<PAGE> 1
PUTNAM
MUNICIPAL
OPPORTUNITIES
TRUST
SEMIANNUAL REPORT
October 31, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
- Putnam Municipal Opportunities Trust's 6-month dividend yield of 7.50%
outpaced the 7.27% average yield for the 60 closed-end general municipal
bond funds tracked by Lipper Analytical Services as of October 31, 1994*.
- Performance should always be considered in light of a fund's investment
strategy. Putnam Municipal Opportunities Trust is designed for investors
seeking as high a level of current income exempt from federal income
taxes as is consistent with preservation of capital.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SEMIANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------------------------
TOTAL RETURN NAV MARKET PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
(change in value during
period plus reinvested
distributions)
6 MONTHS ENDED 10/31/94 -2.02% -1.27%
- -----------------------------------------------------------------------------------------------
SHARE VALUE (COMMON SHARES) NAV MARKET PRICE
- -----------------------------------------------------------------------------------------------
4/30/94 $13.57 $12.62
10/31/94 12.80 12.000
CAPITAL GAINS(1)
DISTRIBUTIONS NO. INCOME TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERIOD ENDED 10/31/94
COMMON SHARES 6 $0.495 -- $0.495
PREFERRED SHARES
SERIES A (800) $804.60
CURRENT RETURN NAV MARKET PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
END OF PERIOD
CURRENT DIVIDEND RATE(2) 7.73% 8.25%
- -----------------------------------------------------------------------------------------------
TAXABLE EQUIVALENT(3) 12.80 13.66
<FN>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9.
(1) Capital gains are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be subject
to the federal Alternative Minimum Tax. Investment income may be subject to
state and local taxes.
(2) Income portion of most recent distribution, annualized and divided by NAV
or market value 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.
* Lipper Analytical Services is an independent research firm whose rankings
vary over time and do not include the effects of sales charges. For the periods
ended October 31, 1994, the fund was ranked 27 out of 58 funds for one year.
Past performance is not indicative of future results.
</TABLE>
2
<PAGE> 3
FROM THE CHAIRMAN
[PHOTO]
(c) Karsh, Ottawa
DEAR SHAREHOLDER:
WHEN MARKETS TURN DOWN, INVESTORS WITH VISION LOOK BEYOND THE UNFOLDING
NEGATIVES FOR OPPORTUNITIES FARTHER DOWN THE ROAD. THROUGHOUT THE FIRST HALF OF
PUTNAM MUNICIPAL OPPORTUNITIES TRUST'S FISCAL YEAR, THERE WAS PLENTY TO
OBSTRUCT THE VIEW.
THE SIX MONTHS ENDED OCTOBER 31, 1994, BEGAN IN THE MIDST OF A BOND MARKET
DECLINE TOUCHED OFF BY THE FEDERAL RESERVE BOARD'S INCREASE IN SHORT-TERM
INTEREST RATES. HAD FUND MANAGER TRIET NGUYEN NOT TAKEN DEFENSIVE ACTION SOME
MONTHS EARLIER, THE TOLL ON PERFORMANCE WOULD LIKELY HAVE BEEN GREATER. EVEN
SO, THE FUND JOINED MOST OTHER FIXED-INCOME INVESTMENTS IN THE DECLINE.
BUT TRIET SEES EMERGING STRENGTHS FOR TAX-EXEMPT SECURITIES. SUPPLIES MAY
BECOME TIGHTER AS FEWER ISSUES COME TO MARKET AND MORE INVESTORS SEEK TAX
RELIEF. MANY SECTORS OF THE TAX-EXEMPT MARKET, INCLUDING HEALTH CARE,
EDUCATION, AND RESOURCE RECOVERY, NOW APPEAR POISED FOR GROWTH. BOTH SIGNS BODE
WELL FOR MUNICIPAL BOND INVESTORS, INCLUDING THE FUND'S SHAREHOLDERS.
TRIET WILL FOCUS ON THESE POSITIVE FACTORS AS HE SEEKS OUT THE MOST PROMISING
OPPORTUNITIES FOR YOUR FUND. HIS REPORT ON FISCAL '94 PERFORMANCE AND WHAT HE
SEES IN STORE FOR FISCAL '95 FOLLOWS.
RESPECTFULLY YOURS,
/s/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
DECEMBER 14, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
TRIET M. NGUYEN
During the six months ended October 31, 1994, Putnam Municipal
Opportunities Fund faced a particularly inhospitable market environment.
Virtually all fixed-income markets declined as they adjusted to changes
brought about by five consecutive interest rate increases by the Federal
Reserve Board.
Despite these challenges, your fund performed competitively during the period.
Its higher-yielding cyclical holdings provided strong tax-free income even as
other municipal bond sectors faltered.
Although fiscal 1995 has gotten off to a somewhat disappointing start, Putnam
Management sees reasons for optimism. Market fundamentals remain strong. Taxes
- -- and, therefore, potential demand for tax-free securities -- appear likely to
remain high. This, in turn, signals the potential for renewed strength in this
market sector, perhaps soon enough to affect the second half of the fiscal
year.
- - ECONOMIC VITALITY HELPS SUPPORT PERFORMANCE
After several years of a stop-and-start recovery, the U.S. economy finally
established a relatively steady path of expansion at the start of 1994.
Over the past six months, the pace of growth has quickened. In fact, it was
stronger than anticipated during the semiannual period, with solid gains in new
orders for manufacturing, housing starts, and sales. At the same time,
unemployment was down to its lowest level in four years.
The robust economy has been particularly beneficial for cyclical issues
- -- municipal bonds linked to industries that tend to perform better in a rising
economy. Your fund's portfolio contains a large number of cyclical holdings,
many of which have risen in value while continuing to provide steady tax-free
income. "Green" industries such as paper recycling have been exemplary
performers in recent months as rising paper prices helped increase bond values
significantly. Municipal bonds
4
<PAGE> 5
issued to support construction and maintenance of airports also made
important contributions to the fund's income stream during the period.
- - MANAGING INCOME AMID HIGHER INTEREST RATES
Maintaining attractive tax-free income while reducing price volatility has
been exceptionally difficult in today's rising-interest-rate environment.
The Federal Reserve Board, resolved to keep inflation in check, is
expected to continue pushing up interest rates over the next several
months. One important strategy we have used to minimize downside movements
has been hedging the fund's net asset value through the futures market.
We have also continued to use a leveraging technique where we issue
floating-rate preferred shares, investing the proceeds in longer-term
higher-coupon bonds. The difference between the preferred-share dividend
rate and the income earned on the longer-term bonds generates additional
income for the fund's common shareholders. This past spring, we were able
to extend the dividend period for floating-rate preferred shares, thus
locking in an attractively low dividend rate. Since short-term interest
rates continued to climb over the past six months, this saved the fund
considerable expense while preserving its ability to provide high current
income.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOP INDUSTRY SECTORS*
- ----------------------------------------------------------
<S> <C>
TRANSPORTATION 26.6%
- ----------------------------------------------------------
UTILITIES/WATER & SEWAGE 25.9%
- ----------------------------------------------------------
HOSPITALS 18.9%
- ----------------------------------------------------------
HOUSING 11.3%
- ----------------------------------------------------------
POLLUTION CONTROL 4.8%
- ----------------------------------------------------------
HIGHWAY/TOLL ROADS 2.4%
- ----------------------------------------------------------
COMMODITIES 2.1%
- ----------------------------------------------------------
OTHER 10.1%
<FN>
* Based on net assets on 10/31/94.
</TABLE>
5
<PAGE> 6
Sector rotation is another important tool utilized to position the fund for
optimal returns while minimizing share price fluctuations. Unlike many other
municipal bond funds, your fund's strategy involves moving in and out of
different market sectors to take advantage of changing market conditions. In
recent months, we have begun to shift away from "early cyclicals" like airline
bonds and into more commodity-related issues such as paper and forest products,
which have yet to realize their full performance potential in this rising
economy.
We have also begun to reassess the health care sector, where value is beginning
to re-emerge. While the federal government has failed to enact a health care
reform program, the marketplace has continued to reduce costs on its own. In
addition, state governments are initiating their own reforms, which should
contribute to attractive buying opportunities for the fund.
- - MARKET FUNDAMENTALS APPEAR STRONGER
For much of the last six months, investors have weathered excessive market
volatility that has eroded the value of their funds. At the same time, however,
the new-issue municipal bond supply has declined by approximately 45%, compared
with last year's new issuances and refinancings. In July 1995, many older
municipal bonds will mature or reach their call dates. In our opinion, investors
holding these bonds are likely to seek other tax-free investments to reinvest
their assets -- which could change the current supply/demand equation.
While there cannot be any assurance, any shift toward higher demand and lower
supply could lead to strong performance and rising municipal bond prices. This
could be of real benefit to investors in municipal bond funds such as yours.
- - IMPROVEMENT COULD BE AHEAD
The fund's portfolio of higher-yielding securities should continue to benefit
from the economy's robust growth rate in coming months. While we anticipate
some additional short-term market volatility, the intermediate-term outlook
for the municipal market remains bright. Supplies are shrinking as municipal-
ities become more cautious about issuing new debt and refinancing activity
diminishes. On the other hand, investors
6
<PAGE> 7
- -------------------------------------------------------------
TOP 10 HOLDINGS (10/31/94)
Chicago, Illinois, O'Hare International Airport
special facility revenue bonds
Denver (Colorado) City and Country Airport
revenue bonds
Denver (Colorado) City and Country Airport
special facility revenue bonds
Illinois Housing Development Authority
revenue bonds
Montgomery County (Alabama) Higher Education
and Health Authority hospital revenue bonds
Salem County (State) Industrial Pollution Control
Authority revenue bonds
New Jersey Economic Development Authority
pollution control revenue bonds
New Hampshire State Industrial Development Authority
pollution control revenue bonds
Brexar County (State) Health Facilities Development Corp.
revenue bonds
San Joaquin Hills (California) Transportation Corridor Agency
toll road revenue bonds
These holdings represent 43.3% of the fund's assets. Portfolio holdings are
subject to change.
are feeling the impact of higher taxes from federal to local levels. While
nothing is certain, the expectation of even lower supply with sustained and
possibly even higher demand bodes well for your fund's prospects over the rest
of fiscal 1995.
The views expressed in this report are exclusively those of Putnam Management
and are not meant as investment advice. Although the described investment areas
were viewed favorably as of October 31, 1994, there is no guarantee the fund
will continue to hold these investments in them in the future.
7
<PAGE> 8
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
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 back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 10/31/94
Lehman Bros.
Municipal
NAV Market price Bond Index CPI
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months -2.02% -1.27% -0.85% 1.43%
1 year -6.23 -9.98 -4.36 2.61
Life of fund
(since 5/28/93) -0.33 -12.35 0.72 3.68
Annual average -0.23 -8.87 0.51 2.57
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
most current calendar quarter
Lehman Bros.
Municipal
NAV Market price Bond Index CPI
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months 0.89% 1.75% 1.80% 1.50%
1 year -3.48 -6.37 -2.44 2.96
Life of fund
(since 5/28/93) 2.40 -9.32 2.54 3.61
Annual average 1.78 -7.04 1.89 2.68
</TABLE>
Performance data represent past results. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost. Fund performance data do not take into account any
adjustment for taxes payable on reinvested distributions.
8
<PAGE> 9
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, the liquidation preference and cumulative undeclared dividends
paid on the auction preferred shares, divided by the number of outstanding
common shares.
MARKET PRICE is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York Stock
Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term fixed-
rate investment-grade tax-exempt bonds representative of the municipal bond
market. The index does not take into account brokerage commissions or other
costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (102.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
<S> <C> <C> <C>
ARIZONA (0.9%)
- --------------------------------------------------------------------------------------------------
$ 2,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds
Ser. 85, 8.9s, 7/1/06 Baa $ 2,190,000
CALIFORNIA (10.8%)
- --------------------------------------------------------------------------------------------------
5,000,000 Central Valley, Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration Project), 6.2s, 7/1/20 BBB 4,375,000
3,560,000 Irvine Ranch, Impt. Variable Rate Demand
Notes (VRDN) 3.45s, 9/2/15 VMIG1 3,560,000
3,000,000 Metro. Wtr. Dist. Inverse Floating Bonds (IFB),
(Southern CA Waterworks), 8.172s, 8/14/18 AA 2,302,500
1,500,000 Sacramento Muni. Util. Dist. Elec. Rev. Bonds, IFB,
7.72s, 11/15/06 AAA 1,306,875
3,000,000 San Bernardino Cnty., Certif. of Participation,
VRDN (Med. Ctr. Fin. Project), 5s, 8/1/26 A 2,107,500
San Diego Certif. of Participation, American
Municipal Bond Assurance Corp. (AMBAC),
3,000,000 7.08s, 9/1/12 AAA 2,403,750
3,000,000 6.83s, 9/1/07 AAA 2,621,250
8,500,000 San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds (Senior Lien) 5s, 1/1/33 BB/P 5,801,250
3,000,000 So. CA Public Pwr Auth. IFB, FGIC,
7.67s, 7/1/17 AAA 2,141,250
-------------
26,619,375
COLORADO (9.5%)
- --------------------------------------------------------------------------------------------------
Denver City & Cnty. Arpt. Rev. Bonds,
3,410,000 Ser. C, 6 1/8s, 11/15/25 Baa 2,655,538
9,440,000 Ser. A, 8 3/4s, 11/15/23 Baa 9,782,200
12,700,000 Denver, City & Cnty. Special Fac. Arpt. Rev. Bonds
(United Air Lines, Inc. Project), Ser. A, 6 7/8s,
10/1/32 Baa 10,906,125
-------------
23,343,863
GEORGIA (1.3%)
- --------------------------------------------------------------------------------------------------
3,100,000 Atlanta, Special Purpose Fac. Rev. Bonds
(Delta Air Lines, Inc. Project), Ser. B, 7.9s, 12/1/18 Ba 3,092,250
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
<S> <C> <C> <C>
ILLINOIS (16.6%)
- -----------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
$11,270,000 (United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa $ 12,143,425
11,320,000 (United Air Lines, Inc.), Ser. C, 8.2s, 5/1/18 Baa 11,772,800
3,000,000 IL Hlth. Fac. Auth. Rev. Bonds
(Grant Hosp. of Chicago), 7 1/2s, 6/1/13 AAA 3,210,000
10,000,000 IL Housing Dev. Auth. Multi. Fam.
Rev. Bonds Ser. 91 A 8 1/4s, 7/1/16 A 10,862,500
3,000,000 IL Hsg. Dev. Auth. Res. Mtge. IFB,
(acquired 5/28/93, cost $3,398,250), 10.66s,
2/1/20(c) Aa 3,037,500
-------------
41,026,225
LOUISIANA (4.6%)
- ------------------------------------------------------------------------------------------------
3,000,000 Lake Charles, Harbor & Term. Dist. Port Facs.
Rev. Bonds (Trunkline Co. Project), 7 3/4s, 8/15/22 Baa 3,112,500
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project), 7 1/2s, 7/1/13 BB 5,238,750
2,850,000 St. Charles Parish, Poll, Control Rev. Bonds,
(LA Power & Light), 8s, 12/1/14 Baa 3,035,250
-------------
11,386,500
MASSACHUSETTS (4.9%)
- -----------------------------------------------------------------------------------------------
3,135,000 MA State Hlth. & Edl. Fac. Auth. Rev Bonds
(Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,013,517
3,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s,
8/15/24 BB/P 2,902,500
2,950,000 MA State Hsg. Fin. Agcy. Rev. Bonds
Ser. A, AMBAC, 6.65s, 7/1/19 AAA 2,817,250
3,000,000 MA State Indl. Fin. Agcy. Resource Recvy.
Rev. Bonds (Southeastern MA Project),
Ser. A, 9s, 7/1/15 BB/P 3,281,250
-------------
12,014,517
MICHIGAN (3.1%)
- -----------------------------------------------------------------------------------------------
3,000,000 Dickinson Cnty., Econ. Dev. Corp. Poll. Control
Rev. Bonds (Champion Intl. Corp. Project),
5.85s, 10/1/18 Baa 2,512,500
5,000,000 MI Hsg. Dev. Auth. Rental Hsg. Rev. Bonds
Ser. A, 7.55s, 4/1/23 AAA 5,231,250
-------------
7,743,750
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
<S> <C> <C> <C>
MISSISSIPPI (1.4%)
- -----------------------------------------------------------------------------------------------
$ 3,000,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy Inc.), Ser. C, 9 7/8s, 12/1/14 BBB/P $ 3,423,750
NEBRASKA (1.2%)
- -----------------------------------------------------------------------------------------------
2,900,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.576S, 9/10/30 AAA 3,066,750
NEVADA (2.2%)
- -----------------------------------------------------------------------------------------------
6,500,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A, 6 1/2s, 12/1/33 Ba 5,533,125
NEW HAMPSHIRE (3.3%)
- -----------------------------------------------------------------------------------------------
8,000,000 NH State Indl. Dev. Auth. Poll. Control Rev. Bonds
(Public Svc. Co. Of NH Project), Ser. B, 7 1/2s, 5/1/21 Baa 8,080,000
NEW JERSEY (8.1%)
- -----------------------------------------------------------------------------------------------
8,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P. Project), 7 7/8s, 6/1/19 BB/P 8,320,000
2,590,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Raritan Bay Med. Ctr.) 7 1/4s, 7/1/14 BB/P 2,398,988
10,000,000 Salem Cnty., Indl. Poll. Control Fing. Auth. Rev.
Bonds, IFB (acquired 10/28/94, cost $9,750,000)
8.841s, 10/1/29(c) AAA 9,300,000
-------------
20,018,988
NEW YORK (4.1%)
- -----------------------------------------------------------------------------------------------
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 8s, 7/1/20 Baa 4,761,000
5,400,000 NY City, Mun. Wtr. Fin. Auth. VRDN,
Ser. G, FGIC, 0.95s, 6/15/24 VMIG1 5,400,000
-------------
10,161,000
OHIO (1.2%)
- -----------------------------------------------------------------------------------------------
2,963,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB,
Ser. A-2, GNMA Coll., 10.1s, 3/24/31 AAA 2,877,814
OKLAHOMA (2.3%)
- -----------------------------------------------------------------------------------------------
6,000,000 Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.), 7.2s, 6/1/17 BBB 5,632,500
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
<S> <C> <C> <C>
PENNSYLVANIA (7.9%)
- -----------------------------------------------------------------------------------------------
$10,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project),
Ser. B, 8 3/8s, 11/1/11 Ba $ 10,312,500
5,100,000 PA Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds
(Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BB/P 4,545,375
5,000,000 PA Higher Edl. Assistance Agcy. Student Loan, IFB,
AMBAC, 9.856s, 9/3/26 AAA 4,706,250
-------------
19,564,125
TEXAS (12.4%)
- -----------------------------------------------------------------------------------------------
6,000,000 Alliance Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines Project), 7 1/2s, 12/1/29 Baa 5,640,000
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
2,000,000 (St. Luke's Lutheran Hosp. Project), 7.9s, 5/1/11 A 2,080,000
4,800,000 (St. Luke's Lutheran Hosp. Project), 7.9s, 5/1/18 A 4,932,000
5,000,000 Calhoun Cnty., West Side Navy Dist. Solid
Waste Disp. Rev. Bonds
(Union Carbide Chemicals Project), 6.4s, 5/1/23 Baa 4,400,000
2,480,000 Jefferson Cnty., Hlth Fac. Dev. Corp. Hosp.
Rev. Bonds (Baptist Healthcare Sys. Project),
8 7/8s, 6/1/21 Baa 2,855,100
5,800,000 Sam Rayburn, Muni. Pwr. Agcy. Supply Syst.
Rev. Bonds Ser. B, 6 1/8s, 10/1/13 Baa 5,096,750
5,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1
(Southwestern Elec. Pwr Co.), Ser. A, 8.2s, 8/1/11 Aa 5,575,000
-------------
30,578,850
VIRGINIA (2.9%)
- -----------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.) Ser. C, 9.879s, 8/29/23 AA 3,525,000
4,000,000 Henrico Cnty., Indl. Dev. Auth. IFB
(Bon Secours Hlth. Syst. Project) 5.929s, 8/15/27 AAA 3,605,000
-------------
7,130,000
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
<S> <C> <C> <C>
WASHINGTON (3.5%)
- -----------------------------------------------------------------------------------------------
$ 4,650,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds
(Solid Waste-Occidental Petroleum), 5.8s, 9/1/29 Baa $ 3,690,938
5,920,000 Pilchuck Dev. Pub. Corp. Rev. Bonds
(Special Fac., Tramco Inc.-B.F. Goodrich), 6s, 8/1/23 Baa 4,884,000
-------------
8,574,938
-------------
TOTAL INVESTMENTS
(cost $271,795,440)(d) $ 252,058,320
-------------
</TABLE>
14
<PAGE> 15
NOTES
(a) Percentages indicated are based on total net assets of $246,772,273. Net
assets available to common shareholders are $206,772,273, which corresponds to
a net asset value per common share of $12.80.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at October 31, 1994 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, 1994. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(c) Restricted as to public resale. At the date of acquisition, these securities
were valued at cost. There were no outstanding unrestricted securities of the
same class as those held. Total market value of the restricted securities owned
at October 31, 1994 was $12,337,500 or 5.00% of net assets.
(d) The aggregate identified cost for federal income tax purposes is
$271,795,440 resulting in gross unrealized appreciation and depreciation of
$248,121 and $19,985,241, respectively, or net unrealized depreciation of
$19,737,120.
The rates shown on Variable Rate Demand Notes (VRDN), and Inverse Floating Bonds
(IFB) which are securities paying variable rates that vary inversely to changes
in market rates, are the current interest rates at October 31, 1994, which are
subject to change based on the terms of the security.
The Fund had the following industry group concentrations greater than 10% on
October 31, 1994 (as a percentage of net assets):
<TABLE>
<S> <C>
Transportation 26.60%
Utilities 25.86%
Hospitals 18.87%
Housing 11.30%
</TABLE>
FUTURES CONTRACTS OUTSTANDING
<TABLE>
<CAPTION>
AGGREGATE EXPIRATION UNREALIZED
MARKET VALUE FACE VALUE DATE DEPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Bond
Futures (Sell) $14,751,562 $14,653,125 December/94 $(98,437)
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (identified cost $271,795,440) (Note 1) $252,058,320
Cash 193,319
Interest receivable 6,148,154
Unamortized organization expenses (Note 1) 22,785
Variation margin on future contracts 16,538
Prepaid expenses 93,181
------------
TOTAL ASSETS 258,532,297
LIABILITIES
Distributions payable to shareholders $ 1,439,945
Payable for securities purchased 9,750,000
Payable for compensation of Manager (Note 4) 451,705
Payable for compensation of Trustees (Note 4) 4,185
Payable for investor servicing and custodian fees (Note 4) 56,003
Payable for administrative services (Note 4) 9,236
Payable for offering and organization costs (Notes 1, 2 and 3) 36,681
Other accrued expenses 12,269
------------
TOTAL LIABILITIES 11,760,024
------------
NET ASSETS $246,772,273
============
REPRESENTED BY
Series A remarketed preferred shares, without par value;
800 shares authorized (800 shares issued at $50,000 per
share liquidation preference) (Note 3) $ 40,000,000
Common shares, without par value; unlimited shares
authorized; 16,157,092 shares outstanding 226,378,559
Undistributed net investment income 2,831,035
Accumulated net realized loss on investment transactions (2,601,764)
Net unrealized depreciation of investments (19,835,557)
------------
NET ASSETS $246,772,273
============
Remarketed preferred shares at liquidation preference $ 40,000,000
Net assets available to common shares:
Net asset value per share $12.80 ($206,772,273 divided by
16,157,092 shares) 206,772,273
------------
NET ASSETS $246,772,273
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
STATEMENT OF OPERATIONS
For the six months ended October 31, 1994 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $ 9,631,171
==============
EXPENSES:
Compensation of manager (Note 4) $ 907,457
Investor servicing and custodian fees (Note 4) 117,431
Compensation of trustees (Note 4) 6,805
Reports to shareholders 33,769
Auditing 25,152
Legal 5,545
Postage 21,460
Administrative services (Note 4) 6,049
Exchange listing fees 12,603
Amortization of organization expenses (Note 1) 3,211
Preferred share remarketing agent fees 59,124
Other 4,363
--------------
TOTAL EXPENSES 1,202,969
==============
NET INVESTMENT INCOME 8,428,202
==============
Net realized loss on investments (Notes 1 and 5) (5,625,638)
Net realized gain on futures (Notes 1 and 5) 1,542,828
Net unrealized depreciation of investments during the period (8,006,359)
--------------
NET LOSS ON INVESTMENTS (12,089,169)
==============
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,660,967)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the period
May 28 , 1993
Six months (commencement
ended of operations) to
October 31 April 30
-------------- -----------------
1994** 1994*
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 8,428,202 $ 15,082,298
Net realized gain (loss) on investments (5,625,638) 933,279
Net realized gain on futures 1,542,828 1,371,303
Net unrealized depreciation of investments (8,006,359) (11,829,198)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (3,660,967) 5,557,682
Distributions to remarketed preferred shareholders from:
Net investment income (643,680) (766,709)
Net realized gains -- (47,998)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS (4,304,647) 4,742,975
Distributions to common shareholders from:
Net investment income (7,999,575) (11,269,501)
Capital gains -- (775,538)
Issuance of remarketed preferred shares (Note 3) -- 40,000,000
Issuance of common shares (Note 2) (218,436) 227,278,995
Underwriting commissions and offering costs on
remarketed preferred shares (Note 3) -- (782,000)
-------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (12,522,658) 259,194,931
NET ASSETS
Beginning of period 259,294,931 100,000
END OF YEAR (including undistributed net investment
income of $2,831,035 and $3,046,088, respectively) 246,772,273 259,294,931
============== =============
Common shares outstanding at beginning of period
(Note 2) 16,157,092 7,092
Shares issued in public offering (Note 2) -- 16,150,000
-------------- -------------
COMMON SHARES OUTSTANDING AT END OF PERIOD 16,157,092 16,157,092
============== =============
Remarketed preferred shares at beginning of period 800 --
Remarketed preferred shares issued in public offering
(Note 3) -- 800
-------------- -------------
REMARKETED PREFERRED SHARES OUTSTANDING
AT END OF PERIOD 800 800
============== =============
</TABLE>
* See Note 2.
** Unaudited
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
May 28, 1993
Six months (commencement
ended of operations)
October 31 to April 30
---------- --------------
1994*** 1994
--------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.57 $ 14.07*
INVESTMENT OPERATIONS:
Net investment income 0.52 .94(a)
Net realized and unrealized gain (loss) on investments (0.74) (.59)
--------- ----------
TOTAL FROM INVESTMENT OPERATIONS (.22) .35
Distribution to shareholder from:
Net investment income:
To preferred shareholders (.04) (.05)**
To common shareholders (.50) (.70)
Capital gains
To preferred shareholders -- --
To common shareholders -- (.05)
--------- ----------
TOTAL DISTRIBUTIONS (.54) (.80)
Offerring cost
Preferred shares -- (.05)
Common shares (.01) --
--------- ----------
NET ASSET VALUE, END OF PERIOD (common shares) $ 12.80 $ 13.57
MARKET VALUE, END OF PERIOD (common shares) 12.00 12.625
TOTAL INVESTMENT RETURN AT MARKET VALUE
(common shares) (%) (b) (1.27)(c) (11.22)(c)
NET ASSETS, END OF PERIOD (in thousands) $ 246,772 $ 259,295
Ratio of expenses to average net assets (%) (d) .55(c) 0.94(c)
Ratio of net investment income to average net assets (%) (d) 3.88(c) 6.14(c)
Portfolio turnover rate (%) 52.29(c) 60.52(c)
</TABLE>
* Represents initial net asset value of $14.10 less offering expenses of
approximately $0.03.
** Preferred shares were issued on August 3, 1993 (see Note 3).
*** Unaudited
(a) Reflects a waiver of the management fee for the period May 28,
1993 to June 13, 1993. As a result of the waiver, expenses of
the fund for the period ended April 30, 1994 reflect a
reduction of less than $0.01 per share. (See Note 4)
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) Not annualized.
(d) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend
payments to preferred shareholders.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
October 31, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a non-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, consistent with preservation of capital. The fund intends
to achieve its objective by investing in a portfolio of investment grade
municipal bonds that the fund's Manager believes to be consistent with
preservation of capital.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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 Manager following procedures approved by the
Trustees, and such valuations and procedures are reviewed periodically by
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). Interest income is recorded on the accrual basis.
C) Determination of net asset value Net asset value of the common shares is
determined by dividing the value of all assets of the fund (including accrued
interest and dividends), less all liabilities (including accrued expenses and
undeclared dividends on remarketed preferred shares) and the liquidation value
of any outstanding remarketed preferred shares, by the total number of common
shares outstanding.
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. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E) Distributions to shareholders Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends on
remarketed preferred shares will accumulate from its Date of Original Issue and
will become payable, when, as and if declared by the Trustees, on the
applicable dividend payment date. The applicable dividend rate for the
remarketed preferred shares on October 31, 1994 was 3.22%.
F) Amortization of bond premium and discount Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a yield-to-
maturity basis. Discount on zero-coupon bonds, stepped-coupon bonds and
original issue discount
20
<PAGE> 21
bonds is accreted according to the effective yield method.
G) Futures A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract the fund is required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value to the contract. Such
receipts or payments are known as "variation margin," and are recorded by the
fund as unrealized gains or losses. 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.
The potential risk to the fund is that the change in value of the underlying
securities may not correspond to the change in value of the futures contract.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization aggregated $31,878. These expenses are being
amortized on a straight-line basis over a five-year period.
NOTE 2
INITIAL CAPITALIZATION AND OFFERING OF SHARES
The fund was established as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts on April 1, 1993.
During the period April 1, 1993 to May 27, 1993 the fund had no operations
other than those related to organizational matters, including the initial
capital contribution of $100,000, and the issuance of 7,092 shares to Putnam
Investments, Inc. on May 13, 1993.
On May 28, 1993, the fund completed the initial offering of 15,000,000 of its
shares for which it received net proceeds of $211,500,000 before deducting
$430,610 of estimated offering expenses (such offering expenses and the fund's
organizational expenditures were paid initially by Putnam Investment
Management, Inc. "Putnam Management," the fund's Manager, and the fund will
reimburse the Manager for such costs). Regular investment operations commenced
May 28, 1993. During fiscal year 1994 the original estimated offering costs
were revised by $218,436 ($0.01 per common share) to reflect actual cost
incurred.
On June 28, 1993, the fund completed a supplemental offering of 1,150,000
shares for which it received net proceeds of $16,215,000 before deducting
$5,394 of initial offering expenses.
NOTE 3
REMARKETED PREFERRED SHARES
On August 3, 1993, the fund issued 800 Remarketed Preferred Shares Series A.
Proceeds to the fund, before deducting underwriting expenses of $600,000 and
offering expenses of $182,000, amounted to $40,000,000. These expenses were
charged against net assets of the fund available to common shareholders. The
Series A remarketed preferred shares are generally redeemable at the option of
the fund on any dividend payment date at a redemption price of $50,000 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. The Series A
remarketed preferred shares are not currently redeemable at the option of the
fund until the next dividend reset date in May 1995. There were no undeclared
dividend on preferred shares at October 31, 1994.
Under the Investment Company Act of
21
<PAGE> 22
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 the 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, 1994, there were no such
restrictions on the fund.
NOTE 4
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc., for management and investment advisory
services and administrative services fees is paid quarterly based on the
average net assets of the fund, including amounts attributable to any preferred
shares that may be outstanding. Such fees in the aggregate are based on the
annual rate of 0.70% of the first $500 million of the average net asset value
of the fund, 0.60% of the next $500 million, 0.55% of the next $500 million,
and 0.50% of any excess over $1.5 billion of such average net asset value.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred shares
for the period exceed the fund's net income attributable to the proceeds of the
remarketed preferred shares during that period, then the fee payable to Putnam
Management for that period will be reduced by an agreed upon formula. See
"Administration Services Contract."
In connection with the initial offering of shares of the fund, Putnam
Management agreed to waive its management fee from the period May 28, 1993
(commencement of operations) to June 13, 1993. As a result of the voluntary
waiver, the expenses for the period ended April 30, 1994 were reduced by
$54,452.
The fund also reimburses the Manager 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. For the six months ended October 31, 1994,
the fund paid $6,049 for these services.
Trustees of the fund receive an annual Trustee's fee of $800 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested
persons of the Manager and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
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. Fees paid for these investor servicing and custodial functions for
the period ended October 31, 1994 amounted to $117,431.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended October 31, 1994 have been reduced by credits of
$14,074 allowed by PFTC.
NOTE 5
PURCHASES AND SALES OF SECURITIES
During the six months ended October 31, 1994, purchases and sales of investment
securities other than
22
<PAGE> 23
short-term investments aggregated $68,799,327 and $65,667,002 respectively.
Purchases and sales of short-term municipal obligations aggregated $37,560,000
and $36,600,000, respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Transactions in futures contracts during the period are summarized as
follows:
SALES OF FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
--------- -------------
<S> <C> <C>
Opened at
beginning of
period 200 $ 21,399,304
Contracts
opened 3,605 361,143,594
------ -------------
3,805 382,542,898
Contracts closed (3,655) (367,889,773)
------ -------------
OUTSTANDING AT
END OF PERIOD 150 $ 14,653,125
====== =============
</TABLE>
23
<PAGE> 24
SELECTED QUARTERLY DATA*
(Unaudited)
<TABLE>
<CAPTION>
For the period
May 28, 1993
(commencement
of operations) to
October 31 July 31 April 30 January 31 October 31 July 31
------------ ------------ ------------ ------------ ---------- -----------------
1994 1994 1994 1994 1993** 1993*
------------ ------------ ------------ ------------ ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 4,800,324 $ 4,830,847 $ 4,762,164 $ 4,826,033 $ 4,810,626 $ 2,859,558
Per share $ .30 $ .30 $ .30 $ .30 $ .29 $ .18
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME
AVAILABLE TO COMMON
SHAREHOLDERS
Total $ 3,864,423 $ 3,920,099 $ 3,863,391 $ 3,957,895 $ 3,933,551 $ 2,560,752
Per share $ .24 $ .24 $ .25 $ .24 $ .24 $ .16
------------ ------------ ------------ ------------ ------------ ------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Total $(11,848,099) $ (241,070) $(19,384,620) $ 1,382,956 $ 5,512,842 $ 2,964,206
Per share $ (.73) $ (0.01) $ (1.20) $ .09 $ .34 $ .18
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS AVAILABLE
TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Total $ (7,983,676) $ 3,679,029 $(15,521,229) $ 5,340,851 $ 9,446,393 $ 5,524,958
Per share $ (.49) $ .23 $ (.95) $ .33 $ .58 $ .34
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE
TO COMMON SHAREHOLDERS
AT END OF PERIOD
Total $206,772,273 $218,973,602 $219,294,931 $238,587,197 $237,872,027 $232,982,145
Per share $ 12.80 $ 13.55 $ 13.57 $ 14.77 $ 14.72 $ 14.42
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(1) Per common share.
* In connection with the initial offering of shares of the fund, Putnam
Management agreed to waive its management fee and administration services
fee for the period May 28, 1993, to June 13, 1993. As a result of such
waiver, expenses of the fund reflect a reduction of less than $0.01 per
share.
** Preferred shares were issued on August 3, 1993.
24
<PAGE> 25
<TABLE>
<S> <C>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109
Charles E. Porter
MARKETING SERVICES Executive Vice President
Putnam Mutual Funds Corp.
One Post Office Square Patricia C.Flaherty
Boston, MA 02109 Senior Vice President
CUSTODIAN Lawrence J. Lasser
Putnam Fiduciary Trust Company Vice President
LEGAL COUNSEL Gordon H. Silver
Ropes & Gray Vice President
TRUSTEES Gary N. Coburn
George Putnam, Chairman Vice President
William F. Pounds, Vice Chairman
Jameson Adkins Baxter James E. Erickson
Hans H. Estin Vice President
John A. Hill
Elizabeth T. Kennan Blake Anderson
Lawrence J. Lasser Vice President
Robert E. Patterson
Donald S. Perkins Triet M. Nguyen
George Putnam, III Vice President and Fund Manager
A.J.C. Smith
W. Nicholas Thorndike William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
</TABLE>
25
<PAGE> 26
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV or to request Putnam's quarterly Closed-End
Fund Commentary.
26
<PAGE> 27
PUTNAM INVESTMENTS
----------------
The Putnam Funds Bulk Rate
One Post Office Square U.S. Postage
Boston, Massachusetts 02109 PAID
Putnam
Investments
-----------------
