-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TBpPVkdb6PiMeaB6AfOLVdGpnHFj42Hr5snYEazDGSrVXSWe5c01f9uJRkQFU4f2 Yh3nFx/oHt/aLJ8y8FYytw== 0000950146-95-000003.txt : 19950110 0000950146-95-000003.hdr.sgml : 19950110 ACCESSION NUMBER: 0000950146-95-000003 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950109 SROS: NONE 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: 1940 Act SEC FILE NUMBER: 001-10158 FILM NUMBER: 95500651 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921536 N-30D 1 PUTNAM MANAGED MUNICIPAL INCOME TRUST A/R Putnam Managed Municipal Income Trust (Cover artwork) ANNUAL REPORT October 31, 1994 (Scale graphic) BOSTON * LONDON * TOKYO Performance highlights > ". . . Putnam Managed Municipal Income Trust has been able to post good relative returns throughout its history: over the trailing five-year period, its 9.8% annualized return is one of the best in its objective." - -- Morningstar Mutual Funds analysis, September 23, 1994. > Performance should always be considered in light of a fund's investment strategy. Putnam Managed Municipal Income Trust is designed for investors seeking high current income exempt from federal income tax through a diversified portfolio of tax-exempt municipal securities. FISCAL 1994 RESULTS AT A GLANCE Total return NAV Market price ............................................................................... (change in value during period plus reinvested distributions) 12 months ended 10/31/94 -5.14% -11.56 % Share value (common shares) NAV Market price ............................................................................... 10/31/93 $10.88 $ 11.375 10/31/94 9.49 9.250 Capital gains(1) Distributions Long- Short- No. Income term term Total ............................................................................... Period ended 10/31/94 Common shares 12 $0.762 $0.059 $0.034 $0.855 Preferred shares Total Series A (550) $2772.58 Series B (550) $2776.85 Series C (650) $2733.17 Current return NAV Market price ............................................................................... End of period Current dividend rate(2) 8.03% 8.24% Taxable equivalent(3) 13.29 13.64 Performance data represent past results. For performance over longer periods, see page 7. (1)Capital gains are taxable for federal and, in most cases, state tax purposes. (2)Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. (3)Assumes maximum 39.6% federal tax rate. Results for investors subject to lower tax rates would not be as advantageous. 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. From the Chairman (Photo) (C)Karsh, Ottawa Dear Shareholder: When markets turn down, investors with vision look beyond the unfolding negatives for opportunities farther down the road. Throughout Putnam Managed Municipal Income Trust's fiscal year that ended on October 31, 1994, there was plenty to obstruct the view. The period had hardly begun when signs appeared that the sustained bond market rise was about to end. Fund Manager Howard Manning began taking defensive action. Had he not done so, the toll on the fund's results would likely have been greater. Even so, the fund joined most other fixed-income investments in the decline. But Howard sees emerging strengths for tax-exempt securities. Supplies may become tighter as fewer issues come to market and more investors seek tax relief. Putnam Management believes that many sectors of the tax-exempt market, including health care, education, and resource recovery, are poised for growth. Both signs bode well for municipal bond investors. Howard will focus on these positive factors as he seeks out the most promising opportunities for your fund. His report on fiscal '94 performance and what he sees in store for fiscal '95 follows. Respectfully yours, (Signature) George Putnam Chairman of the Trustees December 14, 1994 Report from the fund manager Howard Manning Many municipal bond fund investors will undoubtedly breathe a sigh of relief when this year's volatile market brought on by inflation fears and rising interest rates comes to a close. Putnam Managed Municipal Income Trust was not alone in feeling the dampening effects of this market as we report a total return of -5.14% at net asset value for the fiscal year ended October 31, 1994. While these results are somewhat disappointing, we consider them understandable in light of the year's bond market decline. The fund continues to provide attractive current income: the fund's tax-free current dividend rate was 8.03% at net asset value at period's end. Investors who pay the maximum 39.6% federal income tax bracket would have had to receive a 13.29% taxable return to match this rate.* Investors can also take heart in the fact that the portfolio, in our opinion, is positioned well both in terms of coupon structure and sector allocation for any upturn in the municipal bond market. We also believe that the fund's solid long-term performance is an indicator of its ability to benefit from periods of market strength. > SUPPLY/DEMAND BALANCE SHIFT EXPECTED In the municipal bond market nationwide, there has been a decrease of more than 40% in the issuance of debt this year. While the supply side of the equation has tightened, one of the factors that has hindered the demand from taking shape, we believe, is the market's short-term overreactions to inflationary expectations. Mutual fund managers have been forced to raise cash to meet redemptions, which, in turn, has brought more selling in the market. While there can be no guarantees, we believe that demand will rise as more investors seek relief from higher taxes and increasingly recognize the attractiveness of municipal bonds relative to *Investors in lower brackets would also have benefited, but not to the same extent. Certain high-income investors may be subject to the federal Alternative Minimum Tax. Investment income may be subject to state and local taxes. taxable U.S. Treasury bonds. Taken together, these factors should act as a strong price support for tax-exempt securities, although, of course, prices of fixed-income securities are determined by many factors, including changes in interest rates. > RESPONDING TO INTEREST RATE MOVEMENTS In attempting to steer your fund's portfolio through this choppy market, we have undertaken several defensive measures. While anticipating and reacting to changes in interest rates is important, we believe these changes will not compromise the fund's ability to participate in any future market rallies. We have focused on purchasing bonds that will not be paid off for several years. This is designed to prevent attractive securities from being called away early. We have also taken steps to shorten the portfolio's duration somewhat. Duration is a measure of the price sensitivity of a bond or bond fund to a given change in interest rates. Shortening it can help to reduce a portfolio's volatility as well as protect its value. Most importantly, we have also begun to "swap up" into premium-coupon bonds. These bonds' higher coupons tend to make their prices less sensitive to rising interest rates and their higher income stream represents a greater portion of their return. This provides at least a temporary floor for their prices. > HEALTH CARE COULD ADD TO A BRIGHT FUTURE A fund's success with its sector weightings has a direct relationship to the strength of its research team. In our opinion, Putnam has the strong research capabilities needed to find tomorrow's attractive sectors. Although the fund holds debt across many sectors of the municipal bond market, we believe the health care sector holds the greatest promise. TOP FIVE INDUSTRY SECTORS* Health care 26.5% Utilities 14.3% Transportation 12.4% Education 6.8% Water & Sewer 6.1% *Based on a percentage of net assets as of 10/31/94. Figures may vary in the future. Despite congressional failure to pass health care reform, tremendous changes are going on in the nation's hospitals and health care systems. We are finding undervalued health care securities nationwide. For several years, a significant cost cutting and consolidation have made this sector more efficient and cost effective. Additionally, some of the health care debt the fund does own has been or appears likely to be, in our opinion, the subject of takeovers by for-profit organizations or merger/affiliation with stronger not-for-profits. This is typically a positive event for bondholders because it often leads to a refinancing of the bond issue. When this occurs, the revenue source for interest payments of the bond shifts from the underlying cash flow of the project itself to AAA-rated U.S. government securities. We believe this elimination of the issue's exposure to credit risk could result in capital appreciation and increases in the fund's NAV. Some of the securities that have benefited or are likely to benefit from prerefunding include: St. Luke's Hospital of Arizona, Miami Cedars health system (which went from a BB- rating to AAA after prerefunding). An example of a beneficial merger/affiliation was Bexar County (Texas) St. Luke's Hospital, which went from a Baa rating to an A rating after a merger. > A LONG-TERM VIEW Despite recent financial problems in Orange County, California, we believe the state's municipal bond market offers tremendous value. While the fund has no direct exposure to Orange County, it currently holds 16% of its assets in California securities. We will continue to draw on Putnam Management's strong research capabilities in order to find attractive opportunities. As the fund enters fiscal 1995, we believe the economy will continue its current pace of slow but steady growth with relatively low inflation. We also believe that as time goes on, municipal bonds will become more attractive to tax-conscious investors when compared to taxable alternatives. The views expressed about the securities mentioned in this report are exclusively those of Putnam Management, and not meant as investment advice. Although the described holdings were viewed favorably as of October 31, 1994, there is no guarantee the fund will continue to hold these securities in the future. Performance summary TOTAL RETURN FOR PERIODS ENDED 10/31/94 Lehman Bros. Municipal NAV Market price Bond Index CPI 1 year -5.14% -11.56% -4.36% 2.61% 5 years 53.48 46.61 42.50 19.03 Annual average 8.95 7.95 7.34 3.55 Life of Fund since (2/24/89) 61.45 46.35 52.52 22.94 Annual average 8.78 6.92 7.70 3.70 TOTAL RETURN FOR PERIODS ENDED 9/30/94 (most recent calendar quarter) Lehman Bros. Municipal NAV Market price Bond Index CPI 1 year -2.35% -8.07% -2.44% 2.96% 5 years 58.49 48.62 46.85 19.52 Annual average 9.65 8.25 7.99 3.63 5 years 65.08 51.24 55.28 22.86 Annual average 9.36 7.67 8.18 3.75 Performance data represent past results. Investment returns and principal value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost. Fund performance data do not take into account any adjustment for taxes payable on reinvested distributions. 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 back into the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, the liquidation preference and cumulative undeclared dividends paid on the fund's preferred shares, divided by the number of oustanding 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. 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 does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Report of Independent Accountants For the Year Ended October 31, 1994 To the Trustees and Shareholders of Putnam Managed Municipal Income Trust We have audited the accompanying statement of assets and liabilities of Putnam Managed Municipal Income Trust ("the Fund"), including the portfolio of investments owned, as of October 31, 1994, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the five years in the period then ended, and for the period February 24, 1989 (commencement of operations) to October 31, 1989. 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 generally accepted auditing standards. Those standards require that we plan and perform the 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, 1994, by correspondence with the custodian and brokers. 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, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the five years in the period then ended and for the period February 24, 1989 (commencement of operations) to October 31, 1989, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 16, 1994 Portfolio of investments owned October 31, 1994
MUNICIPAL BONDS AND NOTES (98.2%)(a) PRINCIPAL AMOUNT RATINGS(b) VALUE Arizona (3.4%) AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds $ 3,000,000 (St. Luke's Hosp. Syst.), Ser. A, 10-1/8s, 11/1/15 Ba $ 3,135,000 3,500,000 (St. Luke's Hlth. Syst.), 7-1/4s, 11/1/14 Ba 3,325,000 2,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds Ser. 85, 8.9s, 7/1/06 Baa 2,190,000 4,000,000 Payson, Ind. Dev. Auth. Hosp. Rev. Bonds (Payson Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P 3,845,000 9,900,000 Salt River, Agricultural Impt. & Pwr. Dist. Elec. Syst. Rev. Bonds (Salt River Project), Ser. B, 5-1/4s, 1/1/19 AA 8,093,250 $20,588,250 California (16.0%) $ 5,700,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa $ 5,080,125 2,000,000 CA Hlth. Facs. Auth. Rev. Bonds (Pacific Presbyterian Med. Ctr.), Ser 89A, 6.85s, 6/1/19 BBB 1,787,500 7,430,000 CA Health Facs. Fing. Auth. Rev. Bonds (Pac. Presbyterian), Ser. B, Industrial Indemnity Insurance, 6-3/4s, 6/1/15 A 7,114,225 CA State Pub. Works Board Lease Rev. Bonds 12,605,000 (Various Cmnty. College Projects), Ser. A, 5-5/8s, 12/1/13 A 10,714,250 3,500,000 (Various U. of CA Projects), Ser. A, 5-1/2s, 6/1/21 A 2,817,500 (U. of CA Projects), 5,000,000 Ser. B, 5-1/2s, 6/1/14 A 4,162,500 6,220,000 Ser. B, 5-3/8s, 6/1/09 A 5,333,650 5,000,000 Contra Costa, Wtr. Dist. Wtr. Rev. Bonds, Ser. G, Municipal Bond Insurance Association (MBIA), 5-1/2s, 10/1/19 AAA 4,275,000 2,775,000 Corona, Certif. of Participation (COP) (Vista Hosp. Syst.), Ser. B, 9-1/2s, 7/1/20 BB/P 2,851,305 2,760,000 Glendale, Hosp. Rev. Bonds (Verdugo Hills Hosp.), Ser. A, 10-1/8s, 1/1/15 A 2,832,450 5,000,000 Los Angeles, Dept. Wtr. & Pwr. Elec. Plant Rev. Bonds, MBIA, 5-1/4s, 11/15/26 AAA 3,937,500 22,800,000 Metro. Wtr. Dist. Southern CA Wtrwrks. Rev Bonds, 6-3/4s, 7/1/18 AA 24,624,000 5,000,000 Riverside, Redev. Agcy. Rev. Bonds (Tax Allocation Merged Redev. Project), Ser. A, MBIA, 5-5/8s, 8/1/23 AAA 4,250,000 15,000,000 U. of CA Rev. Bonds (USCD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 BBB 15,581,250 $95,361,255 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Colorado (6.6%) Denver, City & Cnty. Arpt. Rev. Bonds $ 4,000,000 Ser. A, 8-3/4s, 11/15/23 Baa $ 4,145,000 7,000,000 Ser. A, 8-1/2s, 11/15/23 Baa 7,131,250 1,050,000 Ser. D, 7-3/4s, 11/15/13 Baa 1,015,875 2,000,000 Ser. B, 7-1/4s, 11/15/23 Baa 1,815,000 12,000,000 Ser. D, 7s, 11/15/25 Baa 10,530,000 2,800,000 Ser. C, 6-3/4s, 11/15/13 Baa 2,464,000 14,470,000 Denver, City & Cnty. Special Fac. Arpt. Rev. Bonds (United Air Lines, Inc. Project), Ser. A, 6-7/8s, 10/1/32 Baa 12,426,113 $39,527,238 Florida (6.6%) $ 5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed Stone Co.), 8-1/2s, 12/1/14 B/P $ 5,125,000 2,000,000 Hillsborough Cnty., Aviation Auth. Special Purpose Rev. Bonds (USAir Inc. Project), 8.6s, 1/15/22 B 1,800,000 7,900,000 Lee Cnty., Hosp. Board of Directors Hosp. Residual Interest Bonds (RIBS) (Lee Memorial Hosp.), MBIA, 8.327s, 3/26/20 AAA 7,179,125 3,000,000 Miami, Hlth. Facs. Auth. Rev. Bonds (Cedars Med. Ctr.), Ser. A, 8.3s, 10/1/07 AAA/P 3,303,750 1,500,000 Orange Cnty., Hlth. Fac. Auth. 1st. Mtge. Rev. Bonds (RHA/Princeton Hosp.), 9s, 7/1/21 B/P 1,485,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds (JFK Med. Ctr. Inc. Project), 1,260,000 8-7/8s, 12/1/18 AAA 1,365,525 1,705,000 Prerefunded 8-7/8s, 12/1/18 AAA 1,954,356 16,350,000 Tampa, Cap. Impt. Rev. Bonds Ser. B, 8-3/8s, 10/1/18 BBB 17,249,250 $39,462,006 Georgia (0.9%) $ 3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds (Kawneer Co. Inc. Project), Ser. 1984, 9-1/2s, 6/1/15 BBB/P $ 3,440,938 1,815,000 Savannah, Hosp. Auth. Rev. Bonds (Impt.-Candler Hosp.), 7s, 1/1/23 Baa 1,642,575 $ 5,083,513 Idaho (0.7%) $ 4,000,000 Owyhee Cnty., Indl. Dev. Corp. Rev. Bonds (Envirosafe Svcs. of Idaho Inc.), 8-1/4s, 11/1/02 B/P $ 3,905,000 Illinois (3.1%) $ 5,000,000 Chicago, O'Hare Intl. Arpt. Rev. Bonds, Ser. B, 10-3/8s, 1/1/09 A $ 5,187,500 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Illinois (continued) Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds $5,528,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa $ 5,977,150 3,325,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 3,582,688 1,895,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa 2,041,863 2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds (Regency Park-Lincolnwood), Ser. A, 10-1/4s, 4/15/19(c) B/P 1,750,000 $18,539,201 Iowa (0.9%) IA Fin. Auth. Hlth. Care Fac. Rev. Bonds (Mercy Hlth. Initiatives Project), $3,000,000 9.95s, 7/1/19 B/P $ 3,000,000 2,350,000 9.85s, 7/1/09 BB/P 2,350,000 $ 5,350,000 Kansas (2.6%) $7,500,000 Burlington, Poll. Control, RIBS (KS Gas & Electric), Ser. 91-4, MBIA, 9.86s, 6/1/31 (acquired 12/17/91, cost $7,800,000)(d) AAA $ 7,753,125 8,400,000 Witchita, Hosp. RIBS Ser. 111-A, MBIA, 9.229s, 10/1/17 AAA 8,001,000 $15,754,125 Kentucky (0.2%) $1,000,000 Scott Cnty., Indl. Dev. Variable Rate Demand Notes (VRDN) (Hoover Group Inc. Project), 8-1/2s, 11/1/14 VMIG1 $ 965,000 Louisiana (3.7%) $5,000,000 Hodge, Combined Util. Rev. Bonds (Stone Container Corp.), 9s, 3/1/10 B/P $ 5,175,000 Port of New Orleans, Indl. Dev. Rev. Bonds (Continental Grain Co. Project), 4,000,000 Ser. A, 14-1/2s, 2/1/02 BB 4,500,000 3,500,000 14-1/2s, 1/1/02 BB 3,933,125 West Feliciana Parish, Poll. Control Rev. Bonds (Gulf States Util. Co. Project), 2,000,000 Ser. C, 12s, 5/1/14 Baa 2,075,000 5,500,000 Ser. A, 10-5/8s, 5/1/14 Baa 5,706,250 $21,389,375 Maine (0.5%) $3,000,000 ME Fin. Auth. Solid Waste Recycling Facs. Rev. Bonds (Great Northern Paper Project), 7-3/4s, 10/1/22 Baa $ 3,090,000 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Maryland (0.8%) $4,000,000 MD State Hlth. & Higher Edl. Facs. Auth. Rev. Bonds (Doctors Cmnty. Hosp.), 8-3/4s, 7/1/12 Aaa $ 4,675,000 Massachusetts (4.6%) $4,750,000 Boston, General Obligation (G.O.) Rev. Bonds (City Hospital), MBIA, Ser. B, 5-3/4s, 2/15/23 AAA $ 4,132,500 MA State Hlth. & Edl. Fac. Auth. Rev Bonds 3,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 2,883,750 4,000,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7-7/8s, 8/15/24 BB/P 3,870,000 (MA Eye & Ear Infirmary), 1,010,000 Ser. A, 7-3/8s, 7/1/11 Baa 951,925 2,340,000 Ser. A, 7.2s, 7/1/02 Baa 2,252,250 MA State Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds (Pioneer Valley Living Ctr.), 2,000,000 7s, 10/1/20 B/P 1,837,500 1,323,784 zero %s, 10/1/20(c) B/P 1,655 5,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA Project), Ser. B, 9-1/4s, 7/1/15 BB/P 5,493,750 2,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,162,500 2,900,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds (MA Tpk.), 9s, 10/1/20 BAA/P 3,023,250 $26,609,080 Michigan (9.7%) $4,690,000 Detroit, Local Dev. Fin. Auth. Tax Increment Rev. Bonds Ser. A, 9-1/2s, 5/1/21 BBB/P $ 5,669,038 4,000,000 Detroit, Swr. Disp. Rev. Bonds Federal Guaranty Insurance Co. (FGIC), 5.7s, 7/1/23 AAA 3,460,000 6,000,000 Dickinson Cnty., Econ. Dev. Corp. Poll. Control Rev. Bonds (Champion Intl. Corp. Project), 5.85s, 10/1/18 Baa 5,025,000 3,550,000 Grand Rapids, Cmnty. College Rev. Bonds, MBIA, 5.9s, 5/1/19 AAA 3,217,188 2,000,000 Greater Detroit, Resource Recvy. Auth. Rev. Bonds, Ser. B, 9-1/4s, 12/13/08 BBB 2,107,500 4,780,000 Highland Park, Hosp. Fin. Auth. Fac. Rev. Bonds (MI Hlth. Care Corp. Project), Ser. A, 9-7/8s, 12/1/19 B 4,869,625 5,500,000 Kalamazoo Hosp. Fin. Auth. Hosp. Fac. Rev. Bonds (Borgess Med. Ctr.), Ser. A, FGIC, 5-1/4s, 6/1/17 AAA 4,489,375 MI State Hosp. Fin. Auth. Rev. Bonds 3,035,000 (Detroit-Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 B 2,849,106 4,800,000 (Detroit-Macomb Hosp. Corp.), Ser. A, 7.3s, 6/1/01 B 4,686,000 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Michigan (continued) $2,000,000 (Pontiac Osteopathic), Ser. A, 6s, 2/1/24 BBB $ 1,580,000 3,000,000 (Detroit Med. Ctr.), Ser. B, 5-1/2s, 8/15/23 A 2,328,750 MI State Strategic Fund Ltd. Oblig. Rev. Bonds 7,000,000 (Env. Research Project), 8-1/8s, 10/1/14 A/P 7,420,000 4,000,000 (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 3,835,000 4,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control Rev. Bonds, Ser. B, 9-1/2s, 7/23/09 B/P 4,320,000 2,150,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds (Republic Air Lines Inc. Project), 10-3/8s, 12/1/15 B/P 2,270,938 $58,127,520 Minnesota (1.3%) $1,985,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical Inc. Project), 10-1/4s, 9/1/20 BB/P $ 2,248,013 1,000,000 Rochester, Hlth. Care Fac. RIBS (Mayo Foundation), Ser. H, 8.837s, 11/15/15 AA 867,500 5,595,000 St. Paul, Hsg, & Redev. Auth. Hosp. Rev. Bonds (Healtheast Project) Ser. A, 6-5/8s, 11/1/17 Baa 4,923,600 $ 8,039,113 Mississippi (1.3%) Claiborne Cnty., Poll. Control Rev. Bonds (Middle South Energy Inc.), $2,500,000 Ser. C, 9-7/8s, 12/1/14 BBB/P $ 2,853,125 4,100,000 Ser. A, 9-1/2s, 12/1/13 BBB/P 4,622,750 $ 7,475,875 Missouri (1.2%) $4,000,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds (Park Lane Med. Ctr. Project), 8-3/4s, 1/1/15 BBB/P $ 4,290,000 3,000,000 MO State Hlth. & Edl. Facs. Auth. Rev. Bonds (BJC Hlth. Sys.), Ser. A, 6-1/2s, 5/15/20 AA 2,887,500 $ 7,177,500 Nebraska (1.8%) $2,000,000 Gage Cnty. Indl. Dev. VRDN (Hoover Group Inc. Project) 8-1/2s, 12/1/07 VMIG3 $ 1,942,500 NE Investment Fin. Auth. Single Fam. Mtge. RIBS 1,500,000 Ser. B, Government National Mortgage Assn. Coll. (GNMA), 11.419s, 3/15/22 AAA 1,567,500 7,070,000 Ser. 1, MBIA, GNMA Coll., 8-1/8s, 8/15/38 AAA 7,343,963 $10,853,963 Nevada (1.5%) Clark Cnty., Indl. Dev. Rev. Bonds $4,000,000 (NV Pwr. Co. Project), 7.8s, 6/1/20 Baa $ 4,175,000 4,850,000 (Southwest Gas Corp.), Ser. B, 7-1/2s, 9/1/32 Ba 4,722,688 $ 8,897,688 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE New Hampshire (0.9%) $ 2,260,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds (Alice Peck Day Memorial Hosp. Project), 9-3/8s, 11/1/20 BAA/P $ 2,293,900 2,800,000 NH State Indl. Dev. Auth. Poll. Control Rev. Bonds (United Illuminating Co.), Ser. B, 10-3/4s, 10/1/12 Baa 3,192,000 $ 5,485,900 New Jersey (2.8%) $ 3,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds (Vineland Cogeneration L.P. Project), 7-7/8s, 6/1/19 BB/P $ 3,120,000 2,000,000 NJ Econ. Dev. Auth. Rev. Bonds (Tevco Inc. Project), 8-1/8s, 10/1/09 A/P 2,137,500 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds 4,680,000 (Mountainside Hosp.), Ser. A, 9s, 8/1/25 AA 4,931,550 5,000,000 (St. Elizabeth Hosp.), Ser. B, 8-1/4s, 7/1/20 Baa 5,281,250 1,500,000 Union Cnty., Util. Auth. Solid Waste Rev. Bonds, Ser. A, 7.2s, 6/15/14 A 1,481,250 $16,951,550 New York (4.6%) NY City, General Obligation (G.O.) Bonds, $ 7,000,000 Ser. F, 8-1/4s, 11/15/10 A $ 7,761,250 4,925,000 Ser. D, Group C, 8s, 8/1/01 Aaa 5,651,438 NY State Urban Dev. Corp. Rev. Bonds (Correctional Fac.), Financial Security Assurance, Inc. (FSA), 10,685,000 5-1/2s, 1/1/15 Baa 8,975,400 6,000,000 5-1/2s, 1/1/15 Baa 5,106,600 $27,494,688 North Carolina (1.5%) $10,500,000 NC Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev. Bonds, Ser. B, 6s, 1/1/22 A $ 9,161,250 Ohio (4.1%) $ 1,950,000 Dayton, Special Fac. Rev. Bonds (Emery Air Freight Corp.), Ser. A, 12-1/2s, 10/1/09 B/P $ 2,254,688 20,000,000 OH State Air Quality Dev. Auth. Poll. Control Rev. Bonds (Cleveland Co. Project), FGIC, 8s, 12/1/13 AAA 22,450,000 $24,704,688 Oklahoma (1.1%) $ 3,000,000 Oklahoma Cnty., Indl. Auth. Rev. Bonds (Epworth Villa Project), Ser. A, 10-1/4s, 4/1/19 BB/P $ 3,258,750 Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regl. Med. Ctr.), 2,500,000 7.2s, 6/1/17 BBB 2,346,875 1,080,000 7s, 6/1/06 BBB 1,071,900 $ 6,677,525 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Pennsylvania (2.3%) $4,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Facs. Rev. Bonds (USAir Inc. Project), Ser. B, 8-1/2s, 3/1/21 B $ 3,620,000 4,000,000 Geisinger, Auth. Hlth. Syst. Rev. Muni. Cap. Rev. Bonds, Ser. A, 5.45s, 7/1/22 AA 3,930,000 6,000,000 PA State Higher Edl. Assistance Agcy. Student Loan, RIBS, Ser. B, MBIA, 11.062s, 3/1/20 AAA 6,367,500 $13,917,500 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 (1.5%) $8,840,000 Metro. Nashville & Davidson Cnty., Hlth. & Edl. Fac. Board Rev. Bonds (Vanderbilt U.), Ser. A, 10-1/2s, 12/1/14 A $ 9,049,950 Texas (7.3%) $2,850,000 Amarillo, Hlth. Fac. Hosp. Corp. RIBS (High Plains Baptist Hosp.), Financial Security Assurance, Inc. (FSA), 9.353s, 1/3/22 AAA $ 2,614,875 3,200,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (Heartway Corp.), Ser. A-1, 10-1/4s, 3/1/19 B/P 3,388,000 (St. Luke's Lutheran Hosp. Project), 500,000 7.9s, 5/1/18 A 513,750 3,200,000 7.9s, 5/1/11 A 3,328,000 7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds (TX Utils. Elec. Co. Project), Ser. A, 7-7/8s, 3/1/21 Baa 7,621,563 5,000,000 Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev. Bonds (American Airlines, Inc.), 7-1/2s, 11/1/25 Baa 4,725,000 Houston, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds 2,556,000 Ser. A, Verex Mtg. Ins., 10-7/8s, 2/15/16 Baa 2,603,925 2,065,000 (Lomas & Nettleton Administration Co.), Ser. B, 10-3/8s, 12/15/13 Baa 2,111,463 3,000,000 Southeast TX Hsg. Fin. Corp. Multi-Fam. Hsg. Rev. Bonds (Bayou Pk. Village Apt. Project), Ser. B, 10.175s, 8/1/16 B/P 3,015,000 2,500,000 (Promenade Place Apts. Project), Ser. B, 10.175s, 8/1/16 B/P 2,484,375 5,000,000 (Pavilion Place Apts. Project), Ser. A, 7.6s, 7/1/16 BBB/P 5,006,250 3,000,000 Tarrant Cnty., Hlth. Facs. Dev. Corp. Hosp. Rev. Bonds (Cmnty. Hlth. Care Fndtn. Inc. Project), 10-1/8s, 4/1/21 B/P 3,112,500 4,000,000 Tomball, Hosp. Auth. Rev. Bonds 6-1/8s, 7/1/23 Baa 3,280,000 $43,804,701 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS(b) VALUE Virginia (0.9%) $5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. RIBS, FGIC, 9.773s, 8/15/23 AAA $ 5,123,250 Washington (2.9%) WA State Pub. Pwr. Supply Syst. Rev. Bonds (Nuclear Project No. 1), $9,685,000 Ser. A, Prerfdg, 7-1/2s, 7/1/15 AA $ 10,641,394 6,315,000 Ser. A, Rfdg, 7-1/2s, 7/1/15 AA 6,670,219 $ 17,311,613 Total Investments (cost $587,687,697)(e) $585,997,067
NOTES (a) Percentages indicated are based on total net assets of $596,991,556. Net assets available to common shareholders are $421,754,447, which corresponds to a net asset value per common share of $9.49. (b) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at October 31, 1994 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 indicated do not necessarily represent ratings which the agencies would ascribe to these securities at October 31, 1994. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of Independent Accountants. (c) Non-income-producing security. (d) Restricted, excluding 144A securities, as to public resale. At the date of acquisition, these securities were valued at cost. There were no outstanding unrestricted securities of the same class as those held. Total market value of restricted securities owned at October 31, 1994 was $7,753,125 or 1.3% of net assets. (e) The aggregate identified cost for federal income tax purposes is $587,863,540, resulting in gross unrealized appreciation and depreciation of $16,894,009, and $18,760,482, respectively, or net unrealized depreciation of $1,866,473. The rates shown on Residual Interest Bonds (RIBS) which are securities paying variable rates that vary inversely to changes in market interest rates, Floating rate notes, Variable Certificates of Participation (COP) and Variable Rate Demand Notes (VRDN) are the current interest rates at October 31, 1994, which are subject to change based on the terms of the security. The fund had the following industry group concentrations greater than 10% on October 31, 1994 (as a percentage of net assets): Health Care 26.5% Utilities 14.3 Transportation 12.4 The table below shows the percentage of the fund's investments at October 31, 1994 assigned to the various rating categories by Moody's and Standard and Poor's and in unrated securities determined by Putnam Management to be of comparable quality. Unrated securities of Rated securities comparable quality, as percentage of as percentage of Rating Fund's net assets Fund's net assets "AAA"/"Aaa" 18.4% 0.6% "AA"/"Aa" 10.5 -- "A"/"A" 12.0 1.6 "BBB"/"Baa" 29.9 5.2 "BB"/"Ba" 3.8 4.3 "B"/"B" 3.0 8.5 VMIG1 0.1 -- VMIG3 -- 0.3 The accompanying notes are an integral of these financial statements. Statement of assets and liabilities October 31, 1994 Assets Investments in securities, at value (identified cost $587,687,697) (Note 1) $585,997,067 Interest receivable 14,375,967 Receivable for securities sold 13,904,512 Total assets 614,277,546 Liabilities Payable to subcustodian (Note 3) 928,993 Distributions payable to shareholders 2,822,551 Payable for securities purchased 12,251,633 Payable for compensation of Manager (Note 3) 1,066,057 Payable for administrative services (Note 3) 4,782 Payable for investor servicing and custodian fees (Note 3) 85,046 Other accrued expenses 126,928 Total liabilities 17,285,990 Net assets $596,991,556 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 liquidation preference) (Note 2) $175,000,000 Common shares, without par value; unlimited shares authorized; 44,449,876 shares outstanding 409,823,599 Undistributed net investment income 18,238,370 Accumulated net realized loss on investments (4,379,783) Net unrealized depreciation of investments (1,690,630) Net assets $596,991,556 Computation of net asset value Remarketed preferred shares at liquidation preference $175,000,000 Cumulative undeclared dividends on remarketed preferred shares 237,109 Net assets allocated to remarketed preferred shares at liquidation preference 175,237,109 Net assets available to common shares: Net asset value per share $9.49 ($421,754,447 divided by 44,449,876 shares) 421,754,447 Net assets $596,991,556
The accompanying notes are an integral part of these financial statements. Statement of operations Year ended October 31, 1994 Tax exempt income $ 47,130,238 Expenses: Compensation of Manager (Note 3) 4,250,515 Investor servicing and custodian fees (Note 3) 514,749 Compensation of Trustees (Note 3) 20,962 Auditing 51,549 Reports to shareholders 74,757 Legal 14,023 Postage 84,271 Administrative services (Note 3) 13,859 Exchange listing fees 38,157 Preferred share remarketing agent fees 463,579 Other 13,322 Total expenses 5,539,743 Net investment income 41,590,495 Net realized loss on investments (Notes 1 and 4) (5,006,849) Net realized gain on futures (Notes 1 and 4) 728,251 Net unrealized depreciation of investments during the year (56,090,200) Net loss on investments (60,368,798) Net decrease in net assets resulting from operations $(18,778,303) The accompanying notes are an integral part of these financial statements. Statement of changes in net assets
Year ended October 31 1994 1993 Increase (decrease) in net assets Operations: Net investment income $ 41,590,495 $ 42,995,265 Net realized gain (loss) on investments (5,006,849) 4,171,187 Net realized gain (loss) on futures contracts 728,251 (80,733) Net unrealized appreciation (depreciation) of investments (56,090,200) 40,690,659 Net increase (decrease) in assets resulting from operations (18,778,303) 87,776,378 Distributions to remarketed prefered shareholders from net investment income (4,753,458) (4,480,767) Net increase (decrease) in assets resulting from operations applicable to common shareholders (excluding cumulative undeclared dividends on remarketed preferred shares of $237,109 and $161,821 respectively) (23,531,761) 83,295,611 Distributions to common shareholders from: Net investment income (33,732,841) (33,293,276) Net realized gain on investments (4,069,833) (3,434,385) Increase from capital share transactions, common shares 5,504,121 5,405,135 Total increase (decrease) in net assets (55,830,314) 51,973,085 Net assets Beginning of year 652,821,870 600,848,785 End of year (including undistributed net investment income of $18,238,370 and $15,145,211 respectively) $596,991,556 $652,821,870 Number of fund shares Common shares outstanding at beginning of year 43,918,097 43,395,575 Common shares issued in connection with reinvestment of distributions 531,779 522,522 Common shares outstanding at end of year 44,449,876 43,918,097 Remarketed preferred shares outstanding at 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)
For the period February 24, 1989 (commencement of operations) to Year ended October 31 October 31 1994 1993 1992 1991 1990 1989 Net Asset Value, Beginning of Period (common shares) $ 10.88 $ 9.81 $ 9.44 $ 8.94 $ 9.31 $ 9.30 Investment Operations: Net Investment Income .94 .98 1.01 1.02 1.02 .54 Net Realized and Unrealized Gain (Loss) on Investments (1.37) 1.04 .26 .44 (.35) --* Total from Investment Operations (.43) 2.02 1.27 1.46 .67 .54 Distributions to Shareholders from: Net Investment Income to Preferred Shareholders (.11) (.11) (.14) (.20) (.25) (.02) to Common Shareholders (.76) (.76) (.76) (.76) (.76) (.47) Net Realized Gain on Investments to Common Shareholders (.09) (.08) -- -- (.02) -- Total Distributions (.96) (.95) (.90) (.96) (1.03) (.49) Change in Cumulative Undeclared Dividends on Remarketed Preferred Shares -- -- -- -- -- (.01) Initial Offering Expenses -- -- -- -- (.01) (.03) Net Asset Value, End of Period (common shares) $ 9.49 $ 10.88 $ 9.81 $ 9.44 $ 8.94 $ 9.31 Market Value, End of Period (common shares) $ 9.25 $ 11.38 $ 9.88 $ 10.00 $ 8.88 $ 9.50 Total Investment Return at Market Value (common shares) (%) -11.56 24.84 6.72 22.33 1.72 -0.17(b) Net Assets, End of Period (Total Fund) (in thousands) $596,992 $652,660 $600,849 $580,495 $555,583 $567,749 Ratio of Expenses to Average Net Assets (%)(a) 1.23 1.22 1.24 1.33 1.29 .62(b) Ratio of Net Investment Income to Average Net Assets (%)(a) 9.20 8.44 8.94 8.92 8.39 5.76(b) Portfolio Turnover Rate (%) 48.40 35.16 67.72 49.62 41.48 107.11(b)
* The amount shown in this caption, while mathematically determinable by the summation of amounts computed daily is also the balancing figure derived from the other figures in the statement and has been so computed. (a) Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for dividend payments to preferred shareholders. (b) Not annualized. Notes to financial statements October 31, 1994 Note 1 Significant accounting policies 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 policies are in conformity with generally accepted accounting principles. 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 Manager 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 (including accrued interest and dividends), less all liabilities (including accrued expenses), and the liquidation value 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 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. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. At October 31, 1994, the fund had capital loss carryovers of approximately $3,958,000, available to offset future realized capital gains, if any. This amount will expire October 31, 2002. To the extent that capital loss carryovers are used to offset realized gains, it is unlikely that gains so offset will be distributed to shareholders, since any such distribution might be taxable as ordinary income. E Distributions to shareholders Distributions to common and preferred shareholders are recorded by the fund on the ex-dividend date. Dividends on each share of remarketed preferred shares will accumulate from its Date of Original Issue and will be payable, when, as and if declared by the Board of Trustees, on the applicable Dividend Payment Dates. The dividend period for Series A and B is a 28-day period, and the dividend period for Series C is a 7-day period. The applicable dividend rates for the remarketed preferred shares on October 31, 1994 were: Series A 3.300%; Series B 3.375%; Series C 3.293%. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the period ended October 31, 1994 there were no current adjustments as a result of the AICPA Statement of Position (SOP) 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions, by Investment Companies." F Amortization of bond premium and discount Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discount on zero-coupon bonds, original issued discount bonds and step-up bonds is accreted according to the effective yield method. Note 2 Remarketed Preferred Shares On September 28, 1989 the fund issued 550 shares Series A Remarketed Preferred (RP), 550 shares Series B RP and 650 shares Series C RP (collectively, the "Original RP"). The Original RP 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. Undeclared dividends on preferred shares on October 31, 1994 amounted to $237,109. It is anticipated that dividends paid to holders of remarketed preferred shares will be considered tax-exempt dividends under the Internal Revenue Code of 1986, as amended. To the extent that the fund earns taxable income and capital gains by the conclusion of a fiscal year, it will be required to apportion to the holders of the remarketed preferred shares throughout that year additional dividends as necessary to result in an after-tax yield equivalent to the applicable dividend rate for the period. For the year ended October 31, 1994, the fund has earned no such taxable income or gains. 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 the 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, 1994, no such restrictions have been placed on the fund. Note 3 Management fee, administrative services, and other transactions Compensation of Putnam Investment Management for management and investment advisory services, is paid quarterly based on the average net assets of the fund, including proceeds from the remarketed preferred offering. Such fee is based on the annual rate of 0.70% of the first $500 million, 0.60% of the next $500 million, 0.55% of the next $500 million and 0.50% of any amount over $1.5 billion. 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 net income attributable to the proceeds of the remarketed preferred shares during that period, then the fee payable to Putnam 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 also reimburses the Manager 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. For the year ended October 31, 1994, the fund paid $13,859 for these services. Trustees of the fund receive an annual Trustee's fee of $1,290 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. Custodial functions for the fund are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions for the fund's common shares are currently provided by Putnam Investor Services, Inc., a division of PFTC. Fees paid for these investor servicing and custodial functions for the year ended October 31, 1994, amounted to $514,749. Investor servicing and custodian fees reported in the Statement of Operations for the year ended October 31, 1994, have been reduced by credit allowed by PFTC. As part of the custodian contract between Putnam Fiduciary Trust Company and the sub-custodian bank, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the sub-custodian for the settlement of securities purchased by the fund. At October 31, 1994 the payable to subcustodian represents the amount due for cash advanced for the settlement of a security purchase. Note 4 Purchases and sales of securities During the year ended October 31, 1994, purchases and sales of investment securities other than short-term investments aggregated $307,130,395 and $296,656,225, respectively. Purchases and sales of short-term obligations aggregated $138,285,000 and $156,585,000, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 5 Reclassification of Capital Accounts Effective November 1, 1993, Putnam Managed Municipal Income Trust has adopted the provisions of Statement of Position 93-2 (SOP) "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies". The purpose of this SOP is to report the accumulated net investment income (loss) and accumulated net realized gain (loss) accounts in such a manner as to approximate amounts available for future distributions (or to offset future realized capital gains) and to achieve uniformity in the presentation of distributions by investment companies. As a result of the SOP, the fund has reclassified $11,037 to decrease undistributed net investment income and $11,033 to increase accumulated net realized gain and $4 to increase additional paid-in capital. These adjustments represent the cumulative amounts necessary to report these balances through October 31, 1993, the close of the fund's prior fiscal year end for financial reporting and tax purposes. Selected Quarterly Data (Unaudited)
Three months ended October 31 July 31 April 30 January 31 1994 1994 1994 1994 Total investment income Total $ 11,693,577 $ 11,598,178 $ 11,884,996 $ 11,953,487 Per Share+ $ .26 $ .26 $ .27 $ .27 Net investment income available to common shareholders Total $ 8,924,821 $ 8,899,135 $ 9,602,081 $ 9,411,000 Per Share+ $ .20 $ .20 $ .22 $ .21 Net realized and unrealized gain (loss) on investments and futures Total $(22,814,166) $ (76,157) $(40,050,878) $ 2,572,403 Per Share+ $ (.51) $ -- $ (.92) $ .06 Net increase (decrease) in net assets available to common shareholders resulting from operations Total $(13,889,345) $ 8,822,978 $(30,448,797) $ 11,983,403 Per Share+ $ (.31) $ .20 $ (.70) $ .27 Net assets available to common shareholders at end of period Total $421,754,447 $443,326,292 $441,574,763 $479,160,197 Per Share+ $ 9.49 $ 9.99 $ 9.98 $ 10.87
Three months ended October 31 July 31 April 30 January 31 1993 1993 1993 1993 Total investment income Total $ 12,131,634 $ 12,114,324 $ 12,113,227 $ 12,176,829 Per Share+ $ .28 $ .28 $ .28 $ .27 Net investment income available to common shareholders Total $ 9,644,213 $ 9,601,179 $ 9,772,176 $ 9,469,930 Per Share+ $ .21 $ .22 $ .23 $ .21 Net realized and unrealized gain on investments and futures Total $ 12,792,002 $ 8,635,842 $ 7,911,957 $ 15,441,312 Per Share+ $ .30 $ .20 $ .18 $ .36 Net increase in net assets available to common shareholders resulting from operations Total $ 22,436,215 $ 18,237,021 $ 17,684,133 $ 24,938,242 Per Share+ $ .51 $ .42 $ .41 $ .57 Net assets available to common shareholders at end of period Total $477,660,049 $462,370,289 $451,177,789 $440,618,960 Per Share+ $ 10.88 $ 10.56 $ 10.33 $ 10.11
+Per common share Federal Tax information The Fund has designated all net investment income dividends paid during the fiscal year as exempt-interest dividends. The fund has also distributed $0.0340 and $0.0590 per share as short term and long term capital gains respectively. The Form 1099 you will receive in January 1995 will show the tax status of any taxable distributions paid to your account in calendar 1994, if any. The income distributions from each state will also be reported to you at this time. 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 Coopers & Lybrand L.L.P. TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Gary N. Coburn Vice President James E. Erickson Vice President Blake Anderson Vice President Howard K. Manning Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President John D. Hughes Vice President and Treasurer Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Managed Municipal Income Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 Bulk Rate U.S. Postage PAID Putnam Investments 052-15435 -----END PRIVACY-ENHANCED MESSAGE-----