Putnam
Municipal
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-03
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From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
You may have seen media coverage of market timing allegations involving
Putnam Investments. A separate letter has been sent to you detailing the
steps being taken by Putnam Investments to address these matters. In
addition, the Board of Trustees of The Putnam Funds is conducting an
independent investigation of these issues. When that investigation is
complete, we will report to you on the steps we are taking to make sure that
nothing like this happens in the future. We will, of course, ensure that
your fund is fully compensated for any losses resulting from improper
trading activity at Putnam. We appreciate your loyalty and want you to know
that we intend to restore full confidence in Putnam, an organization that
aspires to the highest ethical and business standards.
The balance of this report focuses on the performance of your fund. We
are pleased to report that Putnam Municipal Income Fund's results at net
asset value for the six months ended September 30, 2003, outperformed
both the fund's benchmark index and its Lipper category average. You
will find the details on the facing page.
As you will read in the following report, your fund's management team
attributed the performance to strength in the portfolio's lower-rated
higher-yielding bonds and airline-related industrial development bonds. A
more positive investor mood also helped. It is worth noting as well that
these favorable results were achieved in conjunction with strategies
designed to help minimize price volatility. In its report, the management
team discusses the fund's semiannual performance and offers its view of
prospects for the fiscal year's second half.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 19, 2003
Report from Fund Management
Fund highlights
* Putnam Municipal Income Fund's total return for the six months ended
September 30, 2003, was 3.61% for class A shares at net asset value and
-1.32% at public offering price.
* Due in part to improving performance by lower-rated bonds --
particularly airline-related holdings -- the fund's results at net asset
value outperformed its benchmark, the Lehman Municipal Bond Index, which
returned 2.66% for the period.
* These results at net asset value were also ahead of the average for
its Lipper category, General Municipal Debt Funds, which was 2.57%. We
attribute this to the strength of the lower-rated bonds as well as
strategies designed to minimize price volatility during the period.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
In the spring of 2003, for the first time in many months, the high-yield
municipal bond market began to deliver stronger performance than the
investment-grade market. This signaled a positive change in investor
sentiment that translated into stronger performance for your fund. The
holdings that performed best during the period were airline-related
industrial development bonds (IDBs) -- positions that had hurt the fund in
the past -- but whose prices rebounded as the economy showed signs of
renewed growth.
The shifts we made in the fund's duration -- a measure of interest-rate
sensitivity -- also contributed to results. By shortening duration, we
reduced the fund's sensitivity to the negative effects of rising rates
on bond prices. Although this reduced the fund's ability to benefit from
the price rally when interest rates fell during the period, it also
provided protection when rates rose again sharply. Another positive
contributor was our decision at the end of July to close out the
cross-market arbitrage position we had established in an earlier period,
allowing the fund to lock in profits, as discussed further on page 3.
FUND PROFILE
Putnam Municipal Income Fund seeks to provide as high a level of income
free from federal income tax as is consistent with preservation of
capital. The fund invests in a nationally diversified portfolio of
investment-grade municipal bonds and higher-yielding, lower-rated
municipal bonds that give the portfolio higher income potential. The
fund may be suitable for investors who are seeking tax-exempt income and
are willing to accept the risks associated with below-investment-grade
bonds.
Market overview
Municipal bond yields and prices (which rise as yields fall) changed
direction twice during the first half of your fund's 2003 fiscal year.
In April, as the fiscal year began, weak economic data and the Federal
Reserve Board's concern about deflation encouraged higher bond prices
and falling yields. This trend prevailed through mid June, but reversed
when better-than-expected economic data emerged and demand for bonds
cooled, resulting in lower bond prices and higher yields. During
September, unfavorable figures on housing and joblessness clouded the
economic outlook, and yields receded again, with a corresponding
increase in price.
At the beginning of the period, the spread, or difference between yields
of 10-year municipal bonds and 10-year Treasuries, was small. Thus, the
ratio of municipal yields to Treasury yields was unusually high. By the
end of September, this muni/Treasury yield ratio fell back toward its
long-term average, with 10-year municipals yielding about 85% of
comparable 10-year Treasuries. In general, the difference between yields
of high- and low-quality municipal bonds also narrowed during the
period, reflecting growing investor demand for the higher yields that
lower-quality bonds offered. As the economy improved and fear of airline
bankruptcies faded, airline-related industrial development bonds (IDBs)
rebounded strongly, and outperformed most other municipal bonds.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 9/30/03
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Bonds
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Lehman Municipal Bond Index 2.66%
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Lehman Aggregate Bond Index (taxable bonds) 2.35%
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Lehman Government Bond Index 1.72%
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Lehman Intermediate Treasury Bond Index
(U.S. Treasuries maturing in 1-10 years) 1.57%
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Equities
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S&P 500 Index (broad stock market) 18.45%
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S&P Utilities Index (utilities stocks) 20.75%
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Russell 2000 Growth Index (small-company growth stocks) 37.14%
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These indexes provide an overview of performance in different market
sectors for the six months ended 9/30/03.
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Strategy overview
We shortened the portfolio's duration (a defensive move that reduced its
sensitivity to changes in interest rates) in April and May, after taking
similar steps in early 2003. We did this because interest rates had fallen
to historically low levels and we believed they were more likely to rise
than fall. Since rising rates reduce the value of older, lower-yielding
bonds, our conservative duration stance helped preserve portfolio value when
rates rose sharply between mid June and the end of July. We resumed a more
neutral duration in August and September, as interest rates hovered in a
narrower range and we no longer anticipated a dramatic uptick.
In late July, we closed out the cross-market arbitrage position we had
established in an earlier period, which we discussed in the annual report
this March. You may recall that we sought to take advantage of a market
anomaly in which municipal bond yields, which are generally tax exempt, were
nearly as high as comparable taxable Treasury yields. We bought
intermediate-term municipal bonds and sold 10-year Treasury futures
contracts, anticipating that the muni/Treasury yield ratios would revert to
their historic norms and create an opportunity for gain. In fact, the yield
ratios did fall and a loss in value of the municipal bonds was more than
offset by a gain in the value of the Treasury futures position. We sold the
municipal bonds and bought back the Treasury futures contracts, thereby
ending the trade and locking in a profit for the fund.
We continued to diversify the fund's high-yield holdings. As strong
demand for higher-yielding municipal bonds pushed prices higher, the
fund reduced the size of a number of positions and eliminated some
completely. We established new positions in different high-yield bonds.
Lastly, we reduced the fund's exposure to airline-related IDBs, selling
into strength as they rebounded.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS AS OF 9/30/03]
TOP SECTOR WEIGHTINGS AS OF 9/30/03
as of 3/31/03 as of 9/30/03
Health care/hospitals 18.7% 21.8%
Utilities 17.5% 16.9%
Transportation 9.7% 5.1%
Education 3.5% 4.9%
Manufacturing 2.9% 3.3%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time.
How fund holdings affected performance
The fund's top performers during the period were airline-related industrial
development bonds (IDBs). This type of municipal bond is usually issued to
finance local expansion by various businesses, and is backed by revenues
from the companies benefiting from the financing. As a result, IDB prices
are affected by investor perceptions of the health of the backing company or
of the industry group. Especially since the terrorist attacks of September
11, 2001, airline-backed IDBs (generally issued to finance airport facility
expansion) have been severely affected by declining air traffic, high fixed
costs, and high-profile bankruptcies. As the prospects for economic recovery
improved, the airline companies improved and concerns about bankruptcies
diminished. This led to a sharp price recovery for these bonds and we used
this opportunity to trim the fund's airline-related holdings. These included
airport facility improvement bonds issued in Arkansas, California, Illinois,
and Washington State for Northwest Airlines, United Airlines, and American
Airlines. Since all these bonds have been in the portfolio for some time,
none of the sales resulted in a profit based on their acquisition cost, but
the fund was able to sell on strength rather than in distress. We believe
the airline industry will continue to recover with the economy, but we also
see potentially greater opportunities in other market areas.
[GRAPHIC OMITTED: pie chart PORTFOLIO CREDIT QUALITY]
PORTFOLIO CREDIT QUALITY
Aaa/AAA -- 41.1%
Aa/AA -- 3.1%
A -- 13.6%
Baa/BBB -- 18.7%
Ba/BB -- 11.8%
B and below -- 8.5%
Other (VMIG1/A-1+) -- 3.2%
Footnote reads:
As a percentage of market value as of 9/30/03. A bond rated Baa or higher
is considered investment grade. The chart reflects Moody's and Standard &
Poor's ratings; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
Another factor influencing performance during the period has been our
efforts to expand the fund's diversification and capitalize on increased
market demand for higher-yielding municipal bonds. For example, the fund
reduced a large position that it had in Johnson City, Tennessee Health and
Educational Facilities for Mountain States Health -- the primary hospital
system in Tennessee. The fund had $10 million in these bonds, which were
issued with a coupon of 7.50%, maturing in 2025 and rated Baa2 by Moody's.
We sold off some of the bonds and used the proceeds to diversify into
comparable issues in other states, including $2 million worth of bonds
issued by New Jersey Health Care Facilities Financing Authority for Somerset
Medical Center. Somerset has a dominant market share in a prosperous,
growing market area, and we believe the expanded services should improve the
facility's financial results long term. The issue we purchased had a coupon
of 5.50%, matures in 2033, and was rated Baa2 by Moody's. We also bought $3
million of bonds issued by South Carolina Jobs Economic Development
Authority for Palmetto Health Alliance. Palmetto has a capable management
team and a dominant market share in Columbia, South Carolina, and the
surrounding region. The new bonds will refund all of Palmetto's existing
bond debt and fund construction of a 123-bed heart hospital. The series we
purchased has a coupon of 6 3/8%, matures in 2034, and is rated Baa2 by
Moody's.
We have also been diversifying into some real estate development bonds,
which gives the fund a presence in an additional industry. These issues
are relatively hard to come by and the deals are relatively small for a
fund of this size, but our analysts' experience in this market is of
value here. Two recent real estate development purchases are bonds
issued by Veranda West Community Development, located in Lee County,
Florida and Ladera Ranch, a development in Orange County California. The
Veranda bonds have a coupon of 5.25%, maturing in 2008, and the Ladera
Ranch bonds offer 5.55%, maturing in 2033. In both cases, the developers
purchased a large tract of land and are using the proceeds from the bond
issue to put in such municipal improvements as roads, sewers, and street
lighting. At this point, taxes paid by the developers fund the bond. The
developers plan to sell large chunks of land to home-building
contractors who create developments ranging in size from a few homes to
a few hundred. At that point, the builders' taxes fund the bond's
interest payments. As people buy the new homes, their taxes will pay the
interest on the bonds, spreading out risks still further. Since these
issues are not rated, we are careful about which developments and
developers we chose.
The past several months have been positive for the bond market as a
whole, including municipal bonds. However, not everything has gone up.
For example, bonds issued by Louisiana Public Facilities Authority for
Lake Charles Memorial Hospital that we bought in 2000 have done poorly
because the hospital is experiencing financial difficulties. They used
the proceeds of the bond issue to build a new facility and were
preparing to move into it when they discovered they had underestimated
both their expenses and the size of their competition. However, an
outside consulting firm the hospital hired has provided ideas on how
they can cut costs, and management has been implementing the suggestions
with some success. The bonds have a coupon of 8 5/8s maturing in 2030,
but now carry a rating of CCC, meaning they are extremely high risk. For
the time being, we are holding the bonds and watching the situation
carefully.
Sometimes when an issue gets into financial difficulties, the best
course of action may be to sell at a loss in an effort to avoid having
to sell later at an even greater loss. A recent example is Las Vegas
Monorail Revenue Bonds, which have a coupon of 7 3/8s and mature in
2040. We bought these bonds in 2000 when they were issued to finance a
monorail intended to carry passengers between casinos. Its expected
completion date is 2004, but we became concerned because the original
projections for debt coverage were based on estimates of ridership made
before September 11, 2001. Given the ensuing decline in travel and the
slumping economy, we decided it was more prudent to sell the issue
rather than wait to see if the outlook might improve.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of team are David Hamlin (Portfolio Leader), Richard Wyke
(Portfolio Member), Paul Drury (Portfolio Member), Susan McCormack
(Portfolio Member), and James St. John (Portfolio Member).
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We anticipate continued volatility in the coming six months, and we
believe the Federal Reserve Board will hold the federal funds rate
steady at 1%. Our 12- to 18-month outlook is less certain. If economic
policy succeeds, we could experience a classic bear market for bonds
that may push yields higher. However, it is also possible that the
economy may not respond satisfactorily to fiscal and monetary policy,
and the yield on 10-year Treasuries could fall. Given this degree of
uncertainty, at this time we have positioned the fund's duration at
neutral, relative to its benchmark. Currently, we no longer see much
opportunity to capitalize on yield spreads between municipal bonds and
Treasuries, as we believe the relationship between them is now near the
long-term average. We expect that the credit quality of general
obligation municipal bonds will remain under pressure, because tax
revenues cannot be expected to grow significantly until taxpayers begin
to report improved earnings. Although yield spreads between high- and
low-quality municipal bonds have narrowed somewhat, we believe they
could narrow further. As a result, we may see more opportunity for
potential gain in this area. In keeping with the fund's objective, we
will continue to monitor market conditions as we pursue a high level of
tax-free income and seek to manage the fund's risk exposures.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk.
Performance summary
This section provides information about your fund's performance during
the first half of its fiscal year, which ended September 30, 2003.
Performance should always be considered in light of a fund's investment
strategy. Past performance does not indicate future results. More recent
returns may be less or more than those shown. Investment return and
principal value will fluctuate and you may have a gain or a loss when
you sell your shares. A profile of your fund's strategy appears on the
first page of this report. See page 9 for definitions of some terms used
in this section.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03
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Class A Class B Class C Class M
(inception dates) (5/22/89) (1/4/93) (2/1/99) (12/1/94)
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NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 3.61% -1.32% 3.30% -1.70% 3.11% 2.11% 3.48% 0.11%
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1 year 3.68 -1.25 3.06 -1.87 2.79 1.80 3.42 0.02
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5 years 21.28 15.50 17.82 15.96 16.35 16.35 19.78 15.83
Annual average 3.93 2.92 3.33 3.01 3.07 3.07 3.68 2.98
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10 years 61.85 54.18 52.64 52.64 49.55 49.55 57.52 52.38
Annual average 4.93 4.42 4.32 4.32 4.11 4.11 4.65 4.30
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Annual average
(life of fund) 6.62 6.27 5.90 5.90 5.80 5.80 6.29 6.04
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception is derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/03
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Lehman Lipper General
Municipal Municipal Debt
Bond Funds category
Index average*
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6 months 2.66% 2.57%
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1 year 3.90 2.90
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5 years 31.74 23.11
Annual average 5.67 4.23
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10 years 79.58 62.16
Annual average 6.03 4.94
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Annual average
(life of fund) 7.29 6.52
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 9/30/03, there
were 304, 294, 219, and 113 funds, respectively, in this Lipper
category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 9/30/03
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Class A Class B Class C Class M
Distributions (number) 6 6 6 6
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Income 1 $0.207365 $0.181178 $0.174845 $0.196447
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Capital gains 1 -- -- -- --
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Total $0.207365 $0.181178 $0.174845 $0.196447
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Share value: NAV POP NAV NAV NAV POP
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3/31/03 $8.60 $9.03 $8.60 $8.61 $8.60 $8.89
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9/30/03 8.70 9.13 8.70 8.70 8.70 8.99
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Current return (end of period)
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Current dividend rate 2 4.64% 4.42% 4.04% 3.90% 4.39% 4.25%
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Taxable equivalent 3 7.14 6.80 6.22 6.00 6.75 6.54
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Current 30-day
SEC yield 4 4.00 3.81 3.40 3.26 3.75 3.63
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Taxable equivalent 3 6.15 5.86 5.23 5.02 5.77 5.58
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1 Capital gains, if any, are taxable for federal and, in most cases, state
purposes. For some investors, investment income may be subject to the
federal alternative minimum tax. Income from federally exempt funds may be
subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 35% federal tax rate for 2003. Results for investors
subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities divided by the number of outstanding shares.
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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman Intermediate Treasury Bond Index is an unmanaged index of
Treasury bonds with maturities between 1 and up to 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
S&P Utilities Index is an unmanaged index of common stock issued by
utilities companies.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing regulations
for proxy statements, semiannual and annual reports, and prospectuses.
Putnam is now able to send a single copy of these materials to customers who
share the same address. This change will automatically apply to all
shareholders except those who notify us. If you would prefer to receive your
own copy, please call Putnam at 1-800-225-1581.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
The fund's portfolio
September 30, 2003 (Unaudited)
Key to Abbreviations
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AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FRB Floating Rate Bonds
FSA Financial Security Assurance
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
PSFG Permanent School Fund Guaranteed
VRDN Variable Rate Demand Notes
Municipal bonds and notes (97.4%) (a)
Principal amount Rating (RAT) Value
Alabama (1.3%)
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$4,640,000 Jackson Cnty., Hlth. Care Auth.
Rev. Bonds, 5.7s, 5/1/19 BB+ $4,118,000
7,500,000 Jefferson Cnty., Swr. Rev. Bonds,
FGIC, 5 3/4s, 2/1/38 Aaa 8,765,625
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12,883,625
Arizona (1.9%)
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710,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (St. Luke's Hlth.
Syst.), 7 1/4s, 11/1/14 Aaa 727,565
4,600,000 Casa Grande, Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 7 5/8s, 12/1/29 B-/P 4,858,750
Cochise Cnty., Indl. Dev. Auth.
Rev. Bonds (Sierra Vista Cmnty.
Hosp.)
4,580,000 Ser. A, 6 3/4s, 12/1/26 BB+/P 4,654,425
2,920,000 6.45s, 12/1/17 BB+/P 3,011,250
2,500,000 Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.), 7.2s, 6/1/27 B/P 2,534,375
4,000,000 Pinal Cnty., Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 8 1/8s, 12/1/22 Aaa 4,165,800
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19,952,165
Arkansas (1.0%)
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3,900,000 AR State Hosp. Dev. Fin. Auth.
Rev. Bonds (WA Regl. Med. Ctr.),
7 3/8s, 2/1/29 Baa3 4,236,375
5,415,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 5,909,119
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10,145,494
California (13.8%)
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425,000 ABAG Fin. Auth. for Nonprofit Corps.
Rev. Bonds (San Diego Hosp. Assn.),
Ser. C, 5 3/8s, 3/1/21 Baa1 420,219
5,000,000 Anaheim, Pub. Fin. Auth. Lease 144A
Rev. Bonds (Pub. Impts.), Ser. A,
FSA, 6s, 9/1/24 Aaa 5,893,750
CA Rev. Bonds
2,500,000 (Adventist Hlth. Syst.), Ser. A, 5s,
3/1/33 A 2,368,750
2,500,000 (Stanford Hosp. & Clinics), Ser. A,
5s, 11/15/23 A3 2,493,750
10,000,000 CA State G.O. Bonds, FGIC, 5 1/2s,
3/1/11 Aaa 11,475,000
2,000,000 CA State Dept. of Wtr. Resources
Pwr. Supply Rev. Bonds, Ser. A,
5 1/8s, 5/1/18 A3 2,087,500
CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A
25,000,000 AMBAC, 5 1/2s, 5/1/13 Aaa 28,468,750
7,000,000 5 1/2s, 5/1/11 A3 7,875,000
4,240,000 CA State Pub. Wks. Board Lease
Rev. Bonds (Dept. of
Corrections-State Prisons), Ser. A,
AMBAC, 5s, 12/1/19 Aaa 4,547,400
Corona, COP
4,500,000 (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 (In default) (NON) D/P 1,800,000
5,800,000 (Hosp. Syst., Inc.), Ser. C,
8 3/8s, 7/1/11 (In default) (NON) D/P 2,320,000
2,960,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 B/P 2,423,500
5,000,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 Baa1 4,937,500
1,400,000 LA Tax Alloc. Rev. Bonds (No. 5 &
6), MBIA, 5 1/4s, 2/1/19 Aaa 1,561,000
1,215,000 Lancaster, Fin. Auth. Tax Alloc.
Rev. Bonds (No. 5 & 6), MBIA, 5s,
2/1/16 Aaa 1,338,019
1,250,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Bonds (No. 02-1 Ladera
Ranch), Ser. A, 5.55s, 8/15/33 BB/P 1,221,875
5,600,000 Orange Cnty., Local Trans. Auth.
Sales Tax IFB, 11.152s, 2/14/11 AA+ 7,665,000
4,000,000 Orange Cnty., Local Trans. Auth.
Sales Tax Rev. Bonds, AMBAC, 6.2s,
2/14/11 Aaa 4,755,000
1,460,000 Pittsburg, Redev. Agcy. Tax Alloc.
Rev. Bonds (Los Medanos Cmnty.
Dev.), Ser. A, MBIA, 5s, 8/1/13 Aaa 1,620,600
10,000,000 San Joaquin Hills, Trans. Corridor
Agcy. Toll Rd. Rev. Bonds, 7.55s,
1/1/10 Aaa 12,437,500
3,600,000 San Luis Obispo, COP (Vista Hosp.
Syst., Inc.), 8 3/8s, 7/1/29 (In
default) (NON) D/P 1,440,000
2,220,000 Sunnyvale, Special Tax Rev. Bonds
(Cmnty. Fac. Dist. No. 1), 7 3/4s,
8/1/32 BB-/P 2,228,325
5,065,000 Tulare Cnty., COP, MBIA, 5s, 8/15/14 Aaa 5,647,475
6,560,000 U. of CA, Rev. Bonds (Multi-Purpose
Projects), Ser. Q, FSA, 5s, 9/1/11 Aaa 7,404,600
11,840,000 Vallejo, COP (Marine World
Foundation), 7s, 2/1/17 BBB-/P 12,432,000
6,000,000 Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt.), Ser. A, 6 1/2s,
5/15/25 B+ 3,937,500
--------------
140,800,013
Colorado (2.4%)
- -------------------------------------------------------------------------------
6,000,000 Arapahoe Cnty., Cap. Impt. Trust
Fund Hwy. Rev. Bonds, Ser. E-470,
7s, 8/31/26 Aaa 6,855,000
6,830,986 CO State Edl. Fac. Auth. Rev. Bonds
(Ocean Journey, Inc.), 8 3/8s,
12/1/26 (In default) (NON) D/P 239,085
Denver, City & Cnty. Arpt.
Rev. Bonds
5,000,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 6,212,500
3,310,000 Ser. A, 7 1/2s, 11/15/23 A2 3,525,150
3,500,000 Denver, Hlth. & Hosp. Auth. Hlth.
Care VRDN, Ser. A, 1.25s, 12/1/32 VMIG1 3,500,000
3,000,000 Larimer Cnty., G.O. Bonds (Poudre
Impt. -- School Dist. No. 1), 7s,
12/15/16 Aa3 3,911,250
--------------
24,242,985
Connecticut (1.3%)
- -------------------------------------------------------------------------------
CT State Dev. Auth. Rev. Bonds
1,390,335 (East Hills Woods), Ser. A, 7 3/4s,
11/1/17 CCC/P 1,152,240
1,000,000 (Elm Park Baptist), 5s, 12/1/13 BBB+ 1,028,750
147,496 (East Hills Woods), Ser. B, zero %,
3/1/21 CCC/P 10,693
6,000,000 CT State Dev. Auth. Poll. Control
Rev. Bonds (Western MA), Ser. A,
5.85s, 9/1/28 A3 6,307,500
4,000,000 CT State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Edgehill), Ser. A,
6 7/8s, 7/1/27 AAA/P 4,292,880
--------------
12,792,063
District of Columbia (5.0%)
- -------------------------------------------------------------------------------
3,840,000 DC COP, AMBAC, 5 1/4s, 1/1/13 AAA 4,272,000
31,750,000 DC G.O. Bonds, Ser. A, 6 3/8s,
6/1/26 AAA 36,591,875
DC Rev. Bonds (American Geophysical
Union)
4,200,000 5 7/8s, 9/1/23 BBB 4,236,750
3,350,000 5 3/4s, 9/1/13 BBB 3,379,313
3,000,000 DC Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 1/2s, 5/15/33 Baa2 2,613,750
--------------
51,093,688
Florida (5.7%)
- -------------------------------------------------------------------------------
2,500,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 B/P 2,950,000
1,650,000 Escambia Cnty., Hlth. Fac. Auth.
Rev. Bonds (Baptist Hosp. & Baptist
Manor), 5 1/8s, 10/1/19 A3 1,604,625
1,240,000 Heritage Harbor, South Cmnty. Dev.
Dist. Special Assmt. Rev. Bonds
(Cap. Impt.), Ser. B, 5.4s, 11/1/08 BB-/P 1,250,850
22,900,000 Hernando Cnty., Indl. Dev.
Rev. Bonds (FL Crushed Stone Co.),
8 1/2s, 12/1/14 A-/P 23,502,270
3,000,000 Highlands Cnty., Hlth. Fac. Auth.
Rev. Bonds (Adventist Sunbelt),
Ser. A, 6s, 11/15/31 A 3,172,500
1,050,000 Lee Cnty., Indl. Dev. Auth. Hlth.
Care Fac. Rev. Bonds (Shell Point
Village Project), Ser. A, 5 1/2s,
11/15/29 BBB- 980,438
1,750,000 Leesburg, Hosp. Rev. Bonds (Regl.
Med. Ctr.), Ser. A, 5s, 7/1/17 A2 1,780,625
2,000,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.7s, 11/15/19 BB 1,900,000
4,750,000 Orange Cnty., Hlth. Fac. Auth. IFB,
9.999s, 10/1/14 (acquired 4/19/95,
cost $6,129,272) (RES) AAA/P 7,570,313
1,300,000 Orange Cnty., Hlth. Fac. Auth.
Rev. Bonds (Orlando Regl. Hlth.
Care), 5 3/4s, 12/1/32 A2 1,335,750
6,280,000 Orange Cnty., School Board COP,
Ser. A, MBIA, 5 3/8s, 8/1/22 Aaa 6,680,350
Sanford, Arpt. Auth. Indl. Dev.
Rev. Bonds (Federal Express Corp.),
Ser. A
2,000,000 7 1/2s, 5/1/10 B/P 1,930,000
250,000 7.3s, 5/1/04 B/P 250,047
2,500,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B/P 2,534,375
1,000,000 Verandah, West Cmnty. Dev. Dist.
Rev. Bonds (Cap. Impt.), Ser. B,
5 1/4s, 5/1/08 BB-/P 998,750
--------------
58,440,893
Georgia (1.4%)
- -------------------------------------------------------------------------------
2,900,000 Atlanta, Waste Wtr. VRDN, Ser. C,
FSA, 1.2s, 11/1/41 VMIG1 2,900,000
4,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 1/1/32 A2 4,255,000
Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay Paper,
Inc.)
3,000,000 7 1/2s, 1/1/26 BB+/P 3,037,500
4,005,000 7.4s, 1/1/16 BB+/P 4,065,075
--------------
14,257,575
Idaho (0.5%)
- -------------------------------------------------------------------------------
5,500,000 ID Hlth. Fac. Auth. VRDN (St. Lukes
Med. Ctr.), FSA, 1.14s, 7/1/30 VMIG1 5,500,000
Illinois (2.6%)
- -------------------------------------------------------------------------------
3,745,000 Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 Caa2 2,209,550
4,385,000 Chicago, Waste Wtr. Rev. Bonds,
MBIA, 5 1/2s, 1/1/19 Aaa 5,048,231
1,735,000 IL Dev. Fin. Auth. Rev. Bonds (Mercy
Hsg. Corp.), 7s, 8/1/24 Baa1 1,855,739
IL Hlth. Fac. Auth. Rev. Bonds
605,000 (Cmnty. Rehab. Providers Fac.),
8 1/4s, 8/1/12 (In default) (NON) D/P 592,144
2,610,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 AAA/P 2,965,613
1,625,000 (Cmnty. Rehab. Providers Fac.),
Ser. A, 7 7/8s, 7/1/20 (In default)
(NON) D/P 694,688
4,900,000 (Hindsdale Hosp.), Ser. A, 6.95s,
11/15/13 Baa1 5,513,921
4,000,000 IL State G.O. Bonds, FGIC, 6s,
11/1/26 Aaa 4,770,000
3,000,000 Regl. Trans. Auth. Rev. Bonds,
Ser. B, MBIA, 5 3/4s, 6/1/33 Aaa 3,453,750
--------------
27,103,636
Indiana (1.3%)
- -------------------------------------------------------------------------------
10,000,000 Indianapolis, Arpt. Auth. Special
Fac. Rev. Bonds (Federal Express
Corp.), 7.1s, 1/15/17 Baa2 10,552,800
3,000,000 Rockport, Poll. Control
Rev. Bonds (Indiana-Michigan Pwr.),
Ser. A, 4.9s, 6/1/25 Baa2 3,101,250
--------------
13,654,050
Iowa (0.9%)
- -------------------------------------------------------------------------------
6,430,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives),
9 1/4s, 7/1/25 BBB-/P 7,667,775
2,000,000 Tobacco Settlement Auth. of IA
Rev. Bonds, Ser. B, 5.6s, 6/1/35 Baa2 1,532,500
--------------
9,200,275
Kentucky (0.3%)
- -------------------------------------------------------------------------------
3,000,000 KY Econ. Dev. Fin. Auth. Hlth. Syst.
Rev. Bonds (Norton Healthcare,
Inc.), Ser. A, 6 5/8s, 10/1/28 BBB/P 3,150,000
Louisiana (2.8%)
- -------------------------------------------------------------------------------
6,500,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/19 B-/P 6,053,125
LA Pub. Fac. Auth. Hosp. Rev. Bonds
5,000,000 (Lake Charles Memorial Hosp.
Project), 8 5/8s, 12/1/30 CCC/P 4,106,250
5,000,000 (Franciscan Missionaries), FSA,
5 3/4s, 7/1/18 Aaa 5,893,750
2,000,000 Port of New Orleans, Indl. Dev.
Rev. Bonds (Continental Grain Co.),
7 1/2s, 7/1/13 BB- 2,045,000
3,000,000 St. Charles Parish, Poll. Control
Rev. Bonds, Ser. A, 4.9s, 6/1/30 Baa3 3,108,750
900,000 Tangipahoa Parish Hosp. Svcs.
Rev. Bonds (North Oaks Med. Ctr.
Project), Ser. A, 5s, 2/1/25 A 884,250
6,000,000 W. Feliciana Parish, Poll. Control
Rev. Bonds (Entergy Gulf States),
Ser. B, 6.6s, 9/1/28 Ba1 6,105,000
--------------
28,196,125
Maine (0.5%)
- -------------------------------------------------------------------------------
5,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba2 5,075,000
Massachusetts (3.8%)
- -------------------------------------------------------------------------------
1,825,000 Atlas Boston Tax Exempt Rev. Bonds,
Ser. 1, 6.65s, 1/1/35 (In default)
(NON) BB+/P 1,204,500
3,270,000 MA G.O. Bonds, Ser. C, MBIA, 5 1/4s,
8/1/18 Aaa 3,686,925
1,975,000 MA Dev. Fin. Agcy. Rev. Bonds
(Semass Syst.), Ser. A, MBIA,
5 5/8s, 1/1/12 Aaa 2,239,156
MA State Dev. Fin. Agcy. Rev. Bonds
3,425,000 (Lasell College), 6 3/4s, 7/1/31 BB+/P 3,403,594
3,865,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,613,775
2,000,000 (Lasell Village Project), Ser. A,
6 3/8s, 12/1/25 BB/P 1,950,000
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,500,000 (Civic Investments), Ser. A, 9s,
12/15/15 B+/P 2,850,000
2,000,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 2,000,000
3,900,000 (UMass Memorial), Ser. C, 6 5/8s,
7/1/32 Baa2 4,065,750
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,200,000 (Berkshire Hlth. Syst.), Ser. E,
6 1/4s, 10/1/31 BBB+ 2,268,750
2,700,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 2,804,625
6,565,000 MA State Residual Certificate G.O.
Bonds, Ser. 314, 10.23s, 8/1/11
(acquired 4/19/00, cost $7,166,354)
(RES) Aaa 8,780,688
--------------
38,867,763
Michigan (2.2%)
- -------------------------------------------------------------------------------
305,000 Ann Arbor, Econ. Dev. Corp. Ltd.
Oblig. Rev. Bonds (Glacier Hills,
Inc.), 8 3/8s, 1/15/19 AAA 414,038
5,000,000 Dickinson Cnty., Econ. Dev. Corp.
Rev. Bonds, 5 3/4s, 6/1/16 Baa2 5,225,000
1,000,000 Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), 6s, 7/1/20 Baa3 927,500
4,200,000 Macomb Cnty., Hosp. Fin. Auth.
Rev. Bonds (Mt. Clemens Gen. Hosp.),
Ser. B, 5 7/8s, 11/15/34 BBB- 4,037,250
2,500,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 2,565,625
10,000,000 MI State Strategic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr.
Station), 7 1/2s, 1/1/21 BB+/P 9,462,500
--------------
22,631,913
Minnesota (0.7%)
- -------------------------------------------------------------------------------
3,700,000 Minneapolis & St. Paul, Metro. Arpt.
Comm. Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), Ser. A,
7s, 4/1/25 B+/P 3,158,875
4,275,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. A,
6 5/8s, 11/1/17 Ba2 4,248,281
--------------
7,407,156
Mississippi (2.0%)
- -------------------------------------------------------------------------------
6,800,000 Jackson Cnty., VRDN, 1.2s, 12/1/16 VMIG1 6,800,000
8,000,000 Mississippi Bus. Fin. Corp.
Rev. Bonds (Syst. Energy Resources,
Inc.), 5 7/8s, 4/1/22 BBB- 8,010,000
5,000,000 MS State G.O. Bonds, Ser. A, FSA,
5 1/4s, 11/1/20 Aaa 5,612,500
--------------
20,422,500
Missouri (2.2%)
- -------------------------------------------------------------------------------
3,000,000 Cape Girardeau Cnty., Indl. Dev.
Auth. Hlth. Care Fac. Rev. Bonds
(St. Francis Med. Ctr.),
Ser. A, 5 1/2s, 6/1/32 A 3,048,750
MO State Hlth. & Edl. Fac. Auth.
Rev. Bonds (BJC Hlth. Syst.)
6,775,000 Ser. A, 6 1/2s, 5/15/20 Aa2 7,118,425
2,500,000 5 1/4s, 5/15/32 Aa2 2,571,875
4,400,000 MO State Hlth. & Edl. Fac. Auth.
VRDN (Southwest Baptist U.), 1.25s,
10/1/33 A-1+ 4,400,000
5,000,000 St. Louis, Muni. Fin. Corp.
Rev. Bonds (Convention Ctr.
Project), AMBAC, 5 1/4s, 7/15/13 Aaa 5,700,000
--------------
22,839,050
Montana (0.7%)
- -------------------------------------------------------------------------------
3,325,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 Aaa 3,657,500
3,180,000 Forsyth, VRDN (Pacific Corp.
Project), 1.23s, 1/1/18 VMIG1 3,180,000
--------------
6,837,500
Nevada (0.2%)
- -------------------------------------------------------------------------------
2,255,000 Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14), 4s, 3/1/08 BB-/P 2,235,269
New Hampshire (2.4%)
- -------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds
4,000,000 (1st. Mtge.-Rivermead Peterborough),
8 1/2s, 7/1/24 AAA 4,299,680
1,190,000 (Havenwood-Heritage Heights), 7.1s,
1/1/06 BB/P 1,225,700
5,600,000 (Lakes Region Hosp. Assn.), 6 1/4s,
1/1/18 BB/P 5,558,000
3,000,000 (Rivermead at Peterborough), 5 3/4s,
7/1/28 BB/P 2,666,250
4,000,000 NH State Bus. Fin. Auth. Rev. Bonds
(Franklin Regl. Hosp. Assn.),
Ser. A, 6.05s, 9/1/29 BB/P 3,500,000
7,000,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds (Pub. Svc. Co.),
Ser. D, 6s, 5/1/21 A3 7,210,000
--------------
24,459,630
New Jersey (4.2%)
- -------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
5,000,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 5,018,750
2,715,000 (1st Mtge.-Cranes Hill), Ser. A, 7s,
2/1/10 BB-/P 2,826,994
3,800,000 NJ Econ. Dev. Auth. VRDN (Foreign
Trade Zone Project), 1.20s, 12/1/07 A-1+ 3,800,000
3,840,000 NJ Econ. Dev. Auth. Assisted Living
Rev. Bonds (Meridian Assisted
Living), 6 3/4s, 8/1/30 B/P 3,062,400
2,000,000 NJ Econ. Dev. Auth. Special Fac.
Rev. Bonds (Continental Airlines,
Inc.), 6 1/4s, 9/15/29 B 1,630,000
NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
3,000,000 (Trinitas Hosp. Oblig. Group),
7 1/2s, 7/1/30 Baa3 3,300,000
6,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA,
6 3/4s, 7/1/19 Aaa 7,710,000
2,000,000 (Somerset Med. Ctr.), 5 1/2s, 7/1/33 Baa2 1,957,500
1,500,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C,
5 1/8s, 7/1/22 A- 1,515,000
9,000,000 NJ State Tpk. Auth. Rev. Bonds,
Ser. C, MBIA, 6 1/2s, 1/1/16 Aaa 11,081,250
1,535,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 7s, 6/1/41 Baa2 1,412,200
--------------
43,314,094
New York (12.7%)
- -------------------------------------------------------------------------------
2,000,000 Albany, Indl. Dev. Agcy.
Rev. Bonds (Charitable Leadership),
Ser. A, 5 3/4s, 7/1/26 Baa3 2,067,500
10,000,000 Long Island, Pwr. Auth. NY Elec.
Syst. IFB, Ser. 66, MBIA, 9.11s,
4/1/10 (acquired 11/3/98, cost
$11,298,800) (RES) AAA 12,675,000
3,500,000 Long Island, Pwr. Auth. NY Elec.
Syst. IFB, 9.441s, 12/1/24
(acquired 5/19/98, cost $3,804,500)
(RES) BBB+/P 3,941,875
9,580,000 Metropolitan Trans. Auth.
Rev. Bonds, FGIC, 5 1/2s, 7/1/15 Aaa 11,160,700
NY City, G.O. Bonds
3,000,000 Ser. B, 5 3/4s, 8/1/16 A2 3,311,250
4,130,000 Ser. A, 5 3/4s, 8/1/14 A2 4,615,275
15,000,000 Ser. C, 5 1/2s, 8/1/12 A2 16,668,750
2,800,000 NY City, State Dorm. Auth. Lease
Rev. Bonds (Court Fac.), 6s,
5/15/39 A 3,024,000
5,000,000 NY City, Transitional Fin. Auth.
Rev. Bonds (Future Tax), Ser. C,
FGIC, 5 1/4s, 8/1/14 Aaa 5,581,250
NY State Dorm. Auth. Rev. Bonds
7,000,000 (Rites-PA), Ser. 434, FSA, 9.178s,
5/15/15 (acquired 10/6/98, cost
$8,278,340) (RES) AAA/P 8,960,000
10,785,000 (Personal Income Tax), FGIC, 5 1/2s,
3/15/12 Aaa 12,402,750
2,695,000 MBIA, 5s, 12/15/12 Aaa 3,025,138
4,350,000 (NY U.), Ser. B, MBIA, 5s, 7/1/11 Aaa 4,872,000
5,000,000 NY State Energy Research & Dev.
Auth. Poll. Control Rev. Bonds
(Lilco), Ser. B, 5.15s, 3/1/16 A- 5,125,200
5,000,000 NY State Env. Fac. Corp. Poll.
Control FRB (PA 198), MBIA,
10.629s, 6/15/10 (acquired
10/22/97, cost $6,012,500) (RES) AAA 6,900,000
11,125,000 NY State Med. Care Fac. Fin. Agcy.
Rev. Bonds (NY Hosp.), Ser. A,
AMBAC, 6 1/2s, 8/15/29 Aaa 12,181,875
1,500,000 Oneida Cnty., Indl. Dev. Agcy.
Rev. Bonds (St. Elizabeth Med.),
Ser. A, 5 7/8s, 12/1/29 BB-/P 1,338,750
5,500,000 Onondaga Cnty., Indl. Dev. Agcy.
Rev. Bonds (Solvay Paperboard, LLC),
7s, 11/1/30 BB-/P 5,809,375
2,325,000 Suffolk Cnty., Indl. Dev. Agcy. VRDN
(Target Rock Corp.), 1.05s, 2/1/07 VMIG1 2,325,000
3,480,000 Triborough Bridge & Tunnel Auth.
Rev. Bonds, MBIA, 5 1/2s, 11/15/18 Aaa 4,084,650
--------------
130,070,338
North Carolina (1.7%)
- -------------------------------------------------------------------------------
5,000,000 NC Eastern Muni. Pwr. Agcy. Syst.
IFB, MBIA, 10.659s, 1/1/22 (acquired
5/4/00, cost $5,066,900) (RES) AAA 7,031,250
3,000,000 NC Eastern Muni. Pwr. Agcy. Syst.
IFB, FGIC, 10.7s, 1/1/25 (acquired
3/3/93, cost $3,112,315) (RES) Aaa 4,083,750
5,250,000 NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds, AMBAC, 6s, 1/1/18 Aaa 6,345,938
--------------
17,460,938
Ohio (1.9%)
- -------------------------------------------------------------------------------
6,000,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/15 A1 6,705,000
2,235,000 Marion Cnty., Hlth. Care Fac.
Rev. Bonds (United Church Homes),
6 3/8s, 11/15/10 BBB- 2,282,516
5,000,000 OH State Higher Edl. Fac. FRB
(Kenyon College Project), 4.7s,
7/1/37 A2 5,193,750
OH State Higher Edl. Fac. Rev. Bonds
(Case Western Reserve U.)
3,000,000 5 1/2s, 10/1/22 Aa2 3,251,250
2,000,000 5 1/2s, 10/1/21 Aa2 2,180,000
--------------
19,612,516
Oklahoma (0.5%)
- -------------------------------------------------------------------------------
6,000,000 OK Dev. Fin. Auth. Rev. Bonds (Doane
Products Co.), 6 1/4s, 7/15/23 B-/P 4,770,000
Oregon (0.7%)
- -------------------------------------------------------------------------------
7,300,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza
Project), 6 1/2s, 12/1/29 BB-/P 6,971,500
Pennsylvania (5.9%)
- -------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Env. Imports), 4 3/4s,
12/1/32 Baa1 5,162,500
Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A
1,000,000 6 3/4s, 11/15/14 Baa3 988,750
1,200,000 6 1/2s, 11/15/08 Baa3 1,212,000
1,835,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek
Partners), 6.65s, 5/1/10 BBB- 1,968,038
1,725,000 Chester Cnty., Hlth. & Ed. Fac.
Auth. Rev. Bonds (Jenners Pond,
Inc.), 7 1/4s, 7/1/24 BB-/P 1,737,938
7,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 CCC/P 3,750,000
3,155,000 Dauphin Cnty., Hosp. Rev. Bonds
(Northwestern Med. Ctr.), 8 5/8s,
10/15/13 AAA 3,580,925
650,000 Lebanon Cnty., Hlth. Fac. Auth.
Rev. Bonds (Good Samaritan Hosp.
Project), 6s, 11/15/35 Baa1 658,938
Lehigh Cnty., Gen. Purpose Auth.
Rev. Bonds
3,000,000 (St. Luke's Hosp. - Bethlehem),
5 3/8s, 8/15/33 Baa2 2,913,750
1,000,000 (Lehigh Valley Hosp. Hlth. Network),
Ser. A, 5 1/4s, 7/1/32 A2 986,250
3,000,000 Lehigh Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (PA Pwr. & Lt.
Co.), Ser. B, MBIA, 6.4s, 9/1/29 Aaa 3,200,520
2,000,000 PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. D, 7.15s, 12/1/18 BBB- 2,070,000
PA State Econ. Dev. Fin. Auth. Res.
Recvy. Rev. Bonds
4,250,000 (Northhampton), Ser. B, 6 3/4s,
1/1/07 BBB- 4,398,750
3,000,000 (Northampton Generating), Ser. A,
6 1/2s, 1/1/13 BBB- 3,045,000
4,000,000 PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds (Colver),
Ser. E, 8.05s, 12/1/15 BBB-/P 4,170,000
945,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Philadelphia College of
Osteopathic Medicine), 5s, 12/1/06 A 1,037,137
6,000,000 Philadelphia, Gas Wks. FRB, FSA,
0.933s, 8/1/21 Aaa 6,000,000
6,000,000 Philadelphia, Gas Wks. IFB, FSA,
9.306s, 8/1/21 (acquired 1/24/94,
cost $5,621,520) (RES) Aaa 6,165,000
5,740,000 Philadelphia, Gas Wks. Rev. Bonds,
Ser. 16, FSA, 5 1/2s, 7/1/13 Aaa 6,486,200
5,529,317 Philadelphia, Indl. Dev. Auth.
Special Fac. Rev. Bonds (U.S.
Airways, Inc.), 8 1/8s, 5/1/30 (In
default) (NON) D/P 55,293
1,800,000 Washington Cnty., Indl. Dev. Auth.
1st Mtge. Rev. Bonds (AHF/Central
States Inc.), 5 1/8s, 11/1/19 (In
default) (NON) D/P 1,170,000
--------------
60,756,989
Puerto Rico (1.6%)
- -------------------------------------------------------------------------------
8,500,000 Cmnwlth. of PR, G.O. Bonds, 10.109s,
1/1/18 (acquired 6/12/95, cost
$8,912,590) (RES) AAA/P 10,125,625
1,500,000 Cmnwlth. of PR, Hwy. & Trans. Auth.
Rev. Bonds, Ser. E, FSA, 5 1/2s,
7/1/22 Aaa 1,728,750
4,000,000 PR Elec. Pwr. Auth. Rev. Bonds,
Ser. T, 6 3/8s, 7/1/24 AAA 4,241,520
--------------
16,095,895
South Carolina (3.5%)
- -------------------------------------------------------------------------------
8,500,000 Charleston Cnty., Indl. Dev.
Rev. Bonds (Hoover Group, Inc.),
8 1/2s, 11/1/02 (In default) (DEF)
(NON) D/P 6,545,000
1,450,000 Florence Cnty., Indl. Dev. Auth.
Rev. Bonds (Stone Container Corp.),
7 3/8s, 2/1/07 B/P 1,475,216
1,350,000 Lexington Cnty. Rev. Bonds, 5 1/2s,
11/1/32 A2 1,383,750
Piedmont, Muni. Elec. Pwr. Agcy.
Rev. Bonds, Ser. A, FGIC
5,490,000 6 1/2s, 1/1/16 Aaa 6,793,875
630,000 6 1/2s, 1/1/16 Aaa 784,350
3,000,000 Richland Cnty. Rev. Bonds (Intl.
Paper Co. Project), Ser. A, 4 1/4s,
10/1/07 Baa2 3,142,500
1,750,000 SC Hosp. Auth. Rev. Bonds (Med. U.),
Ser. A, 6 1/2s, 8/15/32 BBB+ 1,824,375
SC Jobs Econ. Dev. Auth. Rev. Bonds
5,000,000 (St. Francis Hosp.-Franciscan
Sisters), 7s, 7/1/15 BBB+/P 5,221,850
3,000,000 (Palmetto Hlth.), Ser. C, 6 3/8s,
8/1/34 Baa2 3,037,500
6,000,000 SC Tobacco Settlement Rev. Mgt.
Rev. Bonds, Ser. B, 6 3/8s, 5/15/28 Baa2 5,190,000
--------------
35,398,416
Tennessee (0.6%)
- -------------------------------------------------------------------------------
3,000,000 Elizabethton, Hlth. & Edl. Fac.
Board Rev. Bonds (Hosp. Ref. &
Impt.), Ser. B, 8s, 7/1/33 Baa2 3,348,750
3,000,000 Johnson City, Hlth. & Edl. Fac.
Hosp. Board Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/25 Baa2 3,251,250
--------------
6,600,000
Texas (3.8%)
- -------------------------------------------------------------------------------
2,500,000 Abilene, Hlth. Fac. Dev. Corp.
Rev. Bonds (Sears Methodist
Retirement), Ser. A, 7s, 11/15/33 BB+/P 2,475,000
5,000,000 Bexar Cnty., Hsg. Fin. Auth. Corp.
Rev. Bonds (American
Opty-Waterford), Ser. A1, 7s,
12/1/36 A3 5,112,500
Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds (American
Airlines, Inc.)
6,000,000 7 1/4s, 11/1/30 Caa2 3,510,000
1,300,000 6 3/8s, 5/1/35 Caa2 728,000
3,600,000 Georgetown, Hlth. Fac. Dev. Corp.
Rev. Bonds, 6 1/4s, 8/15/29 BB+ 3,456,000
5,000,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.),
Ser. E, 6 3/4s, 7/1/29 B- 4,187,500
3,500,000 Sam Rayburn Muni. Pwr. Agcy.
Rev. Bonds, 6s, 10/1/21 Baa2 3,644,375
4,000,000 Tarrant Cnty., Hlth. Fac. Dev. (TX
Hlth. Res. Sys.), Ser. A, MBIA,
5 3/4s, 2/15/12 Aaa 4,615,000
Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.)
2,500,000 6 1/8s, 7/1/23 Baa2 2,518,750
1,650,000 6s, 7/1/25 Baa2 1,658,250
3,500,000 TX State IFB, Ser. B, 10.95s,
9/30/11 Aa1 4,865,000
2,315,000 Ysleta, Indpt. School Dist. G.O.
Bonds, PSFG, 5s, 8/15/07 AAA 2,578,331
--------------
39,348,706
Utah (0.2%)
- -------------------------------------------------------------------------------
1,950,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil Project), 5.05s,
11/1/17 Baa1 2,084,056
Virginia (0.7%)
- -------------------------------------------------------------------------------
3,000,000 Henrico Cnty. Econ. Dev. Auth.
Rev. Bonds (United Methodist),
Ser. A, 6 1/2s, 6/1/22 BB+/P 3,022,500
5,000,000 Suffolk, Redev. & Hsg. Auth.
Rev. Bonds (Beach-Oxford Apts.),
6.1s, 4/1/26 BB-/P 4,481,250
--------------
7,503,750
Washington (0.9%)
- -------------------------------------------------------------------------------
2,700,000 Port of Seattle, Special Fac.
Rev. Bonds (Northwest Airlines,
Inc.), 7 1/4s, 4/1/30 B+/P 2,274,750
5,000,000 WA State Pub. Pwr. Supply Syst.
Rev. Bonds (Nuclear No. 3), Ser. B,
MBIA, 7 1/8s, 7/1/16 Aaa 6,543,750
--------------
8,818,500
West Virginia (0.4%)
- -------------------------------------------------------------------------------
3,600,000 WV State G.O. Bonds, Ser. D, FGIC,
6 1/2s, 11/1/26 Aaa 4,293,000
Wisconsin (1.0%)
- -------------------------------------------------------------------------------
Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds
1,000,000 7s, 6/1/28 Baa2 950,000
7,750,000 6 3/8s, 6/1/32 Baa2 6,645,625
2,500,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan
Svcs.), 5 1/8s, 8/15/33 A2 2,409,375
--------------
10,005,000
Wyoming (0.2%)
- -------------------------------------------------------------------------------
2,000,000 Sweetwater Cnty., Poll. Control
Rev. Bonds (Idaho Power Co.
Project), Ser. A, 6.05s, 7/15/26 A3 2,070,000
--------------
Total Municipal bonds and notes
(cost $987,443,890) $997,362,066
Preferred stocks (0.6%) (a) (cost $6,000,000)
Number of shares Value
- -------------------------------------------------------------------------------
6,000,000 MuniMae Tax Exempt Bond Subsidiary,
LLC 144A 6.875% cum. pfd. $6,540,000
- -------------------------------------------------------------------------------
Total Investments
(cost $993,443,890) $1,003,902,066
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,023,592,117.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September 30, 2003 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at September 30, 2003. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2003
was $76,233,501 or 7.4% of net assets.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on VRDN, mandatory put bonds and Floating Rate Bonds
(FRB) are the current interest rates shown at September 30, 2003.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at September 30, 2003.
The fund had the following industry group concentrations greater than
10% at September 30, 2003
(as a percentage of net assets):
Health care 21.8%
Utilities 16.9
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
September 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$993,443,890) (Note 1) $1,003,902,066
- -------------------------------------------------------------------------------
Cash 22,393
- -------------------------------------------------------------------------------
Interest and other receivables 16,627,775
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 581,165
- -------------------------------------------------------------------------------
Receivable for securities sold 11,380,384
- -------------------------------------------------------------------------------
Total assets 1,032,513,783
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 1,789,698
- -------------------------------------------------------------------------------
Payable for securities purchased 2,541,177
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,331,755
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,296,443
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 137,161
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 101,597
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,479
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 657,672
- -------------------------------------------------------------------------------
Other accrued expenses 64,684
- -------------------------------------------------------------------------------
Total liabilities 8,921,666
- -------------------------------------------------------------------------------
Net assets $1,023,592,117
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,060,800,456
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 420,104
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (48,086,619)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 10,458,176
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $1,023,592,117
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($808,005,447 divided by 92,866,579 shares) $8.70
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.70)* $9.13
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($185,433,354 divided by 21,323,816 shares)** $8.70
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($17,554,335 divided by 2,016,604 shares)** $8.70
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($12,598,981 divided by 1,448,332 shares) $8.70
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.70)*** $8.99
- -------------------------------------------------------------------------------
* 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.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
*** 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.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended September 30, 2003 (Unaudited)
Interest income: $29,831,589
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,631,516
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 460,642
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 20,353
- -------------------------------------------------------------------------------
Administrative services (Note 2) 9,602
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,028,434
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 848,992
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 93,559
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 32,044
- -------------------------------------------------------------------------------
Other 166,802
- -------------------------------------------------------------------------------
Total expenses 5,291,944
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (28,803)
- -------------------------------------------------------------------------------
Net expenses 5,263,141
- -------------------------------------------------------------------------------
Net investment income 24,568,448
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (10,417,892)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 2,342,134
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 19,676,450
- -------------------------------------------------------------------------------
Net gain on investments 11,600,692
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $36,169,140
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
September 30 March 31
Decrease in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $24,568,448 $55,840,372
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (8,075,758) 3,773,774
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 19,676,450 (5,251,798)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 36,169,140 54,362,348
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax-exempt income
Class A (19,712,842) (44,186,325)
- -------------------------------------------------------------------------------
Class B (4,186,891) (10,967,094)
- -------------------------------------------------------------------------------
Class C (375,798) (798,272)
- -------------------------------------------------------------------------------
Class M (290,682) (658,510)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (55,023,361) (57,417,063)
- -------------------------------------------------------------------------------
Total decrease in net assets (43,420,434) (59,664,916)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 1,067,012,551 1,126,677,467
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $420,104 and $417,869,
respectively) $1,023,592,117 $1,067,012,551
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------
Six months
ended
Sept. 30
Per-share (Unaudited) Year ended March 31
operating performance 2003 2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.60 $8.62 $8.85 $8.61 $9.25 $9.28
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .21 .45 .49 .48 .49 .49 (c)
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .10 (.01) (.24) .24 (.64) (.02)
- --------------------------------------------------------------------------------------------------------------
Total from
investment activities .31 .44 .25 .72 (.15) .47
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.46) (.48) (.48) (.49) (.50)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.46) (.48) (.48) (.49) (.50)
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.60 $8.62 $8.85 $8.61 $9.25
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.61* 5.15 2.83 8.67 (1.53) 5.14
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $808,005 $823,708 $841,445 $752,169 $715,475 $830,074
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .44* .94 .95 .95 .94 .98
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.40* 5.18 5.51 5.57 5.62 5.29
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.68* 32.03 16.46 12.76 14.32 20.47
- --------------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------
Six months
ended
Sept. 30
Per-share (Unaudited) Year ended March 31
operating performance 2003 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.60 $8.62 $8.84 $8.61 $9.24 $9.28
- ----------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income .18 .40 .43 .43 .44 .44 (c)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .10 (.02) (.23) .23 (.63) (.04)
- ----------------------------------------------------------------------------------------------------------------
Total from
investment activities .28 .38 .20 .66 (.19) .40
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.40) (.42) (.43) (.44) (.44)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.40) (.42) (.43) (.44) (.44)
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.60 $8.62 $8.84 $8.61 $9.24
- ----------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.30* 4.53 2.33 7.90 (2.02) 4.40
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $185,433 $211,399 $255,540 $372,129 $420,310 $507,067
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74* 1.54 1.55 1.55 1.54 1.58
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.10* 4.59 4.90 4.98 5.02 4.70
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.68* 32.03 16.46 12.76 14.32 20.47
- ----------------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------------------------
Six months
ended For the period
Sept. 30 Feb. 1, 1999+
Per-share (Unaudited) Year ended March 31 to March 31
operating performance 2003 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.61 $8.62 $8.85 $8.61 $9.25 $9.38
- ----------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------
Net investment income .18 .39 .42 .42 .43 .05 (c)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .09 (.01) (.24) .24 (.64) (.14)
- ----------------------------------------------------------------------------------------------------------
Total from
investment activities .27 .38 .18 .66 (.21) (.09)
- ----------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.39) (.41) (.42) (.43) (.04)
- ----------------------------------------------------------------------------------------------------------
Total distributions (.18) (.39) (.41) (.42) (.43) (.04)
- ----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.61 $8.62 $8.85 $8.61 $9.25
- ----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.11* 4.49 2.06 7.86 (2.26) (.99)*
- ----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $17,554 $18,881 $16,865 $12,330 $8,467 $4,327
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* 1.69 1.70 1.70 1.69 .28*
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.03* 4.42 4.77 4.81 4.89 .73*
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.68* 32.03 16.46 12.76 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.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------
Six months
ended
Sept. 30
Per-share (Unaudited) Year ended March 31
operating performance 2003 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.60 $8.62 $8.85 $8.61 $9.25 $9.28
- ----------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------
Net investment income .20 .43 .47 .46 .47 .47 (c)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .10 (.02) (.24) .24 (.64) (.03)
- ----------------------------------------------------------------------------------------------------------
Total from
investment activities .30 .41 .23 .70 (.17) .44
- ----------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.43) (.46) (.46) (.47) (.47)
- ----------------------------------------------------------------------------------------------------------
Total distributions (.20) (.43) (.46) (.46) (.47) (.47)
- ----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.60 $8.62 $8.85 $8.61 $9.25
- ----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.48* 4.89 2.57 8.40 (1.77) 4.88
- ----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,599 $13,025 $12,828 $14,775 $13,286 $16,671
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .56* 1.19 1.20 1.20 1.19 1.23
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.28* 4.93 5.26 5.32 5.37 5.04
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.68* 32.03 16.46 12.76 14.32 20.47
- ----------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
September 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Municipal Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax as Putnam Investment Management,
LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC, 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 and class M shares, and are subject to a contingent deferred
sales charge, if those shares are redeemed within six years of purchase.
Class C shares are subject to the same fees and expenses as class B shares,
except that class C shares 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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Tax-exempt bonds and notes are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees.
Such services use 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 valued 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 recorded 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. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis. The
premium in excess of the call price, if any, is amortized to the call date;
thereafter, any remaining premium is amortized to maturity.
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. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." 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.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
D) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund maintain an asset coverage
ratio of at least 300% and borrowings must not exceed prospectus
limitations. For the period ended August 6, 2003, the fund had no
borrowings against the line of credit. Effective August 6, 2003, the
fund no longer participated in a committed 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, 2003, the fund had a capital loss carryover of $33,650,567
available to the extent allowed by tax law to offset future capital
gains, if any. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
- --------------------------------
$11,290,528 March 31, 2004
8,493,975 March 31, 2006
1,799,903 March 31, 2007
11,300,594 March 31, 2008
765,567 March 31, 2009
The aggregate identified cost on a tax basis is $993,448,718, resulting
in gross unrealized appreciation and depreciation of $58,445,569 and
$47,992,221, respectively, or net unrealized appreciation of
$10,453,348.
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Distributions from capital gains, if any,
are recorded on the ex-dividend date and paid at least annually. The
amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory services
quarterly based on the average net assets of the fund. Such fee is based on
the lesser of (i) an annual rate of 0.50% of the average net asset value of
the fund or (ii) the following annual rates: 0.60% of the first $500 million
of average net assets, 0.50% of the next $500 million, 0.45% of the next
$500 million, 0.40% of the next $5 billion, 0.375% of the next $5 billion,
0.355% of the next $5 billion, 0.34% of the next $5 billion and 0.33%
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, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended September 30,
2003, the fund's expenses were reduced by $28,803 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,840 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustees compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustees compensation and expenses in the Statement of
assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B class C and class M shares pursuant to rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Retail Management at an
annual rate of 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 the
annual rates of 0.25%, 0.85%, 1.00% and 0.50% of the average net assets
attributable to class A, class B, class C and class M shares,
respectively.
For the six months ended September 30, 2003, Putnam Retail Management,
acting as underwriter, received net commissions of $23,861 and $184 from
the sale of class A and class M shares, respectively, and received
$137,820 and $1,002 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of class
A shares that were purchased without an initial sales charge as part of
an investment of $1 million or more. For the six months ended September
30, 2003, Putnam Retail Management, acting as underwriter, received
$11,353 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended September 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $138,691,746 and $192,276,564, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At September 30, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended September 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 6,612,432 $57,151,205
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,481,789 12,829,901
- ----------------------------------------------------------------
8,094,221 69,981,106
Shares repurchased (10,969,253) (94,741,315)
- ----------------------------------------------------------------
Net decrease (2,875,032) $(24,760,209)
- ----------------------------------------------------------------
Year ended March 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 17,288,011 $150,188,991
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3,198,096 27,728,832
- ----------------------------------------------------------------
20,486,107 177,917,823
Shares repurchased (22,329,539) (193,781,123)
- ----------------------------------------------------------------
Net decrease (1,843,432) $(15,863,300)
- ----------------------------------------------------------------
Six months ended September 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 632,742 $5,484,149
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 308,494 2,670,575
- ----------------------------------------------------------------
941,236 8,154,724
Shares repurchased (4,202,834) (36,337,621)
- ----------------------------------------------------------------
Net decrease (3,261,598) $(28,182,897)
- ----------------------------------------------------------------
Year ended March 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 2,992,800 $26,057,645
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 779,193 6,752,092
- ----------------------------------------------------------------
3,771,993 32,809,737
Shares repurchased (8,840,829) (76,684,004)
- ----------------------------------------------------------------
Net decrease (5,068,836) $(43,874,267)
- ----------------------------------------------------------------
Six months ended September 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 251,853 $2,201,473
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 29,189 252,813
- ----------------------------------------------------------------
281,042 2,454,286
Shares repurchased (458,312) (3,965,722)
- ----------------------------------------------------------------
Net decrease (177,270) $(1,511,436)
- ----------------------------------------------------------------
Year ended March 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 1,133,128 $9,872,686
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 60,696 526,360
- ----------------------------------------------------------------
1,193,824 10,399,046
Shares repurchased (955,508) (8,320,157)
- ----------------------------------------------------------------
Net increase 238,316 $2,078,889
- ----------------------------------------------------------------
Six months ended September 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 26,057 $224,469
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 23,024 199,334
- ----------------------------------------------------------------
49,081 423,803
Shares repurchased (115,069) (992,622)
- ----------------------------------------------------------------
Net decrease (65,988) $(568,819)
- ----------------------------------------------------------------
Year ended March 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 283,424 $2,476,924
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 54,050 468,374
- ----------------------------------------------------------------
337,474 2,945,298
Shares repurchased (311,269) (2,703,683)
- ----------------------------------------------------------------
Net increase 26,205 $241,615
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by the
Securities and Exchange Commission in partial resolution of administrative
and cease-and-desist proceedings initiated by the SEC on October 28, 2003
in connection with alleged excessive short-term trading by certain
investment professionals. Under the order, Putnam Management will make
restitution for losses attributable to excessive short-term trading by
Putnam employees, institute new employee trading restrictions and enhanced
employee trading compliance, retain an independent compliance consultant,
and take other remedial actions. Putnam Management neither admitted nor
denied the order's findings that it willfully violated provisions of the
securities laws. A civil monetary penalty and other monetary relief, if
any, will be determined at a later date. Putnam Management, and not the
investors in any Putnam fund, will bear all costs, including restitution,
civil penalties and associated legal fees. Administrative proceedings
initiated by the Commonwealth of Massachusetts on October 28, 2003 against
Putnam Management in connection with alleged market timing activities by
Putnam employees and by participants in some Putnam-administered 401(k)
plans are pending. The SEC's and Commonwealth's allegations also serve as
the general basis for numerous lawsuits, including purported class action
lawsuits, filed against Putnam Management and certain related parties,
including certain open-end Putnam funds. Putnam Management has agreed to
bear any reasonable legal costs incurred by the Putnam funds in connection
with defending these lawsuits. Based on currently available information,
Putnam Management believes that the likelihood that the pending actions
will have a material adverse financial impact on the fund is remote, and
that the pending actions are not likely to materially affect its ability to
provide investment management services to its clients, including the Putnam
funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's trading policies and controls. Putnam
Management has committed to make complete restitution for any losses
suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Municipal
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ----------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ----------------------
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
SA040-203398 051/353/560 11/03
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: November 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: November 25, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: November 25, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: November 25, 2003