Putnam
Managed
Municipal
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
In a market environment unsettled by the residual anxiety of the
September 11 terrorist attacks, the collapse of Enron, and the new set
of uncertainties created by unrest in the Middle East, Putnam Managed
Municipal Income Trust posted negative results during the semiannual
period ended April 30, 2002.
On the following pages, the report from your fund's management team will
provide a full review of what has been driving fund performance,
including a discussion of the reasons for the underperformance. The team
also presents its view of prospects for the remainder of fiscal 2002.
You may notice as you read this report that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The names of the individuals who comprise the management
team are shown at the end of Management's discussion of performance.
We know that Putnam Investments values its relationship with you and its
other shareholders and appreciates your loyalty during these times of
restructuring of staff and products in the pursuit of superior
investment performance in the future.
Respectfully yours,
/S/JOHN A. HILL /S/GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 19, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Tax Exempt Fixed-Income Team
Terrorist attacks, dramatic rebounds and selloffs, and, finally, a
wavering recovery were all part of Putnam Managed Municipal Income
Trust's turbulent semiannual period ended April 30, 2002. In the first
half of the period, the Federal Reserve Board concluded its easing of
short-term interest rates, bringing them down to a forty-year low by the
end of calendar 2001. This contributed to a steep yield curve and a
generally positive bond market for most of the period. Later, the Fed
shifted its bias to neutral as the economy showed some signs of
strength, although spotty corporate earnings and concerns about shady
corporate accounting practices kept investors uncertain in the last half
of the semiannual period. In the end, the fund's total return for the
six-month period trailed both its Lipper category average and benchmark,
as the fund's overweighting in lower-rated, higher-yielding bonds hurt
performance in the months after the terrorist attacks on September 11,
2001. While these lower-rated bonds detracted from performance, we
believe they will rebound as the economy improves, providing not just
high current income but price appreciation as well.
Total return for 6 months ended 4/30/02
NAV Market price
-----------------------------------------------------------------------
-0.11% -3.94%
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Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 7.
* HEALTH-CARE HOLDINGS HELPED DIVERSIFY FUND
Over the period, we used bottom-up, issue-by-issue analysis to make
smaller, more numerous purchases in an effort to diversify and protect
the fund's portfolio. These smaller investments seek to guard against the
rise in single-issue risk, as investors, spooked by the terrorist attacks
and widely reported examples of corporate malfeasance, have been tending
to overreact to the slightest rumor about a security. The health-care
sector has provided many of these smaller, less concentrated positions.
One example is an issue from New Jersey Health Care Facilities Financing
Authority for Atlantic City Medical Center (coupon 5.75%, maturity
7/01/2025). Atlantic City MC has a dominant market share of 72% and is a
sole provider in its primary market area. Management is focusing future
growth on capturing patient migration from the area to facilities in
Camden and Philadelphia, over an hour away. Most patients leave the area
for cardiac, vascular, and thoracic services, as well as women's and
newborn services. Cardiac services were recently added, and thoracic and
OB physicians are being recruited. This is a significant opportunity to
increase revenue and cash flow. Also among our recent purchases were
bonds issued by the Health, Educational and Housing Facility Board of the
County of Shelby, Tennessee (coupon 6.5%, maturity 9/01/2026) for
Methodist Healthcare of Memphis. Methodist Healthcare is the number one
provider in Memphis, and has good geographic coverage in the area. It
controls the mortgages on three key Memphis facilities and is run by a
solid management team.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 24.1%
Transportation 23.7%
Utilities 11.5%
Water and sewer 5.7%
Housing 4.8%
Footnote reads:
*Based on market value as of 4/30/02. Holdings will vary over time.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 40.5%
AA/A -- 2.2%
A --11.7%
BBB/Baa -- 21.9%
BB/Ba -- 13.7%
B -- 4.9%
Other -- 5.1%
Footnote reads:
*As a percentage of market value as of 4/30/02. A bond rated Baa 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.
* AIRLINES PROVIDE BUMPY RIDE WHILE HIGHLIGHTING FUND'S STRENGTHS
The trials and troubles of the airline industry provide an illustration
of the value added by Putnam's research capabilities and long-term
investment focus. Although certainly not the largest sector of the
portfolio, airlines and airport authority bonds have represented a
significant portion of your fund's holdings in years past. These bonds
have a history of high current income and have been one of the most
liquid sectors of the municipal bond market. However, perceptions of
these bonds changed drastically on September 11, 2001. Airline-backed
securities were hurt significantly, including those in your fund's
portfolio. Maintaining calm amidst the widespread concern, your fund's
management team took full advantage of the research capabilities
available to it. Existing airline holdings were analyzed on an
issue-by-issue basis, considering creditworthiness while factoring in
the top-down issues of airline industry restructuring in the post-crisis
environment and the influx of federal relief dollars. As a result of
this reevaluation, we decided to trim the fund's airline-related
positions only slightly in expectation of a long-term rebound. While we
expect further losses for the airlines in 2002, our airline holdings
continue to pay their coupons and signs are pointing to a bottom and
eventual recovery for the industry. Airline travel was down a third in
October of 2001; however, it was down only 10 percent later in the
period, based on lower industry-wide capacity. Demand, induced by fare
cuts, continues to grow and our expectation is for airlines to increase
their bond issuance sometime in the coming year. Volatile oil prices
stalled the recovery in the last couple of months of the period but we
believe that with the continued assurance of government relief money
that our airline holdings will continue to be a good investment. Our
initial analysis proved its effectiveness as the airline sector was one
of the strongest-performing areas of the portfolio in the last half of
the period.
Fund Profile
Putnam Managed Municipal Income Trust seeks to provide as high a level
of current income free from federal income tax as is consistent with
preservation of capital through investments in investment-grade and
higher-yielding, lower-rated municipal bonds. The fund is suitable for
investors seeking tax-exempt income and willing to accept the risks
associated with below-investment-grade bonds.
* MUNI BOND MARKETS STABLE RELATIVE TO OTHER INVESTMENTS
The municipal bond market as a whole remained relatively stable during
the period despite the fallout from New York's terrorist attacks. New
York City, thanks in part to generous federal assistance, has had no
problems meeting its debt obligations although the prices of its bonds
have declined. From a bond investor's perspective, the New York City
picture is now less focused on the aftermath of the attacks and more
concerned with opportunity for undervalued bond issues in the coming
months. The city's reputation among muni-bond investors has been
bolstered by financial disclosure statutes put in place after the city's
budget crisis in the 1970s.
Your fund's management team has been extremely cautious in the purchase
of General Obligation bonds, which are secured by tax revenues, from
issuers nationwide. As the economy recovered slowly over most of the
period, tax revenues dropped and many states and municipalities moved
from surplus to deficit status, issuing bonds to make up the difference.
We have found great valuations nationally in bonds backed by the
distribution of proceeds from the tobacco industry's settlement with
individual states. These bonds are consistently rated single As with
yields at the level of BBB hospital bonds. Based on analysis of the
tobacco industry's current growth levels and the outcome of recent court
cases, we believe these bonds will continue to be stable investments.
* OUTLOOK CAUTIOUS IN COMING SIX MONTHS
In the near term, we remain cautious on rates. Our view is that the
economy may continue to struggle in its recovery, which should keep the
Federal Reserve from tightening interest rates until it sees a credible
threat of inflation. Right now there is no such threat, and for the
first four months of 2002, the Fed has appeared more concerned about the
progress of the recovery than about inflation. Since the capital markets
have retracted, with significant declines in capital spending and
corporate investment, this lack of funding is in itself a restraint on
the economy. As a result, we believe the Fed may hold off on tightening
even if growth begins to pick up.
Over the longer term, we feel that the national profile of municipal
bonds has been raised and believe that the days of aggressive stock
investing have given way to an understanding of the importance of asset
allocation within investors' portfolios. We believe fixed-income
investments and municipal bonds in particular will benefit. Later, as
the Enron scandal fades and the economy improves, high-yield municipals
-- which are less sensitive to interest-rate increases and perform
better in a growing economy -- should bolster the return of your fund.
Because of the fund's high-yield exposure, we think it will end up with
a competitive advantage relative to its peers.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 4/30/02, there is no guarantee the fund will
continue to hold these securities in the future. Government securities
guarantee principal and interest; mutual funds that invest in these
securities are not guaranteed. Mortgage-backed securities are subject to
prepayment risk.
This fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are Jerome Jacobs, Blake Anderson, Joyce Dragone,
David Hamlin, Susan McCormack, and Richard Wyke.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 4/30/02
Lehman
Municipal Consumer
NAV Market price Bond Index price index
-------------------------------------------------------------------------------
6 months -0.11% -3.94% 1.08% 1.07%
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1 year 3.98 -1.29 7.00 1.53
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5 years 21.39 3.83 36.79 12.12
Annual average 3.95 0.75 6.47 2.31
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10 years 82.24 63.01 93.35 28.67
Annual average 6.19 5.01 6.82 2.55
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Life of fund
(since 2/24/89)
Annual average 6.96 6.01 7.48 3.00
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Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset value
and market price will fluctuate and you may have a gain or a loss when
you sell your shares. Performance does not reflect taxes on reinvested
distributions.
TOTAL RETURN FOR PERIODS ENDED 3/31/02 (most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------------------
6 months -0.67% -4.30%
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1 year 0.89 -0.71
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5 years 20.31 6.69
Annual average 3.77 1.30
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10 years 81.26 67.80
Annual average 6.13 5.31
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Life of fund
(since 2/24/89)
Annual average 6.87 6.03
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Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset value
and market price will fluctuate and you may have a gain or a loss when
you sell your shares. Performance does not reflect taxes on reinvested
distributions.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/02
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Distributions (common shares)
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Number 6
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Income $0.285
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Capital gains 1 --
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Total $0.285
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Series A Series B Series C
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Preferred shares (550 shares) (550 shares) (650 shares)
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Income $755.13 $746.50 $750.29
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Capital gains 1 -- -- --
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Total $755.13 $746.50 $750.29
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Share value (common shares) NAV Market price
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10/31/01 $8.49 $8.440
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4/30/02 8.19 7.830
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Current return (end of period)
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Current
dividend
rate 2 6.96% 7.28%
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Taxable
equivalent 3 11.34 11.86
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
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 38.60% federal income tax rate for 2002. 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 Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds. Indexes assume
reinvestment of all distributions and do not account for fees.
Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
April 30, 2002 (Unaudited)
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
PSFG -- Permanent School Fund Guaranteed
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.9%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Alabama (1.8%)
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$ 500,000 Baldwin Cnty., Eastern Shore Healthcare Auth.
Rev. Bonds (Thomas Hosp.), 6 3/4s, 4/1/21 Baa3 $ 503,750
10,000,000 Jefferson Cnty., Swr. Rev. Bonds (Cap. Impt.),
Ser. A, FGIC, 5s, 2/1/41 Aaa 9,412,500
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9,916,250
Alaska (0.4%)
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2,000,000 Valdez Marine Term Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ 2,065,940
Arizona (3.1%)
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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 4,656,250
2,500,000 Casa Grande, Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.), Ser. A, 7 5/8s, 12/1/29 B/P 2,587,500
4,000,000 Coconino Cnty., Poll. Control Rev. Bonds
(Tuscon/Navajo Elec. Pwr.), Ser. A, 7 1/8s, 10/1/32 Ba3 4,140,000
4,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 Caa2 1,780,000
2,660,000 Phoenix, Indl. Dev. Auth. Rev. Bonds
(Mission Place Project A-1), GNMA Coll.,
7 1/2s, 7/20/35 AAA 3,012,450
1,000,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Scottsdale Healthcare), 5.8s, 12/1/31 A3 983,750
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17,159,950
Arkansas (2.0%)
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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 4,916,250
6,000,000 Northwest AR Regl. Arpt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 6,120,000
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11,036,250
California (6.3%)
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7,000,000 CA Hlth. Facs. Auth. IFB (Catholic Healthcare West),
AMBAC, 8.956s, 7/1/17 Aaa 7,140,000
3,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group),
5 3/8s, 4/1/30 BBB 2,733,750
Corona, COP
2,775,000 (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20
(In default) (NON) D/P 1,026,750
5,000,000 (Hosp. Syst., Inc.), Ser. C, 8 3/8s, 7/1/11
(In default) (NON) D/P 1,850,000
2,000,000 Gilroy, Rev. Bonds (Bonfante Gardens Pk. Project),
8s, 11/1/25 B/P 1,922,500
3,500,000 San Bernardino Cnty., IF COP (PA-100-Med. Ctr. Fin.),
MBIA, 11.58s, 8/1/28 (acquired 6/27/95,
cost $3,777,340) (RES) AAA/P 4,475,625
3,000,000 San Luis Obispo, COP (Vista Hosp. Syst., Inc.),
8 3/8s, 7/1/29 (In default) (NON) D/P 1,110,000
8,750,000 Santa Clara Cnty., Fin. Auth. Lease Rev. Bonds
(VMC Fac. Replacement Project), Ser. A,
AMBAC, 6 3/4s, 11/15/20 Aaa 9,898,438
6,150,000 Valley Hlth. Syst. Hosp. Rev. Bonds
(Refunding & Impt. Project), Ser. A,
6 1/2s, 5/15/25 BB 4,766,250
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34,923,313
Colorado (2.0%)
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5,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.),
8.3s, 12/1/17 (In default) (NON) D/P 2,750,000
CO Pub. Hwy. Auth. Rev. Bonds (E-470 Pub. Hwy.),
Ser. B,
15,500,000 zero %, 9/1/35 Baa3 1,317,500
16,500,000 zero %, 9/1/34 Baa3 1,505,625
Denver, City & Cnty. Arpt. Rev. Bonds
1,050,000 Ser. D, 7 3/4s, 11/15/13 A 1,278,375
2,500,000 5 1/2s, 11/15/25 Aaa 2,534,375
1,400,000 Northwest Parkway Pub. Hwy. Auth. Rev. Bonds,
Ser. D, 7 1/8s, 6/15/41 BBB-/P 1,433,250
-------------
10,819,125
Connecticut (1.0%)
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1,500,000 CT State HFA Yale U. Ed. Fac. Auth. VRDN,
Ser. V-1, 1.35s, 7/1/36 VMIG1 1,500,000
4,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Healthcare, Inc.), Ser. A, 8.7s, 7/1/22 AAA/P 4,165,720
-------------
5,665,720
District of Columbia (0.7%)
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4,000,000 DC, Tobacco Settlement Fin. Corp. Rev. Bonds,
6 1/2s, 5/15/33 A1 4,110,000
Florida (4.3%)
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2,000,000 Capital Trust Agcy. Rev. Bonds (Seminole Tribe
Convention), Ser. A, 10s, 10/1/33 B/P 2,007,500
3,210,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa2 3,358,463
5,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 A-/P 5,368,750
9,150,000 Lee Cnty., Board of Directors Hosp. IFB
(Lee Memorial Hosp.), MBIA, 10.844s, 3/26/20 Aaa 9,529,451
1,335,000 Miami Beach, Hlth. Fac. Auth. Hosp. Rev. Bonds
(Mount Sinai Med. Ctr.), Ser. A, 6.7s, 11/15/19 BB 1,148,100
310,000 Pinellas Cnty., Hlth. Facs. Auth. Syst. Rev. Bonds
(Sun Coast Hosp.), Ser. A, 8 1/2s, 3/1/20 BB+ 311,823
2,000,000 St. Johns Cnty., FL Healthcare Indl. Dev. Auth.
Rev. Bonds (Glenmoor St. Johns Project),
Ser. A, 8s, 1/1/30 B+/P 2,047,500
-------------
23,771,587
Georgia (3.4%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 Atlanta Waste Wtr. Rev. Bonds, Ser. A, MBIA,
5s, 11/1/39 Aaa 9,562,500
1,750,000 Fulton Cnty., Dev. Auth. Fac. Rev. Bonds
(Delta Air Lines, Inc.), 5 1/2s, 5/1/33 BB+ 1,354,063
GA Med. Ctr. Hosp. Auth. IFB, MBIA
700,000 8.719s, 8/1/10 Aaa 737,765
1,800,000 8.719s, 8/1/10, Prerefunded Aaa 1,910,556
Savannah, Hosp. Auth. Rev. Bonds (Chandler Hosp.)
1,900,000 7s, 1/1/23 Aaa/P 2,000,301
3,180,000 7s, 1/1/11 Aaa/P 3,347,872
-------------
18,913,057
Hawaii (1.0%)
-------------------------------------------------------------------------------------------------------------------
965,000 HI Dept. of Trans. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 7s, 6/1/20 BB- 846,788
4,500,000 HI State G.O. Bonds, Ser. CY, FSA, 5 1/2s, 2/1/12 Aaa 4,921,875
-------------
5,768,663
Illinois (3.3%)
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Chicago, G.O. Bonds
3,500,000 FGIC, 5 1/2s, 1/1/40 Aaa 3,539,375
2,500,000 (Neighborhoods Alive 21 Project), FGIC, 5s, 1/1/41 AAA 2,337,500
2,500,000 Ser. A, MBIA, 5s, 1/1/31 AAA 2,371,875
2,500,000 Chicago, Midway Arpt. Rev. Bonds, Ser. A, 5 1/8s, 1/1/35 Aaa 2,340,625
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
3,000,000 (American Airlines, Inc.), 8.2s, 12/1/24 BB 3,003,750
2,500,000 (United Air Lines, Inc.), Ser. C, 6.3s, 5/1/16 B-/P 1,378,125
3,250,000 IL, Dev. Fin. Auth. Hosp. Rev. Bonds (Adventist Hlth.
Syst./Sunbelt Oblig.), 5.65s, 11/15/24 A- 3,079,375
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18,050,625
Indiana (2.2%)
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2,500,000 IN State Dev. Fin. Auth. Env. Impt. Rev. Bonds
(USX Corp.), 5.6s, 12/1/32 Baa1 2,284,375
9,300,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev.
Bonds (Federal Express Corp.), 7.1s, 1/15/17 Baa2 9,799,875
-------------
12,084,250
Iowa (1.1%)
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IA Fin. Auth. Healthcare Fac. Rev. Bonds
(Care Initiatives)
3,000,000 9 1/4s, 7/1/25 BBB-/P 3,682,500
1,915,000 9.15s, 7/1/09 BBB-/P 2,247,731
-------------
5,930,231
Kansas (1.6%)
-------------------------------------------------------------------------------------------------------------------
8,400,000 Wichita, Hosp. IFB, Ser. 111-A, MBIA,
11.196s, 10/20/17 Aaa 8,917,608
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 BB+ 7,804,463
1,000,000 Scott Cnty., Indl. Dev. Rev. Bonds
(Hoover Group, Inc.), 8 1/2s, 11/1/14 Ba3 966,250
2,740,000 Trimble Cnty., Poll. Control Rev. Bonds, Ser. B,
6.55s, 11/1/20 A1 2,808,856
-------------
11,579,569
Louisiana (4.1%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Pub. Facs. Auth. Hosp. Rev. Bonds
(Lake Charles Memorial Hosp. Project),
8 5/8s, 12/1/30 B+/P 2,040,000
2,500,000 LA Pub. Facs. Auth. Rev. Bonds (Tulane U.), Ser. A,
AMBAC, 5s, 7/1/32 Aaa 2,415,625
12,500,000 Lake Charles, Harbor & Term Dist. Port Fac.
Rev Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 13,036,125
2,500,000 Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. 2001B,
5 7/8s, 5/15/39 A1 2,256,250
2,750,000 W. Feliciana Parish, Poll. Control Rev. Bonds
(Gulf States Util. Co.), Ser. C, 7s, 11/1/15 Ba1 2,842,813
-------------
22,590,813
Maine (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Rumford Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp.), 6 7/8s, 10/1/26 Baa3 2,045,000
Massachusetts (4.6%)
-------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Facs. Auth. Rev. Bonds
2,000,000 (Civic Investments), Ser. A, 9s, 12/15/15 B/P 2,027,500
3,400,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s,
8/15/24 AAA/P 3,820,750
1,185,000 (Norwood Hosp.), 7s, 7/1/14 BBB- 1,424,963
2,500,000 (UMass Memorial), Ser. C, 6 5/8s, 7/1/32 Baa2 2,484,375
3,400,000 (Sisters Providence Hlth. Syst.), Ser. A, 6 5/8s,
11/15/22 Aaa 3,552,694
1,875,000 (UMass Memorial), Ser. C, 6 1/2s, 7/1/21 Baa2 1,853,906
820,000 (Caritas Christi Oblig.), Ser. B, 6 1/4s, 7/1/22 Baa2 820,000
7,645,000 MA State Hsg. Fin. Agcy. IFB (Rites-PA-370),
9.649, 7/1/40 (acquired 6/3/98, cost $7,739,951) (RES) AAA 7,664,113
2,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds, AMBAC
(Rental Mtge.), Ser. C, 5 5/8s, 7/1/40 Aaa 2,002,500
-------------
25,650,801
Michigan (3.2%)
-------------------------------------------------------------------------------------------------------------------
4,095,000 Detroit, Local Dev. Fin. Auth. Tax Increment G.O.
Bonds, Ser. A, 9 1/2s, 5/1/21 BBB+/P 4,439,594
2,000,000 MI State Strategic Fund Resource Recvy. Oblig.
Rev. Bonds (Central Wayne Energy Res.), Ser. A,
6.9s, 7/1/19 CCC/P 1,200,000
2,700,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds (NOMC Oblig.
Group), Ser. B, 6s, 8/1/18 Baa3 2,224,125
2,975,000 Warren, Cons. School Dist. G.O. Bonds, FSA,
5 3/8s, 5/1/18 Aaa 3,082,844
6,785,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 B-/P 4,910,644
2,000,000 Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds
(Northwest Airlines, Inc.), 6s, 12/1/29 B+/P 1,575,000
-------------
17,432,207
Minnesota (2.0%)
-------------------------------------------------------------------------------------------------------------------
1,815,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore Biomedical, Inc.),
10 1/4s, 9/1/20 BB/P 1,934,246
4,395,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa2 4,488,657
5,330,000 St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Healtheast), Ser. B, 6 5/8s, 11/1/17 Ba2 4,497,188
-------------
10,920,091
Mississippi (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,250,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 5.9s, 5/1/22 BBB- 2,168,438
Missouri (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
(St. Anthony's Med. Ctr.), 6 1/4s, 12/1/30 A2 2,077,500
Nebraska (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Gage Cnty., Indl. Dev. Rev. Bonds (Hoover Group, Inc.),
8 1/2s, 12/1/07 Ba3 1,945,000
2,500,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte River
Road), 6 3/4s, 1/1/28 D/P 300,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
1,050,000 GNMA Coll., 11.666s, 9/15/24 Aaa 1,185,219
1,700,000 Ser. C, 10.321s, 3/1/20 Aaa 1,806,250
-------------
5,236,469
Nevada (2.8%)
-------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
6,000,000 Ser. B, 7 1/2s, 9/1/32 Baa2 6,164,160
5,000,000 Ser. C, AMBAC, 5.95s, 12/1/38 Aaa 5,237,500
4,000,000 Las Vegas, Monorail Rev. Bonds (2nd Tier),
7 3/8s, 1/1/40 BB-/P 3,905,000
-------------
15,306,660
New Hampshire (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,565,000 NH State Bus. Fin. Auth. Rev. Bonds
(Alice Peck Day Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,443,163
New Jersey (3.1%)
-------------------------------------------------------------------------------------------------------------------
1,250,000 NJ Econ. Dev. Auth. Retirement Cmnty. Rev. Bonds
(Cedar Crest Village, Inc. Fac.), Ser. A, 7 1/4s,
11/15/31 BB-/P 1,212,500
5,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 BB- 4,331,250
NJ Healthcare Facs. Fin. Auth. Rev. Bonds
3,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 Baa3 3,213,750
1,250,000 (Atlantic City Med. Ctr.), 5 3/4s, 7/1/25 A3 1,256,250
6,500,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, FSA, 5 1/2s, 6/15/12 Aaa 7,166,250
-------------
17,180,000
New York (8.5%)
-------------------------------------------------------------------------------------------------------------------
10,000,000 NY City, G.O. Bonds, Ser. B, 5 1/4s, 12/1/09 A2 10,637,500
9,625,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(British Airways), 5 1/4s, 12/1/32 BBB- 7,134,531
5,000,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. IFB, 9.747s,
6/15/17 (acquired 5/21/98, cost $5,296,700) (RES) AAA 5,375,000
NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev. Bonds
7,400,000 Ser. G, FSA, 5s, 6/15/34 Aaa 7,122,500
4,000,000 NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. VRDN,
Ser. G, 1.65s, 6/15/24 VMIG1 4,000,000
2,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard, LLC), 7s, 11/1/30 BB-/P 2,085,000
5,000,000 Port Auth. NY & NJ Rev. Bonds, Ser. 96, FGIC,
6.6s, 10/1/23 Aaa 5,350,000
5,000,000 Port Auth. NY & NJ Special Oblig. 144A IFB,
Ser. N18, 3.6s, 12/1/17 (acquired 7/19/00,
cost $5,234,450) (RES) Aaa 5,825,000
-------------
47,529,531
North Carolina (0.9%)
-------------------------------------------------------------------------------------------------------------------
700,000 Charlotte, Special Facs. Rev. Bonds (Douglas Intl.
Arpt.-US Awy.), 7 3/4s, 2/1/28 CCC/P 392,000
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
1,500,000 Ser. D, 6 3/4s, 1/1/26 BBB 1,597,500
3,000,000 Ser. A, 5 3/4s, 1/1/26 BBB 2,913,750
-------------
4,903,250
Ohio (3.7%)
-------------------------------------------------------------------------------------------------------------------
OH State Air Quality Dev. Auth. Rev. Bonds
13,000,000 (Cleveland Co.), FGIC, 8s, 12/1/13 Aaa 13,446,290
3,000,000 (Toledo Poll. Control), Ser. A, 6.1s, 8/1/27 Baa2 2,985,000
4,000,000 Rickenbacker Port Auth. Cap. Funding Rev. Bonds
(OASBO Expanded Asset Pooled), Ser. A,
5 3/8s, 1/1/32 A2 3,885,000
-------------
20,316,290
Oklahoma (2.0%)
-------------------------------------------------------------------------------------------------------------------
4,900,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 B2 3,662,750
7,000,000 OK State Ind. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A, 5 3/4s, 8/15/29 Aaa 7,297,500
-------------
10,960,250
Pennsylvania (6.0%)
-------------------------------------------------------------------------------------------------------------------
3,500,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
Rev. Bonds (US Airways), Ser. B, 8 1/2s, 3/1/21 CCC+ 2,135,000
2,250,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panther Creek Partners), 6.65s, 5/1/10 BBB- 2,404,688
3,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.),
Ser. A, 6s, 1/15/25 CCC/P 2,480,619
7,250,000 PA Convention Ctr. Auth. Rev. Bonds, MBIA,
6.7s, 9/1/14 Aaa 7,993,125
1,000,000 PA Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds
(Colver Project), Ser. D, 7 1/8s, 12/1/15 BBB- 1,046,250
PA Econ. Dev. Fin. Auth. Rev. Bonds
7,750,000 (MacMillan, Ltd. Partnership), 7.6s, 12/1/20 Baa2 9,048,125
1,000,000 (Amtral Project), Ser. A, 6 3/8s, 11/1/41 A3 1,000,000
2,000,000 PA State Higher Ed. Assistance Agcy. IFB, Ser. B,
AMBAC, 10.591s, 3/1/22 Aaa 2,087,500
4,000,000 Philadelphia, Auth. For Indl. Dev. Special Facs. Rev.
Bonds (US Airways, Inc. Project), 8 1/8s, 5/1/30 CCC/P 1,640,000
2,000,000 Philadelphia, Auth. Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia, LLC), 5 1/2s, 1/1/24 BB/P 1,570,000
2,806,577 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev.
Bonds (Graduate Hlth. Syst.), 7 1/4s,
7/1/10 (In default) (NON) D 3,508
1,800,000 Sayre, Healthcare Facs. Auth. Rev. Bonds
(Guthrie Hlth.), Ser. A, 5 7/8s, 12/1/31 A- 1,791,000
-------------
33,199,815
South Carolina (1.6%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds
(Palmetto Hlth. Alliance), Ser. A, 7 3/8s, 12/15/21 Baa2 1,058,750
SC Tobacco Settlement Rev. Mgt. Rev. Bonds, Ser. B
1,300,000 6 3/8s, 5/15/30 A1 1,313,000
3,000,000 6 3/8s, 5/15/28 A1 3,015,000
4,750,000 SC Toll Road Rev. Bonds (Southern Connector
Project), Ser. A, 5 3/8s, 1/1/38 BBB- 3,259,688
-------------
8,646,438
Tennessee (2.9%)
-------------------------------------------------------------------------------------------------------------------
6,000,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board IFB,
Ser. A2, MBIA, 10.445s, 7/1/21 (acquired 2/8/00,
cost $5,651,400) (RES) Aaa 6,907,500
4,700,000 Johnson City, Hlth. & Edl. Facs. Hosp. Board Rev.
Bonds (Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 Baa2 5,052,500
2,000,000 Memphis-Shelby Cnty., Arpt. Auth. Rev. Bonds
(Federal Express), 6 3/4s, 9/1/12 Baa2 2,050,260
2,000,000 Shelby Cnty. Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Methodist Healthcare), 6 1/2s, 9/1/26 Baa1 2,007,500
-------------
16,017,760
Texas (10.7%)
-------------------------------------------------------------------------------------------------------------------
10,100,000 Alliance, Arpt. Auth. Rev. Bonds (Federal Express Corp.),
6 3/8s, 4/1/21 Baa2 10,339,875
3,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 BB 2,793,750
9,500,000 Austin Elec. Util. Syst. Rev. Bonds, FSA, 5s, 1/15/30 Aaa 9,001,250
4,655,000 Carrollton, Farmers Branch Indpt. School Dist. G.O.
Bonds, PSFG, 5s, 2/15/17 Aaa 4,684,094
3,500,000 Dallas, Special Tax Rev. Bonds, AMBAC, 5s, 8/15/25 Aaa 3,364,375
Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp. Rev.
Bonds (American Airlines, Inc.)
3,000,000 7 1/4s, 11/1/30 BB 2,688,750
8,000,000 6 3/8s, 5/1/35 BB 6,350,000
3,000,000 Harris Cnty., Hlth. Fac. Rev. Bonds (Memorial
Hermann Healthcare), Ser. A, 6 3/8s, 6/1/29 A3 3,112,500
10,000,000 Harris Cnty., Houston Sports Auth. Rev. Bonds,
Ser. B, MBIA, 5 1/4s, 6/1/29 Aaa 9,737,500
4,000,000 Houston, Arpt. Syst. Rev. Bonds, Ser. C, FGIC,
5s, 7/1/28 Aaa 3,735,000
2,000,000 Lower Neches Valley Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 2,105,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl. Hosp.),
6s, 7/1/29 Baa2 1,850,000
-------------
59,762,094
Utah (0.9%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Tooele Cnty., Harbor & Term Dist. Port Fac. Rev.
Bonds (Union Pacific), Ser. A, 5.7s, 11/1/26 Baa3 4,718,750
Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
4,400,000 Pocahontas Parkway Assn. Toll Rd. Rev. Bonds,
Ser. A, 5 1/2s, 8/15/28 Baa3 3,030,500
Washington (1.5%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 5,431,250
3,200,000 Port of Seattle, Special Fac. Rev. Bonds
(Northwest Airlines Project), 7 1/4s, 4/1/30 B+/P 2,960,000
-------------
8,391,250
West Virginia (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,500,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp. Assn., Inc.),
6.1s, 5/1/29 BB+ 1,984,375
Wisconsin (0.7%)
-------------------------------------------------------------------------------------------------------------------
3,900,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Wheaton Franciscan), 5 3/4s, 8/15/30 A2 3,851,250
-------------
Total Municipal Bonds and Notes (cost $571,590,617) $ 547,074,833
PREFERRED STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,000,000 Charter Mac Equity Issue Trust 144A Ser. A,
6.625% cum. pfd. $ 2,055,000
4,000,000 MuniMae Tax Exempt Bond Subsidiary, LLC 144A
Ser. A, 6.875% cum. pfd. 4,150,000
-------------
Total Preferred Stocks (cost $6,000,000) $ 6,205,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $577,590,617) (b) $ 553,279,833
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio's market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2002 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at April 30, 2002. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $577,479,089,
resulting in gross unrealized appreciation and depreciation of
$17,685,088 and $41,884,344, respectively, or net unrealized
depreciation of $24,199,256.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2002 was
$30,247,238 or 5.5% of market value.
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 rates shown on IFB and IF COP, which are securities paying interest
rates that vary inversely to changes in the market interest rates, and
VRDN's are the current interest rates at April 30, 2002.
The fund had the following industry group concentrations greater
than 10% at April 30, 2002 (as a percentage of market value):
Health care 24.1%
Transportation 23.7
Utilities 11.5
The fund had the following insurance concentration greater than
10% at April 30, 2002 (as a percentage of market value):
MBIA 11.2%
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2002 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $577,590,617) (Note 1) $ 553,279,833
-------------------------------------------------------------------------------------------
Cash 327,119
-------------------------------------------------------------------------------------------
Interest and other receivables 11,317,489
-------------------------------------------------------------------------------------------
Receivable for securities sold 2,110,792
-------------------------------------------------------------------------------------------
Total assets 567,035,233
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,241,060
-------------------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 80,607
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,000,000
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 934,171
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 52,176
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 42,589
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,902
-------------------------------------------------------------------------------------------
Other accrued expenses 167,203
-------------------------------------------------------------------------------------------
Total liabilities 5,520,708
-------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares: (8,000
shares authorized; 1,750 shares issued at $100,000 per share)
(Note 4) $ 175,000,000
-------------------------------------------------------------------------------------------
Net assets $ 386,514,525
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized)
(Note 1) 436,712,799
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (485,350)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (25,402,140)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (24,310,784)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
common shares outstanding $ 386,514,525
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per common share ($386,514,525 divided by
47,181,799 shares) $8.19
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended April 30, 2002 (Unaudited)
Tax exempt interest income: $ 19,465,130
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,893,199
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 175,547
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,616
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,307
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 334,203
-------------------------------------------------------------------------------------------
Other 77,866
-------------------------------------------------------------------------------------------
Total expenses 2,486,738
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (23,296)
-------------------------------------------------------------------------------------------
Net expenses 2,463,442
-------------------------------------------------------------------------------------------
Net investment income 17,001,688
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,374,404)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1) 94,025
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (14,927,394)
-------------------------------------------------------------------------------------------
Net loss on investments (16,207,773)
-------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------
From tax exempt income (1,313,584)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations applicable
to common shares $ (519,669)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2002* 2001
-------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $ 17,001,688 $ 34,072,925
-------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,280,379) (1,329,210)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (14,927,394) 3,089,127
-------------------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income (1,313,584) (5,820,016)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations
applicable to common shares (519,669) 30,012,826
-------------------------------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income (13,440,659) (27,591,692)
-------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 219,403 1,622,545
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (13,740,925) 4,043,679
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of period 400,255,450 396,211,771
-------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $485,350 and
$2,732,795, respectively) $386,514,525 $400,255,450
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 47,155,237 46,970,072
-------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 26,562 185,165
-------------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 47,181,799 47,155,237
-------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning and
end of period 1,750 1,750
-------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
-------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $8.49 $8.44 $8.77 $9.82 $9.92 $9.85
-------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------
Net investment income (a) .36 .72 .75 .80 .79 .84
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.34) .04 (.16) (.96) .01 .13
-------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
-------------------------------------------------------------------------------------------------------------
From net investment income (.03) (.12) (.16) (.13) (.14) (.14)
-------------------------------------------------------------------------------------------------------------
Total from investment
operations applicable
to common shares (.01) .64 .43 (.29) .66 .83
-------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
-------------------------------------------------------------------------------------------------------------
From net investment income (.29) (.59) (.76) (.76) (.76) (.76)
-------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.59) (.76) (.76) (.76) (.76)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $8.19 $8.49 $8.44 $8.77 $9.82 $9.92
-------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $7.83 $8.44 $9.63 $9.81 $11.44 $11.75
-------------------------------------------------------------------------------------------------------------
Total return at
market value (%)
(common shares)(b) (3.94)* (6.21) 6.84 (7.72) 4.52 16.01
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)
(in thousands) $386,515 $400,255 $396,212 $408,419 $453,766 $454,915
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .64* 1.22 1.27 1.23 1.22 1.21
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 4.03* 7.01 6.97 7.12 6.57 7.13
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.42* 17.95 16.72 12.88 19.97 9.63
-------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(d) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed Municipal Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund's investment
objective is to seek a high level of current income exempt from federal
income tax. The fund intends to achieve its objective by investing in a
diversified portfolio of tax-exempt municipal securities which Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC, 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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 an independent 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. Restricted securities are stated at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) 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. All premiums/discounts
are amortized/accreted on a yield-to-maturity basis. The premium in
excess of the call price, if any, is amortized to the call date;
thereafter, the remaining excess premium is amortized to maturity.
C) 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. The Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." 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.
D) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, 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, 2001, the fund had a capital loss carryover of
approximately $22,799,000 available to the extent allowed by tax law 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
1,642,000 October 31, 2009
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Distributions from 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 Series B shares,
respectively, and a 7-day period for Series C shares. The applicable
dividend rate for the remarketed preferred shares on April 30, 2002 was
1.55% for Series A, 1.42% for Series B and 1.60% for Series C. The
amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
F) 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.
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 of the average weekly net assets, 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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended April 30, 2002,
the fund's expenses were reduced by $23,296 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $643 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. 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 a 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 six months ended April 30, 2002, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $68,198,902 and $63,220,062, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Remarketed preferred shares
The Series A (550), Series B (550) and Series 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 accrued on a daily basis but unpaid through the redemption date
(whether or not such dividends have been declared) and, in certain
circumstances, a call premium.
Under the Investment Company Act of 1940, the fund is required to
maintain asset coverage of at least 200% with respect to the remarketed
preferred shares as of the last business day of each month in which any
such shares are outstanding. Additionally, the fund is required to meet
more stringent asset coverage requirements under terms of the remarketed
preferred shares and the shares' rating agencies. Should these
requirements not be met, or should dividends accrued on the remarketed
preferred shares not be paid, the fund may be restricted in its ability
to declare dividends to common shareholders or may be required to redeem
certain of the remarketed preferred shares. At April 30, 2002, no such
restrictions have been placed on the fund.
Under Emerging Issues Task Force (EITF) promulgation Topic D-98,
Classification and Measurement of Redeemable Securities, which was
issued on July 19, 2001, preferred securities that are redeemable for
cash or other assets are to be classified outside of permanent equity to
the extent that the redemption is at a fixed or determinable price and
at the option of the holder or upon the occurrence of an event that is
not solely within the control of the issuer. Subject to the guidance of
the EITF, the Trust's preferred stock, which was previously classified
as a component of net assets, has been reclassified outside of permanent
equity (net assets) in the accompanying financial statements. Prior year
amounts have also been reclassified to conform with this presentation.
The impact of this reclassification creates no change to the net assets
available to common shareholders.
Note 5
New accounting pronouncement
As required, effective January 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies. This Guide requires that the fund amortize premium and
accrete discount on all fixed-income securities, and classify as
interest income gains and losses realized on paydowns on mortgage-backed
securities. Prior to November 1, 2001, the fund did not accrete
discounts for certain fixed income securities. Adopting these accounting
principles will not affect the fund's net asset value, but will change
the classification of certain amounts between interest income and
realized and unrealized gain/loss in the Statement of operations. The
adoption of this principle is not material to the financial statements.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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 and Treasurer
Patricia C. Flaherty
Senior Vice President
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 Jacobs
Vice President and CIO
Richard G. Leibovitch
Vice President
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.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
79289 052 6/02