Putnam
Municipal
Opportunities
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The Federal Reserve Board's bias toward raising interest rates, along with
lingering questions about the strength of the economy, unnerved fixed
income investors for much of the 6 months ended October 31, 1999. Bond
prices fell sharply and yields rose during the period, as investors
grappled with fears of higher inflation. In October, however, some welcome
economic news suggested that the vigorous U.S. economy might actually be
cooling. Value-minded, taxsensitive investors took advantage of the
attractive bond prices, and municipal bond prices strengthened a bit.
Although Putnam Municipal Opportunities Fund's performance reflects the
unfavorable climate that prevailed for much of the period, manager Blake
Anderson's strategy has kept the fund among the leaders in its competitive
universe (see page 6).
Total return for 6 months ended 10/31/99
NAV Market price
- -----------------------------------------------------------------------
-6.75% -13.26%
- -----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* MUNICIPAL MARKET OFFERS OPPORTUNITY
If history tells us anything about bond investing, it is this: Buying a
bond fund after a bad year is a smart thing to do. The bond market has
endured its toughest year since 1994, and the second-worst year on record,
the result of two moves by the Fed to raise interest rates and fears of
inflation. But after the bond bear markets of 1989 and 1994, investors
experienced considerable opportunities.
Recently, a 30-year AAA-rated municipal bond offered a 6% yield, a superb
level of tax-free income, registering almost 97% of the yield on a 30-year
taxable Treasury bond. With inflation still remarkably low at 2% or less,
after-tax, after-inflation returns are the highest they have been in
years. We consequently anticipate a supply void in the fourth quarter. In
the past, unusually low supply combined with healthy demand by investors
has been the recipe for strong performance in the bond market.
* DEFENSIVE PORTFOLIO STRUCTURE INTACT
In seeking to provide shareholders with high current income and
below-market risk, the fund's portfolio tends to be fairly defensive. Over
the past six months, it has retained a barbell shape with holdings
concentrated at both ends of the investment-grade spectrum. Currently,
over 45% of portfolio holdings are securities of the highest credit
quality (AAA/Aaa), while 15% of the holdings are invested in
higher-yielding bonds rated below investment grade. In addition to their
obvious income-producing benefits, these high-coupon bonds actually
provide the fund with a hedge against economic downturn. In declining
markets such as the recent one, when yields are rising and bond prices are
declining, the income they generate helps cushion the fund's share price.
"Whether it's restructuring their asset allocation, putting available cash to
work after months of sideline-sitting, or just enhancing their already hefty
tax-free portfolios, many retail investors are buying municipals with hurricane
force."
- -- The Bond Buyer, September 23, 1999
Another defensive aspect of your fund's management in recent months has
been its neutral to slightly short portfolio duration. With interest rates
rising over the period, this positioning kept the fund flexible for higher
income opportunities that continued to become available rather than tying
up assets in bonds with lower yields. This strategy helped the fund
produce maximum income while preserving as much value as possible.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 18.6%
Transportation 18.3%
Utilities 14.0%
Housing 13.1%
Water and
sewerage 8.1%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
* CREDIT ANALYSIS GUIDES SECTOR SELECTION
For the most part, individual securities selection remains the fund's key
income-generating strategy. Nonetheless, there are times when careful
market analysis in the search for high current income can lead to
portfolio concentrations in certain industry sectors. During the recent
semiannual period, we continued to hold significant positions in the
health-care and transportation sectors, with a lesser emphasis on
utilities bonds.
Within the health-care industry, credit analysis was instrumental to the
fund's continuing success. The bonds in this sector typically offer
attractive yields; however, meticulous research and in-depth industry
knowledge are essential to assure the creditworthiness of the issuing
institution. The financial difficulties faced by many HMOs and hospitals
seeking to prosper in today's competitive health-care environment continue
to make front-page headlines. Fortunately, your manager, Blake Anderson,
has the benefit of Putnam's team of credit analysts who spend many hours
scouring the municipal health-care bond market for undervalued bonds with
hidden credit potential. During the recent period, a selloff of
investment-grade hospital bonds led to a decline in the higher-quality
portion of the health-care sector, while the lower-grade hospital bonds
hand-picked by your investment team outperformed.
In April, the fund enjoyed an added bonus from its health-care holdings as
its Cape and Islands Rehabilitation Hospital bonds were prerefunded. In a
prerefunding, a bond issuer floats a second bond in order to pay off the
first bond at its first call date. The proceeds from the sale of the
second bond are invested in AAA-rated Treasury securities. The first bond
is then said to be prerefunded; its creditworthiness usually rises
significantly and its price generally increases as a result. In this case,
the bonds were originally purchased with a BB rating; although they have
not been re-rated by an external agency, they have appreciated
substantially and are now considered AAA-quality according to our internal
rating criteria.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 10.2%
BBB/Baa -- 22.4%
BB/Ba -- 12.5%
B or below -- 2.5%
AAA/Aaa -- 45.6%
AA/Aa -- 6.8%
Footnote reads:
*As a percentage of market value as of 10/31/99. A bond rated BBB/Baa or
higher is considered investment grade. All ratings reflect Moody's and S&P
descriptions unless noted otherwise; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings will
vary over time.
Within the transportation sector, airline-backed industrial revenue bonds
continue to represent some of the most rewarding opportunities. During the
recent period, the healthy economy, high passenger demand, and relatively
low petroleum prices continued to support the airline industry's high
performance. However during the third quarter of 1999, there was some fear
among investors that airline bonds would sell off a bit because of two
large airport expansion financing packages coming to market: a $750
million bond issue by Newark Airport on behalf of Continental Airlines and
a $200 million issue by Dallas-Fort Worth Airport on behalf of American
Airlines. In fact, the new bonds were easily absorbed by eager investors,
and airline bonds stayed strong over the quarter. With huge increases
projected for passenger demand over the next several years, airline bonds
remain quite attractive.
Utility bonds continue to play an important role in the fund's portfolio,
although Blake has been particularly selective in making new additions in
recent months. As the industry continues to restructure, utilities
managers remain cautious about their bond issuance, frequently opting for
bonds with a five-year call date rather than the more typical 10. These
bonds are less attractive to buy because although they offer high income,
the issuer can choose to call the bonds out of the market after just five
years. This is likely to happen if things go well for the utility;
however, if business goes badly, the bond purchaser could be stuck with a
less attractive investment for up to 30 years. For the time being, your
fund continues to enjoy strong income from its older high-coupon utility
bonds although management has not added to those positions lately.
Lipper ranked the fund in the top 24% of all closed-end general municipal
debt funds for one-year performance as of October 31, 1999. The fund ranked
11th of 46 funds.*
*Past performance is not indicative of future results. 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. Performance of other
share classes will vary. For the 3- and 5-year periods, the fund was ranked
16 out of 44 funds (36%) and 23 out of 43 (53%), respectively.
Although the Fed did not raise interest rates in October, it has declared
a bias toward tightening rates should inflation appear stronger. Even so,
this bias has already been priced into the bond market's behavior. Should
the market begin to rally as the end of the year approaches, the fund will
seek to extend its portfolio duration to take advantage of buying
opportunities for higher-yielding bonds. In the meantime, the fund's
commitment to full investment and a portfolio of higher-yielding municipal
bonds should continue to position it well for what lies ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
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 10/31/99, 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 10/31/99
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index price index
- -----------------------------------------------------------------
6 months -6.75% -13.26% -3.46% 1.20%
- -----------------------------------------------------------------
1 year -4.52 -14.24 -1.78 2.69
- -----------------------------------------------------------------
5 years 41.49 46.46 39.77 12.51
Annual average 7.19 7.93 6.93 2.39
- -----------------------------------------------------------------
Life of fund 41.01 28.37 40.80 16.64
(since 5/28/93)
Annual average 5.49 3.96 5.48 2.43
- -----------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 10/31/99
- -------------------------------------------------------------------------------
Distributions (common shares)
- -------------------------------------------------------------------------------
Number 6
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Income $0.453
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Capital gains1 --
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Total $0.453
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Series A Series B Series C
Preferred shares (800 shares) (1,620 shares) (1,620 shares)
- -------------------------------------------------------------------------------
Income $932.09 $421.64 $421.40
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Total $932.09 $421.64 $421.40
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Share value (common shares) NAV Market price
- -------------------------------------------------------------------------------
4/30/99 $14.11 $14.750
- -------------------------------------------------------------------------------
10/31/99 12.72 12.375
- -------------------------------------------------------------------------------
Current return (common shares/end of period)
- -------------------------------------------------------------------------------
Current dividend rate1 7.12% 7.32%
- -------------------------------------------------------------------------------
Taxable equivalent2 11.79 12.12
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1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most current calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months -4.37% -10.98%
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1 year -2.83 -9.00
- ------------------------------------------------------------------------------
5 years 40.89 46.38
Annual average 7.10 7.92
- ------------------------------------------------------------------------------
Life of fund 44.26 32.74
(since 5/28/93)
Annual average 5.95 4.57
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value 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 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999 (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 (95.9%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (3.7%)
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$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB $ 5,450,000
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 6,658,750
--------------
12,108,750
Alaska (1.4%)
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5,000,000 Valdez Marine Term. Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 Aa1 4,550,000
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 3,049,475
Arkansas (0.3%)
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1,000,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 1,075,000
California (8.6%)
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2,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,875,938
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 8.58s, 8/10/18 Aa2 3,007,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
9.477s, 8/15/18 Aaa 5,325,000
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.),
Ser. A, MBIA, 6 1/2s, 8/1/17 Aaa 5,437,500
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,150,000
3,000,000 San Diego Cnty., COP, IFB, 7.47s, 9/1/07 Aaa 3,300,000
3,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
6.62s, 7/1/17 Aaa 3,056,250
--------------
28,152,188
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 7,507,138
2,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,047,714
1,585,000 7 3/4s, 11/15/21 Baa1 1,680,100
13,000,000 MBIA, 5.7s, 11/15/25 Aaa 12,658,750
Denver, City & Cnty. Arpt. Rev. Bonds,
Prerefunded, Ser. A
2,505,000 8 3/4s, 11/15/23 Aaa 2,761,763
275,000 MBIA, 8 1/2s, 11/15/23 Aaa 292,534
415,000 7 3/4s, 11/15/21 Aaa 449,756
--------------
28,397,755
District of Columbia (3.7%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 BBB 11,889,750
Florida (0.8%)
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2,635,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A+ 2,719,873
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 1,882,500
Illinois (6.6%)
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10,230,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 10,876,843
300,000 IL Hsg. Dev. Auth. IFB, 11.051s, 2/1/20
(acquired 5/28/93, cost $339,825) (RES) Aa1 314,847
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91A, 8 1/4s, 7/1/16 A1 10,462,500
--------------
21,654,190
Indiana (3.1%)
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5,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 4,303,731
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 3,543,063
2,000,000 Indianapolis Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 2,142,500
--------------
9,989,294
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 3,582,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,365,000
--------------
4,947,750
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 CC 5,506,875
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 2,944,364
--------------
8,451,239
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 4,984,650
Massachusetts (7.7%)
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2,620,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds (Rehab.
Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 AAA/P 2,986,800
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), Ser. C, 6.9s, 11/15/21
(FNMA Coll.) Aaa 4,081,481
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,280,000
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,243,750
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,043,750
3,000,000 MA State Tpk. Auth. Hwy. Syst. Rev. Bonds,
Ser. A, AMBAC, 5s, 1/1/39 Aaa 2,490,000
--------------
25,125,781
Michigan (3.2%)
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9,000,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 7,728,750
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,625,000
--------------
10,353,750
Minnesota (0.4%)
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1,250,000 Rochester Hlthcare Fac. IFB (Mayo Foundation),
Ser. H, 8.32s, 11/15/15 AA+ 1,279,688
Mississippi (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,350,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 7.3s, 5/1/25 BBB- 1,386,437
1,000,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 BBB- 880,000
--------------
2,266,437
Nebraska (0.4%)
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1,300,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.338s, 9/10/30 Aaa 1,381,276
Nevada (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 2,911,563
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 3,033,750
--------------
5,945,313
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 2,525,250
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,196,875
--------------
3,722,125
New Jersey (8.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 9,517,500
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,330,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 AAA 3,482,914
2,390,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 B-/P 2,300,375
10,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds,
8.841s, 10/1/29 (acquired 10/28/94,
cost $9,750,000) (RES) Aaa 10,687,500
--------------
25,988,289
New York (0.8%)
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3,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr.
Fin. Syst. Rev. Bonds, Ser. B, FSA, 5s, 6/15/29 Aaa 2,550,000
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 2,037,500
Ohio (0.5%)
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1,613,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 10.227s, 3/24/31 Aaa 1,717,845
Oklahoma (0.2%)
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1,000,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 BBB+ 813,750
Pennsylvania (5.6%)
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5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 4,912,500
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,262,500
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 3,307,500
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,063,750
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 10.94s, 9/1/26 Aaa 5,625,000
--------------
18,171,250
South Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,905,000
Texas (14.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 5,738,810
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,310,000
2,000,000 7.9s, 5/1/11 AAA/P 2,212,500
12,000,000 FSA, 6.1s, 11/15/23 Aaa 12,915,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 4,725,000
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds,
Ser. A, FGIC, 6 5/8s, 11/1/21 Aaa 4,128,600
2,330,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp.
Rev. Bonds (Baptist Healthcare Syst.),
8 7/8s, 6/1/21 Ba1 2,347,475
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth.
Rev. Bonds (Mobil Oil Refining Corp.),
6.4s, 3/1/30 Aa2 3,075,000
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 5,393,750
2,000,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 BBB/P 1,800,000
--------------
47,646,135
Utah (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps. Inc.),
9.92s, 5/15/20 Aaa 1,063,750
Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 9.927s, 8/29/23 Aaa 3,375,000
Washington (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 3,865,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,278,125
--------------
6,143,125
West Virginia (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds
(Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 BBB 1,822,500
Wyoming (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 3,005,434
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $322,196,535) (b) $ 313,166,362
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $326,648,956.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
October 31, 1999 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, 1999.
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 $322,196,535, resulting in gross unrealized appreciation and
depreciation of $4,691,635 and $13,721,808, respectively, or net unrealized depreciation of $9,030,173.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
October 31, 1999 was $11,002,347 or 3.4% of net assets.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on FRB and FRN are the current interest rates shown at October 31, 1999, which are subject to
change based on the terms of the security.
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, 1999.
The fund had the following industry group concentrations greater than 10% at October 31, 1999 (as a percentage of
net assets):
Health care 18.6%
Transportation 18.3
Utilities 14.0
Housing 13.1
The fund had the following insurance concentration greater than 10% at October 31, 1999 (as a percentage of net assets):
MBIA 14.3%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond
Future (long) $7,064,000 $7,279,018 Dec-99 $(215,018)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $322,196,535) (Note 1) $313,166,362
- -----------------------------------------------------------------------------------------------
Cash 779,529
- -----------------------------------------------------------------------------------------------
Interest receivable 7,451,693
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 7,140,000
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 64,000
- -----------------------------------------------------------------------------------------------
Total assets 328,601,584
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,220,890
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 591,191
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 20,903
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,747
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 556
- -----------------------------------------------------------------------------------------------
Remarketing fee 71,611
- -----------------------------------------------------------------------------------------------
Other accrued expenses 33,730
- -----------------------------------------------------------------------------------------------
Total liabilities 1,952,628
- -----------------------------------------------------------------------------------------------
Net assets $326,648,956
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) 225,201,187
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 251,271
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (10,558,311)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,245,191)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $326,648,956
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 68,612
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred
shares -- liquidation preference $121,068,612
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $205,580,344
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($205,580,344 divided by 16,157,092 shares) $12.72
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended October 31, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 11,116,665
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,191,907
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 122,696
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,719
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,427
- -----------------------------------------------------------------------------------------------
Reports to shareholders 11,621
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 45,964
- -----------------------------------------------------------------------------------------------
Legal 4,230
- -----------------------------------------------------------------------------------------------
Postage 7,066
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 182,167
- -----------------------------------------------------------------------------------------------
Exchange listing 12,130
- -----------------------------------------------------------------------------------------------
Other 11,052
- -----------------------------------------------------------------------------------------------
Total expenses 1,599,054
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (22,101)
- -----------------------------------------------------------------------------------------------
Net expenses 1,576,953
- -----------------------------------------------------------------------------------------------
Net investment income 9,539,712
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,067,265)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (370,010)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (21,149,295)
- -----------------------------------------------------------------------------------------------
Net loss on investments (22,586,570)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(13,046,858)
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 9,539,712 $ 19,194,071
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,437,275) (567,793)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (21,149,295) 1,251,126
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (13,046,858) 19,877,404
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (2,111,396) (4,108,842)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $68,612 and $94,066 respectively) (15,158,254) 15,768,562
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (7,318,322) (14,681,450)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (22,476,576) 1,087,112
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 349,125,532 348,038,420
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income $251,271 and $141,277, respectively) $326,648,956 $349,125,532
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 and 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
Per-share October 31
operating performance (Unaudited) Year ended April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period
(common shares) $14.11 $14.05 $13.61 $13.50 $13.23 $13.57
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .59 1.19 1.16 .99 .99 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.40) .03 .51 .20 .36 (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.81) 1.22 1.67 1.19 1.35 .86
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.13) (.25) (.23)(d) (.09) (.09) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.45) (.91) (.93) (.96) (.99) (.99)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- (.03) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gains on investments:
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of capital gains:
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions: (.58) (1.16) (1.16) (1.08) (1.08) (1.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- (.07) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Common share offering costs -- -- -- -- -- (.01)(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.72 $14.11 $14.05 $13.61 $13.50 $13.23
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $12,375 $14.750 $13.812 $13.875 $13.625 $12.250
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return, at market value
(common shares) (%)(a) (13.26)* 13.57 6.13 9.24 19.64 5.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $326,649 $349,126 $348,038 $260,008 $258,119 $253,785
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .74* 1.42 1.30 1.08 1.05 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.44* 6.58 6.64 6.60 6.54 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 4.76* 10.18 26.37 20.52 49.97 59.13
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Ratios reflect net assets available to common shares only: net investment income ratio also reflects reduction for dividend
payments to preferred shareholders.
(c) 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)
(d) Series B and C preferred shares were issued on July 7, 1997.
(e) Adjustments of the original offering costs to reflect actual costs incurred.
</TABLE>
Notes to financial statements
October 31, 1999 (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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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. Restricted
securities are stated at fair value following procedures approved by the
Trustees. 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). Gains or losses on securities sold are determined on
the identified cost basis. 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, 1999, the fund had a capital loss carryover of approximately
$7,351,000 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
126,000 April 30, 2007
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income 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, 1999 was Series A 4.00%, Series
B 3.50%, and Series C 3.44%. 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.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
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 0.70% 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, 1999, fund expenses were reduced by
$22,101 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $617 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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 a 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, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $15,775,020 and $23,655,650, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Remarketed preferred shares
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, 1999, no such restrictions have been
placed on the fund.
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Fund information
WEB SITE
www.putnaminv.com
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
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
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (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
- ---------------------
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INVESTMENTS
- ---------------------
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56823 582 12/99
