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
4-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on the past six months in financial markets, stocks and
bonds had generally steady and satisfying results for most of the
period. Markets were lifted by the resurgence of the economy, prompted
in part by the 2003 tax cuts and the Federal Reserve Board's low
interest-rate policy. Corporate earnings rose to their most impressive
levels in years and many states even experienced a minor improvement in
tax revenues. However, since March 2004, uncertainty and volatility have
returned to the markets. Bonds in particular experienced broad setbacks
in April because of concerns that inflation could be sparked by vigorous
job creation and rising energy prices. Markets continue to show
vulnerability to these concerns and to the situation in Iraq.
As observers of financial markets for many years, we have gained the
perspective that periods of uncertainty and transition like the one we
are witnessing today usually reflect an effort by investors to
incorporate new facts into their thinking, a process that takes time.
The resulting volatility is uncomfortable, but over time, allows
investors to set more realistic expectations for future investment
performance. Uncertainty on its own is no reason to alter a well-planned
investment strategy.
Putnam's portfolio management teams have vigilantly monitored these
conditions. While the retreat in financial markets has been broad, the
teams have relied on their research and analysis to manage risks and
identify opportunities.
The first half of Putnam Managed Municipal Income Trust's fiscal year
was another positive period for the fund, during which at NAV it
outperformed its benchmark and competitor group, based on results at net
asset value. The fund's results were due in part to its emphasis on
lower-quality, higher-yielding bonds, which performed well as the
economy recovered. A few of its older, weaker holdings rose in value
sufficiently to overcome disappointments from some other holdings, as
described in the following report from your fund's managers. The fund's
relatively short duration and emphasis on tobacco-related holdings also
contributed to performance.
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 16, 2004
Report from Fund Management
Fund highlights
* For the six months ended April 30, 2004, Putnam Managed Municipal
Income Trust provided total returns of 3.82% at net asset value (NAV)
and -2.49% at market price.
* The fund's performance at NAV was significantly ahead of its
benchmark, the Lehman Municipal Bond Index, which returned 1.19% for the
period. This reflected positive performance of some of the fund's
lower-rated securities, its emphasis on tobacco-related securities, and
its use of leverage.
* The fund's portfolio composition also helped results at NAV, which
were ahead of the average for Lipper's High Yield Municipal Debt Funds
(closed-end) category of 3.09% for the period.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Continued economic recovery during the six-month period contributed to
improving credit quality in the lower-quality sector of the municipal
bond market. The fund's favorable results at NAV reflect this trend.
However, no one sector was responsible for the fund's success. Rather,
returns from specific fund holdings over a variety of sectors were
strong enough to overcome disappointments in a few holdings. In general,
diversification remains a strong theme for the fund -- one that seems to
be working well in this volatile period. As part of our diversification
efforts, we also continued reducing the fund's airline-related
industrial development bond (IDB) holdings, which had appreciated, and
slightly increased its exposure to tobacco-related bonds, also with
positive results. Lower-quality, higher-yielding bonds performed well
and some of the fund's distressed holdings made meaningful recoveries.
FUND PROFILE
Putnam Managed Municipal Income Trust seeks to provide as high a level
of current income free from federal income tax as is consistent with
preservation of capital through investments in investment-grade and
higher-yielding, lower-rated municipal bonds. The fund is designed for
investors seeking tax-exempt income and willing to accept the risks
associated with below-investment-grade bonds.
The performance of fund shares at market price reflects changes in
investor demand as well as the fund's investment results, and we believe
the poor showing during the fund's semiannual period reflected investor
concern that interest rates might increase. This sentiment was most
marked as the period drew to a close.
Market overview
Yields for municipal bonds -- which move in the opposite direction of
bond prices -- were volatile between November 1, 2003, and March 31,
2004. Yields trended downward for much of the period but corrected
sharply in late March and April in response to stronger economic data.
Yields on 10-year AAA-rated municipal bonds ended the semiannual period
slightly higher then they had been at the beginning of the period. The
ratio of municipal bond yields to Treasury yields fell to about 80% in
December, which means the spread, a difference between the yields of
10-year municipal bonds and 10-year Treasuries, was larger than in
previous periods. The ratio edged up to about 87% by the end of the
fiscal period. Overall, the yield curve, which shows the difference in
yield between shorter- and longer-maturity bonds, flattened somewhat,
and credit spreads -- the difference in yield between higher- and
lower-rated bonds -- generally narrowed. The economy continued to
improve on nearly all fronts, including job growth. The Federal Reserve
Board held the federal funds rate steady at 1%, but hinted at a
potential rate hike in the near future. Municipal bond issuance
continued to be very strong as states and municipalities sought to
address budget shortfalls that resulted from decreased tax revenues.
California residents approved a plan to issue $15 billion in debt to
help with the state's budget crisis. Although ongoing tobacco litigation
continued to make headlines, the municipal bond market largely
discounted the news. Airline-related IDBs continued to perform well.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/04
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 1.19%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 0.84%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 0.56%
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Lehman Aggregate Bond Index (broad bond market) 1.25%
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Equities
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S&P 500 Index (broad stock market) 6.27%
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S&P Utilities Index (utilities stocks) 8.19%
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Russell 2000 Growth Index (small-company growth stocks) 4.01%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/04.
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Strategy overview
In an increasingly strong economy, it appears likely to us that interest
rates will rise further. Consequently, we shortened the fund's duration
(a measure of its sensitivity to changes in interest rates) during the
period. At the start of November, the fund was slightly defensive
relative to the benchmark. In January 2004, we shortened the duration
further. This move did not help the fund's performance until later in
the period.
We took the opportunity afforded by strong demand for higher-yielding
municipal bonds to sell into strength where appropriate. We also
continued to diversify the portfolio by adding selectively to the fund's
lower-quality holdings. Compared to the benchmark, the portfolio remains
slightly overweight in lower-rated, higher-yielding bonds.
We carefully monitored developments in the tobacco industry,
particularly with regard to ongoing litigation and other factors
affecting demand for tobacco settlement bonds, which are secured by the
income stream from tobacco companies' settlement obligations to the
states. The municipal bond market has largely ignored recent unfavorable
headlines and the downgrading of some tobacco settlement bonds by
Moody's rating service. In our view, the backdrop for the tobacco
industry remains fundamentally positive, and the fund remains overweight
in these bonds, relative to the benchmark. When valuations looked
compelling, we added to the fund's exposure.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 10/31/03 as of 4/30/04
Health care 26.5% 26.7%
Utilities 20.2% 20.1%
Transportation 14.0% 13.5%
Housing 3.6% 4.6%
Water and sewer 3.8% 3.0%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of portfolio
market value. Holdings will vary over time.
How fund holdings affected performance
Although there were no significant sector standouts during the fund's
semiannual period, certain lower-rated industrial development bonds
(IDBs) performed well for the fund as overall economic growth improved
prospects for some holdings. IDBs are municipal bonds issued to finance
local expansion by various businesses and are backed by revenues from
the companies benefiting from the financing. As a result, their prices
are affected by investor perceptions of the health of the backing
company, the industry, and the economy as a whole. A number of the
fund's older IDB holdings have underperformed due to factors such as
these, but during the semiannual period, several of them made
substantial recoveries that contributed to performance. One health-care
holding that did especially well was the fund's position in Waterford
Economic Development revenue bonds for Canterbury Health in Michigan.
These rated bonds had a coupon of 6% and mature in 2039. Another
position, which had been in distress, was California's Valley Health
System Hospital Revenue Bonds. These issues had a 6.5% coupon and mature
in 2025. We took advantage of their improvement to trim, but not
eliminate, the position.
The fund's position in Connector 2000 Association, Inc., South Carolina
Toll road revenue bonds also made a meaningful recovery during the
period. These bonds are rated B-, have a coupon of 5.375%, and mature in
2038. The traffic on this toll road had been below expectations and the
bonds had declined in price to the point where their current price
seemed to justify the risks of continuing to own the bonds. As the
economy strengthened, the price began to move up.
We also had resolution on two defaulted holdings, both for Vista
Hospital Systems: one for Corona, California Certificates of
Participation, with a coupon of 8.375% maturing in 2011, and another for
the same hospital system in San Luis Obispo, also with a coupon of
8.375% maturing in 2029. The sale of the hospital system closed in
January, bringing a higher price for the bonds than we had anticipated.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (36.7%)
Aa/AA (3.1%)
A (10.2%)
Baa/BBB (27.4%)
Ba/BB (13.1%)
B (5.1%)
CCC and below (1.9%)
VMIG1/A-1+ (2.5%)
Footnote reads:
As a percentage of market value as of 4/30/04. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Disappointing holdings included Gilroy Revenue Bonds for Bonfante
Gardens Park in California. The bonds have a coupon of 8% and are
scheduled to mature in 2025. They were issued to fund a theme park that
has suffered from poor attendance. The park hopes to reduce its debt
load by selling some surrounding land. We continue to hold the position,
but the price depreciation hurt the fund. In another situation, we have
been in discussions for some time with the managers of Hoover Group, a
company that makes large industrial containers for shipping products and
raw materials. The fund owns IDBs issued for Hoover Group by Gage
County, Nebraska and Scott County, Kentucky, both with coupons of 8.5%.
These issues mature in 2007 and 2014, respectively. The poor economy and
competitive pricing have eroded revenues and the company has been
seeking concessions from debt holders. We were in the process of selling
some of the Hoover bonds as the fiscal period ended.
Recent acquisitions included a land-secured project and a utility --
both facets of our diversification strategy. One example is Mountain's
Edge, a development planned for outside Las Vegas, consisting of over
1,900 acres. The bonds are issued by Clark County, Nevada, Improvement
District #142. Their rating takes into account the early stage of the
project as well as its location, strong interest, and positive
supply/demand characteristics in the market. We also recently purchased
a bond issued by Nassau County, New York, for Brooklyn Union Gas
Company, doing business in New York and New England as KeySpan Energy
Services. Keyspan is enjoying strong increases in operating income and
helps us maintain diversity by sector, issuer, and credit quality.
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.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are David Hamlin (Portfolio Leader), Paul Drury
(Portfolio Member), Susan McCormack (Portfolio Member), James St. John
(Portfolio Member), Richard Wyke (Portfolio Member), and Kevin Cronin.
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.
Lingering unemployment had been an anomaly in an otherwise robust
economic recovery. However, in early April, employment data at last
showed marked improvement. We believe the underlying strength in the
economy will foster higher interest rates in the future. In keeping with
our views, the fund's duration is now relatively short in order to keep
the portfolio defensively positioned. Generally, tax revenues cannot be
expected to grow significantly until personal and business earnings
experience meaningful increases. For much of the reporting period, we
expected that the credit quality of general obligation municipal bonds
(GOs) would remain under pressure in light of these revenue issues.
However, the gathering strength of the economic recovery, combined with
the efforts of key states such as California to address ongoing budget
issues, is now beginning to translate into credit upgrades for state
GOs. We expect this trend to continue over the near term. Although yield
spreads between high- and low-quality municipal bonds have narrowed
somewhat, we believe they remain attractive and could narrow further. As
a result, we believe credit risk is worth taking in moderate amounts,
while we continue to seek diversification by sector and issuer. We will
continue to monitor market conditions as we pursue a high level of
tax-free income and seek to manage the fund's risk exposures.
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. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment 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.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2004. 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 FOR PERIODS ENDED 4/30/04
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Lipper
High Yield
Lehman Municipal
Municipal Debt Funds
Market Bond (closed-end)
NAV price Index category average*
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6 months 3.82% -2.49% 1.19% 3.09%
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1 year 7.98 -2.03 2.68 7.53
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5 years 20.49 -8.02 30.36 20.82
Annual average 3.80 -1.66 5.45 3.80
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10 years 67.90 37.87 87.07 74.54
Annual average 5.32 3.26 6.46 5.70
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Annual average
Life of fund
(since 2/24/89) 6.87 5.34 7.22 5.84
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/04, there
were 14, 12, 12, and 12 funds, respectively, in this Lipper category.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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6 months 6.30% 3.33%
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1 year 13.07 7.32
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5 years 24.15 -1.92
Annual average 4.42 -0.39
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10 years 72.72 56.88
Annual average 5.62 4.61
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Annual average
Life of fund (since
2/24/89) 7.09 5.97
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/04
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Putnam Managed Municipal Income Trust
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Distributions from common shares
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Number 6
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Income 1 $0.251
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Capital gains 1 --
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Total $0.251
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Series A Series B Series C
Distributions from preferred shares (550 shares) (550 shares) (650 shares)
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Income 1 $507.14 $521.87 $512.68
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Capital gains 1 -- -- --
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Total $507.14 $521.87 $512.68
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Share value (common shares) NAV Market price
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10/31/03 $7.98 $7.34
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4/30/04 8.01 6.92
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Current return (common shares, end of period)
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Current dividend rate 2 6.25% 7.23%
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Taxable equivalent 3 9.62 11.12
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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 2004. Results for investors
subject to lower tax rates would not be as advantageous.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. 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
Treasury bonds 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 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
utilities 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.
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.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
April 30, 2004 (Unaudited)
Key to Abbreviations
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AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
PSFG Permanent School Fund Guaranteed
U.S. Govt. Coll. U.S. Government Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (98.8%) (a)
Principal amount Rating (RAT) Value
Alabama (0.3%)
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$1,500,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River
Corp.), 8s, 9/1/28 BB+ $1,538,355
Arizona (1.7%)
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1,000,000 Apache Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (Tucson Elec.
Pwr. Co.), Ser. B, 5 7/8s, 3/1/33 Ba3 948,750
1,000,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 1,022,500
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 1,858,500
500,000 Cochise Cnty., Indl. Dev. Auth.
Rev. Bonds (Sierra Vista Regl. Hlth.
Ctr.), Ser. A, 6.2s, 12/1/21 BB+/P 495,625
3,000,000 Coconino Cnty., Poll. Control
Rev. Bonds (Tuscon/Navajo Elec.
Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 3,078,750
560,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village)
7 7/8s, 6/1/09 BB-/P 609,795
1,000,000 Scottsdale, Indl. Dev. Hosp. Auth.
Rev. Bonds (Scottsdale Hlth. Care),
5.8s, 12/1/31 A3 1,033,750
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9,047,670
Arkansas (1.7%)
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4,600,000 AR State Hosp. Dev. Fin. Auth.
Rev. Bonds (Washington Regl. Med.
Ctr.), 7 3/8s, 2/1/29 Baa3 5,111,750
1,000,000 Little Rock G.O. Bonds (Cap. Impt.),
FSA, 3.95s, 4/1/19 Aaa 961,250
2,750,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 2,973,427
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9,046,427
California (13.4%)
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250,000 Association of Bay Area Governments
(ABAG) Fin. Auth. for Nonprofit
Corps. Rev. Bonds (San Diego Hosp.
Assn.), Ser. C, 5 3/8s, 3/1/21 Baa1 244,375
7,000,000 CA Hlth. Fac. Auth. IFB (Catholic
Hlth. Care West), AMBAC, 9.356s,
7/1/17 Aaa 7,341,110
2,000,000 CA State G.O. Bonds, FGIC, 6.6s,
2/1/11 Aaa 2,340,000
CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A
1,000,000 6s, 5/1/15 A3 1,110,000
20,000,000 AMBAC, 5 1/2s, 5/1/13 Aaa 22,175,000
3,000,000 5 1/2s, 5/1/11 A3 3,311,250
2,250,000 CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt.
Cmntys.), Ser. A-3, 5.1s, 5/15/25 Baa2 2,340,000
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s,
4/1/30 BBB- 2,797,500
1,250,000 Chula Vista, Cmnty. Fac. Dist.
Special Tax Rev. Bonds (No. 08-1
Otay Ranch Village Six), 6s, 9/1/33 BB-/P 1,229,688
10,775,000 Corona, COP (Vista Hosp. Syst.),
zero %, 7/1/29 (In default) (NON) D/P 215,500
750,000 Folsom, Special Tax Rev. Bonds
(Cmnty. Facs. Dist. No. 10), 5 7/8s,
9/1/28 BB 746,250
1,970,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 D/P 1,265,725
2,500,000 Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 Baa2 2,500,000
650,000 Orange Cnty., Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Ladera Ranch
- No. 02-1), Ser. A, 5.55s, 8/15/33 BB+/P 637,813
1,250,000 Sacramento, Special Tax (North
Natomas Cmnty. Fac.), Ser. 4-C, 6s,
9/1/33 BB+/P 1,251,563
7,000,000 San Bernardino Cnty.,
Certificates of Participation (Med.
Ctr. Fin.), Ser. A, MBIA, 6 1/2s,
8/1/28 Aaa 7,595,000
8,750,000 Santa Clara Cnty., Fin. Auth. Lease
Rev. Bonds (VMC Fac. Replacement
Project), Ser. A, AMBAC, 6 3/4s,
11/15/20 Aaa 9,190,650
2,550,000 Santaluz Cmnty., Facs. Dist. No. 2
Special Tax Rev. Bonds (Impt. Area
No. 1), Ser. B, 6 3/8s, 9/1/30 BB/P 2,597,813
2,500,000 Vallejo, COP (Marine World
Foundation), 7.2s, 2/1/26 BBB-/P 2,415,625
2,665,000 Valley Hlth. Syst. Hosp. Rev. Bonds
Ser. A, 6 1/2s, 5/15/25 B+ 2,088,694
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73,393,556
Colorado (1.9%)
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3,015,000 CO Hlth. Fac. Auth.
Rev. Bonds (Evangelical Lutheran),
3.05s, 10/1/05 A3 3,063,994
CO Hwy. Auth. Rev. Bonds (E-470 Pub.
Hwy.), Ser. B
15,500,000 zero %, 9/1/35 Baa3 1,530,625
16,500,000 zero %, 9/1/34 Baa3 1,753,125
Denver, City & Cnty. Arpt.
Rev. Bonds
1,050,000 Ser. D, AMBAC, 7 3/4s, 11/15/13 AAA 1,279,688
2,500,000 MBIA, 5 1/2s, 11/15/25 Aaa 2,593,750
--------------
10,221,182
Connecticut (0.5%)
-------------------------------------------------------------------------------
3,000,000 CT State Hlth. & Edl. Fac. Auth.
VRDN (Yale U.), Ser. U2, 0.85s,
7/1/33 VMIG1 3,000,000
District of Columbia (0.7%)
-------------------------------------------------------------------------------
4,000,000 DC Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 1/2s, 5/15/33 BBB 3,605,000
Florida (3.2%)
-------------------------------------------------------------------------------
2,000,000 Cap. Trust Agcy. Rev. Bonds
(Seminole Tribe Convention), Ser. A,
10s, 10/1/33 B/P 2,435,000
3,210,000 Escambia Cnty., Poll. Control
Rev. Bonds (Champion Intl. Corp.),
6.9s, 8/1/22 Baa2 3,303,186
1,000,000 Fishhawk, Cmnty. Dev. Dist. II
Rev. Bonds, Ser. B, 5s, 11/1/07 BB-/P 1,007,500
770,000 FL State Mid-Bay Bridge Auth.
Rev. Bonds, Ser. A, 6.05s, 10/1/22 BBB/P 792,138
500,000 Fleming Island, Plantation Cmnty.
Dev. Dist. Special Assmt.
Rev. Bonds, Ser. B, 7 3/8s, 5/1/31 BB/P 535,625
500,000 Gateway Svcs. Cmnty. Dev. Dist.
Special Assmt. (Stoneybrook),
5 1/2s, 7/1/08 BB-/P 503,125
500,000 Heritage Harbor, South Cmnty. Dev.
Distr. Rev. Bonds, Ser. A, 6 1/2s,
5/1/34 BB-/P 515,625
1,000,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 940,000
1,335,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.7s, 11/15/19 Ba2 1,365,038
500,000 Middle Village Cmnty. Dev. Dist.
Special Assmt., Ser. A, 5.8s, 5/1/22 BB-/P 491,875
200,000 Oakstead Cmnty. Dev. Dist. Cap.
Impt. Rev. Bonds, Ser. B, 6 1/2s,
5/1/07 BB/P 202,500
1,500,000 South Miami, Hlth. Fac. Auth.
Rev. Bonds (Baptist Hlth.), 5 1/4s,
11/15/33 Aa3 1,501,875
2,000,000 St. Johns Cnty., Hlth. Care Indl.
Dev. Auth. Rev. Bonds (Glenmoor St.
Johns Project), Ser. A, 8s, 1/1/30 B-/P 1,900,000
1,000,000 Sterling Hill, Cmnty. Dev. Dist.
Rev. Bonds, Ser. B, 5 1/2s, 11/1/10 BB- 1,000,000
1,250,000 Westchester Cmnty. Dev. Dist. No. 1
Special Assmt. (Cmnty.
Infrastructure), 6 1/8s, 5/1/35 BB- 1,260,938
--------------
17,754,425
Georgia (1.9%)
-------------------------------------------------------------------------------
4,000,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 1/1/32 A2 4,185,000
425,000 Fulton Cnty., Res. Care Fac.
Rev. Bonds (Canterbury Court), Class
A, 6 1/8s, 2/15/34 B+/P 413,313
700,000 GA Med. Ctr. Hosp. Auth. IFB, MBIA,
11.395s, 8/1/10 Aaa 716,730
2,500,000 Muni. Elec. Auth. Rev. Bonds, AMBAC,
5s, 1/1/26 AAA 2,696,875
2,200,000 Rockdale Cnty., Dev. Auth. Solid
Waste Disp. Rev. Bonds (Visay Paper,
Inc.), 7.4s, 1/1/16 BB+/P 2,264,966
--------------
10,276,884
Hawaii (0.3%)
-------------------------------------------------------------------------------
1,760,000 HI Dept. of Trans. Special Fac.
Rev. Bonds (Continental Airlines,
Inc.), 7s, 6/1/20 B 1,586,200
Illinois (2.7%)
-------------------------------------------------------------------------------
Chicago, G.O. Bonds
4,850,000 Ser. A, AMBAC, 5 5/8s, 1/1/39 Aaa 5,068,250
3,500,000 Ser. C, FGIC, 5 1/2s, 1/1/40 Aaa 3,596,250
1,495,000 Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 Caa2 1,270,750
3,250,000 IL Dev. Fin. Auth. Hosp. Rev. Bonds
(Adventist Hlth. Syst./Sunbelt
Obligation), 5.65s, 11/15/24 A 3,286,563
500,000 IL Hlth. Fac. Auth. Rev. Bonds (St.
Benedict), Ser. 03A-1, 6.9s,
11/15/33 B+ 493,125
1,000,000 Metropolitan Pier & Exposition Auth.
Rev. Bonds (McCormack Place
Expansion Project), MBIA, 5s,
12/15/28 Aaa 992,500
--------------
14,707,438
Indiana (2.0%)
-------------------------------------------------------------------------------
2,500,000 IN State Dev. Fin. Auth. Env. Impt.
Rev. Bonds (USX Corp.), 5.6s,
12/1/32 Baa1 2,506,250
6,500,000 IN Trans. Fin. Auth. Arpt. Facs.
Lease Rev. Bonds, Ser. A, AMBAC, 5s,
11/1/16 Aaa 6,784,375
1,750,000 Rockport, Poll. Control Mandatory
Put Bonds (Indiana Michigan Pwr.
Co.), Ser. C, 2.625s, 4/1/25 Baa2 1,734,688
--------------
11,025,313
Iowa (1.0%)
-------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Care Initiatives)
2,970,000 9 1/4s, 7/1/25 BBB-/P 3,486,038
1,555,000 9.15s, 7/1/09 BBB-/P 1,784,363
--------------
5,270,401
Kentucky (0.7%)
-------------------------------------------------------------------------------
1,000,000 Boone Cnty., Poll. Control
Rev. Bonds (Dayton Pwr. & Lt. Co.),
Ser. A, 6 1/2s, 11/15/22 Baa3 1,017,390
1,035,000 Kenton Cnty., Arpt. Board Rev. Bonds
(Delta Airlines, Inc.), Ser. A,
7 1/2s, 2/1/20 Caa2 901,744
1,700,000 KY Econ. Dev. Fin. Auth. Rev. Bonds
(Norton Healthcare, Inc.), Ser. A,
6 1/2s, 10/1/20 BBB/P 1,780,750
1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds
(Hoover Group, Inc.), 8 1/2s,
11/1/14 Ba3 300,000
--------------
3,999,884
Louisiana (0.9%)
-------------------------------------------------------------------------------
2,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds
(Lake Charles Memorial Hosp.
Project), 8 5/8s, 12/1/30 CCC/P 1,507,500
500,000 Tangipahoa Parish Hosp. Svcs.
Rev. Bonds (North Oaks Med. Ctr.
Project), Ser. A, 5s, 2/1/25 A 481,250
2,750,000 W. Feliciana Parish, Poll. Control
Rev. Bonds (Gulf States Util. Co.),
Ser. C, 7s, 11/1/15 Ba1 2,834,288
--------------
4,823,038
Maine (0.7%)
-------------------------------------------------------------------------------
1,965,000 ME State Hsg. Auth. Rev. Bonds,
Ser. D-2-AMT, 5s, 11/15/27 Aa1 2,058,338
2,000,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba2 2,032,500
--------------
4,090,838
Maryland (0.2%)
-------------------------------------------------------------------------------
1,000,000 MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds (Medstar Hlth.),
5 3/4s, 8/15/15 Baa2 1,057,500
Massachusetts (4.6%)
-------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,000,000 (Civic Investments), Ser. A, 9s,
12/15/15 BB/P 2,275,000
3,240,000 (Rehab. Hosp. Cape & Islands),
Ser. A, U.S. Govt. Coll., 7 7/8s,
8/15/24 AAA/P 3,364,740
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,461,994
1,200,000 (Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 BBB- 1,200,000
2,500,000 (UMass Memorial), Ser. C, 6 5/8s,
7/1/32 Baa2 2,581,250
1,875,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,940,625
1,500,000 (Caritas Christi Oblig. Group),
Ser. A, 5 1/4s, 7/1/08 BBB 1,591,875
7,645,000 MA State Hsg. Fin. Agcy. IFB, AMBAC,
9.702s, 7/1/40 (acquired 6/3/98,
cost $7,739,951) (RES) AAA/P 7,903,019
2,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 2,057,500
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,026,250
--------------
25,402,253
Michigan (4.3%)
-------------------------------------------------------------------------------
5,400,000 Detroit, Swr. Disp. VRDN, Ser. B,
FSA, 1.05s, 7/1/33 VMIG1 5,400,000
500,000 Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), 6s, 7/1/20 Baa3 491,250
2,200,000 Macomb Cnty., Hosp. Fin. Auth.
Rev. Bonds (Mt. Clemens Gen. Hosp.),
Ser. B, 5 7/8s, 11/15/34 BBB- 1,999,250
1,500,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 6s, 4/1/22 A2 1,595,625
2,000,000 Midland Cnty., Econ. Dev. Corp.
Rev. Bonds, 6 3/4s, 7/23/09 Ba3 2,080,000
2,700,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds
(NOMC Obligation Group), Ser. B, 6s,
8/1/18 Ba1 2,399,625
2,975,000 Warren Cons. School Dist. G.O.
Bonds, FSA, 5 3/8s, 5/1/18 Aaa 3,186,969
6,670,000 Waterford, Econ. Dev. Corp.
Rev. Bonds (Canterbury Hlth.), 6s,
1/1/39 B-/P 4,869,100
2,000,000 Wayne Charter Cnty., Special Arpt.
Fac. Rev. Bonds (Northwest Airlines,
Inc.), 6s, 12/1/29 CCC/P 1,537,500
--------------
23,559,319
Minnesota (1.1%)
-------------------------------------------------------------------------------
2,525,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical, Inc. Project),
10 1/4s, 9/1/20 BB/P 2,617,011
400,000 Sauk Rapids Hlth. Care & Hsg. Fac.
Rev. Bonds (Good Shepherd Lutheran
Home), 6s, 1/1/34 B/P 385,500
3,200,000 St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. B,
6 5/8s, 11/1/17 Ba2 3,208,000
--------------
6,210,511
Mississippi (0.4%)
-------------------------------------------------------------------------------
2,250,000 Mississippi Bus. Fin. Corp. Poll.
Control Rev. Bonds (Syst. Energy
Resources, Inc.), 5.9s, 5/1/22 BBB- 2,266,875
Missouri (0.9%)
-------------------------------------------------------------------------------
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 1,505,625
2,000,000 MO Hsg. Dev. Comm. Rev. Bonds (Home
Ownership), GNMA/FNMA Coll., 5.55s,
9/1/34 AAA 2,175,000
1,450,000 MO State Hlth. & Edl. Fac. Auth.
Rev. Bonds (BJC Hlth. Syst.),
5 1/4s, 5/15/32 Aa2 1,466,313
--------------
5,146,938
Montana (0.3%)
-------------------------------------------------------------------------------
1,775,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 Aaa 1,894,812
Nebraska (0.1%)
-------------------------------------------------------------------------------
2,000,000 Gage Cnty., Indl. Dev. Rev. Bonds
(Hoover Group, Inc.), 8 1/2s,
12/1/07 Ba3 600,000
Kearney, Indl. Dev. Rev. Bonds
71,021 (Great Platte River), 8s, 9/1/12 CCC/P 60,279
791,466 (Great Platte River), zero %, 9/1/12 CCC/P 3,957
--------------
664,236
Nevada (1.8%)
-------------------------------------------------------------------------------
1,000,000 Clark Cnty., Impt. Dist. Special
Assmt. (Dist. No. 142), 6 3/8s,
8/1/23 BB- 991,250
5,000,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. C,
AMBAC, 5.95s, 12/1/38 Aaa 5,362,500
1,595,000 Henderson, Local Impt. Dist. Special
Assmt. (No. T-14), 3.2s, 3/1/06 BB-/P 1,591,013
2,000,000 Washoe Cnty., Wtr. Fac. Mandatory
Put Bonds (Sierra Pacific Pwr. Co.),
5s, 3/1/36 BB 1,995,000
--------------
9,939,763
New Hampshire (1.4%)
-------------------------------------------------------------------------------
NH Muni. Bond Bank Rev. Bonds
1,000,000 Ser. A, 5s, 2/15/11 Aa2 1,090,000
1,600,000 Ser. B, 5s, 2/15/08 Aa2 1,734,000
625,000 Ser. B, 5s, 8/15/07 Aa2 675,000
2,565,000 NH State Bus. Fin. Auth. Rev. Bonds
(Alice Peck Day Hlth. Syst.),
Ser. A, 7s, 10/1/29 BB+/P 2,529,731
1,750,000 NH State Bus. Fin. Auth. Poll.
Control Rev. Bonds, 3 1/2s, 7/1/27 Baa1 1,741,250
--------------
7,769,981
New Jersey (3.1%)
-------------------------------------------------------------------------------
NJ Econ. Dev. Auth. Rev. Bonds
1,000,000 (Cranes Mill), Ser. A, 7 1/2s,
2/1/27 BB-/P 1,036,250
1,250,000 (Cedar Crest Village, Inc.), Ser. A,
7 1/4s, 11/15/31 BB-/P 1,276,563
1,500,000 (Newark Arpt. Marriot Hotel), 7s,
10/1/14 Ba3 1,511,250
500,000 (First Mtge. Presbyterian), Ser. A,
6 3/8s, 11/1/31 BB/P 493,125
NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
1,300,000 (Trinitas Hosp. Oblig. Group),
7 1/2s, 7/1/30 Baa3 1,421,875
2,000,000 (Columbus Hosp.), Ser. A, 5 3/4s,
7/1/29 BB+ 1,847,500
1,250,000 (Atlantic City Med. Ctr.), 5 3/4s,
7/1/25 A3 1,293,750
1,000,000 (Somerset Med. Ctr.), 5 1/2s, 7/1/33 Baa2 972,500
6,500,000 NJ State Trans. Trust Fund Auth.
Rev. Bonds (Trans. Syst.), Ser. A,
FSA, 5 1/2s, 6/15/12 Aaa 7,263,750
--------------
17,116,563
New Mexico (0.6%)
-------------------------------------------------------------------------------
1,740,000 Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan),
Class B, 2.1s, 4/1/33 Baa2 1,731,300
1,500,000 Farmington, Poll. Control VRDN (AZ
Pub. Svc. Co.), Ser. A, 1.05s,
5/1/24 VMIG1 1,500,000
--------------
3,231,300
New York (12.6%)
-------------------------------------------------------------------------------
500,000 Huntington, Hsg. Auth. Rev. Bonds
(Gurwin Jewish Sr. Residence),
Ser. A, 6s, 5/1/39 B+/P 451,875
1,800,000 Long Island, Pwr. Auth. NY Elec.
Syst. IFB, 9.496s, 12/1/24 (acquired
10/20/03, cost $1,981,188) (RES) BBB+/P 1,998,000
2,000,000 Metro. Trans. Auth. Rev. Bonds,
Ser. F, MBIA, 5s, 11/15/10 Aaa 2,185,000
2,000,000 Nassau Cnty., Indl. Dev. Agcy.
Rev. Bonds (Keyspan-Glenwood),
5 1/4s, 6/1/27 A 1,985,000
13,000,000 Nassau Cnty., Interim Fin. Auth.
Rev. Bonds, Ser. B, MBIA, 5s,
11/15/10 Aaa 14,202,500
10,000,000 NY City, G.O. Bonds, Ser. B, 5 1/4s,
12/1/09 A2 10,850,000
1,500,000 NY City, Indl. Dev. Agcy. Rev. Bonds
(Visy Paper, Inc.), 7.95s, 1/1/28 B+/P 1,565,625
3,025,000 NY City, Indl. Dev. Agcy. Special
Fac. Rev. Bonds (British Airways),
5 1/4s, 12/1/32 BB+ 2,223,375
1,495,000 NY City, Indl. Dev. Agency
Rev. Bonds (Staten Island U. Hosp.
Project), 6.45s, 7/1/32 Ba3 1,502,475
10,000,000 NY City, Muni. Wtr. Fin. Auth.
Rev. Bonds, Ser. C, MBIA, 5 1/2s,
6/15/17 Aaa 10,762,500
900,000 NY State Dorm. Auth. Rev. Bonds
(Winthrop-U. Hosp. Assn.), Ser. A,
5 1/2s, 7/1/32 Baa1 906,750
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 2,105,000
5,000,000 Port Auth. NY & NJ Rev. Bonds, Ser.
96, FGIC, 6.6s, 10/1/23 Aaa 5,148,550
2,500,000 Port Auth. NY & NJ Special
Obligation IFB, Ser. N18, MBIA,
14.9s, 12/1/17 (acquired
7/19/00, cost $2,617,225) (RES) Aaa 3,181,250
7,500,000 Port. Auth. NY & NJ Special
Obligation Rev. Bonds (JFK Intl. Air
Term. - 6), MBIA, 5.9s, 12/1/17 Aaa 8,184,375
1,700,000 Suffolk Cnty., Indl. Dev. Agcy.
Rev. Bonds (Peconic Landing),
Ser. A, 8s, 10/1/30 B+/P 1,723,375
--------------
68,975,650
North Carolina (1.4%)
-------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds
1,500,000 Ser. D, 6 3/4s, 1/1/26 Baa2 1,633,125
3,000,000 Ser. A, 5 3/4s, 1/1/26 Baa2 3,045,000
750,000 NC Med. Care Cmnty. Healthcare Fac.
Rev. Bonds (Deerfield), Ser. A, 5s,
11/1/23 A-/P 722,813
NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.)
1,000,000 Ser. B, 6 1/2s, 1/1/20 Baa1 1,098,750
1,300,000 Ser. A, 5 1/2s, 1/1/13 Baa1 1,395,875
--------------
7,895,563
Ohio (1.8%)
-------------------------------------------------------------------------------
Cuyahoga Cnty., Rev. Bonds, Ser. A
1,280,000 6s, 1/1/16 A1 1,411,200
2,000,000 6s, 1/1/15 A1 2,220,000
1,000,000 Erie Cnty., Ohio Hosp. Fac.
Rev. Bonds (Firelands Regl. Med.
Ctr.), 5 5/8s, 8/15/32 A2 1,018,750
3,000,000 OH State Air Quality Dev. Auth.
Rev. Bonds (Toledo Poll. Control),
Ser. A, 6.1s, 8/1/27 Baa2 3,086,250
2,100,000 OH State Solid Waste Rev. Bonds
(General Motors Corp.), 6.3s,
12/1/32 Baa1 2,191,875
--------------
9,928,075
Oklahoma (2.2%)
-------------------------------------------------------------------------------
3,150,000 OK City Arpt. Trust Rev. Bonds Jr.
Lien 27th Ser., Ser. A, FSA, 5s,
7/1/18 Aaa 3,216,938
1,575,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Hlth. Care), Ser. A,
5 5/8s, 8/15/29 B1 1,242,281
7,000,000 OK State Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A,
MBIA, 5 3/4s, 8/15/29 Aaa 7,402,500
--------------
11,861,719
Oregon (0.6%)
-------------------------------------------------------------------------------
2,000,000 Multnomah Cnty., Hosp. Fac. Auth.
Rev. Bonds (Terwilliger Plaza
Project), 6 1/2s, 12/1/29 BB-/P 1,942,500
1,000,000 OR State Hsg. & Cmnty. Svcs. Dept.
Rev. Bonds Single Family Mtg.,
Ser. K, 5 5/8s, 7/1/29 Aa2 1,072,500
--------------
3,015,000
Pennsylvania (8.5%)
-------------------------------------------------------------------------------
750,000 Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A,
6 3/4s, 11/15/14 Baa3 750,000
1,995,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek Partners),
6.65s, 5/1/10 BBB- 2,164,575
1,750,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s,
1/15/25 CCC/P 813,750
350,000 Lebanon Cnty., Hlth. Fac. Auth.
Rev. Bonds (Good Samaritan Hosp.
Project), 6s, 11/15/35 Baa1 350,875
1,000,000 Lehigh Cnty., Gen. Purpose Auth.
Rev. Bonds (Lehigh Valley Hosp.
Hlth. Network), Ser. A, 5 1/4s,
7/1/32 A2 975,000
500,000 Monroe Cnty., Hosp. Auth. Rev. Bonds
(Pocono Med. Ctr.), 6s, 1/1/43 BBB+ 507,500
PA Convention Ctr. Auth. Rev. Bonds
750,000 Ser. A, 6 3/4s, 9/1/19 Baa2 772,875
7,250,000 MBIA, 6.7s, 9/1/14 Aaa 7,520,135
PA Econ. Dev. Fin. Auth. Rev. Bonds
7,750,000 (MacMillan Ltd. Partnership), 7.6s,
12/1/20 Baa2 8,621,875
1,000,000 (Amtrak Project), Ser. A, 6 3/8s,
11/1/41 A3 1,025,000
PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds
1,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,035,500
1,750,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 1,821,173
4,200,000 (Northampton Generating), Ser. A,
6.6s, 1/1/19 BBB- 4,252,500
PA State Higher Edl. Fac. Auth.
Rev. Bonds
1,000,000 (Widener U.), 5.4s, 7/15/36 BBB+ 985,000
995,000 (Philadelphia College of Osteopathic
Medicine), 5s, 12/1/07 A 1,063,406
5,715,000 Philadelphia, Gas Wks. Rev. Bonds
(1975 Gen. Ordinance 17th), FSA, 5s,
7/1/07 Aaa 6,157,912
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 136
4,000,000 Philadelphia, Indl. Dev. Auth. VRDN
(Fox Chase Cancer Ctr.), 1.04s,
7/1/25 A-1+ 4,000,000
2,000,000 Philadelphia, Indl. Dev. Auth. Arpt.
Rev. Bonds (Aero Philadelphia, LLC),
5 1/2s, 1/1/24 BB/P 1,577,500
1,800,000 Sayre, Hlth. Care Fac. Auth.
Rev. Bonds (Guthrie Hlth.), Ser. A,
5 7/8s, 12/1/31 A- 1,847,250
--------------
46,241,962
South Carolina (1.5%)
-------------------------------------------------------------------------------
750,000 Connector 2000 Assn., Inc. SC Toll
Road Rev. Bonds (SR-Southern
Connector), Ser. A, 5 3/8s, 1/1/38 B- 486,563
775,000 Lexington Cnty. Rev. Bonds, 5 1/2s,
11/1/32 A2 783,719
3,000,000 Richland Cnty. Rev. Bonds (Intl.
Paper Co. Project), Ser. A, 4 1/4s,
10/1/07 Baa2 3,127,500
1,250,000 SC Hosp. Auth. Rev. Bonds (Med. U.),
Ser. A, 6 1/2s, 8/15/32 BBB+ 1,303,125
1,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth.
Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 1,233,750
1,300,000 SC Tobacco Settlement Rev. Mgt.
Rev. Bonds, Ser. B, 6 3/8s, 5/15/30 BBB 1,171,625
--------------
8,106,282
South Dakota (0.3%)
-------------------------------------------------------------------------------
2,000,000 SD Edl. Enhancement Funding Corp.
Rev. Bonds, Ser. B, 6 1/2s, 6/1/32 BBB 1,850,000
Tennessee (2.5%)
-------------------------------------------------------------------------------
6,000,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. IFB, Ser. A2, MBIA,
10.555s, 7/1/21 (acquired
2/8/00, cost $5,651,400) (RES) Aaa 7,305,000
3,700,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 BBB+ 4,208,750
2,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac.
Board Rev. Bonds (Methodist
Healthcare), 6 1/2s, 9/1/26 A- 2,160,000
--------------
13,673,750
Texas (7.1%)
-------------------------------------------------------------------------------
6,000,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s,
4/1/21 Baa2 6,352,500
4,655,000 Carrollton, Farmers Branch Indpt.
School Dist. G.O. Bonds, PSFG, 5s,
2/15/17 Aaa 4,870,294
1,000,000 Comal Cnty. Hlth. Fac. Dev. Corp.
Rev. Bonds (Hlth. Care Syst. -
McKenna Memorial Project), Ser. A,
6 1/4s, 2/1/32 Baa2 1,002,500
2,360,000 Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds (American
Airlines, Inc.), 6 3/8s, 5/1/35 Caa2 1,587,100
4,790,000 Garland, Indpt. School Dist. G.O.
Bonds, PSFG, 5s, 2/15/11 Aaa 5,197,150
2,000,000 Gulf Coast, Waste Disp. Auth.
Mandatory Put Bonds (Amoco Oil), 2s,
10/1/17 Aa1 1,992,500
3,000,000 Harris Cnty., Hlth. Fac. Rev. Bonds
(Memorial Hermann Hlth. Care),
Ser. A, 6 3/8s, 6/1/29 A2 3,345,000
700,000 Houston Hlth. Fac. Dev. Corp.
Retirement Rev. Bonds (Buckingham
Sr. Living Cmnty), Class A, 7 1/8s,
2/15/34 B/P 686,875
3,880,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.),
Ser. C, 5.7s, 7/15/29 B- 2,749,950
2,000,000 Lower Neches Valley Indl. Dev. Swr.
Auth. Rev. Bonds (Mobil Oil Refining
Corp.), 6.4s, 3/1/30 Aaa 2,067,740
1,400,000 Matagorda Cnty., Navigation Dist. TX
Poll. Control Mandatory Put Bonds
(American Electric Power), 2.15s,
5/1/30 Baa2 1,400,000
2,500,000 Sam Rayburn Muni. Pwr. Agcy.
Rev. Bonds, 6s, 10/1/21 Baa2 2,581,250
Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.)
2,000,000 6s, 7/1/29 Baa2 2,005,000
800,000 6s, 7/1/25 Baa2 805,000
800,000 6s, 7/1/19 Baa2 818,000
Tyler, Hlth. Fac. Dev. Corp.
Rev. Bonds (Mother Frances Hosp.)
745,000 5s, 7/1/08 Baa1 780,388
500,000 5s, 7/1/07 Baa1 523,125
--------------
38,764,372
Utah (2.8%)
-------------------------------------------------------------------------------
750,000 Carbon Cnty., Solid Waste Disp.
Rev. Bonds (Laidlaw Env.), Ser. A,
7 1/2s, 2/1/10 BB- 765,000
5,000,000 Intermountain Power Agency
Rev. Bonds, Ser. A, FSA, 5s, 7/1/11 Aaa 5,443,750
8,000,000 Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union
Pacific), Ser. A, 5.7s, 11/1/26 Baa2 8,000,000
1,000,000 UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil Project), 5.05s,
11/1/17 Baa1 1,077,500
--------------
15,286,250
Vermont (0.2%)
-------------------------------------------------------------------------------
1,000,000 VT Hsg. Fin. Agcy. Rev. Bonds, Ser.
19A, FSA, 4.62s, 5/1/29 Aaa 1,040,000
Virginia (1.4%)
-------------------------------------------------------------------------------
1,500,000 Fredericksburg, Indl. Dev. Auth.
Rev. Bonds (Medicorp Hlth. Syst.),
Ser. B, 5 1/8s, 6/15/33 A3 1,456,875
1,000,000 James Cnty., Indl. Dev. Auth.
Rev. Bonds (Williamsburg), Ser. A,
6 1/8s, 3/1/32 BB-/P 1,000,000
2,400,000 Pocahontas Parkway Assn. Toll Rd.
Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 BB 1,944,000
Roanoke Cnty. Indl. Dev. Auth.
Rev. Bonds (Res. Care Fac.), Ser. A
1,000,000 6.3s, 7/1/35 B+/P 987,500
500,000 4.4s, 7/1/08 B+/P 497,500
2,000,000 Russell Cnty. Indl. Dev. Auth. Poll.
Control Rev. Bonds (Appalachian Pwr.
Co.), Ser. I, 2.7s, 11/1/07 Baa2 1,992,500
--------------
7,878,375
Washington (1.3%)
-------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C,
6 1/4s, 1/1/32 Aa1 5,537,500
1,600,000 Port of Seattle, Special Fac.
Rev. Bonds (Northwest Airlines,
Inc.), 7 1/4s, 4/1/30 CCC/P 1,470,000
--------------
7,007,500
West Virginia (0.3%)
-------------------------------------------------------------------------------
2,250,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 B2 1,569,375
Wisconsin (1.8%)
-------------------------------------------------------------------------------
Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds
3,000,000 7s, 6/1/28 BBB 2,940,000
3,000,000 6 3/8s, 6/1/32 BBB 2,696,250
3,900,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 4,026,750
--------------
9,663,000
--------------
Total Municipal bonds and notes
(cost $539,323,813) $540,403,535
Preferred stocks (1.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,000,000 Charter Mac. Equity Trust 144A
Ser. A, 6.625% cum. pfd. $2,217,500
4,000,000 MuniMae Tax Exempt Bond Subsidiary,
LLC 144A 6.875% cum. pfd. 4,265,000
--------------
Total Preferred stocks
(cost $6,000,000) $6,482,500
-------------------------------------------------------------------------------
Total Investments
(cost $545,323,813) $546,886,035
-------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2004 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, 2004. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(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, 2004 was
$22,492,269 or 4.1% of portfolio market value.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on IFB and IF COP, which are securities paying interest
rates that vary inversely to changes in the market interest rates, VRDN
and mandatory put bonds are the current interest rates at April 30,
2004.
The fund had the following industry group concentrations greater than
10% at April 30, 2004
(as a percentage of portfolio market value):
Health care 26.7%
Utilities 20.1
Transportation 13.5
The fund had the following insurance concentrations greater than 10% at
April 30, 2004
(as a percentage of portfolio market value):
MBIA 13.3%
AMBAC 13.1
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
April 30, 2004 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$545,323,813) (Note 1) $546,886,035
-------------------------------------------------------------------------------
Cash 392,589
-------------------------------------------------------------------------------
Interest and other receivables 10,519,096
-------------------------------------------------------------------------------
Receivable for securities sold 555,877
-------------------------------------------------------------------------------
Total assets 558,353,597
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 1,968,425
-------------------------------------------------------------------------------
Accrued preferred shares distributions payable (Note 1) 56,459
-------------------------------------------------------------------------------
Payable for securities purchased 2,000,000
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 967,445
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 35,291
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 55,160
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 770
-------------------------------------------------------------------------------
Other accrued expenses 124,316
-------------------------------------------------------------------------------
Total liabilities 5,207,866
-------------------------------------------------------------------------------
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 $378,145,731
Represented by
-------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares
authorized) (Note 1) $434,708,664
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 552,473
-------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (58,677,628)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,562,222
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $378,145,731
-------------------------------------------------------------------------------
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per common share ($378,145,731 divided by
47,206,343 shares) $8.01
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended April 30, 2004 (Unaudited)
Interest income: $14,822,387
-------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,905,228
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 172,478
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 8,179
-------------------------------------------------------------------------------
Administrative services (Note 2) 4,729
-------------------------------------------------------------------------------
Preferred share remarketing agent fees 238,616
-------------------------------------------------------------------------------
Other 116,228
-------------------------------------------------------------------------------
Total expenses 2,445,458
-------------------------------------------------------------------------------
Expense reduction (Note 2) (9,848)
-------------------------------------------------------------------------------
Net expenses 2,435,610
-------------------------------------------------------------------------------
Net investment income 12,386,777
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,245,939)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 7,887,812
-------------------------------------------------------------------------------
Net gain on investments 1,641,873
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $14,028,650
-------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (896,147)
-------------------------------------------------------------------------------
From ordinary income (3,052)
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders $13,129,451
-------------------------------------------------------------------------------
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 2004* 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $12,386,777 $29,009,265
-------------------------------------------------------------------------------
Net realized loss on investments (6,245,939) (27,107,452)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,887,812 33,501,746
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 14,028,650 35,403,559
Distributions to Series A, B, and C
remarketed preferred shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (896,147) (1,911,395)
-------------------------------------------------------------------------------
From ordinary income (3,052) --
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations applicable to common shareholders 13,129,451 33,492,164
-------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (11,806,575) (26,907,616)
-------------------------------------------------------------------------------
From ordinary income (42,484) --
-------------------------------------------------------------------------------
Total increase in net assets 1,280,392 6,584,548
Net assets
-------------------------------------------------------------------------------
Beginning of period 376,865,339 370,280,791
-------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $552,473 and $913,954,
respectively) $378,145,731 $376,865,339
-------------------------------------------------------------------------------
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 2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $7.98 $7.84 $8.49 $8.44 $8.77 $9.82
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 .61 .70 .72 .75 .80
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .14 (.73) .04 (.16) (.96)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .30 .75 (.03) .76 .59 (.16)
---------------------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.02) (.04) (.05) (.12) (.16) (.13)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations: (applicable to
common shareholders) .28 .71 (.08) .64 .43 (.29)
---------------------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income: (.25) (.57) (.57) (.59) (.76) (.76)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.57) (.57) (.59) (.76) (.76)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $8.01 $7.98 $7.84 $8.49 $8.44 $8.77
---------------------------------------------------------------------------------------------------------------------------------
Market price, end of period
(common shares) $6.92 $7.34 $7.43 $8.44 $9.63 $9.81
---------------------------------------------------------------------------------------------------------------------------------
Total return at market price (%)
(common shares) (b) (2.49)* 6.44 (5.57) (6.21) 6.84 (7.72)
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)
(in thousands) $378,146 $376,865 $370,281 $400,255 $396,212 $408,419
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .63* 1.27 1.25 1.22 1.27 1.23
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 2.97* 7.21 7.84 7.01 6.97 7.12
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.63* 40.82 20.44 17.95 16.72 12.88
---------------------------------------------------------------------------------------------------------------------------------
* 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, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed Municipal Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund's investment
objective is to seek a high level of current income exempt from federal
income tax. The fund intends to achieve its objective by investing in a
diversified portfolio of tax-exempt municipal securities which Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC, believes does not
involve undue risk to income or principal. Up to 50% of the fund's
assets may consist of high-yield tax-exempt municipal securities that
are below investment grade and involve special risk considerations. The
fund also uses leverage by issuing preferred shares in an effort to
increase the income to the common shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are 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 including restricted
securities 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) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (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 month October 31, 2003, the fund had a capital loss carryover of
$50,158,346 available to the extent allowed by tax law 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
25,837,157 October 31, 2011
The aggregate identified cost on a tax basis is $545,118,483, resulting
in gross unrealized appreciation and depreciation of $19,932,437 and
$18,164,885, respectively, or net unrealized appreciation of
$1,767,552.
D) 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, 2004 was 1.05 % for Series A,
0.97% foe Series B and 1.04% 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.
E) 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 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, 2004, the
fund paid PFTC $172,478 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, 2004,
the fund's expenses were reduced by $9,848 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $755, 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.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $59,748,242 and $46,254,897, 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.
Total additional dividends for the period ended April 30, 2004 were
$1,069.
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, 2004 no such
restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
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. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. 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 has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, 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.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
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
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
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
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) 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
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214199 052 6/04
Item 2. Code of Ethics:
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Not applicable
Item 3. Audit Committee Financial Expert:
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Not applicable
Item 4. Principal Accountant Fees and Services:
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Not applicable
Items 5-6. [Reserved]
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Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
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Management Investment Companies: Not applicable
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Item 8. [Reserved]
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Item 9. Submission of Matters to a Vote of Security Holders:
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Not applicable
Item 10. Controls and Procedures:
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(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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
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(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
an 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
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Michael T. Healy
Principal Accounting Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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
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Charles E. Porter
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
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Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004