Putnam
Managed
Municipal
Income Trust
SEMIANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* For the five-year period ended April 30, 1996, Putnam Managed
Municipal Income Trust ranked 1 out of 12 funds in Lipper Analytical
Services' closed-end high yield municipal debt category.*
* "Putnam Managed Municipal Income Trust is shifting out of neutral into
drive. . . . PMM thus has an unusual ability to do fairly well in both
bull and bear markets. . . . The fund's versatility makes it a good all-
weather holding."
-- Morningstar, December 15, 1995
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
21 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance; rankings vary over time and
do not reflect the effects of sales charges. The fund ranked 9 out of 12
for 3 years, and 1 out of 12 for 5 years as of April 30, 1996. Past
performance is not indicative of future results.
[GRAPHIC OMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The tax-exempt bond market provided quite a ride for shareholders of
Putnam Managed Municipal Income Trust during the six months ended April
30, 1996. While the rest of the bond market was well into one of the
strongest advances in recent memory, tax-exempt investors were haunted
by prospects of a flat tax they feared would end the tax advantage
enjoyed by tax-exempt securities.
Once raised, flat-tax worries provided a negative undercurrent
throughout much of the semiannual period. It subsided just in time to
temper the decline in tax-exempt securities when the bond market
suddenly plunged in March.
As Fund Manager Howard Manning explains in the report that follows, he
believes the continuing demand for tax-free investments, coupled with a
relatively subdued pace in new issuance, bodes well for your fund in the
fiscal year's second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Manager
Howard Manning
Fixed-income markets experienced a reversal of fortune during the six
months ended April 30, 1996. Not long after the Federal Reserve Board
cut short-term interest rates in January, the year-long rally came to an
abrupt halt. Reports of a stronger-than-expected economy, robust nonfarm
payroll data, and the prospect of higher inflation buffeted the markets,
sparking price declines and raising yields across the board. Although
municipal bonds have outperformed Treasury securities by a significant
margin so far in calendar 1996, the broad market's turbulence prevented
Putnam Managed Municipal Income Trust from making any great strides in
performance. By actively managing and carefully positioning the
portfolio, however, we were able to avoid significant losses. Your fund
closed the semiannual period with a total return of 0.48% at net asset
value and 2.55% at market price. Full performance details can be found
on pages 9 and 10 of this report.
* PORTFOLIO'S STRUCTURE RECONFIGURED AS MARKET DYNAMICS CHANGED
When the fund began fiscal 1996, our bullish bias remained intact. That
is, we continued our emphasis on bonds that we believed would position
the fund for the greatest possible gains in the market's ongoing rise.
We clustered, or "barbelled," the fund's investments in both short- and
long-term municipal securities. This meant owning prerefunded bonds and
premium-coupon bonds with near-term call dates on the short end of the
maturity spectrum and discount-coupon bonds and residual interest bonds
(RIBs) on the longer end. The prerefunded and premium-coupon bonds are
higher-yielding municipals with comparatively short maturities whose
prices tend to react more slowly to interest rate changes. Discount-
coupon bonds and RIBs traditionally derive most of their total return
from capital appreciation, since their prices fluctuate more directly in
response to interest rate moves. This strategy served the fund well in
the first few months of the period.
In early February, the rally began to unwind as investor sentiment
quickly changed from anticipating further interest rate cuts to
expecting future rate increases. We redeployed assets to position the
fund more defensively by shortening the portfolio's average duration.
Duration is a measure of sensitivity to interest rate changes; typically
the shorter the duration, the lower the potential for price volatility.
In addition, as part of our restructuring efforts, we sold bonds at the
farthest ends of the yield and maturity spectrums, replacing them with
intermediate-term securities generally with 10- to 15-year maturities,
relatively higher coupons, and a more defensive pricing structure. By
shifting to this "bulleted" configuration, we believe we have created a
portfolio that offers not only better value but also a better balance of
income and market risk, given the ambiguity of the current environment.
* KNOWING WHERE TO INVEST AND WHEN TO MANEUVER HELPED SOFTEN IMPACT OF
MARKET'S VOLATILITY
Although the fund was unable to avoid entirely the effects of the
market's decline, careful state and industry positioning, combined with
the timing of our decisions to sell, helped buoy fund performance.
Substantial exposure to the airline industry -- one of the best-
performing sectors in the municipal market -- gave the fund a solid
boost throughout the period. Years of cost cutting and industry
consolidation have improved the financial condition of many airline
companies, which has translated into increased demand and price
appreciation for many fund holdings, particularly the municipal debt
backed by United, American, and Delta airlines. While these holdings and
others discussed in this report were viewed favorably on April 30, 1996,
all are subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
[GRAPHIC BAR CHART OMITTED: TOP INDUSTRY SECTORS*
Chart reads:
Hospitals/health care 20.1%
Utilities/water
and sewerage 18.2%
Transportation 13.9%
Education 7.6%
Housing 5.1%
* Based on net assets as of 4/30/96. Holdings will vary over time.
Hospital bonds also played an increasingly important role in the
portfolio's composition. By making advantageous purchases of attractive
names at bargain levels in calendar 1995, we positioned the fund to
benefit from changing market forces within the industry. As financially
weak hospitals merged into more profitable facilities, credit upgrades
ensued, demand picked up, and the prices of many fund holdings rose. In
our view, BBB-rated hospital bonds offer the best value in terms of
yield right now, and we've been increasing the fund's weighting to take
further advantage of these positive dynamics.
The fund remains broadly diversified by region, although California and
Michigan state bonds comprise a significant portion of net assets and
provided the lion's share of the performance gain. We believe that
improving economic fundamentals and positive supply/demand
characteristics should make continued investment in these regions
rewarding. We used New York City bonds mainly as a trading vehicle to
take advantage of short-term movements and expect to continue doing so
as income and price appreciation opportunities arise.
While it is impossible to predict market events and the effects they
will have on investments, experience is a valuable teacher. With more
than 100 years of combined investment experience among our tax-exempt
managers, we have confidence in our ability to identify values and we
are not afraid to sell bonds when a profit can be made.
For example, we did not hesitate to buy the attractively priced bonds
issued by Denver International Airport early in that facility's
development. Throughout calendar 1995, these bonds had significant
representation in the portfolio and performed extremely well. The prices
of Denver International Airport bonds continued to rise in response to
improved revenues and in anticipation of a tender offer that was
scheduled for early calendar 1996. Believing the time was right to take
profits, we sold roughly half of the fund's position -- mainly the
longer-duration discount-coupon bonds. The move proved timely. The
tender offer failed to materialize in the face of rising interest rates
and the bonds that had earlier been bid up in price lost value.
TOP 10 HOLDINGS
Ohio State Air Quality Development Authority
Revenue bonds
University of California at San Diego Medical Center Satellite Medical
Facilities
Revenue bonds
Lake Charles Harbor & Terminal Distribution Port Facilities, Louisiana
Revenue bonds
University of Texas, University Fund
General obligation bonds
Indianapolis Airport Authority Special Facilities
Revenue bonds
Santa Clara County Financing Authority Lease, California
Revenue bonds
Wichita Hospital, Kansas
Inverse floating bonds
Denver City and County Airport, Colorado
Revenue bonds
Midland County Economic Development Corporation Pollution Control,
Michigan
Revenue bonds
Burlington Pollution Control, Kansas
Inverse floating bonds
These holdings represent 19.3% of the fund's assets as of 4/30/96.
Portfolio holdings will vary over time.
* MUNICIPAL YIELDS REMAIN GENEROUS ON TAXABLE EQUIVALENT BASIS
As flat-tax fears diminished and Treasury bond prices declined further
than municipal bond prices during the past few months, high-rated
municipal bonds once again began providing the customary 82% to 85% of
the yield that long-term Treasury bonds offer. Although this is lower
than the 95% ratio offered by municipal bonds last summer, we believe
municipal bonds continue to make sense for investors seeking high
current income free from federal taxes. For example, your fund's
dividend rate of 7.81% and 7.26% at NAV and market price, respectively,
as of April 30, 1996, translates into a taxable equivalent yield of
12.93% and 12.02%, respectively, for investors in the maximum 39.6%
federal tax bracket. Most investors in lower brackets would also enjoy
tax advantages, although not to the same extent.
* CURRENT CLIMATE DEMANDS CAUTIOUS BUT NOT PESSIMISTIC APPROACH
Given the most recent spate of economic data suggesting strong growth,
it appears that fixed-income market conditions will remain unsettled as
we enter the summer months. For the long-term investor, however, we do
not believe this is any cause for undue alarm. The fundamentals of the
municipal market remain appealing -- supply versus demand is positive,
insurance companies continue to be heavy buyers and thus lend price
support, state and local governments are becoming more fiscally
responsible, and flat-tax concerns have subsided.
We believe we can continue to differentiate ourselves successfully from
the competition and add value to your investment by investing only in
the most structurally favorable bonds for the current climate and
focusing on the high-tax states and industry sectors that stand to
benefit most from a strengthening economy.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Managed Municipal Income Trust is designed for
investors seeking high current income free from federal income tax
through a diversified portfolio of tax-exempt municipal securities.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's common
shares changed over time, assuming you held the shares through the
entire period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
Lehman Bros.
Municipal
Market Bond Consumer
NAV price Index Price Index
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6 months 0.48% 2.55% 1.11% 1.69%
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1 year 7.36 10.43 7.95 2.90
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5 years 59.16 62.42 42.37 15.61
Annual average 9.74 10.19 7.32 2.94
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Life of fund (2/24/89) 86.36 86.45 73.79 28.54
Annual average 9.06 9.06 8.02 3.56
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TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Market
NAV price
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6 months 2.51% 7.56%
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1 year 7.81 13.84
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5 years 61.76 66.61
Annual average 10.10 10.75
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Life of fund (2/24/89) 87.08 87.48
Annual average 9.22 9.26
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Performance data represent past results, do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns and market value
will fluctuate so that an investor's shares, when sold, may be worth
more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/96
Common shares
Distributions (number) 6
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Income $0.381
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Capital gains1 --
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Total $0.381
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Share value: NAV Market price
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10/31/95 $10.08 $10.625
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4/30/96 9.76 10.500
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Current return NAV Market price
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End of period
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Current dividend rate2 7.81% 7.26%
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Taxable equivalent3 12.93 12.02
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1Capital gains are taxable for federal and, in most cases, state tax
purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes. 2Income portion of most recent distribution,
annualized and divided by NAV or market price at end of period. 3Assumes
maximum 39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, the liquidation preference and cumulative undeclared
dividends on the remarketed preferred shares, divided by the number of
outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund. The index assumes
reinvestment of all distributions and interest payments and does not
take into account brokerage fees or taxes. Securities in the fund do not
match those in the index and performance of the fund will differ. It is
not possible to invest directly in an index.
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996 (Unaudited)
Key to Abbreviations
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
GNMA Government National Mortgage Association Collateralized
G.O. Bonds General Obligations Bonds
IF COP Inverse Floater Certificate of Participation
IFB Inverse Floating Bonds
MBIA Municipal Bond Investors Assurance Corporation
VRDN Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.5)*
PRINCIPAL AMOUNT RATING** VALUE
<S> <C> <C> <C> <C>
Arizona (2.2%)
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$4,000,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds (Payson
Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P $3,430,000
7,134,149 Phoenix Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(American West Airlines),
Ser. A 95-1, 8.3s, 1/1/06 B/P 7,198,428
2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A 3,131,563
--------------
13,759,991
California (13.9%)
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CA Poll. Ctrl. Fin. Auth. VRDN (Shell Oil Co. Project)
1,000,000 Ser. C, 3 1/2s, 11/1/00 VMIGI 1,000,000
6,100,000 Ser. B, 3 1/2s, 10/1/11 VMIGI 6,100,000
5,000,000 CA State G.O. Bonds, 6.6s, 2/1/09 A 5,512,500
4,000,000 Contra Costa, Wtr. Dist. Wtr. Rev. Bonds, Ser. G,
MBIA, 5s, 10/1/24 AAA 3,485,000
3,000,000 Contra Costa, Trans. Auth. Sales Tax Rev. Bonds
Ser. A, FGIC 6s, 3/1/09 AAA 3,157,500
Corona COP (Vista Hosp. Syst. Inc.)
2,775,000 Ser. B, 9 1/2s, 7/1/20 B/P 2,910,281
5,000,000 Ser. C, 8 3/8s, 7/1/11 B/P 4,956,250
4,000,000 Frenso Swr. Rev. Bonds, Ser. A, MBIA, 5s, 9/1/23 AAA 3,495,000
Kern High School Dist. Rfdg. Rev. Bonds, Ser. A, MBIA
3,825,000 6 1/2s, 8/1/14 AAA 4,097,531
3,840,000 6 1/2s, 2/1/14 AAA 4,113,600
1,700,000 Los Angeles Region. Arpt. Impt. Corp. VRDN,
3.5s, 12/1/25 VMIGI 1,700,000
5,000,000 Metro Wtr. Dist. Rev. Bonds
(Southern CA Wtr. Wks.) 7.559s, 8/5/22 AA 5,018,750
3,500,000 San Bernardino Cnty. IF COP (PA-100-Med. Ctr.
Fin. Project), MBIA, 6 1/2s, 8/1/28 (acquired
6/27/95 cost $3,770,519)++ AAA 4,322,500
8,750,000 Santa Clara Cnty. Fing. Auth. Lease Rev. Bonds
(Vmc. Fac. Replacement Project), Ser. A, AMBAC,
6 3/4s, 11/15/20 AAA 9,406,250
5,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds (Palo
Verde Project), Ser. A, AMBAC, 6s, 7/1/07 AAA 5,325,000
15,000,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 Baa 16,387,500
5,000,000 Valley Hlth. Syst. Hosp. Rev. Bonds (Rfdg. &
Impt. Project), Ser. A, 6 1/2s, 5/15/25 BBB 4,650,000
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85,637,662
Colorado (3.1%)
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2,000,000 Arapahoe Cnty. Cap. Impt. Trust Fund Hwy. Rev.
Bonds (Ser. E-470 Project), Ser. B, 7s, 8/31/26 Baa 2,100,000
Denver, City & Cnty. Arpt. Rev. Bonds
4,000,000 Ser. A, 8 3/4s, 11/15/23 Baa 4,725,000
7,645,000 Ser. A, MBIA, 8 1/2s, 11/15/23 AAA 8,877,756
2,240,000 Ser. D, 7 3/4s, 11/15/21 Baa 2,475,200
1,050,000 Ser. D, 7 3/4s, 11/15/13 Baa 1,216,688
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19,394,644
Connecticut (0.7%)
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4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc. Project),
Ser. A, 8.7s, 7/1/22 BB/P 4,305,000
Delaware (0.2%)
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1,500,000 Wilmington Hosp. VRDN (Franciscan Hlth. Syst.),
Ser. A, 4.2s, 7/1/11 VMIGI 1,500,000
Florida (3.1%)
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3,210,000 Escambia Cnty., Poll. Ctrl. Rev. Bonds (Champion
Intl. Corp. Project) 6.9s, 8/1/22 Baa 3,370,500
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 5,443,750
7,900,000 Lee Cnty., Hosp. Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 8.713s, 3/26/20 AAA 8,314,750
1,615,000 Pinellas Cnty. Hlth. Facs. Auth. Sun Coast Hlth.
Syst. Rev. Bonds (Sun Coast Hosp.),
Ser. A, 8 1/2s, 3/1/20 BB 1,695,750
--------------
18,824,750
Georgia (0.8%)
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1,505,000 Atlanta Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 1,597,181
3,250,000 Gwinnett Cnty., Indl. Dev. Corp. Rev. Bonds
(Kawneer Co. Inc. Project),
Ser. 1984, 9 1/2s, 6/1/15 A 3,562,813
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5,159,994
Hawaii (0.4%)
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2,250,000 HI State G.O. Bonds, Ser. C 6s, 3/1/11 AA 2,340,000
Idaho (0.7%)
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4,000,000 Owyhee Cnty., Indl. Dev. Corp. Rev. Bonds
(Envirosafe Svcs. of Idaho Inc.), 8 1/4s, 11/1/02 B/P 4,030,000
Illinois (3.8%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(American Airlines Inc. Project)
3,000,000 8.2s, 12/1/24 Baa 3,438,750
5,000,000 Ser. A, 7 7/8s, 11/1/25 Baa 5,356,250
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
5,363,000 Ser. B, 8.95s, 5/1/18 Baa 6,013,264
3,215,000 Ser. 84A, 8.85s, 5/1/18 Baa 3,592,763
1,835,000 Ser. 84B, 8.85s, 5/1/18 Baa 2,050,613
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (in default)+ B/P 1,875,000
2,000,000 Robbins Res. Recvy. Rev. Bonds (Recvy. Partners),
Ser. A, 9 1/4s, 10/15/14 B/P 1,400,000
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23,726,640
Indiana (1.6%)
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9,300,000 Indianapolis Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp. Project), 7.1s, 1/15/17 Baa 9,846,375
Iowa (0.9%)
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IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Mercy Hlth. Initiatives Project)
3,000,000 9.95s, 7/1/19 BB/P 3,060,000
2,350,000 9.85s, 7/1/09 BB/P 2,397,000
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5,457,000
Kansas (2.9%)
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7,500,000 Burlington, Poll. Ctrl. IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 10.399s, 6/1/31
(acquired 12/17/91, cost $7,797,096)++ AAA 8,653,125
8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA,
9.006s, 10/1/17 AAA 9,061,500
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17,714,625
Kentucky (0.5%)
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2,000,000 Kenton Cnty., Arpt. Board Special Facs. Rev. Bonds
(Delta Air Lines, Inc. Project),
Ser. A, 7 1/2s, 2/1/20 Baa 2,115,000
1,000,000 Scott Cnty., Indl. Dev. VRDN (Hoover
Group Inc. Project), 8 1/2s, 11/1/14 VMIGI 1,008,750
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3,123,750
Louisiana (6.6%)
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5,000,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 BB/P 5,418,750
5,400,000 LA State Recvy. Dist. Sales Tax, VRDN,,
FGIC, 4 1/4s, 7/1/97 VMIGI 5,400,000
12,500,000 Lake Charles Harbor & Term. Dist. Port Facs. Rev.
Bonds (Trunkline Co. Project), 7 3/4s, 8/15/22 Baa 13,859,375
Port of New Orleans Indl. Dev. Rev. Bonds
(Continental Grain Co. Project)
4,000,000 Ser. A, 14 1/2s, 2/1/02 BB 4,209,720
3,500,000 14 1/2s, 1/1/02 BB 3,663,450
W. Feliciana Parish, Poll. Ctrl. Rev. Bonds
Gulf States Util. Co. Project)
5,050,000 8s, 12/1/24 Ba 5,371,938
2,750,000 Ser. C, 7s, 11/1/15 Ba 2,805,000
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40,728,233
Maryland (0.8%)
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4,000,000 MD State, Hlth. & Higher Edl. Facs. Auth. Rev.
Bonds (Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 AAA 4,690,000
Massachusetts (5.7%)
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2,100,000 MA State G.O. VRDN, Ser. E, 4.05s, 12/1/97 VMIGI 2,100,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 2,027,500
4,000,000 (Rehab. Hosp. Cape & Islands),
Ser. A, 7 7/8s, 8/15/24 BB/P 4,115,000
1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba 1,016,313
3,000,000 (New England Baptist Hosp.) Ser. B, 7.3s, 7/1/11 Baa 3,191,250
1,100,000 (Beth Israel Hosp.), 7s, 7/1/14 A 1,161,875
1,000,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba 941,250
2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 A 2,102,500
3,400,000 (Sisters Providence Hlth. Syst),
Ser. A, 6 5/8s, 11/15/22 Baa 3,319,250
2,250,000 (Holyoke Hosp.), Ser. B, 6 1/2s, 7/1/15 Baa 2,075,625
MA State Indl. Fin. Agcy. Rev. Bonds
(1st. Mtge. Pioneer Valley Living Ctr.)
2,000,000 7s, 10/1/20 B/P 1,945,000
1,323,785 zero %,10/1/20 B/P 1,655
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
5,000,000 (Southeastern MA Project), Ser. B, 9 1/4s, 7/1/15 BB/P 5,562,500
2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,260,000
2,865,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(Mass Tpk.,), 9s, 10/1/20 AAA/P 3,398,606
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35,218,324
Michigan (7.6%)
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4,390,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 9 1/2s, 5/1/21 BBB/P 5,339,338
2,000,000 Grand Rapids Wtr. Supply Syst. VRDN,
FGIC, 4.2s, 1/1/20 VMIGI 2,000,000
4,780,000 Highland Park, Hosp. Fin. Auth. Fac. Rev. Bonds
(MI Hlth. Care Corp. Project), Ser. A, 9 7/8s,
12/1/19 (in default)+ Caa 1,816,400
3,000,000 MI State Hosp. Fin. Auth. Rev. Bonds (Detroit-
Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 BB 2,970,000
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
6,850,000 (Env. Research Project), 8 1/8s, 10/1/14 A/P 7,603,500
4,000,000 (Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 3,590,000
3,000,000 (Ford Motor Co. Project), Ser. A, 7.1s, 2/1/06 A 3,420,000
2,000,000 MI State Strategic Fund Rev. Bonds
(Mercy Svcs. for Aging Project), 9.4s, 5/15/20 BBB/P 2,225,000
8,000,000 Midland Cnty., Econ. Dev. Corp. Poll. Ctrl. Rev.
Bonds, Ser. B, 9 1/2s, 7/23/09 B/P 8,770,000
2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds
(NOMC Obligation), 6s, 8/1/18 Baa 2,446,875
6,500,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth. Care), 8 3/8s, 7/1/23 BB/P 6,760,000
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46,941,113
Minnesota (0.7%)
- ------------------------------------------------------------------------------------------------------------
1,965,000 Chaska Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc. Project), 10 1/4s, 9/1/20 BB/P 2,245,013
2,180,000 Farmington Poll. Ctrl. VRDN (Arizona Public
Services Co.) Ser. B, 3 1/2s, 9/1/24 VMIGI 2,180,000
--------------
4,425,013
Mississippi (1.5%)
- ------------------------------------------------------------------------------------------------------------
Claiborne Cnty. Poll. Control Rev. Bonds
(Middle South Energy, Inc.)
4,000,000 Ser. C, 9 7/8s, 12/1/14 BBB/P 4,505,000
4,100,000 Ser. A, 9 1/2s, 12/1/13 BBB/P 4,581,750
--------------
9,086,750
Missouri (0.7%)
- ------------------------------------------------------------------------------------------------------------
3,900,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr. Project), 8 3/4s, 1/1/15 BBB/P 4,134,000
Nebraska (2.5%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty. Indl. Dev. VRDN (Hoover Group Inc.
Project), 8 1/2s, 12/1/07 VMIGI 2,017,500
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,950,000 GNMA, 9.475s, 9/15/24 AAA 1,979,250
1,300,000 Ser. B, GNMA, 11.196s, 3/15/22 AAA 1,447,875
1,900,000 Ser. B, GNMA, 9.963s, 9/15/23 AAA 2,037,750
2,100,000 Single-Fam Mtge., Ser. C, 7.969s, 3/1/20 AAA 2,000,250
5,635,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, MBIA, 8 1/8s, 8/15/38 AAA 5,916,750
--------------
15,399,375
Nevada (0.7%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Clark Cnty. Indl. Dev. Rev. Bonds
(NV Pwr. Co. Project), 7.8s, 6/1/20 Baa 4,300,000
New Hampshire (0.9%)
- ------------------------------------------------------------------------------------------------------------
2,215,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp. Project),
9 3/8s, 11/1/20 BBB/P 2,430,963
2,800,000 NH State Indl. Dev. Auth. Poll. Ctrl. Rev. Bonds
(United Illuminating Co.), Ser. B, 10 3/4s, 10/1/12 Baa 3,080,000
--------------
5,510,963
New Jersey (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 5,443,750
New York (4.1%)
- ------------------------------------------------------------------------------------------------------------
NY City G.O. Bonds
6,440,000 Ser. F, 8 1/4s, 11/15/10 AAA 7,631,400
4,925,000 Ser. D,(Group C), 8s, 8/1/18 AAA 5,743,781
560,000 Ser. F, 8 1/4s, 11/15/10 Baa 645,400
3,800,000
Ser. G, FGIC, 4.1s, 6/15/24 VMIGI 3,800,000
2,500,000 NY State Energy Resh. & Dev. Auth. Poll.
Ctrl. VRDN (NY State Elec. & Gas Co.),
Ser. C, 3.9s, 6/1/29 VMIGI 2,500,000
5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96,
FGIC, 6.6s, 10/1/23 AAA 5,250,000
--------------
25,570,581
Ohio (4.5%)
- ------------------------------------------------------------------------------------------------------------
1,950,000 Dayton Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1/2s, 10/1/09 BB/P 2,264,438
OH State Air Quality Dev. Auth. Rev. Bonds
20,000,000 (Cleveland Co. Project), FGIC, 8s, 12/1/13 AAA 23,600,000
OH State Air Quality Dev. Auth. VRDN
2,100,000 (Env. Mead Corp.) 4.1s, 10/1/01 VMIGI 2,100,000
--------------
27,964,438
Oklahoma (1.1%)
- ------------------------------------------------------------------------------------------------------------
2,945,000 Oklahoma Cnty., Indl. Auth. Rev. Bonds (Epworth
Villa Project), Ser. A, 10 1/4s, 4/1/19 BB/P 3,180,600
3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa 3,696,875
--------------
6,877,475
Pennsylvania (8.2%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Facs.
Rev. Bonds (USAIR Inc. Project),
Ser. B, 8 1/2s, 3/1/21 B 4,205,000
Allentown Hosp. Auth. Rev. Bonds (Sacred
Heart Hosp.)
3,460,000 Ser. A, 6 3/4s, 11/15/14 BBB 3,447,025
2,060,000 Ser. B, 6 3/4s, 11/15/15 BBB 2,052,275
2,000,000 Langhorne Manor Boro Higher Ed. Hlth. Auth.
Rev. Bonds (Lower -Bucks Hosp. Project),
7.35s, 7/1/22 Ba 1,720,000
2,840,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Rev. Bonds (Northeastern Corp.)
Ser. A, 8 3/8s, 6/1/04 BBB 2,996,200
1,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (United Hosp. Inc.
Saint Christopher Project), 8 1/2s, 11/1/17 Ba 1,042,500
7,250,000 PA Convention Ctr. Auth. Rev. Bonds,
Ser. A, MBIA, 6.7s, 9/1/14# AAA 7,857,188
7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (MacMillan Ltd.
Partnership Project), 7.6s, 12/1/20 BBB 8,476,563
7,000,000 PA Economic Dev. Fin. Auth. Recycling Rev. Bonds
(Ponderosa Fibres Project), Ser. A, 9 1/4s, 1/1/22 B/P 6,965,000
5,000,000 Philadelphia Hosp. & Higher Ed. Fac. Auth
Rev. Bonds (Graduate Hlth. Syst. Oblig.)
Ser. A&B, 7 1/4s, 7/1/10 Baa 5,093,750
6,000,000 PA State Higher Ed. Assistance Agcy.
Student Loan IFB, Ser. B, MBIA, 10.91s, 3/1/20 AAA 6,502,500
--------------
50,358,001
South Carolina (1.3%)
- ------------------------------------------------------------------------------------------------------------
2,600,000 Charleston Cnty., Indl. Dev. VRDN, 4.2s, 1/1/07 VMIGI 2,600,000
5,000,000 SC State Hsg. Fin. & Dev. Auth. Multi-Fam. Mtge.
Rev. Bonds, 8 1/2s, 10/1/21 BBB 5,412,500
--------------
8,012,500
Tennessee (1.3%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Memphis-Shelby Cnty. Arpt. Auth. Special Fac. Rev.
Bonds (Federal Express Project), 6 3/4s, 9/1/12 Baa 2,067,500
6,000,000 Metro. Gov't Nashville & Davidson Cnty. Tenn.
(Wtr. & Swr.) IFB, AMBAC, 8.371s, 1/1/22 AAA 6,075,000
--------------
8,142,500
Texas (8.3%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Alliance Arpt. Auth. Special. Fac. Rev. Bonds
(American Airlines, Inc. Project), 7 1/2s, 12/1/29 BB 3,183,750
3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains
Baptist Hosp.), FSA, 9.19s, 1/3/22 AAA 4,263,875
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
3,170,000 (Heartway Corp.), Ser. A-1, 10 1/4s, 3/1/19+ CCC/P 2,377,500
3,200,000 (St. Luke's Lutheran Hosp. Project), 7.9s, 5/1/11 AAA/P 3,752,000
7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co. Project), Ser. A, 7 7/8s, 3/1/21 Baa 7,956,875
2,111,000 Houston, Hsg. Fin. Corp. Single Fam. Mtge. Rev.
Bonds, Ser. A, (Verex Mtg. Ins.) 10 7/8s, 2/15/16 A 2,136,543
Southeast TX Multi-Fam. Hsg. Fin. Corp. Rev. Bonds
3,000,000 (Bayou Pk. Village Apt. Project),
Ser. B, 10.175s, 8/1/16 B/P 3,030,000
(Promenade Place Apts. Project),
Ser. B, 9 1/2s, 8/1/16 BB/P 2,506,250
5,000,000 (Pavilion Place Apts. Project),
Ser. A, 7.6s, 7/1/16 BBB/P 5,100,000
3,000,000 Tarrant Cnty., Hlth. Facs. Dev. Corp. Hosp.
Rev. Bonds (Cmnty. Hlth. Care Foundation. Inc.
Project), 10 1/8s, 4/1/21+ B/P 750,000
5,495,000 Texas State Fin. Auth. Rev. Bonds,
Ser. A, 5.9s, 10/1/12 AA 5,570,550
10,000,000 U. of TX U. Fund G.O. Bond 6s,7/1/06 AAA 10,750,000
--------------
51,377,343
Utah (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,350,000 Intermountain Pwr. Agcy. Pwr. Supply Rev. Bonds,
Ser. B, 7 3/4s, 7/1/20 AA 5,744,563
Virginia (1.0%)
- ------------------------------------------------------------------------------------------------------------
5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.215s, 8/15/23 AAA 5,859,000
Washington (3.7%)
- ------------------------------------------------------------------------------------------------------------
6,225,000 Clark Cnty., Pub. Util. Dist. #001 Generating Syst.
Rev. Bonds, FGIC, 6s, 1/1/08 AAA 6,559,594
6,500,000 Port Walla Walla Pub. Corp. Solid Waste
Recycling Rev. Bonds (Ponderosa
Fibres Project), 9 1/8s, 1/1/26 B/P 6,386,250
3,200,000 WA State Hlth. Care Fac. VRDN (Sisters
Providence), Ser. E, 4.1s, 10/1/05 VMIGI 3,200,000
6,315,000 WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear Project No. 1), Ser. A, 7 1/2s, 7/1/15 AA 6,804,413
--------------
22,950,257
West Virginia (0.6%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 Randolph Cnty., Bldg. Comm. Hosp. Rev. Bonds
Refunding and Impt. (Davis Memorial Hosp.
Project) Ser. A, 7.65s, 11/1/21 Baa 3,731,875
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $598,024,938)*** $607,286,485
- ------------------------------------------------------------------------------------------------------------
Notes
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $616,309,881. Net assets available to common
shareholders are $441,233,092.
+ Non-income-producing security.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most 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, 1996. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
The table below shows the percentage of the fund's investment on April 30, 1996 in securities assigned
to various rating categories by Moody's and Standard & Poor's and in unrated securities determined by
Putnam Management to be of comparable quality.
Unrated securities of
Rated Securities comparable quality, as a
as a percentage of percentage of
Rating fund's net assets fund's net assets
- --------------------------------------------------------------------------------------------
AAA/Aaa 17.1 0.7
AA/Aa 5.5 --
A/A 3.7 1.6
BBB/Baa 31.7 8.9
BB/Ba 5.0 10.3
B/B 0.9 13.6
CCC/Caa 0.4 0.6
- --------------------------------------------------------------------------------------------
64.3% 35.7%
++ Restricted, excluding 144A securities, as to public resale. The total market value
of restricted securities held at April 30, 1996 was $12,975,625 or 2.1% of net assets.
# A portion of this security was pledged and segregated with a custodian to cover margin
requirements for futures contracts at April 30, 1996. The market value of the segregated
security with the custodian for transactions on futures contracts is $7,857,188 or 1.27% of net assets.
*** The aggregate identified cost on a tax basis is $598,243,651, resulting in gross unrealized
appreciation and depreciation of $23,070,683 and $14,027,849, respectively, or net unrealized
appreciation of $9,042,834.
The fund had the following industry group concentrations greater than 10% at April 30, 1996
(as a percentage of net assets):
Hospitals/Health Care 20.1%
Utilities/Water & Sewerage 18.2%
Transportation 13.9%
The fund had the following insurance concentrations greater than 10% at April 30, 1996 (as a percentage
of net assets):
MBIA 11.1%
Futures Contracts Outstanding at April 30, 1996
Total Aggregate Face Expiration Unrealized
Value Value Date Appreciation
- --------------------------------------------------------------------------------------
UST Bonds (Short) $13,644,531 $13,652,344 June 96 $ 7,813
- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1996 (Unaudited)
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $598,024,938) (Note 1) $607,286,485
- ------------------------------------------------------------------------------------------------
Cash 94,477
- ------------------------------------------------------------------------------------------------
Interest receivable 12,831,127
- ------------------------------------------------------------------------------------------------
Receivable for securities sold 290,430
- ------------------------------------------------------------------------------------------------
Receivable for variation margin 85,938
- ------------------------------------------------------------------------------------------------
Total assets 620,588,457
Liabilities
- ------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,066,112
- ------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 1,045,026
- ------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 1,340
- ------------------------------------------------------------------------------------------------
Payable for administrative services (Note 3) 1,063
- ------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 77,152
- ------------------------------------------------------------------------------------------------
Other accrued expenses 87,883
- ------------------------------------------------------------------------------------------------
Total liabilities 4,278,576
- ------------------------------------------------------------------------------------------------
Net assets $616,309,881
Represented by
- ------------------------------------------------------------------------------------------------
Series A, B, and C remarketed preferred shares (1,750 shares issued at
$100,000 per share liquidation preference) (Note 1) 175,000,000
- ------------------------------------------------------------------------------------------------
Paid in capital-common shares (Note 1) 417,532,356
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 16,838,066
- ------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,329,901)
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,269,360
- ------------------------------------------------------------------------------------------------
Net assets $616,309,881
Net assets available to:
- ------------------------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $175,000,000
- ------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 76,789
- ------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares $175,076,789
- ------------------------------------------------------------------------------------------------
Net assets available to common shares $441,233,092
- ------------------------------------------------------------------------------------------------
Net asset value per common share
($441,233,092 divided by 45,222,645 shares) $9.76
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $22,074,882
- ------------------------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------------------------
Compensation of Manager (Note 3) 2,116,778
- ------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 229,590
- ------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 3) 10,782
- ------------------------------------------------------------------------------------------------
Reports to shareholders 33,790
- ------------------------------------------------------------------------------------------------
Auditing 69,428
- ------------------------------------------------------------------------------------------------
Legal 4,370
- ------------------------------------------------------------------------------------------------
Postage 31,671
- ------------------------------------------------------------------------------------------------
Registration fees 125
- ------------------------------------------------------------------------------------------------
Exchange listing fees 20,364
- ------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 204,168
- ------------------------------------------------------------------------------------------------
Administrative services (Note 3) 6,357
- ------------------------------------------------------------------------------------------------
Other expenses 19,322
- ------------------------------------------------------------------------------------------------
Total expenses 2,746,745
- ------------------------------------------------------------------------------------------------
Expense reduction (Note 3) (57,449)
- ------------------------------------------------------------------------------------------------
Net expenses 2,689,296
- ------------------------------------------------------------------------------------------------
Net investment income 19,385,586
- ------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 5,731,306
- ------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 4) 233,518
- ------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and
futures contracts during the period (19,752,240)
- ------------------------------------------------------------------------------------------------
Net loss on investments (13,787,416)
- ------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,598,170
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1996* 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- -----------------------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------------------
Net investment income $19,385,586 $40,563,721
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 5,964,824 (3,616,414)
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (19,752,240) 30,712,230
- -----------------------------------------------------------------------------------------------------------------
Net increase in assets resulting from operations 5,598,170 67,659,537
- -----------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from:
- -----------------------------------------------------------------------------------------------------------------
Net investment income (3,239,515) (7,104,957)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed
preferred shared of $76,789 and $79,727 respectively) 2,358,655 60,554,580
- -----------------------------------------------------------------------------------------------------------------
Distributions to common shareholders
- -----------------------------------------------------------------------------------------------------------------
From net investment income (17,188,003) (34,075,362)
- -----------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 2,685,010 4,983,445
- -----------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (12,144,338) 31,462,663
- -----------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 628,454,219 596,991,556
- -----------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $16,838,066 and $17,879,998, respectively) $616,309,881 $628,454,219
- -----------------------------------------------------------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of the period 44,961,926 44,449,876
- -----------------------------------------------------------------------------------------------------------------
Common shares issued in connection with reinvestment of
distributions 260,719 512,050
- -----------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 45,222,645 44,961,926
- -----------------------------------------------------------------------------------------------------------------
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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Six months ended Year ended
April 30 October 31
- -----------------------------------------------------------------------------------------------
1996* 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period
(common shares) $10.08 $9.49 $10.88 $9.81 $9.44 $8.94
- -----------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------
Net investment income .43 .90 .94 .98 1.01 1.02
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.30) .60 (1.37) 1.04 .26 .44
- -----------------------------------------------------------------------------------------------
Total from investment
operations .13 1.50 (.43) 2.02 1.27 1.46
- -----------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------
From net investment income
- -----------------------------------------------------------------------------------------------
To preferred shareholders (.07) (.15) (.11) (.11) (.14) (.20)
- -----------------------------------------------------------------------------------------------
To common shareholders (.38) (.76) (.76) (.76) (.76) (.76)
- -----------------------------------------------------------------------------------------------
From net realized gain
on investments
- -----------------------------------------------------------------------------------------------
To common shareholders -- -- (.09) (.08) -- --
- -----------------------------------------------------------------------------------------------
Total distributions (.45) (.91) (.96) (.95) (.90) (.96)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period (common shares) $9.76 $10.08 $9.49 $10.88 $9.81 $9.44
- -----------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $10.50 $10.63 $9.25 $11.38 $9.88 $10.00
- -----------------------------------------------------------------------------------------------
Total investment return
at market value
(common shares) (%)(a) 2.55(d) 24.23 (11.56) 24.84 6.72 22.33
- -----------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $616,310 $628,454 $596.992 $652,660 $600,849 $580,495
- -----------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .60(d) 1.20 1.23 1.22 1.24 1.33
- -----------------------------------------------------------------------------------------------
Ratio of net investment
income to average net assets (%)(b) 3.54(d) 7.70 9.20 8.44 8.94 8.92
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 50.81(d) 79.71 48.40 35.16 67.72 49.62
- -----------------------------------------------------------------------------------------------
* Unaudited
(a) Total investment return assumes dividend reinvestment.
(b) Ratios reflect net assets available to common shares only; net investment income
ratio also reflects reduction for dividend payments to preferred shareholders.
(c) The ratio of expenses to average net assets for the year ended October 31, 1995 and
thereafter includes amounts paid through expense offset arrangements. Prior period
ratios exclude these amounts. See Note 3.
(d) Not annualized
</TABLE>
Notes to financial statements
April 30, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The
fund's investment objective is to seek a high level of current income
exempt from federal income tax. The fund intends to achieve its
objective by investing in a diversified portfolio of tax-exempt
municipal securities which Putnam believes does not involve undue risk
to income or principal. Up to 50% of the fund's assets may consist of
high-yield tax-exempt municipal securities that are below investment
grade and involve special risk considerations. The fund also uses
leverage by issuing preferred shares in an effort to increase the income
to the common shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuations Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. The fair value of restricted securities is determined by the
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. following
procedures approved by the Trustees, and such valuations and procedures
are reviewed periodically by Trustees.
B) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and undeclared dividends on remarketed preferred shares) and
the liquidation value of any outstanding remarketed preferred shares, by
the total number of common shares outstanding.
C) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
D) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At October 31, 1995 the fund a capital loss carryover of approximately
$4,292,000 which may be available to offset realized gains, if any.
The amount of the carryover and expiration dates are:
Loss Carryover Expiration
-------------- ----------
$3,958,000 10/31/2002
334,000 10/31/2003
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. 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 capital loss carryovers under income tax regulations.
G) Amortization of bond premium and discount Any premium resulting from
the purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discounts on zero coupon and original issue
bonds are accreted according to the effective yield method.
Note 2
Remarketed preferred shares
On September 28, 1989 the fund issued 550 shares Series A Remarketed
Preferred (RP), 550 shares Series B RP and 650 shares Series C RP
(collectively, the "Original RP"). The Original RP Shares are redeemable
at the option of the fund on any dividend payment date at a redemption
price of $100,000 per share, plus an amount equal to any dividends
accumulated on a daily basis but unpaid through the redemption date
(whether or not such dividends have been declared) and, in certain
circumstances, a call premium.
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, 1996, no such
restrictions have been placed on the fund.
Note 3
Management fee,
administrative services,
and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, and 0.50% of the next $5 billion subject, under
current law, to reduction in any year to the extent that expenses
(exclusive of brokerage, interest and taxes) of the fund exceed 2.5% of
the first $30 million of average net assets, 2.0% of the next $70
million and 1.5% of any excess over $100 million and by the amount of
certain brokerage commissions and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's net income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam for that period will be reduced by the amount of
the excess (but not more than .70% of the liquidation preference of the
remarketed preferred shares outstanding during the period).
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $1,250 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period ended April 30, 1996, fund expenses were reduced by
$57,449 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of these assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Note 4
Purchase and sales
of securities
During the period ended April 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$320,977,462 and $341,941,993, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
<TABLE>
<CAPTION>
Selected quarterly data*
(Unaudited)
Net realized and Net increase (decrease)
Investment Net investment unrealized gain in net assets
income income* (loss) on investments* from operations*
- ----------------------------------------------------------------------------------------------------------
Per Per Per Per
Quarter Common Common Common Common
Ended Total Share Total Share Total Share Total Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/31/94 $11,953,487 $.27 $9,411,000 $.21 $2,572,403 $.06 $11,983,403 $.27
- ----------------------------------------------------------------------------------------------------------
4/30/94 11,884,996 .27 9,602,081 .22 (40,050,878) (.92) (30,448,797) (.70)
- ----------------------------------------------------------------------------------------------------------
7/31/94 11,598,178 .26 8,899,135 .20 (76,157) -- 8,822,978 .20
- ----------------------------------------------------------------------------------------------------------
10/31/94 11,693,577 .26 8,924,821 .20 (22,814,166) (.51) (13,889,345) (.31)
- ----------------------------------------------------------------------------------------------------------
1/31/95 11,570,427 .26 8,433,043 .19 3,935,848 .08 12,368,891 .27
- ----------------------------------------------------------------------------------------------------------
4/30/95 11,456,026 .26 8,411,515 .19 10,122,836 .23 18,534,351 .42
- ----------------------------------------------------------------------------------------------------------
7/31/95 11,332,161 .25 8,356,667 .19 3,758,278 .08 12,114,945 .27
- ----------------------------------------------------------------------------------------------------------
10/31/95 11,423,326 .25 8,414,921 .19 9,278,854 .20 17,693,775 .39
- ----------------------------------------------------------------------------------------------------------
1/31/96 10,928,031 .24 7,826,374 .17 10,116,944 .23 17,943,318 .40
- ----------------------------------------------------------------------------------------------------------
4/30/96 11,146,851 .25 8,322,636 .19 (23,904,360) (.53) (15,581,724) (.34)
- ----------------------------------------------------------------------------------------------------------
* Available to common shareholders.
</TABLE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
James E. Erickson
Vice President
Blake Anderson
Vice President
Howard Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m.
Eastern Time for up-to-date information about the
fund's net asset value.
Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ------------------
Bulk Rate
U.S. Postage
PAID
- ------------------
25112-052 6/96
