Putnam
Municipal
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 15, 2000
REPORT FROM FUND MANAGEMENT
Blake E. Anderson
This year bond investors have been reminded of one of the basic
principles of investing: When a turnaround occurs in the financial
markets, it usually happens so quickly that unless you are already
positioned in the comeback sector, you will be too late to benefit
fully. When the Nasdaq plunged in March, setting off a long string of
declines in other equity markets, most bond investors benefited.
However, for investors in Putnam Municipal Income Fund, improving
performance was impaired by the fund's emphasis on lower-rated
tax-exempt bonds, which went through a difficult semiannual period.
Total return for 6 months ended 9/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
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3.00% -1.90% 2.57% -2.43% 2.49% 1.49% 2.75% -0.60%
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Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 5.
* GENERAL MUNICIPAL BOND MARKET IMPROVED, BUT LOWER-RATED BONDS LAGGED
For much of the past year, we have been anticipating the beginning of a
slowdown in the economy and better performance -- even though the
Federal Reserve Board was absorbed in an agenda of raising interest
rates. Prior to the spring drop in the Nasdaq, we had seen five
consecutive years of positive returns in most equity markets, and many
investors were ignoring the bond market. In general, bond prices moved
up, but prices of lower-rated municipal bonds lagged. The
highest-quality municipal bonds (AAA/ Aaa-rated) performed better. As a
result, we witnessed a dramatic difference in yield between the
highest-rated and lowest-rated municipal bonds, a condition known as the
credit spread.
Your fund is designed to have a rather large allocation of lower-tier
investment-grade bonds and lower-rated high-yield bonds; the allocation
was about 47% as of September 30, 2000. In an environment that has
favored higher-quality bonds, your fund's performance has lagged behind
other national municipal bond funds with similar investment objectives
but greater allocations of higher-grade bonds. In the past we have
stated that it has been one of our key strategies to increase the
percentage of lower-rated holdings in your fund's portfolio, and we
currently intend to continue this policy. We firmly believe that the
lower-rated sector offers an attractive opportunity and that today's
wide credit spreads will begin to narrow. Over time, funds with
high-yield components tend to outperform higher-grade funds while
demonstrating less price volatility.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care/
hospitals 24.3%
Transportation 18.5%
Utilities 14.5%
Housing 6.2%
Water and
sewer 6.1%
Footnote reads:
*Based on net assets as of 9/30/00. Holdings will vary over time.
* PROSPECTS FOR LOWER-RATED CREDITS BEGINNING TO IMPROVE
One of the reasons for our faith in this sector is that the decline in
lower-rated bond prices was not caused by rising defaults or by a
looming recession. Instead, it was the result of previous cash flows out
of municipal bond funds. There is a positive aspect about waiting for
the sector's recovery: Investors are paid a higher level of income while
they are waiting. With better performance in the general municipal bond
market, extremely low valuations in the lower-rated sectors, and the
return of many investors to the muni market, we have begun to see signs
that credit spreads have peaked and are beginning to close. We recently
observed the first indications that attitudes toward lower-rated credits
are changing within the hospital, health-care and utilities sectors.
Together these sectors make up approximately 38.8% of your fund's
portfolio.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 39.4%
Aa/AA -- 4.6%
A -- 9.5%
Baa/BBB -- 18.0%
Ba/BB -- 17.8%
B -- 9.5%
Other -- 1.2%
Footnote reads:
*As a percentage of market value as of 9/30/00. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* SUPPLY/DEMAND CONDITIONS AND AAA-RATED BONDS HELP PERFORMANCE
The supply of municipal bonds has been notably light over the past year,
both in terms of new issues and within the secondary market. Because of
the strong economy, state and local governments are flush with revenues,
reducing their desire to issue bonds. Light supply in the face of
greater demand also has helped outstanding municipal bonds perform
better.
While we have called attention to the underperformance of lower-rated
bonds during this fiscal year, on the brighter side, your fund owns
39.4% of AAA/Aaa-rated bonds. These bonds represent the highest quality
and most liquid area of the municipal market. As a result, this group
has performed well and its strength has helped to mitigate the
underperformance of lower-rated bonds.
"In a flat-to-down year for stocks, it's the bond investors who've got
bragging rights."
-- Special to TheStreet.com, September 27, 2000
* BETTER TIMES AHEAD FOR LOWER-RATED SECTORS
Putnam has always been known for its expertise in security selection and
in-depth credit analysis. Credit selection is especially important in a
fund such as yours that emphasizes below investment-grade bonds. These
bonds add tremendously to a fund's income level, but they also carry
greater credit risk. We have always believed that as long as lower-rated
credit investments are widely diversified and meticulously researched,
they are an intelligent investment choice for tax-free investors.
WHICH COMES FIRST, SUPPLY OR DEMAND?
The age-old chicken-and-egg question is surfacing in the municipal
market. Which comes first, supply or demand? The high-yield sector is
searching for an answer to that question. High-yield issuers are not
bringing new bonds to market until demand improves and credit spreads
narrow, while the drop in high-yield bond supply is keeping buyers away.
To date, just 2,229 nonrated bond issues have come to market, totaling
$13.3 billion, compared with 4,082 issues totaling $20.6 billion in
1999, according to Thomson Financial Securities Data. What happens when
there is little demand for an even smaller supply? There is an unusually
large difference between the yields of high-yield and high-grade
municipal bonds.
As always, there comes a point at which yields grow too high and
investors cannot resist. When that happens, credit spreads will narrow
and buyers will come back into the market. Recently we saw an example of
this turnaround when a lower investment-grade rated health facility sold
a small issue of revenue bonds in Indiana. Investors who bought the
issue earned an extraordinary tax-free 7.40% coupon on a 2031 maturity
at par. Now that is a yield that is hard to resist.
Recent economic reports indicate that the U.S. economy is still
expanding at a healthy clip, though at a slower pace than earlier in the
year. Comments by the Fed show that it believes the economy can grow for
sustained periods without triggering higher inflation. We believe that
this line of thinking is the primary reason why the Fed did not raise
interest rates in October, even as it maintained its tightening bias.
Based on these reports and the improving cash flow situation, we believe
the investments in your fund, especially the lower-rated securities, are
well positioned to reap the benefits of narrowing yield spreads.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 9/30/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit
ratings of high-yield bonds reflect a greater possibility that adverse
changes in the economy or poor performance by the issuers of those bonds
may affect the issuer's ability to pay principal and interest.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Municipal Income Fund is designed for investors seeking as high a level
of current income exempt from federal income tax as is consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 9/30/00
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
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6 months 3.00% -1.90% 2.57% -2.43% 2.49% 1.49% 2.75% -0.60%
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1 year 3.84 -1.11 3.21 -1.69 2.94 1.96 3.46 0.04
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5 years 28.09 22.07 24.31 22.37 22.65 22.65 26.34 22.22
Annual average 5.08 4.07 4.45 4.12 4.17 4.17 4.79 4.09
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10 years 94.58 85.26 81.78 81.78 79.55 79.55 88.59 82.55
Annual average 6.88 6.36 6.16 6.16 6.03 6.03 6.55 6.20
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Life of fund
Annual average 6.86 6.40 6.10 6.10 6.01 6.01 6.49 6.18
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/00
Lehman Brothers
Municipal Consumer
Bond Index price index
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6 months 3.97% 1.34%
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1 year 6.18 3.46
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5 years 32.52 13.32
Annual average 5.79 2.53
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10 years 102.67 30.82
Annual average 7.32 2.72
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Life of fund
Annual average 7.18 3.03
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Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5- and 10-year,
if available, and life-of-fund periods reflect the applicable contingent
deferred sales charge (CDSC), which is 5% in the first year, declines to
1% in the sixth year, and is eliminated thereafter. Returns shown for
class B and class M shares for periods prior to their inception are
derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares
the higher operating expenses applicable to such shares. For class C
shares, returns for periods prior to their inception are derived from
the historical performance of class A shares, adjusted to reflect both
the CDSC currently applicable to class C shares, which is 1% for the
first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 9/30/00
Class A Class B Class C Class M
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Distributions (number) 6 6 6 6
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Income $0.243297 $0.217385 $0.210980 $0.232438
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Capital gains 1 -- -- -- --
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Total $0.243297 $0.217385 $0.210980 $0.232438
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Share value: NAV POP NAV NAV NAV POP
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3/31/00 $8.61 $9.04 $8.61 $8.61 $8.61 $8.90
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9/30/00 8.62 9.05 8.61 8.61 8.61 8.90
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Current return (end of period)
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Current
dividend
rate 2 5.55% 5.29% 4.95% 4.79% 5.30% 5.13%
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Taxable
equivalent
yield 3 9.19 8.76 8.20 7.93 8.77 8.49
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Current
30-day SEC
yield 4 5.31 5.05 4.70 4.53 5.06 4.89
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Taxable
equivalent
yield 3 8.79 8.36 7.78 7.50 8.38 8.10
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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% federal 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.
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.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into 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.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you would prefer to receive your own copy, please
call Putnam at 1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
September 30, 2000 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (97.5%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (0.7%)
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$ 4,640,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- $ 3,752,600
3,750,000 Jefferson Cnty., Swr. Rev. Bond (Rites-PA),
Ser. 487 R, FRB, 6.095s, 2/1/38 (acquired 3/23/99,
cost $4,290,150)) (RES) AAA 3,684,375
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7,436,975
Alaska (0.7%)
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AK State Hsg. Fin. Corp. Rev. Bonds
2,300,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $2,447,200) (RES) AA/P 2,262,625
6,500,000 Ser. A, 5.55s, 6/1/34 Aaa 6,118,125
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8,380,750
Arizona (3.1%)
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AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
710,000 (Phoenix Mem. Hosp.), 8.2s, 6/1/21 BB 713,550
850,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa 923,313
Cochise Cnty., Indl. Dev. Auth. Rev. Bonds
(Sierra Vista Cmnty. Hosp.)
4,705,000 Ser. A, 6 3/4s, 12/1/26 BBB-/P 4,281,550
5,575,000 6.2s, 12/1/17 BBB-/P 5,024,469
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 Aaa 8,260,000
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst. Rev.
Bonds (Env. Inc. & Phoenix Hosp. & Med. Ctr.),
7s, 7/1/16 Aaa 2,162,500
Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.)
6,800,000 7.4s, 4/1/26 B/P 6,800,000
2,500,000 7.2s, 6/1/27 B/P 2,443,750
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 3,935,000
-------------
34,544,132
Arkansas (1.9%)
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3,900,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(WA Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 3,846,375
16,915,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 17,718,463
-------------
21,564,838
California (8.3%)
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12,625,000 Alameda, Corridor Trans. Auth. Rev. Bonds,
Ser. 99-A, zero %, MBIA, 10/1/30 AAA 2,209,375
Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Pub. Impts.)
5,000,000 Ser. A, FSA, 6s, 9/1/24 Aaa 5,437,500
14,000,000 Ser. C, FSA, zero %, 9/1/36 Aaa 1,732,500
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) (In default) (NON) (RES) B-/P 2,137,500
5,800,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11
(acquired 3/5/96, cost $5,800,000)
(In default) (NON) (RES) B-/P 2,755,000
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 2,478,000
6,000,000 Metropolitan Wtr. Dist. Rev. Bonds, Ser. A., 5s, 7/1/26 Aa2 5,512,500
3,615,000 Monrovia, Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevelopment Project Area-1),
Ser. B, AMBAC, 6.7s, 5/1/21 Aaa 3,800,269
Northern CA Pwr. Agcy. Multi. Cap. Fac.
Rev. Bonds IFB
3,480,000 9.192s, 8/1/17 Aaa 3,775,800
2,630,000 9.192s, 8/1/17, Prerefunded Aaa 2,935,738
1,800,000 Ontario, Multifamily Rev. Bonds (Res. Park
mtg. Ctr.), Ser. A, FRB, 4s, 8/1/07 VMIG1 1,800,000
Orange Cnty., Local Trans. Auth. Sales Tax
5,600,000 IFB, 7.604s, 2/14/11 Aa3 6,895,000
4,000,000 Rev. Bonds, AMBAC, 6.2s, 2/14/11 Aaa 4,480,000
San Joaquin Hills, Trans. Corridor Agcy. Toll
Road Rev. Bonds
10,000,000 7.55s, 1/1/10 Aaa 10,875,000
23,750,000 Ser. A, MBIA, zero %, 1/15/36 AAA 3,028,125
22,000,000 Ser. A, MBIA, zero %, 1/15/34 AAA 3,162,500
10,000,000 Ser. A, MBIA, zero %, 1/15/32 AAA 1,612,500
10,000,000 Ser. A, MBIA, zero %, 1/15/31 AAA 1,712,500
12,900,000 Ser. A, MBIA, zero %, 1/15/25 AAA 3,160,500
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 1,710,000
3,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds (Blossom
River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 2,760,000
11,840,000 Vallejo, COP (Marine World Foundation), 7s, 2/1/17 BB+/P 12,713,200
Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt.)
6,000,000 Ser. A, 6 1/2s, 5/15/25 BBB- 5,640,000
1,000,000 6 1/8s, 5/15/05 BBB- 986,250
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93,309,757
Colorado (4.3%)
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6,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Aaa 6,765,000
10,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8 3/8s, 12/1/26 B+/P 11,125,000
Denver, City & Cnty. Arpt. Rev. Bonds
4,410,000 Ser. A, 8 3/4s, 11/15/23 A2 4,652,550
1,470,000 Ser. A, 8s, 11/15/25 A2 1,512,263
5,000,000 Ser. D, 7 3/4s, 11/15/13 A 5,868,750
3,310,000 Ser. A, 7 1/2s, 11/15/23 A2 3,533,425
1,075,000 Ser. A, 7 1/4s, 11/15/25 AAA 1,154,281
9,550,000 Ser. B, 7 1/4s, 11/15/23 A2 9,955,875
425,000 Ser. A, 7 1/4s, 11/15/25, Prerefunded AAA 456,344
3,000,000 Larimer Cnty., School Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A2 3,517,500
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48,540,988
Connecticut (1.6%)
-------------------------------------------------------------------------------------------------------------------
2,385,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 2,564,591
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 5,580,000
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
1,594,354 Ser. A, 7 3/4s, 11/1/17 CCC/P 1,446,876
147,496 Ser. B, 3/1/21 CCC/P 25,074
4,000,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
7.214s, 6/10/30 Aaa 4,025,000
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB/P 4,030,000
-------------
17,671,541
District of Columbia (4.3%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 Aaa 4,187,500
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 AAA 34,647,178
2,590,000 DC Redev. Land Agcy. Rev. Bonds (Wash. D. C.
Sports Arena), 5 5/8s, 11/1/10 Baa3 2,605,436
DC Rev. Bonds (American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,979,500
3,350,000 5 3/4s, 9/1/13 BBB 3,207,625
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48,627,239
Florida (4.7%)
-------------------------------------------------------------------------------------------------------------------
8,270,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 8,479,562
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 A-/P 25,304,500
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB, 9.289s, 10/1/14
(acquired 4/19/95, cost $6,129,272) (RES) BBB+/P 6,347,188
3,140,000 Orange Cnty., School Board COP, Ser. 85,
MBIA, FRB, 6.49s, 8/1/22 (acquired
12/21/98, cost $3,356,597) (RES) Aaa 2,920,200
4,978,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 4,617,095
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals, Inc.), Ser. A
2,000,000 7 1/2s, 5/1/10 BB/P 2,100,000
500,000 7.3s, 5/1/04 BB/P 515,000
2,000,000 St. Johns Cnty., FL Hlth. Care Indl. Dev. Auth. Rev.
Bonds (Glenmoor St. Johns Project), Ser. A,
8s, 1/1/30 B+/P 1,985,000
-------------
52,268,545
Georgia (0.9%)
-------------------------------------------------------------------------------------------------------------------
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.)
1,500,000 Ser. B, 10s, 4/1/17 AAA/P 1,666,875
3,700,000 Ser. A, 7 1/2s, 4/1/17 AAA/P 3,935,875
4,530,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp. Rev.
Bonds (Visay Paper Inc.), 7.4s, 1/1/16 BB+/P 4,677,225
-------------
10,279,975
Illinois (6.8%)
-------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds
5,000,000 (Chicago Reform School), Ser. A, 5 1/4s, 12/1/22 AAA 4,712,500
5,400,000 Ser. A, FGIC, 12/1/17 Aaa 2,011,500
7,750,000 Ser. A, FGIC, 12/1/16 Aaa 3,080,625
9,000,000 Chicago, G.O. Bonds (Neighborhoods
Alive 21 Project), Ser. A, FGIC, 5 3/4s, 1/1/40 Aaa 8,898,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,459,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 3,570,484
1,675,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,728,851
6,615,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 6,827,672
5,300,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 5,856,500
10,150,000 Cook Cnty., Cmnty. College Dist. No. 508
Rev. Bonds, Ser. C, MBIA, 7.7s, 12/1/07 Aaa 11,862,813
2,000,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB+/P 1,847,500
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
1,830,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 2,008,425
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
1,125,000 8 3/4s, 7/1/11 B/P 1,177,223
585,000 8 3/4s, 7/1/11, Prerefunded AAA/P 609,740
1,080,000 8 1/4s, 8/1/12 B/P 1,117,800
1,655,000 Ser. A, 7 7/8s, 7/1/20 (acquired 1/25/96,
cost $1,655,000) (RES) D/P 1,489,500
2,745,000 Ser. A, 7 7/8s, 7/1/20, Prerefunded AAA/P 3,149,888
IL Hlth. Fac. Auth. Rev. Bonds
7,540,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 AAA 8,784,100
5,000,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 Baa1 5,825,000
-------------
76,483,871
Indiana (2.0%)
-------------------------------------------------------------------------------------------------------------------
Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
11,000,000 (Federal Express Corp.), 7.1s, 1/15/17 Baa2 11,495,000
11,000,000 (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 10,560,000
-------------
22,055,000
Iowa (0.7%)
-------------------------------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 7,905,625
Louisiana (5.2%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds (Boise Cascade Corp.),
7 3/4s, 6/1/21 Baa3 4,120,440
4,500,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 4,593,150
6,500,000 LA Local Govt. Env. Facs.Comnty. Dev. Auth.
Rev. Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 6,540,625
5,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds (Lake Charles
Memorial Hosp. Project), 8 5/8s, 12/1/30 BB/P 4,912,500
5,000,000 Lake Charles, Harbor & Term. Dist. Port Fac. Rev.
Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 5,331,250
2,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 2,005,000
6,995,000 St. Charles Parish, Poll. Control Rev. Bonds
(Union Carbide), 7.35s, 11/1/22 Baa2 7,257,313
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
5,000,000 (Gulf States Util. Co.) 9s, 5/1/15 BB+/P 5,162,300
4,000,000 (Gulf States Util. Co.) Ser. II, 7.7s, 12/1/14 Ba1 4,180,000
8,000,000 (Gulf States Util. Co.) Ser. C, 7s, 11/1/15 Ba1 8,250,000
6,000,000 (Entergy Gulf States), Ser. B, 6.6s, 9/1/28 Ba1 5,947,500
-------------
58,300,078
Maryland (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,650,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B-/P 1,687,125
Massachusetts (5.3%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Atlas Boston Tax Exempt Rev. Bonds, Ser. 1, 6.65s,
1/1/35 (acquired 1/18/99, cost $5,000,000) (RES) BB+/P 5,062,500
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev.
Bonds, AMBAC, 7.07s, 7/1/18 Aaa 4,681,250
MA State Dev. Fin. Agcy. Rev. Bonds
4,000,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,490,000
4,200,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 3,664,500
2,000,000 (Lasell Village PJ), Ser. A, 6 3/8s, 12/1/25 BB-/P 1,770,000
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 9,092,413
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Ba1 2,974,972
3,600,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s,
11/15/18 AAA/P 3,892,500
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
2,900,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 3,056,948
13,000,000 Ser. A, 9s, 7/1/15 BB-/P 13,690,040
6,565,000 MA State Residual Certificate G.O. Bonds,
Ser. 314, 5 3/4s, 8/1/11(acquired 4/19/00,
cost $7,166,354) (RES) Aaa 7,467,688
-------------
58,842,811
Michigan (2.6%)
-------------------------------------------------------------------------------------------------------------------
324,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev.
Bonds (Glacier Hills Inc.), 8 3/8s, 1/15/19 (SEG) B+/P 326,372
5,450,000 Detroit, Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 6,104,000
Detroit, G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 A- 2,731,250
3,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/10 AAA 3,187,500
MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
1,330,000 8 1/2s, 9/1/17 Ba3 1,403,270
670,000 8 1/2s, 9/1/17, Prerefunded Ba3 706,910
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,634,370
10,000,000 MI State Strategic Fund Solid Waste Disp. Rev.
Bonds (Genesee Pwr. Station), 7 1/2s, 1/1/21 BB/P 10,275,000
-------------
29,368,672
Minnesota (0.8%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade
Corp.), 7.2s, 10/1/24 Baa3 5,087,500
4,740,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Hltheast), Ser. A, 6 5/8s, 11/1/17 Baa3 4,141,575
-------------
9,229,075
Missouri (0.7%)
-------------------------------------------------------------------------------------------------------------------
430,000 MO State Env. Impt. & Energy Poll. Control Rev. Bonds
(Great Lakes Carbon Control), 6 3/4s, 9/1/02 B-/P 430,000
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 7,308,531
-------------
7,738,531
Nebraska (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,700,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 10.517s, 9/10/30 Aaa 1,774,375
Nevada (1.7%)
-------------------------------------------------------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa2 8,829,375
3,000,000 Clark Cnty., Passenger Fac. Arpt. Rev. Bonds
(Las Vegas-McCarran Intl. Arpt.), Ser. A, AMBAC,
6s, 7/1/22 AAA 3,131,250
7,000,000 Las Vegas Monorail Rev. Bond (2nd Tier), AMBAC,
7 3/8s, 1/1/40 BB-/P 6,746,250
-------------
18,706,875
New Hampshire (2.1%)
-------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
4,000,000 (1st Mtge.- Rivermead Peterborough),
8 1/2s, 7/1/24 AAA 4,565,000
2,145,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 2,190,581
5,600,000 (Lakes Region Hosp. Assn.), 6 1/4s, 1/1/18 A-/P 4,998,000
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 2,377,500
7,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 BBB- 6,536,250
4,000,000 NH State Bus. Fin. Auth. Rev. Bonds (Franklin Regl.
Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB- 3,275,000
-------------
23,942,331
New Jersey (3.6%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 3,485,000
3,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
(1st mtge.-Cranes Hill), Ser. A, 7s, 2/1/10 BB-/P 3,033,750
5,000,000 NJ Econ. Dev. Auth. Rev. Bonds (Newark Arpt.
Marriot Hotel), 7s, 10/1/14 BBB/P 5,118,750
5,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 4,668,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 3,090,000
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 6,780,000
3,300,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I, 7.602s,
11/1/07 (acquired 2/11/93, cost $3,420,648) (RES) A+/P 3,514,500
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 10,091,250
-------------
39,782,000
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 Ba3 8,251,800
New York (8.6%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 Long Island Pwr. Auth. FRB, Ser. 66, MBIA, 6.31s,
4/1/10 (acquired 11/3/98, cost $11,298,800) (RES) Aaa 10,575,000
8,750,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 6.771s,
12/1/24 (acquired 5/19/98, cost $9,511,250) (RES) A-/P 8,531,250
2,760,000 NY City, G.O. Bonds, Ser. F, 8 1/4s, 11/15/16 Aaa 2,915,250
3,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Visy Paper Inc.),
7.95s, 1/1/28 B/P 3,105,000
5,000,000 Suffolk Cnty., Indl. Dev. Agcy. Fac. Civic Fac. Rev.
Bonds (Southampton Hosp. Assn.), Ser. B, 7 5/8s,
1/1/30 (acquired 3/19/98, cost $6,169,900) (RES) AA/P 5,756,250
NY City, Muni. Wtr. Fin. Auth. Rev. Bonds Ser. B
7,565,000 FGIC, 5 1/8s, 6/15/30 AAA 6,893,606
3,500,000 AMBAC, 5 1/4s, 6/15/29 Aaa 3,255,000
2,800,000 NY State Dorm. Auth. Lease Rev. Bonds
(Court Facs.), 6s, 5/15/39 A3 2,863,000
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 7,035,000
5,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Lilco Project), Ser. B, 5.15s, 3/1/16 A- 4,618,750
5,000,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $6,012,500) (RES) Aaa 5,943,750
1,800,000 NY State Local Govt. Assistance Corp. Rev. Bonds,
Ser. D, 7s, 4/1/18 Aaa 1,901,250
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 12,167,969
11,000,000 NY State Urban Dev. Corp. Rev. Bonds
(Correctional Facilities), Ser. B, AMBAC,
4 3/4s, 1/1/28 AAA 9,363,750
1,500,000 Oneida Cnty, Indl. Dev. Agcy. Rev. Bonds
(St. Elizabeth Med.), Ser. A, 5 7/8s, 12/1/29 B+/P 1,215,000
5,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B+/P 5,410,625
5,000,000 Suffolk Cnty., Indl. Dev. Agcy. Fac. Civic Fac. Rev. Bonds
(Southampton Hosp. Assn.), Ser. B, 7 5/8s, 1/1/30 B-/P 4,762,500
-------------
96,312,950
North Carolina (2.0%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Charlotte Special Facilities Rev. Bonds (Douglas
Intl. Arpt.-US Awy.), 7 3/4s, 2/1/28 B/P 1,920,000
5,000,000 NC Eastern Muni. Pwr. Agcy. FRB, MBIA, 7.407s,
1/1/22 (acquired 5/4/00, cost $5,000,000) (RES) Aaa 5,475,000
3,000,000 NC Eastern Muni. Pwr. Agcy. IFB, FGIC, 7.11s, 1/1/25
(acquired 3/3/93, cost $3,112,315) (RES) Aaa 3,277,500
NC Eastern Muni. Pwr. Agcy. Rev. Bonds
5,250,000 MBIA, 6s, 1/1/18 AAA 5,538,750
6,000,000 (No. 1, Catawba Elec.), MBIA, 5.6s, 1/1/20 Aaa 5,790,000
-------------
22,001,250
Ohio (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,380,000 OH Hsg. Finl. Agcy. Rev. Bonds, Ser. B-1, GNMA
Coll., 5.85s, 9/1/16 AAA/P 2,412,725
Oklahoma (1.2%)
-------------------------------------------------------------------------------------------------------------------
6,000,000 OK Dev. Fin. Auth. Indl. Dev. Rev. Bonds (Doane
Products Co.), 6 1/4s, 7/15/23 BB-/P 5,272,500
5,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 Ba1 3,648,750
4,505,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 4,607,173
-------------
13,528,423
Oregon (0.8%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 8,637,500
Pennsylvania (5.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds (Panter
Creek Partners PJ), 6.65s, 5/1/10 BBB- 2,042,500
7,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.),
Ser. A, 6s, 1/15/25 BB-/P 6,918,750
3,850,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB- 4,196,500
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 Baa1 1,277,350
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.138s, 9/1/29 (acquired
6/20/95, cost $1,651,825) (RES) AAA/P 1,661,250
4,045,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2 4,125,900
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
4,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 4,270,000
2,000,000 Ser. D, 7.15s, 12/1/18 BBB- 2,062,500
4,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 4,287,188
3,000,000 (Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BBB- 2,928,750
2,000,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA, 10.341s, 3/1/20 Aaa 2,382,500
7,500,000 Philadelphia Auth. For Indl. Dev. Special Fac. Rev.
Bonds (U.S. Airways Inc. Project), 8 1/8s, 5/1/30 B/P 7,631,250
6,000,000 Philadelphia, Gas Works IFB, FSA, 5.78s, 8/1/21
(acquired 1/24/94, cost $5,621,520) (RES) AAA 5,317,500
Philadelphia, Gas Works Rev. Bonds
3,000,000 Ser. 13, 7.7s, 6/15/21 Aaa 3,126,210
6,740,000 Ser. 16, FSA, 5 1/2s, 7/1/13 AAA 6,900,075
Philadelphia, Wtr. & Wastewater IFB
1,950,000 5.65s, 6/15/12 (acquired 9/13/96,
cost $1,850,511) (RES) AAA 2,040,188
1,300,000 5.525s, 6/15/12, Prerefunded (acquired 9/13/96,
cost $1,223,674) (RES) AAA 1,417,000
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge. Rev.
Bonds (AHF/Central States Inc.), 10 1/4s, 11/1/19 CCC/P 1,811,250
-------------
64,396,661
Puerto Rico (1.3%)
-------------------------------------------------------------------------------------------------------------------
8,500,000 Cmnwlth. of PR, G.O. Bonds, 7.625s, 7/1/24
(acquired 6/12/95, cost $8,912,590) (RES) A 8,638,125
5,400,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. T, 6 3/8s, 7/1/24 AAA 5,886,000
-------------
14,524,125
South Carolina (2.1%)
-------------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev. Bonds (Hoover
Group Inc.), 8 1/2s, 11/1/02 B/P 8,861,250
4,555,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B/P 4,589,163
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds
Ser. A. FGIC
3,775,000 6 1/2s, 1/1/16 Aaa 4,237,438
630,000 6 1/2s, 1/1/16, Prerefunded Aaa 705,600
5,000,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 5,400,000
-------------
23,793,451
Tennessee (2.6%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Elizabethton, Hlth. & Edl. Facs. Board Rev. Bonds
(Hosp. Ref. & Impt.), Ser. B, 8s, 7/1/33 AAA 3,138,750
8,500,000 IVRC-Bristol TN Mem. Hosp. Rev. Bonds, FGIC, 14.1s,
2/28/14 (acquired 6/16/95, cost $9,366,660) (RES) Aaa 7,777,500
10,000,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board Rev.
Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/25 AAA 10,075,000
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Ft. Sanders Alliance), MBIA, 6 1/4s, 1/1/13 Aaa 7,612,500
-------------
28,603,750
Texas (6.5%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Ctr.), 6s, 11/15/29 BB+/P 1,981,250
Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines)
7,500,000 7 1/4s, 11/1/30 Baa1 7,753,125
5,000,000 6 3/8s, 5/1/35 Baa1 4,831,250
7,500,000 Georgetown, Hlth. Facs. Dev. Corp. Rev. Bonds,
6 1/4s, 8/15/29 BB+ 6,140,625
Harris Cnty., Hlth. Facs. Dev. Corp. Rev. Bonds
6,100,000 (Christus Hlth.), Ser. A, 5 3/4s, 7/1/13 AAA 6,313,500
10,325,000 (Hermann Mem. Hosp.), FSA, 5 1/2s, 6/1/15 Aaa 10,428,250
15,690,000 Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C,
AMBAC, 6 3/8s, 12/1/17 (SEG) Aaa 16,141,088
North Central Hlth. Fac. Dev. Corp. Rev.
Bonds (Hosp.), Ser. B
2,710,000 7.861s, 5/15/08 Aa2 2,815,013
290,000 7.861s, 5/15/08, Prerefunded AA 309,575
Port Arthur Dist., Rev. Bonds (Great Lakes
Carbon Corp.)
430,000 Ser. A, 6 3/4s, 9/1/02 B-/P 428,388
155,000 Ser. B, 6 3/4s, 9/1/02 B-/P 154,419
5,000,000 San Antonio, Elec. & Gas Rev. Bonds, Ser. A,
5 1/4s, 2/1/15 Aa1 4,887,500
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 4,175,000
2,500,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl.
Hosp.), 6s, 7/1/29 Baa2 2,056,250
3,500,000 TX State IF, Ser. B, FRB, 7.807s, 9/30/11 Aa2 4,195,625
--------------
72,610,858
Virginia (1.2%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
8.455s, 8/15/23 Aaa 2,142,500
5,000,000 Peninsula Ports Auth. VA Rev. Bonds
(Port Fac-Zeigler Coal), 6.9s, 5/2/22 CCC/P 2,750,000
5,000,000 Pocahontas Pk. Way Assn. Toll Rd. Rev. Bonds,
Ser. A, 5 1/2s, 8/15/28 Baa3 4,093,750
5,000,000 Suffolk, Redev. & Hsg. Auth. Multi-Fam. Hsg. Rev.
Bonds (Beach/Oxford Apts.), 6.1s, 4/1/26 BB-/P 4,512,500
--------------
13,498,750
Washington (1.3%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 Central Puget Sound, WA Regl. Trans. Auth. Sales
Tax & Motor Rev. Bonds, FGIC, 4 3/4s, 2/1/28 AAA 8,450,000
5,000,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,906,250
--------------
14,356,250
West Virginia (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,600,000 WV State G.O. Bonds, Ser. D, FGIC, 6 1/2s, 11/1/26 Aaa 3,964,500
5,000,000 WV State Pkwy. Econ. Dev. & Tourism Auth. IFB,
FGIC, 7.181s, 5/16/19 Aaa 5,031,250
--------------
8,995,750
Wisconsin (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,400,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.449s, 10/25/22 Aa3 1,443,372
--------------
Total Municipal Bonds and Notes
(cost $1,092,264,913) $1,091,808,724
<CAPTION>
PREFERRED STOCKS (0.5%) (a) (cost $6,000,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 6,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC
144A, 6.875%, cum. pfd. (acquired 5/7/99,
cost $6,000,000) (RES) BB+/P 5,902,500
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,098,264,913) (b) $1,097,711,224
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,120,139,184.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September 30, 2000 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at September 30, 2000 Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,098,271,386,
resulting in gross unrealized appreciation and depreciation of
$39,237,250 and $39,797,412, respectively, or net unrealized
depreciation of $560,162.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2000
was $129,716,302 or 11.6% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
September 30, 2000.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) are the current
interest rates shown at September 30, 2000, which are subject to change
based on the terms of the security.
The rates shown on IFB, which are securities paying interest rates
that vary inversely to changes in the market interest rates are the
current interest rates at September 30, 2000.
The fund had the following industry group concentrations greater
than 10% at September 30, 2000 (as a percentage of net assets):
Health care/hospitals 24.3%
Transportation 18.5
Utilities 14.5
------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
------------------------------------------------------------------------------
Muni Bond Index
(short) $39,345,749 $39,640,912 Dec-00 $295,163
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,098,264,913) (Note 1) $1,097,711,224
-------------------------------------------------------------------------------------------
Cash 417,100
-------------------------------------------------------------------------------------------
Interest and other receivables 21,589,570
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,832,744
-------------------------------------------------------------------------------------------
Receivable for securities sold 4,747,038
-------------------------------------------------------------------------------------------
Total assets 1,127,297,676
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 37,688
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 652,028
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,166,757
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,679,991
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,669,006
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 127,171
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 35,059
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,059
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 734,413
-------------------------------------------------------------------------------------------
Other accrued expenses 52,320
-------------------------------------------------------------------------------------------
Total liabilities 7,158,492
-------------------------------------------------------------------------------------------
Net assets $1,120,139,184
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,175,828,158
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (926,484)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (54,503,964)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (258,526)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,120,139,184
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($698,334,673 divided by 81,042,957 shares) $8.62
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of 8.62)* $9.05
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($398,294,563 divided by 46,264,867 shares)*** $8.61
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($9,790,850 divided by 1,136,518 shares)*** $8.61
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,719,098 divided by 1,592,837 shares) $8.61
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.61)** $8.90
-------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000
or more and on group sales, the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
*** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended September 30, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $37,246,679
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,322,400
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 423,815
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,897
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,104
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 875,375
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,720,911
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 44,526
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 33,034
-------------------------------------------------------------------------------------------
Other 139,681
-------------------------------------------------------------------------------------------
Total expenses 6,584,743
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (173,246)
-------------------------------------------------------------------------------------------
Net expenses 6,411,497
-------------------------------------------------------------------------------------------
Net investment loss 30,835,182
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (11,332)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,058,804)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 1,518,876
-------------------------------------------------------------------------------------------
Net loss on investments 448,740
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $31,283,922
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
September 30 March 31
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 30,835,182 $ 67,864,566
--------------------------------------------------------------------------------------------------
Net realized loss on investments (1,070,136) (7,803,895)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 1,518,876 (86,212,824)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 31,283,922 (26,152,153)
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (20,014,689) (43,069,316)
--------------------------------------------------------------------------------------------------
Class B (10,330,036) (23,341,496)
--------------------------------------------------------------------------------------------------
Class C (219,867) (341,518)
--------------------------------------------------------------------------------------------------
Class M (360,140) (806,885)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (37,759,501) (106,888,279)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (37,400,311) (200,599,647)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 1,157,539,495 1,358,139,142
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $926,484 and
$836,934, respectively) $1,120,139,184 $1,157,539,495
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Sept. 30
operating performance (Unaudited) Year ended March 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.61 $9.25 $9.28 $8.87 $8.93 $8.74
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .24 .49 .49(c) .50(c) .52 .52
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 (.64) (.02) .42 (.06) .19
------------------------------------------------------------------------------------------------------------------
Total from
investment activities .25 (.15) .47 .92 .46 .71
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.49) (.50) (.51) (.52) (.52)
------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.49) (.50) (.51) (.52) (.52)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.62 $8.61 $9.25 $9.28 $8.87 $8.93
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.00* (1.53) 5.14 10.54 5.24 8.31
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $698,335 $715,475 $830,074 $816,444 $794,330 $821,500
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* .94 .98 .95 .96 .95
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.85* 5.62 5.29 5.43 5.80 5.86
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.07* 14.32 20.47 33.13 55.08 75.89
------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid
through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Sept. 30
operating performance (Unaudited) Year ended March 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.61 $9.24 $9.28 $8.86 $8.92 $8.74
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .22 .44 .44(c) .44(c) .46 .47
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (.63) (.04) .43 (.06) .18
------------------------------------------------------------------------------------------------------------------
Total from
investment activities .22 (.19) .40 .87 .40 .65
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.44) (.44) (.45) (.46) (.47)
------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.44) (.45) (.46) (.47)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $8.61 $9.24 $9.28 $8.86 $8.92
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.57* (2.02) 4.40 10.00 4.61 7.55
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $398,295 $420,310 $507,067 $499,594 $473,818 $474,374
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77* 1.54 1.58 1.55 1.56 1.54
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.55* 5.02 4.70 4.83 5.19 5.25
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.07* 14.32 20.47 33.13 55.08 75.89
------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid
through expense offset arrangements (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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
---------------------------------------------------------------------------
Six months
ended For the period
Per-share Sept. 30 Year ended Feb. 1, 1999+
operating performance (Unaudited) March 31 to March 31
---------------------------------------------------------------------------
2000 2000 1999
---------------------------------------------------------------------------
Net asset value,
beginning of period $8.61 $9.25 $9.38
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income .21 .43 .05(c)
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (.64) (.14)
---------------------------------------------------------------------------
Total from
investment activities .21 (.21) (.09)
---------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------
From net
investment income (.21) (.43) (.04)
---------------------------------------------------------------------------
Total distributions (.21) (.43) (.04)
---------------------------------------------------------------------------
Net asset value,
end of period $8.61 $8.61 $9.25
---------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.49* (2.26) (0.99)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,791 $8,467 $4,327
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.69 .28*
---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.47* 4.89 .73*
---------------------------------------------------------------------------
Portfolio turnover (%) 6.07* 14.32 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 includes amounts paid
through expense offset arrangements (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>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Sept. 30
operating performance (Unaudited) Year ended March 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.61 $9.25 $9.28 $8.86 $8.92 $8.75
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .47(c) .47(c) .49 .50
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (.64) (.03) .43 (.06) .17
------------------------------------------------------------------------------------------------------------------
Total from
investment activities .23 (.17) .44 .90 .43 .67
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.47) (.47) (.48) (.49) (.50)
------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.47) (.48) (.49) (.50)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $8.61 $9.25 $9.28 $8.86 $8.92
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.75* (1.77) 4.88 10.39 4.97 7.77
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,719 $13,286 $16,671 $15,118 $11,773 $8,394
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.19 1.23 1.20 1.21 1.18
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.72* 5.37 5.04 5.16 5.51 5.45
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.07* 14.32 20.47 33.13 55.08 75.89
------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid
through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Municipal Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax as Putnam Investment Management,
Inc. ("Putnam Management"), the fund's manager, a wholly owned
subsidiary of Putnam Investments, Inc., believes is consistent with the
preservation of capital.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing
distribution fee than class A shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Class C shares have a higher ongoing distribution fee than
class B shares and have a one-year 1.00% contingent deferred sales
charge and do not convert to Class A shares. Class M shares are sold
with a maximum front end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value.
Restricted securities are stated at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended September 30, 2000, 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, 2000, the fund had a capital loss carryover of
approximately $40,625,000 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
1,800,000 March 31, 2007
7,203,000 March 31, 2008
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
G) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. The premium in excess
of the call price, if any, is amortized to the call date; thereafter,
the remaining excess premium is amortized to maturity. Discounts on zero
coupon bonds and original issue discount 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 and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended September 30, 2000, fund expenses were reduced
by $173,246 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 $1,431
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a 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 Retail Management, Inc., 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 Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 0.85%,
1.00% and 0.50% of the average net assets attributable to class A, class
B, class C and class M shares, respectively.
For the six months ended September 30, 2000, Putnam Retail Management,
Inc., acting as underwriter received net commissions of $34,788 and $825
from the sale of class A and class M shares, respectively, and received
$240,679 and $4,827 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the
six months ended September 30, 2000, Putnam Retail Management, Inc.,
acting as underwriter received $23,644 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended September 30, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $67,231,252 and $109,086,806, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At September 30, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended September 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 5,778,642 $ 49,461,969
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,423,063 12,170,766
---------------------------------------------------------------------------
7,201,705 61,632,735
Shares
repurchased (9,234,671) (79,066,150)
---------------------------------------------------------------------------
Net decrease (2,032,966) $(17,433,415)
---------------------------------------------------------------------------
Year ended March 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 31,137,596 $278,004,518
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,683,426 23,501,803
---------------------------------------------------------------------------
33,821,022 301,506,321
Shares
repurchased (40,489,149) (359,097,615)
---------------------------------------------------------------------------
Net decrease (6,668,127) $(57,591,294)
---------------------------------------------------------------------------
Six months ended September 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 1,410,466 $ 12,070,294
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 704,473 6,020,841
---------------------------------------------------------------------------
2,114,939 18,091,135
Shares
repurchased (4,692,876) (40,157,277)
---------------------------------------------------------------------------
Net decrease (2,577,937) $(22,066,142)
---------------------------------------------------------------------------
Year ended March 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 6,264,975 $ 55,372,434
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,504,619 13,172,543
---------------------------------------------------------------------------
7,769,594 68,544,977
Shares
repurchased (13,797,862) (120,203,009)
---------------------------------------------------------------------------
Net decrease (6,028,268) $(51,658,032)
---------------------------------------------------------------------------
Six months ended September 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 279,630 $ 2,401,766
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 15,652 133,871
---------------------------------------------------------------------------
295,282 2,535,637
Shares
repurchased (142,444) (1,220,366)
---------------------------------------------------------------------------
Net increase 152,838 $ 1,315,271
---------------------------------------------------------------------------
Year ended March 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 997,839 $8,796,833
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 27,156 236,373
---------------------------------------------------------------------------
1,024,995 9,033,206
Shares
repurchased (509,221) (4,440,720)
---------------------------------------------------------------------------
Net increase 515,774 $4,592,486
---------------------------------------------------------------------------
Six months ended September 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 168,321 $1,441,676
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 30,857 263,735
---------------------------------------------------------------------------
199,178 1,705,411
Shares
repurchased (149,781) (1,280,626)
---------------------------------------------------------------------------
Net increase 49,397 $ 424,785
---------------------------------------------------------------------------
Year ended March 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 294,068 $ 2,606,518
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 66,632 583,662
---------------------------------------------------------------------------
360,700 3,190,180
Shares
repurchased (620,454) (5,421,619)
---------------------------------------------------------------------------
Net decrease (259,754) $(2,231,439)
---------------------------------------------------------------------------
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
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
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Municipal
Income Fun. 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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA040 65459 051/353/560 11/00
