Putnam
Managed
Municipal
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-02
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
Putnam Managed Municipal Income Trust's mandate requires its managers
to seek high current income free from federal income tax by investing in
a diversified portfolio of tax-exempt municipal securities. With an eye
toward the prevailing uncertainties in the markets during the fiscal
year ended October 31, 2002, the managers invested a majority of the
fund's assets in high-quality bonds for the safety they provide.
At the same time, they committed about a third of the fund's assets to
lower-rated securities to take advantage of the higher income available
from these issues. As the fiscal year progressed, investors became
increasingly cautious and abandoned lower-rated bonds, preferring the
safer haven of higher-quality issues. The short-term price decline in
lower-rated bonds resulting from this flight to quality was a key factor
in the fund's underperformance relative to its benchmark and its Lipper
category average for the period.
You will find a full explanation of the fund's performance during the
fiscal year in the following report from the fund's managers. They also
offer their views on the fund's prospects in the months ahead.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 18, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Tax Exempt Fixed-Income Team
During the fiscal year ending October 31, 2002, performance in the
municipal-bond market was split between high-quality bonds, which
performed well, and lower-rated bonds, which underperformed. In this
year of uncertainty, Putnam Managed Municipal Income Trust's management
team fine-tuned the fund's portfolio in response to market developments
-- most notably, the fixed-income market's rally and sudden reversal in
October, the dramatic increase in municipal-bond supply, and a widening
of credit spreads between lower- and higher-yielding municipal bonds.
Total return for 12 months ended 10/31/02
NAV Market price
-----------------------------------------------------------------------
-0.94% -5.57%
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Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 8.
While your fund holds the majority of its assets in high-quality
municipal bonds, it is also invested in higher-yielding, lower-rated
municipal bonds, which contribute considerably to the portfolio's
monthly income. Responding to uncertainty about the economic recovery
and improprieties at several high-profile corporations, investors
shunned securities in the lower-rated sector of the municipal-bond
market in favor of higher-quality securities. As a result, prices of
lower-rated securities in the portfolio fell as the higher-quality bonds
rallied. This caused the fund to post a small loss (at net asset value)
for the year and to underperform both the Lehman Municipal Bond Index
and the average for its Lipper category.
Your fund's market price reflects changes in shareholder sentiment and
the balance of supply and demand for shares, as well as actual
performance of the portfolio holdings. The return at market price, which
shows a greater loss than the return at net asset value, may be a
further indication of investors' negative perception of lower-rated
securities, which prevailed for much of the period. A significant
dividend cut, which occurred in December 2000, has contributed to the
lower market return over the past five years.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 28.9%
Transportation 25.0%
Utilities 6.4%
Water and sewer 5.8%
Housing 4.7%
Footnote reads:
*Based on market value as of 10/31/02. Holdings will vary over time.
* SPUTTERING ECONOMY SPURS BOND RALLY AND FLIGHT TO QUALITY
During much of the fund's fiscal year, low inflation, declining interest
rates, and the ongoing shakeout in the stock market created a hospitable
environment for fixed-income investing. In the spring and summer of
2002, the bond rally was accelerating, with heavy investor demand across
all sectors of the municipal-bond market. However, corporate
malfeasance, rising layoffs, and a potential war with Iraq began to
undermine investors' enthusiasm. In August and September, when the
uncertainty and fall in consumer confidence became most pronounced, many
municipal-bond investors had shifted assets into high-quality tax-exempt
securities. Credit spreads -- the difference in yield between
high-quality and lower-rated bonds -- became extremely wide. As a
result, prices for lower-rated municipal bonds declined. These declines
had the effect of erasing much of the price gain your fund had amassed
earlier in the year.
Many of the fund's lower-rated holdings are in the form of Industrial
Development Bonds (IDBs). These are municipal bonds that are issued to
encourage local expansion by various businesses.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 34.5%
AA/Aa -- 1.4%
A -- 16.9%
BBB/Baa -- 24.0%
BB/Ba -- 12.8%
B/B -- 4.2%
CCC/Ca -- 1.6%
D -- 1.1%
VMIG1 -- 3.5%
Footnote reads:
*As a percentage of market value as of 10/31/02. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's and Standard &
Poor's descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
The bonds are backed only by the credit of the company benefiting from the
financing, not by the issuing municipality. As a result, IDBs rise and fall
in price based on investor perceptions of the health of the individual
business entity or the industry group as a whole. For example, a number of
the fund's bonds were issued to finance airport facility expansion by
various airlines. As the airlines have suffered from declining traffic and
high fixed costs, many of the airline-related tax exempt bonds have
declined in price. Moreover, the fund owns small quantities of bonds backed
by the credit of U.S. Air and United Airlines, both of which have filed for
Chapter 11. However, we believe that these bonds may recover in price as
the airlines reorganize.
Fund Profile
Putnam Managed Municipal Income Trust seeks to provide as high a level
of current income free from federal income tax as is consistent with
preservation of capital through investments in investment-grade and
higher-yielding, lower-rated municipal bonds. The fund is designed for
investors seeking tax-exempt income and willing to accept the risks
associated with below-investment-grade bonds.
The fund's relative performance was also hurt by our decision to
position the portfolio defensively -- for a rise in interest rates --
during a substantial bond-market rally that we had not considered a
likely development. Our forecast called for a modest economic recovery
in the next six to twelve months. Since the markets tend to anticipate
such a recovery, we began to reposition the portfolio to minimize the
negative effects of a rising-rate environment that would accompany such
a recovery. Given the large-scale flight to quality and strong
bond-market rally that followed, this strategy was not favorable for the
fund's performance. However, given the strong performance of bonds over
stocks for nearly three consecutive years, and with interest rates at
record lows, we believed that positioning the fund defensively was a
prudent strategy.
* LOWER-RATED BONDS OFFER OPPORTUNITY BUT REQUIRE CAREFUL RISK MANAGEMENT
The fund still has a considerable exposure to the lower-quality,
higher-yielding segment of the municipal-bond market, and we believe
these holdings will survive the difficult credit cycle intact. Two
primary sources for these lower-rated bonds are Industrial Development
Bonds and health care bonds. Although many bonds in this sector have
declined in price, we believe these bonds still offer value for
shareholders. In our view, economic growth is beginning to improve, and
there is the risk that interest rates in the year ahead may rise. In
this type of environment, lower-rated, higher-yielding bonds typically
outperform higher quality bonds.
An example of our strategy can be found in the IDBs backed by electric
power industry. Although the industry remains troubled by revelations of
market manipulation and is still struggling with deregulation,
overcapacity, and depressed prices, the fund owns some holdings in this
industry which have favorable credit profiles. Among these are the Sam
Rayburn Texas Municipal Power bonds. These bonds, which are financing
the delivery of power to three cities in southeast Texas, were recently
upgraded from the BB category to the BBB category. In addition,
electricity rates for these cities are reviewed monthly rather than
annually, which should help ensure the facility has sufficient revenues
to meet debt obligations.
In the hospital sector, which is still struggling with a high cost
structure, we've located several well-managed hospitals that are
benefiting from technological advances, the loosening of managed-care
restrictions, and an aging population. For example, the John C. Lincoln
Health Network in Arizona may be experiencing growth pressures that
require the hospital to borrow additional money to expand facilities,
but the influx of retirees and a general population increase is creating
rising demand for services.
We have also sought investment opportunities in bonds from issuers
outside the traditional municipal-bond services sectors to help
diversify risk. Tax-exempt bonds relating to land development in Florida
have been particularly rewarding for the fund. Strong building and sales
trends, strategic locations, easy access to transportation, and large,
reputable developers are important factors in selecting secured land
bonds. The fund's investments in Heritage Harbour South Community bonds
are financing a residential development in Tampa, which will ultimately
include 5,000 homes. This planned community is controlled by Lennar
Corporation, one of the largest homebuilders in the nation, with
operations in many of the South's highest-growth states.
* TEAM SEEKS THE MOST PRUDENT COURSE
Following the close of the fund's fiscal year, two significant events
took place. First, the Federal Reserve Board lowered the federal funds
rate by half a percentage point in response to the economy's continued
sluggishness and investors' lack of confidence. Secondly, California
came to market in early November with the long-anticipated issuance of
power revenue bonds that the state has planned for over a year. The
monies raised by the power bond issuance will be used, in part, to
reimburse the state's General Fund. The size of the issuance -- over
$6.5 billion -- is quite significant and created concerns about how the
tax-exempt market would absorb it. Further aggravating the supply/demand
imbalance is the continued refunding activity by municipalities and
municipal issuers looking to retire expensive, high-interest debt to
lower their expenses.
Lower interest rates and rising supply, in theory, can have a
countervailing effect -- the former can boost prices while the latter
depresses them. In light of these and other constantly changing forces,
successful management requires in-depth research, vigilance, and
patience. We believe that when the economic outlook becomes more
positive, high-quality bonds could come under pressure as interest rates
rise, which has already begun to happen. If rates continue to rise over
the next several years, as we expect them to, we believe the lower-rated
sectors should outperform. We cannot know when this change is likely to
take place, but we feel confident that our decision to position your
fund in anticipation of rising interest rates and narrowing credit
spreads should ultimately benefit shareholders.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 10/31/02, there is no guarantee the fund
will continue to hold these securities in the future. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment risk.
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are Richard Wyke (Portfolio Leader), Paul Drury
(Portfolio Member), David Hamlin (Portfolio Member), Susan McCormack
(Portfolio Member), Joyce Dragone, and Jerome Jacobs.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 10/31/02
Lehman
Municipal Consumer
NAV Market price Bond Index price index
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1 year -0.94% -5.57% 5.87% 2.08%
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5 years 14.01 -8.78 34.69 12.26
Annual average 2.66 -1.82 6.14 2.34
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10 years 70.08 60.12 93.55 27.95
Annual average 5.45 4.82 6.83 2.50
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Life of fund
(since 2/24/89)
Annual average 6.63 5.65 7.55 2.96
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Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
TOTAL RETURN FOR PERIODS ENDED 9/30/02 (most recent calendar quarter)
NAV Market price
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1 year 3.76% 3.28%
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5 years 18.86 1.58
Annual average 3.52 0.31
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10 years 72.87 66.03
Annual average 5.63 5.20
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Life of fund
(since 2/24/89)
Annual average 6.95 6.40
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Past performance does not indicate future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
return and principal value will fluctuate, and you may have a gain or a
loss when you sell your shares.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/02
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Distributions from common shares
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Number 12
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Income 1 $0.570
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Capital gains --
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Total $0.570
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Preferred shares Series A (550 shares) Series B (550 shares) Series C (650 shares)
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Income $1,475.87 $1,480.43 $1,482.59
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Share value: NAV Market value
--------------------------------------------------------------------------------------
10/31/01 $8.49 $8.44
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10/31/02 7.84 7.43
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Current return (end of period)
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Current
dividend
rate 2 7.27% 7.67%
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Taxable
equivalent 3 11.84 12.49
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1 For some investors, investment income may be subject to the federal
alternative minimum tax. Income from federally exempt funds may be
subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 38.6% tax rate for 2002. Results for investors subject
to lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Municipal Bond Index is an unmanaged list of long-term fixed-rate
investment-grade tax-exempt bonds. Indexes assume reinvestment of all
distributions and do not account for fees. Securities and performance of
a fund and an index will differ. You cannot invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
preceded by the Report of independent accountants, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-end funds, a separate table is
provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam Managed Municipal Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Managed Municipal Income Trust including the fund's portfolio, as
of October 31, 2002, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and financial highlights for
each of the years in the four-year period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of October 31, 2002 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Managed Municipal Income Trust as of
October 31, 2002, the results of its operations for the year then ended,
and changes in its net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
four-year period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
December 5, 2002
THE FUND'S PORTFOLIO
October 31, 2002
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- MBIA Insurance Company
PSFG -- Permanent School Fund Guaranteed
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.8%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Alaska (0.4%)
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$2,000,000 Valdez Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ $2,046,560
Arizona (2.7%)
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5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
(Tucson Elec. Pwr. Co.), Ser. B, 5 7/8s, 3/1/33 Ba3 4,512,500
1,000,000 AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds (John C.
Lincoln Hlth. Network), 6 3/8s, 12/1/37 BBB 1,021,250
2,500,000 Casa Grande, Indl. Dev. Auth. Rev. Bonds (Casa
Grande, Regl. Med. Ctr.), Ser. A, 7 5/8s, 12/1/29 B/P 2,337,500
4,000,000 Coconino Cnty., Poll. Control Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 4,120,000
4,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 Ca 1,385,000
1,000,000 Scottsdale, Indl. Dev. Hosp. Auth. Rev. Bonds
(Scottsdale Healthcare), 5.8s, 12/1/31 A3 1,012,500
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14,388,750
Arkansas (2.0%)
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4,600,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(Washington Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 4,927,750
6,000,000 Northwest Regl. Arpt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 BB/P 6,045,000
-------------
10,972,750
California (6.4%)
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7,000,000 CA Hlth. Fac. Auth. IFB (Catholic Hlth. Care West),
AMBAC, 6.786s, 7/1/17 Aaa 7,262,500
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 2,801,250
Corona, COP
2,775,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20
(In default) (NON) D/P 1,026,750
5,000,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11
(In default) (NON) D/P 1,850,000
2,000,000 Gilroy, Rev. Bonds (Bonfante Gardens Park),
8s, 11/1/25 B/P 1,852,500
3,500,000 San Bernardino Cnty., IF COP, MBIA, 11.353s, 8/1/28
(acquired 6/27/95, cost $3,777,340) (RES) AAA/P 4,501,875
3,000,000 San Luis Obispo, COP (Vista Hosp. Syst., Inc.), 8 3/8s,
7/1/29 (In default) (NON) D/P 1,110,000
8,750,000 Santa Clara Cnty., Fin. Auth. Lease Rev. Bonds
(VMC Fac. Replacement Project), Ser. A, AMBAC,
6 3/4s, 11/15/20 Aaa 9,810,938
6,150,000 Valley Hlth. Syst. Hosp. Rev. Bonds (Refunding & Impt.),
Ser. A, 6 1/2s, 5/15/25 BB 4,366,500
-------------
34,582,313
Colorado (2.4%)
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3,015,000 CO Hlth. Fac. Auth. Rev. Bonds (Evangelical
Lutheran Project), 3.05s, 10/1/05 A3 3,033,844
CO Hwy. Auth. Rev. Bonds (E-470 Pub. Hwy.), Ser. B
15,500,000 zero %, 9/1/35 Baa3 1,317,500
16,500,000 zero %, 9/1/34 Baa3 1,526,250
5,000,000 CO State Edl. Fac. Auth. Rev. Bonds (Ocean
Journey, Inc.), 8.3s, 12/1/17 (In default) (NON) D/P 1,650,000
Denver, City & Cnty. Arpt. Rev. Bonds
1,050,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 1,307,250
2,500,000 MBIA, 5 1/2s, 11/15/25 Aaa 2,590,625
1,400,000 Northwest Parkway Pub. Hwy. Auth. Rev. Bonds,
Ser. D, 7 1/8s, 6/15/41 Ba1 1,433,250
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12,858,719
District of Columbia (0.8%)
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4,000,000 DC Tobacco Settlement Fin. Corp. Rev. Bonds,
AMBAC, 6 1/2s, 5/15/33 A1 4,050,000
Florida (4.2%)
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2,000,000 Capital Trust Agcy. Rev. Bonds (Seminole Tribe
Convention), Ser. A, 10s, 10/1/33 B/P 2,027,500
3,210,000 Escambia Cnty., Poll. Control Rev. Bonds (Champion
Intl. Corp.), 6.9s, 8/1/22 Baa2 3,342,413
4,000,000 FL Hsg. Fin. Agcy. VRDN (Woodlands), 1.43s, 12/1/17 A-1+ 4,000,000
500,000 Heritage Harbor South Cmnty. Dev. Distr. Rev. Bonds
(Cap. Impt.), Ser. A, 6 1/2s, 5/1/34 BB-/P 483,750
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 A-/P 5,295,050
1,335,000 Miami Beach, Hlth. Fac. Auth. Hosp. Rev. Bonds
(Mount Sinai Med. Ctr.), Ser. A, 6.7s, 11/15/19 BB 1,161,450
4,100,000 Orange Cnty., Hsg. Fin. Auth. VRDN (Sundown
Assoc. II), Ser. A, 1.43s, 6/1/04 A-1+ 4,100,000
310,000 Pinellas Cnty., Hlth. Fac. Auth. Syst. Rev. Bonds
(Suncoast Hosp.), Ser. A, 8 1/2s, 3/1/20 BB+ 311,891
2,000,000 St. Johns Cnty., Hlth. Care Indl. Dev. Auth. Rev. Bonds
(Glenmoor St. Johns Project), Ser. A, 8s, 1/1/30 B+/P 1,922,500
-------------
22,644,554
Georgia (3.1%)
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10,000,000 Atlanta, Waste Wtr. Rev. Bonds, Ser. A, MBIA, 5s, 11/1/39 Aaa 10,000,000
1,750,000 Fulton Cnty., Dev. Auth. Fac. Rev. Bonds
(Delta Airlines, Inc.), 5 1/2s, 5/1/33 BB 934,063
700,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA, 11.030s, 8/1/10 Aaa 731,500
Savannah, Hosp. Auth. Rev. Bonds (Chandler Hosp.)
1,900,000 7s, 1/1/23 Ba1 1,953,403
3,180,000 7s, 1/1/11 Ba1 3,269,390
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16,888,356
Hawaii (1.1%)
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935,000 HI Dept. of Trans. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 7s, 6/1/20 B+ 570,350
4,500,000 HI State G.O. Bonds, Ser. CY, FSA, 5 1/2s, 2/1/12 Aaa 5,130,000
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5,700,350
Illinois (3.9%)
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Chicago, G.O. Bonds
4,850,000 Ser. A, AMBAC, 5 5/8s, 1/1/39 Aaa 5,165,250
3,500,000 Ser. C, FGIC, 5 1/2s, 1/1/40 Aaa 3,644,375
2,500,000 (Neighborhoods Alive 21 Project), FGIC, 5s, 1/1/41 Aaa 2,478,125
2,500,000 Ser. A, MBIA, 5s, 1/1/31 Aaa 2,496,875
2,500,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 2,450,000
2,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Airlines, Inc.), Ser. C, 6.3s, 5/1/16 Ca 350,000
3,000,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8.2s, 12/1/24 BB- 990,000
3,250,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Obligation), 5.65s, 11/15/24 A3 3,225,625
-------------
20,800,250
Indiana (2.3%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 IN State Dev. Fin. Auth. Env. Impt. Rev. Bonds
(USX Corp.), 5.6s, 12/1/32 Baa1 2,418,750
9,300,000 Indianapolis, Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 9,892,875
-------------
12,311,625
Iowa (1.0%)
-------------------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac. Rev. Bonds (Care Initiatives)
3,000,000 9 1/4s, 7/1/25 BBB-/P 3,547,500
1,745,000 9.15s, 7/1/09 BBB-/P 2,030,744
-------------
5,578,244
Kansas (2.6%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 KS State Dev. Fin. Auth. VRDN (Village Shalom
Oblig. Group), Ser. BB, 1.95s, 11/15/28 A-1+ 5,000,000
8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA, 9.351s, 10/20/17 Aaa 8,780,940
-------------
13,780,940
Kentucky (1.8%)
-------------------------------------------------------------------------------------------------------------------
7,785,000 Kenton Cnty., Arpt. Board Rev. Bonds (Special Fac. -
Delta Airlines, Inc.), Ser. A, 7 1/2s, 2/1/20 BB 5,965,256
1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds (Hoover Group, Inc.),
8 1/2s, 11/1/14 Ba3 830,000
2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B,
6.55s, 11/1/20 A1 2,800,883
-------------
9,596,139
Louisiana (3.6%)
-------------------------------------------------------------------------------------------------------------------
1,500,000 LA Pub. Fac. Auth. Rev. Bonds (Tulane U.), Ser. A,
AMBAC, 5s, 7/1/32 Aaa 1,498,125
2,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds (Lake Charles
Memorial Hosp. Project), 8 5/8s, 12/1/30 CCC/P 1,782,500
12,500,000 Lake Charles, Harbor & Term Dist. Port Fac. Rev Bonds
(Trunkline Co.), 7 3/4s, 8/15/22 A3 12,931,250
2,750,000 W. Feliciana Parish, Poll. Control Rev. Bonds
(Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba1 2,839,375
-------------
19,051,250
Maine (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Rumford Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp.), 6 7/8s, 10/1/26 Baa3 1,977,500
Massachusetts (4.8%)
-------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (Civic Investments), Ser. A, 9s, 12/15/15 B/P 2,080,000
3,300,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 AAA/P 3,687,750
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,488,656
2,500,000 (UMass Memorial), Ser. C, 6 5/8s, 7/1/32 Baa2 2,565,625
3,400,000 (Sisters Providence Hlth. Syst.), Ser. A,
6 5/8s, 11/15/22 Aaa 3,472,930
1,875,000 (UMass Memorial), Ser. C, 6 1/2s, 7/1/21 Baa2 1,926,563
820,000 (Caritas Christi Oblig), Ser. B, 6 1/4s, 7/1/22 Baa2 830,250
7,645,000 MA State Hsg. Fin. Agcy. IFB, AMBAC, 9.452s, 7/1/40
(acquired 6/3/98, cost $7,739,951) (RES) AAA 7,922,131
2,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Rental Mtge.),
Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 2,032,500
-------------
26,006,405
Michigan (3.1%)
-------------------------------------------------------------------------------------------------------------------
4,095,000 Detroit, Local Dev. Fin. Auth. Tax Increment G.O.
Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 4,324,770
2,000,000 MI Strategic Fund Resource Recvy. Rev. Bonds (Central
Wayne Energy Res.), Ser. A, 6.9s, 7/1/19 (In default) (NON) D/P 1,000,000
2,700,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds (NOMC
Obligation Group), Ser. B, 6s, 8/1/18 Baa3 2,224,125
2,975,000 Warren Cons. School Dist. G.O. Bonds, FSA,
5 3/8s, 5/1/18 Aaa 3,179,531
6,785,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 B-/P 4,800,388
2,000,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds
(Northwest Airlines, Inc.), 6s, 12/1/29 B+/P 1,140,000
-------------
16,668,814
Minnesota (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,780,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical, Inc.),
10 1/4s, 9/1/20 BB/P 1,879,983
5,330,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Ba2 4,570,475
-------------
6,450,458
Mississippi (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,250,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 5.9s, 5/1/22 BBB- 2,050,313
Missouri (1.2%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(St. Anthony's Med. Ctr.), 6 1/4s, 12/1/30 A2 2,112,500
4,560,000 MO State Hlth. & Edl. Fac. Auth. VRDN
(St. Francis Med. Ctr.), Ser. A, 1.95s, 6/1/26 A-1+ 4,560,000
-------------
6,672,500
Nebraska (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty., Indl. Dev. Rev. Bonds (Hoover
Group, Inc.), 8 1/2s, 12/1/07 Baa3 1,660,000
2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 D/P 175,000
950,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB, Ser. C,
GNMA/FNMA Coll., 10.20s, 3/1/20 Aaa 963,063
-------------
2,798,063
Nevada (2.9%)
-------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds (Southwest Gas Corp.)
6,000,000 Ser. B, 7 1/2s, 9/1/32 Baa2 6,111,420
5,000,000 Ser. C, AMBAC, 5.95s, 12/1/38 Aaa 5,406,250
4,000,000 Las Vegas, Monorail Rev. Bonds (2nd Tier),
7 3/8s, 1/1/40 BB-/P 3,875,000
-------------
15,392,670
New Hampshire (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,565,000 NH State Bus. Fin. Auth. Rev. Bonds (Alice Peck
Day Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,472,019
New Jersey (2.6%)
-------------------------------------------------------------------------------------------------------------------
1,250,000 NJ Econ. Dev. Auth. Rev. Bonds (Cedar Crest
Vlg. Inc. Fac.), Ser. A, 7 1/4s, 11/15/31 BB-/P 1,226,563
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 Baa3 3,262,500
1,250,000 (Atlantic City Med. Ctr.), 5 3/4s, 7/1/25 A3 1,287,500
1,000,000 NJ State Tpk. Auth. VRDN, Ser. D, FGIC, 1 3/4s, 1/1/18 VMIG1 1,000,000
6,500,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, FSA, 5 1/2s, 6/15/12 Aaa 7,434,375
-------------
14,210,938
New Mexico (0.6%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Farmington, Poll. Control VRDN (AZ Pub. Svc. Co.),
Ser. B, 1.95s, 9/1/24 VMIG1 3,000,000
New York (9.4%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 NY City G.O. Bonds, Ser. B, 5 1/4s, 12/1/09 A2 10,750,000
9,625,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(British Airways), 5 1/4s, 12/1/32 BBB- 5,137,344
1,500,000 NY City, Indl. Dev. Agency Rev. Bonds (Staten Island
U. Hosp. Project), 6.45s, 7/1/32 Baa3 1,481,250
5,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. IFB, MBIA,
9.481s, 6/15/17 (acquired 5/21/98, cost $5,296,700) (RES) AAA 5,581,250
7,400,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Rev. Bonds,
Ser. G , FSA, 5s, 6/15/34 Aaa 7,418,500
6,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. VRDN,
Ser. G, 1.85s, 6/15/24 VMIG1 6,000,000
2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard, LLC), 7s, 11/1/30 BB-/P 2,075,000
5,000,000 Port Auth. NY & NJ Rev. Bonds, Ser. 96, FGIC,
6.6s, 10/1/23 Aaa 5,387,500
5,000,000 Port Auth. NY & NJ Special Obligation IFB, Ser. N18,
MBIA, 8.64s, 12/1/17 (acquired 7/19/00,
cost $5,234,450) (RES) Aaa 6,456,250
-------------
50,287,094
North Carolina (0.9%)
-------------------------------------------------------------------------------------------------------------------
100,000 Charlotte, Special Fac. Rev. Bonds (Douglas Intl.
Arpt.-US Airways), 7 3/4s, 2/1/28 (In default) (NON) D/P 49,000
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
1,500,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,633,125
3,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 3,003,750
-------------
4,685,875
Ohio (1.3%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Toledo Poll. Control), Ser. A, 6.1s, 8/1/27 Baa2 2,973,750
4,000,000 Rickenbacker Port Auth. Rev. Bonds (OASBO
Expanded Asset Pooled), Ser. A, 5 3/8s, 1/1/32 A2 3,970,000
-------------
6,943,750
Oklahoma (2.7%)
-------------------------------------------------------------------------------------------------------------------
3,150,000 OK City Arpt. Trust Rev. Bonds (Jr. Lien 27th Ser.),
Ser. A, FSA, 5s, 7/1/18 AAA 3,213,000
4,900,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Hlth. Care),
Ser. A, 5 5/8s, 8/15/29 B2 3,497,375
7,000,000 OK State Indl. Dev. Auth. Rev. Bonds (Hlth. Syst.-
Oblig. Group), Ser. A, MBIA. 5 3/4s, 8/15/29 Aaa 7,525,000
-------------
14,235,375
Pennsylvania (5.4%)
-------------------------------------------------------------------------------------------------------------------
3,500,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
Rev. Bonds (U.S. Airways, Inc.), Ser. B, 8 1/2s, 3/1/21
(In default) (NON) CCC- 1,448,125
2,250,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panther Creek Partners), 6.65s, 5/1/10 BBB- 2,342,813
3,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.),
Ser. A, 6s, 1/15/25 CCC/P 2,100,000
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA, 6.7s, 9/1/14 Aaa 7,965,938
PA Econ. Dev. Fin. Auth. Rev. Bonds
7,750,000 (MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 9,106,250
1,000,000 (Amtral Project), Ser. A, 6 3/8s, 11/1/41 A3 897,500
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Clover), Ser. D, 7 1/8s, 12/1/15 BBB- 1,042,500
2,764,894 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds
(Graduate Hlth. Syst.), 7 1/4s, 7/1/10 (In default) (NON) Ca 3,456
2,000,000 Philadelphia, Indl. Dev. Auth. Arpt. Rev. Bonds
(Aero Philadelphia, LLC), 5 1/2s, 1/1/24 BB/P 1,555,000
4,000,000 Philadelphia, Indl. Dev. Auth. Special Fac. Rev. Bonds
(U.S. Airways, Inc.), 8 1/8s, 5/1/30 (In default) (NON) D/P 715,000
1,800,000 Sayre Hlth. Care Fac. Auth. Rev. Bonds (Guthrie Hlth.),
Ser. A, 5 7/8s, 12/1/31 A- 1,824,750
-------------
29,001,332
South Carolina (2.6%)
-------------------------------------------------------------------------------------------------------------------
4,750,000 Connector 2000 Assn., Inc. SC Toll Road Rev. Bonds
(SR-Southern Connector), Ser. A, 5 3/8s, 1/1/38 BBB- 2,529,375
1,250,000 Med. U. Hosp. Auth. Rev. Bonds, Ser. A, 6 1/2s, 8/15/32 BBB+ 1,282,813
5,000,000 Richland Cnty. Rev. Bonds (Intl. Paper Co. Project),
Ser. A, 4 1/4s, 10/1/07 Baa2 4,956,250
1,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds
(Palmetto Hlth. Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 1,092,500
SC Tobacco Settlement Rev. Mgt. Rev. Bonds,
Ser. B
1,300,000 6 3/8s, 5/15/30 A1 1,277,250
3,000,000 6 3/8s, 5/15/28 A1 2,932,500
-------------
14,070,688
South Dakota (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 SD Edl. Enhancement Funding Corp. Rev. Bonds, Ser. B,
6 1/2s, 6/1/32 A1 1,977,500
Tennessee (2.7%)
-------------------------------------------------------------------------------------------------------------------
6,000,000 Johnson City, Hlth. & Edl. Fac. Board Hosp. IFB,
Ser. A2, MBIA, 8.2s, 7/1/21 (acquired 2/8/00,
cost $5,651,400) (RES) Aaa 7,387,500
4,700,000 Johnson City, Hlth. & Edl. Fac. Board Hosp. Rev. Bonds
(Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 Baa2 4,999,625
2,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Methodist Healthcare), 6 1/2s, 9/1/26 Baa1 2,072,500
-------------
14,459,625
Texas (11.8%)
-------------------------------------------------------------------------------------------------------------------
Alliance, Arpt. Auth. Rev. Bonds
3,000,000 (American Airlines, Inc.), 7 1/2s, 12/1/29 BB- 840,000
10,100,000 (Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 10,655,500
9,500,000 Austin, Elec. Util. Syst. Rev. Bonds, FSA, 5s, 1/15/30 Aaa 9,405,000
4,655,000 Carrollton, Farmers Branch Indpt. School Dist. G.O.
Bonds, PSFG, 5s, 2/15/17 Aaa 4,823,744
3,500,000 Dallas, Special Tax Rev. Bonds, AMBAC, 5s, 8/15/25 Aaa 3,500,000
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
3,000,000 7 1/4s, 11/1/30 BB- 836,250
8,000,000 6 3/8s, 5/1/35 BB- 2,230,000
3,000,000 Harris Cnty., Hlth. Fac. Rev. Bonds (Memorial
Hermann Hlth. Care), Ser. A, 6 3/8s, 6/1/29 A3 3,180,000
4,000,000 Houston, Arpt. Syst. Rev. Bonds, Ser. C, FGIC, 5s, 7/1/28 Aaa 3,975,000
2,000,000 Lower Neches Valley Indl. Dev. Swr. Auth. Rev. Bonds
(Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 2,110,000
North Central Hlth. Fac. Dev. Corp. VRDN
3,000,000 (Dates Hosp. Prsbytrn Med. Ctr.), Ser. C, MBIA,
2.04s, 12/1/15 VMIG1 3,000,000
6,000,000 (Dates Hosp. Prsbytrn Med. Ctr.), Ser. D, MBIA,
2.04s, 12/1/15 VMIG1 6,000,000
2,500,000 Sam Rayburn Muni. Pwr. Agcy. Rev. Bonds, 6s, 10/1/21 Baa2 2,568,750
8,500,000 Texas State Tpk. Auth. Rev. Bonds, Ser. A, AMBAC,
5s, 8/15/42 Aaa 8,436,250
2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl. Hosp.),
6s, 7/1/29 Baa2 1,980,000
-------------
63,540,494
Utah (0.9%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Tooele Cnty., Harbor & Term. Dist. Port Fac. Rev
Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 BBB 4,887,500
Virginia (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,500,000 Fredericksburg Indl. Dev. Auth. Rev. Bonds
(Medicorp Hlth. Syst.), Ser. B, 5 1/8s, 6/15/33 A3 1,402,500
3,900,000 Pocahontas Parkway Assn. Toll Rd. Rev. Bonds, Ser. A,
5 1/2s, 8/15/28 Baa3 2,925,000
-------------
4,327,500
Washington (1.4%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 5,593,750
3,200,000 Port of Seattle, Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), 7 1/4s, 4/1/30 B+/P 2,168,000
-------------
7,761,750
West Virginia (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp. Assn., Inc.),
6.1s, 5/1/29 Ba3 1,875,000
Wisconsin (1.7%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Badger Tobacco Asset Securitization Corp. Rev. Bonds,
6 3/8s, 6/1/32 A1 5,293,750
3,900,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Wheaton Franciscan), 5 3/4s, 8/15/30 A2 3,939,000
-------------
9,232,750
-------------
Total Municipal Bonds and Notes (cost $570,426,549) $530,236,713
PREFERRED STOCKS (1.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,000,000 Charter Mac. Equity Trust 144A Ser. A,
6.625% cum. pfd. BBB-/P $2,097,500
4,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A
6.875% cum. pfd. BB+/P 4,265,000
-------------
Total Preferred Stocks (cost $6,000,000) $6,362,500
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $576,426,549) $536,599,213
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 2002 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at October 31, 2002. Securities rated by Putnam are indicated
by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2002 was
$31,849,006 or 5.9% of portfolio market value.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, and VRDN's are the current interest rates at October 31, 2002.
The fund had the following industry group concentrations greater
than 10% at October 31, 2002 (as a percentage of portfolio market
value):
Health care 28.9%
Transportation 25.0
The fund had the following insurance concentrations greater than
10% at October 31, 2002 (as a percentage of portfolio market value):
MBIA 14.1%
AMBAC 10.5
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2002
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$576,426,549) (Note 1) $536,599,213
-------------------------------------------------------------------------------------------
Cash 961,912
-------------------------------------------------------------------------------------------
Interest and other receivables 10,788,342
-------------------------------------------------------------------------------------------
Receivable for securities sold 380,081
-------------------------------------------------------------------------------------------
Total assets 548,729,548
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,242,222
-------------------------------------------------------------------------------------------
Accrued preferred shares distributions payable (Note 1) 77,739
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 988,176
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 35,260
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 43,471
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 285
-------------------------------------------------------------------------------------------
Other accrued expenses 61,604
-------------------------------------------------------------------------------------------
Total liabilities 3,448,757
-------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares: (8,000 shares
authorized; 1,750 shares issued at $100,000 per share) (Note 4) 175,000,000
-------------------------------------------------------------------------------------------
Net assets $370,280,791
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized)
(Note 1) $435,026,079
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 726,898
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (25,644,850)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (39,827,336)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $370,280,791
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per common share ($370,280,791 divided by
47,206,343 shares) $7.84
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended October 31, 2002
Interest income: $37,746,272
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,868,918
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 346,147
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,041
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,810
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 431,566
-------------------------------------------------------------------------------------------
Other 185,776
-------------------------------------------------------------------------------------------
Total expenses 4,849,258
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,576)
-------------------------------------------------------------------------------------------
Net expenses 4,808,682
-------------------------------------------------------------------------------------------
Net investment income 32,937,590
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (3,503,622)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 94,025
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (30,443,946)
-------------------------------------------------------------------------------------------
Net loss on investments (33,853,543)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (915,953)
-------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------
From tax exempt income (2,589,647)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations applicable
to common shareholders $(3,505,600)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
---------------------------------
2002 2001
-------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $32,937,590 $34,072,925
-------------------------------------------------------------------------------------------------------
Net realized loss on investments (3,409,597) (1,329,210)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (30,443,946) 3,089,127
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (915,953) 35,832,842
-------------------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income (2,589,647) (5,820,016)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations
applicable to common shareholders (3,505,600) 30,012,826
-------------------------------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income (26,888,250) (27,591,692)
-------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of distributions 419,191 1,622,545
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (29,974,659) 4,043,679
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of year 400,255,450 396,211,771
-------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $726,898 and distributions in excess of net investment income
of $2,732,795, respectively) $370,280,791 $400,255,450
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 47,155,237 46,970,072
-------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 51,106 185,165
-------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 47,206,343 47,155,237
-------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning and
end of year 1,750 1,750
-------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
-------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
(common shares) $8.49 $8.44 $8.77 $9.82 $9.92
-------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------
Net investment income (a) .70 .72 .75 .80 .79
-------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.73) .04 (.16) (.96) .01
-------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .76 .59 (.16) .80
-------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
-------------------------------------------------------------------------------------------------------
From net investment income (.05) (.12) (.16) (.13) (.14)
-------------------------------------------------------------------------------------------------------
Total from investment
operations: (applicable to
common shareholders) (.08) .64 .43 (.29) .66
-------------------------------------------------------------------------------------------------------
Distributions to
common shareholders:
-------------------------------------------------------------------------------------------------------
From net investment income: (.57) (.59) (.76) (.76) (.76)
-------------------------------------------------------------------------------------------------------
Total distributions (.57) (.59) (.76) (.76) (.76)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $7.84 $8.49 $8.44 $8.77 $9.82
-------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $7.43 $8.44 $9.63 $9.81 $11.44
-------------------------------------------------------------------------------------------------------
Total return at market value (%)
(common shares)(b) (5.57) (6.21) 6.84 (7.72) 4.52
-------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)(in thousands) $370,281 $400,255 $396,212 $408,419 $453,766
-------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.25 1.22 1.27 1.23 1.22
-------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 7.84 7.01 6.97 7.12 6.57
-------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 20.44 17.95 16.72 12.88 19.97
-------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(d) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 2002
Note 1
Significant accounting policies
Putnam Managed Municipal Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The fund's investment objective is to seek a
high level of current income exempt from federal income tax. The fund
intends to achieve its objective by investing in a diversified portfolio of
tax-exempt municipal securities which Putnam Investment Management, LLC
("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC, believes does not involve undue risk to income
or principal. Up to 50% of the fund's assets may consist of high-yield
tax-exempt municipal securities that are below investment grade and involve
special risk considerations. The fund also uses leverage by issuing
preferred shares in an effort to increase the income to the common shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by an independent pricing service, approved by
the Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. Restricted securities are stated at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. All premiums/discounts
are amortized/ accreted on a yield-to-maturity basis. The premium in excess
of the call price, if any, is amortized to the call date; thereafter, the
remaining excess premium is amortized to maturity.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
D) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
It is also the intention of the fund to distribute an amount sufficient to
avoid imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has been made for
federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At October 31, 2002, the fund had a capital loss carryover of
approximately $24,642,000 available to the extent allowed by tax law to
offset future capital gains, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$321,000 October 31, 2003
11,188,000 October 31, 2005
2,895,000 October 31, 2006
3,629,000 October 31, 2007
1,237,000 October 31, 2008
1,642,000 October 31, 2009
3,730,000 October 31, 2010
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Distributions from capital gains, if any, are recorded on
the ex dividend date and paid at least annually. Dividends on remarketed
preferred shares become payable when, as and if declared by the Trustees.
Each dividend period for the remarketed preferred shares is generally a
28-day period for Series A and Series B shares, and a 7-day period for
Series C shares. The applicable dividend rate for the remarketed preferred
shares on October 31, 2002 was 1.44% for Series A, 1.65% for Series B and
1.68% for Series C. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles. These differences
include temporary and permanent differences of the expiration of a capital
loss carryover, dividends payable, defaulted bond interest, straddle loss
deferrals, and Partnership income. Prior year distributions in the
Statement of changes in net assets have been reclassified to conform with
current year presentation. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended October 31, 2002, the fund reclassified $1,886,508 to decrease
paid-in-capital, with a decrease to accumulated net realized losses of
$1,886,508.
The tax basis components of distributable earnings and the federal tax
cost as of period end was as follows:
Unrealized appreciation $21,199,614
Unrealized depreciation (60,822,225)
--------------------
Net unrealized appreciation/
depreciation (39,622,611)
Undistributed tax-exempt income 3,734,222
Capital loss carryforward (24,642,055)
Post October loss --
Cost for federal income
tax purposes 576,221,824
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
Note 2
Management fee, administrative services
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million of the average weekly net assets, 0.60% of the next
$500 million, 0.55% of the next $500 million and 0.50% thereafter.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to
the proceeds of the remarketed preferred shares during that period, then
the fee payable to Putnam Management for that period will be reduced by
the amount of the excess (but not more than 0.70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended October 31, 2002, the
fund's expenses were reduced by $40,576 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $737 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have served
as a Trustee for at least five years. Benefits under the Pension Plan are
equal to 50% of the Trustee's average total retainer and meeting fees for
the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended October 31, 2002, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$110,276,363 and $135,195,068, respectively. There were no purchases and
sales of U.S. government obligations.
Note 4
Preferred shares
The Series A (550), Series B (550) and Series C (650) shares are
redeemable at the option of the fund on any dividend payment date at a
redemption price of $100,000 per share, plus an amount equal to any
dividends accumulated on a daily basis but unpaid through the redemption
date (whether or not such dividends have been declared) and, in certain
circumstances, a call premium.
Under the Investment Company Act of 1940, the fund is required to
maintain asset coverage of at least 200% with respect to the remarketed
preferred shares as of the last business day of each month in which any
such shares are outstanding. Additionally, the fund is required to meet
more stringent asset coverage requirements under terms of the remarketed
preferred shares and the shares' rating agencies. Should these
requirements not be met, or should dividends accrued on the remarketed
preferred shares not be paid, the fund may be restricted in its ability
to declare dividends to common shareholders or may be required to redeem
certain of the remarketed preferred shares. At October 31, 2002, no such
restrictions have been placed on the fund.
Under Emerging Issues Task Force (EITF) promulgation Topic D-98,
Classification and Measurement of Redeemable Securities, which was issued
on July 19, 2001, preferred securities that are redeemable for cash or
other assets are to be classified outside of permanent equity to the extent
that the redemption is at a fixed or determinable price and at the option
of the holder or upon the occurrence of an event that is not solely within
the control of the issuer. Subject to the guidance of the EITF, the Trust's
preferred stock, which was previously classified as a component of net
assets, has been reclassified outside of permanent equity (net assets) in
the accompanying financial statements. Prior year amounts have also been
reclassified to conform with this presentation. The impact of this
reclassification creates no change to the net assets available to common
shareholders.
Note 5
New accounting pronouncement
As required, the fund has adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies. This Guide requires that
the fund amortize premium and accrete discount on all fixed-income
securities, and classify as interest income gains and losses realized on
paydowns on mortgage-backed securities. Prior to November 1, 2001, the fund
did not accrete discounts for certain fixed income securities. The adoption
of this principle was not material to the financial statements.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2003 will show the tax status of
all distributions paid to your account in calendar 2002.
RESULTS OF OCTOBER 3, 2002 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 3,
2002. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 40,680,595 999,464
Charles B. Curtis 40,685,765 994,293
Ronald J. Jackson 40,691,176 988,882
Paul L. Joskow 40,694,376 985,682
Elizabeth T. Kennan 40,691,716 988,342
Lawrence J. Lasser 40,697,993 982,066
John H. Mullin III 40,692,230 987,829
George Putnam, III 40,684,549 995,510
A.J.C. Smith 40,696,618 983,441
W. Thomas Stephens 40,686,101 993,958
W. Nicholas Thorndike 40,694,129 985,930
Preferred Shares
Votes
Votes for withheld
Jameson Adkins Baxter 1,750 0
Charles B. Curtis 1,750 0
John A. Hill 1,750 0
Ronald J. Jackson 1,750 0
Paul L. Joskow 1,750 0
Elizabeth T. Kennan 1,750 0
Lawrence J. Lasser 1,750 0
John H. Mullin III 1,750 0
Robert E. Patterson 1,750 0
George Putnam, III 1,750 0
A.J.C. Smith 1,750 0
W. Thomas Stephens 1,750 0
W. Nicholas Thorndike 1,750 0
All tabulations are rounded to nearest whole number.
TRUSTEES
Name, Address, 1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee
-------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a management digital imaging firm), Intermatic
consulting and private Corporation (manufacturer of energy
investments firm) control products), Ryerson Tull, Inc.
(a steel service corporation),
Advocate Health Care, and the
National Center for Nonprofit
Boards. Chairman Emeritus
of the Board of Trustees, Mount
Holyoke College. Also held various
positions in investment banking and
corporate finance, including Vice
President and principal of the
Regency Group and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations, the Electric Power
Nuclear Threat Research Institute Advisory Council,
Initiative (a private the Board of Directors of the Gas
foundation dedicated Technology Institute, the University
to reducing the threat of Chicago Board of Governors for
of weapons of mass Argonne National Laboratory, the
destruction), also serves Board of Directors of the
as Senior Advisor to the Environment and Natural Resources
United Nations Program Steering Committee,
Foundation John F. Kennedy School of
Government, Harvard University.
Prior to 2002, Mr. Curtis was a
member of the Board of Directors of
the Gas Technology Institute. Until
2001, Mr. Curtis was a Member of
the Department of Defense's Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support)
and prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company). Prior to
acquiring First Reserve in 1983,
Mr. Hill held executive positions
with several advisory firms and
various positions with the federal
government, including Associate
Director of the Office of Manage
ment and Budget and Deputy
Director of the Federal Energy
Administration.
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
Previously served as President and
Chief Executive Officer of Stride-
Rite, Inc. and Kenner Parker Toys.
Also held financial and marketing
positions with General Mills, Parker
Brothers, and Talbots. President of
the Kathleen and Ronald J. Jackson
Foundation (charitable trust).
Member of the Board of Overseers of
WGBH (public television and radio).
Member of the Board of Overseers of
the Peabody Essex Museum.
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group
Trustee since 1997 Killian Professor of (a UK-based holding company
Economics and with interests in electric power,
Management and natural gas distribution, and
Director of the Center telecommunications networks), and
for Energy and the Whitehead Institute for
Environmental Policy Biomedical Research (a non-profit
Research, Massachusetts research institution). President of the
Institute of Technology Yale University Council. Prior to
February 2002, March 2000, and
September 1998, Dr. Joskow was a
Director of State Farm Indemnity
Company (an automobile insurance
company), Director of New England
Electric System (a public utility
holding company) and a consultant
to National Economic Research
Associates, respectively.
Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and
(2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's
Trustee since 1992 limited liability company apparel). Trustee of Centre College.
involved in thoroughbred Prior to 2001, Dr. Kennan was a
horse breeding and member of the Oversight Committee
farming), President of Folger Shakespeare Library.
Emeritus of Mount Prior to September 2000, June 2000,
Holyoke College and November 1999, Dr. Kennan
was a Director of Chastain Real
Estate, Bell Atlantic, and Kentucky
Home Life Insurance, respectively.
Prior to 1995, Dr. Kennan was a
Trustee of Notre Dame University.
For 12 years, she was on the faculty
of Catholic University.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging
Trustee since 1997 (a limited liability company), The Liberty Corporation
company engaged in (a company engaged in the
timber and farming) broadcasting industry), and Progress
Energy, Inc. (a utility company,
formerly known as Carolina Power
& Light). Trustee Emeritus of
Washington & Lee University. Prior
to October 1997, January 1998, and
May 2001, Mr. Mullin was a Director
of Dillon, Read and Co. Inc.,
The Ryland Group, Inc., and
Graphic Packaging International
Corp., respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, LLP and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust). Prior to
1990, Mr. Patterson was Executive
Vice President of Cabot, Cabot &
Forbes Realty Advisors, the
predecessor of Cabot Partners, and
prior to that was Senior Vice
President of the Beal Companies.
W. Thomas Stephens Corporate Director Director of Qwest Communications
(9/2/42), (communications company), Xcel
Trustee since 1997 Energy Incorporated (public utility
company), TransCanada Pipelines,
Norske Canada, Inc. (paper
manufacturer) and Mail-Well
(printing and envelope company).
Prior to July 2001 and October 1999,
Mr. Stephens was Chairman of Mail-
Well and MacMillan-Bloedel (forest
products company). Prior to 1996,
Mr. Stephens was Chairman and
Chief Executive Officer of
Johns Manville.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable General Hospital. Prior to
organizations, September 2000, April 2000, and
including Courier December 2001, Mr. Thorndike was
Corporation (a book a Director of Bradley Real Estate,
manufacturer) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Previously served as Chairman of the
Board and managing partner of
Wellington Management/Thorndike
Doran Paine & Lewis, and Chairman
and Director of Ivest Fund.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer of Companies, Inc. and the United Way
Trustee since 1992 Putnam Investments of Massachusetts Bay. Member of the
Vice President since 1981 and Putnam Board of Governors of the Investment
Management Company Institute, Trustee of the
Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA
President since 2000 financial advisory and Education Association, Trustee of
other research services St. Mark's School, and Trustee of
relating to bankrupt and Shore Country Day School.
distressed companies) Previously, Mr. Putnam was an
and New Generation attorney with the firm of Dechert
Advisers, Inc. Price & Rhoads.
(a registered
investment adviser)
A.J.C. Smith* (4/13/34), Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Fellow of the Faculty of
Actuaries in Edinburgh, the
Canadian Institute of Actuaries, and
the Conference of Actuaries.
Associate of the Society of Actuaries.
Member of the American Actuaries,
the International Actuarial
Association and the International
Association of Consulting Actuaries.
Prior to May 2000 and November
1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh &
McLennan Companies, Inc.
--------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of October 31, 2002, there
were 101 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act
of 1940) of the fund, Putnam Management, Putnam Retail Management or Marsh & McLennan Companies, Inc.,
the parent company of Putnam LLC and its affiliated companies. Messrs. Putnam, III, Lasser and Smith
are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund
or Putnam Management, Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam, III
is the President of your fund and each of the other Putnam funds. Lawrence J. Lasser is the President
and Chief Executive Officer of Putnam Investments and Putnam Management. Mr. Lasser and Mr. Smith
serve as Directors of Marsh & McLennan Companies, Inc.
OFFICERS
In addition to George Putnam III and Lawrence J. Lasser, the other officers of the fund are
shown below:
Name, Address, 1 Date of Birth, Length of Service with
Position(s) Held with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years
---------------------------------------------------------------------------------------------------------------
Charles E. Porter Since 1989 Managing Director, Putnam Investments
(7/26/38), Executive Vice and Putnam Management
President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty Since 1993 Senior Vice President, Putnam Investments
(12/1/46), Senior Vice and Putnam Management
President
Karnig H. Durgarian
(1/13/56), Vice President and Since 2002 Senior Managing Director, Putnam
Principal Executive Officer Investments
Michael T. Healy
(1/24/58), Assistant Treasurer Since 2000 Managing Director, Putnam Investments
and Principal Accounting
Officer
Steven D. Krichmar
(6/27/58), Vice President and Since 2002 Managing Director, Putnam Investments.
Principal Financial Officer Prior to 2001, Partner,
PricewaterhouseCoopers LLP
Charles E. Haldeman Jr. Since 2002 Senior Managing Director, Putnam
(10/29/48), Vice President Investments and Putnam Management.
Prior to 2002, Chief Executive Officer,
Delaware Management Holdings, Inc.; prior
to 2000, President and Chief Operating
Officer, United Asset Management
Stephen M. Oristaglio Since 1998 Senior Managing Director, Putnam
(8/21/55), Vice President Investments and Putnam Management.
Prior to 1998, Managing Director, Swiss
Bank Corp.
Gordon H. Silver Since 1990 Senior Managing Director, Putnam
(7/3/47), Vice President Investments, Putnam Management and
Putnam Retail Management
Brett C. Browchuk Since 1994 Managing Director, Putnam Investments
(2/27/63), Vice President and Putnam Management
Richard G. Leibovitch Since 1999 Managing Director, Putnam Investments
(10/31/63), Vice President and Putnam Management. Prior to 1999,
Managing Director, J.P. Morgan
Richard A. Monaghan Since 1998 Senior Managing Director, Putnam
(8/25/54), Vice President Investments and Putnam Retail
Management
Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments
(4/6/58), Vice President
John R. Verani Since 1988 Senior Vice President, Putnam Investments
(6/11/39), Vice President and Putnam Management
Judith Cohen
(6/7/45), Clerk and Since 1993 Clerk and Assistant Treasurer, The
Assistant Treasurer Putnam Funds
Jerome J. Jacobs
(8/20/58), Vice President Since 1996 Managing Director of Putnam Management
---------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was
built around the concept that a balance between risk and reward is the
hallmark of a well-rounded financial program. We presently manage over 100
mutual funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Lawrence J. Lasser
Vice President
Charles E. Haldeman, Jr.
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Brett C. Browchuk
Vice President
Jerome Jacobs
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Beth S. Mazor
Vice President
John R. Verani
Vice President
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
84089 052 12/02