Putnam
Municipal
Opportunities
Trust
SEMIANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While October's stock market turbulence created an increased
demand for fixed-income securities, the tax-exempt market has been largely
overlooked. Yields on municipal securities, meanwhile, have become highly
competitive, creating potential for price appreciation if investors
recognize the imbalance and seek opportunities in the muni markets."
-- Blake E. Anderson, manager
Putnam Municipal Opportunities Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
11 Portfolio holdings
17 Financial statements
25 Results of October 9, 1997, shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
One of the longest periods of economic growth on record, combined with
continued low inflation, led to a prolonged bull market for stock prices this
year, as well as overall strength in the bond markets. But in October,
corrections in stock markets around the world resulted in precedent-breaking
trading volume and price volatility in U.S. stocks. This sparked a rally for
bond prices, most notably in Treasury securities, as investors sought
temporary refuge in less volatile securities.
To date, this flight to the relative stability of the bond market has yet to
be reflected in municipal bond prices, making yields particularly attractive
relative to the taxable market. In the coming months, as the equity markets
settle down, your management team expects investors to become aware of
opportunities in the municipal bond markets, stimulating demand and improving
the potential for price appreciation.
In the following report, Blake Anderson, your fund's manager, discusses key
aspects of his strategy over the first half of fiscal 1998 and provides his
expectations for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Manager
Blake E. Anderson
As of the end of October, the midpoint in its fiscal year, Putnam Municipal
Opportunities Trust was one of the leading funds in its competitive field in
terms of current income. The fund's high yield reflects a combination of its
use of leverage and the structure of its portfolio. Total return, which
reflects changes in the market value of the fund's holdings, was less positive
over the six months ended October 31, 1997, but remained in keeping with the
fund's goal of seeking high current income with minimal price volatility
through a diversified portfolio of municipal bonds. For complete performance
details, please turn to pages 9 and 10.
* NAVIGATING EL NINO IN THE BOND MARKETS
Just as weather forecasters are taking a more global view, observing how
trends in one part of the world affect events in the other, market watchers
are observing the ways in which economic activity on one side of the globe
influences economies and markets on the other side. Although an atmosphere of
low volatility and narrow trading ranges characterized the fixed-income
markets for most of 1997, October's turbulence -- and the effects of the
Pacific Rim crisis -- changed all that.
Earlier in the year, the municipal bond markets had enjoyed relative
stability, stemming from an ongoing domestic tug of war between high economic
growth (bad for the bond market) and favorable low inflation news (good for
the bond market). Because of the low interest-rate environment, many new
issues and refunded securities came to market. An abundant supply of bonds,
coupled with high returns on stocks, subdued tax-exempt bond prices. However,
the October correction resulted in a strong price rally, most notably in
Treasuries. Municipal bond yields became attractive relative to taxable bonds
and we have been taking full advantage of the resulting opportunities.
* KEY FACTORS IN CURRENT INCOME: LEVERAGE AND DURATION
The fund's industry emphasis and overall credit quality have not changed
greatly since the close of fiscal 1997 last May. Then, as now, airport and
utility issues tended to dominate the portfolio. Airlines have been and
continue to be enormously profitable, benefiting from the continuing strength
of the U.S. economy. Utility bonds, meanwhile, offer a combination of high
current income and the potential for price appreciation, since this sector
seems to have been overlooked by investors. The most significant changes we
have to report involve the fund's use of leverage and a commensurate increase
in the duration of its portfolio.
As you may recall, in our last report we announced plans to increase the
fund's use of leveraging by offering additional preferred shares. These
shares, sold to corporate and institutional investors, pay dividends at
prevailing short-term rates, which are lower than rates on long-term bonds. We
invested the proceeds from this offering in long-term high-yielding municipal
bonds. The difference between the rates earned by the fund and the rate paid
to preferred shareholders has been used to augment the flow of income for
common shareholders.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
TOP INDUSTRY SECTORS*
Transportation 20.7%
Health care 20.7%
Utilities 17.0%
Housing 12.4%
Water and sewer 6.8%
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
In addition, we have adjusted the duration of the fund's portfolio to help
manage interest-rate sensitivity while still providing comfortably high
returns. Duration, which is measured in years, indicates a portfolio's
sensitivity to changes in interest rates. A shorter duration helps protect
principal when interest rates are rising and bond prices are falling. A longer
duration allows the fund to capture price appreciation in a declining-rate
environment but carries a greater risk of loss should rates rise. The fund's
duration continues to be moderately defensive; in other words, it is slightly
shorter than the average fund in its category.
Because it is a closed-end fund, the portfolio has only minimal investments in
liquid short-term securities. We have invested primarily in high-coupon bonds
in order to generate a steady flow of income. Because they are prized by
investors, high-coupon bonds -- although not immune from overall price trends
- -- tend to provide greater price stability during uncertain market periods. We
used quantitative analysis to identify securities with the potential to move
higher in price, based on historical relationships.
* SEEKING LONG-TERM INCOME THROUGH REVENUE GROWTH AND QUALITY
The fund continues to emphasize industry sectors that are benefiting most in
the prevailing climate of economic strength. Transportation, particularly
airports and airlines, continues to be the largest sector. Demand for air
travel has been vigorous during the past several years and remains so.
Capacity expansion is still modest and demand is still outstripping supply.
Restructurings in the utility sector are also creating attractive
opportunities, but because of the controversies surrounding this sector in
general, investors tend to overlook individual offerings having excellent
potential. While the fund tends to concentrate on investment-grade securities,
it is opportunistic as its name implies -- and we have been making full use of
Putnam's extensive research capabilities to identify promising issues in this
sector.
Health-care facility bonds also continue to account for a sizable portion of
the portfolio. As an aging population increases demand for hospitals and
extended care facilities, this sector as a whole offers the potential for
steady income. Again, we depend on careful research to target situations that
we believe offer better than average income potential.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW*]
CREDIT QUALITY OVERVIEW*
Aaa 41.1%
Aa 8.6%
A 6.8%
Baa 27.1%
Ba 15.6%
B and under 0.8%
Footnote reads:
*As a percentage of market value as of 10/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
Overall, revenue bonds as a class offer higher yields than tax-backed issues.
However, the fund's portfolio currently includes certain Washington, DC,
general obligation bonds that we believe represent unrecognized value in the
municipal bond market.
* CREDIT QUALITY RESEARCH AND CALL PROTECTION HELP SUSTAIN PERFORMANCE
When you review the credit ratings of individual portfolio holdings, bear in
mind that active investors cannot rely on the rating agencies to do their work
for them. Situations can change overnight and rating agencies simply cannot
afford to keep in constant touch with the thousands of issuers they rate. Your
management team, however, is able to identify and further research Ba-rated
and B-rated bonds that appear to merit higher ratings. Since credit upgrades
are generally accompanied by price appreciation, early identification of
potential upgrades helps us secure attractive income while positioning the
fund to benefit down the road.
Another way we seek to provide high, sustainable returns is by managing call
risk within the fund. Callable bonds carry the option of being redeemed, or
called away, by the issuer at a certain future date. A bond issuer normally
calls in a bond for the same reason homeowners seek to refinance mortgages: to
obtain lower interest rates than those prevailing when the bonds were
originally issued. To maintain a level income stream for the fund, we work to
balance callable holdings with positions in noncallable bonds or bonds with
distant call dates.
* OUTLOOK: SEEKING OPPORTUNITY IN VOLATILITY
Once the worldwide equity markets have settled down, we expect to return to a
more stable municipal bond market. We realize that volatility is unsettling
for investors, but as professional money managers, our goal is to capitalize
on short-term distortions in order to improve the fund's return over time.
Over the longer term, we continue to expect some moderate upward pressure on
interest rates, driven by the strong economy. While keeping a vigilant eye on
the economy, we will continue to rely on in-depth research to evaluate new
issues coming to market as well as existing holdings.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/97, 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.
TOTAL RETURN FOR PERIODS ENDED 10/31/97
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 6.02% 6.97% 6.36% 0.87%
- ------------------------------------------------------------------------------
1 year 8.62 10.72 8.50 2.08
- ------------------------------------------------------------------------------
Life of fund (5/28/93) 36.13 31.40 32.70 12.07
Annual average 7.21 6.36 6.61 2.61
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 10/31/97
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------------
Income $0.465
- ------------------------------------------------------------------------------
Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.465
- ------------------------------------------------------------------------------
Series A Series B Series C
Preferred shares (800 shares) (1,620 shares) (1,620 shares)
- ------------------------------------------------------------------------------
Income $985.51 $235.94 $258.55
- ------------------------------------------------------------------------------
Total $985.51 $235.94 $258.55
- ------------------------------------------------------------------------------
Share value (common shares): NAV Market price
- ------------------------------------------------------------------------------
4/30/97 $13.61 $13.875
- ------------------------------------------------------------------------------
10/31/97 13.97 14.375
- ------------------------------------------------------------------------------
Current return (common shares): NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate2 6.66% 6.47%
- ------------------------------------------------------------------------------
Taxable equivalent3 11.03 10.71
- ------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate and
end-of-period dividend rate. Results for investors subject to lower tax
rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months 6.12% 6.01%
- ------------------------------------------------------------------------------
1 year 9.32 12.80
- ------------------------------------------------------------------------------
Life of fund (5/28/93) 35.21 31.84
Annual average 7.20 6.58
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.4%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Alabama (3.7%)
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<S> <C> <C> <C>
$5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB $ 5,700,000
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 7,218,750
--------------
12,918,750
Alaska (1.4%)
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5,000,000 Valdez Marine Term. Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 AA 4,956,250
Arizona (1.1%)
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500,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.),
3.45s, 12/1/22 (LOC) Aa 500,000
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB/P 3,192,475
--------------
3,692,475
California (9.9%)
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4,000,000 CA Hlth. Fac. Auth. Rev. Bonds (Cedar-Sinai
Med. Ctr.), MBIA, 5 1/8s, 8/1/27 Aaa 3,845,000
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 7.249s, 8/10/18 Aa 3,427,500
2,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 BBB 2,093,260
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17# Aaa 5,781,250
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,360,000
3,000,000 San Diego, IF COP, AMBAC, 6.82s, 9/1/07 Aaa 3,468,750
6,280,000 San Diego, Pub. Swr. Fac. Fin. Auth Rev. Bonds,
Ser. A, FGIC, 5 1/4s, 5/15/27 Aaa 6,177,950
3,000,000 Southern CA Pub. Pwr. Auth. IFB, FGIC,
6.62s, 7/1/17 Aaa 3,105,000
--------------
34,258,710
Colorado (4.9%)
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Denver, City & Cnty. Arpt. Rev. Bonds,
9,440,000 Ser. A 8 3/4s, 11/15/23 Baa 11,098,263
2,910,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,306,488
1,585,000 7 3/4s, 11/15/21 Baa 1,775,200
Denver, City & Cnty. Arpt. Rev. Bonds,
Prerefunded, Ser. A
250,000 MBIA, 8 1/2s, 11/15/23 Aaa 283,750
415,000 7 3/4s, 11/15/21 Baa 472,581
--------------
16,936,282
District of Columbia (3.7%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Ba 12,761,250
Florida (0.9%)
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2,890,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 3,150,100
Hawaii (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 HI State Hsg. Fin. & Dev. Corp. Single Fam. Mtge.
Rev. Bonds, Ser. A, FNMA Coll., 5 3/4s, 7/1/30 AA 2,012,500
Illinois (9.6%)
- ------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,695,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,071,981
8,755,000 Ser. C, 8.2s, 5/1/18 Baa 9,411,625
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A 10,912,500
700,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 9.741s, 2/1/20
(acquired 5/28/93, cost $792,925) [DBL. DAGGERS] Aa 786,625
--------------
33,182,731
Indiana (0.6%)
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2,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 BBB 2,230,000
Kentucky (1.5%)
- ------------------------------------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Air Lines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 BBB 3,769,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 BBB 1,423,500
--------------
5,193,250
Louisiana (2.6%)
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5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB 6,036,250
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 3,095,813
--------------
9,132,063
Maryland (1.5%)
- ------------------------------------------------------------------------------------------------------------
4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA, 6.85s, 5/15/25 Aa 5,163,525
Massachusetts (7.8%)
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MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,244,506
3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,296,250
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), 6.9s, 11/15/21
(FNMA Collateral) Aaa 4,221,225
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,815,800
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB/P 3,401,250
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (1st Mtge.
Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,071,250
--------------
27,050,281
Michigan (3.8%)
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11,000,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 10,312,500
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,756,250
--------------
13,068,750
Minnesota (0.4%)
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1,250,000 Rochester Hlth. Care Fac. IFB (Mayo Foundation),
Ser. H, 7.966s, 11/15/15 AA 1,407,813
Mississippi (1.2%)
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Claiborne Cnty., Poll. Control Rev. Bonds
2,500,000 (Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 BB/P 2,681,250
1,350,000 (Syst. Energy Resources, Inc.), 7.3s, 5/1/25 BBB 1,434,375
--------------
4,115,625
Nebraska (0.7%)
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2,200,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 8.64s, 9/10/30 Aaa 2,497,000
Nevada (1.8%)
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Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa 3,055,938
3,000,000 Ser. A, 6 1/2s, 12/1/33 BBB 3,225,000
--------------
6,280,938
New Hampshire (1.1%)
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NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,600,000 (Riverwoods at Exeter), Ser. A, 6 1/2s, 3/1/23 B/P 2,632,500
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB 1,276,560
--------------
3,909,060
New Jersey (8.3%)
- ------------------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB 9,866,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 3,758,125
2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,803,675
10,000,000 Salem Cnty. Indl. Poll. Control Fin. Auth. IFB, MBIA,
8.841s, 10/1/29 (acquired 10/28/94,
cost $9,750,000) [DBL. DAGGER] Aaa 12,187,500
--------------
28,615,550
New York (3.1%)
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6,000,000 Metropolitan-Trans. Auth. Rev. Bonds, Ser. A,
MBIA, 5 1/4s, 4/1/21 Aaa 5,917,500
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8s, 7/1/20 Baa 4,841,500
--------------
10,759,000
North Carolina (0.6%)
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2,000,000 NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds,
Ser. B, 6s, 1/1/22 Baa 2,097,500
Ohio (0.8%)
- ------------------------------------------------------------------------------------------------------------
2,563,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.728s, 3/24/31 Aaa 2,909,005
Pennsylvania (7.6%)
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5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 5,068,750
7,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp.), Ser. B, 8 3/8s, 11/1/11 AAA 7,691,250
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa 3,423,750
1,000,000 PA State Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Colver), Ser. D, 7.15s, 12/1/18 BBB 1,102,500
3,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver Project), Ser. E, 8.05s, 12/1/15 BB/P 3,435,000
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.662s, 9/3/26 Aaa 5,668,750
--------------
26,390,000
South Carolina (1.5%)
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4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 5,045,625
Texas (12.7%)
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5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 6,022,500
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,610,000
2,000,000 7.9s, 5/1/11 AAA 2,337,500
12,000,000 FSA, 6.1s, 11/15/23 Aaa 12,660,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa 4,955,625
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,265,000
2,395,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba 2,538,700
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 5,700,000
--------------
44,089,325
Utah (1.8%)
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5,000,000 Intermountain Pwr. Agcy. Rev. Bonds, Ser. D,
AMBAC, 7 3/4s, 7/1/20 AA 5,217,450
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps. Inc.),
9.616s, 5/15/20 Aaa 1,181,250
--------------
6,398,700
Virginia (1.1%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.),
Ser. C, 9.577s, 8/29/23 AAA 3,648,750
Washington (1.2%)
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4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A 4,110,000
Wyoming (0.9%)
- ------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa 3,206,531
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $330,889,275) *** $ 341,187,339
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $346,822,154.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at October 31, 1997 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at October 31, 1997. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $330,889,275,
resulting in gross unrealized appreciation and depreciation of
$13,065,386 and $2,767,322, respectively, or net unrealized appreciation
of $10,298,064.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 1997 was
$12,974,125 or 3.7% of net assets.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for future contracts at October 31, 1997.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, and VRDN's are the current interest rates at October 31, 1997.
The fund had the following industry group concentrations greater
than 10% at October 31, 1997 (as a percentage of net assets):
Transportation 20.7%
Health care 20.7
Utilities 17.0
Housing 12.4
The fund had the following insurance concentration greater than
10% at October 31, 1997 (as a percentage of net assets):
MBIA 12.0%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1997
Unrealized
Aggregate Expiration Appreciation/
Total Value Face Value Date (Depreciation)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
U.S. Treasury Bond
20 Yr. (short) $15,637,875 $15,239,259 Dec 97 $(398,616)
Muni Index (long) 5,482,969 5,481,874 Dec 97 1,095
- -------------------------------------------------------------------------------------------
$(397,521)
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $330,889,275) (Note 1) $341,187,339
- ---------------------------------------------------------------------------------------------------
Cash 26,359
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,705,425
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,712
- ---------------------------------------------------------------------------------------------------
Total assets 348,922,835
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 35,687
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,252,127
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 621,981
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 20,972
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,327
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 574
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 106,500
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 54,513
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,100,681
- ---------------------------------------------------------------------------------------------------
Net assets $346,822,154
Represented by
- ---------------------------------------------------------------------------------------------------
Series A remarketed preferred shares, (800 shares issued and
outstanding at $50,000 per share) (Note 4) $ 40,000,000
- ---------------------------------------------------------------------------------------------------
Series B and C remarketed preferred shares, (3,240 shares issued and
outstanding at $25,000 per share) (Note 4) 81,000,000
- ---------------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited
shares authorized) (Note 1) 225,199,521
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (676,167)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (8,601,743)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,900,543
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $346,822,154
Net assets available to:
- ---------------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 47,307
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $121,047,307
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $225,774,847
- ---------------------------------------------------------------------------------------------------
Net asset value per common share
($225,774,847 divided by 16,157,092 shares) $13.97
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended October 31, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $10,164,746
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,110,570
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 121,849
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,304
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,424
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,176
- --------------------------------------------------------------------------------------------------
Reports to shareholders 14,204
- --------------------------------------------------------------------------------------------------
Auditing 26,548
- --------------------------------------------------------------------------------------------------
Legal 12,198
- --------------------------------------------------------------------------------------------------
Postage 4,014
- --------------------------------------------------------------------------------------------------
Exchange listing fees 12,240
- --------------------------------------------------------------------------------------------------
Other 16,769
- --------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 46,666
- --------------------------------------------------------------------------------------------------
Total expenses 1,377,962
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (54,324)
- --------------------------------------------------------------------------------------------------
Net expenses 1,323,638
- --------------------------------------------------------------------------------------------------
Net investment income 8,841,108
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 779,574
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (183,094)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 6,658,046
- --------------------------------------------------------------------------------------------------
Net gain on investments 7,254,526
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $16,095,634
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
October 31 April 30
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,841,108 $ 15,955,844
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 596,480 816,584
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 6,658,046 2,427,269
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 16,095,634 19,199,697
- ----------------------------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (1,589,483) (1,397,016)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed
preferred shares of $47,307 and $74,751, respectively) 14,506,151 17,802,681
- ----------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (7,512,783) (15,499,239)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (415,009)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions 81,000,000 --
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred share offering costs (Note 4) (1,179,044) --
- ----------------------------------------------------------------------------------------------------------------------
Total increase net assets 86,814,324 1,888,433
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 260,007,830 258,119,397
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $676,167 and
$415,009, respectively) $346,822,154 $260,007,830
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at beginning and
end of period 16,157,092 16,157,092
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning of period 800 800
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares issued (Note 4) 3,240 --
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
end of period 4,040 800
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share October 31 May 28, 1993+
operating performance (Unaudited) Year ended April 30 to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $13.61 $13.50 $13.23 $13.57 $14.07 (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .55 .99 .99 1.02 .94 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .45 .20 .36 (.16) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.00 1.19 1.35 .86 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.10) (.09) (.09) (.08) (.05)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.47) (.96) (.99) (.99) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income: --
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gains
on investments:
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- (.09) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of capital gains:
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions: (.57) (1.08) (1.08) (1.19) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred share offering costs (.07) -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Common share offering costs -- -- -- (.01)(g) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period
(common shares) $13.97 $13.61 $13.50 $13.23 $13.57
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period
(common shares) $14.375 $13.875 $13.625 $12.250 $12.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return,
at market value
(common shares) (%)(b) 6.97* 9.24 19.64 5.82 (11.22)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $346,822 $260,008 $258,119 $253,785 $259,295
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .62* 1.08 1.05 .95 .94*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 3.25* 6.60 6.54 6.04 6.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 19.43* 20.52 49.97 59.13 60.52*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects a waiver of the management fee for the period May 28, 1993 to June 13, 1993.
As a result of the waiver, expenses of the fund for the period ended April 30, 1994 reflect a
reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Ratios reflect net assets available to common shares only: net investment income ratio also reflects
reduction for dividend payments to preferred shareholders.
(d) The ratio of expenses to average net assets for the year ended April 30, 1996 and thereafter,
include amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(e) Represents initial net asset value of $14.10 less offering expenses of $0.03.
(f) Preferred shares were issued on August 3, 1993.
(g) Adjustments of the original offering costs to reflect actual costs incurred.
</TABLE>
Notes to financial statements
October 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Municipal Opportunities Trust (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 Putnam Management 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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At April 30, 1997, the fund had a capital loss carryover of approximately
$8,475,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------------------------
$3,894,000 April 30, 2003
$4,581,000 April 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 for Series A and a 7 day period for Series B and C.
The applicable dividend rate for the remarketed preferred shares on October
31, 1997 was 3.75% for Series A, 3.53% for Series B, and 3.56% for Series C.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
F) Determination of net asset value Net asset value of the common shares is
determined by dividing the value of all assets of the fund, less all
liabilities and the liquidation preference of any outstanding remarketed
preferred shares, by the total number of common shares outstanding.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. The premium in excess of the call
price, if any, is amortized to the call date; thereafter, the remaining excess
premium is amortized to maturity. Discounts on original issue discount bonds
and zero coupon bonds are accreted on a yield-to-maturity basis.
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 $31,878. 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.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred shares
for that period exceed the fund's 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 the amount of the excess
(but not more than .70% of the liquidation preference of the remarketed
preferred shares outstanding during the period).
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended October 31, 1997, fund expenses were reduced by
$54,324 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $553 has been
allocated to the fund and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended October 31, 1997, purchases and sales of
investment securities other than U.S. government obligations and short-term
investments aggregated $139,420,715 and $57,759,937, 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 July 7, 1997, the fund issued 1,620 Series B and 1,620 Series C remarketed
preferred shares. Proceeds to the fund, before underwriting expenses of
$810,000 and offering expenses of $369,044, amounted to $81,000,000. Such
offering expenses and the fund underwriting expenditures were paid initially
by Putnam Management, and the fund will reimburse Putnam Management for such
costs. Theses expenses were charged against net assets of the fund available
to common shareholders.
The Series A, B and C shares are redeemable at the option of the fund on any
dividend payment date at a redemption price of $50,000, $25,000 and $25,000,
respectively 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 dividends paid 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
October 31, 1997, no such restrictions have been placed on the fund.
Results of October 9, 1997 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on October 9, 1997. At the
meeting, each of the nominees for Trustees was elected, as follows:
<TABLE>
<CAPTION>
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
<S> <C> <C> <C> <C>
Jameson Adkins Baxter 15,323,073 194,050 728 6
Hans H. Estin 15,320,793 196,330 726 8
R.J. Jackson 15,331,785 185,338 728 6
Elizabeth T. Kennan 15,320,942 196,181 725 9
Lawrence J. Lasser 15,328,175 188,948 728 6
Donald S. Perkins 15,319,657 197,466 725 9
William F. Pounds 15,323,925 193,198 725 9
George Putnam 15,319,494 197,629 728 6
George Putnam, III 15,319,428 197,695 728 6
A.J.C. Smith 15,333,382 183,741 728 6
W. Nicholas Thorndike 15,328,985 188,138 725 9
</TABLE>
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows:
Common Shares -- 15,217,291 votes for, and 63,461 votes against, with 236,371
abstentions and non-broker votes.
Preferred Shares -- 723 votes for, and 5 votes against, with 6 abstentions and
non-broker votes.
All tabulations are rounded to nearest whole number.
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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 N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
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 NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
36868-582 12/97
