-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tp0UhoAJPkJoY+3iOdTK1Ipa9Zdeh60nvS3ylDuzoZqgLApykJU+vA469oseL9RS m8azoWHzjY9t91zdKmRmMg== 0000928816-02-000978.txt : 20021220 0000928816-02-000978.hdr.sgml : 20021220 20021220095826 ACCESSION NUMBER: 0000928816-02-000978 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021031 FILED AS OF DATE: 20021220 EFFECTIVENESS DATE: 20021220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MANAGED MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000844790 IRS NUMBER: 046608976 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05740 FILM NUMBER: 02863907 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 mmi.txt PUTNAM MANAGED MUNICIPAL INCOME TRUST Putnam Managed Municipal Income Trust ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 10-31-02 [GRAPHIC OMITTED: WATCH] [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: Putnam Managed Municipal Income Trust's mandate requires its managers to seek high current income free from federal income tax by investing in a diversified portfolio of tax-exempt municipal securities. With an eye toward the prevailing uncertainties in the markets during the fiscal year ended October 31, 2002, the managers invested a majority of the fund's assets in high-quality bonds for the safety they provide. At the same time, they committed about a third of the fund's assets to lower-rated securities to take advantage of the higher income available from these issues. As the fiscal year progressed, investors became increasingly cautious and abandoned lower-rated bonds, preferring the safer haven of higher-quality issues. The short-term price decline in lower-rated bonds resulting from this flight to quality was a key factor in the fund's underperformance relative to its benchmark and its Lipper category average for the period. You will find a full explanation of the fund's performance during the fiscal year in the following report from the fund's managers. They also offer their views on the fund's prospects in the months ahead. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds December 18, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Tax Exempt Fixed-Income Team During the fiscal year ending October 31, 2002, performance in the municipal-bond market was split between high-quality bonds, which performed well, and lower-rated bonds, which underperformed. In this year of uncertainty, Putnam Managed Municipal Income Trust's management team fine-tuned the fund's portfolio in response to market developments - -- most notably, the fixed-income market's rally and sudden reversal in October, the dramatic increase in municipal-bond supply, and a widening of credit spreads between lower- and higher-yielding municipal bonds. Total return for 12 months ended 10/31/02 NAV Market price - ----------------------------------------------------------------------- -0.94% -5.57% - ----------------------------------------------------------------------- Past performance does not indicate future results. Performance based on market prices for the shares will vary from performance based on the portfolio's net asset value. Performance information for longer periods begins on page 8. While your fund holds the majority of its assets in high-quality municipal bonds, it is also invested in higher-yielding, lower-rated municipal bonds, which contribute considerably to the portfolio's monthly income. Responding to uncertainty about the economic recovery and improprieties at several high-profile corporations, investors shunned securities in the lower-rated sector of the municipal-bond market in favor of higher-quality securities. As a result, prices of lower-rated securities in the portfolio fell as the higher-quality bonds rallied. This caused the fund to post a small loss (at net asset value) for the year and to underperform both the Lehman Municipal Bond Index and the average for its Lipper category. Your fund's market price reflects changes in shareholder sentiment and the balance of supply and demand for shares, as well as actual performance of the portfolio holdings. The return at market price, which shows a greater loss than the return at net asset value, may be a further indication of investors' negative perception of lower-rated securities, which prevailed for much of the period. A significant dividend cut, which occurred in December 2000, has contributed to the lower market return over the past five years. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Health care 28.9% Transportation 25.0% Utilities 6.4% Water and sewer 5.8% Housing 4.7% Footnote reads: *Based on market value as of 10/31/02. Holdings will vary over time. * SPUTTERING ECONOMY SPURS BOND RALLY AND FLIGHT TO QUALITY During much of the fund's fiscal year, low inflation, declining interest rates, and the ongoing shakeout in the stock market created a hospitable environment for fixed-income investing. In the spring and summer of 2002, the bond rally was accelerating, with heavy investor demand across all sectors of the municipal-bond market. However, corporate malfeasance, rising layoffs, and a potential war with Iraq began to undermine investors' enthusiasm. In August and September, when the uncertainty and fall in consumer confidence became most pronounced, many municipal-bond investors had shifted assets into high-quality tax-exempt securities. Credit spreads -- the difference in yield between high-quality and lower-rated bonds -- became extremely wide. As a result, prices for lower-rated municipal bonds declined. These declines had the effect of erasing much of the price gain your fund had amassed earlier in the year. Many of the fund's lower-rated holdings are in the form of Industrial Development Bonds (IDBs). These are municipal bonds that are issued to encourage local expansion by various businesses. [GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW] CREDIT QUALITY OVERVIEW* AAA/Aaa -- 34.5% AA/Aa -- 1.4% A -- 16.9% BBB/Baa -- 24.0% BB/Ba -- 12.8% B/B -- 4.2% CCC/Ca -- 1.6% D -- 1.1% VMIG1 -- 3.5% Footnote reads: *As a percentage of market value as of 10/31/02. A bond rated Baa or higher is considered investment grade. All ratings reflect Moody's and Standard & Poor's descriptions unless noted otherwise; percentages may include unrated bonds considered by Putnam Management to be of comparable quality. Ratings will vary over time. The bonds are backed only by the credit of the company benefiting from the financing, not by the issuing municipality. As a result, IDBs rise and fall in price based on investor perceptions of the health of the individual business entity or the industry group as a whole. For example, a number of the fund's bonds were issued to finance airport facility expansion by various airlines. As the airlines have suffered from declining traffic and high fixed costs, many of the airline-related tax exempt bonds have declined in price. Moreover, the fund owns small quantities of bonds backed by the credit of U.S. Air and United Airlines, both of which have filed for Chapter 11. However, we believe that these bonds may recover in price as the airlines reorganize. Fund Profile Putnam Managed Municipal Income Trust seeks to provide as high a level of current income free from federal income tax as is consistent with preservation of capital through investments in investment-grade and higher-yielding, lower-rated municipal bonds. The fund is designed for investors seeking tax-exempt income and willing to accept the risks associated with below-investment-grade bonds. The fund's relative performance was also hurt by our decision to position the portfolio defensively -- for a rise in interest rates -- during a substantial bond-market rally that we had not considered a likely development. Our forecast called for a modest economic recovery in the next six to twelve months. Since the markets tend to anticipate such a recovery, we began to reposition the portfolio to minimize the negative effects of a rising-rate environment that would accompany such a recovery. Given the large-scale flight to quality and strong bond-market rally that followed, this strategy was not favorable for the fund's performance. However, given the strong performance of bonds over stocks for nearly three consecutive years, and with interest rates at record lows, we believed that positioning the fund defensively was a prudent strategy. * LOWER-RATED BONDS OFFER OPPORTUNITY BUT REQUIRE CAREFUL RISK MANAGEMENT The fund still has a considerable exposure to the lower-quality, higher-yielding segment of the municipal-bond market, and we believe these holdings will survive the difficult credit cycle intact. Two primary sources for these lower-rated bonds are Industrial Development Bonds and health care bonds. Although many bonds in this sector have declined in price, we believe these bonds still offer value for shareholders. In our view, economic growth is beginning to improve, and there is the risk that interest rates in the year ahead may rise. In this type of environment, lower-rated, higher-yielding bonds typically outperform higher quality bonds. An example of our strategy can be found in the IDBs backed by electric power industry. Although the industry remains troubled by revelations of market manipulation and is still struggling with deregulation, overcapacity, and depressed prices, the fund owns some holdings in this industry which have favorable credit profiles. Among these are the Sam Rayburn Texas Municipal Power bonds. These bonds, which are financing the delivery of power to three cities in southeast Texas, were recently upgraded from the BB category to the BBB category. In addition, electricity rates for these cities are reviewed monthly rather than annually, which should help ensure the facility has sufficient revenues to meet debt obligations. In the hospital sector, which is still struggling with a high cost structure, we've located several well-managed hospitals that are benefiting from technological advances, the loosening of managed-care restrictions, and an aging population. For example, the John C. Lincoln Health Network in Arizona may be experiencing growth pressures that require the hospital to borrow additional money to expand facilities, but the influx of retirees and a general population increase is creating rising demand for services. We have also sought investment opportunities in bonds from issuers outside the traditional municipal-bond services sectors to help diversify risk. Tax-exempt bonds relating to land development in Florida have been particularly rewarding for the fund. Strong building and sales trends, strategic locations, easy access to transportation, and large, reputable developers are important factors in selecting secured land bonds. The fund's investments in Heritage Harbour South Community bonds are financing a residential development in Tampa, which will ultimately include 5,000 homes. This planned community is controlled by Lennar Corporation, one of the largest homebuilders in the nation, with operations in many of the South's highest-growth states. * TEAM SEEKS THE MOST PRUDENT COURSE Following the close of the fund's fiscal year, two significant events took place. First, the Federal Reserve Board lowered the federal funds rate by half a percentage point in response to the economy's continued sluggishness and investors' lack of confidence. Secondly, California came to market in early November with the long-anticipated issuance of power revenue bonds that the state has planned for over a year. The monies raised by the power bond issuance will be used, in part, to reimburse the state's General Fund. The size of the issuance -- over $6.5 billion -- is quite significant and created concerns about how the tax-exempt market would absorb it. Further aggravating the supply/demand imbalance is the continued refunding activity by municipalities and municipal issuers looking to retire expensive, high-interest debt to lower their expenses. Lower interest rates and rising supply, in theory, can have a countervailing effect -- the former can boost prices while the latter depresses them. In light of these and other constantly changing forces, successful management requires in-depth research, vigilance, and patience. We believe that when the economic outlook becomes more positive, high-quality bonds could come under pressure as interest rates rise, which has already begun to happen. If rates continue to rise over the next several years, as we expect them to, we believe the lower-rated sectors should outperform. We cannot know when this change is likely to take place, but we feel confident that our decision to position your fund in anticipation of rising interest rates and narrowing credit spreads should ultimately benefit shareholders. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 10/31/02, there is no guarantee the fund will continue to hold these securities in the future. Mutual funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The members of the team are Richard Wyke (Portfolio Leader), Paul Drury (Portfolio Member), David Hamlin (Portfolio Member), Susan McCormack (Portfolio Member), Joyce Dragone, and Jerome Jacobs. PUTNAM'S POLICY ON CONFIDENTIALITY In order to conduct business with our shareholders, we must obtain certain personal information such as account holders' addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate 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 marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you've listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don't hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 10/31/02 Lehman Municipal Consumer NAV Market price Bond Index price index - ------------------------------------------------------------------------------- 1 year -0.94% -5.57% 5.87% 2.08% - ------------------------------------------------------------------------------- 5 years 14.01 -8.78 34.69 12.26 Annual average 2.66 -1.82 6.14 2.34 - ------------------------------------------------------------------------------- 10 years 70.08 60.12 93.55 27.95 Annual average 5.45 4.82 6.83 2.50 - ------------------------------------------------------------------------------- Life of fund (since 2/24/89) Annual average 6.63 5.65 7.55 2.96 - ------------------------------------------------------------------------------- Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return, net asset value, and market price will fluctuate and you may have a gain or a loss when you sell your shares. Performance does not reflect taxes on reinvested distributions. TOTAL RETURN FOR PERIODS ENDED 9/30/02 (most recent calendar quarter) NAV Market price - ------------------------------------------------------------------------------- 1 year 3.76% 3.28% - ------------------------------------------------------------------------------- 5 years 18.86 1.58 Annual average 3.52 0.31 - ------------------------------------------------------------------------------- 10 years 72.87 66.03 Annual average 5.63 5.20 - ------------------------------------------------------------------------------- Life of fund (since 2/24/89) Annual average 6.95 6.40 - ------------------------------------------------------------------------------- Past performance does not indicate future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/02 - -------------------------------------------------------------------------------------- Distributions from common shares - -------------------------------------------------------------------------------------- Number 12 - -------------------------------------------------------------------------------------- Income 1 $0.570 - -------------------------------------------------------------------------------------- Capital gains -- - -------------------------------------------------------------------------------------- Total $0.570 - -------------------------------------------------------------------------------------- Preferred shares Series A (550 shares) Series B (550 shares) Series C (650 shares) - -------------------------------------------------------------------------------------- Income $1,475.87 $1,480.43 $1,482.59 - -------------------------------------------------------------------------------------- Share value: NAV Market value - -------------------------------------------------------------------------------------- 10/31/01 $8.49 $8.44 - -------------------------------------------------------------------------------------- 10/31/02 7.84 7.43 - -------------------------------------------------------------------------------------- Current return (end of period) - -------------------------------------------------------------------------------------- Current dividend rate 2 7.27% 7.67% - -------------------------------------------------------------------------------------- Taxable equivalent 3 11.84 12.49 - -------------------------------------------------------------------------------------- 1 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 market price at end of period. 3 Assumes maximum 38.6% tax rate for 2002. Results for investors subject to lower tax rates would not be as advantageous.
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 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. Market prices are set by transactions between buyers and sellers on the New York Stock Exchange. COMPARATIVE BENCHMARKS Lehman Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds. 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. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. 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. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, preceded by the Report of independent accountants, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss. 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 year. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class. REPORT OF INDEPENDENT ACCOUNTANTS The Board of Trustees and Shareholders Putnam Managed Municipal Income Trust We have audited the accompanying statement of assets and liabilities of Putnam Managed Municipal Income Trust including the fund's portfolio, as of October 31, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and financial highlights for each of the years in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2002 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Managed Municipal Income Trust as of October 31, 2002, the results of its operations for the year then ended, and changes in its net assets for each of the years in the two-year period then ended and financial highlights for each of the years in the four-year period then ended in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Boston, Massachusetts December 5, 2002
THE FUND'S PORTFOLIO October 31, 2002 KEY TO ABBREVIATIONS AMBAC -- AMBAC Indemnity Corporation COP -- Certificate of Participation FGIC -- Financial Guaranty Insurance Company FNMA Coll. -- Federal National Mortgage Association Collateralized FSA -- Financial Security Assurance GNMA Coll. -- Government National Mortgage Association Collateralized G.O. Bonds -- General Obligation Bonds IFB -- Inverse Floating Rate Bonds IF COP -- Inverse Floating Rate Certificate of Participation MBIA -- MBIA Insurance Company PSFG -- Permanent School Fund Guaranteed VRDN -- Variable Rate Demand Notes MUNICIPAL BONDS AND NOTES (98.8%) (a) PRINCIPAL AMOUNT RATING (RAT) VALUE Alaska (0.4%) - ------------------------------------------------------------------------------------------------------------------- $2,000,000 Valdez Marine Term. Rev. Bonds (Sohio Pipeline), 7 1/8s, 12/1/25 AA+ $2,046,560 Arizona (2.7%) - ------------------------------------------------------------------------------------------------------------------- 5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds (Tucson Elec. Pwr. Co.), Ser. B, 5 7/8s, 3/1/33 Ba3 4,512,500 1,000,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds (John C. Lincoln Hlth. Network), 6 3/8s, 12/1/37 BBB 1,021,250 2,500,000 Casa Grande, Indl. Dev. Auth. Rev. Bonds (Casa Grande, Regl. Med. Ctr.), Ser. A, 7 5/8s, 12/1/29 B/P 2,337,500 4,000,000 Coconino Cnty., Poll. Control Rev. Bonds (Tuscon/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 4,120,000 4,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds (America West Airlines), 6 1/4s, 6/1/19 Ca 1,385,000 1,000,000 Scottsdale, Indl. Dev. Hosp. Auth. Rev. Bonds (Scottsdale Healthcare), 5.8s, 12/1/31 A3 1,012,500 ------------- 14,388,750 Arkansas (2.0%) - ------------------------------------------------------------------------------------------------------------------- 4,600,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds (Washington Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 4,927,750 6,000,000 Northwest Regl. Arpt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 BB/P 6,045,000 ------------- 10,972,750 California (6.4%) - ------------------------------------------------------------------------------------------------------------------- 7,000,000 CA Hlth. Fac. Auth. IFB (Catholic Hlth. Care West), AMBAC, 6.786s, 7/1/17 Aaa 7,262,500 3,000,000 CA Statewide Cmnty. Dev. Auth. COP (The Internext Group), 5 3/8s, 4/1/30 BBB 2,801,250 Corona, COP 2,775,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 (In default) (NON) D/P 1,026,750 5,000,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 (In default) (NON) D/P 1,850,000 2,000,000 Gilroy, Rev. Bonds (Bonfante Gardens Park), 8s, 11/1/25 B/P 1,852,500 3,500,000 San Bernardino Cnty., IF COP, MBIA, 11.353s, 8/1/28 (acquired 6/27/95, cost $3,777,340) (RES) AAA/P 4,501,875 3,000,000 San Luis Obispo, COP (Vista Hosp. Syst., Inc.), 8 3/8s, 7/1/29 (In default) (NON) D/P 1,110,000 8,750,000 Santa Clara Cnty., Fin. Auth. Lease Rev. Bonds (VMC Fac. Replacement Project), Ser. A, AMBAC, 6 3/4s, 11/15/20 Aaa 9,810,938 6,150,000 Valley Hlth. Syst. Hosp. Rev. Bonds (Refunding & Impt.), Ser. A, 6 1/2s, 5/15/25 BB 4,366,500 ------------- 34,582,313 Colorado (2.4%) - ------------------------------------------------------------------------------------------------------------------- 3,015,000 CO Hlth. Fac. Auth. Rev. Bonds (Evangelical Lutheran Project), 3.05s, 10/1/05 A3 3,033,844 CO Hwy. Auth. Rev. Bonds (E-470 Pub. Hwy.), Ser. B 15,500,000 zero %, 9/1/35 Baa3 1,317,500 16,500,000 zero %, 9/1/34 Baa3 1,526,250 5,000,000 CO State Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.), 8.3s, 12/1/17 (In default) (NON) D/P 1,650,000 Denver, City & Cnty. Arpt. Rev. Bonds 1,050,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 1,307,250 2,500,000 MBIA, 5 1/2s, 11/15/25 Aaa 2,590,625 1,400,000 Northwest Parkway Pub. Hwy. Auth. Rev. Bonds, Ser. D, 7 1/8s, 6/15/41 Ba1 1,433,250 ------------- 12,858,719 District of Columbia (0.8%) - ------------------------------------------------------------------------------------------------------------------- 4,000,000 DC Tobacco Settlement Fin. Corp. Rev. Bonds, AMBAC, 6 1/2s, 5/15/33 A1 4,050,000 Florida (4.2%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 Capital Trust Agcy. Rev. Bonds (Seminole Tribe Convention), Ser. A, 10s, 10/1/33 B/P 2,027,500 3,210,000 Escambia Cnty., Poll. Control Rev. Bonds (Champion Intl. Corp.), 6.9s, 8/1/22 Baa2 3,342,413 4,000,000 FL Hsg. Fin. Agcy. VRDN (Woodlands), 1.43s, 12/1/17 A-1+ 4,000,000 500,000 Heritage Harbor South Cmnty. Dev. Distr. Rev. Bonds (Cap. Impt.), Ser. A, 6 1/2s, 5/1/34 BB-/P 483,750 5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed Stone Co.), 8 1/2s, 12/1/14 A-/P 5,295,050 1,335,000 Miami Beach, Hlth. Fac. Auth. Hosp. Rev. Bonds (Mount Sinai Med. Ctr.), Ser. A, 6.7s, 11/15/19 BB 1,161,450 4,100,000 Orange Cnty., Hsg. Fin. Auth. VRDN (Sundown Assoc. II), Ser. A, 1.43s, 6/1/04 A-1+ 4,100,000 310,000 Pinellas Cnty., Hlth. Fac. Auth. Syst. Rev. Bonds (Suncoast Hosp.), Ser. A, 8 1/2s, 3/1/20 BB+ 311,891 2,000,000 St. Johns Cnty., Hlth. Care Indl. Dev. Auth. Rev. Bonds (Glenmoor St. Johns Project), Ser. A, 8s, 1/1/30 B+/P 1,922,500 ------------- 22,644,554 Georgia (3.1%) - ------------------------------------------------------------------------------------------------------------------- 10,000,000 Atlanta, Waste Wtr. Rev. Bonds, Ser. A, MBIA, 5s, 11/1/39 Aaa 10,000,000 1,750,000 Fulton Cnty., Dev. Auth. Fac. Rev. Bonds (Delta Airlines, Inc.), 5 1/2s, 5/1/33 BB 934,063 700,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA, 11.030s, 8/1/10 Aaa 731,500 Savannah, Hosp. Auth. Rev. Bonds (Chandler Hosp.) 1,900,000 7s, 1/1/23 Ba1 1,953,403 3,180,000 7s, 1/1/11 Ba1 3,269,390 ------------- 16,888,356 Hawaii (1.1%) - ------------------------------------------------------------------------------------------------------------------- 935,000 HI Dept. of Trans. Special Fac. Rev. Bonds (Continental Airlines, Inc.), 7s, 6/1/20 B+ 570,350 4,500,000 HI State G.O. Bonds, Ser. CY, FSA, 5 1/2s, 2/1/12 Aaa 5,130,000 ------------- 5,700,350 Illinois (3.9%) - ------------------------------------------------------------------------------------------------------------------- Chicago, G.O. Bonds 4,850,000 Ser. A, AMBAC, 5 5/8s, 1/1/39 Aaa 5,165,250 3,500,000 Ser. C, FGIC, 5 1/2s, 1/1/40 Aaa 3,644,375 2,500,000 (Neighborhoods Alive 21 Project), FGIC, 5s, 1/1/41 Aaa 2,478,125 2,500,000 Ser. A, MBIA, 5s, 1/1/31 Aaa 2,496,875 2,500,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA, 5 1/8s, 1/1/35 Aaa 2,450,000 2,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds (United Airlines, Inc.), Ser. C, 6.3s, 5/1/16 Ca 350,000 3,000,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds (American Airlines, Inc.), 8.2s, 12/1/24 BB- 990,000 3,250,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth. Syst./Sunbelt Obligation), 5.65s, 11/15/24 A3 3,225,625 ------------- 20,800,250 Indiana (2.3%) - ------------------------------------------------------------------------------------------------------------------- 2,500,000 IN State Dev. Fin. Auth. Env. Impt. Rev. Bonds (USX Corp.), 5.6s, 12/1/32 Baa1 2,418,750 9,300,000 Indianapolis, Arpt. Auth. Special Fac. Rev. Bonds (Federal Express Corp.), 7.1s, 1/15/17 Baa2 9,892,875 ------------- 12,311,625 Iowa (1.0%) - ------------------------------------------------------------------------------------------------------------------- IA Fin. Auth. Hlth. Care Fac. Rev. Bonds (Care Initiatives) 3,000,000 9 1/4s, 7/1/25 BBB-/P 3,547,500 1,745,000 9.15s, 7/1/09 BBB-/P 2,030,744 ------------- 5,578,244 Kansas (2.6%) - ------------------------------------------------------------------------------------------------------------------- 5,000,000 KS State Dev. Fin. Auth. VRDN (Village Shalom Oblig. Group), Ser. BB, 1.95s, 11/15/28 A-1+ 5,000,000 8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA, 9.351s, 10/20/17 Aaa 8,780,940 ------------- 13,780,940 Kentucky (1.8%) - ------------------------------------------------------------------------------------------------------------------- 7,785,000 Kenton Cnty., Arpt. Board Rev. Bonds (Special Fac. - Delta Airlines, Inc.), Ser. A, 7 1/2s, 2/1/20 BB 5,965,256 1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds (Hoover Group, Inc.), 8 1/2s, 11/1/14 Ba3 830,000 2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B, 6.55s, 11/1/20 A1 2,800,883 ------------- 9,596,139 Louisiana (3.6%) - ------------------------------------------------------------------------------------------------------------------- 1,500,000 LA Pub. Fac. Auth. Rev. Bonds (Tulane U.), Ser. A, AMBAC, 5s, 7/1/32 Aaa 1,498,125 2,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds (Lake Charles Memorial Hosp. Project), 8 5/8s, 12/1/30 CCC/P 1,782,500 12,500,000 Lake Charles, Harbor & Term Dist. Port Fac. Rev Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 12,931,250 2,750,000 W. Feliciana Parish, Poll. Control Rev. Bonds (Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba1 2,839,375 ------------- 19,051,250 Maine (0.4%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 Rumford Solid Waste Disp. Rev. Bonds (Boise Cascade Corp.), 6 7/8s, 10/1/26 Baa3 1,977,500 Massachusetts (4.8%) - ------------------------------------------------------------------------------------------------------------------- MA State Hlth. & Edl. Fac. Auth. Rev. Bonds 2,000,000 (Civic Investments), Ser. A, 9s, 12/15/15 B/P 2,080,000 3,300,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 AAA/P 3,687,750 1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,488,656 2,500,000 (UMass Memorial), Ser. C, 6 5/8s, 7/1/32 Baa2 2,565,625 3,400,000 (Sisters Providence Hlth. Syst.), Ser. A, 6 5/8s, 11/15/22 Aaa 3,472,930 1,875,000 (UMass Memorial), Ser. C, 6 1/2s, 7/1/21 Baa2 1,926,563 820,000 (Caritas Christi Oblig), Ser. B, 6 1/4s, 7/1/22 Baa2 830,250 7,645,000 MA State Hsg. Fin. Agcy. IFB, AMBAC, 9.452s, 7/1/40 (acquired 6/3/98, cost $7,739,951) (RES) AAA 7,922,131 2,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Rental Mtge.), Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 2,032,500 ------------- 26,006,405 Michigan (3.1%) - ------------------------------------------------------------------------------------------------------------------- 4,095,000 Detroit, Local Dev. Fin. Auth. Tax Increment G.O. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 4,324,770 2,000,000 MI Strategic Fund Resource Recvy. Rev. Bonds (Central Wayne Energy Res.), Ser. A, 6.9s, 7/1/19 (In default) (NON) D/P 1,000,000 2,700,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds (NOMC Obligation Group), Ser. B, 6s, 8/1/18 Baa3 2,224,125 2,975,000 Warren Cons. School Dist. G.O. Bonds, FSA, 5 3/8s, 5/1/18 Aaa 3,179,531 6,785,000 Waterford, Econ. Dev. Corp. Rev. Bonds (Canterbury Hlth.), 6s, 1/1/39 B-/P 4,800,388 2,000,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds (Northwest Airlines, Inc.), 6s, 12/1/29 B+/P 1,140,000 ------------- 16,668,814 Minnesota (1.2%) - ------------------------------------------------------------------------------------------------------------------- 1,780,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 1,879,983 5,330,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds (Healtheast), Ser. B, 6 5/8s, 11/1/17 Ba2 4,570,475 ------------- 6,450,458 Mississippi (0.4%) - ------------------------------------------------------------------------------------------------------------------- 2,250,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds (Syst. Energy Resources, Inc.), 5.9s, 5/1/22 BBB- 2,050,313 Missouri (1.2%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds (St. Anthony's Med. Ctr.), 6 1/4s, 12/1/30 A2 2,112,500 4,560,000 MO State Hlth. & Edl. Fac. Auth. VRDN (St. Francis Med. Ctr.), Ser. A, 1.95s, 6/1/26 A-1+ 4,560,000 ------------- 6,672,500 Nebraska (0.5%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 Gage Cnty., Indl. Dev. Rev. Bonds (Hoover Group, Inc.), 8 1/2s, 12/1/07 Baa3 1,660,000 2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte River Road), 6 3/4s, 1/1/28 D/P 175,000 950,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB, Ser. C, GNMA/FNMA Coll., 10.20s, 3/1/20 Aaa 963,063 ------------- 2,798,063 Nevada (2.9%) - ------------------------------------------------------------------------------------------------------------------- Clark Cnty., Indl. Dev. Rev. Bonds (Southwest Gas Corp.) 6,000,000 Ser. B, 7 1/2s, 9/1/32 Baa2 6,111,420 5,000,000 Ser. C, AMBAC, 5.95s, 12/1/38 Aaa 5,406,250 4,000,000 Las Vegas, Monorail Rev. Bonds (2nd Tier), 7 3/8s, 1/1/40 BB-/P 3,875,000 ------------- 15,392,670 New Hampshire (0.5%) - ------------------------------------------------------------------------------------------------------------------- 2,565,000 NH State Bus. Fin. Auth. Rev. Bonds (Alice Peck Day Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,472,019 New Jersey (2.6%) - ------------------------------------------------------------------------------------------------------------------- 1,250,000 NJ Econ. Dev. Auth. Rev. Bonds (Cedar Crest Vlg. Inc. Fac.), Ser. A, 7 1/4s, 11/15/31 BB-/P 1,226,563 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds 3,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 Baa3 3,262,500 1,250,000 (Atlantic City Med. Ctr.), 5 3/4s, 7/1/25 A3 1,287,500 1,000,000 NJ State Tpk. Auth. VRDN, Ser. D, FGIC, 1 3/4s, 1/1/18 VMIG1 1,000,000 6,500,000 NJ State Trans. Trust Fund Auth. Rev. Bonds (Trans. Syst.), Ser. A, FSA, 5 1/2s, 6/15/12 Aaa 7,434,375 ------------- 14,210,938 New Mexico (0.6%) - ------------------------------------------------------------------------------------------------------------------- 3,000,000 Farmington, Poll. Control VRDN (AZ Pub. Svc. Co.), Ser. B, 1.95s, 9/1/24 VMIG1 3,000,000 New York (9.4%) - ------------------------------------------------------------------------------------------------------------------- 10,000,000 NY City G.O. Bonds, Ser. B, 5 1/4s, 12/1/09 A2 10,750,000 9,625,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds (British Airways), 5 1/4s, 12/1/32 BBB- 5,137,344 1,500,000 NY City, Indl. Dev. Agency Rev. Bonds (Staten Island U. Hosp. Project), 6.45s, 7/1/32 Baa3 1,481,250 5,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. IFB, MBIA, 9.481s, 6/15/17 (acquired 5/21/98, cost $5,296,700) (RES) AAA 5,581,250 7,400,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Rev. Bonds, Ser. G , FSA, 5s, 6/15/34 Aaa 7,418,500 6,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. VRDN, Ser. G, 1.85s, 6/15/24 VMIG1 6,000,000 2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds (Solvay Paperboard, LLC), 7s, 11/1/30 BB-/P 2,075,000 5,000,000 Port Auth. NY & NJ Rev. Bonds, Ser. 96, FGIC, 6.6s, 10/1/23 Aaa 5,387,500 5,000,000 Port Auth. NY & NJ Special Obligation IFB, Ser. N18, MBIA, 8.64s, 12/1/17 (acquired 7/19/00, cost $5,234,450) (RES) Aaa 6,456,250 ------------- 50,287,094 North Carolina (0.9%) - ------------------------------------------------------------------------------------------------------------------- 100,000 Charlotte, Special Fac. Rev. Bonds (Douglas Intl. Arpt.-US Airways), 7 3/4s, 2/1/28 (In default) (NON) D/P 49,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds 1,500,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,633,125 3,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 3,003,750 ------------- 4,685,875 Ohio (1.3%) - ------------------------------------------------------------------------------------------------------------------- 3,000,000 OH State Air Quality Dev. Auth. Rev. Bonds (Toledo Poll. Control), Ser. A, 6.1s, 8/1/27 Baa2 2,973,750 4,000,000 Rickenbacker Port Auth. Rev. Bonds (OASBO Expanded Asset Pooled), Ser. A, 5 3/8s, 1/1/32 A2 3,970,000 ------------- 6,943,750 Oklahoma (2.7%) - ------------------------------------------------------------------------------------------------------------------- 3,150,000 OK City Arpt. Trust Rev. Bonds (Jr. Lien 27th Ser.), Ser. A, FSA, 5s, 7/1/18 AAA 3,213,000 4,900,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Hlth. Care), Ser. A, 5 5/8s, 8/15/29 B2 3,497,375 7,000,000 OK State Indl. Dev. Auth. Rev. Bonds (Hlth. Syst.- Oblig. Group), Ser. A, MBIA. 5 3/4s, 8/15/29 Aaa 7,525,000 ------------- 14,235,375 Pennsylvania (5.4%) - ------------------------------------------------------------------------------------------------------------------- 3,500,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac. Rev. Bonds (U.S. Airways, Inc.), Ser. B, 8 1/2s, 3/1/21 (In default) (NON) CCC- 1,448,125 2,250,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds (Panther Creek Partners), 6.65s, 5/1/10 BBB- 2,342,813 3,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.), Ser. A, 6s, 1/15/25 CCC/P 2,100,000 7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA, 6.7s, 9/1/14 Aaa 7,965,938 PA Econ. Dev. Fin. Auth. Rev. Bonds 7,750,000 (MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 9,106,250 1,000,000 (Amtral Project), Ser. A, 6 3/8s, 11/1/41 A3 897,500 1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds (Clover), Ser. D, 7 1/8s, 12/1/15 BBB- 1,042,500 2,764,894 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10 (In default) (NON) Ca 3,456 2,000,000 Philadelphia, Indl. Dev. Auth. Arpt. Rev. Bonds (Aero Philadelphia, LLC), 5 1/2s, 1/1/24 BB/P 1,555,000 4,000,000 Philadelphia, Indl. Dev. Auth. Special Fac. Rev. Bonds (U.S. Airways, Inc.), 8 1/8s, 5/1/30 (In default) (NON) D/P 715,000 1,800,000 Sayre Hlth. Care Fac. Auth. Rev. Bonds (Guthrie Hlth.), Ser. A, 5 7/8s, 12/1/31 A- 1,824,750 ------------- 29,001,332 South Carolina (2.6%) - ------------------------------------------------------------------------------------------------------------------- 4,750,000 Connector 2000 Assn., Inc. SC Toll Road Rev. Bonds (SR-Southern Connector), Ser. A, 5 3/8s, 1/1/38 BBB- 2,529,375 1,250,000 Med. U. Hosp. Auth. Rev. Bonds, Ser. A, 6 1/2s, 8/15/32 BBB+ 1,282,813 5,000,000 Richland Cnty. Rev. Bonds (Intl. Paper Co. Project), Ser. A, 4 1/4s, 10/1/07 Baa2 4,956,250 1,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds (Palmetto Hlth. Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 1,092,500 SC Tobacco Settlement Rev. Mgt. Rev. Bonds, Ser. B 1,300,000 6 3/8s, 5/15/30 A1 1,277,250 3,000,000 6 3/8s, 5/15/28 A1 2,932,500 ------------- 14,070,688 South Dakota (0.4%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 SD Edl. Enhancement Funding Corp. Rev. Bonds, Ser. B, 6 1/2s, 6/1/32 A1 1,977,500 Tennessee (2.7%) - ------------------------------------------------------------------------------------------------------------------- 6,000,000 Johnson City, Hlth. & Edl. Fac. Board Hosp. IFB, Ser. A2, MBIA, 8.2s, 7/1/21 (acquired 2/8/00, cost $5,651,400) (RES) Aaa 7,387,500 4,700,000 Johnson City, Hlth. & Edl. Fac. Board Hosp. Rev. Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 Baa2 4,999,625 2,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac. Board Rev. Bonds (Methodist Healthcare), 6 1/2s, 9/1/26 Baa1 2,072,500 ------------- 14,459,625 Texas (11.8%) - ------------------------------------------------------------------------------------------------------------------- Alliance, Arpt. Auth. Rev. Bonds 3,000,000 (American Airlines, Inc.), 7 1/2s, 12/1/29 BB- 840,000 10,100,000 (Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 10,655,500 9,500,000 Austin, Elec. Util. Syst. Rev. Bonds, FSA, 5s, 1/15/30 Aaa 9,405,000 4,655,000 Carrollton, Farmers Branch Indpt. School Dist. G.O. Bonds, PSFG, 5s, 2/15/17 Aaa 4,823,744 3,500,000 Dallas, Special Tax Rev. Bonds, AMBAC, 5s, 8/15/25 Aaa 3,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev. Bonds (American Airlines, Inc.) 3,000,000 7 1/4s, 11/1/30 BB- 836,250 8,000,000 6 3/8s, 5/1/35 BB- 2,230,000 3,000,000 Harris Cnty., Hlth. Fac. Rev. Bonds (Memorial Hermann Hlth. Care), Ser. A, 6 3/8s, 6/1/29 A3 3,180,000 4,000,000 Houston, Arpt. Syst. Rev. Bonds, Ser. C, FGIC, 5s, 7/1/28 Aaa 3,975,000 2,000,000 Lower Neches Valley Indl. Dev. Swr. Auth. Rev. Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 2,110,000 North Central Hlth. Fac. Dev. Corp. VRDN 3,000,000 (Dates Hosp. Prsbytrn Med. Ctr.), Ser. C, MBIA, 2.04s, 12/1/15 VMIG1 3,000,000 6,000,000 (Dates Hosp. Prsbytrn Med. Ctr.), Ser. D, MBIA, 2.04s, 12/1/15 VMIG1 6,000,000 2,500,000 Sam Rayburn Muni. Pwr. Agcy. Rev. Bonds, 6s, 10/1/21 Baa2 2,568,750 8,500,000 Texas State Tpk. Auth. Rev. Bonds, Ser. A, AMBAC, 5s, 8/15/42 Aaa 8,436,250 2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl. Hosp.), 6s, 7/1/29 Baa2 1,980,000 ------------- 63,540,494 Utah (0.9%) - ------------------------------------------------------------------------------------------------------------------- 5,000,000 Tooele Cnty., Harbor & Term. Dist. Port Fac. Rev Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 BBB 4,887,500 Virginia (0.8%) - ------------------------------------------------------------------------------------------------------------------- 1,500,000 Fredericksburg Indl. Dev. Auth. Rev. Bonds (Medicorp Hlth. Syst.), Ser. B, 5 1/8s, 6/15/33 A3 1,402,500 3,900,000 Pocahontas Parkway Assn. Toll Rd. Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 Baa3 2,925,000 ------------- 4,327,500 Washington (1.4%) - ------------------------------------------------------------------------------------------------------------------- 5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 5,593,750 3,200,000 Port of Seattle, Special Fac. Rev. Bonds (Northwest Airlines, Inc.), 7 1/4s, 4/1/30 B+/P 2,168,000 ------------- 7,761,750 West Virginia (0.3%) - ------------------------------------------------------------------------------------------------------------------- 2,500,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 Ba3 1,875,000 Wisconsin (1.7%) - ------------------------------------------------------------------------------------------------------------------- 5,500,000 Badger Tobacco Asset Securitization Corp. Rev. Bonds, 6 3/8s, 6/1/32 A1 5,293,750 3,900,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds (Wheaton Franciscan), 5 3/4s, 8/15/30 A2 3,939,000 ------------- 9,232,750 ------------- Total Municipal Bonds and Notes (cost $570,426,549) $530,236,713 PREFERRED STOCKS (1.2%) (a) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- 2,000,000 Charter Mac. Equity Trust 144A Ser. A, 6.625% cum. pfd. BBB-/P $2,097,500 4,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A 6.875% cum. pfd. BB+/P 4,265,000 ------------- Total Preferred Stocks (cost $6,000,000) $6,362,500 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $576,426,549) $536,599,213 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on portfolio market value. (RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at October 31, 2002 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 October 31, 2002. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent accountants. (NON) Non-income-producing security. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at October 31, 2002 was $31,849,006 or 5.9% of portfolio market value. 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 IFB and IF COP, which are securities paying interest rates that vary inversely to changes in the market interest rates, and VRDN's are the current interest rates at October 31, 2002. The fund had the following industry group concentrations greater than 10% at October 31, 2002 (as a percentage of portfolio market value): Health care 28.9% Transportation 25.0 The fund had the following insurance concentrations greater than 10% at October 31, 2002 (as a percentage of portfolio market value): MBIA 14.1% AMBAC 10.5 The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES October 31, 2002 Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $576,426,549) (Note 1) $536,599,213 - ------------------------------------------------------------------------------------------- Cash 961,912 - ------------------------------------------------------------------------------------------- Interest and other receivables 10,788,342 - ------------------------------------------------------------------------------------------- Receivable for securities sold 380,081 - ------------------------------------------------------------------------------------------- Total assets 548,729,548 Liabilities - ------------------------------------------------------------------------------------------- Distributions payable to shareholders 2,242,222 - ------------------------------------------------------------------------------------------- Accrued preferred shares distributions payable (Note 1) 77,739 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 988,176 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 35,260 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 43,471 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 285 - ------------------------------------------------------------------------------------------- Other accrued expenses 61,604 - ------------------------------------------------------------------------------------------- Total liabilities 3,448,757 - ------------------------------------------------------------------------------------------- Series A, B and C remarketed preferred shares: (8,000 shares authorized; 1,750 shares issued at $100,000 per share) (Note 4) 175,000,000 - ------------------------------------------------------------------------------------------- Net assets $370,280,791 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital -- common shares (unlimited shares authorized) (Note 1) $435,026,079 - ------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 726,898 - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (25,644,850) - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (39,827,336) - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to common shares outstanding $370,280,791 Computation of net asset value - ------------------------------------------------------------------------------------------- Net asset value per common share ($370,280,791 divided by 47,206,343 shares) $7.84 - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS Year ended October 31, 2002 Interest income: $37,746,272 - ------------------------------------------------------------------------------------------- Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 3,868,918 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 346,147 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 9,041 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 7,810 - ------------------------------------------------------------------------------------------- Preferred share remarketing agent fees 431,566 - ------------------------------------------------------------------------------------------- Other 185,776 - ------------------------------------------------------------------------------------------- Total expenses 4,849,258 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (40,576) - ------------------------------------------------------------------------------------------- Net expenses 4,808,682 - ------------------------------------------------------------------------------------------- Net investment income 32,937,590 - ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (3,503,622) - ------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 94,025 - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the year (30,443,946) - ------------------------------------------------------------------------------------------- Net loss on investments (33,853,543) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (915,953) - ------------------------------------------------------------------------------------------- Distributions to Series A, B, and C remarketed preferred shareholders: (Note 1) - ------------------------------------------------------------------------------------------- From tax exempt income (2,589,647) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations applicable to common shareholders $(3,505,600) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Year ended October 31 --------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment income $32,937,590 $34,072,925 - ------------------------------------------------------------------------------------------------------- Net realized loss on investments (3,409,597) (1,329,210) - ------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments (30,443,946) 3,089,127 - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (915,953) 35,832,842 - ------------------------------------------------------------------------------------------------------- Distributions to Series A, B, and C remarketed preferred shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From tax exempt income (2,589,647) (5,820,016) - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations applicable to common shareholders (3,505,600) 30,012,826 - ------------------------------------------------------------------------------------------------------- Distributions to common shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From tax exempt income (26,888,250) (27,591,692) - ------------------------------------------------------------------------------------------------------- Increase from issuance of common shares in connection with reinvestment of distributions 419,191 1,622,545 - ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (29,974,659) 4,043,679 Net assets - ------------------------------------------------------------------------------------------------------- Beginning of year 400,255,450 396,211,771 - ------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $726,898 and distributions in excess of net investment income of $2,732,795, respectively) $370,280,791 $400,255,450 - ------------------------------------------------------------------------------------------------------- Number of fund shares - ------------------------------------------------------------------------------------------------------- Common shares outstanding at beginning of year 47,155,237 46,970,072 - ------------------------------------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 51,106 185,165 - ------------------------------------------------------------------------------------------------------- Common shares outstanding at end of year 47,206,343 47,155,237 - ------------------------------------------------------------------------------------------------------- Remarketed preferred shares outstanding at beginning and end of year 1,750 1,750 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------- Per-share operating performance Year ended October 31 - ------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period (common shares) $8.49 $8.44 $8.77 $9.82 $9.92 - ------------------------------------------------------------------------------------------------------- Investment operations: - ------------------------------------------------------------------------------------------------------- Net investment income (a) .70 .72 .75 .80 .79 - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.73) .04 (.16) (.96) .01 - ------------------------------------------------------------------------------------------------------- Total from investment operations (.03) .76 .59 (.16) .80 - ------------------------------------------------------------------------------------------------------- Distributions to preferred shareholders: - ------------------------------------------------------------------------------------------------------- From net investment income (.05) (.12) (.16) (.13) (.14) - ------------------------------------------------------------------------------------------------------- Total from investment operations: (applicable to common shareholders) (.08) .64 .43 (.29) .66 - ------------------------------------------------------------------------------------------------------- Distributions to common shareholders: - ------------------------------------------------------------------------------------------------------- From net investment income: (.57) (.59) (.76) (.76) (.76) - ------------------------------------------------------------------------------------------------------- Total distributions (.57) (.59) (.76) (.76) (.76) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period (common shares) $7.84 $8.49 $8.44 $8.77 $9.82 - ------------------------------------------------------------------------------------------------------- Market value, end of period (common shares) $7.43 $8.44 $9.63 $9.81 $11.44 - ------------------------------------------------------------------------------------------------------- Total return at market value (%) (common shares)(b) (5.57) (6.21) 6.84 (7.72) 4.52 - ------------------------------------------------------------------------------------------------------- Ratios and supplemental data - ------------------------------------------------------------------------------------------------------- Net assets, end of period (common shares)(in thousands) $370,281 $400,255 $396,212 $408,419 $453,766 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c)(d) 1.25 1.22 1.27 1.23 1.22 - ------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%)(c) 7.84 7.01 6.97 7.12 6.57 - ------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 20.44 17.95 16.72 12.88 19.97 - ------------------------------------------------------------------------------------------------------- (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment. (c) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for dividend payments to preferred shareholders. (d) Includes amounts paid through expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS October 31, 2002 Note 1 Significant accounting policies Putnam Managed Municipal Income Trust (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The fund's investment objective is to seek a high level of current income exempt from federal income tax. The fund intends to achieve its objective by investing in a diversified portfolio of tax-exempt municipal securities which Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes does not involve undue risk to income or principal. Up to 50% of the fund's assets may consist of high-yield tax-exempt municipal securities that are below investment grade and involve special risk considerations. The fund also uses leverage by issuing preferred shares in an effort to increase the income to the common 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 Tax-exempt bonds and notes are stated on the basis of valuations provided by an independent pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Restricted securities are stated at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. B) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. 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, the remaining excess 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 agrees to receive from or pay to the broker 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. D) 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 October 31, 2002, the fund had a capital loss carryover of approximately $24,642,000 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 - -------------- ------------------ $321,000 October 31, 2003 11,188,000 October 31, 2005 2,895,000 October 31, 2006 3,629,000 October 31, 2007 1,237,000 October 31, 2008 1,642,000 October 31, 2009 3,730,000 October 31, 2010 E) Distributions to shareholders Distributions to common and preferred shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex dividend date and paid at least annually. Dividends on remarketed preferred shares become payable when, as and if declared by the Trustees. Each dividend period for the remarketed preferred shares is generally a 28-day period for Series A and Series B shares, and a 7-day period for Series C shares. The applicable dividend rate for the remarketed preferred shares on October 31, 2002 was 1.44% for Series A, 1.65% for Series B and 1.68% for Series C. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of the expiration of a capital loss carryover, dividends payable, defaulted bond interest, straddle loss deferrals, and Partnership income. Prior year distributions in the Statement of changes in net assets have been reclassified to conform with current year presentation. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 2002, the fund reclassified $1,886,508 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $1,886,508. The tax basis components of distributable earnings and the federal tax cost as of period end was as follows: Unrealized appreciation $21,199,614 Unrealized depreciation (60,822,225) -------------------- Net unrealized appreciation/ depreciation (39,622,611) Undistributed tax-exempt income 3,734,222 Capital loss carryforward (24,642,055) Post October loss -- Cost for federal income tax purposes 576,221,824 F) Determination of net asset value Net asset value of the common shares is determined by dividing the value of all assets of the fund, less all liabilities and the liquidation preference of any outstanding remarketed preferred shares, by the total number of common shares outstanding. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of the average weekly net assets, 0.60% of the next $500 million, 0.55% of the next $500 million and 0.50% thereafter. If dividends payable on remarketed preferred shares during any dividend payment period plus any expenses attributable to remarketed preferred shares for that period exceed the fund's gross income attributable to the proceeds of the remarketed preferred shares during that period, then the fee payable to Putnam Management for that period will be reduced by the amount of the excess (but not more than 0.70% of the liquidation preference of the remarketed preferred shares outstanding during the period). 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 wholly-owned 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 year ended October 31, 2002, the fund's expenses were reduced by $40,576 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $737 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. Note 3 Purchases and sales of securities During the year ended October 31, 2002, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $110,276,363 and $135,195,068, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Preferred shares The Series A (550), Series B (550) and Series C (650) shares are redeemable at the option of the fund on any dividend payment date at a redemption price of $100,000 per share, plus an amount equal to any dividends accumulated on a daily basis but unpaid through the redemption date (whether or not such dividends have been declared) and, in certain circumstances, a call premium. Under the Investment Company Act of 1940, the fund is required to maintain asset coverage of at least 200% with respect to the remarketed preferred shares as of the last business day of each month in which any such shares are outstanding. Additionally, the fund is required to meet more stringent asset coverage requirements under terms of the remarketed preferred shares and the shares' rating agencies. Should these requirements not be met, or should dividends accrued on the remarketed preferred shares not be paid, the fund may be restricted in its ability to declare dividends to common shareholders or may be required to redeem certain of the remarketed preferred shares. At October 31, 2002, no such restrictions have been placed on the fund. Under Emerging Issues Task Force (EITF) promulgation Topic D-98, Classification and Measurement of Redeemable Securities, which was issued on July 19, 2001, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Trust's preferred stock, which was previously classified as a component of net assets, has been reclassified outside of permanent equity (net assets) in the accompanying financial statements. Prior year amounts have also been reclassified to conform with this presentation. The impact of this reclassification creates no change to the net assets available to common shareholders. Note 5 New accounting pronouncement As required, the fund has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies. This Guide requires that the fund amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities. Prior to November 1, 2001, the fund did not accrete discounts for certain fixed income securities. The adoption of this principle was not material to the financial statements. FEDERAL TAX INFORMATION (Unaudited) The fund has designated 100% of dividends paid from net investment income during the fiscal year as tax exempt for Federal income tax purposes. The Form 1099 you receive in January 2003 will show the tax status of all distributions paid to your account in calendar 2002. RESULTS OF OCTOBER 3, 2002 SHAREHOLDER MEETING (Unaudited) An annual meeting of shareholders of the fund was held on October 3, 2002. At the meeting, each of the nominees for Trustees was elected, as follows: Common Shares Votes Votes for withheld Jameson Adkins Baxter 40,680,595 999,464 Charles B. Curtis 40,685,765 994,293 Ronald J. Jackson 40,691,176 988,882 Paul L. Joskow 40,694,376 985,682 Elizabeth T. Kennan 40,691,716 988,342 Lawrence J. Lasser 40,697,993 982,066 John H. Mullin III 40,692,230 987,829 George Putnam, III 40,684,549 995,510 A.J.C. Smith 40,696,618 983,441 W. Thomas Stephens 40,686,101 993,958 W. Nicholas Thorndike 40,694,129 985,930 Preferred Shares Votes Votes for withheld Jameson Adkins Baxter 1,750 0 Charles B. Curtis 1,750 0 John A. Hill 1,750 0 Ronald J. Jackson 1,750 0 Paul L. Joskow 1,750 0 Elizabeth T. Kennan 1,750 0 Lawrence J. Lasser 1,750 0 John H. Mullin III 1,750 0 Robert E. Patterson 1,750 0 George Putnam, III 1,750 0 A.J.C. Smith 1,750 0 W. Thomas Stephens 1,750 0 W. Nicholas Thorndike 1,750 0 All tabulations are rounded to nearest whole number.
TRUSTEES Name, Address, 1 Date of Birth, Position(s) Held with Fund and Length of Service Principal Occupation(s) as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee - ------------------------------------------------------------------------------------------------------- Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc., Trustee since 1994 Associates, Inc. Banta Corporation (a printing and (a management digital imaging firm), Intermatic consulting and private Corporation (manufacturer of energy investments firm) control products), Ryerson Tull, Inc. (a steel service corporation), Advocate Health Care, and the National Center for Nonprofit Boards. Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Also held various positions in investment banking and corporate finance, including Vice President and principal of the Regency Group and consultant to First Boston Corp. Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign Trustee since 2001 Operating Officer, Relations, the Electric Power Nuclear Threat Research Institute Advisory Council, Initiative (a private the Board of Directors of the Gas foundation dedicated Technology Institute, the University to reducing the threat of Chicago Board of Governors for of weapons of mass Argonne National Laboratory, the destruction), also serves Board of Directors of the as Senior Advisor to the Environment and Natural Resources United Nations Program Steering Committee, Foundation John F. Kennedy School of Government, Harvard University. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute. Until 2001, Mr. Curtis was a Member of the Department of Defense's Policy Board and Director of EG&G Technical Services, Inc. (fossil energy research and development support) and prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy Trustee since 1985 and Managing Director, Corporation (formerly known as Chairman since 2000 First Reserve Snyder Oil Corporation), Corporation TransMontaigne Oil Company, (a registered investment Continuum Health Partners of advisor investing in New York, Sarah Lawrence College, companies in the and various private companies owned world-wide energy by First Reserve Corporation. industry on behalf of Trustee of TH Lee, Putnam institutional investors) Investment Trust (a closed-end investment company). Prior to acquiring First Reserve in 1983, Mr. Hill held executive positions with several advisory firms and various positions with the federal government, including Associate Director of the Office of Manage ment and Budget and Deputy Director of the Federal Energy Administration. Ronald J. Jackson Private investor Former Chairman, President, and (12/17/43), Chief Executive Officer of Fisher- Trustee since 1996 Price, Inc. (a toy manufacturer). Previously served as President and Chief Executive Officer of Stride- Rite, Inc. and Kenner Parker Toys. Also held financial and marketing positions with General Mills, Parker Brothers, and Talbots. President of the Kathleen and Ronald J. Jackson Foundation (charitable trust). Member of the Board of Overseers of WGBH (public television and radio). Member of the Board of Overseers of the Peabody Essex Museum. Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group Trustee since 1997 Killian Professor of (a UK-based holding company Economics and with interests in electric power, Management and natural gas distribution, and Director of the Center telecommunications networks), and for Energy and the Whitehead Institute for Environmental Policy Biomedical Research (a non-profit Research, Massachusetts research institution). President of the Institute of Technology Yale University Council. Prior to February 2002, March 2000, and September 1998, Dr. Joskow was a Director of State Farm Indemnity Company (an automobile insurance company), Director of New England Electric System (a public utility holding company) and a consultant to National Economic Research Associates, respectively. Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and (2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's Trustee since 1992 limited liability company apparel). Trustee of Centre College. involved in thoroughbred Prior to 2001, Dr. Kennan was a horse breeding and member of the Oversight Committee farming), President of Folger Shakespeare Library. Emeritus of Mount Prior to September 2000, June 2000, Holyoke College and November 1999, Dr. Kennan was a Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame University. For 12 years, she was on the faculty of Catholic University. John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc., (6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging Trustee since 1997 (a limited liability company), The Liberty Corporation company engaged in (a company engaged in the timber and farming) broadcasting industry), and Progress Energy, Inc. (a utility company, formerly known as Carolina Power & Light). Trustee Emeritus of Washington & Lee University. Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a Director of Dillon, Read and Co. Inc., The Ryland Group, Inc., and Graphic Packaging International Corp., respectively. Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes (3/15/45), Properties, LLP and Center, Trustee of SEA Education Trustee since 1984 Chairman of Cabot Association, and Director of Properties, Inc. Brandywine Trust Company (a trust company). Prior to February 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (publicly traded real estate investment trust). Prior to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to that was Senior Vice President of the Beal Companies. W. Thomas Stephens Corporate Director Director of Qwest Communications (9/2/42), (communications company), Xcel Trustee since 1997 Energy Incorporated (public utility company), TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer) and Mail-Well (printing and envelope company). Prior to July 2001 and October 1999, Mr. Stephens was Chairman of Mail- Well and MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville. W. Nicholas Thorndike Director of various Trustee of Northeastern University and (3/28/33), corporations and Honorary Trustee of Massachusetts Trustee since 1992 charitable General Hospital. Prior to organizations, September 2000, April 2000, and including Courier December 2001, Mr. Thorndike was Corporation (a book a Director of Bradley Real Estate, manufacturer) and Inc., a Trustee of Eastern Utilities Providence Journal Co. Associates, and a Trustee of Cabot (a newspaper publisher) Industrial Trust, respectively. Previously served as Chairman of the Board and managing partner of Wellington Management/Thorndike Doran Paine & Lewis, and Chairman and Director of Ivest Fund. Lawrence J. Lasser* President and Chief Director of Marsh & McLennan (11/1/42), Executive Officer of Companies, Inc. and the United Way Trustee since 1992 Putnam Investments of Massachusetts Bay. Member of the Vice President since 1981 and Putnam Board of Governors of the Investment Management Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee and Member of the Finance and Executive Committees of Beth Israel Deaconess Medical Center, Boston, and a Member of the CareGroup Board of Managers Investment Committee, the Council on Foreign Relations, and the Commercial Club of Boston. George Putnam, III* President, New Director of The Boston Family (8/10/51), Generation Research, Office, L.L.C. (registered investment Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA President since 2000 financial advisory and Education Association, Trustee of other research services St. Mark's School, and Trustee of relating to bankrupt and Shore Country Day School. distressed companies) Previously, Mr. Putnam was an and New Generation attorney with the firm of Dechert Advisers, Inc. Price & Rhoads. (a registered investment adviser) A.J.C. Smith* (4/13/34), Director of Marsh & Director of Trident Corp. (a limited Trustee since 1986 McLennan partnership with over 30 institutional Companies, Inc. investors). Trustee of the Carnegie Hall Society, the Educational Broadcasting Corporation and the National Museums of Scotland. Chairman of the Central Park Conservancy. Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate School of Medical Sciences of Cornell University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian Institute of Actuaries, and the Conference of Actuaries. Associate of the Society of Actuaries. Member of the American Actuaries, the International Actuarial Association and the International Association of Consulting Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc. - -------------------------------------------------------------------------------------------------------- 1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of October 31, 2002, there were 101 Putnam Funds. 2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal. * Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent company of Putnam LLC and its affiliated companies. Messrs. Putnam, III, Lasser and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund or Putnam Management, Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam, III is the President of your fund and each of the other Putnam funds. Lawrence J. Lasser is the President and Chief Executive Officer of Putnam Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as Directors of Marsh & McLennan Companies, Inc.
OFFICERS In addition to George Putnam III and Lawrence J. Lasser, the other officers of the fund are shown below: Name, Address, 1 Date of Birth, Length of Service with Position(s) Held with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------- Charles E. Porter Since 1989 Managing Director, Putnam Investments (7/26/38), Executive Vice and Putnam Management President, Treasurer and Principal Financial Officer Patricia C. Flaherty Since 1993 Senior Vice President, Putnam Investments (12/1/46), Senior Vice and Putnam Management President Karnig H. Durgarian (1/13/56), Vice President and Since 2002 Senior Managing Director, Putnam Principal Executive Officer Investments Michael T. Healy (1/24/58), Assistant Treasurer Since 2000 Managing Director, Putnam Investments and Principal Accounting Officer Steven D. Krichmar (6/27/58), Vice President and Since 2002 Managing Director, Putnam Investments. Principal Financial Officer Prior to 2001, Partner, PricewaterhouseCoopers LLP Charles E. Haldeman Jr. Since 2002 Senior Managing Director, Putnam (10/29/48), Vice President Investments and Putnam Management. Prior to 2002, Chief Executive Officer, Delaware Management Holdings, Inc.; prior to 2000, President and Chief Operating Officer, United Asset Management Stephen M. Oristaglio Since 1998 Senior Managing Director, Putnam (8/21/55), Vice President Investments and Putnam Management. Prior to 1998, Managing Director, Swiss Bank Corp. Gordon H. Silver Since 1990 Senior Managing Director, Putnam (7/3/47), Vice President Investments, Putnam Management and Putnam Retail Management Brett C. Browchuk Since 1994 Managing Director, Putnam Investments (2/27/63), Vice President and Putnam Management Richard G. Leibovitch Since 1999 Managing Director, Putnam Investments (10/31/63), Vice President and Putnam Management. Prior to 1999, Managing Director, J.P. Morgan Richard A. Monaghan Since 1998 Senior Managing Director, Putnam (8/25/54), Vice President Investments and Putnam Retail Management Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments (4/6/58), Vice President John R. Verani Since 1988 Senior Vice President, Putnam Investments (6/11/39), Vice President and Putnam Management Judith Cohen (6/7/45), Clerk and Since 1993 Clerk and Assistant Treasurer, The Assistant Treasurer Putnam Funds Jerome J. Jacobs (8/20/58), Vice President Since 1996 Managing Director of Putnam Management - --------------------------------------------------------------------------------------------------------------- 1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION ABOUT PUTNAM INVESTMENTS 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 INDEPENDENT ACCOUNTANTS KPMG LLP TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President, Treasurer and Principal Financial Officer Patricia C. Flaherty Senior Vice President Karnig H. Durgarian Vice President and Principal Executive Officer Michael T. Healy Assistant Treasurer and Principal Accounting Officer Steven D. Krichmar Vice President and Principal Financial Officer Lawrence J. Lasser Vice President Charles E. Haldeman, Jr. Vice President Stephen M. Oristaglio Vice President Gordon H. Silver Vice President Brett C. Browchuk Vice President Jerome Jacobs Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President Beth S. Mazor Vice President John R. Verani Vice President Judith Cohen Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our Web site (www.putnaminvestments.com) anytime for up-to-date information about the fund's NAV. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com 84089 052 12/02 -----END PRIVACY-ENHANCED MESSAGE-----