Putnam
Municipal
Opportunities
Trust
ANNUAL REPORT
April 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The fund's slightly shorter duration and large position in
transportation holdings -- particularly airline issues -- served it
extraordinarily well over the period, as the expanding economy stimulated
air travel."
-- Blake E. Anderson, manager
Putnam Municipal Opportunities Trust
* Lipper Analytical Services ranked the fund 6 out of 64 closed-end
general municipal debt funds tracked for year-to-date performance as of
April 30, 1998, placing it in the top 10% of the funds rated.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
18 Financial statements
* Lipper is an industry research firm whose rankings are based on total
return performance, vary over time, and do not reflect the effects of
sales charges. The fund ranked 31 out of 63 and 14 out of 62 for 1- and
3-year performance, respectively, as of 4/30/98. Past performance is not
indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The fragility of market rallies was clearly demonstrated once again as Putnam
Municipal Opportunities Trust approached the close of fiscal 1998. The
suggestion that the Federal Reserve Board might be assuming a more cautious
stance on inflation was enough to stop the bond market's most recent advance
in its tracks.
Despite concerns over a possible interest rate increase, your fund continued
to show strong performance and delivered positive results at the end of the
period. Fund Manager Blake Anderson is confident that the fundamentals --
strong demand, attractive value -- will remain crucial to the fund's success
in the months ahead.
In this uncertain environment, Blake continues to focus on maintaining a high
level of current tax-free income, consistent with capital preservation. In the
following report, he discusses his strategy during the 12 months ended April
30, 1998, and looks at prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 17, 1998
Report from the Fund Manager
Blake E. Anderson
With the close of its fiscal year on April 30, 1998, Putnam Municipal
Opportunities Trust remained one of the leading funds in its competitive field
in terms of current income and total return. While its current income
positioning has been extremely strong throughout the year, the fund made
significant gains in total return over the past six months. These achievements
reflect the confluence of a number of positive factors, most notably the
success of the fund's leverage, duration management, and portfolio structuring
techniques. For complete performance details, please turn to pages 9 and 10.
*MUNICIPAL BOND MARKET BOASTS ATTRACTIVE PRICES, ROBUST SUPPLY AND DEMAND
Without much melodrama, the municipal bond market has become very attractively
priced relative to the Treasury market -- a state of affairs that hasn't
occurred since the flat-tax scare of 1996. During the last couple of weeks of
April, concerns about the economy's ongoing strength and the possibility of
interest-rate intervention by the Federal Reserve Board accelerated this trend
as long-term municipal bond prices dropped 0.25% and intermediate bond prices
declined 0.5%. By the end of the period, municipal bonds (as represented by
30-year insured municipals) were offering almost 90% of the yield of long-term
Treasury bonds.
Low interest rates also acted as a catalyst for municipal bond refundings and
new issues in recent months, causing the supply of municipal bonds to surge
during the first quarter of 1998. In fact, the bond supply has increased
approximately 70% compared to the first quarter of 1997. Demand has also
increased, as bargain municipal bond prices stimulated investor interest and
kept balance in the market.
Also noteworthy is the unusually flat tax-exempt yield curve. With the 30-year
bond paying only a modest 30 to 40 basis points over the 10-year bond,
investors are not compensated for taking on the higher risk that a
longer-maturity bond includes. For this reason, we have found the best value
(attractive yield with minimal volatility) in the intermediate range of the
yield curve -- in bonds with maturities anywhere from 8 to 15 years.
*DEFENSIVE POSITIONING PROTECTS VALUE WHILE LEVERAGE BOOSTS INCOME
In a defensive move that proved particularly successful, the fund maintained a
moderately shorter portfolio duration throughout the annual period. 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. As of the end of April, the fund's
duration was approximately 8.5 years as compared with an average duration of
9.5 years for its competitive benchmark, the Lehman Brothers Municipal Bond
Index. As continued economic strength and market concerns about the potential
for Fed action on interest rates precipitated a selloff that pushed up
municipal bond yields, the fund's moderately shorter duration helped protect
principal value.
At the same time, the fund's use of leveraging helped boost income
substantially over the past 12 months. As you may recall, leveraging involves
offering 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 the sale 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 OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 22.6%
Health care 19.7%
Utilities 15.9%
Housing 12.2%
Cogeneration/
waste management 7.5%
Footnote reads:
* Based on net assets as of 4/30/98. Holdings will vary over time.
*SECTOR STRATEGY CAPITALIZES ON ECONOMIC STRENGTH
The fund's industry emphasis and overall credit quality have remained
approximately the same throughout the past 12 months. We continue to
concentrate on sectors that are benefiting most from the economy's ongoing
expansion. Transportation, particularly airlines and airports, remains the
largest portfolio position, and these holdings have played a key role in the
fund's strong performance during the annual period. The robust economy has
translated into more travelers, while seating capacity has not increased,
creating a very profitable scenario for the airline industry.
Once again, utility and health-care bonds also account for a sizable portion
of the portfolio. At the end of the period, the fund had significant, though
selective, holdings among both investor-owned and municipal utilities. Many of
these bonds offer high coupons, and we have made full use of Putnam's
extensive credit research capabilities to identify promising issues in this
sector. Among our health-care holdings, hospital and elder-care facility bonds
continue to represent our largest commitments. This is another sector in which
our credit research enabled the fund to benefit from higher-coupon bonds while
successfully mitigating the risk of investing in lower-rated securities.
Overall, we have continued to focus on high-coupon bonds in order to generate
a steady flow of income. Highly prized by investors, high-coupon bonds tend to
provide greater price stability during uncertain market periods. In fact, we
have found that the market consistently underprices the value of these issues
and our credit research capabilities have consistently enabled us to identify
and purchase bonds with the potential to move higher in price.
[GRAPHIC OMITTED: PIE CHART OF CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Ba -- 16.9%
Baa -- 24.8%
A -- 9.9%
AAA -- 41.5%
Aa -- 6.9%
* As a percentage of market value as of 4/30/98. 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.
*IN-DEPTH CREDIT ANALYSIS AND CALL PROTECTION ENHANCE PERFORMANCE
Sometimes the absence of problems can be almost as beneficial to performance
as any specific proactive strategy. Over the past year, superior credit
research and analysis have proved this point again and again, as fund holdings
- -- especially those that carry ratings below investment grade -- performed
exceptionally well without providing any unwelcome credit quality surprises.
Below-investment-grade bonds can add tremendously to the fund's income flow,
but they also mean greater credit risk and require the most meticulous
research efforts. Fortunately, Putnam possesses one of the most diligent
credit research teams in the industry and its standards of inspection remain
among the most rigorous.
The fund's Washington, DC, general obligation bonds highlight the additional
benefits that can accrue from superior credit quality insight. Purchased as
B-rated bonds, these bonds have risen in quality to become insurable and now
have a high probability of being prerefunded in the near future. By
identifying this potential early, the fund was able to realize significant
price appreciation on the holdings and stands to benefit further should they
become prerefunded.
Managing call risk is another way we seek to provide the highest and most
durable level of income. Callable bonds have the option of being called away
by the issuer at a certain future date, usually if interest rates are lower
than when the bonds were first issued. Over the past year, this phenomenon has
been taking place with some regularity in the tax-exempt municipal bond market
as older issues reach their call dates, and we have endeavored to balance
callable holdings with positions in noncallable bonds or bonds with distant
call dates.
*HIGHER RATES LIKELY; DEFENSIVE STRATEGY REMAINS IN PLACE
The Asian crisis has had a dramatic effect on interest rates everywhere in the
world except the United States. We have been expecting a slight rise in
interest rates for some time, but this had still not occurred as this report
was being written. Nevertheless, we consider a rate increase more likely than
a decline due to the economy's ongoing strength and the delayed, yet
inevitable consequences of the troubles in Asia. Given this expectation, the
fund's moderately defensive strategy should continue to serve shareholders
well. We currently plan to retain our emphasis on high-coupon holdings while
seeking to manage call risk by balancing the portfolio's older, high-coupon
holdings with noncallable bonds or those with distant call dates. Should
interest rates rise, we will seek opportunities to purchase additional
high-coupon bonds in order to maintain the fund's income level.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 4/30/98, 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 4/30/98
(common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 10.06% 6.13% 9.30% 1.44%
- ------------------------------------------------------------------------------
Life of fund (5/28/93) 41.31 30.31 36.38 12.69
Annual average 7.28 5.53 6.52 2.46
- ------------------------------------------------------------------------------
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
12 months ended 4/30/98
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 12
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Income $0.926
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Capital gains1 --
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Total $0.926
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Series A Series B Series C
Preferred shares (800 shares) (1,620 shares) (1,620 shares)
- ------------------------------------------------------------------------------
Income $1,819.35 $689.15 $710.63
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Total $1,819.35 $689.15 $710.63
- ------------------------------------------------------------------------------
Share value
(common shares): NAV Market price
- ------------------------------------------------------------------------------
4/30/97 $13.61 $13.875
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4/30/98 14.05 13.812
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Current return (common shares): NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate2 6.45% 6.56%
- ------------------------------------------------------------------------------
Taxable equivalent3 10.68 10.86
- ------------------------------------------------------------------------------
1Capital 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.
2Income portion of most recent distribution, annualized and divided by NAV
or market price at
end of period.
3Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
(common shares)
Market
NAV price
- ------------------------------------------------------------------------------
1 year 11.17% 7.09%
- ------------------------------------------------------------------------------
Life of fund (5/28/93) 41.65 33.13
Annual average 7.46 6.09
- ------------------------------------------------------------------------------
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. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. The index assumes
reinvestment of all distributions and interest payments. 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.
Report of independent accountants
For the fiscal year ended April 30, 1998
To the Trustees and Shareholders of
Putnam Municipal Opportunities Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Municipal Opportunities Trust, including the portfolio of investments owned,
as of April 30, 1998, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of April 30, 1998, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Municipal Opportunities Trust as of April 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 11, 1998
Portfolio of investments owned
April 30, 1998
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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.4%)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
Alabama (3.8%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB- $ 5,762,500
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 7,323,750
--------------
13,086,250
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 Aa2 5,006,250
Arizona (0.9%)
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2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB-/P 3,199,625
California (7.0%)
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3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA Wtrwks.),
7.505s, 8/10/18 Aa2 3,450,000
2,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 Baa 2,085,920
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 (SEG) Aaa 5,806,250
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,480,000
3,000,000 San Diego Cnty., IF COP, AMBAC, 6.92s, 9/1/07 Aaa 3,431,250
3,000,000 Southern CA Pub. Pwr. Auth. IFB, FGIC, 6.62s, 7/1/17 Aaa 3,146,250
--------------
24,399,670
Colorado (8.7%)
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Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,935,000 8 3/4s, 11/15/23 Baa1 7,966,581
2,505,000 Prerefunded, 8 3/4s, 11/15/23 Aaa 2,899,538
2,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,231,200
275,000 Prerefunded, MBIA, 8 1/2s, 11/15/23 Aaa 307,313
1,585,000 7 3/4s, 11/15/21 Baa1 1,765,294
415,000 Prerefunded, 7 3/4s, 11/15/21 Aaa 466,875
13,000,000 MBIA, 5.7s, 11/15/25 Aaa 13,471,250
--------------
30,108,051
District of Columbia (3.8%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Ba1 13,041,375
Florida (0.9%)
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2,770,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty., LP South), 7.95s, 12/1/08 A 2,991,600
Hawaii (0.6%)
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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 2,035,000
Illinois (9.3%)
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Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,470,000 Ser. 84A, 8.85s, 5/1/18 Baa2 11,713,313
8,565,000 Ser. C, 8.2s, 5/1/18 Baa2 9,083,696
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A1 10,825,000
700,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 10.669s, 2/1/20
(acquired 5/28/93, cost $792,925) (RES) Aa2 780,500
--------------
32,402,509
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 Baa2 2,245,000
Kentucky (1.5%)
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Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Air Lines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa3 3,752,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,428,375
--------------
5,181,125
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 6,084,375
2,850,000 St. Charles, Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 3,063,750
--------------
9,148,125
Maryland (1.5%)
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4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA Insd., 6.85s, 5/15/25 Aa3 5,175,450
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 Ba2 3,209,425
3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,360,000
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), FNMA Coll. 6.9s, 11/15/21 Aaa 4,086,300
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,928,600
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,390,000
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB-/P 1,078,750
--------------
27,053,075
Michigan (3.4%)
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9,500,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 9,048,750
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,728,125
--------------
11,776,875
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+ 1,428,125
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 Ba1 2,652,050
1,350,000 (Syst. Energy Resources, Inc.), 7.3s, 5/1/25 Ba1 1,427,625
--------------
4,079,675
Nebraska (0.7%)
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2,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11 1/8s, 9/10/30 Aaa 2,365,125
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 Baa2 3,049,062
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 3,232,500
--------------
6,281,562
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 BB/P 2,694,250
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,296,875
--------------
3,991,125
New Jersey (8.3%)
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9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 9,956,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 3,841,250
2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,842,525
10,000,000 Salem Cnty., Indl. Poll. Control Fin. Auth. IFB,
MBIA, 9.012s, 10/1/29 (acquired 10/28/94,
cost $9,750,000) (RES) Aaa 12,387,500
--------------
29,027,525
New York (1.4%)
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4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8s, 7/1/20 Baa2 4,782,896
North Carolina (0.6%)
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2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, MBIA, 6s, 1/1/22 Aaa 2,222,500
Ohio (0.7%)
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2,213,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.79s, 3/24/31 Aaa 2,500,690
Pennsylvania (7.7%)
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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 5,368,750
7,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B,
8 3/8s, 11/1/11 AAA 7,568,750
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,480,000
1,000,000 PA State Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Colver), Ser. D, 7.15s, 12/1/18 BBB- 1,113,750
3,000,000 PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver), Ser. E, 8.05s, 12/1/15 BB/P 3,450,000
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.48s, 9/1/26 Aaa 5,781,250
--------------
26,762,500
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 5,191,875
Texas (13.6%)
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5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa2 5,953,750
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,520,000
2,000,000 7.9s, 5/1/11 AAA/P 2,300,000
12,000,000 FSA, 6.1s, 11/15/23 Aaa 12,900,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa1 4,921,875
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,250,000
2,395,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba1 2,526,414
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev. Bonds
(Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 3,255,000
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 5,650,000
--------------
47,277,039
Utah (1.8%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 Intermountain Pwr. Agcy. Rev. Bonds, Ser. D,
AMBAC, 7 3/4s, 7/1/20 A1 5,128,100
1,000,000 Salt Lake City, Hosp. IFB, AMBAC (IHC Hosps. Inc.),
9.616s, 5/15/20 Aaa 1,158,750
--------------
6,286,850
Virginia (1.0%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.),
Ser. C, 9.527s, 8/29/23 Aaa 3,592,500
Washington (1.9%)
- -------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 4,150,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,444,061
--------------
6,594,061
Wyoming (0.9%)
- -------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 3,213,844
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $331,788,801) (b) $ 342,447,872
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $348,038,420.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at April 30, 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 April 30, 1998. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings
are not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $331,788,801, resulting in gross unrealized appreciation
and depreciation of $14,112,565 and $3,453,494, respectively, or net unrealized appreciation of $10,659,071.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at April 30, 1998 was $13,168,000 or 3.8% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at April 30, 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 are current interest rates at April 30, 1998.
The fund had the following industry group concentrations greater than 10% at April 30, 1998 (as a
percentage of net assets):
Transportation 22.6%
Health care 19.7
Utilities 15.9
Housing 12.2
The fund had the following insurance concentration greater than 10% at April 30, 1998 (as a percentage of
net assets):
MBIA 16.8%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1998
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond Index (long) $4,721,438 $4,727,531 Jun-98 $(6,093)
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $331,788,801) (Note 1) $342,447,872
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,805,598
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 415,000
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 52,406
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 571
- ---------------------------------------------------------------------------------------------------
Total assets 350,721,447
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 689,037
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,249,860
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 599,884
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 23,568
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 21,506
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 547
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 98,625
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,683,027
- ---------------------------------------------------------------------------------------------------
Net assets $348,038,420
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) (263,547)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,552,205)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 10,652,978
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $348,038,420
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 96,746
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $121,096,746
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $226,941,674
- ---------------------------------------------------------------------------------------------------
Net asset value per common share
($226,941,674 divided by 16,157,092 shares) $14.05
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended April 30, 1998
<S> <C>
Tax exempt interest income: $21,653,839
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,305,785
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 258,662
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 24,741
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,692
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,317
- --------------------------------------------------------------------------------------------------
Reports to shareholders 23,509
- --------------------------------------------------------------------------------------------------
Auditing 67,135
- --------------------------------------------------------------------------------------------------
Legal 17,269
- --------------------------------------------------------------------------------------------------
Postage 14,349
- --------------------------------------------------------------------------------------------------
Exchange listing fees 24,370
- --------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 159,768
- --------------------------------------------------------------------------------------------------
Other 41,367
- --------------------------------------------------------------------------------------------------
Total expenses 2,949,964
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (73,307)
- --------------------------------------------------------------------------------------------------
Net expenses 2,876,657
- --------------------------------------------------------------------------------------------------
Net investment income 18,777,182
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,402,055
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (695,456)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 7,410,481
- --------------------------------------------------------------------------------------------------
Net gain on investments 8,117,080
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $26,894,262
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended April 30
--------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 18,777,182 $ 15,955,844
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 706,599 816,584
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,410,481 2,427,269
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,894,262 19,199,697
Distributions to remarketed
preferred shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (3,723,124) (1,397,016)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares of
$96,746 and $74,751, respectively) 23,171,138 17,802,681
- ----------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (14,961,504) (15,499,239)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net realized gains -- (415,009)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions 81,000,000 --
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred share offering costs (Note 4) (1,179,044) --
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 88,030,590 1,888,433
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 260,007,830 258,119,397
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $263,547 and
$415,009, respectively) $348,038,420 $260,007,830
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding at
beginning and end of year 16,157,092 16,157,092
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
beginning of year 800 800
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares issued (Note 4) 3,240 --
- ----------------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at
end of year 4,040 800
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share May 28, 1993+
operating performance Year ended April 30 to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 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 1.16 .99 .99 1.02 .94(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .51 .20 .36 (.16) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.67 1.19 1.35 .86 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.23)(f) (.09) (.09) (.08) (.05)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.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: (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) $14.05 $13.61 $13.50 $13.23 $13.57
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $13.812 $13.875 $13.625 $12.250 $12.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return, at market value
(common shares) (%)(b) 6.13 9.24 19.64 5.82 (11.22)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (total fund)
(in thousands) $348,038 $260,008 $258,119 $253,785 $259,295
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.30 1.08 1.05 .95 .94 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 6.64 6.60 6.54 6.04 6.14 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 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
April 30, 1998
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, 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 April
30, 1998 was Series A 3.59%, Series B 4.25%, and Series C 3.99%. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include temporary and
permanent differences of organization costs and market discount.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended April 30, 1998, the fund
reclassified $58,908 to decrease distributions in excess of net investment
income and $1,673 to increase paid-in-capital, with an increase to accumulated
net realized loss of $60,581. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
F) Determination of net asset value Net asset value of the common shares is
determined by dividing the value of all assets of the fund, 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% 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 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).
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc., the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At April 30, 1998, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended April 30, 1998, fund expenses were reduced by $73,307 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 year ended April 30, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $161,094,737 and $78,626,921, 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 reimbursed 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 April
30, 1998, no such restrictions have been placed on the fund.
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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
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
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
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
42871 6/98
