Putnam
Managed
Municipal
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 20, 2000
REPORT FROM FUND MANAGEMENT
Richard P. Wyke
While all eyes have been on the stock market during the past 12 months,
the municipal bond market has quietly begun to make some headway. The
long-awaited turnaround in bonds began in early spring when technology
stocks plunged, bringing down many other stock sectors in their wake.
Persistent volatility in the stock market then combined with the
anticipation of an economic soft landing, encouraging investors to take
a renewed look at the attractive tax-exempt investment potential
municipal bonds offer. Against this backdrop of improved investment
conditions and investor sentiment, Putnam Managed Municipal Income Trust
produced solid results for the 12 months ended October 31, 2000.
Total return for 12 months ended 10/31/00
NAV Market price
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4.83% 6.84%
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Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* MULTIPLE FACTORS PUSHED MUNICIPAL BOND RATES DOWN
Several factors influenced the direction of municipal bond yields this
past year. Most notable, of course, have been the Federal Reserve
Board's interest rate increases and the U.S. Treasury's bond buyback
program. Both events served to steadily push yields on longer-term bonds
lower but for different reasons. The Fed's actions gave fixed-income
investors confidence that inflation would be kept at bay and therefore
not erode the principal value of their fixed-income investments. The
sudden and substantial bouts of volatility in the equity market also
forced many investors to give bonds a second look, particularly as the
dot.com mania subsided. The Treasury's announced intention to buy back
roughly $30 billion in securities caused a dramatic dislocation in the
Treasury yield curve, which was initially reflected in the municipal
bond yield curve. More recently, the muni curve has begun to revert to
its normal shape. Your fund benefited in a broad sense from these
events.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 32.0%
Transportation 29.2%
Utilities 12.4%
Housing 5.9%
Manufacturing
& industrial
development 5.1%
Footnote reads:
*Based on net assets as of 10/31/00. Holdings will vary over time.
Despite the upward trend of municipal bond prices, which move in the
opposite direction from yields, short-term rates ended the period higher
than they were at the fund's fiscal year outset. They are, however,
relatively unchanged since the year's midpoint. This means that your
fund's leveraging strategy, which involves selling preferred shares that
pay dividends at prevailing short-term rates to corporate and
institutional investors, was not as successful in enhancing the fund's
income stream as it has been in previous years. However, it did add to
performance.
As the period progressed, we extended your fund's average duration from
roughly 7 years at the outset of the fiscal year to 11 years by period's
end, a move that served your fund well. Duration is a measure of
interest-rate volatility. A longer duration in a declining interest-rate
environment gives a fund greater price appreciation potential, although
it is often accompanied by increased share price volatility. Conversely,
a shorter duration helps preserve portfolio value when rates rise but
can limit its ability to benefit when rates fall.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 36.0%
AA/Aa -- 2.2%
A -- 13.0%
BBB/Baa -- 27.7%
BB/Ba -- 13.5%
B and under -- 7.6%
Footnote reads:
*As a percentage of market value as of 10/31/00. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* PRIMARY FOCUS IS ADDING INCOME
Throughout the period we continued to focus on searching for ways to
enhance your fund's income potential. The widening yield spreads (the
difference in yield among bonds of different credit quality) between
investment-grade and lower-rated, high-yield bonds played a key role in
how we chose to pursue this goal. About this time last year, they began
widening due to tax-loss selling by investors seeking to offset stock
market gains with capital losses. High-yield municipal bond funds faced
net redemptions and were required to sell holdings in order to meet
demand. This created an atmosphere of illiquidity in the lower-rated
municipal bond tiers at a time when pockets of uncertainty existed,
particularly in health care. Furthermore, increased crossover investing
from stock investors, while helping the broad municipal market,
substantially benefited the higher-grade, shorter-term issues. To
accommodate the selling pressure and lack of interest, municipal issuers
of lower-quality bonds had to raise yields. This created a compelling
buying opportunity, and we selectively increased your fund's weighting
in lower-rated bonds as opportunities arose.
We also pared the portfolio's exposure to pre-refunded issues, those
bonds that will be paid off by the municipal issuer at the first call
date because new bonds have been issued in an amount high enough to do
so. The proceeds from the new issue are held in escrow until they are
needed. Once a bond is pre-refunded, it then trades like a AAA-rated
security whether it was initially issued as one or not. This, in turn,
causes its price to rise and its yield to fall. In search of higher
yield, we cut back on pre-refunded holdings and moved out of
intermediate-term issues when we could. In addition, we added
longer-term securities with somewhat higher yields.
* TRANSPORTATION BONDS HEAVILY EMPHASIZED
Your fund's portfolio, while broadly diversified, has a significant
weighting in the transportation sector. Several holdings in this arena
are worth noting either for their solid performance potential this year
or their bright prospects. These include bonds issued or backed by
American Airlines, Union Pacific Railroad, and South Carolina Southern
Connector 2000. American Airlines continues to do well in the face of
high fuel costs, as passenger demand is reaching record levels this
year. Union Pacific Railroad is the recent beneficiary of an improved
ratings outlook by Standard & Poors upon posting a sizable increase in
net earnings and an increase in operating volume. The Southern Connector
2000 Association has completed its 17-mile toll road connecting
Interstates 385 and 85 in South Carolina ahead of schedule. Considerable
economic development is taking place along the connector, boding well
for traffic revenue. While these holdings, along with others discussed
in this report, were viewed favorably at the end of the period, all are
subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* RELATIVE STABILITY SEEMS LIKELY
Historically, investor sentiment is anticipatory in nature. Investors
tend to react more to probabilities than to conditions at hand. Given
this tendency, we are optimistic about the prospects for municipal bonds
in the months ahead. New issuance supply is down as pre-refunding
activity has abated and there are signs that demand will increase. There
is a strong likelihood that property and casualty insurance companies,
until recently major buyers of municipal bonds, will return to the
municipal market as their pricing environment and profit potential
improves in the absence of costly catastrophic disasters. According to
conventional wisdom, with more profits come higher taxes and the need
for more tax-exempt investments. Inflation currently seems to be out of
the equation. Should the stock market continue to disappoint, we believe
investors may revisit their asset allocation strategy, in which
municipal bonds may well have a place.
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 10/31/00, 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, consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 10/31/00
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index price index
-------------------------------------------------------------------------------
1 year 4.83% 6.84% 8.51% 3.45%
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5 years 21.82 31.80 32.05 13.14
Annual average 4.03 5.68 5.72 2.50
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10 years 105.43 136.00 101.22 30.26
Annual average 7.46 8.97 7.24 2.68
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Life of fund
(since 2/24/89)
Annual average 7.23 7.77 7.45 3.11
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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 redeemed may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/00
-------------------------------------------------------------------------------
Distributions (common shares)
-------------------------------------------------------------------------------
Number 12
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Income $0.763
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Capital gains1 --
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Total $0.763
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Preferred shares Series A Series B Series C
(550 shares) (550 shares) (650 shares)
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Income $4,198.31 $4,228.68 $4,152.95
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Capital gains1 -- -- --
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Total $4,198.31 $4,228.68 $4,152.95
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Share value: (common shares) NAV Market price
-------------------------------------------------------------------------------
10/31/99 $8.77 $9.813
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10/31/00 8.44 9.625
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Current
dividend
rate2 9.03% 7.92%
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Taxable
equivalent3 14.95 13.11
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1 Capital 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.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price 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.
TOTAL RETURN FOR PERIODS ENDED 9/30/00(most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------
1 year 1.65% -1.25%
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5 years 22.66 29.43
Annual average 4.17 5.30
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10 years 104.75 120.65
Annual average 7.43 8.24
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Life of fund
(since 2/24/89)
Annual average 7.19 7.27
-------------------------------------------------------------------
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 and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. It assumes reinvestment of all distributions and
interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. It is not possible to invest
directly in an index.
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
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, 2000, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and financial highlights for
each of the years in the two-year period 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 audits. The
financial highlights for each of the years in the three-year period
ended October 31, 1998 were audited by other auditors whose report dated
December 7, 1998 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial
position of Putnam Managed Municipal Income Trust as of October 31,
2000, the results of its operations, changes in its net assets and
financial highlights for each of the years described above in conformity
with accounting principles generally accepted in the United States of
America.
KPMG LLP
Boston, Massachusetts
December 5, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
October 31, 2000
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
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. -- United States Government Collateralized
MUNICIPAL BONDS AND NOTES (97.3%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (1.0%)
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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 $ 3,820,000
2,400,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. A, FGIC,
5s, 2/1/33 Aaa 2,142,000
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5,962,000
Alaska (0.4%)
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2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 Aa1 2,095,860
Arizona (2.8%)
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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 Ba3 4,512,500
4,000,000 Coconino Cnty., Poll. Control Corp. Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 4,035,000
5,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 B1 4,675,000
2,750,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.), 8.7s, 9/1/19 Baa3 2,816,825
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16,039,325
Arkansas (1.9%)
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4,600,000 AR State Hosp. Dev. Fin. Auth. Rev. Bonds
(WA Regl. Med. Ctr.), 7 3/8s, 2/1/29 Baa3 4,600,000
6,000,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB 6,292,500
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10,892,500
California (8.6%)
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7,000,000 CA Hlth. Fac. Auth. IFB (Catholic Healthcare West),
AMBAC, 6.786s, 7/1/17 Aaa 6,772,500
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 2,580,000
Corona, COP
2,775,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 (acquired
10/23/92, cost 2,775,000) (In default) (RES) (NON) B-/P 1,110,000
5,000,000 (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 (acquired
3/5/96, cost 5,000,000)(In default) (RES) (NON) B-/P 2,000,000
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 4,309,375
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 1,200,000
8,750,000 Santa Clara Cnty. Fin. Auth. Lease Rev. Bonds
(Vmc. Fac. Replacement), Ser. A, AMBAC,
6 3/4s, 11/15/20 Aaa 9,734,375
14,190,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19 A-/P 14,210,008
7,500,000 Valley Hlth. Syst. Hosp. Rev. Bonds, 6 1/2s, 5/15/25 BBB- 7,078,125
-------------
48,994,383
Colorado (4.6%)
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5,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8.3s, 12/1/17 BB- 5,562,500
CO Pub. Hwy. Auth. Rev. Bonds
(E-470 Pub. Hwy.), Ser. B
16,500,000 Zero %, 9/1/34 Baa 1,320,000
15,500,000 Zero %, 9/1/35 BBB- 1,162,500
Denver, City & Cnty. Arpt. Rev. Bonds
2,940,000 Ser. A, 8 3/4s, 11/15/23 A2 3,097,819
6,980,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 7,128,395
1,775,000 Ser. A, 7 3/4s, 11/15/21 A2 1,853,578
1,050,000 Ser. D, 7 3/4s, 11/15/13 A 1,245,562
2,500,000 5 1/2s, 11/15/25 AAA 2,465,625
Denver, City & Cnty. Arpt. Rev. Bonds, Prerefunded,
Ser. A
1,060,000 8 3/4s, 11/15/23 Aaa 1,125,210
665,000 MBIA, 8 1/2s, 11/15/23 Aaa 679,138
465,000 7 3/4s, 11/15/21 Aaa 489,202
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26,129,529
Connecticut (0.8%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 AAA 4,375,000
Florida (3.7%)
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3,210,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa 3,310,313
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 A- 5,518,750
9,150,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 8.867s, 3/26/20 Aaa 9,653,250
810,000 Pinellas Cnty. Hlth. Fac. Auth. Sun. Coast Hlth. Syst.
Rev. Bonds (Sun. Coast Hosp.), Ser. A,
8 1/2s, 3/1/20 BB+ 824,175
2,000,000 St. Johns Cnty., FL Hlth. Care Indl. Dev. Auth.
Rev. Bonds (Glenmoor St. Johns Project), Ser. A,
8s, 1/1/30 B+ 1,990,000
-------------
21,296,488
Georgia (1.7%)
-------------------------------------------------------------------------------------------------------------------
1,750,000 Fulton Cnty., Dev. Auth Fac. Rev. Bonds
(Delta Airlines, Inc.), 5 1/2s, 5/1/33 Baa 1,520,313
GA Med. Ctr. Hosp. Auth. IFB
700,000 MBIA, 6.367s, 8/1/10 Aaa 763,000
1,800,000 MBIA, Prerefunded, 6.367s, 8/1/10 Aaa 1,980,000
3,180,000 Savannah, Hosp. Rev. Bonds (Candler Hosp.),
7s, 1/1/11 AAA 3,394,650
1,900,000 Savannah, Hosp. Auth. Rev. Bonds (Candler Hosp.),
7s, 1/1/23 AAA 2,028,250
-------------
9,686,213
Hawaii (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 HI Dept.of Trans. Special Fac. Rev. Bonds
(Continental Air Lines, Inc.), 7s, 6/1/20 Ba 1,000,000
Illinois (5.4%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/35 Aaa 4,443,750
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
4,933,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 Baa 5,154,689
2,940,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 3,070,712
1,685,000 (United Air Lines, Inc.), Ser. 84B, 8.85s, 5/1/18 Baa 1,759,915
3,000,000 (American Airlines, Inc.), 8.2s, 12/1/24 Baa 3,322,500
5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa 5,161,150
3,500,000 City of Chicago G.O. Bonds, FGIC, 5 1/2s, 1/1/40 Aaa 3,368,750
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 2,399,578)
(In default) (NON) (RES) D 2,125,000
3,250,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Obligation), 5.65s, 11/15/24 A- 2,754,375
-------------
31,160,841
Indiana (2.1%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa 2,231,250
9,300,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa 9,788,250
-------------
12,019,500
Iowa (1.1%)
-------------------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives)
3,000,000 9 1/4s, 7/1/25 BB 3,652,500
2,075,000 9.15s, 7/1/09 BB 2,438,125
-------------
6,090,625
Kansas (1.6%)
-------------------------------------------------------------------------------------------------------------------
8,400,000 Witchita, Hosp. IFB, Ser. 111-A, MBIA,
9.351s, 10/20/17 Aaa 9,051,000
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 Baa 8,086,669
1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 11/1/14 Ba3 1,070,000
2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B,
6.55s, 11/1/20 A1 2,832,475
-------------
11,989,144
Louisiana (3.2%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Pub. Fac. Auth. Hosp. Rev. Bonds (Lake Charles
Memorial Hosp. Project), 8 5/8s, 12/1/30 BB 1,972,500
12,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A 13,328,125
2,750,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba 2,839,375
-------------
18,140,000
Massachusetts (5.5%)
-------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,500,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 AAA 3,933,125
3,000,000 (New England Baptist Hosp.), Ser. B, 7.3s, 7/1/11 AAA 3,116,130
1,100,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/14 BBB 1,105,137
1,185,000 (Norwood Hosp.), Ser. C, 7s, 7/1/14 Ba2 1,377,563
2,000,000 (Beth Israel Hosp.), Ser. E, 7s, 7/1/09 BBB 2,009,340
3,400,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 Aaa3 3,667,750
MA State Hsg. Fin. Agcy. Rev. Bonds
7,645,000 7s, 7/1/40 (acquired 6/3/98, cost 7,738,492) (RES) Aaa 6,756,268
2,000,000 Ser. C, AMBAC, 5 5/8s, 7/1/40 Aaa 1,902,500
5,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. B, 9 1/4s, 7/1/15 BB-/P 5,259,400
2,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Orchard
Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA 2,182,500
-------------
31,309,713
Michigan (2.7%)
-------------------------------------------------------------------------------------------------------------------
4,195,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 4,693,155
2,000,000 MI State Strategic Fund Resource Recvy. Ltd.
Rev. Bonds (Wayne Energy), Ser. A, 6.9s, 7/1/19 CCC 1,807,500
2,700,000 Pontiac Hosp. Fin. Auth. Rev. Bonds (NOMC
Obligation Group), 6s, 8/1/18 Ba1 2,180,250
6,785,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 B- 5,182,044
2,000,000 Wayne Charter Cnty., Special Arpt. Facs.
Rev. Bonds (Northwest Airlines), 6s, 12/1/29 BB+ 1,762,500
-------------
15,625,449
Minnesota (2.1%)
-------------------------------------------------------------------------------------------------------------------
1,845,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB 1,980,736
4,760,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa 4,890,900
5,685,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Ba1 4,981,480
-------------
11,853,116
Mississippi (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,250,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 BBB 2,070,000
Missouri (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MS State Hlth. & Edl. Fac. Rev. Bonds
(St. Anthony's Med. Ctr.), 6 1/4s, 12/1/30 A 1,975,000
Nebraska (1.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty, Indl. Dev. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/07 Ba3 2,142,500
2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B/P 1,759,375
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,350,000 GNMA Coll., 9.159s, 9/15/24 Aaa 1,437,750
1,300,000 Ser. B, GNMA Coll., 8.949s, 10/17/23 Aaa 1,374,854
2,150,000 Ser. C, 7.878s, 3/1/20 Aaa 2,238,688
-------------
8,953,167
Nevada (2.5%)
-------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
6,000,000 Ser. B, 7 1/2s, 9/1/32 Baa 6,262,500
5,000,000 Ser. C, AMBAC, 5.95s, 12/1/38 Aaa 5,068,750
3,000,000 Las Vegas Monorail Rev. Bond (2nd Tier),
7 3/8s, 1/1/40 BB-/P 2,910,000
-------------
14,241,250
New Hampshire (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,025,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp.),
9 3/8s, 11/1/20 BB+/P 2,085,750
2,565,000 NH State Bus. Fin. Auth. Rev. Bonds (Alice Peck
Day Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,228,344
-------------
4,314,094
New Jersey (1.6%)
-------------------------------------------------------------------------------------------------------------------
6,500,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba 5,939,375
3,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 3,097,500
-------------
9,036,875
New York (7.1%)
-------------------------------------------------------------------------------------------------------------------
NY City, G.O. Bonds
7,000,000 Ser. F, 8 1/4s, 11/15/10 Aaa 7,380,520
4,925,000 Ser. D, 8s, 8/1/18 (Group C) Aaa 5,130,028
12,000,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(British Airways), 5 1/4s, 12/1/32 A 10,380,000
5,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds,
7.05s, 6/15/17(acquired 5/21/98,
cost 5,275,522) (RES) AAA 5,056,250
2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B+/P 1,980,000
5,000,000 Port Auth. NY & NJ G.O. Bonds, Ser. 96, FGIC,
6.6s, 10/1/23 Aaa 5,281,250
5,000,000 Port Auth. NY & NJ 144A FRB, Ser. N18,
8 3/4s, 12/1/17 Aaa 5,562,500
-------------
40,770,548
North Carolina (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,600,000 Charlotte Special Facilities Rev. Bonds
(Douglas Intl. Arpt.- US Awy.), 7 3/4s, 2/1/28 B 1,540,000
1,500,000 NC Eastern Muni. Pwr. Agcy. Rev. Bonds, Ser. D,
6 3/4s, 1/1/26 BBB 1,541,250
3,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. A, 5 3/4s, 1/1/26 Baa 2,767,500
-------------
5,848,750
Ohio (4.3%)
-------------------------------------------------------------------------------------------------------------------
OH State Air Quality Dev. Auth. Rev. Bonds
20,000,000 (Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 21,600,000
3,000,000 (Poll. Ctl. Toledo), Ser. A, 6.1s, 8/1/27 Baa 2,835,000
-------------
24,435,000
Oklahoma (2.4%)
-------------------------------------------------------------------------------------------------------------------
4,900,000 OK Dev. Fin. Auth. Rev. Bonds, (Hillcrest
Healthcare), Ser. A, 5 5/8s, 8/15/29 Ba1 3,417,750
7,000,000 OK Indl. Dev. Auth. Rev. Bonds MBIA (Hlth.
Syst.-Oblig. Group), Ser. A, 5 3/4s, 8/15/29 AAA 6,921,250
3,500,000 Tulsa Muni. Arpt. Trust Rev. Bonds
(American Airlines, Inc.), 7 3/8s, 12/1/20 Baa 3,574,795
-------------
13,913,795
Pennsylvania (7.9%)
-------------------------------------------------------------------------------------------------------------------
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 4,075,000
2,250,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panter Creek Partners PJ), 6.65s, 5/1/10 BBB- 2,306,250
4,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 4,173,750
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA,
6.7s, 9/1/14 Aaa 7,802,812
7,750,000 PA Econ. Dev. Fin. Auth. Rev. Bonds (MacMillan Ltd.
Partnership), 7.6s, 12/1/20 A 8,835,000
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,033,750
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
2,000,000 AMBAC, 8.381s, 3/1/22 Aaa 2,202,500
6,000,000 MBIA, 8.253s, 3/1/20 Aaa 7,222,500
4,000,000 Philadelphia Auth. For Indl. Dev. Special Fac.
Rev. Bonds (U.S. Airways Inc. Project),
8 1/8s, 5/1/30 B/P 4,080,000
2,000,000 Philadelphia, Auth. For Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia LLC), 5 1/2s, 1/1/24 BB/P 1,705,000
5,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth.
Rev. Bonds (Graduate Hlth. Syst.), 7 1/4s, 7/1/10
(acquired 4/1/96, cost 5,025,007)(In default) (NON) (RES) D 1,650,000
-------------
45,086,562
South Carolina (1.7%)
-------------------------------------------------------------------------------------------------------------------
4,750,000 SC Toll Road Rev. Bonds (Southern Connector
Project), Ser. A, 5 3/8s, 1/1/38 BBB- 3,604,062
5,000,000 SC State Hsg. Fin. & Dev. Auth. Multi-Fam. Mtge.
Rev. Bonds, 8 1/2s, 10/1/21 BBB 5,184,100
1,000,000 SC State Jobs Econ. Dev. Auth. Hosp. Fac. Rev.
Bonds (Palmetto Hlth. Alliance), Ser. A,
7 3/8s, 12/15/21 Baa 1,033,750
-------------
9,821,912
Tennessee (2.3%)
-------------------------------------------------------------------------------------------------------------------
Johnson City, Hlth. & Edl. Facs. Rev. Bonds
4,700,000 (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 AAA 4,723,500
6,000,000 Ser. A2, MBIA, 8.2s, 7/1/21 (acquired 2/8/00,
cost 5,651,400) (RES) Aaa 6,330,000
2,000,000 Memphis-Shelby Cnty. Arpt. Auth. Rev. Bonds
(Federal Express), 6 3/4s, 9/1/12 Baa 2,072,500
-------------
13,126,000
Texas (7.7%)
-------------------------------------------------------------------------------------------------------------------
10,100,000 Alliance, Arpt. Auth. Rev. Bonds (Federal
Express Corp.), 6 3/8s, 4/1/21 Baa 10,112,625
3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 3,065,220
3,850,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB (High Plains
Baptist Hosp.), FSA, 9.443s, 1/1/22 Aaa 4,182,062
7,250,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A 7,453,942
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines, Inc.)
4,500,000 7 1/2s, 11/1/25 Baa 4,590,000
3,000,000 7 1/4s, 11/1/30 Baa 3,108,750
8,000,000 6 3/8s, 5/1/35 Baa 7,770,000
2,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 2,075,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa3 1,665,000
-------------
44,022,599
Utah (0.8%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Toole Cnty., Hazardous Waste Treatment
Rev. Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 Baa3 4,425,000
Virginia (1.6%)
-------------------------------------------------------------------------------------------------------------------
5,400,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 8.354s, 8/15/23 Aaa 5,770,332
4,400,000 Pocahontas Pk. Way Assn. Toll Rd. Rev. Bonds,
Ser. A, 5 1/2s, 8/15/28 Baa 3,630,000
-------------
9,400,332
Washington (0.9%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa 5,206,250
West Virginia (1.0%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp.
Assn., Inc.), 6.1s, 5/1/29 Baa 2,231,250
3,320,000 Randolph Cnty. Rev. Bonds (Davis Memorial
Hosp.), Ser. A, 7.65s, 11/1/21 Baa 3,459,162
-------------
5,690,412
-------------
Total Municipal Bonds and Notes
(cost $568,408,110) $ 556,048,232
PREFERRED STOCK (1.4%) (NON) (RES)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
4,000,000 Charter Mac Equity 144A, 6.625%, pfd. (acquired 6/30/99,
cost 4,000,000) $ 3,885,000
4,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A,
6.875%, cum.pfd. (acquired 5/7/99, cost 4,000,000) 3,950,000
-------------
Total Preferred Stock (cost $8,000,000) $ 7,835,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $576,408,110) (b) $ 563,883,232
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $571,446,687.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 2000 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, 2000. 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 $576,409,930,
resulting in gross unrealized appreciation and depreciation of
$17,768,648 and $30,295,346 respectively, or net unrealized depreciation
of $12,526,698.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2000 was
$38,371,893 or 6.7% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at October
31, 2000.
The rates shown on IFB, FRB and IF COP, which are securities
paying interest rates that vary inversely to changes in the market
interest rates, are the interest rates in effect at year end.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The fund had the following industry group concentrations greater
than 10% at October 31, 2000 (as a percentage of net assets):
Health care 32.0%
Transportation 29.2
Utilities 12.4
The fund had the following insurance concentration greater than
10% at October 31, 2000 (as a percentage of net assets):
MBIA 12.2%
------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
------------------------------------------------------------------------------
Muni Bond Index
(Long) $11,847,938 $11,795,577 Dec. 00 $52,361
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $576,408,110) (Note 1) $563,883,232
-------------------------------------------------------------------------------------------
Cash 43,600
-------------------------------------------------------------------------------------------
Interest and other receivables 11,845,956
-------------------------------------------------------------------------------------------
Total assets 575,772,788
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,982,514
-------------------------------------------------------------------------------------------
Payable for variation margin 40,906
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,030,273
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 44,923
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19,999
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,992
-------------------------------------------------------------------------------------------
Payable for remarketing fee (Note 2) 136,112
-------------------------------------------------------------------------------------------
Other accrued expenses 69,382
-------------------------------------------------------------------------------------------
Total liabilities 4,326,101
-------------------------------------------------------------------------------------------
Net assets $571,446,687
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) 434,870,851
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,159,096)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (22,792,551)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (12,472,517)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $571,446,687
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A, B, and C remarketed preferred shares $175,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 234,916
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $175,234,916
-------------------------------------------------------------------------------------------
Net assets available to common shares $396,211,771
-------------------------------------------------------------------------------------------
Net asset value per common shares
($396,211,771 divided by 46,970,072 shares) $8.44
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<S> <C>
Tax exempt interest income: $40,042,006
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,942,781
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 343,212
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,222
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,478
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 559,448
-------------------------------------------------------------------------------------------
Other 176,138
-------------------------------------------------------------------------------------------
Total expenses 5,044,279
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (116,447)
-------------------------------------------------------------------------------------------
Net expenses 4,927,832
-------------------------------------------------------------------------------------------
Net investment income 35,114,174
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,409,160)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 888,679
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (6,220,681)
-------------------------------------------------------------------------------------------
Net loss on investments (7,741,162)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $27,373,012
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 35,114,174 $ 37,198,101
--------------------------------------------------------------------------------------------------
Net realized loss on investments (1,520,481) (1,532,801)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (6,220,681) (43,457,589)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 27,373,012 (7,792,289)
--------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders
from net investment income (7,334,261) (5,927,040)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $234,916 and
$163,847, respectively 20,038,751 (13,719,329)
--------------------------------------------------------------------------------------------------
Distributions to common shareholders
from net investment income (35,676,173) (35,366,281)
--------------------------------------------------------------------------------------------------
Issuance of common shares in connection with
reinvestment of distributions 3,501,328 3,764,792
--------------------------------------------------------------------------------------------------
Total decrease in net assets (12,136,094) (45,320,818)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 583,582,781 628,903,599
--------------------------------------------------------------------------------------------------
End of year (including distribution in excess of
net investment income of $3,159,096 and
undistributed net investment income of
$4,732,508, respectively) $571,446,687 $583,582,781
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year 46,577,958 46,221,286
--------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 392,114 356,672
--------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 46,970,072 46,577,958
--------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $8.77 $9.82 $9.92 $9.85 $10.08
--------------------------------------------------------------------------------------------------
Investment operations
--------------------------------------------------------------------------------------------------
Net investment income .75 .80 .79 .84 .86
--------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.16) (.96) .01 .13 (.19)
--------------------------------------------------------------------------------------------------
Total from
investment operations .59 (.16) .80 .97 .67
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net
investment income
--------------------------------------------------------------------------------------------------
To preferred shareholders (.16) (.13) (.14) (.14) (.14)
--------------------------------------------------------------------------------------------------
To common shareholders (.76) (.76) (.76) (.76) (.76)
--------------------------------------------------------------------------------------------------
Total distributions (.92) (.89) (.90) (.90) (.90)
--------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $8.44 $8.77 $9.82 $9.92 $9.85
--------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $9.63 $9.81 $11.44 $11.75 $10.88
--------------------------------------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------------------------------------
Total return at
market value
(common shares)(%)(a) 6.84 (7.72) 4.52 16.01 10.26
--------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $571,447 $583,583 $628,904 $630,043 $622,566
--------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.27 1.23 1.22 1.21 1.24
--------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.97 7.12 6.57 7.13 7.31
--------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 16.72 12.88 19.97 9.63 78.92
--------------------------------------------------------------------------------------------------
(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) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
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 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). 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, 2000, 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, 2000, the fund had a capital loss carryover of
approximately $21,157,000 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
3,629,000 October 31, 2007
1,237,000 October 31, 2008
G) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. Dividends on remarketed preferred
shares become payable when, as and if declared by the Trustees. Each
dividend period for the remarketed preferred shares is generally a
28-day period for Series A and B and a 7-day period for class C. The
applicable dividend rate for the remarketed preferred shares on October
31, 2000 was Series A, 4.36%, Series B 4.50%, and Series C 4.13%. 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 dividend payable, defaulted bond interest,
unrealized gains and losses on certain futures contracts, market
discount, straddle loss deferrals, and partnership income.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended October 31,
2000, the fund reclassified $4,656 to decrease distribution in excess of
net investment income and increase accumulated net realized losses by
$4,656. 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 zero
coupon bonds and 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 year ended October 31, 2000, fund expenses were reduced by
$116,447 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 $601
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
Purchases and sales of securities
During the year ended October 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $98,074,880 and $94,373,179, 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, 2000, no such
restrictions have been placed on the fund.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 99.95% 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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
RESULTS OF OCTOBER 5, 2000 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 5,
2000. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 41,593,598 448,437
Hans H. Estin 41,560,302 481,733
Ronald J. Jackson 41,593,146 448,889
Paul L. Joskow 41,583,905 458,130
Elizabeth T. Kennan 41,585,354 456,681
Lawrence J. Lasser 41,582,918 459,117
John H. Mullin III 41,586,153 455,882
George Putnam, III 41,589,108 452,927
A.J.C. Smith 41,569,423 472,612
W. Thomas Stephens 41,585,617 456,418
W. Nicholas Thorndike 41,572,681 469,354
Preferred Shares
Votes
Votes for withheld
J. A. Hill 1593 49
R. E. Patterson 1593 49
A proposal to ratify the selection of KPMG LLP as the independent
auditors of your fund was approved as follows: 41,551,601 votes for, and
160,805 votes against, with 329,629 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
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
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
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