-----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, Hqw4iLPSFUmbNphTyfFJOT8XxHpQx7oecILwWJBOliKwbDtDhFZh1XNWTUrQzYey fLow1rDJ6Vdtm/IxpHd5bA== 0000928816-98-000308.txt : 19981214 0000928816-98-000308.hdr.sgml : 19981214 ACCESSION NUMBER: 0000928816-98-000308 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MANAGED MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000844790 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046608976 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05740 FILM NUMBER: 98767979 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 PUTNAM MANAGED MUNICIPAL INCOME TRUST Putnam Managed Municipal Income Trust ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 10-31-98 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "[T]here is one type of staid, secure bond fund that has been overlooked amid the global scramble for safety, and that is now emerging as the best bargain in the bond market: municipal-bond funds." -- The Wall Street Journal, October 5, 1998 * "After a year in which tax-free bonds underperformed Treasuries, municipal bonds appear ripe for a rebound. Economic growth, favorable credit fundamentals, and rising tax revenues are positive factors for the municipal bond market." -- Richard P. Wyke, manager Putnam Managed Municipal Income Trust CONTENTS 4 Report from Putnam Management 8 Fund performance summary 12 Portfolio holdings 21 Financial statements 30 Results of October 1, 1998 shareholder meeting From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: Thanks in part to the rush of foreign investors to the safety of the U.S. bond market, yields on long-term municipal bonds have moved remarkably close to yields on taxable 30-year Treasury bonds. Save for a recent flurry of new tax-exempt bond issuance in the face of declining interest rates, the increased demand for tax-exempt bonds is not likely, in Putnam's view, to be matched by new supply; most issuers have already refinanced outstanding bonds at lower rates and the flow of refunding has fallen off markedly. One of the greatest challenges for Fund Manager Richard Wyke thus may continue to be that of finding securities that meet Putnam Managed Municipal Income Trust's strict selection criteria. Rick has also adjusted the fund's credit and sector strategies in response to the changing environment and emerging trends he sees developing. You will find details of these developments and other aspects of the fund's performance during the fiscal year that closed on October 31, 1998, in the following report from Rick. He also comments on prospects for the fiscal year that has just begun. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees December 16, 1998 Report from the Fund Manager Richard P. Wyke Falling interest rates, which created a flurry of new municipal bond issuance, pressured municipal bond prices in the fiscal year ended October 31, 1998. As a result, long-term municipal bond yields are historically close to the yields on 30-year Treasury bonds, suggesting that tax-free securities are undervalued relative to Treasuries. Despite the supply and demand imbalance, Putnam Managed Municipal Income Trust appreciated 6.36% at net asset value and 4.52% at market price on a total return basis for the 12-month period. Additional performance information can be found on page 8. Today's lower interest rates offer an important benefit for your fund. The potential for declining income may be offset in part by the declining cost of leveraging, a strategy that historically has been useful in enhancing the fund's income level. The fund issues preferred shares to institutional short-term investors at low rates and reinvests the proceeds in higher-paying longer-term bonds. The effect is a more positive cash flow for the fund. As of October 31, 1998, preferred shares had been issued in an amount equal to 27.87% of fund assets. * MUNICIPAL BONDS OFFER EXCEPTIONAL VALUE Throughout the dramatic shifts in the security markets during 1998, municipal bonds have continued to stand their ground. As foreign investors and hedge fund shareholders panicked about plummeting stock markets worldwide, they began a flight to quality -- moving from hedge funds and emerging-markets funds to the safety of U.S. Treasury bonds. This buying drove up the prices of Treasuries and consequently, because yields and prices move in an inverse relationship, pulled down their yields. Since foreign investors do not benefit from the tax advantages of municipal bonds, prices in this market did not rise as much as those of Treasuries. As a result, with municipal bond yields about equal to Treasury yields, we believe municipals have become an attractive investment choice for tax-paying U.S. fixed-income investors. Although there are no guarantees, we currently expect the pace of supply of tax-free securities to decline -- a positive factor for municipal bond prices. Normally when interest rates fall, refundings boost the bond supply. Because rates have been low for some time and most issuers have already completed their refundings, we expect that the supply of new issues will slow. Perpetuating the slowdown in supply is the relationship of Treasury yields to municipal yields. Since Treasury yields fell so dramatically relative to municipal yields, the Treasury escrows used in prerefundings are not adequate to pay off the municipal issues. * CREDIT FUNDAMENTALS AND STRONG ECONOMY BUOY SECTORS Strong economic growth, which propelled the U.S. stock market to record highs during the period, is still contributing to rising city and state tax revenues. This, in turn, is improving investors' perceptions of issuers' creditworthiness -- prompting credit upgrades around the nation by the major rating agencies. Predictably municipal bond prices reacted favorably to the good news. While we expect the credit ratings to remain stable for the foreseeable future, investors may begin to take profits. In New York City, for example, bonds are trading at a premium, but their above-market yield makes them a valuable component of your fund's income strategy. [GRAPHIC OMITTED: horizontal bar chart TOP FIVE INDUSTRY SECTORS] TOP FIVE INDUSTRY SECTORS* Health care 27.9% Utilities 20.9% Transportation 18.8% Housing 6.8% Education 3.4% Footnote reads: *Based on net assets as of 10/31/98. Holdings will vary over time. The vigor of the economy, along with low petroleum prices, contributed to the strong performance of the transportation sector. Airlines are posting record profits and are in the best fiscal shape of the decade. Current airline-related bonds in the portfolio include those backed by carriers, such as American Airlines, that enjoys broad market diversification. Your fund also holds a significant position in Northwest Regional Airport bonds, which carry an attractive 7 5/8% coupon. While these holdings, along with others discussed in this report, were viewed favorably at the end of the period, all are subject to review and adjustment in accordance with the fund's investment strategy, and may vary in the future. The health-care sector, which constituted nearly 28% of net assets at period's end, experienced some yield spread widening in the secondary market as a result of Graduate Health System's recent surprise bankruptcy. Along with many other mutual fund and institutional investors, we believed the bonds, with an S&P rating of BB, represented a potential turnaround situation in Philadelphia's highly competitive market. But when merger talks failed to produce a buyer for the hospital, Graduate Health System defaulted. As the hospital reorganizes, the gap between yields of lower-rated and higher-rated health-care securities will create some attractive income and appreciation opportunities. At 20.9% of net assets, utilities also represent a mainstay of your fund. In September, we purchased bonds issued by Connecticut Light & Power Co., a subsidiary of Northeast Utilities. CL&P, which has an investment in two of the three Millstone nuclear plants, rallied on news that the Nuclear Regulatory Commission allowed the start-up of Millstone 3. The utility, whose issue carries a 5.95% coupon, is in the process of selling its generating assets to become a wires company -- essentially a conduit transmitting and distributing energy from the power source to customers. This is a less capital intensive, lower risk business that investors and the rating agencies are likely to view favorably. [GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW] CREDIT QUALITY OVERVIEW* Baa -- 25.0% Ba -- 11.3% B and under -- 12.4% A -- 8.4% Aa -- 4.7% Aaa -- 37.1% VMIG1 -- 1.1% Footnote reads: *As a percentage of market value as of 10/31/98. A bond rated Baa or higher is considered investment grade. All ratings reflect Moody's descriptions unless noted otherwise; percentages may include unrated bonds considered by Putnam Management to be of comparable quality. Ratings will vary over time. * CAUTIONARY OUTLOOK The bond markets are beginning to move away from their obsession with international markets. This fall, the Federal Reserve Board cut interest rates twice in three weeks (and yet a third time in mid November after the close of this reporting period), helping the U.S. bond markets to refocus on economic fundamentals. The intermediate maturity range of the yield curve (8 to 15 years) -- which is where many of the fund's holdings are positioned -- has outperformed other maturities and this trend is likely to continue over the near term. However, with yields on short-term securities falling in response to the Fed's easing, the yield curve has steepened. We expect there will come a time when a shift into longer maturities will offer better performance. If this opportunity presents itself, we intend to take the necessary steps to capture the higher yields. 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 10/31/98, there is no guarantee the fund will continue to hold these securities in the future. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Managed Municipal Income Trust is designed for investors seeking high current income free from federal income tax through a diversified portfolio of tax-exempt securities. TOTAL RETURN FOR PERIODS ENDED 10/31/98 Lehman Bros. Market Municipal Consumer NAV price Bond Index Price Index - --------------------------------------------------------------------------- 1 year 6.36% 4.52% 8.02% 1.36% - --------------------------------------------------------------------------- 5 years 31.99 46.96 36.12 12.42 Annual average 5.71 8.00 6.36 2.37 - --------------------------------------------------------------------------- Life of fund (2/24/89) 124.64 143.19 117.08 34.70 Annual average 8.72 9.62 8.35 3.13 - --------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 9/30/98 (most recent calendar quarter) Market NAV price - ------------------------------------------------------------------------------ 1 year 7.14% 3.84% - ------------------------------------------------------------------------------ 5 years 32.97 44.47 Annual average 5.86 7.64 - ------------------------------------------------------------------------------ Life of fund (2/24/89) 124.79 137.68 Annual average 8.80 9.44 - ------------------------------------------------------------------------------ Performance data represent past results and do not reflect future performance. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, net asset value and market price will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. This performance information does not reflect any market volatility that may have occurred since the date of the information. As a result, more recent returns may be more or less than those shown. PRICE AND DISTRIBUTION INFORMATION 12 months ended 10/31/98 - ------------------------------------------------------------------------------ Distributions (common shares) - ------------------------------------------------------------------------------ Number 12 - ------------------------------------------------------------------------------ Income $0.762 - ------------------------------------------------------------------------------ Capital gains1 -- - ------------------------------------------------------------------------------ Total $0.762 - ------------------------------------------------------------------------------ Preferred shares Series A Series B Series C (550 shares) (550 shares) (650 shares) - ------------------------------------------------------------------------------ Income $3,649.19 $3,686.50 $3,635.55 - ------------------------------------------------------------------------------ Capital gains1 -- -- -- - ------------------------------------------------------------------------------ Total $3,649.19 $3,686.50 $3,635.55 - ------------------------------------------------------------------------------ Share value (common shares) NAV Market price - ------------------------------------------------------------------------------ 10/31/97 $9.92 $11.750 - ------------------------------------------------------------------------------ 10/31/98 9.82 11.438 - ------------------------------------------------------------------------------ Current return (common shares) - ------------------------------------------------------------------------------ Current dividend rate2 7.76% 6.66% - ------------------------------------------------------------------------------ Taxable equivalent3 12.85 11.03 - ------------------------------------------------------------------------------ 1 Capital gains, if any, are taxable for federal and, in most cases, state tax purposes. For some investors, investment income may also be subject to the federal alternative minimum tax. Investment income may be subject to state and local taxes. 2 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 3 Assumes maximum 39.6% combined federal and state tax rate. 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 Brothers Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index assumes reinvestment of all distributions and interest payments and does not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Report of independent accountants For the fiscal year ended October 31, 1998 To the Trustees and Shareholders of Putnam Managed Municipal Income Trust In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments owned, except for bond ratings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Managed Municipal Income Trust (the "fund") at October 31, 1998, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at October 31, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts December 7, 1998
Portfolio of investments owned October 31, 1998 Key to Abbreviations AMBAC -- AMBAC Indemnity Corporation COP -- Certificate of Participation FGIC -- Financial Guaranty Insurance Company FHA Insd. -- Federal Housing Administration Insured FRB -- Floating Rate Bonds FSA -- Financial Security Assurance GNMA Coll. -- Government National Mortgage Association Collateralized G.O. Bonds -- General Obligation Bonds IFB -- Inverse Floating Rate Bonds IF COP -- Inverse Floating Rate Certificate of Participation LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance Corporation VRDN -- Variable Rate Demand Notes MUNICIPAL BONDS AND NOTES (98.6%) (a) PRINCIPAL AMOUNT RATINGS(RAT) VALUE Alabama (0.7%) - -------------------------------------------------------------------------------------------------------------------------- $ 4,000,000 Baldwin Cnty., Eastern Shore Hlth. Care Auth. Hosp. Rev. Bonds (Thomas Hospital), 6 3/4s, 4/1/21 Baa3 $ 4,390,000 Alaska (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline), 7 1/8s, 12/1/25 AA 2,210,000 Arizona (2.8%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds (Tucson Elec. Pwr. Co.), Ser. B, 5 7/8s, 3/1/33 B 5,018,750 4,000,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds (Tucson/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 B 4,485,000 5,304,879 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds (American West Airlines, Inc.), Ser. A 95-1, 8.3s, 1/1/06 B+/P 5,336,602 2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds (Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A3 3,025,000 -------------- 17,865,352 Arkansas (0.9%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 B+/P 5,712,500 California (9.2%) - -------------------------------------------------------------------------------------------------------------------------- 7,000,000 CA Hlth. Fac. Fin. Auth. IFB (Catholic Healthcare West), AMBAC, 6.906s, 7/1/17 AAA 7,288,750 Corona, COP (Vista Hosp. Syst.) 2,775,000 Ser. B, 9 1/2s, 7/1/20 (acquired 10/23/92, cost $2,775,000) (RES) B-/P 3,323,053 5,000,000 Ser. C, 8 3/8s, 7/1/11 (acquired 3/5/96, cost $5,000,000) (RES) B-/P 5,675,000 3,500,000 San Bernardino Cnty., IF COP (PA-100-Med. Ctr. Fin.), MBIA, 9.03s, 8/1/28 (acquired 6/27/95, cost $3,777,340) (RES) AAA/P 4,690,000 3,000,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.), 8 3/8s, 7/1/29 (acquired 7/28/97, cost $3,000,000) (RES) B-/P 3,236,250 8,750,000 Santa Clara Cnty. Fin. Auth. Lease Rev. Bonds (Vmc. Fac. Replacement), Ser. A, AMBAC, 6 3/4s, 11/15/20 AAA 10,270,313 14,480,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 A-/P 15,266,264 7,500,000 Valley Hlth. Syst. Hosp. Rev. Bonds, 6 1/2s, 5/15/25 BBB- 8,118,750 -------------- 57,868,380 Colorado (3.6%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Colorado Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.), 8.3s, 12/1/17 B/P 5,950,000 Denver, City & Cnty. Arpt. Rev. Bonds 2,940,000 Ser. A, 8 3/4s, 11/15/23 Baa1 3,344,250 6,980,000 Ser. A, MBIA, 8 1/2s, 11/15/23 AAA 7,765,250 1,775,000 Ser. A, 7 3/4s, 11/15/21 Baa1 1,965,813 1,050,000 Ser. D, 7 3/4s, 11/15/13 Baa1 1,355,813 Denver, City & Cnty. Arpt. Rev. Bonds, Prerefunded, Ser. A 1,060,000 8 3/4s, 11/15/23 Aaa 1,229,600 665,000 MBIA, 8 1/2s, 11/15/23 Aaa 739,813 465,000 7 3/4s, 11/15/21 Aaa 526,031 -------------- 22,876,570 Connecticut (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 3,500,000 CT State Dev. Auth. Poll. Ctrl. Rev. Bonds (CT Lt. & Pwr. Co.), Ser. B, 5.95s, 9/1/28 Ba3 3,521,875 4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds (Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 BB-/P 4,480,000 -------------- 8,001,875 Florida (4.2%) - -------------------------------------------------------------------------------------------------------------------------- 3,210,000 Escambia Cnty., Poll. Control Rev. Bonds (Champion Intl. Corp.), 6.9s, 8/1/22 Baa1 3,494,888 5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 5,787,500 9,150,000 Lee Cnty., Board of Directors Hosp. IFB (Lee Memorial Hosp.), MBIA, 8.887s, 3/26/20 AAA 10,774,125 Orange Cnty., Hlth. Fac. Auth. Rev. Bonds (Orlando Regl. Hlthcare) 2,000,000 MBIA, 6 1/4s, 10/1/18 AAA 2,352,500 2,170,000 MBIA, 6 1/4s, 10/1/11 AAA 2,549,750 1,240,000 Pinellas Cnty. Hlth. Fac. Auth. Sun. Coast Hlth. Syst. Rev. Bonds (Sun. Coast Hosp.), Ser. A, 8 1/2s, 3/1/20 BB+ 1,308,200 -------------- 26,266,963 Georgia (5.6%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Atlanta, Arpt. Fac. Rev. Bonds, AMBAC, 5 1/4s, 1/1/10 AAA 2,127,500 1,505,000 Atlanta, Special Purpose Fac. Rev. Bonds (Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB- 1,586,074 2,000,000 De Kalb Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN (Wood Hills Apt.), 3.1s, 12/1/07 A- 2,000,000 1,750,000 Fulton Cnty., Dev. Auth Fac. Rev. Bonds (Delta Airlines, Inc.), 5 1/2s, 5/1/33 Baa3 1,723,750 2,500,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl. Hlth. Care Syst.), Ser. B, MBIA, 8.901s, 8/1/10 AAA 2,975,000 GA Muni. Elec. Auth. Pwr. Rev. Bonds, AMBAC 7,000,000 Ser. Y, 6.4s, 1/1/13 Aaa 8,260,000 6,250,000 Ser. Z, 5 1/2s, 1/1/12 Aaa 6,828,125 3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds (Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 3,635,938 3,180,000 Savannah, Hosp. Rev. Bonds (Chandler Hosp.), 7s, 1/1/11 Ba1 3,617,250 1,900,000 Savannah, Hosp. Auth. Rev. Bonds (Chandler Hosp.), 7s, 1/1/23 Ba1 2,161,250 -------------- 34,914,887 Illinois (3.5%) - -------------------------------------------------------------------------------------------------------------------------- Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds 5,158,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 5,725,380 3,090,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 3,426,038 1,765,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 1,956,944 3,000,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa2 3,603,750 5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa2 5,393,750 2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds (Regency Park-Lincolnwood), Ser. A, 10 1/4s, 4/15/19 (acquired 5/10/90, cost $2,396,628) (In default) (NON) (RES) D/P 1,925,000 -------------- 22,030,862 Indiana (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 9,300,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds (Federal Express Corp.), 7.1s, 1/15/17 Baa2 10,392,750 Iowa (1.1%) - -------------------------------------------------------------------------------------------------------------------------- IA Fin. Auth. Hlth. Care Fac. Rev. Bonds (Care Initiatives) 3,000,000 9 1/4s, 7/1/25 BB/P 4,016,250 2,350,000 9.15s, 7/1/09 BB/P 3,060,875 -------------- 7,077,125 Kansas (3.0%) - -------------------------------------------------------------------------------------------------------------------------- 7,500,000 Burlington, Poll. Control IFB (KS Gas & Electric), Ser. 91-4, MBIA, 9.67s, 6/1/31(acquired 12/17/91, cost $7,800,000) (RES) Aaa 8,925,000 8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA, 8.55s, 10/20/17 AAA 10,027,500 -------------- 18,952,500 Kentucky (2.0%) - -------------------------------------------------------------------------------------------------------------------------- 7,785,000 Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds (Delta Air Lines, Inc.), Ser. A, 7 1/2s, 2/1/20 Baa3 8,514,844 1,000,000 Scott Cnty. Indl. Dev. Rev. Bonds (Hoover Group Inc.), 8 1/2s, 11/1/14 BA3 1,127,500 2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B, 6.55s, 11/1/20 Aa2 2,962,625 -------------- 12,604,969 Louisiana (3.6%) - -------------------------------------------------------------------------------------------------------------------------- 12,500,000 Lake Charles, Harbor & Term. Dist. Port Fac. Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 14,250,000 W. Feliciana, Parish Poll. Control Rev. Bonds (Gulf States Util. Co.) 5,050,000 8s, 12/1/24 Ba1 5,337,143 2,750,000 Ser. C, 7s, 11/1/15 Ba1 3,038,750 -------------- 22,625,893 Maryland (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 MD State Cmnty. Dev. Admin. Rev. Bonds (Residential), Ser. B, FHA Insd., 5.35s, 9/1/30 Aa2 5,043,750 4,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds, prerefunded (Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 4,415,000 -------------- 9,458,750 Massachusetts (6.4%) - -------------------------------------------------------------------------------------------------------------------------- MA State Hlth. & Edl. Fac. Auth. Rev. Bonds 2,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba2 2,047,860 3,900,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 BB/P 4,407,000 1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 1,122,363 3,000,000 (New England Baptist Hosp.), Ser. B, 7.3s, 7/1/11 AAA 3,330,000 1,100,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/14 A 1,141,624 1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba 1,321,275 2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 A 2,075,560 3,400,000 (Sisters Providence Hlth. Syst), Ser. A, 6 5/8s, 11/15/22 Aaa 3,893,000 7,645,000 MA State Hsg. Fin. Agcy. Rev. Bonds, 7s, 7/1/40 (acquired 6/3/98, cost $7,739,333) (RES) Aaa 8,065,475 5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds (Southeastern MA), Ser. B, 9 1/4s, 7/1/15 BB-/P 5,606,250 MA State Indl. Fin. Agcy. Rev. Bonds 2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 AAA/P 2,392,500 2,760,000 (MA Tpk.), 9s, 10/1/20 AAA/P 3,084,300 2,000,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,013,380 1,323,785 (1st Mtge. Pioneer Valley Living Ctr.), zero %, 10/1/20 B/P 1,655 -------------- 40,502,242 Michigan (5.6%) - -------------------------------------------------------------------------------------------------------------------------- 4,295,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 5,298,956 3,405,000 MI State Hosp. Fin. Auth. Rev. Bonds (Pontiac Osteopathic Hosp.), Ser. A, 6s, 2/1/14 Baa1 3,562,481 6,015,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds (Env. Research), 8 1/8s, 10/1/14 AAA/P 6,406,035 2,000,000 MI State Strategic Fund Resource Recvy. Ltd. Rev. Bonds (Wayne Energy), Ser. A, 6.9s, 7/1/19 B/P 2,027,500 8,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds (Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 8,680,000 2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds (NOMC Obligation Group), 6s, 8/1/18 Baa3 2,781,000 6,500,000 Waterford, Econ. Dev. Corp. Rev. Bonds (Canterbury Hlth. Care, Inc.), 8 3/8s, 7/1/23 (acquired 5/18/95, cost $6,679,083) (RES) B-/P 6,175,000 -------------- 34,930,972 Minnesota (2.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,900,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical, Inc.), 10 1/4s, 9/1/20 BB-/P 2,079,702 5,000,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds, Ser. E, 6.85s, 1/1/24 AA+ 5,331,250 5,850,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds (Healtheast), Ser. B, 6 5/8s, 11/1/17 Baa3 6,274,125 -------------- 13,685,077 Mississippi (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 4,100,000 Claiborne Cnty., Rev. Bonds (Middle South Energy, Inc.) Ser. A, 9 1/2s, 12/1/13 Ba1 4,238,170 4,000,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle South Energy, Inc.) Ser. C, 9 7/8s, 12/1/14 Ba1 4,135,920 -------------- 8,374,090 Missouri (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 3,700,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds (Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 3,880,375 Nebraska (1.8%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Gage Cnty, Indl. Dev. Rev. Bonds (Hoover Group Inc.), 8 1/2s, 12/1/07 Ba3 2,257,500 2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte River Road), 6 3/4s, 1/1/28 B/P 2,440,625 NE Investment Fin. Auth. Single Fam. Mtge. IFB 700,000 Ser. B, GNMA Coll., 11.419s, 3/15/22 Aaa 769,125 1,700,000 Ser. B, GNMA Coll., 10.094s, 10/17/23 Aaa 1,870,000 1,700,000 GNMA Coll., 9.293s, 9/15/24 Aaa 1,923,125 2,150,000 Ser. C, 7.918s, 3/1/20 Aaa 2,373,063 -------------- 11,633,438 Nevada (1.7%) - -------------------------------------------------------------------------------------------------------------------------- Clark Cnty., Indl. Dev. Rev. Bonds 4,000,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa3 4,270,000 6,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa3 6,660,000 -------------- 10,930,000 New Hampshire (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 2,085,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds (Alice Peck Day Memorial Hosp.), 9 3/8s, 11/1/20 BB+/P 2,290,894 New Jersey (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 8,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 8,760,000 New York (5.2%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Dutchess Cnty., Indl. Dev. Agency Civic Fac. Rev. Bonds (Marist College), Ser. A, VRDN, 2.9s, 7/1/28 A-1+ 2,000,000 2,100,000 Long Island, Pwr. Auth. NY Elec. Syst. VRDN, Ser. 1, 3s, 5/1/33 (Bayerische Landesbank (LOC)) VMIG1 2,100,000 NY City, G.O. Bonds 7,000,000 Ser. F, 8 1/4s, 11/15/10 AAA 8,023,750 4,925,000 Ser. D, 8s, 8/1/18 (Group C) Aaa 5,552,938 5,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds, 7.05s, 6/15/17 (acquired 5/21/98, cost $5,292,577) (RES) AAA/P 5,475,000 1,800,000 NY State Hsg. Fin. Agcy. VRDN (Normadie Court I), 2 3/4s, 5/15/15 (Landesbank Hessien (LOC)) VMIG1 1,800,000 2,000,000 NY State Local Govt. Assistance Corp. VRDN, Ser. B, 2.7s, 4/1/25 VMIG1 2,000,000 5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96, FGIC, 6.6s, 10/1/23 AAA 5,618,750 -------------- 32,570,438 Ohio (3.7%) - -------------------------------------------------------------------------------------------------------------------------- 20,000,000 OH State Air Quality Dev. Auth. Rev. Bonds (Cleveland Co.), FGIC, 8s, 12/1/13 AAA 23,200,000 Oklahoma (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 2,870,000 Oklahoma Cnty., Indl. Auth. Rev. Bonds (Epworth Villa), Ser. A, 10 1/4s, 4/1/19 AAA/P 2,996,424 3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American Airlines, Inc.), 7 3/8s, 12/1/20 Baa2 3,736,250 -------------- 6,732,674 Pennsylvania (6.8%) - -------------------------------------------------------------------------------------------------------------------------- 4,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac. Rev. Bonds (U.S. Air, Inc.), Ser. B, 8 1/2s, 3/1/21 B+ 4,435,000 4,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Forum Place), Ser. A, 6s, 1/15/25 BB-/P 4,550,625 1,240,000 Langhorne Manor Boro Higher Ed. Hlth. Auth. Rev. Bonds (Lower-Bucks Hosp.), 7.35s, 7/1/22 Ba3 1,314,400 2,105,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Rev. Bonds (Northwestern Corp.), Ser. A, 8 3/8s, 6/1/04 BBB/P 2,299,713 7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA, 6.7s, 9/1/14 Aaa 8,310,313 7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 9,464,688 1,000,000 PA State Econ. Dev. Fin. Auth. Res. Recvy. Rev. Bonds (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,111,250 PA State Higher Ed. Assistance Agcy. IFB, Ser. B 2,000,000 AMBAC, 8.589s, 3/1/22 AAA 2,277,500 6,000,000 MBIA, 11.041s, 3/1/20 AAA 6,765,000 5,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10 (acquired 4/11/96, cost $5,028,299) (In default) (NON) (RES) CCC 2,000,000 -------------- 42,528,489 Puerto Rico (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,200,000 Cmnwlth. of PR, Hwy. Trans. Auth. VRDN, AMBAC, 2.6s, 7/1/28 VMIG1 1,200,000 1,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. Rev. Bonds, Ser. A, 5s, 7/1/38 A 976,250 -------------- 2,176,250 South Carolina (0.9%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 SC State Hsg. Fin. & Dev. Auth. Multi-Fam. Mtge. Rev. Bonds, 8 1/2s, 10/1/21 BBB 5,443,750 Tennessee (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 4,000,000 Chattanooga, Indl. Dev. Board Rev. Bonds (Warehouse Row Ltd.), VRDN, 3.15s, 12/15/12 A-1+ 4,000,000 2,000,000 Memphis-Shelby Cnty. Arpt. Auth. Rev. Bonds (Federal Express), 6 3/4s, 9/1/12 Baa2 2,185,000 -------------- 6,185,000 Texas (7.3%) - -------------------------------------------------------------------------------------------------------------------------- 10,100,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 10,895,375 3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds (American Airlines, Inc.), 7 1/2s, 12/1/29 Baa2 3,206,250 3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains Baptist Hosp.), FSA, 9.19s, 1/3/22 AAA 4,586,313 Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (Heartway Corp.) 420,000 Ser. B, 10s, 3/1/19 CCC+/P 105,525 2,490,000 Ser. A, 9 1/2s, 3/1/19 CCC+/P 2,542,913 3,200,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 3,724,000 7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds (TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa1 7,893,438 4,500,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev. Bonds (American Airlines, Inc.), 7 1/2s, 11/1/25 Baa2 4,820,625 2,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev. Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 2,190,000 5,495,000 Texas State Fin. Auth. Rev. Bonds, Ser. A, 5.9s, 10/1/12 Aa2 6,065,106 -------------- 46,029,545 Utah (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Tooele Cnty., Hazardous Waste Treatment Rev. Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 BBB- 4,956,250 Virginia (1.6%) - -------------------------------------------------------------------------------------------------------------------------- 3,800,000 Culpepper, Ind. Dev. Auth. Res. Care Fac. VRDN (Baptist Homes), 3.8s, 11/1/17 A-1+ 3,800,000 5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC, 9.418s, 8/15/23 AAA 6,426,000 -------------- 10,226,000 Washington (2.8%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 AA+ 5,568,750 WA State Pub. Pwr. Supply Syst. Rev. Bonds 6,315,000 (Nuclear Project No. 1), Ser. A, 7 1/2s, 7/1/15 Aaa 6,622,353 5,000,000 (Nuclear Pwr. No. 2), Ser. A, AMBAC, 5.6s, 7/1/09 AAA 5,443,750 -------------- 17,634,853 West Virginia (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 3,500,000 Randolph Cnty. Rev. Bonds (Davis Memorial Hosp.), Ser. A, 7.65s, 11/1/21 Baa1 3,915,625 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $582,629,585) (b) $ 619,835,338 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $628,903,599. (RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at October 31, 1998 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, 1998. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent accountants. (b) The aggregate identified cost on a tax basis is $582,646,401, resulting in gross unrealized appreciation and depreciation of $43,797,687 and $6,608,750, respectively, or net unrealized appreciation of $37,188,937. (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, 1998 was $49,489,778 or 7.9% of net assets. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at October 31, 1998, which are subject to change based on the terms of the security. 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, 1998. The fund had the following industry group concentrations greater than 10% at October 31, 1998 (as a percentage of net assets): Health care 27.9% Utilities 20.9 Transportation 18.8 The fund had the following insurance concentration greater than 10% at October 31, 1998 (as a percentage of net assets): MBIA 10.5% The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities October 31, 1998 Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $582,629,585) (Note 1) $619,835,338 - ----------------------------------------------------------------------------------------------- Cash 4,363,287 - ----------------------------------------------------------------------------------------------- Interest and other receivables 12,226,591 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 475,000 - ----------------------------------------------------------------------------------------------- Total assets 636,900,216 Liabilities - ----------------------------------------------------------------------------------------------- Distributions payable to shareholders 2,934,991 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 3,809,948 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,083,188 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 38,087 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 14,918 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,509 - ----------------------------------------------------------------------------------------------- Other accrued expenses 112,976 - ----------------------------------------------------------------------------------------------- Total liabilities 7,996,617 - ----------------------------------------------------------------------------------------------- Net assets $628,903,599 Represented by - ----------------------------------------------------------------------------------------------- Series A, B and C remarketed preferred shares, without par value: 8,000 shares authorized (1,750 shares issued at $100,000 per share) (Note 4) $175,000,000 - ----------------------------------------------------------------------------------------------- Paid-in capital -- common shares (unlimited shares authorized) (Note 1) 427,604,731 - ----------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 8,804,371 - ----------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (19,711,256) - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 37,205,753 - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $628,903,599 Computation of net asset value - ----------------------------------------------------------------------------------------------- Series A, B, and C remarketed preferred shares $175,000,000 - ----------------------------------------------------------------------------------------------- Cumulative undeclared dividends on remarketed preferred shares 137,511 - ----------------------------------------------------------------------------------------------- Net assets allocated to remarketed preferred shares -- liquidation preference $175,137,511 - ----------------------------------------------------------------------------------------------- Net assets available to common shares $453,766,088 - ----------------------------------------------------------------------------------------------- Net asset value per common shares ($453,766,088 divided by 46,221,286 shares) $9.82 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended October 31, 1998 Tax exempt interest income: $41,922,238 - ----------------------------------------------------------------------------------------------- Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 4,282,395 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 507,835 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 17,198 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 11,970 - ----------------------------------------------------------------------------------------------- Reports to shareholders 36,825 - ----------------------------------------------------------------------------------------------- Registration fees 75 - ----------------------------------------------------------------------------------------------- Auditing 41,834 - ----------------------------------------------------------------------------------------------- Legal 28,416 - ----------------------------------------------------------------------------------------------- Postage 69,422 - ----------------------------------------------------------------------------------------------- Exchange listing fees 41,115 - ----------------------------------------------------------------------------------------------- Other 73,467 - ----------------------------------------------------------------------------------------------- Preferred share remarketing agent fees 465,364 - ----------------------------------------------------------------------------------------------- Total expenses 5,575,916 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (42,183) - ----------------------------------------------------------------------------------------------- Net expenses 5,533,733 - ----------------------------------------------------------------------------------------------- Net investment income 36,388,505 - ----------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (1,097,907) - ----------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (1,594,704) - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and futures during the year 2,673,279 - ----------------------------------------------------------------------------------------------- Net loss on investments (19,332) - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $36,369,173 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended October 31 ------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 36,388,505 $ 38,451,774 - --------------------------------------------------------------------------------------------------------------- Net realized loss on investments (2,692,611) (12,691,187) - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 2,673,279 18,595,112 - --------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 36,369,173 44,355,699 - --------------------------------------------------------------------------------------------------------------- Distributions to remarketed preferred shareholders from net investment income (6,397,736) (6,313,568) - --------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations applicable to common shareholders (excluding cumulative undeclared dividends on remarketed preferred shares of $137,511 and $128,615 respectively) 29,971,437 38,042,131 - --------------------------------------------------------------------------------------------------------------- Distributions to common shareholders from net investment income (35,091,416) (34,801,505) - --------------------------------------------------------------------------------------------------------------- Issuance of common shares in connection with reinvestment of distributions 3,980,143 4,236,683 - --------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (1,139,836) 7,477,309 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of year 630,043,435 622,566,126 - --------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $8,804,371 and $13,905,473, respectively) $628,903,599 $630,043,435 - --------------------------------------------------------------------------------------------------------------- Number of fund shares - --------------------------------------------------------------------------------------------------------------- Common shares outstanding at beginning of year 45,852,179 45,450,073 - --------------------------------------------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 369,107 402,106 - --------------------------------------------------------------------------------------------------------------- Common shares outstanding at end of year 46,221,286 45,852,179 - --------------------------------------------------------------------------------------------------------------- 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 share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period (common shares) $9.92 $9.85 $10.08 $9.49 $10.88 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .79 .84 .86 .90 .94 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .01 .13 (.19) .60 (1.37) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .80 .97 .67 1.50 (.43) - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income - ------------------------------------------------------------------------------------------------------------------------------------ To preferred shareholders (.14) (.14) (.14) (.15) (.11) - ------------------------------------------------------------------------------------------------------------------------------------ To common shareholders (.76) (.76) (.76) (.76) (.76) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments - ------------------------------------------------------------------------------------------------------------------------------------ To common shareholders -- -- -- -- (.09) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.90) (.90) (.90) (.91) (.96) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period (common shares) $9.82 $9.92 $9.85 $10.08 $9.49 - ------------------------------------------------------------------------------------------------------------------------------------ Market value, end of period (common shares) $11.44 $11.75 $10.88 $10.63 $9.25 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at market value (common shares) (%)(a) 4.52 16.01 10.26 24.23 (11.56) - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (total fund) (in thousands) $628,904 $630,043 $622,566 $628,454 $596,992 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b)(c) 1.22 1.21 1.24 1.20 1.23 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%)(b) 6.57 7.13 7.31 7.70 9.20 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 19.97 9.63 78.92 79.71 48.40 - ------------------------------------------------------------------------------------------------------------------------------------ (a) Total investment return assumes dividend reinvestment and does not reflect the effects of sales charges. (b) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for dividend payments to preferred shareholders. (c) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts.(Note 2)
Notes to financial statements October 31, 1998 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 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 generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. The fair value of restricted securities is determined by the Putnam Investment Management, Inc. ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, Inc. following procedures approved by the Trustees, and such valuations and procedures are reviewed periodically by Trustees. B) 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. C) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. D) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. E) Federal taxes It is the policy of the fund to distribute all of its taxable 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, 1998, the fund had a capital loss carryover of approximately $16,290,000 available to offset future capital gains, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration ---------------- ---------------- $ 1,886,000 October 31, 2002 321,000 October 31, 2003 11,188,000 October 31, 2005 2,895,000 October 31, 2006 F) Distributions to shareholders Distributions to common and preferred shareholders are recorded by the fund on the ex-dividend date. 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 B and a 7-day period for Series C. The applicable dividend rate for the remarketed preferred shares on October 31, 1998 was Series A 3.55%, Series B 3.60% and Series C 3.40%. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of losses on wash sale transactions, defaulted bond interest and unrealized gains and losses on certain futures contracts. 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, 1998, the fund reclassified $455 to decrease undistributed net investment income and $206,089 to decrease paid-in-capital, with a decrease to accumulated net realized loss of $206,544. The calculation of net investment income per share in the financial highlights table excludes these adjustments. G) Amortization of bond premium and accretion of bond discount Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discounts on original issue discount bonds are accreted according to the yield-to-maturity basis. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million, 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 .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 subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended October 31, 1998, fund expenses were reduced by $42,183 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $650 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the 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 in the fund and are 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 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 Purchase and sales of securities During the year ended October 31, 1998, purchases and sales of investment securities other than short-term investments aggregated $123,134,296 and $124,704,798, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Remarketed Preferred Shares The Series A (550), B (550) and 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, 1998, no such restrictions have been placed on the fund. 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 1999 will show the tax status of all distributions paid to your account in calendar 1998. Results of October 1, 1998 shareholder meeting (Unaudited) An annual meeting of shareholders of the fund was held on October 1, 1998. At the meeting, each of the nominees for Trustees was elected, as follows: Common Shares Preferred Shares Votes Votes Votes for withheld Votes for withheld Jameson Adkins Baxter 34,131,656 539,076 881 12 Hans H. Estin 34,118,876 551,856 881 12 J.A. Hill not applicable 881 12 Ronald J. Jackson 34,154,182 516,550 881 12 Paul L. Joskow 34,138,463 532,269 881 12 Elizabeth T. Kennan 34,126,422 544,310 881 12 Lawrence J. Lasser 34,119,849 550,883 881 12 John H. Mullin III 34,139,599 531,133 881 12 Robert.E Patterson not applicable 881 12 Donald S. Perkins 34,087,354 583,378 881 12 William F. Pounds 34,092,280 578,452 881 12 George Putnam 34,098,047 572,685 881 12 George Putnam, III 34,098,368 572,364 881 12 A.J.C. Smith 34,121,144 549,588 881 12 W. Thomas Stephens 34,136,644 534,088 881 12 W. Nicholas Thorndike 34,104,748 565,984 881 12 A proposal to ratify the selection of PricewaterhouseCoopers LLP as the independent auditors of your fund was approved as follows: Common Shares -- 33,803,674 votes for, and 230,529 votes against, with 636,529 abstentions and broker non-votes. Preferred Shares -- 893 votes for, and 0 votes against, with 0 abstentions and broker non-votes. A proposal to approve an amendment to the fund's fundamental investment restriction with respect to making loans was approved as follows: Common Shares -- 26,412,195 votes for, and 2,192,051 votes against, with 6,066,486 abstentions and broker non-votes. Preferred Shares -- 698 votes for, and 184 votes against, with 11 abstentions and broker non-votes. All tabulations are rounded to nearest whole number. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Jerome J. Jacobs Vice President Richard P. Wyke Vice President and Fund Manager John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our website (www.putnaminv.com) any time for up-to-date information about the fund's NAV. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 www.putnaminv.com - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- 47854 12/98 -----END PRIVACY-ENHANCED MESSAGE-----