-----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, HEz/uyt8P7ejj7yzxkdqZzeIsyunllvl8+sWr6Mrm/4zlpWrgQE39DV6Ez7NLtRo HnFwY2jKDvCE220HIxbOYA== 0000950146-96-000017.txt : 19960111 0000950146-96-000017.hdr.sgml : 19960111 ACCESSION NUMBER: 0000950146-96-000017 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960105 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: 811-05740 FILM NUMBER: 96501397 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 ANNUAL REPORT October 31, 1995 [LOGO] B O S T O N (bullet) L O N D O N (bullet) T O K Y O 1 Fund highlights "One investor's worry is another's opportunity. That's the moral of the story of the municipal bond market now, where fears of a flat tax have made munis extremely attractive." - -- "Fear Makes Munis Cheap," Fortune, September 4, 1995 CONTENTS 4 Report from Putnam Management 8 Fund performance summary 12 Portfolio holdings 21 Financial statements 2 From the Chairman [picture of G. Putnam] (C)Karsh, Ottawa Dear Shareholder: The period encompassing Putnam Managed Municipal Income Trust's fiscal year began near the end of one of the most severe bond market downturns on record and ended in the midst of one of the market's strongest rallies. The benefits of the market's upturn during the 12 months ended October 31, 1995, were dampened somewhat for tax-exempt bond investors. Talk of a flat tax ignited concerns that the tax advantage long enjoyed by municipal securities would be lost. As is so often the case, however, the market overreacted, and by fiscal year's end it had recognized the fact. Fund Manager Howard Manning believes that prospects of a flat tax being enacted any time soon are slim. Furthermore, the Federal Reserve Board's success in slowing the pace of the economy has contributed to a favorable environment for bonds. Howard believes low inflation and relatively stable bond yields point to a combination of these positive conditions through the near term. Respectfully yours, /s/ George Putnam - ---------------------- George Putnam Chairman of the Trustees December 20, 1995 3 Report from the Fund Manager Howard Manning Fixed-income investors who kept the faith during 1994's trying market conditions were richly rewarded during the first 10 months of calendar 1995. During this period, municipal bonds recouped a significant amount of the losses they incurred in 1994, but did not rally to the same extent as taxable fixed-income investments. Nevertheless, Putnam Managed Municipal Income Trust's ability to seize market opportunities is evidenced by its solid performance for the fiscal year ended October 31, 1995. For the period, your fund's shares at NAV and at market value returned 14.88% and 24.23%, respectively. PORTFOLIO STRUCTURE REFLECTS IMPROVED INTEREST RATE OUTLOOK Since spring, returns in the municipal market have been hampered by discussions of tax-reform proposals in Washington that could jeopardize the tax advantages enjoyed by these securities. We believe investors' concerns about a major revision of the tax code are premature. Although further instability cannot be ruled out as campaign rhetoric escalates, we do not expect any changes to occur until well after the 1996 presidential elections, if at all. Flat-tax fears notwithstanding, your fund's barbell approach to bond selection helped to generate an income stream while taking advantage of the broader market rally that began in late calendar 1994. During the fund's fiscal year, we maintained approximately half of the portfolio in less price-sensitive higher-yielding municipals with comparatively short maturities. The generous income of these holdings provides the bulk of their return. The remainder of the fund was invested in more price-sensitive issues that derive most of their total return from capital appreciation if interest rates fall. As we became confident that 4 inflation would remain benign and the backdrop for interest rates would improve, we increased the fund's exposure to discount municipals with favorable call protection. As interest rates fall, prices on discount bonds tend to appreciate faster than other bonds, although they will, of course, decline more rapidly when rates rise. RELATIVE VALUE OPPORTUNITIES ENHANCE PERFORMANCE We seek to boost your fund's return by continually taking advantage of supply and demand imbalances as they occur in the municipal marketplace. One way we do this is through the selective purchase of attractively priced municipal bonds that we expect will appreciate. For instance, demand for tax-exempt income in such high-tax states as Arizona, California, Michigan, New Jersey, and New York is generally very strong. We purchased such so-called "specialty-state" bonds for your fund during certain times of the year when new-issue supply in these states was greater than average and prices on such bonds became attractive relative to bonds issued in other, lower-tax states. As supply eventually evaporated, prices on these issues rose, causing their yields to fall. We were then able to take profits on these holdings and reinvest the proceeds in higher-yielding securities, thereby enhancing the total return of the fund. [TOP INDUSTRY SECTORS* bar chart] TOP INDUSTRY SECTORS* Transportation 19.0% Utilities/Water & Sewerage 18.0% Hospitals/Health Care 17.1% Housing 5.6% Education 3.6% *Based on net assets as of 10/31/95. Holdings may vary in the future. 5 ATTENTIVE RESEARCH PRODUCES FAVORABLE RESULTS Many of the sectors that suffered the most during the poor market conditions of 1994 recovered dramatically during calendar 1995. Through intensive credit research, your fund was able to benefit from a sharp rebound in the airline and airport sectors as well as several carefully chosen holdings in the health-care sector. Contrary to popular opinion at the time, our analysis indicated that by late 1994, years of cost-cutting and industry consolidation had sown the seeds for improved stability and healthier financial conditions among airline companies. Consequently, despite less than favorable market perception of the sector, we selectively added to holdings of municipal bonds issued on behalf of airlines. This strategy proved worthwhile: as investors recognized the improving fundamentals of the airline business, demand for these high-yielding, relatively liquid issues soared. Prices on airline-backed bonds have appreciated dramatically since the beginning of calendar 1995, producing double-digit returns for the fund. The generous income and favorable call protection offered by the bonds of Denver International Airport explain why it remains a core holding for your fund. After realizing gains when the facility opened last February, we were able to repurchase the bonds at more attractive yields periodically throughout the year. As an added bonus, these bonds were recently upgraded by Standard & Poor's, a nationally recognized rating agency. The hospital sector continues to compensate those who do their credit homework with generous tax-free income. As the entrance of efficient, for-profit systems changes the face of the health care market, astute credit selection and monitoring remain key to achieving attractive returns. During the fund's fiscal year, investor uncertainty surrounding the industry caused prices on hospital bonds to be marked down despite very little actual selling activity. On occasion, we were able to make advantageous purchases of attractive names at bargain levels. In addition, your fund experienced gains as some of its hospital holdings were merged into financially stronger health care systems over the past twelve months. 6 TOP 10 HOLDINGS (10/31/95) Ohio State Air Quality Development Authority revenue bonds ........................................................... Metropolitan Water District, Southern California Waterworks revenue bonds ........................................................... University of California revenue bonds ........................................................... Lake Charles, Louisiana, Harbor & Terminal District port facilities revenue bones ........................................................... Metropolitan Nashville and Davidson County, Tennessee, revenue bonds ........................................................... Tampa, Florida capital improvement revenue bonds ........................................................... New York State Research and Development Authority pollution control variable rate demand notes ........................................................... New York City general obligation bonds ........................................................... North Carolina Eastern Municipal Power Agency power systems revenue bonds ........................................................... Metropolitan Water District (California) revenue bonds These holdings represent 22.2% of the fund's net assets. Portfolio holdings will vary over time. OUTLOOK FOR MUNICIPALS CONSTRUCTIVE Fundamentals augur well for the bond markets in general. Moderate but stable economic growth and relatively low inflation provide a friendly environment for fixed-income investing. Your fund's balance of higher-income holdings, along with bonds offering the greatest opportunity for price appreciation, is designed to take advantage of this favorable interest-rate environment. Careful bond selection and credit analysis will remain of supreme importance in providing our shareholders with attractive tax-free income and favorable total returns 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 10/31/95, there is no guarantee the fund will continue to hold these securities in the future. 7 Performance summary 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. This section provides, at a glance, information about your fund's performance. 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. We show total return in two ways: on a cumulative long-term basis and on average how the fund might have grown each year over varying periods. TOTAL RETURN FOR PERIODS ENDED 10/31/95 NAV Market price ------------------------------------------------------- 1 year 14.88% 24.23% ------------------------------------------------------- 5 years 68.64 79.06 Annual average 11.02 12.36 ------------------------------------------------------- Life-of-fund (since 2/24/89) 85.47 81.81 Annual average 9.69 9.36 ------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/95 Lehman Bros. Municipal Consumer Bond Index Price Index ------------------------------------------------------- 1 year 14.84% 2.81% ------------------------------------------------------- 5 years 52.34 15.13 Annual average 8.78 2.86 ------------------------------------------------------- Life-of-fund (since 2/24/89) 75.16 26.40 Annual average 8.75 3.57 ------------------------------------------------------- Performance data represent past results, do not reflect future performance, and 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. 8 PRICE AND DISTRIBUTION INFORMATION 12 months ended 10/31/95 Distributions: - -------------------------------------------------------------------------- Common shares - -------------------------------------------------------------------------- No. 12 - -------------------------------------------------------------------------- Income $ 0.762 - -------------------------------------------------------------------------- Total $ 0.762 - -------------------------------------------------------------------------- Preferred shares Series A (550) Series B (550) Series C (650) - -------------------------------------------------------------------------- Total $3,973.63 $4,017.39 $3,926.90 - -------------------------------------------------------------------------- Share value: (Common shares) NAV Market price - -------------------------------------------------------------------------- 10/31/94 $ 9.49 $ 9.250 - -------------------------------------------------------------------------- 10/31/95 10.08 10.625 - -------------------------------------------------------------------------- Current return - -------------------------------------------------------------------------- End of period Current dividend rate(1) 7.56% 7.17% - -------------------------------------------------------------------------- Taxable equivalent(2) 12.52 11.87 - -------------------------------------------------------------------------- (1) Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. (2) Assumes maximum 39.6% federal tax rate. Results for investors subject to lower tax rates would not be as advantageous. 9 TOTAL RETURN FOR PERIODS ENDED 9/30/95 (most recent calendar quarter) NAV Market price ------------------------------------------------------- 1 year 10.54% 15.24% ------------------------------------------------------- 5 years 66.92 70.49 Annual average 10.79 11.26 ------------------------------------------------------- Life-of-fund (since 2/24/89) 82.49 74.30 Annual average 9.54 8.78 ------------------------------------------------------- Performance data represent past results, do not reflect future performance, and 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. TERMS AND DEFINITIONS Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, the liquidation preference and cumulative undeclared dividends on the 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 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. 10 Report of independent accountants For the fiscal year ended October 31, 1995 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, 1995, and 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 periods indicated therein. 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, 1995 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 Trust as of October 31, 1995, 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 periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 15, 1995 11 Portfolio of investments owned October 31, 1995 Key to Abbreviations AMBAC -- AMBAC Indemnity Corporation COP -- Certificate of Participation FGIC -- Federal Guaranty Insurance Corporation GNMA -- Government National Mortgage Association Collateral G.O. Bonds -- General Obligation Bonds IFB -- Inverse Floating Rate Bonds IF -- Inverse Floater MBIA -- Municipal Bond Investors Assurance Corporation VRDN -- Variable Rate Demand Notes MUNICIPAL BONDS AND NOTES (100.5%)*
PRINCIPAL AMOUNT RATINGS** VALUE Arizona (2.3%) - ---------------------------------------------------------------------------------------------- $ 3,345,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds (St. Luke's Hlth. Syst.), 7-1/4s, 11/1/14 Aaa $ 3,942,919 2,000,000 Gila Cnty., Indl. Dev. Auth. Poll Control Rev. Bonds (Asarco Inc. Project), Ser. 85, 8.9s, 7/1/06 Baa 2,182,500 2,000,000 Maricopa Cnty. U. Schl. Dist. #48 IFB 5.742s, 7/1/14 (acquired 6/28/94, cost $1,810,812)++ AA 1,760,000 4,000,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds (Payson Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P 3,515,000 2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds (Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A 3,183,125 ----------- 14,583,544 California (11.9%) - ----------------------------------------------------------------------------------------------- 7,220,000 CA Hlth Facs. Fing. Rev. Bonds (Pac. Presbyterian), Ser. B, III, 6-3/4s, 6/1/15 A 7,481,725 5,000,000 Contra Costa, Wtr. Dist. Wtr. Rev. Bonds Ser. G, MBIA, 5-1/2s, 10/1/19 AAA 4,843,750 2,775,000 Corona, COP (Vista Hosp. Syst.), Ser. B, 9-1/2s, 7/1/20 B/P 2,938,031 Metro Wtr. Dist. Rev. Bonds (Southern Calif. Waterwks), 10,000,000 5.95s, 8/5/22 AA 10,100,000 17,800,000 6-3/4s, 7/1/18 AA 20,047,250 3,500,000 San Bernardino Cnty. IF COP (PA-100-Med. Ctr. Fin. Project), MBIA, 7.822s, 8/1/28 (acquired 6/27/95, cost $3,774,716)++ AAA 3,880,625 8,750,000 Santa Clara Cnty. Fing. Auth. Lease Rev. Bonds (Vmc. Fac. Replacement Project), Ser. A, AMBAC, 6-3/4s, 11/15/20 AAA 9,537,500 15,000,000 U. of CA Rev. Bonds (USCD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 Baa 16,181,250 ----------- 75,010,131
12 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE Colorado (5.4%) - ---------------------------------------------------------------------------------------------- Denver City & Cnty. Arpt. Rev. Bonds $ 4,100,000 Ser. C, 6-1/8s, 11/15/25 Baa $ 3,956,500 4,000,000 Ser. A, 8-3/4s, 11/15/23 Baa 4,665,000 7,645,000 Ser. A, MBIA, 8-1/2s, 11/15/23 AAA 9,040,213 2,240,000 Ser. D, 7-3/4s, 11/15/21 Baa 2,444,400 1,050,000 Ser. D, 7-3/4s, 11/15/13 Baa 1,239,000 9,670,000 Ser. C, 6-3/4s, 11/15/22 Baa 9,875,488 2,800,000 Ser. C, MBIA, 6-3/4s, 11/15/13 AAA 2,971,500 ----------- 34,192,101 Connecticut (0.7%) - ----------------------------------------------------------------------------------------------- 4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds (Norwalk Health Care Inc. Project), Ser. A, 8.7s, 7/1/22 BB/P 4,315,000 Florida (4.6%) -------------------------------------------------------------------------------------------- 5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed Stone Co.), 8-1/2s, 12/1/14 B/P 5,437,500 7,900,000 Lee Cnty., Hosp. Board of Directors Hosp. IFB (Lee Memorial Hosp.), MBIA, 9.524s, 3/26/20 AAA 8,522,125 1,185,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds (JFK Med. Ctr. Inc. Project), 8-7/8s, 12/1/18 BBB 1,364,231 1,800,000 Pinellas Cnty. Hlth. Facs. Auth. Sun. Coast Hlth. Syst. Rev. Bonds (Sun. Coast Hosp.), Ser. A, 8-1/2s, 3/1/20 BBB 1,901,250 10,615,000 Tampa, Cap. Impt. Rev. Bonds Ser. B, 8-3/8s, 10/1/18 BBB 11,304,975 ----------- 28,530,081 Georgia (0.9%) - ----------------------------------------------------------------------------------------------- 1,505,000 Atlanta, Special Purpose Fac. Rev. Bonds (Delta Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 1,610,350 3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds (Kawneer Co. Inc. Project), Ser. 1984, 9-1/2s, 6/1/15 BBB/P 3,530,313 ----------- 5,140,663 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 4,080,000 Illinois (5.1%) - ----------------------------------------------------------------------------------------------- Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds (United Air Lines , Inc.), 5,453,000 Ser. B, 8.95s, 5/1/18 Baa 6,148,258 1,865,000 Ser. 84B, 8.85s, 5/1/18 Baa 2,093,463 3,270,000 Ser. 84A, 8.85s, 5/1/18 Baa 3,670,575 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds (American Airlines, Inc. Project), 3,000,000 8.2s, 12/1/24 Baa 3,525,000
13 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE Illinois (continued) - ---------------------------------------------------------------------------------------------- $ 5,000,000 Ser. A, 7-7/8s, 11/1/25 Baa $ 5,381,250 2,790,000 (Delta Airlines Inc. Terminal), 6.45s, 5/1/18 BB 2,803,950 2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds (Regency Park-Lincolnwood), Ser. A, 10-1/4s, 4/15/19 B/P 1,875,000 6,100,000 Robbins Res. Recvy. Rev. Bonds (Recov. Partners), Ser. A, 9-1/4s, 10/15/14 B/P 6,588,000 ----------- 32,085,496 Indiana (0.7%) - ----------------------------------------------------------------------------------------------- 3,950,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds (Federal Express Corp. Project), 7.1s, 1/15/17 BBB 4,231,438 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 B/P 2,350,000 ----------- 5,350,000 Kansas (2.9%) - ----------------------------------------------------------------------------------------------- 7,500,000 Burlington, Poll. Control, IFB (KS Gas & Electric), Ser. 91-4, MBIA, 9.653s, 6/1/31 (acquired 12/17/91, cost $7,797,096)++ AAA 9,103,120 8,400,000 Witchita, Hosp. IFB SER. 111-A, MBIA, 8.753s, 10/1/17 AAA 9,345,000 ----------- 18,448,120 Kentucky (0.5%) - ----------------------------------------------------------------------------------------------- 2,000,000 Kenton Cnty., Arpt. Board. Special. Facs. Rev. Bonds (Delta Air Lines, Inc. Project), Ser. A, 7-1/2s, 2/1/20 Ba 2,130,000 1,000,000 Scott Cnty., Indl. Dev. VRDN (Hoover Group Inc. Project), 8-1/2s, 11/1/14 VMIGI 1,027,500 ----------- 3,157,500 Louisiana (5.7%) - ----------------------------------------------------------------------------------------------- 5,000,000 Hodge, Combined Util. Rev. Bonds (Stone Container Corp.), 9s, 3/1/10 B/P 5,437,500 12,500,000 Lake Charles, Harbor & Term. Dist. Port Facs. Rev. Bonds (Trunkline Co. Project), 7-3/4s, 8/15/22 Baa 14,062,500 Port of New Orleans, Indl. Dev. Rev. Bonds (Continental Grain Co. Project), 4,000,000 Ser. A, 14-1/2s, 2/1/02 BB 4,355,000 3,500,000 14-1/2s, 1/1/02 BB 3,793,125 W. Feliciana Parish, Poll. Control Rev. Bonds (Gulf States Utils. Co. Project), 5,050,000 8s, 12/1/24 Ba 5,441,375 2,750,000 Ser. C, 7s, 11/1/15 Ba 2,853,125 ----------- 35,942,625
14 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** 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 $ 4,785,000 Massachusetts (4.5%) - ----------------------------------------------------------------------------------------------- MA State Hlth. & Edl. Fac. Auth. Rev. Bonds 2,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 2,005,000 4,000,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7-7/8s, 8/15/24 BB/P 4,085,000 1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7-3/8s, 7/1/11 Baa 1,010,000 2,215,000 (MA Eye & Ear Infirmary), Ser. A, 7.2s, 7/1/02 BB 2,228,844 1,000,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba 867,500 5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds (Southeastern MA Project), Ser. B, 9-1/4s, 7/1/15 BB/P 5,600,000 MA State Indl. Fin. Agcy. Rev. Bonds 2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,272,500 2,000,000 (1st. Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 1,945,000 1,323,784 (1st. Mtge. Pioneer Valley Living Ctr.), zero % 10/1/20 B/P 1,655 2,865,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds (Mass Tpk.) 9s, 10/1/20 BBB/P 3,140,756 4,900,000 MA State VRDN Ser. B, 3.7s, 12/1/97 VMIGI 4,900,000 ----------- 28,056,255 Michigan (9.5%) - ----------------------------------------------------------------------------------------------- 2,375,000 Detroit, G.O. Bonds Ser. A, 6.8s, 4/1/15 BBB 2,493,750 4,400,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev. Bonds Ser. A, 9-1/2s, 5/1/21 BBB/P 5,527,800 1,600,000 Detroit, Wtr. Supply Syst. 2nd Lien Rev. Bonds Ser. A, MBIA, 5-1/2s, 7/1/2015, AAA 1,553,104 Greater Detroit, Resource Recvy. Auth. Rev. Bonds 2,000,000 Ser. B, 9-1/4s, 12/13/08 BBB 2,068,040 1,300,000 Ser. C, 9-1/4s, 12/13/08 BBB 1,344,226 4,780,000 Highland Park, Hosp. Fin. Auth. Fac. Rev. Bonds (MI Hlth. Care Corp. Project), Ser. A, 9-7/8s, 12/1/19 (In default)+ Caa 1,816,400 4,000,000 Kenton Cnty., Arpt. Board. Special. Facs. Rev. Bonds (Delta Airlines Project), Ser. A, 6-1/8s, 2/1/22 Ba 3,840,000 2,000,000 Livonia, Pub. Sch. Dist. Rev. Bonds FGIC, 5-1/2s, 5/1/14 AAA 1,970,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds 6,850,000 (Env. Research Project), 8-1/8s, 10/1/14 A/P 7,475,063 4,000,000 (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 3,840,000 3,000,000 (Ford Motor Co. Project), Ser. A, 7.1s, 2/1/06 Aa 3,495,000 4,250,000 MI, Stragetic Fund Poll. Control Rev. Bonds (General Motors Corp.), 6.2s, 9/1/20 A 4,303,125 8,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Control Rev. Bonds Ser. B, 9-1/2s, 7/23/09 B/P 8,670,000
15 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE Michigan (continued) - ---------------------------------------------------------------------------------------------- $2,390,000 Pontiac Hosp. Fin. Auth. Rev. Bonds 6s, 8/1/23 Baa $ 2,121,125 6,500,000 Waterford, Econ. Dev. Corp. Rev. Bonds (Centerbury Hlth. Care), 8-3/8s, 7/1/23 BB/P 6,784,375 2,150,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds (Republic Air Lines, Inc. Project), 10-3/8s, 12/1/15 B/P 2,219,467 ----------- 59,521,475 Minnesota (0.5%) - ----------------------------------------------------------------------------------------------- 1,965,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical Inc. Project), 10-1/4s, 9/1/20 BB/P 2,279,400 1,000,000 Rochester, Hlth. Care Fac. IFB (Mayo Foundation), Ser. H, 7.92s, 11/15/15 AA 1,025,000 ----------- 3,304,400 Mississippi (0.7%) - ----------------------------------------------------------------------------------------------- 4,100,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle South Energy, Inc.), Ser. A, 9-1/2s, 12/1/13 BBB/P 4,694,500 Missouri (0.7%) - ----------------------------------------------------------------------------------------------- 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 4,260,000 Montana (0.5%) - ----------------------------------------------------------------------------------------------- 3,850,000 MT, State Hlth. Fac. Auth. Hosp. Fac. IFB AMBAC, 6.448s, 2/25/25 AAA 3,301,375 Nebraska (1.6%) - ----------------------------------------------------------------------------------------------- 2,000,000 Gage Cnty. Indl. Dev. VRDN (Hoover Group Inc. Project) 8-1/2s, 12/1/07 VMIGI 2,055,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB 1,300,000 Ser. B, GNMA, 10.973s, 3/15/22 AAA 1,486,875 6,120,000 Ser. 1, MBIA, 8-1/8s, 8/15/38 AAA 6,410,700 ----------- 9,952,575 Nevada (0.7%) - ----------------------------------------------------------------------------------------------- 4,000,000 Clark Cnty., Indl. Dev. Rev. Bonds (NV Pwr. Co. Project), 7.8s, 6/1/20 Baa 4,270,000 New Hampshire (0.9%) - ----------------------------------------------------------------------------------------------- 2,215,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds (Alice Peck Day Memorial Hosp. Project), 9-3/8s, 11/1/20 BB/P 2,411,581 2,800,000 NH State Indl. Dev. Auth. Poll. Control Rev. Bonds (United Illuminating Co.), Ser. B, 10-3/4s, 10/1/12 Baa 3,157,000 ----------- 5,568,581
16 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE New Jersey (2.4%) - ---------------------------------------------------------------------------------------------- $ 6,500,000 Landis, Swr. Auth. Rev. Bonds FGIC, 5.65s, 9/19/19 AAA $ 6,475,625 5,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (St. Elizabeth Hosp.), Ser. B, 8-1/4s, 7/1/20 Baa 5,425,000 3,500,000 NJ State Transn. Trust Fund Rev. Bonds (Transn. Syst.), Ser. A, MBIA, 5s, 6/15/15 AAA 3,215,625 ----------- 15,116,250 New York (9.6%) - ----------------------------------------------------------------------------------------------- NY City G.O. Bonds 3,365,000 Ser. F, 8-1/4s, 11/15/10 A 4,059,031 3,635,000 8-1/4s, 11/15/10 A 4,257,494 500,000 NY City Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst. VRDN Ser. C, FGIC, 4s, 6/15/23 VMIGI 500,000 NY City, G.O. Bonds 4,925,000 Ser. D, Group C, 8s, 8/1/2018 AAA 5,848,438 10,000,000 Ser. E, 6-1/2s, 2/15/06 BBB 10,550,000 4,000,000 NY City, Muni. Wtr. Fin. Auth. VRDN Ser. G, FGIC, 3.9s, 6/15/24 VMIGI 4,000,000 1,000,000 NY City, VRDN FGIC, Ser. C, 2-1/4s, 10/1/22 VMIGI 1,000,000 NY State Dorm. Auth. Rev. Bonds (Court Facs. Lease), 6,000,000 Ser. A, 5-3/8s, 5/15/16 Baa 5,535,000 3,000,000 Ser. A, 5-1/2s, 5/15/23 Baa 2,763,750 6,500,000 Ser. A, 5-1/4s, 5/15/21 Baa 5,793,125 10,600,000 NY State Energy Research & Dev. Auth. Poll. Control VRDN (NY State Elec. & Gas Co.), Ser. C, 3.43s, 6/1/29 VMIGI 10,600,000 5,000,000 NY State Med. Care Facs. Fin. Agcy. Rev. Bonds Ser. A, AMBAC, 6-1/2s, 8/15/29 AAA 5,300,000 ----------- 60,206,838 North Carolina (1.6%) - ----------------------------------------------------------------------------------------------- 10,500,000 NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds Ser. B, 6s, 1/1/22 A 10,303,125 Ohio (4.8%) - ----------------------------------------------------------------------------------------------- 1,950,000 Dayton, Special Fac. Rev. Bonds (Emery Air Freight Corp.), Ser. A, 12-1/2s, 10/1/09 B/P 2,281,500 20,000,000 OH State Air Quality Dev. Auth. Rev. Bonds (Cleveland Co. Project), FGIC, 8s, 12/1/13 AAA 24,000,000 4,000,000 Ohio State, Wtr. Dev. Auth. Solid Disp. Rev. Bonds (North Star BHP Steel Cargill), 6.3s, 9/1/20 AA 4,065,000 ----------- 30,346,500 Oklahoma (0.5%) - ----------------------------------------------------------------------------------------------- 2,975,000 Oklahoma Cnty., Indl. Auth. Rev. Bonds (Epworth Villa Project), Ser. A, 10-1/4s, 4/1/19 BB/P 3,242,750
17 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE Pennsylvania (4.5%) - ---------------------------------------------------------------------------------------------- $ 4,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Facs. Rev. Bonds (USAIR Inc. Project), Ser. B, 8-1/2s, 3/1/2001 B $ 4,285,000 2,500,000 Beaver Cnty. Indl. Dev. Poll. Conrtrol Rev. Bonds (Toledo Edison Co. Project), 7-5/8s, 5/1/20 Ba 2,587,500 3,200,000 Delaware Cnty., Indl. Dev. Auth. Arpt. Fac. VRDN (UTD Parcel Svc. Project), 3.647s, 12/1/15 AAA 3,200,000 2,000,000 Langhorne Manor Boro Higher Ed. Hlth. Auth. Rev. Bonds (Lower-Bucks Hosp. Project), 7.35s, 7/1/22 Ba 1,910,000 Montgomery Cnty. Higher Edl. & Hlth. Auth. Hosp. Rev. Bonds 1,000,000 (United Hosp. Inc.--St. Christopher), 8-1/4s, 11/1/03 Ba 1,046,250 1,000,000 (United Hosp. Inc. Project), 8-1/2s, 11/1/17 Ba 1,045,000 7,000,000 PA Economic Dev. Fing. Auth. Recycling Rev. Bonds (Ponderosa Fibres Project), Ser. A, 9-1/4s, 1/1/22 B/P 7,306,250 6,000,000 PA State Higher Ed. Assistance Agcy. IFB Ser. B, MBIA, 10.661s, 3/1/20 AAA 6,727,500 ----------- 28,107,500 Puerto Rico (0.4%) - ----------------------------------------------------------------------------------------------- 3,000,000 Cmnwlth. of Puerto Rico, Hwy. & Transn. Auth. Hwy. Rev. Bonds Ser. X, FSA, 5-1/4s, 7/1/21 AAA 2,827,500 South Carolina (1.6%) - ----------------------------------------------------------------------------------------------- 5,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds AMBAC, 6.892s, 8/1/15 AAA 4,775,000 5,000,000 SC State Hsg. Fin. & Dev. Auth. Multi-Fam. Mtge. Rev. Bonds 8-1/2s, 10/1/21 BBB 5,506,250 ----------- 10,281,250 Tennessee (2.8%) - ----------------------------------------------------------------------------------------------- 5,000,000 Maury Cnty., Indl. Dev. Board Poll. Control Rev. Bonds (Saturn Corp. Project), 6-1/2s, 9/1/24 A 5,150,000 12,000,000 Metro. Nashville & Davidson Cnty. Rev. Bonds (Water & Sewer Rev.), AMBAC, 6.075s, 1/1/22 AAA 12,180,000 ----------- 17,330,000 Texas (5.7%) - ----------------------------------------------------------------------------------------------- 3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains Baptist Hosp.), FSA, 8.947s, 1/3/22 AAA 4,196,500 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds 3,170,000 (Heartway Corp.), Ser. A-1, 10-1/4s, 3/1/19 B/P 2,853,000 3,200,000 (St. Luke's Lutheran Hosp. Project), 7.9s, 5/1/11 AAA/P 3,820,000
18 MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE Texas (continued) - ---------------------------------------------------------------------------------------------- $7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds (TX Utils. Elec. Co. Project), Ser. A, 7-7/8s, 3/1/21 Baa $ 8,074,688 2,211,000 Houston, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds Ser. A, Verex Mtg. Ins., 10-7/8s, 2/15/16 A 2,244,165 2,000,000 Lone Star, TX Arpt. Impt. Auth. Inc. Rev. Bonds (American Airlines Inc. Project), 9-1/8s, 12/1/15 Baa 2,050,260 Southeast TX Multi-Fam. Hsg. Fin. Corp. Rev. Bonds 3,000,000 (Bayou Pk. Village Apt. Project), Ser. B, 10.175s, 8/1/16 B/P 3,063,750 2,500,000 (Promenade Place Apts. Project), Ser. B, 10.175s 8/1/16 B/P 2,531,250 5,000,000 (Pavilion Place Apts. Project), Ser. A, 7.6s, 7/1/16 BBB/P 5,018,750 3,000,000 Tarrant Cnty., Hlth. Facs. Dev. Corp. Hosp. Rev. Bonds (Cmnty. Hlth. Care Foundation. Inc. Project), 10-1/8s, 4/1/21 B/P 2,250,000 ----------- 36,102,363 Utah (0.9%) - ----------------------------------------------------------------------------------------------- 5,350,000 Intermountain Power Agcy. Power Supply Rev. Bonds Ser. D, AMBAC, 7-3/4s, 7/1/20 AAA 5,844,875 Virginia (0.9%) - ----------------------------------------------------------------------------------------------- 5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB FGIC, 9.114s, 8/15/23 AAA 5,967,000 Washington (2.1%) - ----------------------------------------------------------------------------------------------- 5,000,000 Port Walla Walla Pub. Corp. Solid Waste Recycling Rev. Bonds (Ponderosa Fibres Project), 9-1/8s, 1/1/26 B/P 5,125,000 1,300,000 WA State Hlth. Care Facs. Auth. VRDN (Sisters Providence), Ser. B, 3.9s, 10/1/05 VMIGI 1,300,000 6,315,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds (Nuclear Project No. 1), Ser. A, 7-1/2s, 7/1/15 AA 6,851,775 ----------- 13,276,775 - ----------------------------------------------------------------------------------------------- Total Investments (cost $602,711,986)*** $631,733,586 - -----------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $628,454,219. + Non Income Producing. ** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at October 31, 1995 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, 1995. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent accountants. ++ Restricted as to public resale. At the date of acquisition these securities were valued at cost. There were no outstanding securities of the same class as those held. Total market value of restricted securities owned at October 31, 1995 was $14,743,745 or 2.3% of net assets. *** The aggregate identified cost for federal income tax purposes is $602,927,973, resulting in gross unrealized appreciation and depreciation of $34,940,954 and $6,135,341, respectively, or net unrealized appreciation of $28,805,613. 19 The fund had the following insurance concentration greater than 10% of net assets at October 31, 1995: MBIA 10.4% The fund had the following industry group concentrations greater than 10% of net assets at October 31, 1995: Transportation 19.0% Utilities/Water & Sewage 18.0 Hospitals/Health Care 17.0 The rates shown on IFB, which are securities paying variable interest rates that vary inversely to changes in the market interest rates and VRDNs are the current interest rates at October 31, 1995, which are subject to change based on the terms of the security. The table below shows the percentage of the fund's investments on October 31, 1995 in securities assigned to the various rating categories by Moody's and Standard & Poor's and in unrated securities determined by Putnam Management to be of comparable quality: Unrated securities Rated securities of comparable quality as a percentage of as a percentage of Ratings fund's net assets fund's net assets "AAA"/"Aaa" 28.8% 0.6% "AA"/"Aa" 6.4 -- "A"/"A" 6.5 1.2 "BBB"/"Baa" 25.1 3.4 "BB"/"Ba" 6.4 4.9 "B"/"B" 2.2 10.6 "CCC"/"Caa" 0.4 -- "VMIGI" 4.0 -- The accompanying notes are an integral part of these financial statements. 20 Statement of assets and liabilities October 31, 1995
Assets - ----------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $602,711,986) (Note 1) $631,733,586 - ----------------------------------------------------------------------------------------- Cash 607,958 - ----------------------------------------------------------------------------------------- Interest and other receivables 13,270,766 - ----------------------------------------------------------------------------------------- Receivable for securities sold 6,158,600 - ----------------------------------------------------------------------------------------- Total assets 651,770,910 - ----------------------------------------------------------------------------------------- Liabilities - ----------------------------------------------------------------------------------------- Payable for securities purchased 19,070,852 - ----------------------------------------------------------------------------------------- Distributions payable to shareholders 3,061,642 - ----------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 3) 1,089,103 - ----------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 3) 562 - ----------------------------------------------------------------------------------------- Payable for administrative services (Note 3) 1,146 - ----------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 3) 63,654 - ----------------------------------------------------------------------------------------- Other accrued expenses 29,732 - ----------------------------------------------------------------------------------------- Total liabilities 23,316,691 - ----------------------------------------------------------------------------------------- Net assets $628,454,219 - ----------------------------------------------------------------------------------------- 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; 44,961,926 shares outstanding (Note 1) 414,847,346 - ----------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 17,879,998 - ----------------------------------------------------------------------------------------- Accumulated net realized loss on investment transactions (Note 1) (8,294,725) - ----------------------------------------------------------------------------------------- Net unrealized appreciation of investments 29,021,600 - ----------------------------------------------------------------------------------------- Net assets $628,454,219 - ----------------------------------------------------------------------------------------- Computation of net asset value - ----------------------------------------------------------------------------------------- Remarketed preferred shares at liquidation preference $175,000,000 - ----------------------------------------------------------------------------------------- Cumulative undeclared dividends on remarketed preferred shares 79,727 - ----------------------------------------------------------------------------------------- Net assets allocated to remarketed preferred shares at liquidation preference 175,079,727 - ----------------------------------------------------------------------------------------- Net assets available to common shares: Net asset value per share $10.08 ($453,374,492 divided by 44,961,926 shares) 453,374,492 - ----------------------------------------------------------------------------------------- Net assets $628,454,219 - -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 21 Statement of operations Year ended October 31, 1995 Tax exempt interest income $45,781,940 - ---------------------------------------------------------------------- Expenses: - ---------------------------------------------------------------------- Compensation of Manager (Note 3) 4,170,165 - ---------------------------------------------------------------------- Investor servicing and custodian fees (Note 3) 429,311 - ---------------------------------------------------------------------- Compensation of Trustees (Note 3) 19,511 - ---------------------------------------------------------------------- Reports to shareholders 64,404 - ---------------------------------------------------------------------- Auditing 46,931 - ---------------------------------------------------------------------- Legal 16,973 - ---------------------------------------------------------------------- Postage 88,179 - ---------------------------------------------------------------------- Administrative services (Note 3) 14,474 - ---------------------------------------------------------------------- Exchange listing fees 33,669 - ---------------------------------------------------------------------- Preferred share remarketing agent fees 445,364 - ---------------------------------------------------------------------- Other 30,676 - ---------------------------------------------------------------------- Total expenses 5,359,657 - ---------------------------------------------------------------------- Expense reduction (Note 3) (141,438) - ---------------------------------------------------------------------- Net expenses 5,218,219 - ---------------------------------------------------------------------- Net investment income 40,563,721 - ---------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 4) 3,434,135 - ---------------------------------------------------------------------- Net realized loss on written options (Notes 1 and 4) (4,786,973) - ---------------------------------------------------------------------- Net realized loss on futures contracts (Notes 1 and 4) (2,263,576) - ---------------------------------------------------------------------- Net unrealized appreciation of investments during the year 30,712,230 - ---------------------------------------------------------------------- Net gain on investments 27,095,816 - ---------------------------------------------------------------------- Net increase in net assets resulting from operations $67,659,537 - ---------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 22 Statement of changes in net assets Year ended October 31 --------------------- 1995 1994 - -------------------------------------------------------------------------------- Increase (decrease) in net assets - -------------------------------------------------------------------------------- Operations: - -------------------------------------------------------------------------------- Net investment income $ 40,563,721 $ 41,590,495 - -------------------------------------------------------------------------------- Net realized loss on investments (3,616,414) (4,278,598) - -------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments 30,712,230 (56,090,200) - -------------------------------------------------------------------------------- Net increase (decrease) in assets resulting from operations 67,659,537 (18,778,303) - -------------------------------------------------------------------------------- Distributions to remarketed preferred shareholders from: Net investment income (7,104,957) (4,753,458) - -------------------------------------------------------------------------------- Net increase (decrease) in assets resulting from operations applicable to common shareholders (excluding cumulative undeclared dividends on remarketed preferred shares of $79,727 and $237,109 respectively) 60,554,580 (23,531,761) - -------------------------------------------------------------------------------- Distributions to common shareholders from: - -------------------------------------------------------------------------------- Net investment income (34,075,362) (33,732,841) - -------------------------------------------------------------------------------- Net realized gain on investments -- (4,069,833) - -------------------------------------------------------------------------------- Issuance of common shares in connection with reinvestment of distributions 4,983,445 5,504,121 - -------------------------------------------------------------------------------- Total increase (decrease) in net assets 31,462,663 (55,830,314) - -------------------------------------------------------------------------------- Net assets - -------------------------------------------------------------------------------- Beginning of year 596,991,556 652,821,870 - -------------------------------------------------------------------------------- End of year (including undistributed net investment income of $17,879,998 and $18,238,370 respectively) $628,454,219 $596,991,556 - -------------------------------------------------------------------------------- Number of fund shares - -------------------------------------------------------------------------------- Common shares outstanding at beginning of year 44,449,876 43,918,097 - -------------------------------------------------------------------------------- Common shares issued in connection with reinvestment of distributions 512,050 531,779 - -------------------------------------------------------------------------------- Common shares outstanding at end of year 44,961,926 44,449,876 - -------------------------------------------------------------------------------- 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. 23 Financial highlights (For a share outstanding throughout the period)
Year ended October 31 ------------------------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period (common shares) $ 9.49 $ 10.88 $ 9.81 $ 9.44 $ 8.94 - ------------------------------------------------------------------------------------------------------ Investment operations: - ------------------------------------------------------------------------------------------------------ Net investment income .90 .94 .98 1.01 1.02 Net realized and unrealized gain (loss) on investments .60 (1.37) 1.04 .26 .44 - ------------------------------------------------------------------------------------------------------ Total from investment operations 1.50 (.43) 2.02 1.27 1.46 - ------------------------------------------------------------------------------------------------------ Distributions to shareholders from: - ------------------------------------------------------------------------------------------------------ Net investment income To preferred shareholders (.15) (.11) (.11) (.14) (.20) To common shareholders (.76) (.76) (.76) (.76) (.76) Net realized gain on investments To common shareholders -- (.09) (.08) -- -- - ------------------------------------------------------------------------------------------------------ Total distributions (.91) (.96) (.95) (.90) (.96) - ------------------------------------------------------------------------------------------------------ Net asset value, end of period (common shares) $ 10.08 $ 9.49 $ 10.88 $ 9.81 $ 9.44 - ------------------------------------------------------------------------------------------------------ Market value, end of period (common shares) $ 10.63 $ 9.25 $ 11.38 $ 9.88 $ 10.00 - ------------------------------------------------------------------------------------------------------ Total investment return at market value (common shares) (%)(a) 24.23 (11.56) 24.84 6.72 22.33 - ------------------------------------------------------------------------------------------------------ Net assets, end of period (total fund)(in thousands) $628,454 $596,992 $652,660 $600,849 $580,495 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b)(c) 1.20 1.23 1.22 1.24 1.33 - ------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%)(b) 7.70 9.20 8.44 8.94 8.92 - ------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 79.71 48.40 35.16 67.72 49.62 - ------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment. (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 includes amounts paid through brokerage service and expenses offset arrangements. Prior period ratios exclude these amounts. See Note 3. 24 Notes to financial statements October 31, 1995 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 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 (including accrued interest and dividends), less all liabilities (including accrued expenses and undeclared dividends on remarketed preferred shares), 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) 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. 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 25 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 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 position 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 on securities held and for excise tax on income and capital gains. At October 31, 1995 the fund had a capital loss carryover of approximately $4,292,000 which may be available to offset future capital gains, if any. The amount of the carryover and the expiration dates: Loss Carryover Expiration - ---------------------------- $3,958,000 10/31/2002 $334,000 10/31/2003 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 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, 1995 was Series A 3.779%, Series B 3.759%; Series C was 3.850%. 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 treatment of defaulted bond interest, losses on wash sale transactions, realized and unrealized gains and losses on certain futures contracts and market discount. 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, 1995, the fund reclassified $258,226 to increase undistributed net investment income and $40,302 to increase paid- in-capital, with an increase to accumulated net realized losses of $298,528. The calculation of net investment income per share in the financial highlights table excludes these adjustments. G) 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 original issued discount 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, 1995 amounted to $79,727. 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 26 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, 1995, no such restrictions have been placed on the fund. Note 3 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, 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 reimburses Putnam Management 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. Trustees of the fund receive an annual Trustee's fee of $1,280 and an additional fee for each Trustees' 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. During the year ended October 31, 1995, the fund adopted a Trustee Fee Deferral Plan (the "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 the fund or in other Putnam funds until distribution in accordance with the Plan. Custodial functions for the fund are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned 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. For the year ended October 31, 1995, fund expenses were reduced by $141,438 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 the assets utilized in connection with the offset arrangements in an income-producing asset if it had not entered into such arrangements. Note 4 Purchases and sales of securities During the year ended October 31, 1995, purchases and sales of investment securities other than short-term investments aggregated $441,160,160 and $461,020,355, respectively. Purchases and sales of short-term obligations aggregated $228,878,150 and $199,247,500, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. 27 Written option transactions during the year are summarized as follows: Contract Premiums Amounts Received - ------------------------------------------------------------------------ Contracts outstanding at beginning of year $ -- $ -- - ------------------------------------------------------------------------ Options opened 145,200,000 2,479,695 - ------------------------------------------------------------------------ Options expired -- -- - ------------------------------------------------------------------------ Options closed (145,200,000) (2,479,695) - ------------------------------------------------------------------------ Written options outstanding at end of year $ -- $ -- - ------------------------------------------------------------------------ 28 Selected quarterly data (Unaudited)
Available to common shareholders Net increase Net realized (decrease) and unrealized in net assets Investment Net invest- gain (loss) on from income ment income investments operations --------------------- ------------------- --------------------- ---------------------- Quarter Per Per Per Per ended Total Share+ Total Share+ Total Share+ Total Share+ - --------------------------------------------------------------------------------------------------------- 10/31/95 $11,423,326 $.25 $8,414,921 $.19 $ 9,278,854 $ .20 $ 17,693,775 $ .39 7/31/95 11,332,161 .25 8,356,667 .19 3,758,278 .08 12,114,945 .27 4/30/95 11,456,026 .26 8,411,515 .19 10,122,836 .23 18,534,351 .42 1/31/95 11,570,427 .26 8,433,043 .19 3,935,848 .08 12,368,891 .27 10/31/94 11,693,577 .26 8,924,821 .20 (22,814,166) (.51) (13,889,345) (.31) 7/31/94 11,598,178 .26 8,899,135 .20 (76,157) -- 8,822,978 .20 4/30/94 11,884,996 .27 9,602,081 .22 (40,050,878) (.92) (30,448,797) (.70) 1/31/94 11,953,487 .27 9,411,000 .21 2,572,403 .06 11,983,403 .27
+Per common share 29 Federal tax information (Unaudited) The fund has designated 99.9% 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 1996 will show the tax status of all distributions paid to your account in calendar 1995. Results of October 5, 1995 shareholder meeting (Unaudited) An annual meeting of shareholders of the fund was held on October 5, 1995. At the meeting, each of the nominees for Trustees was elected, as follows. Votes for Votes withheld Jameson Adkins Baxter 40,021,228 499,826 Hans H. Estin 39,996,200 524,854 Elizabeth T. Kennan 40,018,544 490,169 Lawrence J. Lasser 40,030,885 132,520 Donald S. Perkins 39,989,643 531,411 William F. Pounds 39,999,934 521,120 George Putnam 39,992,609 528,445 George Putnam, III 40,012,085 508,969 E. Shapiro 39,901,294 619,760 A.J.C. Smith 40,027,071 493,983 W. Nicholas Thorndike 40,030,026 491,028 A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for the fund was approved as follows: 39,689,150 votes for, and 218,272 votes against, with 613,632 abstentions and broker non-votes. All tabulations have been rounded to the nearest whole number. 30 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 Eli Shapiro 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 E. 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 Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date information about the fund's NAV or to request Putnam's quarterly Closed-End Fund Commentary. 31 PUTNAM INVESTMENTS The Putnam Funds Bulk Rate One Post Office Square U.S. Postage Boston, Massachusetts 02109 PAID Putnam Investments 21699-052 12/95 -----END PRIVACY-ENHANCED MESSAGE-----