Putnam
Managed
Municipal
Income Trust
ANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While the October flight to safety helped boost the value of
higher-quality bonds, ongoing strength in the economy suggests that the
narrow yield spread between higher-and lower-quality bonds is likely to
continue for the foreseeable future."
-- Richard P. Wyke, manager
Putnam Managed Municipal Income Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Against a backdrop of lingering concerns about the economy, interest rates,
and renewed inflation, the municipal bond market maintained a semblance of
stability during the 12 months ended October 31, 1997.
Recognizing the fragility of this generally positive environment, Richard Wyke
pursued a slightly defensive policy in managing Putnam Managed Municipal
Income Trust during the period, which encompassed the fund's 1997 fiscal year.
As he looks toward the months immediately ahead, Rick sees little reason to
waver from this course. In the report that follows, he provides more details
about the fiscal year just ended and provides some insights into what he
believes is in store for fiscal 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Manager
Richard P. Wyke
During the past 12 months, the municipal bond market generally fluctuated in a
narrow range -- anchored by strong investor demand and a historically low
default rate on the one hand and solid economic growth, which is raising fears
of inflation, on the other. Without a clear investor bias in either direction,
Putnam Managed Municipal Income Trust maintained a slightly defensive
portfolio structure, enabling it to produce total returns of 8.18% at net
asset value and 16.01% at market price for the fiscal year ended October 31,
1997. Complete performance details begin on page 9.
* STRONG ECONOMY WARRANTS DEFENSIVE TONE
Although an atmosphere of low volatility and narrow trading ranges
characterized the fixed-income markets for much of the 12-month period, the
last week of October changed all that. The Pacific Rim crisis and worldwide
equity market correction sparked enormous day-to-day volatility in the stock
and bond markets, and their influence has certainly been felt in the municipal
bond markets.
For much of the year, these markets enjoyed relative stability, stemming from
an ongoing tug of war between high economic growth (negative for the bond
market) and favorable low inflation (positive for the bond market). Due to the
low interest-rate environment, we've seen many new issues and refunding issues
come to market and the overabundant supply has held bond prices back. The
October correction in worldwide equity markets, however, resulted in an
explosive rally for bonds, as investors exhibited a flight-to-safety
mentality. Since then, municipal bond yields have become extremely attractive
relative to taxable Treasuries and we have been taking full advantage of the
resulting opportunity.
* BARBELL STRATEGY PROVIDING INCOME AND RELATIVE STABILITY
Building high coupon income and maintaining a stable net asset value remain
top priorities for your fund. Accordingly we are keeping the portfolio in a
barbell configuration relative to quality with holdings concentrated at both
the higher-quality (lower-yielding) and high-yielding (lower-quality) ends of
the municipal market. The effect is to reduce the portion of the fund's
portfolio potentially subject to a widening of the currently narrow quality
spreads. Just over 36% of portfolio holdings are securities of the highest
credit quality of Aaa, while approximately 49% of the holdings are invested in
bonds rated Baa or below. This translates into an average quality rating of A.
During the period, the gap between yields of lower-rated versus higher-rated
securities narrowed dramatically. When interest rates are low and bond
investors' confidence level is strong, investors are often more comfortable
with a higher-risk investment such as lower-rated higher-yielding bonds. As a
result, lower-quality bonds outperformed higher-quality bonds for much of the
period, rewarding investors for taking on extra credit risk. While we are
taking profits on selected lower-rated bonds as their valuations peak, we
would expect the tighter spreads to continue as long as economic growth
remains strong.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health Care 29.0%
Utilities 21.1%
Transportation 19.3%
Housing 5.8%
Education 5.0%
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
* HEALTH CARE, UTILITIES, TRANSPORTATION REMAIN TOP SECTORS
Very little has changed with regard to the fund's sector allocation. Health
care, utilities, and transportation were the portfolio's top three sectors on
October 31, 1997 -- just as they were last year. However, in each sector of
the portfolio, we sought to add securities that we believed were undervalued
or whose issuers were in turnaround situations while taking profits on those
that had undergone marked appreciation.
In an era of cost cutting and reform, the health-care industry was besieged
with consolidations between nonprofit and for-profit institutions during much
of the year. However, the Justice Department's recent investigation of
Columbia Healthcare, an active buyer of hospitals, has slowed acquisition
activity -- thereby eliminating a valuable catalyst for credit upgrades.
Nevertheless, new issuance in this sector has been low, providing a natural
price support for existing bonds. Your fund's position has benefited from this
trend, appreciating substantially while continuing to provide attractive
levels of income.
Investor-owned and municipal utility bonds have always played a significant
role in the fund's income strategy, and this is evidenced by the fact that
some of the portfolio's highest-yielding bonds hail from this sector. Public
utility bonds are a type of revenue bond that is self-funding; that is, user
fees that are paid for water, electricity, gas, and sewer services become the
source of the bonds' payment to investors. Since the issuers have the ability
to set user fees, income from these bonds is relatively stable and they carry
a lower risk of default than other types of municipal bonds. The economic
health and potential growth of the service area are important variables when
evaluating the credit risk of public utility bond issuers.
The transportation sector is mainly composed of airline and airport bonds.
This industry is benefiting from years of cost cutting and industry
consolidation, which has created healthier, more stable airline companies.
Furthermore, a strong economy coupled with steady capacity and strong consumer
demand is also boosting profits. Such positive fundamentals resulted in
several upgrades for your fund -- including Delta Airlines bonds, which
Standard & Poor's moved from a credit rating of BB to an investment-grade
rating of BBB. Denver International Airport bonds, perennial favorites, show
improving fundamentals. With the increase of traffic on the airlines have come
increased fees and cash flow from airport operations and associated facilities
such as restaurants, parking, hotels, and retail outlets.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A - 8.0%
Aa - 4.1%
VMIGI - 1.5%
Aaa - 36.7%
Ba - 10.2%
B and under - 10.7%
Baa - 28.8%
Footnote reads:
As a percentage of market value as of 10/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary overtime.
The resource recovery sector has been under pressure for some time, being
negatively impacted by declining prices of recycled pulp. Bonds for de-inked
pulp projects, which finance efforts to recycle office paper, have been
particularly hard hit. Ponderosa Pennsylvania project and Bluewater Michigan
Project, two of the fund's holdings in this area which amount to less than 1%
of total net assets, fell into default in July. We took advantage of some
recent buyer interest and sold these bonds in September. We continue to
monitor this industry in anticipation of an eventual turnaround.
* OUTLOOK: SEEKING OPPORTUNITY IN VOLATILITY
Once the worldwide equity markets settle down -- which may take a few months
- -- we expect to return to a more typical municipal bond market. For the time
being though, it appears that most markets have lost sight of the fundamental
economic reasons that typically cause extreme reactions. We realize that
volatility can be very unsettling for investors, but as professional money
mangers, we can take advantage of short-term distortions and use them to
improve the fund's return over time.
In the coming months, we expect strong, steady economic growth combined with
relatively low inflationary pressure. However, we will keep a vigilant eye on
the economy and continue to rely on in-depth research to evaluate new and
existing holdings.
RECENTLY APPROVED PROPOSAL
The Trustees of the fund have recently approved a proposal to increase the
investment flexibility of the fund to allow a small portion (10% of assets) to
be invested in the lowest rating categories, including securities rated as low
as D that may be in default. Although such distressed securities may involve
additional credit risk, they can contribute over time to both the yield and
total return of the fund.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/97, 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 securities.
TOTAL RETURN FOR PERIODS ENDED 10/31/97
Lehman Brothers
Market Municipal Consumer
NAV price Bond Index Price Index
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1 year 8.18% 16.01% 8.50% 2.08%
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5 years 49.17 75.44 43.76 13.96
Annual average 8.33 11.90 7.53 2.65
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Life of fund (2/24/89) 111.22 132.67 100.95 32.89
Annual average 9.00 10.22 8.38 3.33
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PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/97
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Distributions (common shares)
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Number 12
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Income $0.762
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Capital gains1 --
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Total $0.762
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Preferred shares Series A Series B Series C
(550 shares) (550 shares) (650 shares)
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Income $3,579.91 $3,628.53 $3,613.73
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Total $3,579.91 $3,628.53 $3,613.73
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Share value
(common shares) : NAV Market price
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10/31/96 $9.85 $10.875
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10/31/97 9.92 11.750
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Current return
(common shares): NAV Market price
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Current dividend rate2 7.68% 6.49%
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Taxable equivalent3 12.72 10.75
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1Capital gains, if any, 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% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Market
NAV Price
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1 year 8.79% 16.22%
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5 years 45.43 63.45
Annual average 7.78 10.33
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Life of fund (2/24/89) 109.81 128.89
Annual average 9.00 10.11
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Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index* is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended October 31, 1997
To the Trustees and Shareholders of
Putnam Managed Municipal Income Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Managed Municipal Income Trust, including the portfolio of investments owned,
as of October 31, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Managed Municipal Income Trust as of October 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 9, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.4%) *
PRINCIPAL AMOUNT RATINGs** VALUE
<S> <C> <C> <C>
Alabama (0.7%)
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$4,000,000 Baldwin Cnty., Eastern Shore Hlth. Care
Auth. Hosp. Rev. Bonds (Thomas Hospital),
6 3/4s, 4/1/21 Baa $4,310,000
Arizona (3.7%)
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5,000,000 Central AZ Wtr. Consv. Dist. Contract
Rev. Bonds (Central AZ), Ser. A,
5 1/2s, 11/1/08 AA 5,356,250
4,000,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A,
7 1/8s, 10/1/32 B 4,410,000
6,036,588 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(American West Airlines), Ser. A 95-1, 8.3s,
1/1/06 B+/P 6,069,548
4,300,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson
Elec. Pwr. Ivington), Ser. A, 3.70s, 10/1/22
(Societe Gernerale LOC) VMIGI 4,300,000
2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 A 3,100,625
--------------
23,236,423
Arkansas (0.8%)
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5,000,000 Northwest Regl. Apt. Auth. Apt. Rev. Bonds,
7 5/8s, 2/1/27 B/P 5,337,500
California (16.7%)
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14,000,000 CA Hlth. Fac. Auth. Rev. Bonds (Catholic
Healthcare West), Ser. B, AMBAC,
5.293s, 7/1/17 Aaa 13,965,000
CA State G.O. Bonds
5,000,000 6.6s, 2/1/09 A 5,806,250
5,000,000 MBIA, 5 1/2s, 4/1/12 Aaa 5,262,500
1,900,000 CA State Econ. Dev. Fin. Auth. Indl. VRDN
(Volk Enterprises), 3.40s, 6/1/21 A-1 1,900,000
6,660,000 CA State Wtr. Dept. Resources Rev. Bonds
(Central Valley), Ser. O, 5s, 12/1/22 Aa 6,360,300
4,000,000 Contra Costa Wtr. Dist. Rev. Bonds, Ser. G,
MBIA, 5s, 10/1/24 Aaa 3,820,000
3,000,000 Contra Costa, Trans. Auth. Sales Tax
Rev. Bonds, Ser. A, FGIC, 6s, 3/1/09 Aaa 3,326,250
Corona, COP
2,775,000 (Vista Hosp. Syst. Inc.), Ser. B, 9 1/2s, 7/1/20 B/P 3,225,938
5,000,000 (Vista Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 B/P 5,581,250
2,000,000 Indio, Multi-Fam. VRDN (Carreon),
Ser. A, 3.45s, 8/1/26 A-1 2,000,000
Kern High School Dist. G.O. Bonds, Ser. A
3,825,000 MBIA, 6 1/2s, 8/1/14 Aaa 4,432,219
3,840,000 MBIA, 6 1/2s, 2/1/14 Aaa 4,449,600
3,500,000 San Bernardino Cnty., IF COP (PA-100-
Med. Ctr. Fin.), MBIA, 8.10959s, 8/1/28
(acquired 6/27/95 cost $3,777,340) [DBL. DAGGER] AAA/P 4,589,375
3,000,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.),
8 3/8s, 7/1/29 B/P 3,142,500
8,750,000 Santa Clara Cnty. Fin. Auth. Lease
Rev. Bonds (Vmc. Fac. Replacement),
Ser. A, AMBAC, 6 3/4s, 11/15/20 Aaa 10,139,063
1,800,000 Stockton, Multi-Fam. Hsg. VRDN (Mariners
Pointe Assoc.), Ser. A, 3.45s, 9/1/18 A-1 1,800,000
15,000,000 U. of CA Rev. Bonds (UCSD Med. Ctr.
Satellite Med. Fac.), 7.9s, 12/1/19 BBB/P 16,125,000
7,500,000 Valley Hlth. Syst. Hosp. Rev. Bonds,
6 1/2s, 5/15/25 BBB 7,950,000
1,600,000 Vista, Multi-Fam. Hsg. VRDN 3.45s, 5/1/05 A-1 1,600,000
--------------
105,475,245
Colorado (3.6%)
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5,000,000 Colorado Edl. Fac. Auth. Rev. Bonds
(Ocean Journey, Inc.), 8.3s, 12/1/17 B+/P 5,556,250
Denver, City & Cnty. Arpt. Rev. Bonds
2,940,000 Ser. A, 8 3/4s, 11/15/23 Baa 3,454,500
1,060,000 Ser. A, Prerefunded 8 3/4s, 11/15/23 Baa 1,248,150
7,040,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 7,999,200
1,775,000 Ser. A, 7 3/4s, 11/15/21 Baa 1,988,000
1,050,000 Ser. D, 7 3/4s, 11/15/13 Baa 1,307,250
Denver, City & Cnty. Arpt. Rev. Bonds,
Prerefunded, Ser. A
605,000 MBIA, 8 1/2s, 11/15/23 Aaa 686,675
465,000 7 3/4s, 11/15/21 Baa 529,519
--------------
22,769,544
Connecticut (0.7%)
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4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 BB-/P 4,530,000
Florida (4.1%)
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3,210,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa 3,559,088
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 5,756,250
9,150,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 8.548s, 3/26/20 Aaa 10,556,813
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
(Orlando Regl. Hlthcare)
2,000,000 MBIA, 6 1/4s, 10/1/18 Aaa 2,257,500
2,170,000 MBIA, 6 1/4s, 10/1/11 Aaa 2,460,238
1,430,000 Pinellas Cnty. Hlth. Fac. Auth. Sun. Coast
Hlth. Syst. Rev. Bonds (Sun. Coast Hosp.),
Ser. A, 8 1/2s, 3/1/20 BB 1,531,888
--------------
26,121,777
Georgia (4.3%)
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2,000,000 Atlanta, Arpt. Fac. Rev. Bonds, AMBAC,
5 1/4s, 1/1/10 Aaa 2,052,500
1,505,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB 1,619,756
7,000,000 GA Muni. Elec. Auth. Rev. Bonds Special
Obligation (Fifth Crossover) Ser., AMBAC,
6.4s, 1/1/13 Aaa 8,006,250
6,250,000 GA Muni. Elec. Auth. Pwr. Rev. Bonds, Ser. Z,
AMBAC, 5 1/2s, 1/1/12 Aaa 6,578,125
3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 1984, 9 1/2s, 6/1/15 A 3,538,438
3,180,000 Savannah, Hosp. Rev. Bonds (Chandler
Hosp.), 7s, 1/1/11 Ba 3,382,725
1,900,000 Savannah, Hosp. Auth. Rev. Bonds (Candler
Hosp.), 7s, 1/1/23 Ba 2,016,375
--------------
27,194,169
Hawaii (0.4%)
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2,250,000 HI State G.O. Bonds, Ser. CL, 6s, 3/1/11 AA 2,458,125
Illinois (3.6%)
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Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds
5,263,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa 5,953,769
3,155,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 3,561,206
1,800,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 BBB 2,031,750
3,000,000 (American Airlines Inc.), 8.2s, 12/1/24 Baa 3,622,500
5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa 5,518,750
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A,
10 1/4s, 4/15/19 (In default) + D/P 1,800,000
--------------
22,487,975
Indiana (1.6%)
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9,300,000 Indianapolis Indl. Arpt. Auth. Special Fac.
Rev. Bonds (Federal Express Corp.),
7.1s, 1/15/17 BBB 10,369,500
Iowa (1.1%)
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IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives)
3,000,000 9 1/4s, 7/1/25 BB/P 3,997,500
2,350,000 9.15s, 7/1/09 BB/P 3,060,875
--------------
7,058,375
Kansas (3.0%)
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7,500,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 9.816s, 6/1/31 (acquired
12/17/91 cost $7,800,000) [DBL. DAGGER] Aaa 9,037,500
8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA,
8.852s, 10/1/17 Aaa 9,786,000
--------------
18,823,500
Kentucky (0.5%)
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2,000,000 Kenton Cnty., Arpt. Board Special Fac.
Rev. Bonds (Delta Air Lines, Inc.), Ser. A,
7 1/2s, 2/1/20 Baa 2,217,500
1,000,000 Scott Cnty. Indl. Dev. Rev. Bonds (Hoover
Group Inc.), 8 1/2s, 11/1/14 Ba 1,071,250
--------------
3,288,750
Louisiana (3.6%)
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12,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 Baa 14,281,250
5,050,000 St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum), 8s, 12/1/24 Ba 5,435,063
2,750,000 W. Feliciana Parish Poll. Control Rev. Bonds
(Gulf States Util.), Ser. C, 7s, 11/1/15 Ba 3,021,563
--------------
22,737,876
Maryland (0.7%)
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4,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 AAA 4,535,000
Massachusetts (5.1%)
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MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 2,069,860
4,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 4,395,000
1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa 1,061,763
3,000,000 (New England Baptist Hosp.), Ser. B, 7.3s, 7/1/11 Baa 3,228,750
1,100,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/14 A 1,163,250
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba 1,242,769
2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 A 2,112,500
3,400,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 Baa 3,608,250
5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. B, 9 1/4s, 7/1/15 BB/P 5,687,500
MA State Indl. Fin. Agcy. Rev. Bonds
2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 AAA/P 2,425,000
2,800,000 (Mass Tpk.), 9s, 10/1/20 AAA/P 3,213,000
2,000,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,009,480
1,323,784 (1st Mtge. Pioneer Valley Living Ctr.), zero%,
10/1/20 B/P 1,655
--------------
32,218,777
Michigan (6.6%)
- ------------------------------------------------------------------------------------------------------------
4,340,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 5,473,825
4,780,000 Highland Park, Fin. Auth. Hosp. Fac. Rev. Bonds
(MI Hlth. Care Corp.), Ser. A, 9 7/8s, 12/1/19
(In Default) + C 860,400
3,000,000 MI State Hosp. Fin. Auth. Adj. Rate Rev. Bonds
(Detroit-Macomb Hosp. Corp.), Ser. A,
7.4s, 6/1/13 BB 3,026,370
3,405,000 MI State Hosp. Fin. Auth. Rev. Bonds (Pontiac
Osteopathic Hosp.), Ser. A, 6s, 2/1/14 Baa 3,481,613
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
6,365,000 (Env. Research), 8 1/8s, 10/1/14 A-/P 6,961,719
3,000,000 (Ford Motor Co.), Ser. A, 7.1s, 2/1/06 A 3,498,750
8,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B/P 8,930,000
2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds
(NOMC Obligation), 6s, 8/1/18 Baa 2,700,000
6,500,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth. Care), 8 3/8s, 7/1/23 B-/P 6,500,000
--------------
41,432,677
Minnesota (2.2%)
- ------------------------------------------------------------------------------------------------------------
1,925,000 Chaska Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc.), 10 1/4s, 9/1/20 BB-/P 2,206,531
5,000,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA 5,356,250
6,000,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Baa 6,337,500
--------------
13,900,281
Mississippi (1.4%)
- ------------------------------------------------------------------------------------------------------------
4,100,000 Claiborne Cnty., Rev. Bonds (Middle South
Energy, Inc.), Ser. A, 9 1/2s, 12/1/13 Ba 4,426,975
4,000,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. C, 9 7/8s, 12/1/14 Ba 4,334,520
--------------
8,761,495
Missouri (0.6%)
- ------------------------------------------------------------------------------------------------------------
3,800,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 4,037,500
Nebraska (2.3%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty, Indl. Dev. Rev. Bonds (Hoover
Group Inc.), 8 1/2s, 12/1/07 Ba 2,145,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,000,000 Ser. B, GNMA Coll., 11.216s, 3/15/22 Aaa 1,121,250
1,900,000 Ser. B, GNMA Coll., 9.974s, 9/15/23 Aaa 2,082,875
1,850,000 GNMA Coll., 9.159s, 9/15/24 Aaa 2,081,250
2,150,000 Ser. C, 7.878s, 3/1/20 Aaa 2,289,750
4,310,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, MBIA, 8 1/8s, 8/15/38 Aaa 4,463,608
--------------
14,183,733
Nevada (0.7%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Clark Cnty., Indl. Dev. Rev. Bonds (NV Pwr. Co.),
7.8s, 6/1/20 Baa 4,340,000
New Hampshire (0.4%)
- ------------------------------------------------------------------------------------------------------------
2,140,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp.),
9 3/8s, 11/1/20 BB/P 2,383,425
New Jersey (2.2%)
- ------------------------------------------------------------------------------------------------------------
8,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 AAA 8,970,000
5,000,000 NJ State Tpk. Auth. VRDN, FGIC, 3.25s, 1/1/18 VMIGI 5,000,000
--------------
13,970,000
New York (3.9%)
- ------------------------------------------------------------------------------------------------------------
NY City, G.O. Bonds
560,000 Ser. F, 8 1/4s, 11/15/10 A 639,800
6,440,000 Ser. F, Rfdg., 8 1/4s, 11/15/10 Aaa 7,494,550
4,925,000 Ser. D, 8s, 8/1/18 (Group C) A 5,639,125
5,000,000 NY State, Thruway Auth. Svc. Contract
Rev. Bonds (Hwy. & Brdg.), 6s, 4/1/07 Baa 5,400,000
5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96,
FGIC, 6.6s, 10/1/23 Aaa 5,512,500
--------------
24,685,975
Ohio (4.0%)
- ------------------------------------------------------------------------------------------------------------
1,950,000 Dayton, Special Fac. Rev. Bonds (Emery Air
Freight Corp.), Ser. A, 12 1/2s, 10/1/09 BBB 2,121,854
20,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 23,350,000
--------------
25,471,854
Oklahoma (1.1%)
- ------------------------------------------------------------------------------------------------------------
2,910,000 Oklahoma Cnty., Indl. Auth. Rev. Bonds
(Epworth Villa), Ser. A, 10 1/4s, 4/1/19 AAA/P 3,193,725
3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa 3,819,375
--------------
7,013,100
Pennsylvania (6.0%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special
Fac. Rev. Bonds (U.S. Air, Inc.), Ser. B,
8 1/2s, 3/1/21 B 4,495,000
1,240,000 Langhorne Manor Boro Higher Ed. Hlth. Auth.
Rev. Bonds (Lower-Bucks Hosp.), 7.35s, 7/1/22 Ba 1,311,300
2,370,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Rev. Bonds (Northwestern Corp.), Ser. A,
8 3/8s, 6/1/04 BBB/P 2,544,788
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA,
6.7s, 9/1/14 # Aaa 8,201,563
7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (MacMillan
Ltd. Partnership), 7.6s, 12/1/20 Baa 8,931,875
6,000,000 PA State Higher Ed. Assistance Agcy. IFB,
(Graduate Hlth. Syst. Oblig.),Ser. B,
MBIA, 10.919s, 3/1/20 Aaa 6,742,500
5,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth.
Rev. Bonds (Graduate Hlth. Syst.),
7 1/4s, 7/1/10 Ba 5,450,000
--------------
37,677,026
South Carolina (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 SC State Hsg. Fin. & Dev. Auth. Multi-Fam.
Mtge. Rev. Bonds, 8 1/2s, 10/1/21 BBB 5,456,250
Tennessee (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Memphis-Shelby Cnty. Arpt. Auth.
Rev. Bonds (Federal Express Corp.),
6 3/4s, 9/1/12 Baa 2,182,500
Texas (5.3%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Alliance, Arpt. Auth. Rev. Bonds (Federal
Express Corp.), 6 3/8s, 4/1/21 Baa 5,337,500
3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 3,285,000
3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High
Plains Baptist Hosp.), FSA, 9.038s, 1/3/22 Aaa 4,523,750
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
420,000 Ser. B, 10s, 3/1/19 (In default)+ B/P 105,000
2,490,000 Ser. A, 9 1/2s, 3/1/19 (In default)+ B/P 2,508,675
3,200,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 3,740,000
7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa 7,984,063
5,495,000 Texas State Fin. Auth. Rev. Bonds, Ser. A,
5.9s, 10/1/12 AA 5,783,488
--------------
33,267,476
Utah (2.5%)
- ------------------------------------------------------------------------------------------------------------
15,350,000 Intermountain Pwr. Agcy. Rev. Bonds,
Ser. D, AMBAC, 7 3/4s, 7/1/20 A 16,017,572
Virginia (1.0%)
- ------------------------------------------------------------------------------------------------------------
5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.347s, 8/15/23 Aaa 6,493,500
Washington (1.9%)
- ------------------------------------------------------------------------------------------------------------
WA State Pub. Pwr. Supply Syst. Rev. Bonds
6,315,000 (Nuclear Project No. 1), Ser. A, 7 1/2s, 7/1/15 AAA 6,780,731
5,000,000 (Nuclear Pwr., No. 2), Ser. A, AMBAC,
5.6s, 7/1/09 Aaa 5,256,250
--------------
12,036,981
West Virginia (0.6%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 Randolph Cnty. Rev. Bonds (Davis Memorial Hosp.),
Ser. A, 7.65s, 11/1/21 Baa 3,828,117
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $584,374,039) *** $620,091,998
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $630,043,435
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available on October 31, 1997 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 on October 31, 1997. Securities rated by Putnam are indicated
by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
*** The aggregate identified cost on a tax basis is $584,390,855,
resulting in gross unrealized appreciation and depreciation of
$42,077,641 and $6,376,498, respectively, or net unrealized appreciation
of $35,701,143.
+ Non-income-producing security.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held on October 31,
1997 was $13,626,875 or 2.2% of net assets.
# A portion of this security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at October 31, 1997
The rates shown on IFB and FRN, which are securities paying interest rates that vary
inversely to changes in the market interest rates, and VRDN's are the current interest
rates at October 31, 1997.
The fund had the following industry group concentrations greater than 10% at October 31, 1997
(as a percentage of net assets):
Healthcare 29.0%
Utilities 21.1
Transportation 19.3
The fund had the following insurance concentrations greater than 10% at October 31, 1997 as a
percentage of net assets:
MBIA 10.8%
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1997
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Bonds
20 Yr (short) $24,878,438 $23,611,875 Dec-97 $(1,266,563)
Muni Index Future (long) 5,482,969 5,401,891 Dec-97 81,078
- ----------------------------------------------------------------------------------------
$(1,185,485)
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $584,374,039) (Note 1) $620,091,998
- ---------------------------------------------------------------------------------------------------
Cash 654,817
- ---------------------------------------------------------------------------------------------------
Interest receivable 12,409,608
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 1,070,000
- ---------------------------------------------------------------------------------------------------
Total assets 634,226,423
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 60,000
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,911,569
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,098,317
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 43,218
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,660
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 602
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 57,622
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,182,988
- ---------------------------------------------------------------------------------------------------
Net assets $630,043,435
Represented by
- ---------------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares, without par value:
8,000 shares authorized (1,750 shares issued at $100,000
per share) (Note 4) $175,000,000
- ---------------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized) (Note 1) 423,830,677
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 13,905,473
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (17,225,189)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 34,532,474
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $630,043,435
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $175,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 128,615
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares
- -- liquidation preferences $175,128,615
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $454,914,820
- ---------------------------------------------------------------------------------------------------
Net asset value per common shares
($454,914,820 divided by 45,852,179 shares) $9.92
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1997
<S> <C>
Tax exempt interest income: $43,762,020
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,253,260
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 421,984
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 29,028
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,674
- --------------------------------------------------------------------------------------------------
Reports to shareholders 35,501
- --------------------------------------------------------------------------------------------------
Auditing 57,588
- --------------------------------------------------------------------------------------------------
Legal 34,894
- --------------------------------------------------------------------------------------------------
Postage 65,348
- --------------------------------------------------------------------------------------------------
Exchange listing fees 41,042
- --------------------------------------------------------------------------------------------------
Other 42,185
- --------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 450,364
- --------------------------------------------------------------------------------------------------
Total expenses 5,440,868
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (130,622)
- --------------------------------------------------------------------------------------------------
Net expenses 5,310,246
- --------------------------------------------------------------------------------------------------
Net investment income 38,451,774
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (11,038,121)
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,653,066)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 18,595,112
- --------------------------------------------------------------------------------------------------
Net gain on investments 5,903,925
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $44,355,699
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $38,451,774 $39,136,095
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (12,691,187) 3,872,103
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 18,595,112 (13,084,238)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 44,355,699 29,923,960
- ----------------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from net
investment income (6,313,568) (6,326,188)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends on
Remarketed preferred shares of $128,615
and $106,169, respectively) 38,042,131 23,597,772
- ----------------------------------------------------------------------------------------------------------------------
Distribution to common shareholders from net
investment income (34,801,505) (34,469,622)
- ----------------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection
with reinvestment of distributions 4,236,683 4,983,757
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 7,477,309 (5,888,093)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 622,566,126 628,454,219
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $13,905,473 and $16,567,786, respectively) $630,043,435 $622,566,126
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 45,450,073 44,961,926
- ----------------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 402,106 488,147
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 45,852,179 45,450,073
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning
and end of year 1,750 1,750
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.85 $10.08 $9.49 $10.88 $9.81
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .84 .86 .90 .94 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 (.19) .60 (1.37) 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .97 .67 1.50 (.43) 2.02
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.14) (.14) (.15) (.11) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.76) (.76) (.76) (.76) (.76)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- (.09) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.90) (.90) (.91) (.96) (.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $9.92 $9.85 $10.08 $9.49 $10.88
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $11.75 $10.88 $10.63 $9.25 $11.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value
(common shares) (%)(a) 16.01 10.26 24.23 (11.56) 24.84
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $630,043 $622,566 $628,454 $596,992 $652,660
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.21 1.24 1.20 1.23 1.22
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 7.13 7.31 7.70 9.20 8.44
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9.63 78.92 79.71 48.40 35.16
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effects of sales charges.
(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.(Note 2)
</TABLE>
Notes to financial statements
October 31, 1997
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 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 valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. The fair value of
restricted securities is determined by 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, less all
liabilities and the liquidation preference 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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. 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 nor for excise tax
on income and capital gains.
At October 31, 1997, the fund had a capital loss carryover of approximately
$13,602,000 available to offset future capital gains, if any. The amount of he
carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ----------
2,093,000 October 31, 2002
321,000 October 31, 2003
11,188,000 October 31, 2005
F) Distributions to shareholders Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends on
remarketed preferred shares become payable when, as and if declared by the
Trustees. Each dividend period for the remarketed preferred shares is
generally a 28 day period for Series A and B, and a 7 day period for Series C.
The applicable dividend rate for the remarketed preferred shares on October
31, 1997 was Series A 3.70%, Series B 3.67%, and Series C 3.58%. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include temporary and
permanent differences of defaulted bond interest, market discount, and
realized and unrealized gain and losses on certain futures contracts.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended October 31, 1997, the fund
reclassified $986 to increase undistributed net investment income, with an
increase to accumulated net realized loss on investments of $986. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on original issue discount
bonds are accreted according to the yield-to-maturity basis.
Note 2
Management fee,
administrative services
and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million,
0.60% of the next $500 million, 0.55% of the next $500 million and 0.50% of
any amount over $1.5 billion.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred shares
for that period exceed the fund's net income attributable to the proceeds of
the remarketed preferred shares during that period, then the fee payable to
Putnam Management 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 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 Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended October 31, 1997, fund expenses were reduced by $130,622
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $769 has been
allocated to the fund 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 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 in the fund and are
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
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended October 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $58,082,623 and
$73,042,873, 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.
Note 4
Remarketed preferred shares
The Series A (550) B (550) and 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 will be required to apportion to the
holders of the remarketed preferred shares throughout that year additional
dividends as necessary to result in an after-tax equivalent to the applicable
dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to maintain
asset coverage of at least 200% with respect to the remarketed preferred
shares as of the last business day of each month in which any such shares are
outstanding. Additionally, the fund is required to meet more stringent asset
coverage requirements under terms of the remarketed preferred shares and the
shares' rating agencies. Should these requirements not be met, or should
dividends accrued on the remarketed preferred shares not be paid, the fund may
be restricted in its ability to declare dividends to common shareholders or
may be required to redeem certain of the remarketed preferred shares. At
October 31, 1997, no such restrictions have been placed on the fund.
Federal tax information
(Unaudited)
The fund has designated 99.8% of dividends paid from net realized investment
income during the fiscal year as tax exempt for federal income tax purposes.
The form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
Results of October 9, 1997 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on October 9, 1997. At the
meeting, each of the nominees for Trustees was elected, as follows:
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
Jameson Adkins Baxter 41,347,022 554,616 1,053 7
Hans H. Estin 41,315,248 586,390 1,053 7
R.J. Jackson 41,338,651 562,987 1,053 7
Elizabeth T. Kennan 41,324,469 577,169 1,053 7
Lawrence J. Lasser 41,332,125 569,513 1,053 7
Donald S. Perkins 41,317,904 583,734 1,053 7
William F. Pounds 41,312,395 589,243 1,053 7
George Putnam 41,323,303 578,335 1,053 7
George Putnam, III 41,331,268 570,370 1,053 7
A.J.C. Smith 41,345,348 556,290 1,053 7
W. Nicholas Thorndike 41,347,748 553,890 1,053 7
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows:
Common Shares -- 41,140,774 votes for, and 187,600 votes against, with 573,264
abstentions and non-broker votes.
Preferred Shares -- 1,060 votes for, and 0 votes against, with 0 abstentions
and non-broker votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
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 NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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36856-052 12/97