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6s, 1/1/18 Aaa 5,945,625
Virginia (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
9.783s, 8/15/23 Aaa 2,345,000
5,000,000 Peninsula Ports Auth. VA Rev. Bonds
(Port Fac-Zeigler Coal), 6.9s, 5/2/22 B/P 5,018,750
5,000,000 Suffolk, Redev. & Hsg. Auth. Multi-Fam. Hsg.
Rev. Bonds (Beach/Oxford Apts.), 6.1s, 4/1/26 B+/P 4,975,000
--------------
12,338,750
Washington (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,895,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB 2,058,444
WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3)
5,000,000 Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 6,275,000
5,000,000 Ser. A, FSA, 6s, 7/1/08 Aaa 5,618,750
--------------
13,952,194
West Virginia (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,600,000 WV State G.O. Bonds, Ser. D, FGIC, 6 1/2s, 11/1/26 Aaa 4,216,500
5,000,000 WV State Pkwy. Econ. Dev. & Tourism Auth. IFB,
FGIC, 8.135s, 5/16/19 Aaa 5,656,250
--------------
9,872,750
Wisconsin (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 WI Hsg. & Econ. Dev. Auth. IFB
(Home Ownership Dev.), 9.905s, 10/25/22 Aa3 1,776,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,256,836,113) (b) $1,341,325,171
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,358,139,142.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 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 March 31, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
Ratings are not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $1,256,846,666, resulting in gross unrealized appreciation and
depreciation of $89,706,270 and $5,227,765, respectively, or net unrealized appreciation of $84,478,505.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at March 31, 1999 was $125,815,752 or 9.3% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at March 31, 1999.
The rates shown on a FRB are current interest rates shown at March 31, 1999 which are subject to change based
on the terms of the security.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes
in the market interest rates, and VRDN's are the current interest rates at March 31, 1999.
The fund had the following industry group concentrations greater than 10% at March 31, 1999 (as a percentage of net assets):
Hospitals/Health Care 18.1%
Utilities 14.6
Transportation 14.4
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond Index (short) $17,550,313 $17,496,677 6/21/99 $(53,636)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,256,836,113) (Note 1) $1,341,325,171
- -----------------------------------------------------------------------------------------------
Cash 680,386
- -----------------------------------------------------------------------------------------------
Interest and other receivables 24,045,789
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,141,818
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 9,239,062
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 66,563
- -----------------------------------------------------------------------------------------------
Total assets 1,377,498,789
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 566,931
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 14,290,150
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,464,597
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,910,551
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 112,275
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 23,888
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,376
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 896,616
- -----------------------------------------------------------------------------------------------
Other accrued expenses 90,263
- -----------------------------------------------------------------------------------------------
Total liabilities 19,359,647
- -----------------------------------------------------------------------------------------------
Net assets $1,358,139,142
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,320,319,935
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,025,771)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (45,590,444)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 84,435,422
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,358,139,142
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($830,074,134 divided by 89,744,050 shares) $9.25
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.25)* $9.71
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($507,067,019 divided by 54,871,072 shares)*** $9.24
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($4,326,996 divided by 467,906 shares)*** $9.25
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($16,670,993 divided by 1,803,194 shares) $9.25
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.25)** $9.56
- -----------------------------------------------------------------------------------------------
* 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
Year ended March 31, 1999
<S> <C>
Tax exempt interest income: $83,867,423
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,698,763
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,515,776
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,793
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,842
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,057,890
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,259,231
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 3,012
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 75,800
- -----------------------------------------------------------------------------------------------
Reports to shareholders 66,929
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 106,233
- -----------------------------------------------------------------------------------------------
Legal 129,666
- -----------------------------------------------------------------------------------------------
Postage 111,657
- -----------------------------------------------------------------------------------------------
Other 141,195
- -----------------------------------------------------------------------------------------------
Total expenses 16,207,862
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (218,864)
- -----------------------------------------------------------------------------------------------
Net expenses 15,988,998
- -----------------------------------------------------------------------------------------------
Net investment income 67,878,425
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,928,234
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,346,941)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (5,642,049)
- -----------------------------------------------------------------------------------------------
Net loss on investments (4,060,756)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $63,817,669
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended March 31
-------------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 67,878,425 $ 68,484,854
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,581,293 (20,513,372)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (5,642,049) 81,702,121
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 63,817,669 129,673,603
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (43,971,728) (45,766,249)
- ---------------------------------------------------------------------------------------------------------------
Class B (23,753,785) (23,212,036)
- ---------------------------------------------------------------------------------------------------------------
Class C (13,628) --
- ---------------------------------------------------------------------------------------------------------------
Class M (770,005) (690,043)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 31,674,242 (8,770,710)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 26,982,765 51,234,565
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,331,156,377 1,279,921,812
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions
in excess of net investment income of
$1,025,771 and $83,412, respectively) $1,358,139,142 $1,331,156,377
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.28 $8.87 $8.93 $8.74 $8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .49(c) .50(c) .52 .52 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .42 (.06) .19 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .47 .92 .46 .71 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.50) (.51) (.52) (.52) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.51) (.52) (.52) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.25 $9.28 $8.87 $8.93 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.14 10.54 5.24 8.31 6.55
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $830,074 $816,444 $794,330 $821,500 $828,548
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .95 .96 .95 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.29 5.43 5.80 5.86 6.28
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.28 $8.86 $8.92 $8.74 $8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .44(c) .44(c) .46 .47 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .43 (.06) .18 .01
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .40 .87 .40 .65 .49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.45) (.46) (.47) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.45) (.46) (.47) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.24 $9.28 $8.86 $8.92 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.40 10.00 4.61 7.55 5.94
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $507,067 $499,594 $473,818 $474,374 $427,086
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.58 1.55 1.56 1.54 1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.70 4.83 5.19 5.25 5.66
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1999+
operating performance to March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $9.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.25
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.99)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,327
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .28*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .73*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1994+
operating performance Year ended March 31 to March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.28 $8.86 $8.92 $8.75 $8.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47(c) .47(c) .49 .50 .16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.03) .43 (.06) .17 .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities .44 .90 .43 .67 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.48) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.48) (.49) (.50) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.25 $9.28 $8.86 $8.92 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.88 10.39 4.97 7.77 8.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,671 $15,118 $11,773 $8,394 $1,224
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.23 1.20 1.21 1.18 .41*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.04 5.16 5.51 5.45 1.78*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
March 31, 1999
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. Effective
February 1, 1999, the fund began offering class C 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 shares 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 lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
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 year ended
March 31, 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. These differences include temporary and
permanent differences of losses on wash sale transactions, dividends
payable, defaulted bond interest, realized and unrealized gains and losses
on certain futures contracts, market discount, and straddle loss
deferrals. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended March
31, 1999, the fund reclassified $311,638 to increase distributions in
excess of net investment income and $694,497 to increase paid-in-capital,
with an increase to accumulated net realized losses of $382,859. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
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 year ended March 31, 1999, fund expenses were reduced by $218,864
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 $1,000
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
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B 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 year ended March 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $145,569 and $2,824 from the sale
of class A and class M shares, respectively and received $656,259 and $12
in contingent deferred sales charges from redemptions of class B and C
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the year ended March 31, 1999, Putnam
Mutual Funds Corp., acting as underwriter received $40,424 on class A
redemptions.
Note 3
Purchases and sales of securities
During the year ended March 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $293,776,835 and
$270,438,355, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At March 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
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
- -----------------------------------------------------------------------------
Year ended March 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,898,236 $162,889,715
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,585,700 23,695,620
- -----------------------------------------------------------------------------
20,483,936 186,585,335
Shares
repurchased (22,116,850) (201,679,949)
- -----------------------------------------------------------------------------
Net decrease (1,632,914) $(15,094,614)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended March 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,153,987 $83,612,618
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,469,260 13,450,939
- -----------------------------------------------------------------------------
10,623,247 97,063,557
Shares
repurchased (10,247,287) (93,501,298)
- -----------------------------------------------------------------------------
Net increase 375,960 $3,562,259
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended March 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 617,335 $5,661,569
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 60,078 550,866
- -----------------------------------------------------------------------------
677,413 6,212,435
Shares
repurchased (376,491) (3,450,790)
- -----------------------------------------------------------------------------
Net increase 300,922 $2,761,645
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Municipal
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' 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
AN040 51851 051/353/560 5/99
