Putnam
Managed
Municipal
Income Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Throughout the period ended April 30, 2005, the Federal Reserve Board's
series of gradual increases in the federal funds rate occupied much of
investors' attention. However, these increases did not begin to have a
significant impact on stock and bond prices until the early months of
the 2005 calendar year. The Fed's more restrictive monetary policy,
along with stubbornly high energy prices, has caused concern about the
sustainability of corporate profits and slowed the stock market's
momentum. Prices of shorter-term bonds have also been under pressure due
to worries regarding inflation. In addition, credit quality issues have
become a greater concern, particularly in early May, after the end of
the reporting period, when rating agencies downgraded bonds issued by
Ford and General Motors. Given the uncertainties of this environment,
security selection takes on even greater importance and the in-depth,
professional research and active management that mutual funds can
provide makes them an even more intelligent choice for today's
investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we are including
additional disclosure about your fund's management team in this report.
Following the Outlook for Your Fund, we provide manager compensation
information that pertains to your fund. Furthermore, in this report we
provide information about the 2004 approval by the Trustees of your
fund's management contract with Putnam. See page 13 for details.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
investment objectives during the reporting period, and the team's plan
for responding to recent changes in the market climate.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 15, 2005
Report from Fund Management
Fund highlights
* For the six months ended April 30, 2005, Putnam Managed Municipal
Income Trust returned 4.41% at net asset value (NAV) and 1.42% at market
price.
* The fund's benchmark, the Lehman Municipal Bond Index, returned 1.94%.
* The average return for the fund's Lipper category, High Yield
Municipal Debt Funds (closed-end), was 5.59%.
* The fund's divided was reduced to $0.0381 per share in January 2005.
See page 5 for more information.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
For the six-month period, Putnam Managed Municipal Income Trust
outperformed its benchmark, the Lehman Municipal Bond Index, based on
results at NAV. The fund's position in strong-performing higher-yielding
bonds helped it to outperform the index. Our use of leverage, which
magnifies performance results, also contributed to outperformance.
However, the fund underperformed the average return of funds in its
Lipper peer group, High Yield Municipal Debt Funds (closed-end). We
attribute this underperformance to the fund's larger weighting in
higher-quality bonds, which were not as strong during the period.
Additionally, the fund was not as well positioned as its peers for the
yield curve changes that took place during the period. It is important
to note that a fund's performance at market price may differ from its
results at NAV. Although market price performance generally reflects
investment results, it may also be influenced by several other factors,
including changes in investor perceptions of the fund or its investment
advisor, market conditions, fluctuations in supply and demand for the
fund's shares, and changes in fund distributions.
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TOTAL RETURN FOR
PERIODS ENDED 4/30/05
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Market
(inception 2/24/89) NAV Price
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6 months 4.41% 1.42%
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1 year 10.39 10.60
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5 years 39.42 7.47
Annual average 6.87 1.45
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10 years 74.37 44.30
Annual average 5.72 3.74
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Annual average
(life of fund) 7.08 5.66
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Data is historical. Past performance does not guarantee 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 assumes
reinvestment of distributions and does not account for taxes.
FUND PROFILE
Putnam Managed Municipal Income Trust is a leveraged fund that seeks to
provide a high level of current income free from federal income tax
through investments in investment-grade and higher-yielding, lower-rated
municipal bonds. The fund is designed for investors seeking tax-exempt
income and who are willing to accept the risks associated with
below-investment-grade bonds and the use of leverage.
Market overview
Over the past six months, longer-term yields remained largely unchanged
while yields on shorter-term securities rose in tandem with
interest-rate increases by the Federal Reserve Board (the Fed). Signs of
accelerating economic growth and rising corporate profits prompted the
Fed to increase the federal funds rate four times during the six-month
period, in 0.25% increments. It continued this tightening policy with
another 0.25% increase following period-end. The Fed uses interest-rate
increases in its efforts to rein in economic growth with the goal of
limiting its potential inflationary impact. Rising short-term rates and
relatively stable long-term rates resulted in a flattening of the yield
curve, as shorter- and longer-term interest rates began to converge.
The same conditions that led to rising interest rates -- an improving
economy and rising corporate earnings -- were particularly favorable for
lower-rated bonds. Among uninsured bonds and especially bonds rated BBB
and below, yield spreads tightened, and bond prices rose. Bonds at the
lower end of the credit spectrum, including BB- and B-rated bonds,
turned in the strongest performance as yield-seeking non-traditional
buyers of municipal bonds helped fuel demand. There was limited
variation in municipal bond performance among states during the
six-month period. Based on continued favorable legal rulings, yields on
tobacco settlement bonds declined overall during the period, and their
prices rose accordingly. After underperforming for most of the year,
airline-related industrial development bonds (IDBs) staged a comeback
from distressed levels and outperformed over the trailing six-month
period. Callable bonds (which can be redeemed by their issuers before
maturity) outperformed non-callable bonds.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/05
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 1.94%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 0.87%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) -0.02%
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Lehman Aggregate Bond Index (broad bond market) 0.98%
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Equities
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S&P 500 Index (broad stock market) 3.28%
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S&P Utilities Index (utilities stocks) 16.29%
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Russell 2000 Growth Index (small-company growth stocks) -1.98%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/05.
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Strategy overview
Given our expectation for rising interest rates, we maintained a
relatively short (or defensive) duration position throughout the
six-month period. One of the strategies we used to manage duration was
selling Treasury bond futures, which enabled us to achieve our target
duration without trading large volumes of securities. Investing in bonds
with a short duration may help protect principal when interest rates are
rising, but it can reduce the fund's potential for appreciation when
rates fall. Although the Fed adjusted interest rates upward during the
period, as we had expected, rates on long-term bonds trended downward
for much of the period, limiting the fund's participation in the price
rally.
During the period, the fund changed its positioning to take advantage of
the flattening of the yield curve. Given our expectation that short-term
rates would continue to rise, we reduced the fund's positions in inverse
floating-rate securities during the period. These securities pay
additional interest income as short rates fall and less interest income
when short rates rise. By decreasing the fund's exposure to them, we
took a defensive position against rising short-term rates. Another
technique we used to position the fund to benefit from yield curve
flattening was to buy callable bonds with longer maturities and to sell
non-callable bonds with shorter (generally 10 years or less) maturities.
We believe that callable bonds will outperform going forward.
The fund's relative performance versus the Lehman benchmark benefited
from its exposure to lower-rated, higher-yielding bonds which are not
part of the benchmark. However, the fund underperformed its Lipper peer
group because its weighting in this strong-performing market area was
less than that of its peers. We believe the high-yield rally has nearly
run its course; therefore, the fund's underweight position relative to
its peers may be beneficial in the long term.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
10/31/04 4/30/05
Average effective
maturity in years 6.6 5.7
Duration in years 6.1 5.5
Footnotes read:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
How fund holdings affected performance
The continued strong performance of lower-rated, higher-yielding bonds
was a significant factor during the period. In particular,
airline-related industrial development bonds (IDBs), which generally
fall into this rating category, staged a strong comeback during the past
six months, despite concerns about oil prices. Most of this performance
was driven by yield-hungry investors who have become more willing to dip
into riskier sectors. We underweighted airline-related IDBs relative to
the fund's peer group because our credit analysts' view on these bonds
was unfavorable -- a strategy that detracted from relative performance
versus its peers for the period. The fund does still own a few small
airline-related positions backed by Continental, American, and British
Air. These contributed to relative performance versus its Lehman
benchmark, which has no exposure to this market segment.
A relatively modest overweight position in tobacco settlement bonds,
compared to the benchmark, helped performance. This strategy was based
on our favorable view of this sector and on the availability of
attractive yields in this market segment. Tobacco settlement bonds,
secured by the income stream from tobacco companies' settlement
obligations to the states, generally offer higher yields than bonds of
comparable quality. This sector benefited from a February 4, 2005,
ruling by the DC Circuit Federal appeals court against the federal
government. Taking a cue from the success of the states in securing a
settlement from tobacco companies, the federal government sought a
remedy of $280 billion from tobacco manufacturers. The DC court ruling
stated that disgorgement was not a remedy available to the federal
government under the statute on which the Department of Justice (DOJ)
based its claim. This decision significantly mitigated the potential
financial impact of the DOJ's claim on the industry, helping to reassure
tobacco settlement bond investors that tobacco companies would likely be
able to continue to meet their obligations to the states. The fund owns
tobacco settlement bonds issued by Wisconsin, the District of Columbia,
South Dakota, South Carolina, and California, all of which performed well
during the period.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa (33.8%)
Aa (2.2%)
A (13.1%)
Baa (26.3%)
Ba (15.7%)
B (4.2%)
Other (4.7%)
Footnote reads:
As a percentage of market value as of 4/30/05. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's
ratings; percentages may include bonds not rated by Moody's but
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
On an issue-specific basis, the fund benefited from a pre-refunding of
bonds held in its portfolio. Pre-refunding occurs when an issuer raises
the money to refinance an older, higher-coupon bond by issuing new bonds
at current lower interest rates. This money is then invested in a secure
investment, usually U.S. Treasury securities, that mature at the older
bond's first call date, when it is used to pay off the old bonds. This
added security is often perceived as a credit upgrade by the market, and
can boost the price of the older bonds. In December 2004, zero coupon
bonds issued by E-470 Public Highway Authority -- an entity created to
fund, build, and manage toll highways serving metropolitan Denver,
Colorado -- were pre-refunded. These were revenue bonds issued in 2000
with an original maturity date of 2034. The bonds were pre-refunded to
2010 and the rating on the bonds was raised from Baa3 to Aaa.
Fund performance also was boosted by the increase in value of some
distressed bonds held in the portfolio. These bonds were issued by the
Waterford Economic Development Corporation to fund Canterbury
on-the-Lake, a continuing care retirement community located in
Waterford, Michigan. During the period, bondholders worked with the
issuer to restructure the credit. The price of the bonds rose as
bondholders agreed in principle to tender the outstanding bonds in lieu
of new debt.
The fund began to buy longer-term, callable bonds and sell shorter-term
non-callable securities during the period -- a strategy we plan to
continue to pursue as we believe callable bonds are likely to provide
better performance. In November 2004 we bought $5 million of insured
revenue bonds issued by Atlanta Airport. These bonds are scheduled to
mature in 2027 but are callable in 2015. To finance this purchase, we
sold $5 million of insured revenue bonds issued by Intermountain Power
Agency. These bonds were non-callable and mature in 2011.
We believe that the market has over-discounted the potentially negative
impact of mortgage prepayments on the single family housing sector,
particularly in light of rising interest rates, which are likely to slow
prepayments. During the period we purchased $760,000 of single-family
mortgage revenue bonds issued by Minnesota State Housing Finance Agency.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
OF SPECIAL INTEREST
Fund's dividend reduced
Yields have declined significantly across all fixed-income sectors over
the course of a prolonged bond-market rally. Additionally, several older
holdings were called or matured during the period, requiring
reinvestment of the assets at current lower interest rates. To reflect
this reduction in earnings, the fund's dividend was reduced from $0.0417
to $0.0381 per share in January 2005.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Economic growth has continued to be stronger than expected, despite the
Fed's efforts to slow growth and curb inflation by raising short-term
interest rates four times in 0.25% increments in the first half of the
fund's 2005 fiscal year. Long-term rates remain surprisingly low. In
fact, after rising modestly in late March and early April of 2005, long
rates fell again in the final weeks of the period. Based on sustained
solid economic growth and continued robust corporate earnings, we expect
the Fed to maintain its policy of increasing rates through 2005. We
believe Fed actions are likely to cause rising yields among bonds with
shorter maturities and further flattening of the yield curve as
short-term rates rise faster than long-term rates. We also expect more
Fed tightening than is currently anticipated by the market, and believe
that bond yields may begin to rise more quickly as other investors come
to the same conclusion. In light of current market conditions, we plan
to maintain the fund's defensive duration and to continue to increase
its exposure to callable bonds, which, in our opinion, are likely to
outperform in a rising-rate cycle.
We have a positive view on the single-family housing sector and plan to
add selectively to the fund's positions. We believe that the dramatic
outperformance of lower-rated, higher-yielding bonds will likely slow
down and we plan to reduce our exposure to this portion of the credit
spectrum in favor of higher-quality issues. Despite recent
outperformance, we remain bearish on airline-related IDBs in light of
likely continued fundamental weaknesses in this sector such as rising
fuel prices and domestic overcapacity. Our view on tobacco settlement
bonds is positive and we are seeking to increase the fund's exposure as
opportunities arise.
We believe we are headed into a more challenging environment for bond
investing. Our task will be to continue to search for the most
attractive opportunities among tax-exempt securities, and to balance the
pursuit of current income with prudent risk management.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk. Capital gains, if any,
are taxable for federal and, in most cases, state purposes. 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. Mutual funds that invest in bonds are subject to
certain risks, including interest-rate risk, credit risk, and inflation
risk. As interest rates rise, the prices of bonds fall. Long-term bonds
are more exposed to interest-rate risk than short-term bonds. Unlike
bonds, bond funds have ongoing fees and expenses. The fund's shares
trade on a stock exchange at market prices, which may be lower than the
fund's net asset value. The fund uses leverage, which involves risk and
may increase the volatility of the fund's net asset value.
Your fund's management
Your fund is managed by the members of the Putnam Tax Exempt
Fixed-Income Team. David Hamlin is the Portfolio Leader, and Paul Drury,
Susan McCormack, and James St. John are Portfolio Members of your fund.
The Portfolio Leader and Portfolio Members coordinate the team's
management of the fund.
For a complete listing of the members of the Putnam Tax Exempt
Fixed-Income Team, including those who are not Portfolio Leaders or
Portfolio Members of your fund, visit Putnam's Individual Investor Web
site at www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is as of April 30, 2005, and April 30, 2004.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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David Hamlin 2005 *
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Portfolio Leader 2004 *
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Paul Drury 2005 *
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Portfolio Member 2004 *
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Susan McCormack 2005 *
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Portfolio Member 2004 *
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James St. John 2005 *
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Portfolio Member 2004 *
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Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $100,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. This amount does not include compensation of other personnel
involved in research, trading, administration, systems, compliance, or
fund operations. These percentages are determined as of the fund's
fiscal period-end. For personnel who joined Putnam Management during or
after 2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
David Hamlin is the Portfolio Leader and Paul Drury, Susan McCormack,
and James St. John are Portfolio Members for Putnam's tax-exempt funds
for the following states: Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania. The
same group also manages Putnam AMT-Free Insured Municipal Fund*, Putnam
California Investment Grade Municipal Trust, Putnam High Yield Municipal
Trust, Putnam Investment Grade Municipal Trust, Putnam Municipal Bond
Fund, Putnam Municipal Opportunities Trust, Putnam New York Investment
Grade Municipal Trust, Putnam Tax Exempt Income Fund, Putnam Tax-Free
Health Care Fund, and Putnam Tax-Free High Yield Fund.
David Hamlin, Paul Drury, Susan McCormack, and James St. John may also
manage other accounts and variable trust funds advised by Putnam
Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended April 30, 2005, Portfolio Member Richard Wyke left
your fund's management team.
* Formerly Putnam Tax-Free Insured Fund.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is as of
April 30, 2005, and April 30, 2004.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks 2005 *
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Deputy Head of Investments N/A
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Kevin Cronin 2005 *
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Head of Investments 2004 *
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer 2004 *
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Steven Krichmar 2005 *
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Chief of Operations 2004 *
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Francis McNamara, III 2005 *
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General Counsel 2004 *
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer 2004 *
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Edward Shadek 2005 *
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Deputy Head of Investments N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 4/30/04.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2005. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a
fund's investment strategy. Data represents past performance. Past
performance does not guarantee 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.
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TOTAL RETURN AND COMPARATIVE INDEX RESULTS FOR PERIODS ENDED 4/30/05
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Lipper High
Yield Municipal
Lehman Debt Funds
Municipal (closed-end)
Market Bond category
NAV price Index average*
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6 months 4.41% 1.42% 1.94% 5.59%
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1 year 10.39 10.60 6.82 11.56
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5 years 39.42 7.47 40.53 39.46
Annual average 6.87 1.45 7.04 6.85
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10 years 74.37 44.30 87.36 79.22
Annual average 5.72 3.74 6.48 5.98
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Annual average
Life of fund
(since 2/24/89) 7.08 5.66 7.19 6.10
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Performance assumes reinvestment of distributions and does not account
for taxes.
Index and Lipper results should be compared to fund performance at net
asset value. Lipper calculations for reinvested dividends may differ
from actual performance.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/05, there
were 15, 15, 12, and 12 funds, respectively, in this Lipper category.
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TOTAL RETURN FOR PERIODS ENDED 3/31/05 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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6 months 3.57% 0.46%
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1 year 5.57 -0.22
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5 years 35.88 7.88
Annual average 6.32 1.53
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10 years 71.20 45.54
Annual average 5.52 3.82
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Annual average
Life of fund
(since 2/24/89) 7.00 5.58
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/05
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Distributions -- common shares
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Number 6
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Income 1 $0.2433
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Capital gains 1 --
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Total $0.2433
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Series A Series B Series C
Distributions -- preferred shares (550 shares) (550 shares) (650 shares)
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Income 1 $981.29 $900.76 $935.85
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Capital gains 1 -- -- --
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Total $981.29 $900.76 $935.85
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Share value: NAV Market price
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10/31/04 $8.18 $7.29
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4/30/05 8.26 7.15
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Current return (common shares, end of period)
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Current dividend rate 2 5.54% 6.39%
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Taxable equivalent 3 8.52 9.83
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. 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 35% federal tax rate for 2005. 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 any outstanding 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
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index of U.S.
investment-grade fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman Intermediate Treasury Bond Index is an unmanaged index of U.S.
Treasury securities with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the small-cap Russell 2000 Index chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
S&P Utilities Index is an unmanaged index of common stock issued by
utility companies.
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.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
The fund's portfolio
April 30, 2005 (Unaudited)
Key to Abbreviations
-------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FRB Floating Rate Bonds
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
PSFG Permanent School Fund Guaranteed
Q-SBLF Qualified School Board Loan Fund
U.S. Govt. Coll. U.S. Government Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (141.4%) (a)
Principal amount Rating (RAT) Value
Alabama (0.2%)
-------------------------------------------------------------------------------
$950,000 Butler, Indl. Dev. Board Solid Waste
Disp. Rev. Bonds (GA. Pacific
Corp.), 5 3/4s, 9/1/28 BB+ $964,431
Arizona (3.1%)
-------------------------------------------------------------------------------
1,000,000 Apache Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (Tucson Elec.
Pwr. Co.), Ser. B, 5 7/8s, 3/1/33 Ba1 1,000,760
1,000,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 1,094,640
1,800,000 Casa Grande, Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 7 5/8s, 12/1/29 B-/P 1,923,246
500,000 Cochise Cnty., Indl. Dev. Auth.
Rev. Bonds (Sierra Vista Regl. Hlth.
Ctr.), Ser. A, 6.2s, 12/1/21 BB+/P 529,250
3,000,000 Coconino Cnty., Poll. Control
Rev. Bonds (Tuscon/Navajo Elec.
Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba1 3,138,840
2,000,000 Glendale, Wtr. & Swr. Rev. Bonds,
AMBAC, 5s, 7/1/28 Aaa 2,106,620
815,000 Pima Cnty., Indl Dev. Auth.
Rev. Bonds (Horizon Cmnty. Learning
Ctr.), 5.05s, 6/1/25 BBB- 819,686
560,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village),
7 7/8s, 6/1/09 AAA/P 573,485
1,000,000 Scottsdale, Indl. Dev. Auth. Hosp.
Rev. Bonds (Scottsdale Hlth. Care),
5.8s, 12/1/31 A3 1,080,710
--------------
12,267,237
Arkansas (2.6%)
-------------------------------------------------------------------------------
4,600,000 AR State Hosp. Dev. Fin. Auth.
Rev. Bonds (Washington Regl. Med.
Ctr.), 7 3/8s, 2/1/29 Baa2 5,164,880
1,000,000 Independence Cnty., Poll. Control
Rev. Bonds (Entergy, Inc.), 5s,
1/1/21 A- 1,020,880
900,000 Little Rock G.O. Bonds (Cap. Impt.),
FSA, 3.95s, 4/1/19 Aaa 924,156
2,750,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 3,128,153
--------------
10,238,069
California (17.3%)
-------------------------------------------------------------------------------
4,000,000 CA G.O. Bonds, 5s, 5/1/22 A 4,248,840
1,700,000 CA Hlth. Fac. Auth. IFB (Catholic
Hlth. Care West), AMBAC, 7.726s,
7/1/17 Aaa 1,748,161
1,200,000 CA Poll. Control Fin. Auth. Solid
Waste Disp. Rev. Bonds (Waste
Management, Inc.), Ser. A-2, 5.4s,
4/1/25 BBB 1,229,628
CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A
1,000,000 6s, 5/1/15 A2 1,137,030
20,000,000 AMBAC, 5 1/2s, 5/1/13 Aaa 22,618,600
3,000,000 5 1/2s, 5/1/11 A3 3,338,910
2,250,000 CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt.
Cmntys.), Ser. A-3, 5.1s, 5/15/25 Baa2 2,359,193
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s,
4/1/30 BBB- 3,005,100
1,750,000 CA Statewide Cmnty. Dev. Auth.
Rev. Bonds (Daughters of Charity
Hlth.), 5 1/4s, 7/1/25 BBB+ 1,847,195
1,000,000 Capistrano, Unified School Dist.
Cmnty. Fac. Special Tax (No 98-2
Ladera), 5.7s, 9/1/20 BBB/P 1,128,470
Chula Vista, Cmnty. Fac. Dist.
Special Tax Rev. Bonds
1,250,000 (No. 08-1 Otay Ranch Village Six),
6s, 9/1/33 BB-/P 1,267,575
300,000 (No 07-I-Otay Ranch Village Eleven),
5 7/8s, 9/1/34 BB-/P 310,530
300,000 (No. 07-I Otay Ranch Village
Eleven), 5.8s, 9/1/28 BB-/P 309,786
10,775,000 Corona, COP (Vista Hosp. Syst.),
zero %, 7/1/29 (In default) (NON)
(F) D/P 30,170
750,000 Folsom, Special Tax Rev. Bonds
(Cmnty. Facs. Dist. No. 10), 5 7/8s,
9/1/28 BB 766,350
1,970,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 D/P 1,510,576
2,500,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 A- 2,718,550
1,100,000 Murrieta, Cmnty. Fac. Dist. Special
Tax (No. 2 The Oaks Impt. Area A),
6s, 9/1/34 BB- 1,137,169
650,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Rev. Bonds (No. 02-1
Ladera Ranch), Ser. A, 5.55s,
8/15/33 BBB 668,740
1,250,000 Sacramento, Special Tax (North
Natomas Cmnty. Fac.), Ser. 4-C, 6s,
9/1/33 BB+/P 1,302,138
7,000,000 San Bernardino Cnty., COP (Med. Ctr.
Fin.), Ser. A, MBIA, 6 1/2s, 8/1/28 Aaa 7,210,140
250,000 San Diego, Association of Bay Area
Governments (ABAG) Fin. Auth. For
Nonprofit Corps. Rev. Bonds (San
Diego Hosp.), Ser. A, 6 1/8s,
8/15/20 Baa1 275,473
2,515,000 Santaluz Cmnty., Facs. Dist. No. 2
Special Tax Rev. Bonds (Impt. Area
No. 1), Ser. B, 6 3/8s, 9/1/30 BB+/P 2,574,832
4,000,000 Thousand Oaks, Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Marketplace
94-1), zero %, 9/1/14 B/P 2,046,440
2,500,000 Vallejo, COP (Marine World
Foundation), 7.2s, 2/1/26 BBB-/P 2,634,550
--------------
67,424,146
Colorado (2.9%)
-------------------------------------------------------------------------------
3,015,000 CO Hlth. Fac. Auth.
Rev. Bonds (Evangelical Lutheran),
3.05s, 10/1/05 A3 3,018,678
CO Hwy. Auth. Rev. Bonds (E-470 Pub.
Hwy.), Ser. B
15,500,000 zero %, 9/1/35 Aaa 1,958,890
16,500,000 zero %, 9/1/34 Aaa 2,249,940
Denver, City & Cnty. Arpt.
Rev. Bonds
1,050,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 1,272,149
2,500,000 MBIA, 5 1/2s, 11/15/25 Aaa 2,613,225
--------------
11,112,882
Connecticut (1.0%)
-------------------------------------------------------------------------------
3,800,000 CT. State Special Tax Oblig. VRDN
(Trans. Infrastructure), Ser. 1,
3.04s, 9/1/20 VMIG1 3,800,000
Delaware (0.7%)
-------------------------------------------------------------------------------
2,500,000 GMAC Muni. Mtge. Trust 144A sub.
notes, Ser. A1-3, 5.3s, 10/31/39 A3 2,532,850
District of Columbia (1.9%)
-------------------------------------------------------------------------------
3,000,000 DC G.O. Bonds, Ser. A, FSA, 5s,
6/1/27 Aaa 3,150,120
4,000,000 DC Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 1/2s, 5/15/33 BBB 4,247,080
--------------
7,397,200
Florida (5.8%)
-------------------------------------------------------------------------------
2,000,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 B/P 2,244,560
1,500,000 CFM Cmnty. Dev. Dist. Rev. Bonds,
Ser. A, 6 1/4s, 5/1/35 BB-/P 1,583,235
Fishhawk, Cmnty. Dev. Dist. II
Rev. Bonds
490,000 Ser. A, 6 1/8s, 5/1/34 BB-/P 510,786
715,000 Ser. B, 5s, 11/1/07 BB-/P 722,229
770,000 FL State Mid-Bay Bridge Auth.
Rev. Bonds, Ser. A, 6.05s, 10/1/22 BBB/P 801,647
750,000 Fleming Island, Plantation Cmnty.
Dev. Dist. Special Assmt.
Rev. Bonds, Ser. B, 7 3/8s, 5/1/31 BB/P 814,328
420,000 Gateway Svcs. Cmnty., Dev. Dist.
Special Assmt. Bonds (Stoneybrook),
5 1/2s, 7/1/08 BB-/P 428,530
490,000 Heritage Harbor, South Cmnty. Dev.
Distr. Rev. Bonds, Ser. A, 6 1/2s,
5/1/34 BB/P 522,247
575,000 Heritage Isle at Viera, Cmnty. Dev.
Dist. Special Assmt., Ser. B, 5s,
11/1/09 BB/P 578,209
1,250,000 Islands at Doral III, Cmnty. Dev.
Dist. Special Assmt. Bonds, Ser.
04-A, 5.9s, 5/1/35 BB/P 1,288,488
1,000,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 1,003,780
1,335,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.7s, 11/15/19 BB+ 1,470,556
1,000,000 Old Palm, Cmnty. Dev. Dist. Special
Assmt. Bonds (Palm Beach Gardens),
Ser. A, 5.9s, 5/1/35 BB 1,030,170
1,500,000 Reunion West, Cmnty. Dev. Dist.
Special Assmt., 6 1/4s, 5/1/36 BB-/P 1,577,895
2,500,000 South Bay Cmnty., Dev. Dist.
Rev. Bonds, Ser. B-2, 5 3/8s, 5/1/13 BB-/P 2,535,800
1,500,000 South Miami, Hlth. Fac. Auth.
Rev. Bonds (Baptist Hlth.), 5 1/4s,
11/15/33 Aa3 1,558,830
500,000 South Village Cmnty. Dev. Dist.
Rev. Bonds, Ser. A, 5.7s, 5/1/35 BB-/P 507,330
990,000 Sterling Hill, Cmnty. Dev. Dist.
Rev. Bonds, Ser. B, 5 1/2s, 11/1/10 BB-/P 1,006,385
1,250,000 Westchester Cmnty. Dev. Dist. No. 1
Special Assmt. (Cmnty.
Infrastructure), 6 1/8s, 5/1/35 BB- 1,307,538
1,250,000 World Commerce Cmnty. Dev. Dist.
Special Assmt., Ser. A-1, 6 1/2s,
5/1/36 BB-/P 1,308,888
--------------
22,801,431
Georgia (4.1%)
-------------------------------------------------------------------------------
5,000,000 Atlanta Arpt. Passenger Fac.
Rev. Bonds (Sub. Lien), Ser. J, FSA,
5s, 1/1/27 Aaa 5,241,700
4,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 12/1/08 A2 4,152,480
425,000 Fulton Cnty., Res. Care Fac.
Rev. Bonds (Canterbury Court), Class
A, 6 1/8s, 2/15/34 B+/P 430,096
700,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
10.791s, 8/1/10 Aaa 712,516
700,000 GA Med. Ctr. Hosp. Auth. FRB, MBIA,
1.636s, 8/1/10 Aaa 700,000
2,500,000 Muni. Elec. Auth. Rev. Bonds, AMBAC,
5s, 1/1/26 A 2,656,750
2,085,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay Paper,
Inc.), 7.4s, 1/1/16 B+ 2,118,381
--------------
16,011,923
Hawaii (0.4%)
-------------------------------------------------------------------------------
1,760,000 HI Dept. of Trans. Special Fac.
Rev. Bonds (Continental Airlines,
Inc.), 7s, 6/1/20 B 1,544,558
Illinois (2.0%)
-------------------------------------------------------------------------------
3,500,000 Chicago, G.O. Bonds, Ser. A, AMBAC,
5 5/8s, 1/1/39 Aaa 3,862,250
3,250,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 3,422,705
500,000 IL Hlth. Fac. Auth. Rev. Bonds (St.
Benedict), Ser. 03A-1, 6.9s,
11/15/33 B+ 519,060
--------------
7,804,015
Indiana (2.9%)
-------------------------------------------------------------------------------
2,500,000 IN State Dev. Fin. Auth. Env. Impt.
Rev. Bonds (USX Corp.), 5.6s,
12/1/32 Baa1 2,619,550
6,500,000 IN Trans. Fin. Auth. Arpt. Facs.
Lease Rev. Bonds, Ser. A, AMBAC, 5s,
11/1/16 Aaa 6,840,080
1,750,000 Rockport, Poll. Control Mandatory
Put Bonds (Indiana Michigan Pwr.
Co.), Ser. C, 2 5/8s, 10/1/06 Baa2 1,733,375
--------------
11,193,005
Iowa (1.4%)
-------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives)
2,940,000 9 1/4s, 7/1/25 BBB-/P 3,581,332
1,350,000 9.15s, 7/1/09 BBB-/P 1,559,493
IA Fin. Auth. Retirement Cmnty.
Rev. Bonds (Friendship Haven),
Ser. A
200,000 6 1/8s, 11/15/32 BB/P 203,596
200,000 6s, 11/15/24 BB/P 202,672
--------------
5,547,093
Kansas (0.6%)
-------------------------------------------------------------------------------
2,145,000 Olathe, Hlth. Fac. VRDN (Olathe Med.
Ctr.), Ser. A, AMBAC, 3.05s, 9/1/32 A-1+ 2,145,000
Kentucky (0.5%)
-------------------------------------------------------------------------------
1,700,000 KY Econ. Dev. Fin. Auth. Rev. Bonds
(Norton Hlth. Care, Inc.), Ser. A,
6 1/2s, 10/1/20 BBB+/P 1,884,382
Louisiana (1.1%)
-------------------------------------------------------------------------------
1,140,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds
(Lake Charles Memorial Hosp.),
8 5/8s, 12/1/30 CCC/P 1,110,337
500,000 Tangipahoa Parish Hosp. Svcs.
Rev. Bonds (North Oaks Med. Ctr.),
Ser. A, 5s, 2/1/25 A 511,190
2,750,000 W. Feliciana Parish, Poll. Control
Rev. Bonds (Gulf States Util. Co.),
Ser. C, 7s, 11/1/15 BBB- 2,800,683
--------------
4,422,210
Maine (1.0%)
-------------------------------------------------------------------------------
1,875,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 1,946,231
2,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba1 2,135,180
--------------
4,081,411
Maryland (0.8%)
-------------------------------------------------------------------------------
1,000,000 MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds (Medstar Hlth.),
5 3/4s, 8/15/15 Baa1 1,114,790
1,850,000 Westminster, Econ. Dev. Rev. Bonds
(Carroll Lutheran Village), Ser. A,
5 7/8s, 5/1/21 BB/P 1,921,281
--------------
3,036,071
Massachusetts (8.6%)
-------------------------------------------------------------------------------
600,000 Boston, Indl. Dev. Fin. Auth.
Rev. Bonds (Springhouse, Inc.), 6s,
7/1/28 BB-/P 600,468
600,000 MA State Dev. Fin. Agcy.
Rev. Bonds (Lasell Village), Ser. A,
6 3/8s, 12/1/25 BB-/P 608,256
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,000,000 (Civic Investments), Ser. A, 9s,
12/15/15 BBB- 2,307,820
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,474,756
1,200,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 1,290,624
2,225,000 (UMass Memorial), Ser. C, 6 5/8s,
7/1/32 Baa2 2,398,550
1,875,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 2,029,575
1,500,000 (Caritas Christi Oblig. Group),
Ser. A, 5 1/4s, 7/1/08 BBB 1,563,630
MA State Hsg. Fin. Agcy. Rev. Bonds
(Rental Mtge.)
2,000,000 Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 2,055,080
15,290,000 Ser. A, AMBAC, 5 1/2s, 7/1/40 Aaa 15,712,616
MA State Indl. Fin. Agcy. Rev. Bonds
500,000 (1st Mtge. Stone Institution &
Newton), 7.9s, 1/1/24 BB-/P 511,055
1,550,000 (1st Mtge. Berkshire Retirement),
Ser. A,
6 5/8s, 7/1/16 BBB- 1,570,026
1,500,000 (1st Mtge. Brookhaven), Ser. B,
5 1/4s, 1/1/17 BBB/P 1,529,595
--------------
33,652,051
Michigan (6.4%)
-------------------------------------------------------------------------------
500,000 Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), 6s, 7/1/20 Baa3 518,210
350,000 Garden City, Hosp. Fin. Auth.
Rev. Bonds (Garden City Hosp. OB
Group), Ser. A, 5 3/4s, 9/1/17 Ba2 334,499
1,425,000 Harper Woods School Dist. G.O. Bonds
(School Bldg. & Site), FGIC/Q-SBLF,
5s, 5/1/28 Aaa 1,500,910
1,500,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 6s, 4/1/22 A2 1,648,260
2,000,000 Midland Cnty., Econ. Dev. Corp.
Rev. Bonds, 6 3/4s, 7/23/09 Ba3 2,073,360
4,750,000 Plymouth-Canton Cmnty., School Dist.
G.O. Bonds, FGIC/Q-SBLF, 5s, 5/1/26 Aaa 5,021,178
4,750,000 Saginaw Cnty., G.O. Bonds, MBIA, 5s,
5/1/29 Aaa 5,013,815
2,975,000 Warren Cons. School Dist. G.O.
Bonds, FSA, 5 3/8s, 5/1/18 Aaa 3,256,643
6,630,000 Waterford, Econ. Dev. Corp.
Rev. Bonds (Canterbury Hlth.), 6s,
1/1/39 B-/P 5,408,953
--------------
24,775,828
Minnesota (1.9%)
-------------------------------------------------------------------------------
810,000 Cohasset, VRDN (MN Pwr. & Light Co.
Project B), 3.05s, 6/1/13 A-1+ 810,000
2,000,000 Cohasset, Poll. Control Rev. Bonds
(Allete, Inc.), 4.95s, 7/1/22 A 2,038,240
500,000 Minneapolis, Rev. Bonds (Walker
Methodist Sr. Svcs.), Ser. C, 6s,
11/15/28 B+/P 421,530
640,000 MN State Hsg. Fin. Agcy. Rev. Bonds
(Residential Hsg.), Ser. H, 4.15s,
1/1/12 Aa1 642,176
400,000 Sauk Rapids Hlth. Care & Hsg. Fac.
Rev. Bonds (Good Shepherd Lutheran
Home), 6s, 1/1/34 B/P 411,376
3,055,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. B,
6 5/8s, 11/1/17 Ba1 3,073,605
--------------
7,396,927
Mississippi (0.8%)
-------------------------------------------------------------------------------
1,500,000 Lowndes Cnty., Solid Waste Disp. &
Poll. Control Rev. Bonds
(Weyerhaeuser Co.), Ser. B, 6.7s,
4/1/22 Baa2 1,829,370
1,250,000 Mississippi Bus. Fin. Corp. Poll.
Control Rev. Bonds (Syst. Energy
Resources, Inc.), 5.9s, 5/1/22 BBB- 1,278,800
--------------
3,108,170
Missouri (1.9%)
-------------------------------------------------------------------------------
1,500,000 Cape Girardeau Cnty., Indl. Dev.
Auth. Hlth. Care Fac. Rev. Bonds
(St. Francis Med. Ctr.),
Ser. A, 5 1/2s, 6/1/32 A 1,589,100
1,500,000 Kansas City, Indl. Dev. Auth. Hlth.
Fac. Rev. Bonds (First Mtg. Bishop
Spencer), Ser. A, 6 1/2s, 1/1/35 BB-/P 1,562,025
MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership)
1,840,000 GNMA/FNMA Coll., 5.55s, 9/1/34 AAA 1,943,537
435,000 Ser. B, GNMA/FNMA Coll., 4.4s,
9/1/14 AAA 438,289
415,000 Ser. B, GNMA/FNMA Coll., 4.3s,
9/1/13 AAA 417,868
1,450,000 MO State Hlth. & Edl. Fac. Auth.
Rev. Bonds (BJC Hlth. Syst.),
5 1/4s, 5/15/32 Aa2 1,519,600
--------------
7,470,419
Montana (0.5%)
-------------------------------------------------------------------------------
1,775,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
12/30/08 Aaa 1,861,798
Nebraska (--%)
-------------------------------------------------------------------------------
Kearney, Indl. Dev. Rev. Bonds
68,154 (Great Platte River), 8s, 9/1/12 CCC/P 53,672
791,466 (Brookhaven), zero %, 9/1/12 CCC/P 15,901
--------------
69,573
Nevada (3.0%)
-------------------------------------------------------------------------------
1,000,000 Clark Cnty., Impt. Dist. Special
Assmt. (Dist. No. 142), 6 3/8s,
8/1/23 BB-/P 1,030,320
5,000,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. C,
AMBAC, 5.95s, 12/1/38 Aaa 5,525,350
Henderson, Local Impt. Dist. Special
Assmt. (No. T-14)
1,585,000 3.2s, 3/1/06 BB-/P 1,585,856
500,000 5.8s, 3/1/23 BB-/P 516,280
875,000 Las Vegas, Local Impt. Board Special
Assmt. (Dist. No. 607), 5.9s, 6/1/18 BB-/P 901,416
2,000,000 Washoe Cnty., Wtr. Fac. Mandatory
Put Bonds (Sierra Pacific Pwr. Co.),
5s, 7/1/09 Ba2 2,012,140
--------------
11,571,362
New Hampshire (1.6%)
-------------------------------------------------------------------------------
670,000 NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds (Riverwoods at Exeter),
Ser. A, 6 3/8s, 3/1/13 BB+/P 688,747
1,275,000 NH Hlth. & Ed. Fac. Auth. Rev. Bonds
(Kendal at Hanover), Ser. A, 5s,
10/1/18 BBB 1,303,764
2,565,000 NH State Bus. Fin. Auth. Rev. Bonds
(Alice Peck Day Hlth. Syst.),
Ser. A, 7s, 10/1/29 BBB-/P 2,621,712
1,750,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds, 3 1/2s, 7/1/27 Baa2 1,723,803
--------------
6,338,026
New Jersey (3.8%)
-------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
1,300,000 (Cranes Mill), Ser. A, 7 1/2s,
2/1/27 BB-/P 1,373,606
1,250,000 (Cedar Crest Vlg., Inc.), Ser. A,
7 1/4s, 11/15/31 BB-/P 1,332,113
1,900,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 1,985,462
500,000 (First Mtge. Presbyterian Home),
Ser. A, 6 3/8s, 11/1/31 BB/P 519,725
2,500,000 (Cigarette Tax), 5 1/2s, 6/15/24 Baa2 2,645,950
1,750,000 NJ Econ. Dev. Auth. Solid Waste
Rev. Bonds (Disp. Waste Mgt.), 5.3s,
6/1/15 BBB 1,836,013
NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
1,300,000 (Trinitas Hosp. Oblig. Group),
7 1/2s, 7/1/30 Baa3 1,467,492
2,250,000 (United Methodist Homes), Ser. A,
5 3/4s, 7/1/29 BB+ 2,267,753
1,250,000 (Atlantic City Med. Ctr.), 5 3/4s,
7/1/25 A2 1,334,388
--------------
14,762,502
New Mexico (0.4%)
-------------------------------------------------------------------------------
1,740,000 Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan),
Class B, 2.1s, 4/1/06 Baa2 1,720,529
New York (14.6%)
-------------------------------------------------------------------------------
500,000 Huntington, Hsg. Auth. Rev. Bonds
(Gurwin Jewish Sr. Residence),
Ser. A, 6s, 5/1/39 B+/P 485,890
2,500,000 Long Island, Pwr. Auth. NY Elec.
Syst. Rev. Bonds, Ser. A, 5 3/4s,
12/1/24 A3 2,712,500
2,000,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (Keyspan-Glenwood),
5 1/4s, 6/1/27 A 2,077,220
10,000,000 NY City, G.O. Bonds, Ser. B, 5 1/4s,
12/1/09 A1 10,817,100
NY City, Indl. Dev. Agcy. Rev. Bonds
1,000,000 (Visy Paper, Inc.), 7.95s, 1/1/28 B- 1,047,310
1,450,000 (Liberty-7 World Trade Ctr.),
Ser. A, 6 1/4s, 3/1/15 B-/P 1,489,484
3,025,000 NY City, Indl. Dev. Agcy. Special
Fac. Rev. Bonds (British Airways),
5 1/4s, 12/1/32 Ba2 2,587,706
1,490,000 NY City, Indl. Dev. Agency
Rev. Bonds (Staten Island U. Hosp.
Project), 6.45s, 7/1/32 Ba3 1,504,185
10,000,000 NY City, Muni. Wtr. Fin. Auth.
Rev. Bonds, Ser. C, MBIA, 5 1/2s,
6/15/17 Aaa 10,386,200
900,000 NY State Dorm. Auth. Rev. Bonds
(Winthrop-U. Hosp. Assn.), Ser. A,
5 1/2s, 7/1/32 Baa1 944,532
2,400,000 NY State Energy Research & Dev.
Auth. Gas Fac. Rev. Bonds (Brooklyn
Union Gas), 6.952s, 7/1/26 A+ 2,545,992
2,000,000 Onondaga Cnty., Indl. Dev. Agcy.
Rev. Bonds (Solvay Paperboard, LLC),
7s, 11/1/30 (acquired 12/9/98, cost
$2,000,000) (RES) BB-/P 2,121,980
200,000 Port Auth. NY & NJ Rev. Bonds
(Kennedy Intl. Arpt. - 5th
Installment), 6 3/4s, 10/1/19 BB+/P 211,972
15,000,000 Port. Auth. NY & NJ Special
Obligation Rev. Bonds (JFK Intl. Air
Term. - 6), MBIA, 5.9s, 12/1/17 Aaa 16,215,000
1,700,000 Suffolk Cnty., Indl. Dev. Agcy.
Rev. Bonds (Peconic Landing),
Ser. A, 8s, 10/1/30 B+/P 1,883,940
--------------
57,031,011
North Carolina (2.5%)
-------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds
1,500,000 Ser. D, 6 3/4s, 1/1/26 Baa2 1,680,000
3,000,000 Ser. A, 5 3/4s, 1/1/26 Baa2 3,187,500
750,000 NC Med. Care Cmnty. Healthcare Fac.
Rev. Bonds (Deerfield), Ser. A, 5s,
11/1/23 A- 777,533
NC Med. Care Comm. Retirement Fac.
Rev. Bonds (First Mtg.), Ser. A-05
1,040,000 5 1/2s, 10/1/35 BB+ 1,046,770
600,000 5 1/4s, 10/1/25 BB+ 602,622
NC State Muni. Pwr. Agcy. Rev. Bonds
1,000,000 (No. 1, Catawba Elec.), Ser. B,
6 1/2s, 1/1/20 A3 1,126,720
1,300,000 Ser. A, FGIC, 5 1/2s, 1/1/13 AAA 1,467,687
--------------
9,888,832
Ohio (3.3%)
-------------------------------------------------------------------------------
Cuyahoga Cnty., Rev. Bonds, Ser. A
1,280,000 6s, 1/1/16 Aa3 1,473,933
2,000,000 6s, 1/1/15 Aa3 2,293,960
3,000,000 OH State Air Quality Dev. Auth.
Rev. Bonds (Toledo Poll. Control),
Ser. A, 6.1s, 8/1/27 Baa2 3,133,080
6,100,000 OH State Air Quality Dev. Auth.
VRDN (Columbus Southern), Ser. C,
3s, 12/1/38 VMIG1 6,100,000
--------------
13,000,973
Oklahoma (3.3%)
-------------------------------------------------------------------------------
3,150,000 OK City Arpt. Trust Rev. Bonds Jr.
Lien 27th Ser., Ser. A, FSA, 5s,
7/1/18 Aaa 3,322,368
1,575,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Hlth. Care Syst.),
Ser. A, U.S. Govt. Coll., 5 5/8s,
8/15/29 AAA 1,743,651
OK State Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.), Ser. A, MBIA
4,045,000 5 3/4s, 8/15/29 AAA 4,421,630
2,955,000 5 3/4s, 8/15/29 AAA 3,305,020
--------------
12,792,669
Oregon (0.8%)
-------------------------------------------------------------------------------
1,900,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza),
6 1/2s, 12/1/29 BB-/P 1,937,449
990,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds (Single Family Mtg.),
Ser. K, 5 5/8s, 7/1/29 Aa2 1,047,311
--------------
2,984,760
Pennsylvania (12.3%)
-------------------------------------------------------------------------------
1,800,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek Partners),
6.65s, 5/1/10 BBB- 1,942,776
350,000 Lebanon Cnty., Hlth. Fac. Auth.
Rev. Bonds (Good Samaritan Hosp.),
6s, 11/15/35 Baa1 370,321
500,000 Lebanon Cnty., Hlth. Facs.
Rev. Bonds (Pleasant View
Retirement), Ser. A, 5.3s, 12/15/26 BB-/P 493,665
1,000,000 Lehigh Cnty., Gen. Purpose Auth.
Rev. Bonds (Lehigh Valley Hosp.
Hlth. Network), Ser. A, 5 1/4s,
7/1/32 A2 1,035,780
500,000 Monroe Cnty., Hosp. Auth. Rev. Bonds
(Pocono Med. Ctr.), 6s, 1/1/43 BBB+ 528,635
700,000 Montgomery Cnty., Indl. Auth.
Resource Recvy. Rev. Bonds
(Whitemarsh Cont Care), 6 1/4s,
2/1/35 B/P 732,662
PA Convention Ctr. Auth. Rev. Bonds
1,500,000 Ser. A, 6 3/4s, 9/1/19 Baa2 1,536,690
7,250,000 MBIA, 6.7s, 9/1/14 Aaa 7,427,118
PA Econ. Dev. Fin. Auth. Rev. Bonds
7,750,000 (MacMillan Ltd. Partnership), 7.6s,
12/1/20 Baa2 8,117,583
1,000,000 (Amtrak), Ser. A, 6 3/8s, 11/1/41 A3 1,038,470
PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
1,750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 1,788,815
1,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,021,500
4,200,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BB 4,253,592
PA State Higher Edl. Fac. Auth.
Rev. Bonds
1,000,000 (Widener U.), 5.4s, 7/15/36 BBB+ 1,053,350
995,000 (Philadelphia College of Osteopathic
Medicine), 5s, 12/1/07 A 1,034,402
5,715,000 Philadelphia, Gas Wks. Rev. Bonds
(1975 Gen. Ordinance 17th), FSA, 5s,
7/1/07 Aaa 5,961,659
2,729,624 Philadelphia, Hosp. & Higher Ed.
Fac. Auth. Rev. Bonds (Graduate
Hlth. Syst.), 7 1/4s, 7/1/10 (In
default) (NON) D/P 273
2,000,000 Philadelphia, Indl. Dev. Auth. Arpt.
Rev. Bonds (Aero Philadelphia, LLC),
5 1/2s, 1/1/24 BB/P 1,986,020
5,285,000 Philadelphia, Redev. Auth.
Rev. Bonds (Neighborhood
Transformation), Ser. C, FGIC, 5s,
4/15/27 Aaa 5,581,753
1,800,000 Sayre, Hlth. Care Fac. Auth.
Rev. Bonds (Guthrie Hlth.), Ser. A,
5 7/8s, 12/1/31 A- 1,915,722
--------------
47,820,786
South Carolina (2.1%)
-------------------------------------------------------------------------------
1,000,000 Lexington Cnty. Hlth. Svcs. Dist.
Inc. Hosp. Rev. Bonds, 5 1/2s,
5/1/37 A2 1,065,660
3,000,000 Richland Cnty., Rev. Bonds (Intl.
Paper Co.), Ser. A, 4 1/4s, 10/1/07 Baa2 3,062,580
1,250,000 SC Hosp. Auth. Rev. Bonds (Med. U.),
Ser. A, 6 1/2s, 8/15/32 AAA 1,495,300
1,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth.
Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 1,221,550
1,300,000 SC Tobacco Settlement Rev. Mgt.
Rev. Bonds, Ser. B, 6 3/8s, 5/15/30 BBB 1,364,454
--------------
8,209,544
South Dakota (0.5%)
-------------------------------------------------------------------------------
2,000,000 SD Edl. Enhancement Funding Corp.
Rev. Bonds, Ser. B, 6 1/2s, 6/1/32 BBB 2,070,000
Tennessee (5.3%)
-------------------------------------------------------------------------------
3,700,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 BBB+ 4,410,363
12,000,000 Johnson City, Hlth. & Edl. Fac.
Hosp. Board Rev. Bonds (First Mtg.-
Mountain States Hlth.),
Ser. A, MBIA, 6s, 7/1/21 Aaa 13,431,960
600,000 Johnson City, Hlth. & Edl. Facs.
Board Retirement Fac. Rev. Bonds
(Appalachian Christian
Village), Ser. A, 6 1/4s, 2/15/32 BB-/P 609,768
Shelby Cnty., Hlth. Edl. & Hsg. Fac.
Hosp. Board Rev. Bonds (Methodist
Hlth. Care)
1,255,000 6 1/2s, 9/1/26 A3 1,507,117
745,000 6 1/2s, 9/1/26 A3 877,729
--------------
20,836,937
Texas (7.8%)
-------------------------------------------------------------------------------
600,000 Abilene, Hlth. Fac. Dev. Corp.
Rev. Bonds (Sears Methodist
Retirement), Ser. A, 7s, 11/15/33 BB/P 635,910
5,500,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s,
4/1/21 (SEG) Baa2 5,778,630
4,655,000 Carrollton, Farmers Branch Indpt.
School Dist. G.O. Bonds, PSFG, 5s,
2/15/17 Aaa 4,949,475
2,360,000 Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds (American
Airlines, Inc.), 6 3/8s, 5/1/35 Caa2 1,619,550
5,500,000 Harris Cnty., Rev. Bonds, Ser. B,
FSA, 5s, 8/15/32 Aaa 5,967,005
3,000,000 Harris Cnty., Hlth. Fac. Rev. Bonds
(Memorial Hermann Hlth. Care),
Ser. A, 6 3/8s, 6/1/29 A2 3,335,760
2,500,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.),
Ser. C, 5.7s, 7/15/29 B- 1,844,425
2,500,000 Sam Rayburn Muni. Pwr. Agcy.
Rev. Bonds, 6s, 10/1/21 Baa2 2,699,600
Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.)
2,000,000 6s, 7/1/29 Baa3 2,020,280
800,000 6s, 7/1/25 Baa3 808,936
800,000 6s, 7/1/19 Baa3 820,584
--------------
30,480,155
Utah (1.2%)
-------------------------------------------------------------------------------
Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A
750,000 7 1/2s, 2/1/10 BB- 768,158
600,000 7.45s, 7/1/17 BB-/P 622,038
2,000,000 Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union
Pacific), Ser. A, 5.7s, 11/1/26 Baa2 2,089,300
1,000,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil), 5.05s, 11/1/17 Baa1 1,083,060
--------------
4,562,556
Vermont (0.3%)
-------------------------------------------------------------------------------
975,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 993,886
Virginia (1.0%)
-------------------------------------------------------------------------------
1,000,000 James Cnty., Indl. Dev. Auth.
Rev. Bonds (Williamsburg), Ser. A,
6 1/8s, 3/1/32 BB-/P 1,052,850
1,000,000 Roanoke Cnty. Indl. Dev. Auth.
Rev. Bonds (Res. Care Fac.), Ser. A,
6.3s, 7/1/35 B/P 1,010,980
2,000,000 Russell Cnty. Indl. Dev. Auth. Poll.
Control Rev. Bonds (Appalachian Pwr.
Co.), Ser. I, 2.7s, 11/1/07 Baa2 1,987,260
--------------
4,051,090
Washington (1.4%)
-------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C,
6 1/4s, 1/1/32 Aa1 5,354,200
West Virginia (1.6%)
-------------------------------------------------------------------------------
4,300,000 Marshall Cnty., Poll. Control VRDN
(OH Pwr. Co.), Ser. E, 3.04s, 6/1/22 VMIG1 4,300,000
2,250,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 B2 1,794,983
--------------
6,094,983
Wisconsin (3.4%)
-------------------------------------------------------------------------------
Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds
3,000,000 7s, 6/1/28 BBB 3,184,890
3,000,000 6 3/8s, 6/1/32 BBB 3,067,380
2,625,000 Kimberly, Area School Distr. G.O.
Bonds, FSA, 5s, 3/1/25 Aaa 2,783,770
3,900,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 4,163,562
--------------
13,199,602
Wyoming (0.8%)
-------------------------------------------------------------------------------
3,025,000 Sweetwater Cnty., Poll. Control
VRDN (Pacificorp.), Ser. B, 3.12s,
1/1/14 VMIG1 3,025,000
--------------
Total Municipal bonds and notes
(cost $534,617,784) $551,332,083
Preferred stocks (1.7%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,000,000 Charter Mac. Equity Trust 144A
Ser. A, 6.625% cum. pfd. BBB- $2,151,460
4,000,000 MuniMae Tax Exempt Bond Subsidiary,
LLC 144A 6.875% cum. pfd. A3 4,340,320
--------------
Total Preferred stocks
(cost $6,000,000) $6,491,780
-------------------------------------------------------------------------------
Total Investments
(cost $540,617,784) $557,823,863
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $390,034,321.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2005 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 April 30, 2005. Securities rated by Putnam are indicated
by "/P" . Security ratings are defined in the Statement of Additional
Information.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2005 was
$2,121,980 or 0.5% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2005.
(F) Security is valued at fair value following procedures approved by
the Trustees.
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 VRDN, Mandatory Put Bonds, and FRB are the current
interest rates at April 30, 2005.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at April 30, 2005.
The fund had the following industry group concentrations greater than
10% at April 30, 2005
(as a percentage of net asset value):
Health care 41.2%
Utilities 26.8
Transportation 19.5
The fund had the following insurance concentrations greater than 10% at
April 30, 2005
(as a percentage of net asset value):
MBIA 18.3%
AMBAC 17.5
Futures contracts outstanding at April 30, 2005 (Unaudited)
Number of Expiration Unrealized
contracts Value date depreciation
--------------------------------------------------------------------------------------
U.S. Treasury Note
5 yr (Short) 279 $30,258,422 Jun-05 $(56,229)
U.S. Treasury Note
10 yr (Short) 100 11,142,188 Jun-05 (175,188)
--------------------------------------------------------------------------------------
$(231,417)
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
April 30, 2005 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$540,617,784) (Note 1) $557,823,863
-------------------------------------------------------------------------------
Cash 1,864,221
-------------------------------------------------------------------------------
Interest and other receivables 9,773,793
-------------------------------------------------------------------------------
Receivable for securities sold 520,278
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 94,750
-------------------------------------------------------------------------------
Total assets $570,076,905
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 1,798,593
-------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 143,537
-------------------------------------------------------------------------------
Payable for securities purchased 1,983,040
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 967,320
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,883
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 62,212
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,256
-------------------------------------------------------------------------------
Other accrued expenses 55,743
-------------------------------------------------------------------------------
Total liabilities 5,042,584
-------------------------------------------------------------------------------
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 applicable to common shares outstanding $390,034,321
Represented by
-------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares
authorized) (Note 1) $434,703,689
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 167,742
-------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (61,811,772)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 16,974,662
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $390,034,321
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per common share ($390,034,321 divided by
47,206,343 shares) $8.26
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended April 30, 2005 (Unaudited)
Interest income: $14,628,260
-------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,924,973
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 97,024
-------------------------------------------------------------------------------
Custodian fees (Note 2) 72,788
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 10,936
-------------------------------------------------------------------------------
Administrative services (Note 2) 16,635
-------------------------------------------------------------------------------
Preferred share remarketing agent fees 221,565
-------------------------------------------------------------------------------
Other 121,367
-------------------------------------------------------------------------------
Total expenses 2,465,288
-------------------------------------------------------------------------------
Expense reduction (Note 2) (33,405)
-------------------------------------------------------------------------------
Net expenses 2,431,883
-------------------------------------------------------------------------------
Net investment income 12,196,377
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (130,574)
-------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (428,307)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
-------------------------------------------------------------------------------
contracts during the period 5,452,448
-------------------------------------------------------------------------------
Net gain on investments 4,893,567
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $17,089,944
-------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed preferred shareholders:
(Note 1)
-------------------------------------------------------------------------------
From tax exempt income (1,613,239)
-------------------------------------------------------------------------------
From ordinary income (30,193)
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations
(applicable to common shareholders) $15,446,512
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
Increase in net assets 2005* 2004
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $12,196,377 $25,455,102
-------------------------------------------------------------------------------
Net realized loss on investments (558,881) (8,406,569)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,452,448 17,847,804
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 17,089,944 34,896,337
Distributions to Series A, B, and C remarketed preferred shareholders:
(Note 1)
-------------------------------------------------------------------------------
From tax exempt income (1,613,239) (2,026,238)
-------------------------------------------------------------------------------
From ordinary income (30,193) (3,054)
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations (applicable to common
shareholders) 15,446,512 32,867,045
-------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (11,130,781) (23,617,277)
-------------------------------------------------------------------------------
From ordinary income (354,033) (42,484)
-------------------------------------------------------------------------------
Total increase in net assets 3,961,698 9,207,284
Net assets
-------------------------------------------------------------------------------
Beginning of period 386,072,623 376,865,339
-------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $167,742 and
$1,099,611, respectively) $390,034,321 $386,072,623
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Common shares outstanding at beginning and
end of period 47,206,343 47,206,343
-------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning and end of period 1,750 1,750
-------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period (common shares) $8.18 $7.98 $7.84 $8.49 $8.44 $8.77
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 .54 .61 .70 .72 .75
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .09 .20 .14 (.73) .04 (.16)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .35 .74 .75 (.03) .76 .59
---------------------------------------------------------------------------------------------------------------------------------
Distributions to
preferred shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.03) (.04) (.04) (.05) (.12) (.16)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations:(applicable to
common shareholders) .32 .70 .71 (.08) .64 .43
---------------------------------------------------------------------------------------------------------------------------------
Distributions to
common shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income: (.24) (.50) (.57) (.57) (.59) (.76)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.50) (.57) (.57) (.59) (.76)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $8.26 $8.18 $7.98 $7.84 $8.49 $8.44
---------------------------------------------------------------------------------------------------------------------------------
Market price, end of period
(common shares) $7.15 $7.29 $7.34 $7.43 $8.44 $9.63
---------------------------------------------------------------------------------------------------------------------------------
Total return at market price (%)
(common shares)(b) 1.42* 6.35 6.44 (5.57) (6.21) 6.84
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares) (in thousands) $390,034 $386,073 $376,865 $370,281 $400,255 $396,212
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .64* 1.28 1.27 1.25 1.22 1.27
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 2.72* 6.12 7.21 7.84 7.01 6.97
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.79* 25.54 40.82 20.44 17.95 16.72
---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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
April 30, 2005 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed Municipal Income Trust (the "fund"), a Massachusetts
business trust, 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 60% 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 valued at fair
value on the basis of valuations provided by an independent pricing
service, approved by the Trustees. Such services use information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Other investments are valued 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 recorded 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, any remaining 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. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as a reduction to the cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange 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.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
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 of 1986 (the "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 Code, 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, 2004, the fund had a capital loss carryover of
$58,719,216 available to the extent allowed by the Code to offset future
net capital gain, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
--------------------------------
$11,188,485 October 31, 2005
2,894,998 October 31, 2006
3,629,209 October 31, 2007
1,237,146 October 31, 2008
1,641,465 October 31, 2009
3,729,886 October 31, 2010
25,837,158 October 31, 2011
8,560,869 October 31, 2012
The aggregate identified cost on a tax basis is $540,156,970, resulting
in gross unrealized appreciation and depreciation of $25,511,495 and
$7,844,602, respectively, or net unrealized appreciation of
$17,666,893.
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 April 30, 2005 was 2.85% for Series A,
2.25% for Series B and 2.50% 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. 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.
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 as of
period end.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets attributable to
common and preferred shares outstanding of the fund. Such fee is based
on 0.70% of the first $500 million of average net assets, and 0.60% of
the next $500 million of average weekly net assets attributable to
common and preferred shares outstanding.
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 subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended April 30, 2005, the
fund paid PFTC $169,812 for these services.
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 six months ended April 30, 2005,
the fund's expenses were reduced by $33,405 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $756, as a quarterly retainer, 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2005, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $78,711,917 and $79,971,505, respectively. There
were no purchases or sales of U.S. government securities.
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.
It is anticipated that dividends paid to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal
Revenue Code of 1986. To the extent that the fund earns taxable income
and capital gains by the conclusion of a fiscal year, it may be required
to apportion to the holders of the remarketed preferred shares
throughout that year additional dividends as necessary to result in an
after-tax equivalent to the applicable dividend rate for the period.
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 April 30, 2005, no such
restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders currently expected
by the end of the summer.
The SEC's and Massachusetts Securities Division's allegations and
related matters also serve as the general basis for numerous lawsuits,
including purported class action lawsuits filed against Putnam
Management and certain related parties, including certain Putnam funds.
Putnam Management will bear any costs incurred by Putnam funds in
connection with these lawsuits. Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients,
including the Putnam funds.
Compliance certifications
(Unaudited)
On November 11, 2004, your fund submitted a CEO annual certification to
the New York Stock Exchange ("NYSE") on which the fund's principal
executive officer certified that he was not aware, as of that date, of
any violation by the fund of the NYSE's Corporate Governance listing
standards. In addition, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and related SEC rules, the fund's principal
executive and principal financial officers have made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q,
relating to, among other things, the fund's disclosure controls and
procedures and internal control over financial reporting.
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 LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Senior Vice President, Staff Counsel
and Compliance Liaison
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Vice President, 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) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Do you want to save paper and receive this document faster?
Shareholders can sign up for email delivery of shareholder reports on
www.putnaminvestments.com.
225021 6/05
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
-------------------------
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
---------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 27, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 27, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 27, 2005