PUTNAM
MUNICIPAL
OPPORTUNITIES
TRUST
[GRAPHIC OMITTED:
art work]
ANNUAL REPORT
April 30, 1995
[LOGO: BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o The gap is narrowing between Treasury and municipal yields, making munis look
increasingly attractive. Among municipal-bond experts, there is little
concern that any radical change in the tax system could happen before 1997
and plenty of doubt that any such revolution will happen at all.
-- The Wall Street Journal, May 19, 1995
o 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.
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FISCAL 1995 RESULTS AT A GLANCE
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TOTAL RETURN NAV MARKET PRICE
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12 months ended 4/30/95
(change in value during
period plus reinvested
distributions) 6.33% 5.82%
SHARE VALUE NAV MARKET PRICE
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4/30/94 $13.57 $12.625
4/30/95 13.23 12.250
CAPITAL GAINS(1)
LONG- SHORT-
DISTRIBUTIONS NO. INCOME TERM TERM TOTAL
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Common shares 12 $0.9900 $0.0695 $0.0531 $1.1126
Preferred shares
Series A (800) $1,609.62
CURRENT RETURN NAV MARKET PRICE
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End of period
Current dividend rate(2) 7.48% 8.08%
Taxable equivalent(3) 12.38 13.38
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Performance data represent past results. For performance over longer periods,
see page 8. (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 price at end of period. (3)Assumes
maximum 39.6% federal tax rate. Results for investors subject to lower tax
rates would not be as advantageous.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Many of the gathering signs of hope that sustained municipal bond investors
during the darkest days of the 1994 market decline began manifesting themselves
in earnest over the early months of 1995. Although the market exhibited
volatility throughout Putnam Municipal Opportunities Trust's fiscal year, the
prevailing mood was appreciably more upbeat at the period's end (April 30, 1995)
than at its beginning.
The economy continued to march at a brisk stride, though the pace since January
has slowed considerably from the levels that prevailed during the rest of the
fiscal year. Investors took this moderation as a sign that the economy was
responding favorably to the Federal Reserve Board's strategy of raising
short-term rates to rein in growth and thereby hold inflation in check. The
consensus in the markets seems to be that the Fed's series of interest-rate
increases may be near an end.
The sharp decline in new issues that market watchers foresaw as a spur to higher
prices added fuel to the recent rally. So did the attractiveness of tax-free
yields relative to taxable Treasuries. In the following report, Fund Manager
Triet Nguyen discusses the fund's performance in fiscal 1995 and prospects for
the second half.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
June 21, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
TRIET M. NGUYEN
Although Putnam Municipal Opportunities Trust began its fiscal year in one of
the most hostile bond market environments in recent memory, it ended the
period on a much brighter note. For the 12 months ended April 30, 1995, your
fund delivered total returns of 6.33% at net asset value and 5.82% at market
price while continuing to provide an attractive level of tax-free income.
The fund weathered the market's ups and downs well, posting competitive
performance throughout the period and ending its fiscal year with solid
forward momentum. Higher-yielding cyclical holdings continued to provide
tax-free income as the economy improved, even as other municipal sectors
faltered. Leveraging techniques helped us enhance the fund's income stream,
while hedging strategies proved effective in reducing share price volatility.
o MUNICIPALS OUTPERFORM AS MARKET RALLIES
For much of 1994, fixed-income markets were turned upside down by the Federal
Reserve Board's tighter stance on U.S. monetary policy and bond investors'
fears of inflation -- all in response to accelerating economic growth.
Ultimately, the Fed raised interest rates six times during the period, and
finally succeeded in calming inflation fears considerably.
During the first quarter of 1995, the municipal bond market, along with most
other fixed-income investments, began to rally. Several factors contributed
to this welcome turn of events. First, some weakness had begun to emerge in
housing sales and consumer spending; at last, the U.S. economy appeared to be
headed for a "soft landing" of steady growth and low inflation. Meanwhile, as
the impact of the Mexican currency crisis began to fade, central banks around
the world began taking advantage of the weak dollar to purchase U.S. Treasury
securities. This had the effect of supporting the dollar, and helped spark
off a rally in Treasuries which, in turn, produced the rally in the municipal
bond market.
The municipal market rally was so large that it effectively offset all losses
incurred in 1994. In fact, municipal securities ended the first quarter of
1995 as the best-performing asset class in the fixed-income market.
o MANAGING INCOME AMID HIGHER RATES
Seeking high current income while managing share price volatility is
particularly challenging in light of today's higher interest-rate
environment. The slowing of the economy may have put the Fed's anti-inflation
policy on hold for the moment, but if the pace of the recovery picks up
again, as many analysts expect, the Fed could very well raise interest rates
once more in the summer or fall.
The fund's holdings of airline and commodity-related issues like forest
products have been particularly strong performers, but with the economy
cooling off a bit, the time was right to sell. Consequently, we have
recently taken profits in some cyclical holdings, which had yielded solid
returns for much of the annual period.
Once the Fed is satisfied that economic growth has slowed to a reasonable
pace, many analysts and investors expect interest rates to level off and
begin to decline. Accordingly, we are now building up the portfolio's
position in municipal bonds issued by utilities. These
[GRAPHIC OMITTED: horizontal bar chart "TOP INDUSTRY SECTORS*"
showing: Utilities/water and sewerage 24.3%; Hospitals 19.7%;
Transportation 18.9%; Housing 11.4% and Solid waste disposal 7.6%.
Footnote reads: *Based on net assets as of 4/30/95. Sector allocation
will vary over time.]
<PAGE>
bonds were available at attractive prices and, historically, they have tended
to perform well in periods of slower economic growth and declining interest
rates.
We have continued to use leverage throughout the period. As noted in the
semiannual report, we decided last spring to lock in the dividend rate of the
fund's floating-rate preferred shares by extending their dividend period.
This has proved exceptionally beneficial for the fund. With interest rates
rising, this move saved the fund considerable expense while increasing
income. When these shares reached their dividend reset date in May, just
after the close of this reporting period, we reset the dividend period at 28
days. Although the move exposes the fund to some loss of income if interest
rates rise, it should enable us to keep the fund flexible enough to take
advantage of any interest rate declines, should they materialize.
o POSITIVE SUPPLY/DEMAND DYNAMICS
Municipal bond supply in the first quarter of 1995 has dropped 45% compared
with new issuances and refinancings in the first quarter of 1994. In July
1995, a large number of municipal issues will mature and be called out of the
market. In our view, it is likely that the resulting surge in demand for the
remaining municipals will exceed the available supply.
While there can be no assurances, this supply/demand imbalance could help
support strong performance and rising municipal bond prices. We believe it
has already contributed to recent outperformance.
o A GLANCE FORWARD
Despite recent indications that the economy is slowing, we must consider the
possibility that it is simply taking a breather. Some weakness has emerged,
although two or three months of data do not make a trend. Accordingly, we are
keeping the fund flexible while watching the economy and the Fed carefully.
If the economy decelerates further, we will add superior quality investments
to the portfolio in order to protect the fund's principal value. If the
economy picks up and interest rates rise, we will take appropriate steps to
seek to reduce the potential for share price volatility.
<PAGE>
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TOP 10 HOLDINGS (4/30/95)
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CHICAGO, O'HARE INTERNATIONAL AIRPORT SPECIAL FACILITIES REVENUE BONDS
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ILLINOIS HOUSING DEVELOPMENT AUTHORITY MULTIFAMILY REVENUE BONDS
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SALEM, COUNTY, INDUSTRIAL POLLUTION CONTROL FINANCING AUTHORITY IFB
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DENVER, CITY AND COUNTY AIRPORT REVENUE BONDS
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NEW HAMPSHIRE STATE INDUSTRIAL DEVELOPMENT AUTHORITY
POLLUTION CONTROL REVENUE BONDS
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BEXAR COUNTY, HEALTH FACILITIES DEVELOPMENT CORPORATION REVENUE BONDS
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MONTGOMERY COUNTY, HIGHER EDUCATIONAL AND HEALTH AUTHORITY
HOSPITAL REVENUE BONDS
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NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY REVENUE BONDS
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PALM BEACH COUNTY, SOLID WASTE INDUSTRIAL DEVELOPMENT REVENUE BONDS
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TULSA, INDUSTRIAL AUTHORITY HOSPITAL REVENUE BONDS
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These holdings represent 38.4% of the fund's net assets. Portfolio holdings
will vary over time.
The big unknown is the flat tax proposal now before Congress, which recently
produced a small downturn in the municipal market. Despite this initial
reaction, we believe any future tax reform could be a positive event for the
economy and the bond market, since it could increase the savings rate. We
will continue to monitor any developments on all tax-reform proposals and
their potential effect on the fund. In the meantime, although the market will
probably be somewhat volatile until this issue is decided, fundamentals
remain exceptionally strong and investors continue to find the tax-free
returns of municipal securities quite appealing.
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 4/30/95, there is no guarantee the fund will continue to hold
these securities in the future.
<PAGE>
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.
TOTAL RETURN FOR PERIODS ENDED 4/30/95
LEHMAN BROS.
MUNICIPAL
NAV MARKET PRICE BOND INDEX CPI
- -----------------------------------------------------------------------
1 year 6.33% 5.82% 6.65% 3.05%
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Life of fund
(since 5/28/93) 8.17 -6.05 8.35 5.34
Annual average 4.18 -3.20 4.26 2.75
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TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most current calendar quarter)
LEHMAN BROS.
MUNICIPAL
NAV MARKET PRICE BOND INDEX CPI
- -----------------------------------------------------------------------
1 year 6.20% 9.00% 7.43% 2.85%
- -----------------------------------------------------------------------
Life of fund
(since 5/28/93) 7.79 -2.86 8.22 4.99
Annual average 4.16 -1.56 4.39 2.68
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Performance data represent past results. Investment returns, net asset value,
and market price 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.
<PAGE>
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 remarketed preferred shares, divided by the number of outstanding common
shares.
MARKET PRICE is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York Stock
Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the year ended April 30, 1995
To the Trustees and Shareholders of
Putnam Municipal Opportunities Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Municipal Opportunities Trust, including the portfolio of investments owned, as
of April 30, 1995, the related statement of operations for the year then ended,
the statement of changes in net assets and the "Financial Highlights" for each
of the periods indicated therein. These financial statements and "Financial
Highlights" are the responsibility of the fund's management. Our responsibility
is to express an opinion on these financial statements and "Financial
Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and "Financial
Highlights" are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of Putnam
Municipal Opportunities Trust as of April 30, 1995, the results of its
operations for the year then ended, and the changes in its net assets and the
"Financial Highlights" for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 13, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
April 30, 1995
KEY TO ABBREVIATIONS FOR MUNICIPAL INSTRUMENTS
COP -- Certificate of Participation
IFB -- Inverse Floating Bonds
VRDN -- Variable Rate Demand Notes
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Federal Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.2%)<F1>
PRINCIPAL AMOUNT RATINGS<F2> VALUE
ALABAMA (2.1%)
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<C> <S> <C> <C>
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River Corp. Project),
8s, 9/1/28 BBB $ 5,437,500
ARIZONA (2.0%)
- -------------------------------------------------------------------------------------------------
2,000,000 Gila Cnty., Indl. Dev. Auth. Poll. Control Rev. Bonds,
Ser. 85, 8.9s, 7/1/06 Baa 2,170,000
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village Project), 7 7/8s, 6/1/09 BB/P 2,942,225
------------
5,112,225
CALIFORNIA (11.1%)
- -------------------------------------------------------------------------------------------------
5,000,000 Central Valley, Fin. Auth. Rev. Bonds
(Carson Ice-Cogeneration Project), 6.2s, 7/1/20 BBB 4,650,000
3,575,000 City of Los Angeles, Multi-Fam. Rev. Bonds
(Mahal Apts.), GNMA Coll., 7 1/4s, 8/20/27 AAA 3,753,750
3,000,000 Metro. Wtr. Dist. IFB
(Southern CA Waterworks), 7.443s, 8/10/18 AA 2,718,750
2,000,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management), 7 7/8s,
12/1/13 (Chapter 9) BBB 2,020,000
San Diego COP, IFB, AMBAC
3,000,000 6.22s, 9/1/12 AAA 2,752,500
3,000,000 5.97s, 9/1/07 AAA 2,898,750
4,000,000 Santa Ana, Cmnty. Redev. Agcy. Tax Alloc. Rev.
Bonds, Ser. B, 7 1/2s, 9/1/16 BBB 4,050,000
3,000,000 So. CA. Pub. Pwr. Auth. IFB, FGIC, 5.22s, 7/1/17 AAA 2,516,250
3,000,000 Thousand Oaks, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1), 6 7/8s, 9/1/24 BB/P 2,872,500
------------
28,232,500
COLORADO (4.1%)
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9,440,000 Denver, City & Cnty. Arpt. Rev. Bonds,
Ser. A, 8 3/4s, 11/15/23 Baa 10,466,600
<PAGE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS<F2> VALUE
FLORIDA (2.3%)
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 6,000,000 Palm Beach Cnty., Solid Waste Indl. Dev. Rev.
Bonds (Okeelanta Pwr. & Lt. Project), Ser. A,
6.85s, 2/15/21 BB/P $ 5,857,500
ILLINOIS (16.3%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
11,270,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,481,525
11,320,000 Ser. C, 8.2s, 5/1/18 Baa 12,041,650
3,000,000 IL Hlth. Fac. Auth. Rev. Bonds
(Grant Hosp. of Chicago), 7 1/2s, 6/1/13 AAA 3,187,500
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91-A, 8 1/4s, 7/1/16 A 10,750,000
2,900,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 9.989s, 2/1/20
(acquired 5/28/93, cost $3,284,975)<F3> Aa 3,088,500
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41,549,175
KENTUCKY (1.4%)
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3,400,000 Kenton Cnty., KY Arpt. Brd. Special Facs. Rev. Bonds
(Delta Air Lines, Inc. Project), Ser. A, 7 1/2s, 2/1/20 Ba 3,463,750
LOUISIANA (3.4%)
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5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project), 7 1/2s, 7/1/13 BB 5,616,875
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 3,045,938
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8,662,813
MASSACHUSETTS (3.6%)
- -------------------------------------------------------------------------------------------------
3,135,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 2,997,842
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 2,970,000
3,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev.
Bonds (Southeastern MA Project), Ser. A,
9s, 7/1/15 BB/P 3,273,750
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9,241,592
MICHIGAN (2.1%)
- -------------------------------------------------------------------------------------------------
5,000,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 AAA 5,256,250
MISSISSIPPI (1.1%)
- -------------------------------------------------------------------------------------------------
2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 BBB/P 2,709,375
NEBRASKA (1.2%)
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2,800,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 10.923s, 9/10/30 AAA 3,097,500
<PAGE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS<F2> VALUE
NEVADA (1.1%)
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 2,750,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. B, 7 1/2s, 9/1/32 Baa $ 2,801,563
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 8,280,000
NEW JERSEY (7.2%)
- -------------------------------------------------------------------------------------------------
5,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P. Project), 7 7/8s, 6/1/19 BB/P 5,325,000
2,590,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Rfdg. Bonds
(Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,486,400
10,000,000 Salem, Cnty., Indl. Poll. Control Fing. Auth. IFB,
8.841s, 10/1/29 (acquired 10/28/94,
cost $9,750,000)<F3> AAA 10,562,500
------------
18,373,900
NEW YORK (6.3%)
- -------------------------------------------------------------------------------------------------
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 8s, 7/1/20 Baa 4,818,500
1,600,000 NY City, Muni. Wtr. Fin. Auth. VRDN,
Ser. G, FGIC, 5s, 6/15/24 VMIG1 1,600,000
NY State Energy Research & Dev. Auth. Rev. Bonds
(Long Island Lighting Co. Project)
2,450,000 Ser. B, 7.15s, 2/1/22 Ba 2,355,063
2,500,000 Ser. C, 7.15s, 9/1/19 Ba 2,406,250
1,500,000 Ser. B, 6.9s, 8/1/22 Ba 1,396,875
3,300,000 Triborough. Bridge & Tunnel Auth. Special Oblig.
VRDN, FGIC, 4.45s, 1/1/24 VMIG1 3,300,000
------------
15,876,688
OHIO (1.2%)
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2,963,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB,
Ser. A-2, GNMA Coll., 9.224s, 3/1/31 AAA 3,096,335
OKLAHOMA (2.2%)
- -------------------------------------------------------------------------------------------------
6,000,000 Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.), 7.2s, 6/1/17 BBB 5,715,000
PENNSYLVANIA (8.4%)
- -------------------------------------------------------------------------------------------------
4,240,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/2s, 7/1/08 Baa 4,038,600
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp. Rev.
Bonds (UTD Hosp. Project), Ser. B, 8 3/8s, 11/1/11 Ba 7,271,250
5,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Northampton Generating Project), Ser. A,
6.4s, 1/1/09 BB/P 4,662,500
5,000,000 PA State Higher Edl. Assistance Agcy. Student Loan
IFB, AMBAC, 9.146s, 9/3/26 AAA 5,300,000
------------
21,272,350
<PAGE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS<F2> VALUE
SOUTH CAROLINA (1.9%)
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P $ 4,753,125
TENNESSEE (1.2%)
- -------------------------------------------------------------------------------------------------
3,000,000 Sullivan Cnty., Indl. Dev. Auth. Poll. Control
VRDN (Mead Corp. Project), 5.15s, 10/1/16 A1 3,000,000
TEXAS (10.1%)
- -------------------------------------------------------------------------------------------------
Bexar Cnty., Hlth. Fac. Dev. Corp. prerefunded
Rev. Bonds (St. Luke's Lutheran Hosp. Project)
4,800,000 7.9s, 5/1/18 AAA/P 5,604,000
2,000,000 7.9s, 5/1/11 AAA/P 2,335,000
5,000,000 Calhoun Cnty., West Side Navy Dist. Solid
Waste Disp. Rev. Bonds (Union Carbide Chemicals
Project), 6.4s, 5/1/23 Baa 4,612,500
2,480,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp.
Rev. Bonds (Baptist Healthcare Syst. Project),
8 7/8s, 6/1/21 Baa 2,861,300
5,000,000 Sam Rayburn, Muni. Pwr. Agcy. Supply Syst.
Rev. Bonds, Ser. A, 6 1/2s, 10/1/08 Ba 4,456,250
5,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1 Poll.
Rev. Bonds (Southwestern Elec. Pwr. Co.), Ser. A,
8.2s, 8/1/11 Aa 5,693,750
------------
25,562,800
VIRGINIA (3.0%)
- -------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 9.077s, 8/29/23 Aaa 3,603,750
4,000,000 Henrico Cnty., Indl. Dev. Auth. Rev. Bonds
(Bon Secours Hlth. Syst. Project), 5.929s, 8/15/27 AAA 3,910,000
------------
7,513,750
WASHINGTON (1.6%)
- -------------------------------------------------------------------------------------------------
4,650,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds
(Solid Waste-Occidental Petroleum), 5.8s, 9/1/29 Baa 3,952,500
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $252,086,887)<F4> $249,284,791
- -------------------------------------------------------------------------------------------------
<PAGE>
<FN>
Notes
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<F1> Percentages indicated are based on net assets of $253,784,805. Net assets available to
common shareholders are $213,784,805, which correspond to a net asset value per common share
of $13.23.
<F2> The Moody's or Standard & Poor's ratings indicated are believed to be the most recent
ratings available at April 30, 1995 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, 1995.
Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not
covered by the Report of Independent Accountants.
<F3> Restricted as to public resale. At the date of acquisition these securities were valued at
cost. There were no outstanding securities of the same class as those held. Total market
value of restricted securities owned at April 30, 1995 was $13,651,000 or 5.4% of net
assets.
<F4> The aggregate identified cost for federal income tax purposes is $252,086,887, resulting in
gross unrealized appreciation and depreciation of $4,862,015 and $7,664,111, respectively,
or net unrealized depreciation of $2,802,096.
The fund had the following industry group concentrations greater than 10% at April 30, 1995
(as a percentage of net assets):
Utilities 24.3%
Hospitals/Health Care 19.7
Transportation 18.9
Housing 11.4
The rates shown on Variable Rate Demand Notes (VRDN) and Inverse Floating Bonds (IFB), which
are securities paying variable interest rates that vary inversely to changes in the market
interest rates, are the current interest rates at April 30, 1995, which are subject to
change based on the terms of the security.
The table below shows the percentage of the fund's investments on April 30, 1995 in
securities assigned to the various rating categories by Moody's and Standard & Poor's and in
unrated securities determined by Putnam Management to be of comparable quality:
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY,
AS A PERCENTAGE OF AS A PERCENTAGE OF
RATINGS FUND'S NET ASSETS FUND'S NET ASSETS
------------------------------------------------------------------------
"AAA"/"Aaa" 19.7% 3.1%
"AA"/"Aa" 4.5 --
"A"/"A" 5.4 1.9
"BBB"/"Baa" 36.8 1.1
"BB"/"Ba" 11.8 12.0
"VMIG1" 1.9 --
------------------------------------------------------------------------
80.1% 18.1%
------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995
ASSETS
- ------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $252,086,887) (Note 1) $249,284,791
- ------------------------------------------------------------------------------
Cash 434,800
- ------------------------------------------------------------------------------
Interest receivable 6,073,613
- ------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 19,627
- ------------------------------------------------------------------------------
TOTAL ASSETS 255,812,831
LIABILITIES
- ------------------------------------------------------------------------------
Distributions payable to shareholders 1,440,275
- ------------------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 428,000
- ------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 5,056
- ------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 75,208
- ------------------------------------------------------------------------------
Payable for administrative services (Note 3) 8,578
- ------------------------------------------------------------------------------
Payable for offering and organization costs (Notes 1 and 2) 36,681
- ------------------------------------------------------------------------------
Other accrued expenses 34,228
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 2,028,026
- ------------------------------------------------------------------------------
NET ASSETS $253,784,805
REPRESENTED BY
- ------------------------------------------------------------------------------
Series A remarketed preferred shares, without par value;
800 shares authorized (800 shares issued at $50,000 per share
liquidation preference) (Note 2) $ 40,000,000
- ------------------------------------------------------------------------------
Common shares, without par value; unlimited shares authorized;
16,157,092 shares outstanding 226,378,559
- ------------------------------------------------------------------------------
Undistributed net investment income 2,272,494
- ------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (12,064,152)
- ------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,802,096)
- ------------------------------------------------------------------------------
NET ASSETS $253,784,805
- ------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $ 40,000,000
- ------------------------------------------------------------------------------
Net assets available to common shares:
- ------------------------------------------------------------------------------
Net asset value per share $13.23
($213,784,805 divided by 16,157,092 shares) 213,784,805
- ------------------------------------------------------------------------------
NET ASSETS $253,784,805
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the year ended April 30, 1995
- ------------------------------------------------------------------------------
TAX EXEMPT INTEREST INCOME $18,904,384
- ------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------
Compensation of Manager (Note 3) 1,778,829
- ------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 284,988
- ------------------------------------------------------------------------------
Compensation of Trustees (Note 3) 13,500
- ------------------------------------------------------------------------------
Reports to shareholders 33,413
- ------------------------------------------------------------------------------
Auditing 49,716
- ------------------------------------------------------------------------------
Legal 13,259
- ------------------------------------------------------------------------------
Postage 34,992
- ------------------------------------------------------------------------------
Administrative services (Note 3) 12,000
- ------------------------------------------------------------------------------
Exchange listing fees 25,000
- ------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,369
- ------------------------------------------------------------------------------
Preferred share remarketing agent fees 139,423
- ------------------------------------------------------------------------------
TOTAL EXPENSES 2,391,489
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME 16,512,895
- ------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 4) (11,994,959)
- ------------------------------------------------------------------------------
Net realized gain on futures (Notes 1 and 4) 783,708
- ------------------------------------------------------------------------------
Net realized loss on written options (Notes 1 and 4) (353,598)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 9,027,102
- ------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (2,537,747)
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,975,148
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended April 30, 1995
FOR THE PERIOD
MAY 28, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
APRIL 30 APRIL 30
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------
Net investment income $ 16,512,895 $ 15,082,298
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments, written options and futures (11,564,849) 2,304,582
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 9,027,102 (11,829,198)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 13,975,148 5,557,682
- -----------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from:
- -----------------------------------------------------------------------------------------------------
net investment income (1,287,696) (766,709)
- -----------------------------------------------------------------------------------------------------
net realized gains -- (47,998)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
APPLICABLE TO COMMON SHAREHOLDERS 12,687,452 4,742,975
- -----------------------------------------------------------------------------------------------------
Distributions to common shareholders from:
- -----------------------------------------------------------------------------------------------------
Net investment income (15,998,793) (11,269,501)
- -----------------------------------------------------------------------------------------------------
Capital gains (1,481,046) (775,538)
- -----------------------------------------------------------------------------------------------------
In excess of net realized gains (499,303) --
- -----------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions:
- -----------------------------------------------------------------------------------------------------
Issuance of remarketed preferred shares (Note 2) -- 40,000,000
- -----------------------------------------------------------------------------------------------------
Issuance of common shares -- 241,215,000
- -----------------------------------------------------------------------------------------------------
Common share offering and closing costs charged to paid-in capital (218,436)<F1> (13,936,005)
- -----------------------------------------------------------------------------------------------------
Underwriting commissions and offering costs on
remarketed preferred shares (Note 2) -- (782,000)
- -----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,510,126) 259,194,931
- -----------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------
Beginning of year 259,294,931 100,000
- -----------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $2,272,494 and $3,046,088, respectively) $253,784,805 $259,294,931
- -----------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of year (Note 2) 16,157,092 7,092
- -----------------------------------------------------------------------------------------------------
Shares issued in public offering -- 16,150,000
- -----------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING AT END OF YEAR 16,157,092 16,157,092
- -----------------------------------------------------------------------------------------------------
Remarketed preferred shares at beginning of year 800 --
- -----------------------------------------------------------------------------------------------------
Remarketed preferred shares issued in public offering (Note 2) -- 800
- -----------------------------------------------------------------------------------------------------
REMARKETED PREFERRED SHARES OUTSTANDING AT END OF YEAR 800 800
- -----------------------------------------------------------------------------------------------------
<FN>
<F1> Adjustments of the original offering costs to reflect actual costs incurred.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
MAY 28, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
APRIL 30 APRIL 30
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD (common shares) $13.57 $14.07<F1>
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
- --------------------------------------------------------------------------------------------------------
Net investment income 1.02 .94<F4>
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (.16) (.59)
- --------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .86 .35
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- --------------------------------------------------------------------------------------------------------
Net investment income:
- --------------------------------------------------------------------------------------------------------
To preferred shareholders (.08) (.05)<F2>
- --------------------------------------------------------------------------------------------------------
To common shareholders (.99) (.70)
- --------------------------------------------------------------------------------------------------------
Capital gains:
- --------------------------------------------------------------------------------------------------------
To common shareholders (.09) (.05)
- --------------------------------------------------------------------------------------------------------
In excess of capital gains:
- --------------------------------------------------------------------------------------------------------
To common shareholders (.03) --
- --------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.19) (.80)
- --------------------------------------------------------------------------------------------------------
Preferred share offering costs -- (.05)
- --------------------------------------------------------------------------------------------------------
Common share offering costs (.01)<F3> --
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD (common shares) $13.23 $13.57
- --------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD (common shares) $12.250 $12.625
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (common shares) (%)<F5> 5.82 (11.22)<F6>
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $253,785 $259,295
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)<F7> .95 .94<F6>
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)<F7> 6.04 6.14<F6>
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 59.13 60.52<F6>
- --------------------------------------------------------------------------------------------------------
<FN>
<F1> Represents initial net asset value of $14.10 less offering expenses of $0.03.
<F2> Preferred shares were issued on August 3, 1993 (See Note 2)
<F3> Adjustments of the original offering costs to reflect actual costs incurred.
<F4> 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 3.)
<F5> Total investment return assumes dividend reinvestment.
<F6> Not annualized.
<F7> Ratios reflect net assets available to common shares only; net investment income ratio also reflects reduction for
dividend payments to preferred shareholders.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
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 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).
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. There
fore, 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.
At April 30, 1995, the fund had capital loss carryovers of approximately
$4,634,000 available to offset future realized capital gains, if any. This
amount will expire April 30, 2003.
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. Each dividend period for the remarketed preferred shares
is generally a 28-day period. The applicable dividend rate for the remarketed
preferred shares on April 30, 1995 was 3.22%.
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 principals. These differences include capital loss carryovers.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations. For the year ended April 30,1995, the fund had no such
reclassifications.
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 bonds is accreted according to the effective yield
method.
<PAGE>
G OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent with its
investment objective and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When a fund writes a call or put option, an amount equal to the premium
received by the fund is included in the fund's "Statement of assets and
liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market value
of an option written. The current market value of an option is the last sale
price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date, or if the fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a written call option is
exercised, the fund realizes a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security that the fund purchases
upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk the fund may not be able
to enter into a closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. The fund may buy call options to
hedge against an increase in the price of the securities that the fund
ultimately wants to buy. These funds may also buy and sell combinations of put
and call options on the same underlying security to earn additional income. The
premium paid by a fund for the purchase of a put or call option is included in
the fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option the fund has purchased expires on the stipulated expiration
date, the fund realizes a loss in the amount of the cost of the option. If the
fund enters into a closing sale transaction, the fund realizes a gain or loss,
depending on whether proceeds from the closing sale transaction are greater or
less than the cost of the option. If the fund exercises a call option, the cost
of securities acquired by exercising the call is increased by the premium paid
to buy the call. If the fund exercises a put option, it realizes a gain or loss
from the sale of the underlying security and the proceeds from such sale are
decreased by the premium originally paid. The risk associated with purchasing
options is limited to the premium originally paid.
H FUTURES The fund may purchase and sell financial futures contracts to hedge
against changes in the values of tax-exempt municipal securities the fund owns
or expects to purchase.
A futures contract is an agreement between two parties to buy or sell units of a
particular index or a certain amount of a U.S. Government 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 futures. 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 of 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 futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in value of the hedged instruments. In addition, there
is a risk that the fund may not be able to close out its futures positions due
to an illiquid secondary market.
I 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.
<PAGE>
NOTE 2
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 dividends on
preferred shares at April 30, 1995.
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 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 April 30,
1995, there were no such restrictions on the fund.
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc. ("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 amount 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 year 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.
Trustees of the fund receive an annual Trustee's fee of $790 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.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended April 30, 1995 have been reduced by credits allowed by PFTC.
<PAGE>
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the year ended April 30, 1995, purchases and sales of investment
securities other than short-term investments aggregated $144,509,396 and
$147,765,741 respectively. Purchases and sales of short-term municipal
obligations aggregated $89,060,000 and $89,160,000, respectively. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Written options transactions during the year are summarized as follows:
CONTRACT PREMIUMS
AMOUNT RECEIVED
- ---------------------------------------------
Contracts opened 63,600,018 $1,292,008
Contracts closed 63,600,018 1,292,008
- ---------------------------------------------
Written options
outstanding
at end of year -- $ --
- ---------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
(Unaudited)
FOR THE PERIOD
MAY 28, 1993
(COMMENCEMENT OF
OPERATIONS) TO
- ------------------------------------------------------------------------------------------------------------------------------------
APRIL 30 JANUARY 31 OCTOBER 31 JULY 31 APRIL 30 JANUARY 31 OCTOBER 31 JULY 31
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1995 1994 1994 1994 1994 1993<F3> 1993<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Investment income
Total $ 4,579,698 $ 4,693,515 $ 4,800,324 $ 4,830,847 $ 4,762,164 $ 4,826,033 $ 4,810,626 $ 2,859,558
Per share<F1> $ .29 $ .28 $ .30 $ .30 $ .30 $ .30 $ .29 $ .18
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income
available to common
shareholders
Total $ 3,626,511 $ 3,814,166 $ 3,864,423 $ 3,920,099 $ 3,863,391 $ 3,957,895 $ 3,933,551 $ 2,560,752
Per share<F1> $ .22 $ .24 $ .24 $ .24 $ .25 $ .24 $ .24 $ .16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments
Total $ 6,565,282 $ 2,986,140 $(11,848,099) $ (241,070) $(19,384,620) $ 1,382,956 $ 5,512,842 $ 2,964,206
Per share<F1> $ .40 $ .18 $ (.73) $ (.01) $ (1.20) $ .09 $ .34 $ .18
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
available to common
shareholders resulting
from operations
Total $ 10,191,793 $ 6,800,306 $ (7,983,676) $ 3,679,029 $(15,521,229) $ 5,340,851 $ 9,446,393 $ 5,524,958
Per share<F1> $ .62 $ .42 $ (.49) $ .23 $ (.95) $ .33 $ .58 $ .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets available
to common shareholders
at end of period
Total $213,784,805 $207,591,999 $206,772,273 $218,973,602 $219,294,931 $238,587,197 $237,872,027 $232,982,145
Per share<F1> $ 13.23 $ 12.85 $ 12.80 $ 13.55 $ 13.57 $ 14.77 $ 14.72 $ 14.42
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Per common share.
<F2> 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.
<F3> Preferred shares were issued on August 3, 1993.
</FN>
</TABLE>
<PAGE>
FEDERAL TAX INFORMATION
The fund has designated dividends paid from net investment income during the
fiscal year as exempt "interest dividends." Thus 100% of these distributions are
exempt from federal income tax.
During the year the fund distributed $0.0531 and $0.0695 per share from
short-term and long-term capital gains, respectively.
The form that you will receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Gary N. Coburn
INDEPENDENT ACCOUNTANTS Vice President
Coopers & Lybrand L.L.P.
James E. Erickson
TRUSTEES Vice President
George Putnam, Chairman
Blake E. Anderson
William F. Pounds, Vice Chairman Vice President
Jameson Adkins Baxter Triet M. Nguyen
Vice President and Fund Manager
Hans H. Estin
William N. Shiebler
John A. Hill Vice President
Elizabeth T. Kennan John R. Verani
Vice President
Lawrence J. Lasser
Paul M. O'Neil
Robert E. Patterson Vice President
Donald S. Perkins John D. Hughes
Vice President and Treasurer
George Putnam, III
Beverly Marcus
Eli Shapiro Clerk and Assistant Treasurer
A.J.C. Smith
W. Nicholas Thorndike
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.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
18302-582
