Putnam
Managed Municipal
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Robust economic growth and negligible inflation combined with strong
municipal balance sheets provided municipal bond investors with a
favorable environment over the six months ended April 30, 1999. Many
states continued to enjoy rising tax revenues and improving
creditworthiness, and the tax-free income of municipal bonds continued to
find favor among a wide spectrum of prudent investors. Putnam Managed
Municipal Income Trust took full advantage of this environment by
delivering competitive performance for the semiannual period.
Total return for 6 months ended 4/30/99
- ----------------------------------------------------
Net asset value Market price
1.77% -1.65%
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Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* IN RELATIVELY STABLE MARKET, CALL PROTECTION REMAINS A PRIORITY
In a financial world where new highs and lows are making the headlines
every day, the municipal market has unquestionably been one of the
calmest. A case in point: municipal bond yields -- which rise as bond
prices fall -- have moved up less than 20 basis points since the beginning
of the year, while Treasury yields rose more in February than in any other
single month in 10 years. Although this means that municipal yields are
heading back toward more traditional ratios, municipal yields are still
quite attractive at 90% of comparable Treasuries.
While interest rates have been low, one of the key challenges faced by
your fund's manager, Richard P. Wyke, was delivering an attractive level
of income while maintaining high credit quality.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 24.6%
Transportation 22.4%
Utilities 19.1%
Housing 6.6%
Education 1.8%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
Although yields on municipal securities have risen slightly in recent
months, these yields are still considerably lower than the yields provided
by many of the portfolio's older bond holdings. As these older bonds reach
their call dates, Rick continues to seek new holdings with the longest
available call dates to maintain the fund's income stream. This serves to
maximize the length of time these bonds will generate income for the fund while
minimizing the possibility that they will be called in by the issuer.
In the search for income, Rick has focused primarily on security-by-security
analysis to add holdings to the portfolio. During the recent period, the
fund's Denver International Airport bonds were again top performers. Growing
air traffic at this busy hub has kept revenues on the rise and interest
payments steady. New York City general obligation bonds were also solid
performers. These bonds enjoyed a credit upgrade as continued economic growth,
strong financial operating results, and a sustained record of accurate revenue
forecasts buoyed their creditworthiness.
Bonds backed by American Airlines and used to finance terminal expansion
at La Guardia and John F. Kennedy airports posted strong returns. Bonds
backed by Federal Express also performed well due to the company's solid
financial performance and improved debt service coverage. Finally, the
fund enjoyed superior returns from its non-rated Colorado Ocean Journey
bonds. As this report was being written, this project, a world class
aquarium with fresh and salt water environmental exhibits, was slated to
open ahead of schedule.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Ba/BB and under -- 22.8%
Baa/BBB -- 25.1%
VMIG1/A-1 -- 1.1%
Aaa/AAA -- 36.6%
Aa/AA -- 4.8%
A -- 9.6%
Footnote reads:
*As a percentage of market value as of 4/30/99. A bond rated Baa/BBB or
higher is considered investment grade. All ratings reflect Moody's and
Standard & Poor's descriptions unless noted otherwise; percentages may
include unrated bonds considered by Putnam Management to be of comparable
quality. Ratings will vary over time.
* LOW INTEREST RATES BOOSTED THE VALUE OF LEVERAGING
The recent period of low interest rates benefited the fund's leveraging
strategy, which historically has been useful in enhancing the fund's
current income. In leveraging, the fund issues and sells preferred shares
to institutional short-term investors at low rates and reinvests the
proceeds in longer-term, higher-paying bonds. After earnings from the
bonds are used to pay dividends to the preferred shareholders, the surplus
is used to enhance income for the common shareholders. With the Federal
Reserve Board lowering short-term interest rates three times last fall and
long-term interest rates edging up over the past several months, the
spread between short- and long-term rates widened, making leveraging a
successful income-generating strategy over the annual period.
With indications that inflation may be starting to rise, the consumer
price index is moving towards an annualized core inflation rate of
approximately 2%. Since inflation in 1998 was practically nonexistent, a
move to 2% may seem tremendous, but is actually still well below what has
been generally considered average (4%). And despite some signs of
inflation, we still live predominately in a deflationary world where many
prices are falling. Just look at online stock trading prices and the
discounts available from online bookstores for evidence of deflation.
It is important to keep inflation in mind when investors determine what
constitutes a good rate of return. Simply put, a yield of 6% with 2%
inflation is still a solid return, especially once the psychology of an
advancing stock market begins to shift. When that happens, a steady 4%
after-inflation yield looks very good in addition to the benefit of
substantially less volatility.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
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 4/30/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its 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 4/30/99
Lehman Bros.
Market Municipal Consumer
(common shares) NAV price Bond Index price index
- ----------------------------------------------------------------------------
6 months 1.77% -1.65% 1.75% 1.47%
- ----------------------------------------------------------------------------
1 year 5.45 6.01 6.95 2.28
- ----------------------------------------------------------------------------
5 years 39.99 49.70 43.57 12.75
Annual average 6.96 8.40 7.50 2.43
- ----------------------------------------------------------------------------
10 years 125.40 142.93 116.26 35.01
Annual average 8.47 9.28 8.02 3.05
- ----------------------------------------------------------------------------
Life of fund (since 2/24/89) 128.61 139.19 120.87 36.68
Annual average 8.46 8.94 8.11 3.12
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/99
- ----------------------------------------------------------------------------
Distributions (common shares)
- ----------------------------------------------------------------------------
Number 6
- ----------------------------------------------------------------------------
Income $0.381
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Capital gains1 --
- ----------------------------------------------------------------------------
Total $0.381
- ----------------------------------------------------------------------------
Preferred shares Series A Series B Series C
(550 shares) (550 shares) (650 shares)
- ----------------------------------------------------------------------------
Income $1,782.02 $1,551.13 $1,666.14
- ----------------------------------------------------------------------------
Total $1,782.02 $1,551.13 $1,666.14
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Share value (common shares) NAV Market price
- ----------------------------------------------------------------------------
10/31/98 $9.82 $11.438
- ----------------------------------------------------------------------------
4/30/99 9.61 10.875
- ----------------------------------------------------------------------------
Current return (common shares)
- ----------------------------------------------------------------------------
Current dividend rate2 7.93% 7.01%
- ----------------------------------------------------------------------------
Taxable equivalent3 13.13 11.61
- ----------------------------------------------------------------------------
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 POP at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 3/31/99 (most recent calendar quarter)
Market
(common shares) NAV price
- ----------------------------------------------------------------------------
6 months 1.24% 2.92%
- ----------------------------------------------------------------------------
1 year 4.64 12.25
- ----------------------------------------------------------------------------
5 years 39.69 59.78
Annual average 6.91 9.83
- ----------------------------------------------------------------------------
10 years 128.58 150.89
Annual average 8.62 9.63
- ----------------------------------------------------------------------------
Life of fund (since 2/24/89) 127.59 144.60
Annual average 8.49 9.27
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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. The index assumes reinvestment of all distributions
and interest payments and does not take in account brokerage fees or
taxes. Securities in the fund do no match those in the indexes and
performance of the fund will differ. It is not possible to invest directly
in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one in
which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
U.S. Govt. Coll. -- U.S. Government Collateralized
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.4%) (a)
PRINCIPAL AMOUNT RATING (RAT) 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 Baa3 $ 4,335,000
Alaska (0.4%)
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2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ 2,197,500
Arizona (2.8%)
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5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Tucson Elec. Pwr. Co.), Ser. B,
5 7/8s, 3/1/33 B 4,950,000
4,000,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tucson/Navajo Elec. Pwr.), Ser. A, 7 1/8s,
10/1/32 B 4,465,000
4,939,024 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(American West Airlines, Inc.), Ser. A 95-1,
8.3s, 1/1/06 B+/P 4,968,066
2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 Baa1 2,966,563
--------------
17,349,629
Arkansas (0.9%)
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5,000,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7 5/8s,
2/1/27 BB-/P 5,856,250
California (10.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 CA Hlth. Fac. Fin. Auth. IFB (Catholic Healthcare
West), AMBAC, 7.1s, 7/1/17 AAA 7,315,000
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 2,943,750
Corona, COP (Vista Hosp. Syst.)
2,775,000 Ser. B, 9 1/2s, 7/1/20 (acquired 10/23/92,
cost $2,775,000) (RES) B-/P 2,830,500
5,000,000 Ser. C, 8 3/8s, 7/1/11 (acquired 3/5/96,
cost $5,000,000) (RES) B-/P 5,100,000
1,900,000 Indio, Multi-Fam. Rev. Bonds VRDN (Carreon),
Ser. A, 3.9s, 8/1/26 A-1+ 1,900,000
1,500,000 Los Angeles Cnty., Cmnty. Dev. Comm. Certif.
VRDN (Willowbrook), 3.65s, 11/1/15 A-1+ 1,500,000
1,800,000 Los Angeles, School Dist. COP, VRDN
(Belmont Learning Complex), Ser. A, 3.85s,
12/1/17 VMIG1 1,800,000
3,500,000 San Bernardino Cnty., IF COP (PA-100-Med.
Ctr. Fin.), MBIA, 8.8s, 8/1/28 (acquired 6/27/95,
cost $3,777,340) (RES) AAA/P 4,624,375
3,000,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.),
8 3/8s, 7/1/29 (acquired 7/28/97,
cost $3,000,000) (RES) B-/P 3,060,000
8,750,000 Santa Clara Cnty. Fin. Auth. Lease Rev. Bonds
(Vmc. Fac. Replacement), Ser. A, AMBAC,
6 3/4s, 11/15/20 AAA 10,204,688
1,800,000 Stockton, Multi-Fam. Hsg. VRDN (Mariners
Pointe Assoc.), Ser. A, 3.85s, 9/1/18 A-1+ 1,800,000
14,480,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 A-/P 15,044,141
7,500,000 Valley Hlth. Syst. Hosp. Rev. Bonds, 6 1/2s,
5/15/25 BBB- 8,015,625
--------------
66,138,079
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 5,900,000
Denver, City & Cnty. Arpt. Rev. Bonds
2,940,000 Ser. A, 8 3/4s, 11/15/23 Baa1 3,274,425
1,060,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 1,207,075
6,980,000 Ser. A, MBIA, 8 1/2s, 11/15/23 AAA 7,599,475
665,000 Ser. A, MBIA, 8 1/2s, 11/15/23, Prerefunded Aaa 726,513
1,775,000 Ser. A, 7 3/4s, 11/15/21 Baa1 1,941,406
465,000 Ser. A, 7 3/4s, 11/15/21, Prerefunded AAA 517,894
1,050,000 Ser. D, 7 3/4s, 11/15/13 Baa1 1,321,688
--------------
22,488,476
Connecticut (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 CT State Dev. Auth. Poll. Ctrl. Rev. Bonds
(CT Lt. & Pwr. Co.), Ser. B, 5.95s, 9/1/28 Ba3 3,543,750
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 BB-/P 4,695,000
--------------
8,238,750
Florida (4.2%)
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3,210,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa1 3,506,925
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, 8.867s, 3/26/20 AAA 10,694,063
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
(Orlando Regl. Hlthcare), MBIA
2,000,000 6 1/4s, 10/1/18 AAA 2,312,500
2,170,000 6 1/4s, 10/1/11 AAA 2,509,063
1,055,000 Pinellas Cnty. Hlth. Fac. Auth. Sun. Coast Hlth. Syst.
Rev. Bonds (Sun. Coast Hosp.), Ser. A,
8 1/2s, 3/1/20 BB+ 1,099,278
--------------
25,878,079
Georgia (4.5%)
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2,000,000 Atlanta, Arpt. Fac. Rev. Bonds, AMBAC, 5 1/4s,
1/1/10 AAA 2,110,000
1,505,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB- 1,562,235
1,750,000 Fulton Cnty., Dev. Auth Fac. Rev. Bonds
(Delta Airlines, Inc.), 5 1/2s, 5/1/33 Baa3 1,706,250
2,500,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 9.158s, 8/1/10 AAA 2,946,875
GA Muni. Elec. Auth. Pwr. Rev. Bonds, AMBAC
7,000,000 Ser. Y, 6.4s, 1/1/13 Aaa 8,137,500
2,250,000 Ser. Z, 5 1/2s, 1/1/12 Aaa 2,430,000
3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 3,552,738
Savannah, Hosp. Auth. Rev. Bonds (Candler Hosp.)
1,900,000 7s, 1/1/23 Ba1 2,135,125
3,180,000 7s, 1/1/11 Ba1 3,573,525
--------------
28,154,248
Illinois (4.8%)
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5,000,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 4,800,000
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
5,043,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 5,515,781
3,020,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 3,299,350
1,725,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 1,884,563
3,000,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa2 3,543,750
5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa1 5,350,000
3,250,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Obligation), 5.65s, 11/15/24 A 3,201,250
2,500,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (acquired 5/10/90, cost $2,396,628)
(In default) (NON) (RES) D/P 1,925,000
--------------
29,519,694
Indiana (2.1%)
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2,500,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 2,478,125
9,300,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev.
Bonds (Federal Express Corp.), 7.1s, 1/15/17 Baa2 10,427,625
--------------
12,905,750
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 4,027,500
2,350,000 9.15s, 7/1/09 BB/P 3,028,563
--------------
7,056,063
Kansas (3.0%)
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7,500,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 10.22s, 6/1/31
(acquired 12/17/91, cost $7,800,000) (RES) Aaa 8,700,000
8,400,000 Wichita, Hosp. IFB, Ser. 111-A, MBIA, 9.351s,
10/20/17 AAA 9,933,000
--------------
18,633,000
Kentucky (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
7,785,000 Kenton Cnty., Arpt. Board Special Fac. Rev.
Bonds (Delta Air Lines, Inc.), Ser. A, 7 1/2s,
2/1/20 Baa3 8,456,456
1,000,000 Scott Cnty. Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 11/1/14 Ba3 1,120,000
2,740,000 Trimble Cnty., Poll. Control Rev. Bonds,
Ser. B, 6.55s, 11/1/20 Aa2 2,986,600
--------------
12,563,056
Louisiana (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
12,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 14,078,125
W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.)
5,050,000 8s, 12/1/24 Ba1 5,245,789
2,750,000 Ser. C, 7s, 11/1/15 Ba1 2,997,500
--------------
22,321,414
Maryland (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 MD State Cmnty. Dev. Admin. Rev. Bonds
(Residential), Ser. B, FHA Insd., 5.35s, 9/1/30 Aa2 5,018,750
4,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds,
Prerefunded (Doctors Cmnty. Hosp.), 8 3/4s,
7/1/12 Aaa 4,320,000
--------------
9,338,750
Massachusetts (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,900,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s,
8/15/24 BB/P 4,660,500
1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 1,104,688
3,000,000 (New England Baptist Hosp.), Ser. B, 7.3s, 7/1/11 AAA 3,281,250
1,100,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/14 A2 1,126,532
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,436,813
2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 A2 2,048,120
3,400,000 (Sisters Providence Hlth. Syst), Ser. A, 6 5/8s,
11/15/22 Aaa 3,859,000
7,645,000 MA State Hsg. Fin. Agcy. Rev. Bonds, 7s, 7/1/40
(acquired 6/3/98, cost $7,739,333) (RES) Aaa 7,922,131
5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. B, 9 1/4s, 7/1/15 BB-/P 5,550,000
MA State Indl. Fin. Agcy. Rev. Bonds
2,000,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 2,345,000
2,760,000 (MA Tpk.), 9s, 10/1/20 AAA/P 3,018,750
--------------
36,352,784
Michigan (5.0%)
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4,245,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 5,094,000
6,015,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Env. Research), 8 1/8s, 10/1/14 AAA/P 6,249,224
2,000,000 MI State Strategic Fund Resource Recvy. Ltd. Rev.
Bonds (Wayne Energy), Ser. A, 6.9s, 7/1/19 B/P 2,025,000
8,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 8,540,000
2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds
(NOMC Obligation Group), 6s, 8/1/18 Baa3 2,774,250
6,785,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39
(acquired 12/31/98, cost $6,785,000) (RES) B-/P 6,310,050
--------------
30,992,524
Minnesota (2.2%)
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1,900,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 2,060,721
5,000,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA+ 5,281,250
5,850,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Baa3 6,062,063
--------------
13,404,034
Mississippi (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,270,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.), Ser. A, 9 1/2s,
12/1/13 Ba1 3,362,966
Missouri (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 3,628,065
Nebraska (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty, Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/07 Ba3 2,245,000
2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B/P 2,437,500
NE Investment Fin. Auth. Single Fam. Mtge. IFB
500,000 Ser. B, GNMA Coll., 11.419s, 3/15/22 Aaa 537,935
1,600,000 Ser. B, GNMA Coll., 10.47s, 10/17/23 Aaa 1,774,000
2,150,000 Ser. C, 8.273s, 3/1/20 Aaa 2,330,063
1,600,000 GNMA Coll., 7.878s, 9/15/24 Aaa 1,788,000
--------------
11,112,498
Nevada (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
4,000,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa3 4,209,280
6,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 6,577,500
--------------
10,786,780
New Hampshire (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,085,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp.), 9 3/8s,
11/1/20 BB+/P 2,257,013
New Jersey (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 8,590,000
New York (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
NY City, G.O. Bonds
7,000,000 Ser. F, 8 1/4s, 11/15/10 AAA 7,883,750
4,925,000 Ser. D, 8s, 8/1/18 (Group C) Aaa 5,460,594
12,000,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(British Airways), 5 1/4s, 12/1/32 A2 11,775,000
5,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
7.05s, 6/15/17 (acquired 5/21/98,
cost $5,292,577) (RES) AAA/P 5,356,250
2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 2,082,500
5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96,
FGIC, 6.6s, 10/1/23 AAA 5,556,250
--------------
38,114,344
Ohio (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
20,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 AAA 22,825,000
Oklahoma (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds (American
Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 3,718,750
Pennsylvania (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
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+ 4,375,000
4,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Forum Place), Ser. A, 6s, 1/15/25 BB-/P 4,545,000
2,105,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Rev.
Bonds (Northwestern Corp.), Ser. A, 8 3/8s,
6/1/04 BBB/P 2,258,370
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA,
6.7s, 9/1/14 Aaa 8,237,813
7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 9,329,063
1,000,000 PA State Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,116,250
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
6,000,000 MBIA, 11.305s, 3/1/20 AAA 6,705,000
2,000,000 AMBAC, 8.797s, 3/1/22 AAA 2,370,000
1,000,000 Philadelphia, Auth. Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia LLC), 5 1/2s, 1/1/24 BB/P 953,750
5,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev.
Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10
(acquired 4/11/96, cost $5,028,299)
(In default) (NON) (RES) CCC 1,650,000
--------------
41,540,246
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 5,393,750
Tennessee (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Memphis-Shelby Cnty. Arpt. Auth. Rev. Bonds
(Federal Express), 6 3/4s, 9/1/12 Baa2 2,162,500
Texas (8.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,100,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express
Corp.), 6 3/8s, 4/1/21 Baa2 10,819,625
3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 3,198,750
3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains
Baptist Hosp.), FSA, 9.544s, 1/1/22 AAA 4,547,813
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
420,000 Ser. B, 10s, 3/1/19 CCC+/P 105,525
2,490,000 Ser. A, 9 1/2s, 3/1/19 CCC+/P 2,536,688
3,200,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 3,680,000
7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 7,802,813
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.)
4,500,000 7 1/2s, 11/1/25 Baa1 4,786,875
3,000,000 7 1/4s, 11/1/30 Baa1 3,285,000
2,150,000 Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.), Ser. B, 6 1/8s,
7/15/27 Ba1 2,217,179
2,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 2,222,500
5,495,000 Texas State Fin. Auth. Rev. Bonds, Ser. A,
5.9s, 10/1/12 Aa2 6,017,025
--------------
51,219,793
Utah (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Tooele Cnty., Hazardous Waste Treatment Rev.
Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 BBB- 4,925,000
Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.773s, 8/15/23 AAA 6,318,000
Washington (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 AA+ 5,612,500
WA State Pub. Pwr. Supply Syst. Rev. Bonds
6,315,000 (Nuclear Project No. 1), Ser. A, 7 1/2s, 7/1/15 Aaa 6,481,400
5,000,000 (Nuclear Pwr. No. 2), Ser. A, AMBAC, 5.6s, 7/1/09 AAA 5,412,500
--------------
17,506,400
West Virginia (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,415,000 Randolph Cnty. Rev. Bonds (Davis Memorial
Hosp.), Ser. A, 7.65s, 11/1/21 Baa1 3,756,500
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $580,868,501) (b) $ 610,940,685
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $620,924,942.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
April 30, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at April 30, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $580,880,740, resulting in gross unrealized appreciation and
depreciation of $37,333,767 and $7,273,822, respectively, or net unrealized appreciation of $30,059,945.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at April 30, 1999, was $47,478,306 or 7.6% of net assets.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes
in the market interest rates, and VRDN's are the current interest rates at April 30, 1999.
The fund had the following industry group concentrations greater than 10% at April 30, 1999 (as a percentage
of net assets):
Health care 24.6%
Transportation 22.4
Utilities 19.1
The fund had the following insurance concentration greater than 10% at April 30, 1999 (as a percentage of net
assets):
MBIA 11.2%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $580,868,501) (Note 1) $610,940,685
- -----------------------------------------------------------------------------------------------
Cash 164,459
- -----------------------------------------------------------------------------------------------
Interest and other receivables 12,654,085
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,372,929
- -----------------------------------------------------------------------------------------------
Total assets 625,132,158
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,946,245
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,086,836
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 41,362
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,606
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,178
- -----------------------------------------------------------------------------------------------
Other accrued expenses 114,989
- -----------------------------------------------------------------------------------------------
Total liabilities 4,207,216
- -----------------------------------------------------------------------------------------------
Net assets $620,924,942
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) 429,507,013
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 7,110,113
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (20,764,368)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 30,072,184
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $620,924,942
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A, B, and C remarketed preferred shares $175,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 118,351
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $175,118,351
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $445,806,591
- -----------------------------------------------------------------------------------------------
Net asset value per common shares
($445,806,591 divided by 46,398,604 shares) $9.61
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $21,639,612
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,131,934
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 239,225
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,529
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,052
- -----------------------------------------------------------------------------------------------
Reports to shareholders 8,285
- -----------------------------------------------------------------------------------------------
Auditing 40,012
- -----------------------------------------------------------------------------------------------
Legal 8,009
- -----------------------------------------------------------------------------------------------
Postage 27,162
- -----------------------------------------------------------------------------------------------
Exchange listing fees 20,633
- -----------------------------------------------------------------------------------------------
Other 11,976
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 287,224
- -----------------------------------------------------------------------------------------------
Total expenses 2,784,041
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15,651)
- -----------------------------------------------------------------------------------------------
Net expenses 2,768,390
- -----------------------------------------------------------------------------------------------
Net investment income 18,871,222
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,053,112)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (7,133,569)
- -----------------------------------------------------------------------------------------------
Net loss on investments (8,186,681)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $10,684,541
- -----------------------------------------------------------------------------------------------
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
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $18,871,222 $36,388,505
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,053,112) (2,692,611)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (7,133,569) 2,673,279
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,684,541 36,369,173
- ---------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from
net investment income (2,916,224) (6,397,736)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $118,351
and $137,511, respectively) 7,768,317 29,971,437
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders from
net investment income (17,649,256) (35,091,416)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection
with reinvestment of distributions 1,902,282 3,980,143
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (7,978,657) (1,139,836)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 628,903,599 630,043,435
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $7,110,113 and $8,804,371, respectively) $620,924,942 $628,903,599
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 46,221,286 45,852,179
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 177,318 369,107
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 46,398,604 46,221,286
- ---------------------------------------------------------------------------------------------------------------
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
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.82 $9.92 $9.85 $10.08 $9.49 $10.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .79 .84 .86 .90 .94
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .01 .13 (.19) .60 (1.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .23 .80 .97 .67 1.50 (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.06) (.14) (.14) (.14) (.15) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.38) (.76) (.76) (.76) (.76) (.76)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.90) (.90) (.90) (.91) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $9.61 $9.82 $9.92 $9.85 $10.08 $9.49
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $10.88 $11.44 $11.75 $10.88 $10.63 $9.25
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value
(common shares) (%)(a) (1.65)* 4.52 16.01 10.26 24.23 (11.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $620,925 $628,904 $630,043 $622,566 $628,454 $596,992
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .62* 1.22 1.21 1.24 1.20 1.23
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.55* 6.57 7.13 7.31 7.70 9.20
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 5.62* 19.97 9.63 78.92 79.71 48.40
- ------------------------------------------------------------------------------------------------------------------------------------
* Not auunualized.
(a) Total 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
April 30, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed Municipal Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The fund's investment objective is to seek
a high level of current income exempt from federal income tax. The fund
intends to achieve its objective by investing in a diversified portfolio
of tax-exempt municipal securities which Putnam 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) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At October 31, 1998, the fund had a capital loss carryover of
approximately $16,290,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ----------------
$ 1,886,000 October 31, 2002
321,000 October 31, 2003
11,188,000 October 31, 2005
2,895,000 October 31, 2006
E) 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 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 April 30, 1999 was Series A 3.15%, Series B 3.25%, and Series C 3.31%.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
F) 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% thereafter.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than 0.70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended April 30, 1999, fund expenses were reduced by
$15,651 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 the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $630 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 six months ended April 30, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$45,790,831 and $34,335,996, 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.
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, 1999, no such restrictions have been placed
on the fund.
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Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds,
visit
www.putnaminv.com
52516 052 6/99
