Putnam
Municipal
Opportunities
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Over the past six months, Putnam Municipal Opportunities Trust once again
provided solid performance and remained one of the leading funds in its
competitive field in terms of income and total return. The fund's level of
current income stayed quite competitive, while its total return
performance improved. These achievements reflect the continued success of
manager Blake Anderson's investment strategy, most notably his use of
leverage, portfolio structuring, and duration management techniques. For
complete performance details, please turn to pages 6 and 7.
* MUNICIPAL BOND MARKET RALLIES; PRICES REACH ATTRACTIVE LEVELS
Throughout the dramatic market shifts of 1998, the municipal bond market
has continued to stand its ground. As foreign investors and hedge fund
investors panicked about plummeting stock markets, they began a flight to
quality -- selling hedge funds and emerging-markets funds in favor of the
safety of U.S. Treasury bonds. This buying drove up the prices of
Treasuries and pushed down their yields. Since foreign investors do not
benefit from the tax advantages of municipal bonds, prices in this market
didn't rise as much as Treasuries. However, as of the end of October,
long-term municipal bond yields were approximately the same as the 30-year
Treasury bond yield -- making municipal bonds an exceptional investment
opportunity for U.S. investors.
* PORTFOLIO STRUCTURE ENHANCES VALUE WHILE LEVERAGE CONTINUES TO BOOST
INCOME
The portfolio's mix of high-quality and high-coupon bonds continued to
serve shareholders well over the past six months. Early on, high-coupon,
lower-grade holdings generated significant income for the fund. When
investor sentiment shifted in mid July, these bonds underperformed
somewhat. Fortunately, the portfolio also contained a high concentration
of higher-quality, longer duration bonds. These performed extremely well
when the lower-grade bonds fell out of favor and achieved solid capital
appreciation during the market rally.
At the same time, the fund's use of leveraging continued to help boost
income substantially. With leveraging, the fund offers preferred shares
that pay dividends at prevailing short-term rates. Then we reinvest the
proceeds from their sale in long-term high-yielding municipal bonds. With
the municipal yield curve steepening over the period, the difference
between short-term and long-term interest rates grew, and leveraging
allowed the fund to generate quite a bit of income. In addition, the
leveraging technique effectively extended the fund's duration and helped
it to capture more price appreciation during the municipal market rally
over the summer.
* SECTOR SELECTIONS REMAIN DRIVEN BY ECONOMY'S STRENGTH
For the most part, the fund's sector strategy and overall credit quality
have been unchanged over the past six months. The portfolio's largest
position is still in the transportation industry and these holdings,
particularly airport and airline-backed bonds, have performed extremely
well during the period.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 22.3%
Health care 20.1%
Utilities 16.6%
Housing 11.9%
Water
and sewer 5.9%
Footnote reads:
*Based on net assets as of 10/31/98. Holdings will vary over time.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 8.3%
Baa -- 24.9%
Ba -- 15.4%
B -- 0.8%
Aa -- 6.9%
Aaa -- 42.1%
VMIG1 -- 1.6%
Footnote reads:
*As a percentage of market value as of 10/31/98. 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.
Utility and health-care holdings also contributed to performance, and
these sectors account for a sizable portion of the portfolio. Both
industries are often viewed as countercyclical; that is, their performance
is not driven by general economic strength. In the recent period, utility
bonds benefited strongly from falling interest rates, which reduced the
companies' debt service costs and made the bonds more attractive to the
investment community. Meanwhile, the health-care industry continued to
benefit from the demographic trend toward an aging population, which
increases demand for health-care services.
Overall, high-coupon bonds remain a mainstay of the portfolio and continue
to generate a steady flow of income for the fund. Blake views these bonds
as somewhat defensive holdings because they are highly prized by investors
and can provide greater price stability in uncertain times.
* SLIGHTLY SHORTER DURATION SEEKS CONSISTENT PERFORMANCE OVER TIME
For some time now, Blake has positioned the fund with a slightly shorter
portfolio duration, which was maintained throughout the semiannual period.
Duration, which is measured in years, indicates a portfolio's sensitivity
to interest-rate changes. 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.
While your fund is managed to seek the highest possible level of current
income, Blake also works to minimize share price volatility. With market
conditions fluctuating throughout the recent period, the fund's moderately
shorter duration proved effective, protecting principal value while
enabling the fund to maintain a steady income stream.
* OUTLOOK REMAINS CONSTRUCTIVE
As the period drew to a close, municipal bond prices remained particularly
attractive relative to U.S. Treasuries. The municipal bond supply has been
dropping, and we expect this decline to continue, since most issuers have
already taken advantage of low interest rates to refund older bonds
financed at higher rates.
In fact, municipal bonds appear well positioned to outperform Treasuries
in the months ahead. The Federal Reserve Board has already lowered
short-term interest rates three times, which has broadened the difference
between short and long-term interest rates. Blake believes this steepening
of the yield curve will continue, making the fund's use of leveraging even
more effective. At the same time, the fund's holdings remain concentrated
in the intermediate maturity range (8 to 15 years) of the yield curve.
These maturities have outperformed other sectors of the curve and should
continue to do so over the near term. However, there will come a time when
a shift into longer maturities will offer better performance. As
opportunities appear in the longer-term market, Blake will adjust the
portfolio accordingly.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 16, 1998
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 10/31/98, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 10/31/98
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- -----------------------------------------------------------------------
6 months 4.52% 14.87% 5.11% 0.80%
- -----------------------------------------------------------------------
1 year 8.49 13.92 8.02 1.36
- -----------------------------------------------------------------------
5 years 38.96 53.73 36.12 12.42
Annual average 6.80 8.98 6.36 2.37
- -----------------------------------------------------------------------
Life (since 5/28/93) 47.69 49.68 43.35 13.59
Annual average 7.45 7.71 6.87 2.38
- -----------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Market
NAV price
- -----------------------------------------------------------------------
1 year 9.80% 10.65%
- -----------------------------------------------------------------------
5 years 39.95 50.62
Annual average 6.95 8.54
- -----------------------------------------------------------------------
Life of fund (5/28/93) 48.46 45.87
Annual average 7.68 7.33
- -----------------------------------------------------------------------
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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 10/31/98
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------------
Income $0.453
- ------------------------------------------------------------------------------
Capital gains1 --
- ------------------------------------------------------------------------------
Total $0.453
- ------------------------------------------------------------------------------
Preferred shares Series A Series B Series C
(800 shares) (1,620 shares) (1,620 shares)
- ------------------------------------------------------------------------------
Income $951.53 $453.91 $445.07
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $951.53 $453.91 $445.07
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
04/30/98 $14.05 $13.812
- ------------------------------------------------------------------------------
10/31/98 14.23 15.375
- ------------------------------------------------------------------------------
Current return (common shares/end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 6.37% 5.89%
- ------------------------------------------------------------------------------
Taxable equivalent3 10.55 9.75
- ------------------------------------------------------------------------------
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 POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
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. The index assumes reinvestment of all distributions
and interest payments and does not take 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, 1998 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
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 (98.1%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C>
Alabama (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River Corp.), 8s, 9/1/28 BBB- $ 5,743,750
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D,
FGIC, 5 3/4s, 2/1/27 Aaa 7,586,250
--------------
13,330,000
Alaska (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Valdez Marine Term. Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 Aa2 5,081,250
Arizona (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,200,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Co.-Irvington), Ser. A, 3.2s, 10/1/22 VMIG1 4,200,000
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB-/P 3,196,050
--------------
7,396,050
California (7.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 7.412s, 8/10/18 Aa2 3,821,250
2,000,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management), 7 7/8s, 12/1/13 Baa 2,047,300
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 (SEG) Aaa 6,050,000
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,720,000
3,000,000 San Diego Cnty., IF COP, AMBAC, 6.92s, 9/1/07 Aaa 3,600,000
3,000,000 Southern CA, Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 6.62s, 7/1/17 Aaa 3,195,000
--------------
25,433,550
Colorado (8.7%)
- --------------------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,935,000 8 3/4s, 11/15/23 Baa1 7,888,563
2,505,000 Prerefunded, 8 3/4s, 11/15/23 Aaa 2,905,800
2,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,209,563
275,000 Prerefunded, MBIA, 8 1/2s, 11/15/23 Aaa 305,938
1,585,000 7 3/4s, 11/15/21 Baa1 1,755,388
415,000 Prerefunded, 7 3/4s, 11/15/21 Aaa 469,469
13,000,000 MBIA, 5.7s, 11/15/25 Aaa 13,926,250
--------------
30,460,971
District of Columbia (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Ba1 13,103,625
Florida (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,635,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A 2,810,359
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 Aa1 2,065,000
Illinois (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,470,000 Ser. 84A, 8.85s, 5/1/18 Baa2 11,608,613
8,565,000 Ser. C, 8.2s, 5/1/18 Baa2 8,966,527
300,000 IL Hsg. Dev. Auth. IFB, 10.194s, 2/1/20
(acquired 5/28/93, cost $339,825) (RES) Aa1 326,421
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91A, 8 1/4s, 7/1/16 A1 10,750,000
--------------
31,651,561
Indiana (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 2,235,000
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 Baa3 3,718,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,417,000
--------------
5,135,750
Louisiana (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB 5,857,500
2,850,000 St. Charles, Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 3,032,400
--------------
8,889,900
Maryland (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA Insd, 6.85s, 5/15/25 Aa3 5,199,300
Massachusetts (7.7%)
- --------------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba2 3,210,021
2,900,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,277,000
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), Ser. C, FNMA Coll.,
6.9s, 11/15/21 Aaa 4,216,406
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,970,900
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,352,500
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB-/P 1,082,500
--------------
27,109,327
Michigan (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,500,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 9,357,500
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,712,500
--------------
12,070,000
Minnesota (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Rochester Hlthcare Fac. IFB (Mayo Foundation),
Ser. H, 8.32s, 11/15/15 AA+ 1,462,500
Mississippi (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
2,500,000 (Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 Ba1 2,620,875
1,350,000 (Syst. Energy Resources, Inc.), 7.3s, 5/1/25 BBB- 1,420,875
--------------
4,041,750
Nebraska (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,900,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.429s, 9/10/30 Aaa 2,120,875
Nevada (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 3,052,500
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 3,258,750
--------------
6,311,250
New Hampshire (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,600,000 (Riverwoods at Exeter), Ser. A, 6 1/2s, 3/1/23 BB/P 2,704,000
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,329,688
--------------
4,033,688
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+ 9,900,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 3,819,375
2,490,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 B-/P 2,648,738
10,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds,
8.841s, MBIA, 10/1/29 (acquired 10/28/94,
cost $9,750,000) (RES) Aaa 12,662,500
--------------
29,030,613
New York (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,400,000 NY City, Hlth. & Hosp. Corp. VRDN (Hlth. Syst.),
Ser. D, 2.8s, 2/15/26 VMIG1 1,400,000
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8s, 7/1/20 Baa2 4,715,552
--------------
6,115,552
North Carolina (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, MBIA, 6s, 1/1/22 Aaa 2,305,000
Ohio (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,163,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.796s, 3/24/31 Aaa 2,441,486
Pennsylvania (7.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 5,593,750
7,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B,
8 3/8s, 11/1/11 AAA 7,500,850
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,498,750
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver)
3,000,000 Ser. E, 8.05s, 12/1/15 BB-/P 3,438,750
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,112,500
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.693s, 9/1/26 Aaa 5,750,000
--------------
26,894,600
South Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 5,169,375
Texas (13.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa2 5,878,125
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,586,000
2,000,000 7.9s, 5/1/11 AAA/P 2,327,500
12,000,000 FSA, 6.1s, 11/15/23 Aaa 13,350,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa1 4,899,375
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,260,000
2,365,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp.
Rev. Bonds (Baptist Healthcare Syst.),
8 7/8s, 6/1/21 Ba1 2,464,070
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev. Bonds
(Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 3,285,000
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 A1 5,593,750
--------------
47,643,820
Utah (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB, AMBAC (IHC Hosps. Inc.),
9.92s, 5/15/20 (acquired 6/6/97,
cost $1,168,906) (RES) Aaa 1,167,500
Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.),
Ser. C, 9.987s, 8/29/23 Aaa 3,603,750
Washington (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 4,220,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,505,938
--------------
6,725,938
Wyoming (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 3,257,715
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $330,571,668) (b) $ 344,297,055
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $351,019,931.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
October 31, 1998 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, 1998. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $330,571,668, resulting in gross unrealized appreciation and
depreciation of $17,121,381 and $3,395,994, respectively, or net unrealized appreciation of $13,725,387.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at October 31, 1998 was $14,156,421 or 4.0% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at October 31, 1998.
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, 1998.
The fund had the following industry group concentrations greater than 10% at October 31, 1998 (as a percentage
of net assets):
Transportation 22.3%
Health care 20.1
Utilities 16.6
Housing 11.9
The fund had the following insurance concentrations greater than 10% at October 31, 1998 (as a percentage of
net assets):
MBIA 17.0%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1998 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond Index (long) $4,893,281 $4,900,847 Dec-98 $(7,566)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $330,571,668) (Note 1) $344,297,055
- -----------------------------------------------------------------------------------------------
Cash 464,182
- -----------------------------------------------------------------------------------------------
Interest receivable 7,668,756
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 535,000
- -----------------------------------------------------------------------------------------------
Total assets 352,964,993
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 29,250
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,804
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 622,945
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 29,490
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,962
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 544
- -----------------------------------------------------------------------------------------------
Other accrued expenses 32,067
- -----------------------------------------------------------------------------------------------
Total liabilities 1,945,062
- -----------------------------------------------------------------------------------------------
Net assets $351,019,931
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) 225,201,194
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (222,803)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,676,281)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 13,717,821
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $351,019,931
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 52,406
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $121,052,406
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $229,967,525
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($229,967,525 divided by 16,157,092 shares) $14.23
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended October 31, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $11,186,442
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,249,782
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 138,454
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,344
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,251
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 571
- -----------------------------------------------------------------------------------------------
Reports to shareholders 12,145
- -----------------------------------------------------------------------------------------------
Auditing 12,767
- -----------------------------------------------------------------------------------------------
Legal 12,162
- -----------------------------------------------------------------------------------------------
Postage 11,785
- -----------------------------------------------------------------------------------------------
Exchange listing fees 12,130
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 146,639
- -----------------------------------------------------------------------------------------------
Other 15,101
- -----------------------------------------------------------------------------------------------
Total expenses 1,623,131
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (14,022)
- -----------------------------------------------------------------------------------------------
Net expenses 1,609,109
- -----------------------------------------------------------------------------------------------
Net investment income 9,577,333
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (332,763)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 208,687
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 3,064,843
- -----------------------------------------------------------------------------------------------
Net gain on investments 2,940,767
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,518,100
- -----------------------------------------------------------------------------------------------
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
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $9,577,333 $18,777,182
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (124,076) 706,599
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,064,843 7,410,481
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 12,518,100 26,894,262
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (2,217,571) (3,723,124)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred
shares of $52,406 and $96,746 respectively) 10,300,529 23,171,138
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (7,319,018) (14,961,504)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions -- 81,000,000
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred share offering costs (Note 4) -- (1,179,044)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 2,981,511 88,030,590
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 348,038,420 260,007,830
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $222,803 and
$263,547, respectively) $351,019,931 $348,038,420
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 4,040 800
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares issued (Note 4) -- 3,240
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at end of period 4,040 4,040
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period
(common shares) $14.05 $13.61 $13.50 $13.23 $13.57 $14.07(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .59 1.16 .99 .99 1.02 .94(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .17 .51 .20 .36 (.16) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .76 1.67 1.19 1.35 .86 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.13) (.23)(f) (.09) (.09) (.08) (.05)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.45) (.93) (.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: (.58) (1.16) (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) $14.23 $14.05 $13.61 $13.50 $13.23 $13.57
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $15.375 $13.812 $13.875 $13.625 $12.250 $12.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return, at market value
(common shares) (%)(b) 14.87* 6.13 9.24 19.64 5.82 (11.22)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (total fund)
(in thousands) $351,020 $348,038 $260,008 $258,119 $253,785 $259,295
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .71* 1.30 1.08 1.05 .95 .94*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 3.22* 6.64 6.60 6.54 6.04 6.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0* 26.37 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) Series A preferred shares were issued on August 3, 1993. Series B and C preferred shares
were issued on July 7, 1997.
(g) Adjustments of the original offering costs to reflect actual costs incurred.
</TABLE>
Notes to financial statements
October 31, 1998 (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
taxable 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, 1998, the fund had a capital loss carryover of approximately
$7,225,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
---------------------- ----------------------
$2,644,000 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, 1998 was Series A 3.20%, Series B 3.05%, and Series C 3.35%.
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 are accreted according to the 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. The expenses have been fully
amortized over a five-year period as of October 31, 1998.
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% thereafter.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than .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, 1998, fund expenses were reduced by
$14,022 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 the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $520 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, 1998, purchases and sales of
investment securities other than short-term investments aggregated $- and
$6,460,950, respectively. There were no purchases and sales of U.S.
government obligations. 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 reimbursed Putnam
Management for such costs. These 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, 1998, no such restrictions have been
placed on the fund.
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our website (www.putnaminv.com) any 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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
[47858 215 12/98]
