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SECURITIES AND EXCHANGE COMMISSIONFORM N-CSRCertified annual shareholder report of registered management investment companies filed on FormN-CSRFiling Date: 2003-06-24 Period of Report: 2003-04-30SEC Accession No. 0000928816-03-000406(HTML Version on secdatabase.com)FILERPUTNAM MUNICIPAL BOND FUNDCIK:892884 IRS No.: 046716830 State of Incorp.:MA Fiscal Year End: 1031Type: N-CSR Act: 40 File No.: 811-07270 Film No.: 03754641Mailing AddressPUTNAM LLCONE POST OFFICE SQBOSTON MA 02109Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This DocumentBusiness AddressONE POST OFFICE SQUAREBOSTON MA 021096172921000
PutnamMunicipalBond FundItem 1. Report to Stockholders:------------------------------The following is a copy of the report transmitted to stockholders pursuantto Rule 30e-1 under the Investment Company Act of 1940:ANNUAL REPORT ON PERFORMANCE AND OUTLOOK4-30-03[GRAPHIC OMITTED: WATCH][SCALE LOGO OMITTED]From the Trustees[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]Dear Fellow Shareholder:We are pleased to bring you news of positive performance by PutnamMunicipal Bond Fund for the fiscal year ended April 30, 2003. Your fund'sresults at NAV and market value were roughly in line with its benchmarkindex for the period but lagged its Lipper fund category average. You willfind details on page 7.As you will see in the following report from your fund's management team,these results were achieved in large measure by the fund's durationstrategy and a generally favorable interest-rate environment during theperiod. The fund's weighting in high-quality bonds also enhanced results asthe demand for these securities by risk-averse investors helped elevatetheir prices. The management team also offers its views on prospects forthe fund in the fiscal year's second half.As we look back on one of the most challenging periods in recent investmenthistory, we would like you to know how much we appreciate your continuedconfidence in Putnam. We believe those who maintain a long-term focus and adiversified approach to investing should eventually be rewarded for theirfortitude.Respectfully yours,Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
/S/ JOHN A. HILL/S/ GEORGE PUTNAM, IIIJohn A. HillChairman of the TrusteesGeorge Putnam, IIIPresident of the FundsJune 18, 2003Report from Fund ManagementFund highlights* For its fiscal year ended April 30, 2003, Putnam Municipal Bond Fund hada total return at net asset value of 8.43%. The fund's return at marketprice was 8.84%.* The fund's performance at net asset value was roughly in line with thatof its benchmark, the Lehman Municipal Bond Index. The index returned 8.50%for the 12-month period ended April 30.* Due to its more defensive positioning and the disappointing performanceof certain lower-rated holdings, the fund underperformed the average returnfor its Lipper category, Closed-End General Municipal Debt Funds(Leveraged), which was 10.27%.* See the Performance Summary on page 7 for complete fund performance,comparative performance, and Lipper data.Performance commentaryThe fund's underperformance relative to its peers was due in large part toa defensive strategy that made it less responsive to falling interest ratesduring the period. Our high-quality bond positions proved beneficial toperformance, as investors continued to prefer relatively secureinvestments. However, lower-rated bonds, which contribute considerably tothe portfolio's income, underperformed their higher-quality counterpartsand also caused performance to lag.While the fund's results reflect a generally favorable interest-rateenvironment, the markets are beginning to factor in the return of higherinterest rates. We've been gradually positioning the fund to limit the bondprice depreciation that typically accompanies a rising-rate market. Whilethese defensive measures are prudent in our estimation, this strategy didlimit the portfolio's upside potential and contributed to the fund'sunderperformance relative to its peer group.FUND PROFILEThe fund seeks to provide as high a level of current income free fromfederal income tax as is consistent with preservation of capital. The fundCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
is nationally diversified and invests in investment-grade andhigher-yielding, lower-rated municipal bonds. The fund may be suitable forinvestors seeking tax-exempt income and willing to accept the risksassociated with below-investment-grade bonds.Market overviewThe first half of the fiscal year was generally positive for themunicipal-bond market. In an environment marked by earningsdisappointments, economic weakness, and allegations of corporatemalfeasance, investors sought the relative safety of high-quality bonds.Increased demand for such bonds pushed their prices higher, and many ofyour fund's holdings benefited.In the fiscal second half, however, several factors tempered municipal-bondperformance, including significant declines in tax revenues and subsequentdowngrades in municipalities' credit quality. Difficulties in two sectorsdampened the performance of industrial development bonds (IDBs), which areissued by municipalities but backed by the credit of companies.Airline-backed IDBs suffered as United Airlines followed US Airways intobankruptcy. In late April, American Airlines narrowly avoided a similarfate. The electric power sector came under pressure, affecting performanceof IDBs there as well.Lastly, over 320 billion in municipal bonds was issued in 2002 -- anall-time record. In terms of supply, the California Department of WaterResources' bond issue was the largest ever brought to market. New tobaccosettlement bonds further boosted supply. Supply continued to swell in 2003.These factors had a dampening effect on municipal-bond prices. Themunicipal sector underperformed, relative to Treasuries, in the -----------------------------------------MARKET SECTOR PERFORMANCE 12 MONTHS ENDED ------------------Lehman Municipal Bond --------------------------------------Lehman Aggregate Bond Index (taxable U.S. ----------------------------------------Lehman Government Bond Index (taxable U.S. government ----------------------------------------Credit Suisse First Boston High Yield Index (taxable U.S. belowinvestment-grade -------------------------S&P 500 Index (broad t 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
Russell 1000 Growth Index (growth ------------------------------------------Russell 1000 Value Index (value ------------------------------------------These indexes provide an overview of performance in different sectorsfor the 12 months ended ------------------------------------Strategy overviewWe positioned the portfolio defensively early in the fiscal period inanticipation of a sell-off in the bond market. Following the correctionthat finally occurred in October, we increased the interest-ratesensitivity of the portfolio back to a more neutral stance.During the period, falling interest rates prompted municipal-bond issuersto refinance outstanding debt. As older, higher-yielding bonds were calledout of the market or matured, we sought new holdings that would provide themost attractive income stream relative to the level of risk. At the sametime, we worked to increase the fund's diversification by issuer, and toestablish some more targeted geographic and industry positions. Some of thechanges resulting from our efforts include an increased position in NewYork and California municipal bonds, which we feel offer excellent value atpresent, and a reduced exposure to tobacco settlement bonds. We have alsoincreased holdings in the health-care sector.[GRAPHIC OMITTED: horizontal bar chart FUND SECTOR WEIGHTINGS COMPARED]FUND SECTOR WEIGHTINGS COMPAREDas of10/31/02Health careas 1%Education13.7%8.4%4.8%4.2%UtilitiesWater and sewerFootnote reads:This chart shows how the fund's sector weightings have changed over thepast six months. Weightings are shown as a percentage of portfolio marketvalue. Holdings will vary over time.How key holdings and allocations affected performanceCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
The fund remains well diversified across the different industry sectors ofthe municipal-bond universe. However, given the fluid nature of all sectorsof the economy, some sectors represent better value at different times.Toward the end of the period, we came to believe that improvingfundamentals made some specific issues in the hospital and electric powersectors attractive.We've seen a large supply of uninsured investment-grade hospital bondscoming to market in recent months, improving the number and quality ofprospects for your portfolio. In addition to refinancing older, moreexpensive debt at today's historically low interest rates, hospitals inhigh-growth locations are requiring more resources to finance theirexpansion to meet increasing patient demand. Furthermore, hospitals arebecoming more specialized and moving beyond their core medical services.This trend has meant that hospitals are developing a niche in such fieldsas cardiology or oncology.We've found several holdings in the A to BBB credit-quality range thatexemplify this strategy. Recent purchases include Mother Frances Hospitalbonds, which were issued by Tyler Health Facilities Development Corporationin Texas. These bonds are helping to finance a new facility that will servea growing population and a large cardiac business, which we expect toimprove operating revenues. The fund also purchased the A-rated ClevelandClinic Health System bonds, issued by Cuyahoga County. The ClevelandClinic, which serves northeast Ohio and southwest Florida, has a medicaland educational reputation on par with that of Johns Hopkins and the MayoClinic. While the Clinic previously incurred investment losses, we believethe steady, high-quality delivery of its core health services in its targetmarkets should eventually restore much of its diminished cash flow.[GRAPHIC OMITTED pie chart PORTFOLIO CREDIT QUALITY]PORTFOLIO CREDIT 4.3%)Ba/BB(2.9%)B(2.3%)CCC/D(0.6%)Other (VMIG1) (2.6%)Footnote reads:As a percentage of market value as of 4/30/03. A bond rated Baa or higheris considered investment grade. All ratings reflect Moody's and Standard &Poor's descriptions unless noted otherwise; percentages may include unratedbonds considered by Putnam Management to be of comparable quality. Ratingswill vary over time.Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
The electric power sector is another industry undergoing substantialchange, providing unique investment opportunities in the course of itstransformation. In the aftermath of the power crisis in 2002, powercompanies that strayed into such non-utility related activities astelecommunications are in the process of refocusing on their core businessof power generation and distribution. Overall, we think this trend is avery positive one and believe it will contribute to improvements in creditquality ratings throughout the sector. In our opinion, Georgia PowerCompany bonds, issued by Burke County, represent one of the more attractiveissuers in this sector. Georgia Power owns its own generation resources,receives a high percentage of its revenues from cost-based regulated ratesand has a history of regulatory support.The recession, along with weakness in the stock market, has resulted in asharp reduction in capital gains tax revenues and slower personal, sales,and corporate income tax collections. The dramatic decline in tax revenuehas pushed states into historically high deficit positions during the pastyear -- prompting credit downgrades by the rating agencies. This makesgeneral obligation (GO) bonds especially vulnerable to credit downgrades,since the tax revenues raised by state and local governments finance them.Consequently, we are de-emphasizing GOs until prospects improve. Californiaand New York City GOs represent notable exceptions, since we believe thehigher yields they currently offer adequately compensate investors for therisk in the market.Please note that all holdings discussed in this report are subject toreview in accordance with the fund's investment strategy and may vary inthe future.The fund's management teamThe fund is managed by the Putnam Tax Exempt Fixed-Income Team. The membersof the team are Richard Wyke (Portfolio Leader), Paul Drury (PortfolioMember), David Hamlin (Portfolio Member), Susan McCormack (PortfolioMember), Joyce Dragone, and Jerome Jacobs.The outlook for your fundThe following commentary reflects anticipated developments that couldaffect your fund over the next six months, as well as your managementteam's plans for responding to them.Our current outlook for the municipal-bond market is cautiously optimistic.Fear of war has subsided. The focus is now on rebuilding Iraq andaddressing economic concerns on the home front. While much remains to beanswered, the level of uncertainty in the world seems to have eased a bit.We expect business activity will accelerate slowly.Although the tax-free marketplace is certainly not immune to the forcesthat buffet other markets, it has historically been less volatile thanCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
many. We believe municipal bonds should perform well relative to otherfixed-income sectors as some measure of calm returns to financial markets.We believe that municipal budgets will continue to face significantpressures in the months ahead. Governments wrangle with how to implementcostly home-front protection measures while at the same time pushing taxcuts to stimulate economic growth. Historically, improvement in the creditquality of state and local governments has lagged a general economicrecovery by six to nine months, so we expect municipal credit quality toremain fragile for some time to come.In our opinion, the market continues to offer attractive value andcompelling risk/reward characteristics. We believe we have positioned yourfund to take advantage of the potential we see in the market.The views expressed in this report are exclusively those of PutnamManagement. They are not meant as investment advice.Performance summaryThis section provides information about your fund's performance during itsfiscal year, which ended April 30, 2003. In accordance with regulatoryrequirements, we also include performance for the most current calendarquarter-end. Performance should always be considered in light of a fund'sinvestment strategy. Past performance does not indicate future results.More recent returns may be less or more than those shown. Investmentreturn, net asset value, and market price will fluctuate and you may have again or a loss when you sell your shares. Performance does not reflecttaxes on reinvested distributions. A profile of your fund's strategyappears on the first page of this report. See page 8 for definitions ofsome terms used in this ------------------------------------TOTAL RETURN FOR PERIODS ENDED -----------------------------------Lipper Closed-EndLehmanGeneral MunicipalMunicipalDebt FundsMarketBond(Leveraged)NAVpriceIndexcategory ------------------------------------1 ---5 ---Annual -10 ---Annual -Life of fundCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
(since 11/27/92)Annual -* Over the 1-, 5-, and 10-year periods ended 4/30/03 there were 58, 48, and39 funds, respectively, in this Lipper category. Index and Lipper resultsshould be compared to fund performance at net asset ----------------------------------TOTAL RETURN FOR PERIODS ENDED 3/31/03 (MOST RECENT CALENDAR ------------------------------------NAV Market ---------------------------------1 -------------------------------------------5 -------------------------------------------Annual -------------------------------------------10 -------------------------------------------Annual -------------------------------------------Life of fund(since 11/27/92)Annual ----------------------PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED -----------------------------------Putnam Municipal Bond --------------------------------Distributions (common ---------------------Income 1 ---------------------------------Capital gains ------------------------------Total ---------------------------------Distributions (preferred shares)Series ASeries B(2,920 shares) (2,400 -----------------------------------Income 1 330.09 337.00Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
----------------------------Capital gains -------------------------------Total 330.09 ----------------------------------Share value (common shares)NAVMarket ---------------------------------4/30/02 13.14 ----------------------------Current return (common shares, end of -----------------------------------Current dividend rate ---------------------------------------Taxable equivalent ---------------------------------------1 Capital gains, if any, are taxable for federal and, in most cases, statepurposes. For some investors, investment income may be subject to thefederal alternative minimum tax. Income from federally exempt funds may besubject to state and local taxes.2 Most recent distribution, excluding capital gains, annualized and dividedby NAV or market price at end of period.3 Assumes maximum 38.6%federal tax rate for 2003. Results for investorssubject to lower tax rates would not be as advantageous.Terms and definitionsTotal return shows how the value of the fund's shares changed over time,assuming you held the shares through the entire period and reinvested alldistributions in the fund.Net asset value (NAV) is the value of all your fund's assets, minus anyliabilities and the net assets allocated to remarketed preferred shares,divided by the number of outstanding common shares.Market price is the current trading price of one share of the fund. Marketprices are set by transactions between buyers and sellers on the New YorkStock Exchange.Comparative indexesLehman Municipal Bond Index is an unmanaged index of long-term fixed-rateinvestment-grade tax-exempt bonds.Lehman Aggregate Bond Index is an unmanaged index of U.S. fixed-incomesecurities.Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
Lehman Government Bond Index is an unmanaged index of U.S. Treasury andagency securities.Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index ofhigh-yield securities.S&P 500 Index is an unmanaged index of common stock performance.Russell 1000 Growth Index is an unmanaged index of the companies in theRussell 1000 chosen for their growth orientation.Russell 1000 Value Index is an unmanaged index of those companies in theRussell 1000 chosen for their value orientation.Indexes assume reinvestment of all distributions and do not account forfees. Securities and performance of a fund and an index will differ. Youcannot 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 orobjectives as determined by Lipper. Lipper category averages reflectperformance trends within a category and are based on results at net assetvalue.Putnam's policy on confidentialityIn order to conduct business with our shareholders, we must obtain certainpersonal information such as account holders' addresses, telephone numbers,Social Security numbers, and the names of their financial advisors. We usethis information to assign an account number and to help us maintainaccurate records of transactions and account balances.It is our policy to protect the confidentiality of your information,whether or not you currently own shares of our funds, and in particular,not to sell information about you or your accounts to outside marketingfirms. We have safeguards in place designed to prevent unauthorized accessto our computer systems and procedures to protect personal information fromunauthorized use.Under certain circumstances, we share this information with outside vendorswho provide services to us, such as mailing and proxy solicitation. Inthose cases, the service providers enter into confidentiality agreementswith us, and we provide only the information necessary to processtransactions and perform other services related to your account. We mayalso share this information with our Putnam affiliates to service youraccount or provide you with information about other Putnam products orservices. It is also our policy to share account information with yourfinancial advisor, if you've listed one on your Putnam account.If you would like clarification about our confidentiality policies or haveCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
any questions or concerns, please don't hesitate to contact us at1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdaysfrom 9:00 a.m. to 5:00 p.m. Eastern Time.A guide to the financial statementsThese sections of the report, as well as the accompanying Notes, precededby the Report of independent accountants, constitute the fund's financialstatements.The fund's portfolio lists all the fund's investments and their values asof the last day of the reporting period. Holdings are organized by assettype and industry sector, country, or state to show areas of concentrationand diversification.Statement of assets and liabilities shows how the fund's net assets andshare price are determined. All investment and noninvestment assets areadded together. Any unpaid expenses and other liabilities are subtractedfrom this total. The result is divided by the number of shares to determinethe net asset value per share, which is calculated separately for eachclass of shares. (For funds with preferred shares, the amount subtractedfrom total assets includes the net assets allocated to remarketed preferredshares.)Statement of operations shows the fund's net investment gain or loss.This is done by first adding up all the fund's earnings -- fromdividends and interest income -- and subtracting its operating expensesto determine net investment income (or loss). Then, any net gain or lossthe fund realized on the sales of its holdings -- as well as anyunrealized gains or losses over the period -- is added to or subtractedfrom the net investment result to determine the fund's net gain or lossfor the fiscal year.Statement of changes in net assets shows how the fund's net assets wereaffected by distributions to shareholders and by changes in the number ofthe fund's shares. It lists distributions and their sources (net investmentincome or realized capital gains) over the current reporting period and themost recent fiscal year-end. The distributions listed here may not matchthe sources listed in the Statement of operations because the distributionsare determined on a tax basis and may be paid in a different period fromthe 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, andportfolio turnover in one summary table, reflecting the five most recentreporting periods. In a semiannual report, the highlight table alsoincludes the current reporting period. For open-end funds, a separate tableis provided for each share class.Report of independent accountantsCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document
To the Trustees and Shareholders ofPutnam Municipal Bond FundIn our opinion, the accompanying statement of assets and liabilities,including the fund's portfolio (except for bond ratings), and the relatedstatements of operations and of changes in net assets and the financialhighlights present fairly, in all material respects, the financial positionof Putnam Municipal Bond Fund (the "fund") at April 30, 2003, and theresults of its operations, the changes in its net assets and the financialhighlights for the periods indicated, in conformity with accountingprinciples generally accepted in the United States of America. Thesefinancial statements and financial highlights (hereafter referred to as"financial statements") are the responsibility of the fund's management;our responsibility is to express an opinion on these financial statementsbased on our audits. We conducted our audits of these financial statementsin accordance with auditing standards generally accepted in the UnitedStates of America, which require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits, which includedconfirmation of investments owned at April 30, 2003 by correspondence withthe custodian, provide a reasonable basis for our opinion.PricewaterhouseCoopersBoston, MassachusettsJune 10, 2003LLPThe fund's portfolioApril 30, 2003Key to C Indemnity CorporationCOPCertificate of ParticipationFGICFinancial Guaranty Insurance CompanyFRBFloating Rate BondsFSAFinancial Security AssuranceG.O. BondsGeneral Obligation BondsIFBInverse Floating Rate BondsIF COPInverse Floating Rate Certificate of ParticipationMBIAMBIA Insurance CompanyVRDNVariable Rate Demand NotesMunicipal bonds and notes (100.0%) (a)Principal amountRating (RAT)Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This DocumentValue
Alabama ---------------------------------- 3,100,000 Jefferson Cnty., Swr. Rev. Bonds(Cap. Impt.), Ser. A, FGIC, 5s,2/1/41Aaa 3,134,875Alaska ----------------------------------750,000 Northern Tobacco SecuritizationCorp. Rev. Bonds, 5 1/2s, 6/1/29A3555,9383,000,000 Valdez Marine Term Rev. Bonds (SohioPipeline), 7 1/8s, 12/1/25AA 3,072,660-----------3,628,598Arizona (0.9%)-------------------------------------
Report from Fund Management Fund highlights * For its fiscal year ended April 30, 2003, Putnam Municipal Bond Fund had a total return at net asset value of 8.43%. The fund's return at market price was 8.84%. * The fund's performance at net asset value was roughly in line with that of its benchmark, the Lehman Municipal Bond Index. The index .
