Putnam
Municipal
Opportunities
Trust
ANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[I]n the months ahead, municipal bond funds may begin to
provide investors fewer bumps and better returns, many bond analysts say
. . . investors are becoming skittish about the sky-high returns on
equity funds and are beginning to seek some less-risky tax-free income;
yields on municipal bonds hover around an attractive 6 percent range,
and investors in some tax-high states can do better on an after-tax
basis investing in municipals than in Treasuries."
-- The New York Times, April 7, 1996
*"[G]iven that 1996 is an election year, the popularity of
tax deductions, and complexity of implementing any substantial changes
to the tax codes help make the outlook for the muni market optimistic."
-- The Value Line Mutual Fund Survey, March 19, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
[GRAPHIC OMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The tax-exempt bond market provided quite a ride for shareholders of
Putnam Municipal Opportunities Trust during the fiscal year ended April
30, 1996. The year got off to a solid start as the U.S. bond market
enjoyed what would become one of the strongest advances in recent
memory. The euphoria proved short-lived for municipal bond investors,
however, as talk of a flat tax gave rise to concern over the continued
viability of tax-exempt securities.
Once raised, the flat-tax worries provided a negative undercurrent
throughout much of the remainder of the year. It subsided just in time
to temper the decline in tax-exempt securities when the entire bond
market suddenly plunged in March. Through all these market gyrations,
your fund was able to close fiscal 1996 solidly in the black.
During the period, Richard Wyke assumed the reins as your fund's
manager. Rick has been a portfolio manager at Putnam since 1987 and
currently manages a number of other funds in the tax-exempt group. He
has 13 years of investment experience.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Manager
Richard P. Wyke
Calendar 1995 was indeed a stellar year for bond market performance.
Putnam Municipal Opportunities Trust tallied its share of positive
returns, despite flat-tax fears that threatened to dampen the
performance of many tax-free investments. Although this positive
momentum continued through February 1996, the tide quickly turned in
March, when evidence of a strengthening economy, along with technical
factors in the municipal bond market, brought the extended rally to an
abrupt halt.
For the 12 months ended April 30, 1996, your fund delivered a total
return of 9.76% at net asset value and 19.64% at market price while
continuing to provide a competitive level of tax-free income. Although
we remain confident in the long-term prospects for municipal
investments, the coming months could bring some additional uncertainty
as investors adjust to new realities with regard to the economy and
inflation.
* MUNICIPALS EXHIBIT RELATIVE STRENGTH
While fixed-income markets have been declining or flat since March, tax-
exempt investments have outperformed comparable Treasury securities on
an after-tax basis. As the Forbes presidential candidacy dissolved and
the flat-tax proposal receded from public prominence, the municipal
market began to shed a major cloud that had been concerning investors
for some time. While we expect discussions of broader tax reform to
reappear this fall as the presidential election nears, radical changes
now appear less likely than they did just a few months ago.
In addition, municipal market supply and demand dynamics remain fairly
favorable. Supply continues to be low as the current higher interest
rates limit the appeal of refinancing. (When interest rates were lower,
municipal bond issuers had more incentive to refinance older bonds in
order to reduce financing costs.) On the demand side, insurance
companies have emerged as major buyers of municipal securities. With
their large supplies of cash, these buyers have kept demand relatively
firm.
* MARKET SLIDE MAY BE OVERDONE
Early 1996 saw a significant rally in the municipal securities market as
municipal bond yields reached lows near those last seen in October 1993.
In February, several factors converged to stop the rally and cause
interest rates to begin moving higher. In Washington, balanced-budget
negotiations failed and the government released data showing a strong
rise in employment growth. These events fueled fears of renewed
inflation and a possible end to the Federal Reserve Board's program of
lowering short-term interest rates. At the same time, technical changes
involving large flows of capital added to volatility within the
municipal market.
In our opinion, investor anxieties concerning an overheating economy are
premature. We anticipate the remainder of 1996 to be marked by steady
but manageable economic growth and foresee only limited risk of a sharp
increase in inflationary pressures. The bounce back from the end of the
government shutdown, the severe winter weather, and the General Motors
strike may all be exaggerating the strength of the economy's rebound.
While there may be some inflation surprises in the coming months,
fundamental indicators do not appear strong enough for the economy to
expand too rapidly.
* DEFENSIVE STRATEGY MAKES INCOME THE PRIORITY
In contrast with the trend toward lower interest rates in last year's
slowing economy, the current climate of steady economic growth is
unlikely to lead to falling interest rates and price appreciation in the
bond market. In fact, we believe coupon income will provide most of the
total return for fixed-income investors for the rest of 1996.
[GRAPHIC OF HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*]
Information in chart reads:
Airlines 21.9%
Utilities 18.1%
Health/hospitals 16.4%
Housing 8.2%
Cogeneration 6.6%
*Based on net assests as of 4/30/96. Holdings will vary over time.
Given this scenario, we have begun to shorten the portfolio's duration
by approximately one year to bring it more in line with the municipal
market averages. This more defensive strategy is designed to preserve
the fund's net asset value and reduce its sensitivity to interest-rate
changes that may occur in coming months. Duration is a mathematical
formula used to assess a portfolio's potential price volatility. The
longer the duration (expressed in years), the greater the probable swing
in prices when interest rates change.
We have also begun to take a more focused, or "bulleted," approach to
capturing yield for the fund. In practice, this has led us to
concentrate fund holdings in intermediate-term securities with
maturities of 10 to 15 years, rather than splitting holdings between
short- and long-term securities as we had previously done. With
insurance companies now accounting for much of the demand in the
municipal market, intermediate issues have become sought after. This
high demand provides a degree of price support for these securities. As
of the end of the fiscal year, demand levels, along with solid yields,
made intermediate issues attractive choices for the portfolio.
* AIRLINES, HOSPITALS STAY STRONG, UTILITIES ALLOCATION DOWN A BIT
Airline, hospital, and investor-owned utilities remain the three largest
investment sectors in the fund's portfolio. Over the past year, the
airline holdings have increased significantly. These holdings are
industrial revenue bonds issued by municipalities and backed by the
credit of corporations including Delta, United, and American airlines.
The air transportation industry has emerged from a period of
restructuring in much stronger shape, tallying record earnings in recent
months. This uplift has led to improving credit fundamentals for many of
these securities, resulting in higher ratings for some fund holdings. In
addition to stronger balance sheets, the airline industry is also
shedding its cyclical nature as domestic carriers expand their
international business and regional carriers take on a more national
character. These changes are making the airlines less vulnerable to
cyclical forces, enabling them to establish steadier year-round revenue
streams.
[GRAPHIC OF PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
Information in chart reads:
A 8.2%
AA 7.8%
AAA/VMIGI 22.8%
BB 20.7%
BBB 40.5%
As a percentage of market value as of 4/30/96. A bond rated BBB or
higher is considered investment grade. All ratings reflect Standard &
Poor's and Moody's descriptions; the fund also holds a small portion
of unrated securities determined by Putnam Mangement to be of comparable
quality. Holdings will vary over time.
Although the hospital sector has recently lagged other sectors of the
municipal bond market, we still consider it an opportunity for strong
yields and good relative value. We continue to evaluate hospital bonds
on an individual basis, focusing on those facilities best positioned to
emerge successfully from the mergers and acquisitions that are reshaping
the health-care industry. Time and again, we find that established
hospitals with solid market share and good relationships with doctors
and HMOs are more likely to be purchased or form profitable
affiliations. These, in turn, can lead to increases in the value of
their bonds.
In the utility sector, we have begun to reduce holdings slightly,
although we continue to find good value on an individual basis.
Currently the utility industries are undergoing an intense period of
deregulation as different states reassess their statutes and do away
with many of the regulations that had been in place since the inception
of utility regulation. Utilizing Putnam's superior credit analysis
capabilities, we are reducing the fund's exposure to noncompetitive
utilities and focusing on investor-owned utilities.
In comparison to utilities owned and operated by municipalities,
investor-owned utilities tend to have more efficient operations and
relatively stable income streams. One particularly solid name in the
portfolio is Southwest Gas. With little competition and no burdensome
uneconomic power generation facilities to support, Southwest Gas is
currently experiencing strong growth in its gas and electric services
business.
* OUTLOOK CAUTIOUS, BUT CONSTRUCTIVE
A climate of steadier economic growth clearly requires a more cautious
approach to fixed-income investing. The coming months are unlikely to
bring a rise in bond prices and may even see a short run-up in
inflation. Given this scenario, astute credit analysis will become even
more important as we place greater emphasis on coupon income and on
enhancing the price stability and liquidity of the portfolio. Careful
maturity selection and a focus on larger, well-known municipal names
will play an increasingly vital role in your fund's strategy over the
next six months.
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 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Municipal Opportunities Trust is designed for investors
seeking high current income free from federal income tax, consistent
with preservation of capital.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
(Common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------
1 year 9.76% 19.64% 7.95% 2.50%
- ------------------------------------------------------------------------
Life of fund
(since 5/28/93) 18.73 12.40 14.77 7.98
Annual average 6.04 4.07 4.84 2.65
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------
1 year 10.22% 12.90%
- ------------------------------------------------------------------------
Life of fund
(since 5/28/93) 18.80 9.68
Annual average 6.26 3.31
- ------------------------------------------------------------------------
Performance data represent past results, and is not indicative of future s
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 4/30/96
- ------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------
(Common shares)
- ------------------------------------------------------------------------
Income $0.990
- ------------------------------------------------------------------------
Total $0.990
- ------------------------------------------------------------------------
(Preferred shares) Series A (800 shares)
- ------------------------------------------------------------------------
Income $1,819.19
- ------------------------------------------------------------------------
Total $1,819.19
- ------------------------------------------------------------------------
Share value: (Common shares) NAV Market price
- ------------------------------------------------------------------------
4/30/95 $13.23 $12.250
- ------------------------------------------------------------------------
4/30/96 13.50 13.625
- ------------------------------------------------------------------------
Current return (Common Shares) NAV Market price
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate1 7.33% 7.27%
- ------------------------------------------------------------------------
Taxable equivalent2 12.14% 12.03%
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
2 Assumes maximum 39.6% federal tax rate. Certain high income investors
may be subject to the Alternative Minimum Tax on a portion of investment
income. Income may be subject to state and local taxes. Capital gains,
if any, are taxable for federal, and in most cases, state purposes.
Results for investors subject to lower tax rates would not be as
advantageous.
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 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
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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. The index assumes
reinvestment of all distributions and interest payments and does not
take into account brokerage fees or taxes. Securities in the fund do not
match those in the index and performance of the fund will differ. It is
not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended April 30, 1996
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, 1996, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, 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, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our 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, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended 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 18, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O.Bonds -- General Obligation Bonds
IF COP -- Inverse Floater Certificate of Participation
IFB -- Inverse Floating Rate Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
Municipal Bonds and Notes (98.0%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Alabama (2.1%)
- ----------------------------------------------------------------------------------------------------------------
$5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp. Project), 8s, 9/1/28 BBB $ 5,525,000
Arizona (1.2%)
- ----------------------------------------------------------------------------------------------------------------
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village Project), 7 7/8s, 6/1/09 BB/P 3,031,600
California (11.3%)
- ----------------------------------------------------------------------------------------------------------------
5,000,000 Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(CA Toll Rd.), Ser. A, 5s, 1/1/35 Baa 3,993,750
3,000,000 Metro. Wtr. Dist. IFB (Southern CA Waterworks.),
7.715s, 8/10/18 AA 2,932,500
2,000,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Mgt.), 7 7/8s, 12/1/13 BBB 2,087,500
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin. Project),
Ser. A, MBIA, 6 1/2s, 8/1/17 # AAA 5,400,000
3,000,000 San Diego Cnty., IF COP, AMBAC, 7.27s, 9/1/07 AAA 3,030,000
6,000,000 San Diego Cnty., Rev. Bonds, AMBAC,
5 5/8s, 9/1/12 AAA 5,955,000
3,000,000 So. CA Pub. Pwr. Auth. IFB, FGIC, 4.24s, 7/1/17 AAA 2,628,750
3,000,000 Thousand Oaks, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1), 6 7/8s, 9/1/24 BB/P 3,015,000
--------------
29,042,500
Colorado (5.7%)
- ----------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
9,440,000 8 3/4s, 11/15/23 Baa 11,151,000
3,160,000 MBIA, 8 1/2s, 11/15/23 AAA 3,669,550
--------------
14,820,550
Connecticut (2.1%)
- ----------------------------------------------------------------------------------------------------------------
CT State G.O. Bonds, Ser. A
2,000,000 5.3s, 5/15/10 AA 1,952,500
3,500,000 5.2s, 5/15/09 AA 3,421,250
--------------
5,373,750
Florida (3.8%)
- ----------------------------------------------------------------------------------------------------------------
3,000,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South Project),
7.95s, 12/1/08 A 3,307,500
5,775,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indiantown Cogen. Project), Ser. A,
7 7/8s, 12/15/25 Baa 6,446,344
--------------
9,753,844
Illinois (14.2%)
- ----------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,900,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,180,750
10,930,000 Ser. C, 8.2s, 5/1/18 Baa 11,777,075
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A 10,637,500
1,900,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 10.483s, 2/1/20
(acquired 5/28/93, cost $2,152,225) ++ Aa 2,066,250
--------------
36,661,575
Indiana (2.0%)
- ----------------------------------------------------------------------------------------------------------------
3,000,000 IN State Dev. Fin. Auth. Poll. Control Rev. Bonds
(Inland Steel Co. Project No. 12), 6.85s, 12/1/12 Ba 3,033,750
2,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds
Federal Express Corp. Project), 7.1s, 1/15/17 Baa 2,117,500
--------------
5,151,250
Kentucky (1.9%)
- ----------------------------------------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Special Facs. Rev. Bonds
(Delta Air Lines, Inc. Project)
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa 3,595,500
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa 1,363,375
--------------
4,958,875
Louisiana (3.4%)
- ----------------------------------------------------------------------------------------------------------------
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project), 7 1/2s, 7/1/13 BB 5,692,500
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt.), 8s, 12/1/14 Baa 3,106,500
--------------
8,799,000
Massachusetts (5.3%)
- ----------------------------------------------------------------------------------------------------------------
2,000,000 MA State VRDN, Ser. E, 3.9s, 12/1/97 (ABN Amro
Bank N.V. (LOC)) VMIGI 2,000,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,178,106
3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,086,250
3,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev.
Bonds (Southeastern MA Project), Ser. A, 9s,
7/1/15 BB/P 3,326,250
2,500,000 MA State Wtr. Res. Auth. Rev. Bonds, Ser. B, MBIA,
4 3/4s, 12/1/21 AAA 2,090,625
--------------
13,681,231
Michigan (1.7%)
- ----------------------------------------------------------------------------------------------------------------
1,700,000 Dickinson Cnty., Hosp. Rev. Bonds (Memorial
Hosp. Syst.), 8 1/8s, 11/1/24 BBB 1,861,500
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 AAA 2,628,125
--------------
4,489,625
Mississippi (1.1%)
- ----------------------------------------------------------------------------------------------------------------
2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 Ba 2,709,375
Nebraska (1.2%)
- ----------------------------------------------------------------------------------------------------------------
2,700,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.328s, 9/10/30 AAA 3,010,500
Nevada (3.4%)
- ----------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa 2,897,813
6,000,000 Ser. A, 6 1/2s, 12/1/33 Baa 5,745,000
--------------
8,642,813
New Jersey (9.6%)
- ----------------------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogen. L.P. Project), 7 7/8s, 6/1/19 BB 9,618,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
1,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 1,593,750
2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,632,088
10,000,000 Salem Cnty., Indl. Poll. Control Fin. Auth. IFB,
9.015s, 10/1/29 (acquired 10/28/94,
Cost $9,750,000) ++ AAA 11,037,500
--------------
24,882,088
New York (2.8%)
- ----------------------------------------------------------------------------------------------------------------
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 8s, 7/1/20 Baa 4,922,000
2,500,000 NY State Dorm. Auth. Rev. Bonds (U. Syst.
Construction), Ser. A, 5 5/8s, 7/1/16 Baa 2,353,125
--------------
7,275,125
North Carolina (0.7%)
- ----------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, 6s, 1/1/22 A 1,927,500
Ohio (1.2%)
- ----------------------------------------------------------------------------------------------------------------
2,913,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.9s, 3/24/31 AAA 3,069,574
Pennsylvania (6.5%)
- ----------------------------------------------------------------------------------------------------------------
3,000,000 Beaver Cnty., Indl. Dev. Auth. Rev. Bonds (Cleveland
Elec. Project), 7 5/8s, 5/1/25 Ba 3,067,500
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp. Project), Ser. B,
8 3/8s, 11/1/11 Ba 7,455,000
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Colver Project), Ser. D, 7.15s, 12/1/18 BBB 1,040,000
5,000,000 PA State Higher Edl. Assistance Agcy. Student Loan
IFB, AMBAC, 9.622s, 9/3/26 AAA 5,312,500
--------------
16,875,000
South Carolina (1.9%)
- ----------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,803,750
Texas (11.9%)
- ----------------------------------------------------------------------------------------------------------------
5,500,000 Alliance Arpt. Auth. Special. Fac. Rev. Bonds
(American Airlines, Inc. Project), 7 1/2s, 12/1/29 Baa 5,836,875
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp. Project)
4,800,000 7.9s, 5/1/18 AAA/P 5,628,000
2,000,000 7.9s, 5/1/11 AAA/P 2,345,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co. Project), Ser. A,
7 7/8s, 3/1/21 Baa 4,938,750
2,450,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst. Project),
8 7/8s, 6/1/21 Ba 2,517,375
3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
10 1/4s, 6/1/17 Baa 3,818,223
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 5,718,750
--------------
30,802,973
Virginia (1.4%)
- ----------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 9.707s, 8/29/23 AAA 3,675,000
Washington (1.6%)
- ----------------------------------------------------------------------------------------------------------------
4,650,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds
(Solid Waste-Occidental Petroleum),
5.8s, 9/1/29 Baa 4,115,250
--------------
Total Investments (cost $252,414,395)*** $253,077,748
- ----------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $258,119,397. Net assets available to common shareholders
are $218,047,891.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
April 30, 1996 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, 1996.
Securities rated by Putnam are indicated by "/P" and are not publicly rated.
</TABLE>
The table below shows the percentage of the fund's investments on April 30,
1996 in securities assigned to various rating categories by Moody's or
Standard & Poor's and in unrated securities determined by Putnam
Management to be of comparable quality.
<TABLE>
<CAPTION>
<S> <C> <C>
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
- ---------------------------------------------------------------------------------------------------
AAA/Aaa 18.5% 3.1%
AA/Aa 7.7 --
A/A 6.1 1.9
BBB/Baa 39.7 --
BB/Ba 14.4 5.8
VMIGI 0.8 --
- ---------------------------------------------------------------------------------------------------
87.2% 10.8%
- ---------------------------------------------------------------------------------------------------
Ratings are not covered by the Report of independent accountants.
*** The aggregate identified cost on a tax basis is $252,414,395, resulting in gross unrealized
appreciation and depreciation of $6,208,327 and $5,544,974 respectively, or net unrealized
appreciation of $663,353.
++ Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at April 30, 1996 was $13,103,750 or 5.1% of net assets.
# A portion of this security was pledged to cover margin requirements for futures contracts at
April 30, 1996. The market value of segregated securities with the custodian for transactions in
futures contracts is $334,800 or less than 0.1% of net assets.
The rates shown on IFBs and IF COP, which are securities paying interest rates that vary inversely
to changes in the market interest rates, and VRDNs are the current interest rates at April 30,
1996.
The fund had the following industry group concentrations greater than 10% on April 30, 1996 (as a
percentage of net assets):
Airlines 21.9%
Utilities 18.1
Health/Hospitals 16.4
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1996
(aggregate face value $12,159,063)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Sell) $12,007,188 $12,159,063 Jun 96 $151,875
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1996
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $ 252,414,395) (Note 1) $253,077,748
- --------------------------------------------------------------------------------------------------------
Cash 175,664
- --------------------------------------------------------------------------------------------------------
Interest receivable 5,993,685
- --------------------------------------------------------------------------------------------------------
Receivable for securities sold 708,622
- --------------------------------------------------------------------------------------------------------
Receivable for variation margin 75,625
- --------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 13,258
- --------------------------------------------------------------------------------------------------------
Total assets 260,044,602
Liabilities
- --------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,332,925
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 447,668
- --------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 50,312
- --------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 669
- --------------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 2) 36,681
- --------------------------------------------------------------------------------------------------------
Other accrued expenses 56,950
- --------------------------------------------------------------------------------------------------------
Total liabilities 1,925,205
- --------------------------------------------------------------------------------------------------------
Net assets $ 258,119,397
Represented by
- --------------------------------------------------------------------------------------------------------
Remarketed preferred shares (800 shares issued and
outstanding at $50,000 per share liquidation preference) (Note 4) $ 40,000,000
- --------------------------------------------------------------------------------------------------------
Paid in capital-common shares (Note 1) 226,378,559
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 940,417
- --------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (10,014,807)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 815,228
- --------------------------------------------------------------------------------------------------------
Net assets $ 258,119,397
Net assets available to:
- --------------------------------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $ 40,000,000
- --------------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 71,506
- --------------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares $ 40,071,506
- --------------------------------------------------------------------------------------------------------
Net assets available to common shares $ 218,047,891
- --------------------------------------------------------------------------------------------------------
Net asset value per common share
($218,047,891 divided by 16,157,092 shares) $ 13.50
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended April 30, 1996
<S> <C>
Tax exempt interest income $18,293,098
- --------------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,831,837
- --------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 201,909
- --------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,275
- --------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,421
- --------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 2) 6,369
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 46,024
- --------------------------------------------------------------------------------------------------------
Auditing 55,849
- --------------------------------------------------------------------------------------------------------
Legal 10,830
- --------------------------------------------------------------------------------------------------------
Postage 40,780
- --------------------------------------------------------------------------------------------------------
Exchange listing fees 24,685
- --------------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 96,428
- --------------------------------------------------------------------------------------------------------
Other 1,809
- --------------------------------------------------------------------------------------------------------
Total expenses 2,335,216
- --------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (70,380)
- --------------------------------------------------------------------------------------------------------
Net expenses 2,264,836
- --------------------------------------------------------------------------------------------------------
Net investment income 16,028,262
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,003,399
- --------------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 136,202
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 3,617,324
- --------------------------------------------------------------------------------------------------------
Net gain on investments 5,756,925
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $21,785,187
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended April 30
----------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $ 16,028,262 $ 16,512,895
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 2,139,601 (11,564,849)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment transactions 3,617,324 9,027,102
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 21,785,187 13,975,148
- --------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (1,455,352) (1,287,696)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $71,506
and $0, respectively) 20,329,835 12,687,452
- --------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (15,995,243) (15,998,793)
- --------------------------------------------------------------------------------------------------------
From net realized gains -- (1,481,046)
- --------------------------------------------------------------------------------------------------------
In excess of net realized gains -- (499,303)
- --------------------------------------------------------------------------------------------------------
Common share offering and closing costs charged to
paid-in capital -- (218,436)+
- --------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,334,592 (5,510,126)
- --------------------------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of year 253,784,805 259,294,931
- --------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $940,417 and $2,272,494, respectively) $258,119,397 $253,784,805
- --------------------------------------------------------------------------------------------------------
Number of fund shares
- --------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning and end of year 16,157,092 16,157,092
- --------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning
and end of year 800 800
- --------------------------------------------------------------------------------------------------------
+ Adjustments of the original offering costs to reflect actual costs incurred.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<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 April 30
------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period
(common shares) $13.23 $13.57 $14.07*
- -------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income .99 1.02 .94(a)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .36 (.16) (.59)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.35 86 .35
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------
From net investment income:
- -------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.09) (.08) (.05)**
- -------------------------------------------------------------------------------------------------------------------
To common shareholders (.99) (.99) (.70)
- -------------------------------------------------------------------------------------------------------------------
Capital gains:
- -------------------------------------------------------------------------------------------------------------------
To common shareholders -- (.09) (.05)
- -------------------------------------------------------------------------------------------------------------------
In excess of capital gains:
- -------------------------------------------------------------------------------------------------------------------
To common shareholders -- (.03) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (1.08) (1.19) (.80)
- -------------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- (.05)
- -------------------------------------------------------------------------------------------------------------------
Common share offering costs -- (.01)+ --
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $13.50 $13.23 $13.57
- -------------------------------------------------------------------------------------------------------------------
Market value, end of period (common shares) $13.625 $12.250 $12.625
- -------------------------------------------------------------------------------------------------------------------
Total investment return, at market value
(common shares) (%) (c) 19.64 5.82 (11.22)(b)
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $258,119 $253,785 $259,295
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.05 .95 .94(b)
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 6.54 6.04 6.14(b)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 49.97 59.13 60.52(b)
- -------------------------------------------------------------------------------------------------------------------
*Represents initial net asset value of $14.10 less offering expenses of $0.03.
**Preferred shares were issued on August 3, 1993. (See Note 4)
+Adjustments of the original offering costs to reflect actual costs incurred.
(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 $0.01per share. (See Note 2)
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d)Ratios reflect net assets available to common shares only: net investment income ratio also reflects reduction for
dividend payments to preferred shareholders.
(e) The ratio of expenses to average net assets for the year ended April 30, 1995 and thereafter, include amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2)
</TABLE>
Notes to financial statements
April 30, 1996
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 Putnam Investment
Management, Inc. ("Putnam Management"), the Fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc., 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 preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The fair
value of restricted securities is determined by the 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
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 on securities held and for excise tax on income and capital
gains.
At April 30, 1996, the fund had a capital loss carryover of
approximately $9,215,000 available to offset future net capital gain, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
----------------------------
$4,634,000 4/30/2003
$4,581,000 4/30/2004
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 become payable when, as and if declared by
the Trustees. 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, 1996 was 3.625%. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
These differences include treatment of market discount. 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, 1996, the fund
reclassified $90,256 to increase undistributed net investment income with
an increase to accumulated net realized losses of $90,256. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.
F) Determination of net asset value Net asset value of the common shares
is determined by dividing the value of all assets of the fund (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.
G) 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. Discounts on zero coupon bonds, original issue,
stepped-coupon bonds and payment in kind bonds are accreted according to
the effective yield method.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $36,681. These expenses are being amortized on
a straight-line basis over a five-year period.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services and administrative services 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 subject, under current law, to reduction
in any year by the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of Putnam Management on the fund's
portfolio transactions.
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."
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended April 30, 1996, fund expenses were reduced by $70,380
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of these assets utilized
in connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $790 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Note 3
Purchases and sales of securities
During the year ended April 30, 1996, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $127,957,774 and $126,337,866, respectively.
Purchases and sales of short-term municipal obligations aggregated
$64,800,000 and $68,000,000, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Remarketed preferred shares
On August 3, 1993, the fund issued 800 remarketed preferred shares.
Proceeds to the fund, before underwriting expenses of $600,000 and
offering expenses of $182,000, amounted to $40,000,000. Such offering
expenses and the fund underwriting expenditures were paid initially by
Putnam Management, and the fund reimbursed Putnam Management for such
costs. Theses expenses were charged against net assets of the fund
available to common shareholders.
The Series A shares are 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.
It is anticipated that approximately 100% of total distributions and
dividends paid during fiscal 1996 to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal Revenue
Code of 1986. To the extent that the fund earns taxable income and
capital gains by the conclusion of a fiscal year, it will be required to
apportion to the holders of the remarketed preferred shares throughout
that year additional dividends as necessary to result in an after-tax
equivalent to the applicable dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to
maintain asset coverage of at least 200% with respect to the remarketed
preferred shares as of the last business day of each month in which any
such shares are outstanding. Additionally, the fund is required to meet
more stringent asset coverage requirements under terms of the remarketed
preferred shares and the shares' rating agencies. Should these
requirements not be met, or should dividends accrued on the remarketed
preferred shares not be paid, the fund may be restricted in its ability
to declare dividends to common shareholders or may be required to redeem
certain of the remarketed preferred shares. At April 30, 1996, no such
restrictions have been placed on the fund.
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for federal income tax
purposes.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected Quarterly Data
(Unaudited)
Net realized and Net increase (decrease)
Investment Net investment unrealized gain in net assets
Income Income* (loss) on investments* from operations*
- ---------------------------------------------------------------------------------------
Per Per Per Per
Quarter Common Common Common Common
Ended Totals Share Total Share Total Share Total Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-31-94 $4,826,033 $.30 $3,957,895 $.24 $ 1,382,956 $.09 $ 5,340,851 $.33
4-30-94 4,762,164 .30 3,863,391 .25 (19,384,620) (1.20) (15,521,229) (.95)
7-31-94 4,830,847 .30 3,920,099 .24 (241,070) (.01) 3,679,029 .23
10-31-94 4,800,324 .30 3,864,423 .24 (11,848,099) (.73) (7,983,676) (.49)
1-31-95 4,693,515 .28 3,814,166 .24 2,986,140 .18 6,800,306 .42
4-30-95 4,579,698 .29 3,626,511 .22 6,565,282 .40 10,191,793 .62
7-31-95 4,572,037 .28 3,659,874 .23 3,918,401 .24 7,578,275 .47
10-31-95 4,550,958 .28 3,548,979 .21 5,783,632 .37 9,332,611 .58
1-31-96 4,595,509 .28 3,630,843 .22 5,175,763 .32 8,806,606 .54
4-30-96 4,574,594 .29 3,661,708 .24 (9,120,871) (.57) (5,459,163) (.33)
* Available to common shareholders.
</TABLE>
Fund information
Investment Manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray
Independent Accountants
Coopers & Lybrand L.L.P.
Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary Coburn
Vice President
James E. Erickson
Vice President
Blake Anderson
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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 net asset value.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
25120-582 6/96
