Putnam
Managed Municipal
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Perhaps the best way to look at fiscal 1999's performance of Putnam
Managed Municipal Income Trust -- and the rest of the bond market for that
matter -- is to focus on the opportunities that should lie in the wake of
the market's second-worst year on record. Rising interest rates have
pulled bond yields higher, but in so doing they have driven prices lower.
The result has been subdued total returns across the board.
Municipal bonds are now yielding almost 97% as much as taxable bonds. This
has attractive tax implications, especially for higher-income investors.
Richard Wyke, your fund's manager, took advantage of this situation during
the fiscal year. However, Rick was not looking only at the current income
stream. He was also focusing on the attractive prices of some issues with
solid credentials and on the potentially positive effect on the portfolio
that an upswing in the bond market would have.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
Report from the Fund Manager
Richard P. Wyke
The Federal Reserve Board's bias toward raising interest rates, along with
lingering questions about the strength of the economy, unnerved
fixed-income investors for much of the 12 months ended October 31, 1999.
Bond prices fell sharply and yields rose during the period, as investors
grappled with fears of higher inflation. In October, however, some welcome
economic news suggested that the vigorous U.S. economy might actually be
cooling. Value-minded, tax-sensitive investors took advantage of the
attractive bond prices, and municipal bond prices strengthened a bit.
Although Putnam Managed Municipal Income Trust's performance has been in
line with the overall direction of the municipal market, we have minimized
the impact of rising interest rates by emphasizing the lower-credit
sectors (Baa/BBB rated and below) and investing in intermediate to
long/intermediate maturities.
Total return for 12 months ended 10/31/99
NAV Market price
- ------------------------------------------------------------------------
-3.20% -7.72%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* HIGHER RATES MAY HAVE SILVER LINING
There are no guarantees in investing, but if history tells us anything
about bond investing, it is this: buying a bond fund after a bad year is
generally a smart thing to do. The bond market has endured its toughest
year since 1994, making it the second-worst year on record, due in part to
two moves by the Fed to raise interest rates. Today we believe investors
are faced with considerable opportunities just as investors were after the
bond bear markets of 1989 and 1994.
The rise in interest rates produced one particularly desirable outcome.
Yields across the municipal bond universe crossed into the 6% territory.
The situation is creating attractive opportunities for investors to lock
in additional income. Recently a 30-year Aaa/AAA-rated municipal bond
offered a 6% yield, a superb level of tax-free income, registering almost
97% of the yield on a 30-year taxable Treasury bond. With inflation still
remarkably low at 3% or less, the after-tax, after-inflation income
returns are the highest they have been in years.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 24.8%
Transportation 24.7%
Utilities 18.8%
Housing 4.8%
Education 2.9%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
Most municipalities have accelerated their bond issues out of concern that
Y2K complications may affect the financial markets. We expect a supply
void in the fourth quarter as issuers dodge any potential complications
with settlement issues at year-end. If this occurs, it should support
higher bond prices.
* TAX-EXEMPT PREFERRED SHARES -- A NEW OPPORTUNITY
Tax-exempt housing bonds have long played a role in your fund's investment
strategy. These bonds are used in construction or substantial
rehabilitation of existing low-income or multifamily housing. Preferred
shares are also beginning to be used to finance such projects. Recently
your fund participated in preferred share offerings by Charter Mac Equity
Issuer Trust and MuniMae TE Bond Subsidiary, LLC, two publicly traded
tax-exempt multifamily housing real estate investment trusts (REITs). We
carefully weighed the above-market yields and positive credit fundamentals
of the securities with their preferred equity status. (Unlike bonds,
equities do not offer their holders legal recourse in the event of a
bankruptcy.) Nevertheless, we strongly believe that these tax-exempt
preferred shares, the first of their kind, offer a dynamic new way for
investors to capitalize on the tax-free status of housing bonds. While
these holdings, along with others discussed in this report, were viewed
favorably during the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Baa/BBB -- 26.2%
Ba/BB -- 13.1%
B and under -- 11.4%
Aaa/AAA -- 35.0%
Aa/AA -- 3.0%
A -- 11.3%
Footnote reads:
*As a percentage of market value as of 10/31/99. 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.
* UTILITIES, AIRLINES ARE BENEFICIARIES OF DEREGULATION
An industry undergoing deregulation is an industry ripe with
opportunities. While the proverbial dust has settled in the airline
industry for the most part, investors are reaping the benefits of greater
efficiency and profitability. The utilities sector, however, is still rife
with change -- with the dynamic investment opportunities such change
creates -- as it enters a less regulated phase. Many of the fund's
holdings are focused on providers of electricity through proprietary
transmission and distribution systems rather than through the less stable
generation of electric power.
Deregulation has been quite successful for the airline industry. In fact,
a booming economy helped the sector post two years of record profits in
1997 and 1998. Today the industry remains quite attractive, but the recent
surge in jet fuel prices, harsh hurricane weather, and the potential for
fare wars are likely to pinch earnings near-term. We remain optimistic
about the fund's holdings, including investments in American Airlines,
given the increased level of international travel brought on by economic
recovery in Asia and Latin America. In addition, distribution costs are
falling as commission payments to travel agents decline and bookings
through Web sites increase.
Elsewhere in the transportation sector, Denver City and County Airport
revenue bonds benefited from a recent FAA study that announced that this
relatively new airport had the fewest delays of any other U.S. airport in
1998. In addition, the Union Pacific Railroad bonds strengthened on news
that cost-cutting and improved intermodal service increased earnings
dramatically for the first nine months of 1999 compared with the same
period in 1998.
* STEEPENING YIELD CURVE BENEFITS LEVERAGING STRATEGY
Interest rates on long-term municipal bonds climbed approximately half a
percentage point during the period. Shorter-term rates rose less
dramatically, resulting in a steeper municipal bond yield curve. The
attractive spread between short- and long-term yields is positive for the
fund's leveraging strategy.
"Whether it's restructuring their asset allocation, putting available cash
to work after months of sideline-sitting, or just enhancing their already
hefty tax-free portfolios, many retail investors are buying municipals with
hurricane force."
- -- The Bond Buyer, September 23, 1999
With leveraging, the fund issues preferred shares that pay dividends at
prevailing short-term money market rates. These shares are sold to
corporate and institutional investors; the resulting assets are then
invested in longer-term bonds with higher yields. The difference between
the rates paid to holders of preferred shares and the rates earned by the
fund augment the flow of income to holders of common shares.
* A VOLATILE MARKET CALLS FOR PATIENCE, NOT PANIC
Although the Fed did not raise interest rates in October, it did take
action in November, leading to expectations that further increases could
follow. However, these expectations have already been priced into the bond
market's behavior, clearing the way for better performance. There may be
some stumbling blocks ahead, but we believe that the major ones are behind
us. With this sentiment, we are more inclined to take slightly more risk
in the portfolio now, extending maturities as opportunities arise. It has
always been our belief that bear markets are not bad as long as investors
do not overreact. Bear markets provide the opportunity to add yield, find
exceptional credits, and improve call protection, strategies that can be
exceptionally rewarding for shareholders over time.
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 10/31/99, 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 10/31/99
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index price index
- ------------------------------------------------------------------
1 year -3.20% -7.72% -1.78% 2.69%
- ------------------------------------------------------------------
5 years 34.68 53.35 39.77 12.51
Annual average 6.14 8.93 6.93 2.39
- ------------------------------------------------------------------
10 years 106.72 124.81 99.21 33.92
Annual average 7.53 8.44 7.14 2.96
- ------------------------------------------------------------------
Life of fund
(since 2/24/89) 117.46 128.61 113.22 38.32
Annual average 7.54 8.11 7.35 3.09
- ------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Market
(common shares) NAV price
- ------------------------------------------------------------------
1 year -1.22% -3.82%
- ------------------------------------------------------------------
5 years 34.50 51.15
Annual average 6.11 8.61
- ------------------------------------------------------------------
10 years 113.18 124.63
Annual average 7.86 8.43
- ------------------------------------------------------------------
Life of fund
(since 2/24/89) 122.05 128.61
Annual average 7.82 8.11
- ------------------------------------------------------------------
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 12 MONTHS ENDED 10/31/99
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 12
- ------------------------------------------------------------------------------
Income $0.762
- ------------------------------------------------------------------------------
Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.762
- ------------------------------------------------------------------------------
Preferred shares Series A Series B Series C
(550 shares) (550 shares) (650 shares)
- ------------------------------------------------------------------------------
Income $3412.69 $3429.67 $3369.26
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $3412.69 $3429.67 $3369.26
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
10/31/98 $9.82 $11.438
- ------------------------------------------------------------------------------
10/31/99 8.77 9.813
- ------------------------------------------------------------------------------
Current return (common shares)
- ------------------------------------------------------------------------------
Current dividend rate2 8.69% 7.77%
- ------------------------------------------------------------------------------
Taxable equivalent3 14.38 12.86
- ------------------------------------------------------------------------------
1 Capital gain 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on 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 into 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.
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, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss 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 sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended October 31, 1999
The Board of Trustees and Shareholders
Putnam Managed Municipal Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Managed Municipal Income Trust, including the fund's portfolio, as
of October 31, 1999, and the related statement of operations, statement of
changes in net assets and financial highlights for the year then ended.
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 audit.
The statement of changes in net assets for the year ended October 31, 1998
and the financial highlights for each of the years in the four-year period
ended October 31, 1998 were audited by other auditors whose report dated
December 7, 1998 expressed an unqualified opinion on that financial
statement and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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, 1999 by correspondence
with the custodian. 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 audit provides 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, 1999, the
results of its operations, changes in its net assets and financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
December 6, 1999
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999
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
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
U.S. Govt. Coll. -- U.S. Government Collateralized
MUNICIPAL BONDS AND NOTES (96.3%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
$ 4,000,000 Baldwin Cnty., Eastern Shore Hlth. Care Auth. Hosp.
Rev. Bonds (Thomas Hospital), 6 3/4s, 4/1/21 Baa3 $ 4,030,000
2,400,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. A, FGIC,
5s, 2/1/33 Aaa 1,992,000
--------------
6,022,000
Alaska (0.4%)
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2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ 2,135,000
Arizona (2.7%)
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5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Tuscon Elec. Pwr. Co.), Ser. B,
5 7/8s, 3/1/33 B2 4,368,750
4,000,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 B2 4,135,000
5,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 B1 4,643,750
2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 Baa2 2,888,105
--------------
16,035,605
Arkansas (1.1%)
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6,000,000 Northwest Regl. Apt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 BB/P 6,450,000
California (9.4%)
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7,000,000 CA Hlth. Fac. Fin. Auth. IFB (Catholic Healthcare
West), AMBAC, 6.306s, 7/1/17 Aaa 6,151,250
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 2,501,250
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 2,664,000
5,000,000 Ser. C, 8 3/8s, 7/1/11 (acquired 3/5/96,
cost $5,000,000) (RES) B-/P 4,750,000
3,500,000 San Bernardino Cnty., IF COP (PA-100-Med.
Ctr. Fin.), MBIA, 6 1/2s, 8/1/28 (acquired 6/27/95,
cost $3,777,340) (RES) AAA/P 4,270,000
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 2,850,000
8,750,000 Santa Clara Cnty. Fin. Auth. Lease Rev. Bonds
(Vmc. Fac. Replacement), Ser. A, AMBAC,
6 3/4s, 11/15/20 Aaa 9,800,000
14,480,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 A-/P 14,791,753
7,500,000 Valley Hlth. Syst. Hosp. Rev. Bonds, 6 1/2s, 5/15/25 BBB- 7,181,250
--------------
54,959,503
Colorado (3.7%)
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5,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8.3s, 12/1/17 B/P 5,618,750
Denver, City & Cnty. Arpt. Rev. Bonds
2,940,000 Ser. A, 8 3/4s, 11/15/23 Baa1 3,182,550
6,980,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 7,373,672
1,775,000 Ser. A, 7 3/4s, 11/15/21 Baa1 1,881,500
1,050,000 Ser. D, 7 3/4s, 11/15/13 Baa1 1,224,563
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
1,060,000 8 3/4s, 11/15/23 Aaa 1,168,650
665,000 MBIA, 8 1/2s, 11/15/23 Aaa 707,400
465,000 7 3/4s, 11/15/21 Aaa 503,944
--------------
21,661,029
Connecticut (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(CT Lt. & Pwr. Co.), Ser. B, 5.95s, 9/1/28 Ba1 3,128,125
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 AAA/P 4,525,000
--------------
7,653,125
Florida (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,210,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa1 3,378,525
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 5,525,000
9,150,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 8.887s, 3/26/20 Aaa 9,447,375
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds, MBIA
2,000,000 6 1/4s, 10/1/18 Aaa 2,090,000
635,000 Ser. C, 6 1/4s, 10/1/11 Aaa 687,388
1,535,000 Ser. C, 6 1/4s, 10/1/11, Prerefunded Aaa 1,669,313
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+ 1,081,829
--------------
23,879,430
Georgia (4.5%)
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2,000,000 Atlanta, Arpt. Fac. Rev. Bonds, AMBAC,
5 1/4s, 1/1/10 Aaa 1,987,500
1,505,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. B, 7.9s, 12/1/18 BBB- 1,537,598
1,750,000 Fulton Cnty., Dev. Auth Fac. Rev. Bonds
(Delta Airlines, Inc.), 5 1/2s, 5/1/33 Baa3 1,450,313
2,500,000 GA Med. Ctr. Hosp. Auth. IFB (Columbus Regl.
Hlth. Care Syst.), Ser. B, MBIA, 8.91s, 8/1/10 Aaa 2,721,875
GA Muni. Elec. Pwr. Auth. Rev. Bonds, AMBAC
7,000,000 Ser. Y, 6.4s, 1/1/13 Aaa 7,525,000
2,250,000 Ser. Z, 5 1/2s, 1/1/12 Aaa 2,244,375
3,250,000 Gwinnett Cnty., Indl. Dev. Auth. Rev. Bonds
(Kawneer Co. Inc.), Ser. 84, 9 1/2s, 6/1/15 A1 3,445,228
3,180,000 Savannah, Hosp. Rev. Bonds (Chandler Hosp.),
7s, 1/1/11 Ba1 3,454,275
1,900,000 Savannah, Hosp Rev. Bonds (Candler Hosp.),
7s, 1/1/23 Ba1 2,063,875
--------------
26,430,039
Illinois (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 4,181,250
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
5,043,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa2 5,366,710
3,020,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 3,210,955
1,725,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa2 1,834,072
3,000,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa1 3,367,500
5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa1 5,209,600
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
3,250,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Obligation), 5.65s, 11/15/24 A1 2,786,875
--------------
27,881,962
Indiana (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 2,134,375
9,300,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 9,962,625
--------------
12,097,000
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 3,750,000
2,215,000 9.15s, 7/1/09 BB/P 2,671,844
--------------
6,421,844
Kansas (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 Burlington, Poll. Control IFB (KS Gas & Electric),
Ser. 91-4, MBIA, 9.626s, 6/1/31
(acquired 12/17/91, cost $7,800,000) (RES) Aaa 8,090,625
8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA,
9.351s, 10/20/17 Aaa 8,872,500
--------------
16,963,125
Kentucky (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,785,000 Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Air Lines, Inc.), Ser. A, 7 1/2s, 2/1/20 Baa3 8,203,444
1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 11/1/14 Ba3 1,075,000
2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B,
6.55s, 11/1/20 Aa2 2,859,875
--------------
12,138,319
Louisiana (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
12,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 13,609,375
2,750,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba1 2,884,063
--------------
16,493,438
Maryland (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds,
(Doctors Cmnty. Hosp.), 8 3/4s, 7/1/12 Aaa 4,204,400
Massachusetts (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,600,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 4,104,000
1,010,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 1,078,175
3,000,000 (New England Baptist Hosp.), Ser. B, 7.3s, 7/1/11 AAA 3,202,500
1,100,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/14 A2 1,124,728
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,319,794
2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 A2 2,044,000
3,400,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 Aaa 3,701,750
7,645,000 MA State Hsg. Fin. Agcy. Rev. Bonds, 7s, 7/1/40
(acquired 6/3/98, cost 7,739,333) (RES) Aaa 6,163,781
5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. B, 9 1/4s, 7/1/15 BB-/P 5,412,500
MA State Indl. Fin. Agcy. Rev. Bonds
2,000,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 2,262,500
2,715,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,876,108
--------------
33,289,836
Michigan (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,245,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 4,876,444
2,000,000 MI State Strategic Fund Resource Recvy. Ltd.
Rev. Bonds (Wayne Energy), Ser. A, 6.9s, 7/1/19 B/P 1,857,500
8,000,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
((Poll. Ctrl.)), Ser. B, 9 1/2s, 7/23/09 B+/P 8,342,400
2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds (NOMC
Obligation Group), 6s, 8/1/18 Baa3 2,480,625
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
2,000,000 Wayne Charter Cnty., Special Arpt. Facs. Rev. Bonds
(Northwest Airlines), 6s, 12/1/29 BB+/P 1,805,000
--------------
25,672,019
Minnesota (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,875,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 2,030,813
4,785,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa2 4,910,606
5,685,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Baa3 5,379,431
--------------
12,320,850
Mississippi (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,250,000 MS Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 BBB1 1,980,000
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 3,577,980
Nebraska (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty, Indl. Dev. Rev. Bonds (Hoover
Group Inc.), 8 1/2s, 12/1/07 Ba3 2,152,500
2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B-/P 2,031,250
NE Investment Fin. Auth. Single Fam. Mtge. IFB
400,000 Ser. B, GNMA Coll., 11.316s, 3/15/22 Aaa 418,904
1,400,000 Ser. B, GNMA Coll., 10.065s, 10/17/23 Aaa 1,477,000
1,500,000 GNMA Coll., 8.8855s, 9/15/24 Aaa 1,552,500
2,150,000 Ser. C, 7.817s, 3/1/20 Aaa 2,112,375
--------------
9,744,529
Nevada (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
4,000,000 (NV Pwr. Co.), 7.8s, 6/1/20 Baa2 4,129,560
6,000,000 (Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa2 6,352,500
--------------
10,482,060
New Hampshire (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,565,000 NH Bus. Fin. Auth. Rev. Bonds (Alice Peck Day
Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,369,419
2,025,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp.), 9 3/8s, 11/1/20 BB+/P 2,187,446
--------------
4,556,865
New Jersey (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,500,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 6,093,750
7,650,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 7,973,060
--------------
14,066,810
New York (6.0%)
- --------------------------------------------------------------------------------------------------------------------------
NY City, G.O. Bonds
7,000,000 Ser. F, 8 1/4s, 11/15/10 Aaa 7,647,500
4,925,000 Ser. D, 8s, 8/1/18 (Group C) Aaa 5,306,688
12,000,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(British Airways), 5 1/4s, 12/1/32 A2 10,350,000
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 4,593,750
2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 1,917,500
5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96, FGIC,
6.6s, 10/1/23 Aaa 5,287,500
--------------
35,102,938
North Carolina (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 NC Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. A,
5 3/4s, 1/1/26 BBB 2,658,750
Ohio (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
20,000,000 OH State Air Quality Dev. Auth. Rev. Bonds
(Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 21,950,000
Oklahoma (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds
(American Airlines, Inc.), 7 3/8s, 12/1/20 Baa1 3,645,565
Pennsylvania (6.9%)
- --------------------------------------------------------------------------------------------------------------------------
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(SEG) B+ 4,235,000
4,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 4,078,125
1,815,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Rev. Bonds (Northwestern Corp.), Ser. A,
8 3/8s, 6/1/04 AAA 1,895,822
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA,
6.7s, 9/1/14 Aaa 7,884,369
7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 A 8,902,813
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,062,500
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
6,000,000 MBIA, 10.94s, 3/1/20 Aaa 6,877,500
2,000,000 AMBAC, 8.209s, 3/1/22 Aaa 2,037,500
2,000,000 Philadelphia, Auth. For Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia LLC), 5 1/2s, 1/1/24 BB/P 1,710,000
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) B2 1,650,000
--------------
40,333,629
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 5,275,000
Tennessee (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Memphis-Shelby Cnty. Arpt. Auth. Rev. Bonds
(Federal Express), 6 3/4s, 9/1/12 Baa2 2,097,500
Texas (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,100,000 Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s, 4/1/21 Baa2 9,973,750
3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 3,130,260
3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains
Baptist Hosp.), FSA, 9.20s, 1/1/22 Aaa 4,326,438
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
420,000 Ser. B, 10s, 3/1/19 CCC/P 31,500
2,490,000 Ser. A, 9 1/2s, 3/1/19 CCC/P 2,371,725
3,200,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 3,540,000
7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 7,612,500
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
4,500,000 7 1/2s, 11/1/25 Baa1 4,687,695
3,000,000 7 1/4s, 11/1/30 Baa1 3,172,500
8,000,000 6 3/8s, 5/1/35 Baa1 7,670,000
2,150,000 Houston, Arpt. Syst. Rev. Bonds (Continental
Airline), Ser. B, 6 1/8s, 7/15/27(SEG) Ba1 1,956,500
2,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 2,050,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 BBB/P 1,800,000
--------------
52,322,868
Utah (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Tooele Cnty., Hazardous Waste Treatment
Rev. Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 Baa3 4,425,000
Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
9.671s, 8/15/23 Aaa 6,041,250
Washington (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 5,062,500
West Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Princeton, Hosp. Rev. Bonds
(Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 BBB 2,278,125
3,320,000 Randolph Cnty. Rev. Bonds (Davis Memorial Hosp.),
Ser. A, 7.65s, 11/1/21 Baa1 3,544,100
--------------
5,822,225
--------------
Total Municipal Bonds and Notes
(cost $567,460,241) $ 561,853,993
PREFERRED STOCKS (1.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Charter Mac Equity Issue Trust 144A, 6.625%, cum. pfd.
(acquired 6/11/99, cost $4,000,000) (RES) $ 3,940,000
4,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A ,
6.875%, cum. pfd. (acquired 5/7/99, cost $4,000,000) (RES) 3,980,000
--------------
Total Preferred Stocks (cost $8,000,000) $ 7,920,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $575,460,241) (b) $ 569,773,993
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $583,582,781.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
October 31, 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 October 31, 1999.
Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report
of independent accountants.
(b) The aggregate identified cost on a tax basis is $575,460,241, resulting in gross unrealized appreciation and
depreciation of $18,241,572 and $23,927,820, respectively, or net unrealized depreciation of $5,686,248.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at October 31, 1999.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held
at October 31, 1999 was $51,187,206 or 8.8% 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 are current interest rates at October 31, 1999.
The fund had the following industry group concentrations greater than 10% at October 31, 1999 (as a percentage of
net assets):
Health care 24.8%
Transportation 24.7
Utilities 18.8
The fund had the following insurance concentration greater than 10% at October 31, 1999 Report (as a percentage of
net assets):
MBIA 11.1%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Index Future
(Long) $55,187,500 $55,753,088 Dec-99 $(565,588)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $575,460,241) (Note 1) $569,773,993
- -----------------------------------------------------------------------------------------------
Cash 4,480,415
- -----------------------------------------------------------------------------------------------
Interest and other receivables 12,452,245
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 540,482
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 500,000
- -----------------------------------------------------------------------------------------------
Total assets 587,747,135
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,957,634
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,051,103
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,682
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 852
- -----------------------------------------------------------------------------------------------
Other accrued expenses 138,083
- -----------------------------------------------------------------------------------------------
Total liabilities 4,164,354
- -----------------------------------------------------------------------------------------------
Net assets $583,582,781
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) 431,369,523
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,732,508
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (21,267,414)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (6,251,836)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $583,582,781
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A, B, and C remarketed preferred shares $175,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 163,847
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred
shares -- liquidation preference $175,163,847
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $408,418,934
- -----------------------------------------------------------------------------------------------
Net asset value per common shares
($408,418,934 divided by 46,577,958 shares) $8.77
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1999
<S> <C>
Tax exempt interest income: $42,506,751
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,208,547
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 448,638
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 15,775
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,308
- -----------------------------------------------------------------------------------------------
Reports to shareholders 41,027
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 63,648
- -----------------------------------------------------------------------------------------------
Legal 13,812
- -----------------------------------------------------------------------------------------------
Postage 51,741
- -----------------------------------------------------------------------------------------------
Exchange listing fees 41,302
- -----------------------------------------------------------------------------------------------
Other 32,921
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 465,364
- -----------------------------------------------------------------------------------------------
Total expenses 5,391,158
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (82,508)
- -----------------------------------------------------------------------------------------------
Net expenses 5,308,650
- -----------------------------------------------------------------------------------------------
Net investment income 37,198,101
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (1,532,801)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (43,457,589)
- -----------------------------------------------------------------------------------------------
Net loss on investments (44,990,390)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (7,792,289)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 37,198,101 $ 36,388,505
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,532,801) (2,692,611)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (43,457,589) 2,673,279
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (7,792,289) 36,369,173
- ---------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from
net investment income (5,927,040) (6,397,736)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $163,847 and $137,511, respectively) (13,719,329) 29,971,437
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders from
net investment income (35,366,281) (35,091,416)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 3,764,792 3,980,143
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (45,320,818) (1,139,836)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 628,903,599 630,043,435
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $4,732,508 and $8,804,371, respectively) $583,582,781 $628,903,599
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 46,221,286 45,852,179
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 356,672 369,107
- ---------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 46,577,958 46,221,286
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $9.82 $9.92 $9.85 $10.08 $9.49
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .80 .79 .84 .86 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.96) .01 .13 (.19) .60
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.16) .80 .97 .67 1.50
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.13) (.14) (.14) (.14) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.76) (.76) (.76) (.76) (.76)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.89) (.90) (.90) (.90) (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $8.77 $9.82 $9.92 $9.85 $10.08
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $9.81 $11.44 $11.75 $10.88 $10.63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value
(common shares) (%)(a) (7.72) 4.52 16.01 10.26 24.23
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $583,583 $628,904 $630,043 $622,566 $628,454
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.23 1.22 1.21 1.24 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 7.12 6.57 7.13 7.31 7.70
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 12.88 19.97 9.63 78.92 79.71
- ------------------------------------------------------------------------------------------------------------------------------------
(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 includes amounts paid through expense offset arrangements.(Note 2)
</TABLE>
Notes to financial statements
October 31, 1999
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are 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 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). Gains or losses on securities sold are determined on
the identified cost basis.
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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
October 31, 1999, the fund had no borrowings against the line of credit.
F) 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, 1999, the fund had a capital loss carryover of
approximately $19,995,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ----------------
$ 1,887,000 October 31, 2002
321,000 October 31, 2003
11,188,000 October 31, 2005
2,895,000 October 31, 2006
3,704,000 October 31, 2007
G) 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, 1999 was Series A 3.75%, Series B 3.55%, and Series C 3.34%.
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. These differences include temporary and permanent differences
of losses on wash sale transactions, reversal of stradle loss deferrals,
defaulted bond interest, and market discount. For the year ended October
31, 1999, the fund reclassified $23,357 to increase undistributed net
investment income and $23,357 to increase accumulated net realized losses.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
H) 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 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 year ended October 31, 1999, fund expenses were reduced by $82,508
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 $892 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
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, 1999, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $91,072,591 and $77,302,234, respectively. There were no
purchases and sales of U.S. government obligations.
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 October 31, 1999, no such restrictions have been
placed on the fund.
Note 5
Change in independent accountants
(Unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent accountants and voted to appoint KPMG LLP for the
fund's fiscal year ended October 31, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
The fund has designated 99.4% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of October 7, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7, 1999.
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 39,208,686 530,883 1,301 0
Hans H. Estin 39,171,609 567,960 1,301 0
Ronald J. Jackson 39,201,827 537,742 1,301 0
Paul L. Joskow 39,209,628 529,941 1,301 0
Elizabeth T. Kennan 39,191,555 548,014 1,301 0
Lawrence J. Lasser 39,218,107 521,462 1,301 0
John H. Mullin III 39,212,585 526,984 1,301 0
William F. Pounds 39,178,510 561,059 1,301 0
George Putnam 39,195,053 544,516 1,301 0
George Putnam, III 39,223,640 515,929 1,301 0
A.J.C. Smith 39,209,207 530,362 1,301 0
W. Thomas Stephens 39,228,865 510,704 1,301 0
W. Nicholas Thorndike 39,204,123 535,446 1,301 0
J.A. Hill not applicable 1,301 0
R.E Patterson not applicable 1,301 0
A proposal to ratify the selection of KPMG LLP as the independent auditors
of your fund was approved as follows: Common Shares -- 39,030,083 votes
for, and 211,212 votes against, with 498,274 abstentions and broker
non-votes. Preferred Shares -- 1,301 votes for, and 0 votes against, with
0 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
INDEPENDENT
ACCOUNTANTS
KPMG LLP
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
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
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
56817/052 12/99
