Putnam
Municipal
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's manager discusses performance for the
period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Municipal Income Fund that I will be signing. After more than 30 years
as Chairman of the Trustees and President of the Putnam Funds, the time
has come for me to step aside. In June, John Hill will become Chairman.
John is currently an independent Trustee and has served on the board for
the past 14 years. In addition, my son, George Putnam, III, will take on
the role of President. I am confident that the leadership of the funds
will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/ GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the Fund Manager
Blake E. Anderson
Reeling from a year of steady interest-rate increases, the municipal
bond market may finally be approaching the point at which the news gets
better. It may not seem like good news, but a responsible Federal
Reserve Board, such as the one we have, is good for bond investors.
True, Fed policy and rising interest rates have had a negative effect on
bond prices as evidenced by the performance of Putnam Municipal Income
Fund for this fiscal year. However, in the longer run, these increases
should keep inflation, the bond market's worst enemy, under control.
Your fund's top-quartile Lipper performance for the 5 and 10 years ended
March 31, 2000, the most recent quarter end for which Lipper data are
available, is evidence of its successful track record over the longer
term. Please see Lipper ranking information on page 3.
Total return for 12 months ended 3/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
-1.53% -6.19% -2.02% -6.68% -2.26% -3.19% -1.77 -4.95%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and an explanation of performance
calculation methods begin on page 6.
* INVERTED YIELD CURVE OFFERS CLUES TO POSITIVE CHANGE
The yield curve, generally an indicator of economic trends, gives some
clue as to why bond investors may begin to see better returns. The yield
curve graphs yields on Treasury bonds at different maturity dates;
usually it slopes upward with long-term bonds yielding more than
short-term bonds. In the past two months, the yield curve has inverted
so that 30-year yields are lower than 2-year yields, a rarely seen
phenomenon.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care/hospitals 25.2%
Transportation 18.3%
Utilities 16.2%
Housing 5.3%
Education 4.8%
Footnote reads:
*Based on net assets as of 3/31/00. Holdings will vary over time.
Here is the reason for the inversion: when the Fed raised interest rates
in February and March, the bond markets rallied and yields actually
fell. This is not a normal reaction to tighter Fed monetary policy, but
it is a reaction that acknowledges that the Fed's actions combined with
the Treasury's debt buy back program, may be having an effect. This
uncommon market behavior creates the inverted yield curve, which may
signal lower interest rates over the long run and better returns from
bonds and bond fund investments.
* HIGH LEVELS OF TAX-FREE INCOME SHOULD COMFORT INVESTORS
While insured municipal bonds have historically yielded about 85% of
comparable U.S. Treasury bonds, that ratio is now approximately 95%. On
a relative basis, that relationship translates into an unusually high
level of tax-free income for municipal bond funds, including your fund.
Your portfolio management team is working hard to maintain this high
level of tax-free income. One way we seek to do this is by seeking out
slight inefficiencies as the bond market moves up and down. For example,
just when the intermediate-term maturities (10-year bonds) were
performing especially well, we sold a portion of them and bought
longer-term maturities (20- to 30-year bonds) that were facing some
difficulties at the time. Using this strategy, we were able to purchase
longer-term bonds when they were priced at cheaper levels.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Other -- 0.6%
Aaa/AAA -- 41.0%
Aa/AA -- 4.4%
A -- 5.4%
Baa/BBB -- 20.1%
Ba/BB -- 15.3%
B -- 13.2%
Footnote reads:
*As a percentage of market value as of 3/31/00. 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.
* HEALTH-CARE PICTURE BRIGHTENING; AIRLINES STILL STRONG
The hospital/health-care sector remains one of the largest sectors in
this fund. This sector is still going through a transformation that
began with The Balanced Budget Act of 1997 and has negatively affected
hospital revenues ever since. The situation grew worse with the excess
of hospitals and empty beds, the growth of managed care, and the many
unsuccessful acquisitions that took place in the past few years. All
these events, along with poor management, have led to poor earnings and
higher risk in the past for bonds in this sector.
Putnam Municipal Income Fund's class A shares ranked 43 out of 179 (top
24%) and 21 out of 83 (top 25%) General Municipal Debt funds tracked by
Lipper for the 5- and 10-year periods ended March 31, 2000.
Past performance is no indication of future results. Lipper rankings are
based on total return performance, vary over time, and do not include
the effects of sales charges. For the 1-year period ended 3/31/00, the
fund's class A shares ranked 83 out of 270 (top 31%). Performance of
other share classes will vary.
Higher risk if selectively taken, however, can mean opportunity. This is
the point at which Putnam's analysts add their value. Our analysts
believe that there is justification for a more optimistic outlook in the
health-care sector because there are rumblings of further relief from
Congress as well as signs of better management in many hospitals.
Given some optimism, we will continue to invest in the health-care
sector. One recent purchase in the sector was the Mountain State Health
System (Tennessee) revenue bonds. These bonds were quite attractive with
a AAA rating from Standard & Poor's and an 7.50% coupon. Although these
holdings, as well as others mentioned in this report, were viewed
favorably at the end of the reporting period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may
vary in the future.
A closer look at municipal credit ratings
Ratings agencies such as Moody's Investor Service and Standard & Poor's Corp.
assign ratings to municipal issuers based on an in-depth analysis of the
issuer's financial condition and management, economic and debt characteristics,
and the specific revenue sources securing the bond. The highest ratings
are Aaa (Moody's) and AAA (Standard & Poor's). Bonds rated in the
Baa/BBB category or higher are considered to be investment grade.
Securities in the Ba/BB group and below are considered to be below
investment grade or high yield. If you look at "The Fund's portfolio" in
the back of this report, you will see ratings next to each issuer's
name. The pie chart on p. 3 summarizes this listing to give you a sense
of the portfolio's overall quality.
Sometimes smaller bond issues are not rated because the cost of
obtaining a ratings not justifiable. Unrated bonds can still offer
attractive investment opportunities and may end up in your fund's
portfolio. In such a case, Putnam's analysts perform their own rating of
the bonds, and they are identified in the portfolio listing by a /P
rating.
The fund is benefiting from taking on slightly more credit risk from the
lower end of the credit rating spectrum. Consequently, we will pursue
investments in lower-rated bonds as opportunities appear, drawing on our
in-depth credit research and remaining extremely selective in our
purchases of lower-rated bonds.
Within the transportation sector, we continue to favor the airlines
because they have done a good job of keeping capacity relatively stable
and revenues up. Because of the strong economy, people are still flying
for business and pleasure. Higher oil prices and higher fares haven't
deterred travelers. Currently the fund holds tax-exempt revenue bonds
backed by American Airlines, United Airlines, and Delta Airlines for
projects in Texas, Indiana, and Georgia, respectively.
* LONG-TERM OUTLOOK IMPROVING
When interest rates are rising, it can be a natural reaction among
investors to choose guaranteed certificates of deposit over bond fund
investments because the income from CDs seems more and more appealing.
However, in such an environment, investors may find that they end up
with only one to two years of attractive CD income and are then out of
the bond market during the period of its strongest returns. Although the
principal value on CDs is generally insured and their rate of return is
fixed while a fund investment's value and return will fluctuate, CDs may
be subject to penalties for early withdrawals and the income they
provide is fully taxable.
We believe that municipal bonds are attractively priced at current
levels. We do not anticipate major moves, either up or down, in
long-term interest rates over the next few months. As reports emerge
indicating that the Fed's tighter policies may be slowing economic
growth, bond markets, including the municipal bond market, should
respond accordingly.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Municipal Income Fund is designed for investors seeking as high a level
of current income exempt from federal income tax as is consistent with
preservation of capital.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00
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
- -----------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
1 year -1.53% -6.19% -2.02% -6.68% -2.26% -3.19% -1.77% -4.95%
- ----------------------------------------------------------------------------------------
5 years 30.45 24.21 26.61 24.64 25.16 25.16 28.66 24.52
Annual average 5.46 4.43 4.83 4.50 4.59 4.59 5.17 4.48
- ----------------------------------------------------------------------------------------
10 years 93.84 84.68 81.01 81.01 79.03 79.03 87.70 81.58
Annual average 6.84 6.33 6.11 6.11 6.00 6.00 6.50 6.15
- ----------------------------------------------------------------------------------------
Life of fund 106.27 96.53 91.07 91.07 89.36 89.36 98.80 92.38
Annual average 6.89 6.42 6.14 6.14 6.06 6.06 6.63 6.21
- ----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Lehman Brothers
Municipal Consumer
Bond Index price index
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1 year -0.08% 3.69%
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5 years 34.30 13.15
Annual average 6.07 2.50
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10 years 99.60 33.02
Annual average 7.15 2.89
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Life of fund 111.16 38.29
Annual average 7.14 3.04
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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
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 3/31/90
Lehman Bros.
Fund's class A Municipal Bond Consumer price
Date shares at POP Index index
3/31/90 9,528 10,000 10,000
3/31/91 10,210 10,922 10,490
3/31/92 11,446 12,013 10,824
3/31/93 13,012 13,518 11,158
3/31/94 13,286 13,831 11,437
3/31/95 14,156 14,863 11,756
3/31/96 15,333 16,108 12,098
3/31/97 16,136 16,989 12,432
3/31/98 17,837 18,810 12,603
3/31/99 18,753 19,976 12,828
3/31/00 $18,468 $19,960 $13,302
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $18,101 and $17,903, respectively, and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $18,770 ($18,158 at public
offering price). See first page of performance section for performance
calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 months ended 3/31/00
Class A Class B Class C Class M
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<S> <C> <C> <C> <C>
Distributions (number) 12 12 12 12
- --------------------------------------------------------------------------------------------------
Income1 $0.493846 $0.439887 $0.427995 $0.471758
- --------------------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
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Total $0.493846 $0.439887 $0.427995 $0.471758
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Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------------------
3/31/99 $9.25 $9.71 $9.24 $9.25 $9.25 $9.56
- --------------------------------------------------------------------------------------------------
3/31/00 8.61 9.04 8.61 8.61 8.61 8.90
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Current return (end of period)
- --------------------------------------------------------------------------------------------------
Current dividend rate2 5.73% 5.46% 5.14% 4.99% 5.48% 5.30%
- --------------------------------------------------------------------------------------------------
Taxable equivalent3 9.49 9.04 8.51 8.26 9.07 8.77
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Current 30-day SEC yield4 5.58 5.31 4.98 4.83 5.33 5.15
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Taxable equivalent3 9.24 8.79 8.25 8.00 8.82 8.53
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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 be subject to the federal alternative minimum tax. Income may
also 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.
</TABLE>
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Comparative benchmarks
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. It is not possible to
invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price 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.
Report of independent accountants
For the fiscal year ended March 31, 2000
To the Trustees and Shareholders of
Putnam Municipal Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, (except for bond ratings) and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Putnam Municipal Income Fund (the "fund") at March
31, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at March
31, 2000 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 5, 2000
<TABLE>
<CAPTION>
The fund's portfolio
March 31, 2000
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
MUNICIPAL BONDS AND NOTES (97.8%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (0.6%)
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$ 4,640,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- $ 3,770,000
3,750,000 Jefferson Cnty., Swr. Rev. Bonds (Rites-PA),
Ser. 487 R, FRB, 6.66s, 2/1/38 (acquired 3/23/99,
cost $4,290,150) (RES) AAA 3,548,438
----------------
7,318,438
Alaska (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
AK State Hsg. Fin. Corp. Rev. Bonds
3,220,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $3,426,080) (RES) AA/P 3,083,150
7,380,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97,
cost $7,472,250) (RES) Aaa 6,771,150
----------------
9,854,300
Arizona (3.0%)
- ----------------------------------------------------------------------------------------------------------------------------
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
710,000 (Phoenix Mem. Hosp.), 8.2s, 6/1/21 BB 715,325
850,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Aaa 925,438
Cochise Cnty., Indl. Dev. Auth. Rev. Bonds
(Sierra Vista Cmnty. Hosp.)
4,505,000 Ser. A, 6 3/4s, 12/1/26 BBB-/P 4,138,969
5,575,000 6.2s, 12/1/17 BBB-/P 5,059,313
7,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/8s, 7/1/11 Aaa 8,216,250
2,000,000 Mohave Cnty., Indl. Dev. Auth. Hosp. Syst. Rev.
Bonds (Env. Inc. & Phoenix Hosp. & Med. Ctr.),
7s, 7/1/16 Aaa 2,170,000
Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.)
6,800,000 7.4s, 4/1/26 B/P 6,825,500
2,500,000 7.2s, 6/1/27 B/P 2,459,375
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 3,970,000
----------------
34,480,170
Arkansas (1.9%)
- ----------------------------------------------------------------------------------------------------------------------------
3,900,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds (WA
Regl. Med. Ctr.), 7 3/8s, 2/1/29 BBB- 3,870,750
16,915,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 BB/P 17,718,463
----------------
21,589,213
California (8.2%)
- ----------------------------------------------------------------------------------------------------------------------------
12,625,000 Alameda, Corridor Trans. Auth. Rev. Bonds,
Ser. 99-A, MBIA, zero %, 10/1/30 AAA 2,083,125
Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Pub. Impts.), FSA
5,000,000 Ser. A, 6s, 9/1/24 Aaa 5,275,000
14,000,000 Ser. C, zero %, 9/1/36 AAA 1,627,500
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) (RES) B-/P 4,230,000
5,800,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11(acquired
3/5/96, cost $5,800,000) (RES) B-/P 5,423,000
2,400,000 Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev.
Bonds (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 2,505,000
6,000,000 Metropolitan Wtr. Dist. Rev. Bonds, Ser. A., 5s, 7/1/26 Aa2 5,422,500
3,615,000 Monrovia, Redev. Agcy. Tax Alloc. Rev. Bonds
(Central Redevelopment Project Area-1), Ser. B,
AMBAC, 6.7s, 5/1/21 Aaa 3,804,788
Northern CA Pwr. Agcy. Multi. Cap. Fac.
Rev. Bonds, IFB
3,480,000 9.24s, 8/1/17 AAA 3,806,250
2,630,000 9.24s, 8/1/17, Prerefunded AAA 2,962,038
5,600,000 Orange Cnty., Local Trans. Auth. Sales Tax IFB,
7.808s, 2/14/11 AA+ 6,559,000
4,000,000 Orange Cnty., Local Trans. Auth. Sales Tax Rev.
Bonds, AMBAC, 6.2s, 2/14/11 Aaa 4,330,000
San Joaquin Hills, Trans. Corridor Agcy. Rev. Bonds
(Toll Road)
10,000,000 7.55s, 1/1/10 Aaa 10,462,500
23,750,000 Ser. A, MBIA, zero %, 1/15/36 AAA 2,850,000
22,000,000 Ser. A, MBIA, zero %, 1/15/34 AAA 2,970,000
10,000,000 Ser. A, MBIA, zero %, 1/15/32 AAA 1,525,000
10,000,000 Ser. A, MBIA, zero %, 1/15/31 AAA 1,612,500
12,900,000 Ser. A, MBIA, zero %, 1/15/25 AAA 2,983,125
3,600,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.), 3/8s,
7/1/29 (acquired 7/28/97, cost $3,600,000) (RES) B-/P 3,330,000
3,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 2,737,500
11,840,000 Vallejo, COP (Marine World Foundation), 7s, 2/1/17 BB+/P 12,372,800
Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt.)
6,000,000 Ser. A, 6 1/2s, 5/15/25 BBB- 5,452,500
1,000,000 Ser. A, 6 1/8s, 5/15/05 BBB- 987,500
----------------
95,311,626
Colorado (4.7%)
- ----------------------------------------------------------------------------------------------------------------------------
6,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Aaa 6,735,000
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 Baa1 4,718,700
1,470,000 Ser. A, 8s, 11/15/25 Baa1 1,528,800
5,000,000 Ser. D, 7 3/4s, 11/15/13 Baa1 5,800,000
3,310,000 Ser. A, 7 1/2s, 11/15/23 Baa1 3,537,563
1,075,000 Ser. A, 7 1/4s, 11/15/25 AAA 1,159,656
9,550,000 Ser. B, 7 1/4s, 11/15/23 Baa1 9,943,938
Denver, City & Cnty. Arpt. Rev. Bonds, Prerefunded
1,590,000 Ser. A, 8 3/4s, 11/15/23 Aaa 1,717,200
530,000 Ser. A, 8s, 11/15/25 Aaa 556,500
690,000 Ser. A, 7 1/2s, 11/15/23 Aaa 771,075
425,000 Ser. A, 7 1/4s, 11/15/25 AAA 458,469
2,450,000 Ser. B, 7 1/4s, 11/15/23 Aaa 2,633,750
3,000,000 Larimer Cnty., School Dist. No. 1 Rev. Bonds
(Poudre Impt.), 7s, 12/15/16 A2 3,465,000
----------------
54,150,651
Connecticut (1.6%)
- ----------------------------------------------------------------------------------------------------------------------------
1,260,000 CT State Dev. Auth. 1st Mtge. Rev. Bonds
(Gladeview Hlth. Care), 9 3/4s, 12/15/16 AAA/P 1,297,976
2,420,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 2,662,000
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 5,377,500
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
1,594,354 Ser. A, 7 3/4s, 11/1/17 CCC/P 1,450,862
147,496 Ser. B, zero %, 3/1/21 CCC/P 24,152
4,000,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
7.71s, 6/10/30 Aaa 3,990,000
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 3,780,000
----------------
18,582,490
District of Columbia (4.2%)
- ----------------------------------------------------------------------------------------------------------------------------
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 AAA 34,329,688
5,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 Aaa 4,137,500
2,590,000 DC Redev. Land Agcy. Rev. Bonds (Wash. D. C.
Sports Arena), 5 5/8s, 11/1/10 BBB+ 2,612,663
DC Rev. Bonds (American Geophysical Union)
4,200,000 5 7/8s, 9/1/23 BBB 3,932,250
3,350,000 5 3/4s, 9/1/13 BBB 3,178,313
----------------
48,190,414
Florida (4.5%)
- ----------------------------------------------------------------------------------------------------------------------------
8,270,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 8,535,467
22,900,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 B+/P 24,875,125
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB, 9.49s, 10/1/14
(acquired 4/19/95, cost $6,129,272) (RES) BBB+/P 6,287,813
3,140,000 Orange Cnty., School Board COP, Ser. 85, MBIA,
FRB, 6.63s, 8/1/22 (acquired 12/21/98,
cost $3,356,597) (RES) Aaa 2,837,775
4,978,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 4,573,538
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 516,250
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 1,992,500
----------------
51,718,468
Georgia (1.5%)
- ----------------------------------------------------------------------------------------------------------------------------
4,200,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Airlines, Inc.), Ser. B, 7.9s, 12/1/18 (SEG) BBB- 4,284,000
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.), Ser. B
1,500,000 10s, 4/1/17 AAA/P 1,695,000
3,700,000 7 1/2s, 4/1/17 AAA/P 3,968,250
2,000,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 2,075,460
4,605,000 Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.), 7.4s, 1/1/16 BB+/P 4,743,150
----------------
16,765,860
Illinois (6.6%)
- ----------------------------------------------------------------------------------------------------------------------------
Chicago, Board of Ed. G.O. Bonds
5,000,000 (Chicago Reform School), Ser. A, 5 1/4s, 12/1/22 AAA 4,631,250
5,400,000 Ser. A, FGIC, zero %, 12/1/17 Aaa 1,930,500
7,750,000 Ser. A, FGIC, zero %, 12/1/16 Aaa 2,954,688
9,000,000 Chicago, G.O. Bonds (Neighborhoods
Alive 21 Project), Ser. A, FGIC, 5 3/4s, 1/1/40 AAA 8,730,000
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,459,000 (United Airlines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 3,618,218
1,675,000 (United Airlines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 1,751,179
6,615,000 (United Airlines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 6,915,850
5,300,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 5,790,250
10,150,000 Cook Cnty., Cmnty. College Dist. No. 508 Rev.
Bonds, Ser. C, MBIA, 7.7s, 12/1/07 Aaa 11,799,375
2,000,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB/P 1,895,000
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
1,860,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 2,041,350
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
1,175,000 8 3/4s, 7/1/11 B/P 1,248,438
1,080,000 8 1/4s, 8/1/12 B/P 1,123,200
1,670,000 Ser. A, 7 7/8s, 7/1/20 (acquired 1/25/96, cost
$1,670,000) (RES) D/P 1,912,150
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.), Prerefunded
610,000 8 3/4s, 7/1/11 AAA/P 644,313
2,800,000 Ser. A, 7 7/8s, 7/1/20 AAA/P 3,213,000
IL Hlth. Fac. Auth. Rev. Bonds
7,540,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 AAA 8,840,650
5,000,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 Baa1 5,862,500
----------------
76,826,911
Indiana (2.1%)
- ----------------------------------------------------------------------------------------------------------------------------
Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
11,000,000 (Federal Express Corp.), 7.1s, 1/15/17 Baa2 11,371,250
13,510,000 (United Airlines), Ser. A, 6 1/2s, 11/15/31 Baa3 12,851,388
----------------
24,222,638
Iowa (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
6,500,000 IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives), 9 1/4s, 7/1/25 BB/P 7,962,500
Louisiana (4.6%)
- ----------------------------------------------------------------------------------------------------------------------------
4,000,000 Beauregard, Parish Rev. Bonds (Boise
Cascade Corp.), 7 3/4s, 6/1/21 Baa3 4,135,000
4,500,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 4,635,225
6,500,000 LA Local Govt. Env. Facs.Comnty. Dev. Auth.
Rev. Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 6,556,875
5,000,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 5,393,750
2,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 1,995,000
6,995,000 St. Charles Parish, Poll. Control Rev. Bonds
(Union Carbide), 7.35s, 11/1/22 Baa2 7,239,825
W. Feliciana, Parish Poll. Control Rev. Bonds
5,000,000 (Gulf States Util. Co.), 9s, 5/1/15 BB+/P 5,161,350
4,000,000 (Gulf States Util. Co.), Ser. II, 7.7s, 12/1/14 Ba1 4,235,000
8,000,000 (Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba1 8,350,000
6,000,000 (Entergy Gulf States), Ser. B, 6.6s, 9/1/28 Ba1 5,827,500
----------------
53,529,525
Maryland (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
1,650,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B-/P 1,691,250
Massachusetts (6.1%)
- ----------------------------------------------------------------------------------------------------------------------------
5,000,000 Atlas Boston Tax Exempt Rev. Bonds, Ser.
1, 6.65s, 1/1/35 (acquired 11/18/99, cost
$5,000,000) (RES) BBB/P 5,000,000
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev.
Bonds, AMBAC, 7.07s, 7/1/18 Aaa 4,581,250
MA State Dev. Fin. Agcy. Rev. Bonds
4,000,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,505,000
4,200,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 3,680,250
2,000,000 (Lasell Village PJ), Ser. A, 6 3/8s, 12/1/25 BB-/P 1,775,000
MA State G.O. Bonds
7,730,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $9,592,157) (RES) Aa3 8,812,200
5,285,000 Ser. C, FGIC, 5 3/4s, 8/1/11 Aaa 5,542,644
7,850,000 Ser. A, AMBAC, 5 3/4s, 8/1/09 Aaa 8,252,313
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,860,000 (MA Eye & Ear Infirmary), Ser. A, 7.3s, 7/1/04 Ba1 3,006,575
3,600,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 3,901,500
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
3,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 3,206,250
13,000,000 Ser. A, 9s, 7/1/15 BB-/P 13,877,500
2,260,000 MA State Indl. Fin. Agcy. Rev. Bonds (MA Tpk.),
9s, 10/1/20 AAA/P 2,350,332
3,000,000 MA State Wtr. Resources Auth. Rev. Bonds, Ser. A,
6 1/2s, 7/15/21 Aaa 3,172,500
----------------
70,663,314
Michigan (3.9%)
- ----------------------------------------------------------------------------------------------------------------------------
324,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 B+/P 329,547
5,515,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 6,231,950
Detroit, G.O. Bonds
2,500,000 Ser. A, 6.7s, 4/1/10 A- 2,718,750
3,000,000 Ser. B, AMBAC, 6 1/4s, 4/1/10 AAA 3,161,250
MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
1,330,000 8 1/2s, 9/1/17 Ba3 1,423,100
670,000 8 1/2s, 9/1/17, Prerefunded Ba3 716,900
4,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 4,677,750
5,000,000 MI State Strategic Fund Ltd. Rev. Bonds
(Detroit Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 4,706,250
10,000,000 MI State Strategic Fund Solid Waste Disp. Rev.
Bonds (Genesee Pwr. Station), 7 1/2s, 1/1/21 BB 10,250,000
11,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 11,302,170
----------------
45,517,667
Minnesota (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise
Cascade Corp.), 7.2s, 10/1/24 Baa3 5,062,500
4,740,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Hltheast), Ser. A, 6 5/8s, 11/1/17 Baa3 4,188,975
----------------
9,251,475
Missouri (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
800,000 MO State Env. Impt. & Energy Poll. Control Rev.
Bonds (Great Lakes Carbon Control),
6 3/4s, 9/1/02 B-/P 799,000
6,775,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(BJC Hlth. Syst.), Ser. A, 6 1/2s, 5/15/20 Aa2 7,317,000
----------------
8,116,000
Nebraska (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
NE Investment Fin. Auth. Single Fam. Mtge. IFB
600,000 Ser. B, GNMA Coll., 10.86s, 3/15/22 Aaa 622,500
1,700,000 Ser. 2, GNMA Coll., 10.66s, 9/10/30 Aaa 1,787,652
----------------
2,410,152
Nevada (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
8,500,000 Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.), Ser. A, 7.3s, 9/1/27 Baa2 8,840,000
3,000,000 Clark Cnty., Passenger Fac. Arpt. Rev. Bonds
(Las Vegas-McCarran Intl. Arpt.), Ser. A, AMBAC,
6s, 7/1/22 AAA 3,138,750
----------------
11,978,750
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 4,570,000
2,145,000 (Havenwood-Heritage Heights), 7.1s, 1/1/06 BB/P 2,198,625
5,600,000 (Lakes Region Hosp. Assn.), 6 1/4s, 1/1/18 A-/P 5,033,000
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 2,426,250
7,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 BBB- 6,518,750
4,000,000 NH State Bus. Fin. Auth. Rev. Bonds (Franklin Regl.
Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 3,305,000
----------------
24,051,625
New Jersey (4.2%)
- ----------------------------------------------------------------------------------------------------------------------------
4,000,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 3,495,000
3,000,000 NJ Econ. Dev. Auth. Indl. Dev. Rev. Bonds
(1st mtge.-Cranes Hill), Ser. A, 7s, 2/1/10 BB-/P 3,000,000
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 4,568,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
2,870,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 2,943,185
6,230,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 AAA 6,409,611
3,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 3,018,750
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 6,637,500
3,550,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds, Ser. I, 7.83s,
11/1/07 (acquired 2/11/93, cost $3,679,788) (RES) A+/P 3,776,313
9,000,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 10,068,750
----------------
49,036,609
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 8,109,000
New York (8.9%)
- ----------------------------------------------------------------------------------------------------------------------------
10,000,000 Long Island, Pwr. Auth. FRB, Ser. 66, MBIA, 6.42s,
4/1/10 (acquired 11/3/98, cost $11,298,800) (RES) Aaa 10,175,000
8,750,000 Long Island, Pwr. Auth. NY Elec. Syst. IFB, 6.61s,
12/1/24 (acquired 5/19/98, cost $9,511,250) (RES) A-/P 8,279,688
NY City, G.O. Bonds
2,760,000 Ser. F, 8 1/4s, 11/15/16 Aaa 2,956,650
3,760,000 Ser. H, 5s, 3/15/29 A3 3,205,400
4,000,000 Ser. J, 5s, 8/1/23 A3 3,470,000
3,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper Inc.), 7.95s, 1/1/28 B/P 3,093,750
5,000,000 NY City, Muni. Assistance Corp. Rev. Bonds
(PA 337A), 8.2s, 7/1/07 (acquired 3/19/98,
cost $6,169,900) (RES) AA/P 5,606,250
7,565,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev.
Bonds, Ser. B, FGIC, 5 1/8s, 6/15/30 AAA 6,799,044
2,800,000 NY City, NY State Dorm. Auth. Lease Rev. Bonds
(Court Facs.), 6s, 5/15/39 A3 2,803,500
7,000,000 NY State Dorm. Auth. Rev. Bonds (Rites-PA),
Ser. 434, 7.2s, 5/15/15 (acquired 10/6/98,
cost $8,278,340) (RES) Aaa 6,816,250
5,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Lilco Project), Ser. B, 5.15s, 3/1/16 A- 4,606,250
5,000,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $6,012,500) (RES) AAA 5,706,250
1,800,000 NY State Local Govt. Assistance Corp. Rev. Bonds,
Ser. D, 7s, 4/1/18 Aaa 1,912,500
11,125,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 12,098,438
NY State Urban Dev. Corp. Rev. Bonds
5,000,000 (Correctional Facs. Svc. Contract), Ser. A, FSA,
5s, 1/1/28 AAA 4,462,500
11,000,000 (Correctional Facs.), Ser. B, AMBAC,
4 3/4s, 1/1/28 AAA 9,322,500
1,500,000 Oneida Cnty, Indl. Dev. Agcy. Rev. Bonds
(St. Elizabeth Med.), Ser. A, 5 7/8s, 12/1/29 B+/P 1,226,250
5,500,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 5,445,000
5,000,000 Suffolk Cnty., Indl. Dev. Agcy. Fac. Civic Fac. Rev.
Bonds (Southampton Hosp. Assn.), Ser. B,
7 5/8s, 1/1/30 B-/P 4,806,250
----------------
102,791,470
North Carolina (2.1%)
- ----------------------------------------------------------------------------------------------------------------------------
5,250,000 Intermountain Pwr. Agcy Rev. Bonds, MBIA,
6s, 1/1/18 AAA 5,453,426
3,000,000 NC Eastern Muni. Pwr. Agcy. Syst. IFB, FGIC, 7.57s,
1/1/25 (acquired 3/3/93, cost $3,112,315) (RES) Aaa 3,165,000
10,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B,
MBIA, 6s, 1/1/22 Aaa 10,287,500
6,000,000 NC Muni Pwr. Agcy (No.1, Catawba Elec.) IFB,
MBIA, 8.13s, 1/1/20 Aaa 5,662,500
----------------
24,568,426
Ohio (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
2,390,000 OH Hsg. Finl. Agcy. Rev. Bonds, Ser. B-1, GNMA
Coll., 5.85s, 9/1/16 AAA/P 2,395,975
Oklahoma (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
6,000,000 OK Dev. Fin. Auth. Indl. Dev. Rev. Bonds (Doane
Products Co.), 6 1/4s, 7/15/23 BB-/P 5,212,500
4,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest
Healthcare), Ser. A, 5 5/8s, 8/15/29 Baa2 3,346,875
4,505,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 4,572,575
----------------
13,131,950
Oregon (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
10,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 8,662,500
Pennsylvania (4.8%)
- ----------------------------------------------------------------------------------------------------------------------------
3,850,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB- 4,235,000
7,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 6,712,500
1,180,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 Baa1 1,281,775
1,500,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.69s, 9/1/29 (acquired
6/20/95, cost $1,651,825) (RES) AAA/P 1,584,375
5,235,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2/P 5,339,700
PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds
4,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 4,275,000
2,000,000 Ser. D, 7.15s, 12/1/18 BBB- 2,057,500
4,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 4,345,625
3,000,000 (Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BBB- 2,925,000
2,000,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
MBIA,10.49s, 3/1/20 Aaa 2,335,000
6,000,000 Philadelphia, Gas Works IFB, FSA, 6.64s, 6/15/12
(acquired 1/24/94, cost $5,621,520) (RES) AAA 5,182,500
Philadelphia, Gas Works Rev. Bonds
3,000,000 Ser. 13, 7.7s, 6/15/21 Aaa 3,168,750
6,740,000 Ser. 16, FSA, 5 1/2s, 7/1/13 AAA 6,798,975
Philadelphia, Wtr. & Wastewater IFB
1,950,000 4.24s, 6/15/12 (acquired 9/13/96,
cost $1,850,511) (RES) AAA 2,008,500
1,300,000 4.24s, 6/15/12 (acquired 9/13/96,
cost $1,233,674) (RES), Prerefunded AAA 1,405,625
1,800,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B-/P 1,813,500
----------------
55,469,325
Puerto Rico (1.2%)
- ----------------------------------------------------------------------------------------------------------------------------
8,500,000 Cmnwlth. of PR, 7.384s, 7/1/24 (acquired 6/12/95,
cost $8,912,590) (RES) A 8,542,500
5,400,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. T, 6 3/8s, 7/1/24 AAA 5,845,500
----------------
14,388,000
South Carolina (2.1%)
- ----------------------------------------------------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev. Rev. Bonds (Hoover
Group Inc.), 8 1/2s, 11/1/02 B/P 8,914,375
4,555,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B/P 4,691,650
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds,
Ser. A, FGIC
3,775,000 6 1/2s, 1/1/16 Aaa 4,180,813
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
----------------
23,892,438
Tennessee (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
3,000,000 Elizabethton, Hlth. & Edl. Facs. Board Rev. Bonds
(Hosp. Ref. & Impt.), Ser. B, 8s, 7/1/33 AAA 3,097,500
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 7,490,625
10,000,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board Rev.
Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/25 AAA 9,950,000
7,000,000 Knox Cnty., Hlth. Edl. & Hsg. Fac. Board Rev.
Bonds (Ft. Sanders Alliance), MBIA, 6 1/4s, 1/1/13 Aaa 7,525,000
----------------
28,063,125
Texas (6.1%)
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Abilene, Hlth. Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Ctr.), 6s, 11/15/29 BB+/P 1,987,500
Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
7,500,000 7 1/4s, 11/1/30 Baa1 7,687,500
5,000,000 6 3/8s, 5/1/35 Baa1 4,768,750
7,500,000 Georgetown, Hlth. Facs. Dev. Corp. Rev. Bonds,
6 1/4s, 8/15/29 BB+ 6,196,875
6,100,000 Harris Cnty., Hlth. Facs. Dev. Corp. Rev. Bonds
(Christus Hlth.), Ser. A, 5 3/4s, 7/1/13 AAA 6,191,500
10,325,000 Harris Cnty., Hlth. Facs. Rev. Bonds (Hermann
Mem. Hosp.), FSA, 5 1/2s, 6/1/15 Aaa 10,234,656
15,690,000 Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C,
AMBAC, 6 3/8s, 12/1/17 Aaa 16,101,863
North Central Hlth. Fac. Dev. Corp. Rev. Bonds
(Hosp.), Ser. B
2,710,000 7.861s, 5/15/08 Aa2 2,821,788
290,000 7.861s, 5/15/08, Prerefunded AA 304,500
Port Arthur Dist., Rev. Bonds (Great Lakes
Carbon Corp.)
685,000 Ser. A, 6 3/4s, 9/1/02 B-/P 680,719
220,000 Ser. B, 6 3/4s, 9/1/02 B-/P 218,625
5,000,000 San Antonio, Elec. & Gas Rev. Bonds, Ser. A,
5 1/4s, 2/1/15 Aa1 4,850,000
4,000,000 Tarrant Cnty., Hlth. Fac. Dev. Corp. Hlth. Syst.
(TX Hlth. Res. Sys.), Ser. A, MBIA, 5 3/4s, 2/15/12 AAA 4,115,000
3,500,000 TX State IFB, Ser. B, 8.516s, 9/30/11 Aa2 4,095,000
----------------
70,254,276
Virginia (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
2,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.06s, 8/15/23 Aaa 2,190,000
5,000,000 Peninsula Ports Auth. Rev. Bonds (Port Fac-Zeigler
Coal), 6.9s, 5/2/22 B-/P 4,350,000
5,000,000 Suffolk, Redev. & Hsg. Auth. Multi-Fam. Hsg.
Rev. Bonds (Beach/Oxford Apts.), 6.1s, 4/1/26 B+/P 4,475,000
----------------
11,015,000
Washington (1.4%)
- ----------------------------------------------------------------------------------------------------------------------------
10,000,000 Central Puget Sound, Regl. Trans. Auth. Sales Tax &
Motor Rev. Bonds, FGIC, 4 3/4s, 2/1/28 AAA 8,325,000
1,895,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 1,956,796
5,000,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,831,250
----------------
16,113,046
West Virginia (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
3,600,000 WV State G.O. Bonds, Ser. D, FGIC, 6 1/2s, 11/1/26 Aaa 3,892,500
5,000,000 WV State Pkwy. Econ. Dev. & Tourism Auth. IFB,
FGIC, 7.37s, 5/16/19 Aaa 4,987,500
----------------
8,880,000
Wisconsin (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
1,500,000 WI Hsg. & Econ. Dev. Auth. IFB (Home
Ownership Dev.), 9.76s, 10/25/22 Aa3 1,547,985
----------------
Total Municipal Bonds and Notes
(cost $1,133,653,210) $ 1,132,502,562
PREFERRED STOCKS (0.5%) (a) (cost $6,000,000)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
6,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A , 6.875%,
cum. pfd. (acquired 5/7/99, cost $6,000,000) (RES) $ 5,955,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,139,653,210) (b) $ 1,138,457,562
- ----------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,157,539,495.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 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 March 31, 2000. Securities rated
by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $1,139,659,683, resulting in gross unrealized appreciation and
depreciation of $39,237,250 and $40,439,371, respectively, or net unrealized depreciation of $1,202,121.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at March 31, 2000 was $128,854,552 or 11.1% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at March 31, 2000.
The rates shown on Floating Rate Bonds (FRB) are the current interest rates at March 31, 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 March 31, 2000.
The fund had the following industry group concentrations greater than 10% at March 31, 2000 (as a percentage of
net assets):
Health care/hospitals 25.2%
Transportation 18.3
Utilities 16.2
- -------------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2000
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------------
Muni Bond Index (Long) $19,259,438 $18,940,300 Jun-00 $ 319,138
US Treasury Bond (Short) 34,190,625 33,289,733 Jun-00 (900,892)
- -------------------------------------------------------------------------------------
$(581,754)
- -------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,139,653,210) (Note 1) $1,138,457,562
- ----------------------------------------------------------------------------------------------
Cash 1,903,997
- ----------------------------------------------------------------------------------------------
Interest and other receivables 22,353,079
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,030,893
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 3,059,894
- ----------------------------------------------------------------------------------------------
Total assets 1,166,805,425
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for variation margin 105,562
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 693,088
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 3,845,359
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,006,974
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,691,788
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 69,624
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 30,001
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,203
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 769,880
- ----------------------------------------------------------------------------------------------
Other accrued expenses 49,451
- ----------------------------------------------------------------------------------------------
Total liabilities 9,265,930
- ----------------------------------------------------------------------------------------------
Net assets $1,157,539,495
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,213,587,659
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (836,934)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (53,433,828)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,777,402)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,157,539,495
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($715,475,467 divided by 83,075,923 shares) $8.61
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of 8.61)* $9.04
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($420,310,344 divided by 48,842,804 shares)*** $8.61
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($8,467,289 divided by 983,680 shares)*** $8.61
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,286,395 divided by 1,543,440 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
Year ended March 31, 2000
<S> <C>
Tax exempt interest income: $ 82,331,515
- ----------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,292,970
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,106,700
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,247
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,899
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,926,222
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,984,048
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 70,831
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 75,650
- ----------------------------------------------------------------------------------------------
Reports to shareholders 28,729
- ----------------------------------------------------------------------------------------------
Registration fees 4,761
- ----------------------------------------------------------------------------------------------
Auditing 11,890
- ----------------------------------------------------------------------------------------------
Legal 29,501
- ----------------------------------------------------------------------------------------------
Postage 69,235
- ----------------------------------------------------------------------------------------------
Other 129,428
- ----------------------------------------------------------------------------------------------
Total expenses 14,783,111
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (316,162)
- ----------------------------------------------------------------------------------------------
Net expenses 14,466,949
- ----------------------------------------------------------------------------------------------
Net investment income 67,864,566
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,860,616)
- ----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (943,279)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (86,212,824)
- ----------------------------------------------------------------------------------------------
Net loss on investments (94,016,719)
- ----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(26,152,153)
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended March 31
------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 67,864,566 $ 67,878,425
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (7,803,895) 1,581,293
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (86,212,824) (5,642,049)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (26,152,153) 63,817,669
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (43,069,316) (43,971,728)
- -------------------------------------------------------------------------------------------------------
Class B (23,341,496) (23,753,785)
- -------------------------------------------------------------------------------------------------------
Class C (341,518) (13,628)
- -------------------------------------------------------------------------------------------------------
Class M (806,885) (770,005)
- -------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (106,888,279) 31,674,242
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (200,599,647) 26,982,765
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 1,358,139,142 1,331,156,377
- -------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $836,934 and
$1,025,771, respectively) $1,157,539,495 $1,358,139,142
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.25 $9.28 $8.87 $8.93 $8.74
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .49 .49(c) .50(c) .52 .52
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.64) (.02) .42 (.06) .19
- -----------------------------------------------------------------------------------------------------------
Total from
investment activities (.15) .47 .92 .46 .71
- -----------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------
From net
investment income (.49) (.50) (.51) (.52) (.52)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.49) (.50) (.51) (.52) (.52)
- -----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $9.25 $9.28 $8.87 $8.93
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.53) 5.14 10.54 5.24 8.31
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $715,475 $830,074 $816,444 $794,330 $821,500
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 .98 .95 .96 .95
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.62 5.29 5.43 5.80 5.86
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- -----------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.24 $9.28 $8.86 $8.92 $8.74
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .44 .44(c) .44(c) .46 .47
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.63) (.04) .43 (.06) .18
- -----------------------------------------------------------------------------------------------------------
Total from
investment activities (.19) .40 .87 .40 .65
- -----------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.44) (.45) (.46) (.47)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.44) (.44) (.45) (.46) (.47)
- -----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $9.24 $9.28 $8.86 $8.92
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.02) 4.40 10.00 4.61 7.55
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $420,310 $507,067 $499,594 $473,818 $474,374
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.54 1.58 1.55 1.56 1.54
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.02 4.70 4.83 5.19 5.25
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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 C
- -----------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 1, 1999+
operating performance March 31 to March 31
- -----------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $9.25 $9.38
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .43 .05(c)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.64) (.14)
- -----------------------------------------------------------------------------------------------------------
Total from
investment activities (.21) (.09)
- -----------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.04)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.43) (.04)
- -----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $9.25
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.26) (0.99)*
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $8,467 $4,327
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.69 .28*
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.89 .73*
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.25 $9.28 $8.86 $8.92 $8.75
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .47 .47(c) .47(c) .49 .50
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.64) (.03) .43 (.06) .17
- -----------------------------------------------------------------------------------------------------------
Total from
investment activities (.17) .44 .90 .43 .67
- -----------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.47) (.48) (.49) (.50)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.48) (.49) (.50)
- -----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $9.25 $9.28 $8.86 $8.92
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.77) 4.88 10.39 4.97 7.77
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,286 $16,671 $15,118 $11,773 $8,394
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.19 1.23 1.20 1.21 1.18
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.37 5.04 5.16 5.51 5.45
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
March 31, 2000
Note 1
Significant accounting policies
Putnam Municipal Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax as Putnam Investment Management,
Inc. ("Putnam Management"), the fund's manager, a wholly owned
subsidiary of Putnam Investments, Inc., believes is consistent with the
preservation of capital.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Class C shares pay a higher ongoing distribution fee than
class B 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 the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities 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 year ended
March 31, 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. These differences include temporary and
permanent differences of losses on wash sale transactions, post-October
loss deferrals, dividends payable, defaulted bond interest, realized and
unrealized gains and losses on certain futures contracts, and market
discount. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended March 31, 2000, the fund reclassified $116,514 to increase
distributions in excess of net investment income and $156,003 to
increase paid-in-capital, with an increase to accumulated net realized
losses of $39,489. The calculation of net investment income per share in
the financial highlights table excludes these adjustments.
G) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. 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 bonds are accreted according to
the yield-to-maturity basis.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of the fund's average net assets, 0.55% of the next
$500 million, 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion,
0.39% of the next $5 billion 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 year ended March 31, 2000, fund expenses were reduced by
$316,162 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 $1,589
has been allocated to the fund, and an additional fee for each Trustee's
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 Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 0.85%, 1.00%
and 0.50% of the average net assets attributable to class A, class B,
class C and class M shares, respectively.
For the year ended March 31, 2000, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $87,588 and $2,726 from the sale
of class A and class M shares, respectively, and received $669,055 and
$11,750 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 year ended
March 31, 2000, Putnam Mutual Funds Corp., acting as underwriter
received $75,635 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended March 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $176,886,953 and $272,361,471, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At March 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
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)
- ---------------------------------------------------------------------------
Year ended March 31, 1999
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 34,004,902 $316,595,104
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,518,729 23,442,098
- ---------------------------------------------------------------------------
36,523,631 340,037,202
Shares
repurchased (34,725,222) (323,665,264)
- ---------------------------------------------------------------------------
Net increase 1,798,409 $16,371,938
- ---------------------------------------------------------------------------
Year ended March 31, 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)
- ---------------------------------------------------------------------------
Year ended March 31, 1999
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 7,363,542 $68,448,589
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,443,740 13,423,393
- ---------------------------------------------------------------------------
8,807,282 81,871,982
Shares
repurchased (7,798,611) (72,530,480)
- ---------------------------------------------------------------------------
Net increase 1,008,671 $9,341,502
- ---------------------------------------------------------------------------
Year ended March 31, 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
- ---------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations) to
March 31, 1999
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 488,361 $4,536,840
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 977 9,050
- ---------------------------------------------------------------------------
489,338 4,545,890
Shares
repurchased (21,432) (198,557)
- ---------------------------------------------------------------------------
Net increase 467,906 $4,347,333
- ---------------------------------------------------------------------------
Year ended March 31, 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)
- ---------------------------------------------------------------------------
Year ended March 31, 1999
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 453,014 $4,209,863
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 62,934 585,289
- ---------------------------------------------------------------------------
515,948 4,795,152
Shares
repurchased (342,038) (3,181,683)
- ---------------------------------------------------------------------------
Net increase 173,910 $1,613,469
- ---------------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Municipal
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN040 60361 051/353/560 5/00
