Putnam
Municipal
Opportunities
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4/30/99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
For income-oriented investors, including investors in tax-free municipal
bonds, low interest rates pose a dilemma. While low rates generally
reflect a low-inflation environment, they also present a challenge in
terms of generating current income.
In such an environment, which characterized Putnam Municipal Opportunities
Trust's fiscal year, manager Blake E. Anderson addressed the challenge of
generating maximum current income consistent with preservation of capital.
The fund pursues this strategy primarily through careful selection of
portfolio holdings in sectors such as transportation and utilities,
current choices, where favorable developments frequently create attractive
investment opportunities.
Putnam's edge in this regard is its extensive credit research capability,
which allows Blake to choose securities with a high degree of confidence
in the safety of his selections. There can never be ironclad guarantees
against bond defaults, of course, but diligent, in-depth research has
proven to be an effective tool for minimizing such unpleasant situations.
In the following report, Blake reviews your fund's performance during the
fiscal year that ended on April 30, 1999, and discusses his current
thinking about prospects for the fiscal year that has just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
Report from the Fund Manager
Blake E. Anderson
The 12 months ended April 30, 1999, was a comparatively less volatile time
for tax-free bonds than for taxable bonds. However, it was punctuated by
two periods of dramatic price swings, in which credit spreads between
higher-rated and lower-rated bonds widened. For the trained eye, these
market gyrations provided a valuable opportunity for your management team
to purchase attractively priced, higher-yielding bonds.
Despite the bond market's challenges, Putnam Municipal Opportunities Trust
delivered strong performance. The fund's returns for fiscal 1999 exceeded
the 6.95% return for Lehman Brothers Municipal Bond Index. Complete
performance information begins on page 6.
Total return for 12 months ended 4/30/99
Net asset value Market price
- ----------------------------------------------------
7.02% 13.57%
- ----------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* LESS VOLATILITY IN MUNICIPAL MARKET
In a financial world where new highs and lows are making the headlines
every day, the municipal market has unquestionably been one of the
calmest. A case in point: Municipal bond yields -- which rise as bond
prices fall -- have moved up slightly since the beginning of the year,
while Treasury yields rose more in February than in any other single month
in 10 years. While this means that municipal yields have returned to more
traditional ratios compared to Treasuries, they still offer unusually
attractive income to many tax-conscious investors.
As expected, with the slight rise in yields, the new supply of municipal
bonds has tapered off. The calendar of new issues shows about 20% to 30%
fewer bonds coming to market in comparison to levels at this time last
year. On the demand side, cash flow into municipal bonds has increased, a
by-product of a volatile stock market and investors' need to rebalance
their portfolios. The resulting supply/demand relationship is positive for
municipal bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 21.1%
Transportation 20.7%
Utilities 19.9%
Housing 11.7%
Water and
sewer 5.7%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
* PURSUIT OF INCOME IS DELICATE BALANCING ACT
Your fund is designed to generate high current income and consistent total
return with below-market risk. In addition to the obvious benefit of
tax-free income for shareholders, the fund's net investment income
functions as a shock absorber. In declining markets, when yields are
rising and bond prices are declining, the income helps cushion the fund's
share price. In rising markets, when yields are falling and bond prices
are rising, demand increases for the higher-coupon bonds your fund holds,
and their prices rise accordingly.
This is not to say that we purchase bonds on the merits of income alone.
Many hours of research are required as we scour the municipal bond market
for undervalued bonds with hidden credit potential. In essence, we spread
the credit risk of each security across a portfolio of bonds. Our
selection process weighs factors such as price, call date, and the yield
spread between long- and short-term municipal securities as well as
between higher- and lower-quality bonds. It is a delicate balancing act.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 9.6%
BBB/Baa -- 23.3%
BB/Ba -- 12.9%
B -- 2.4%
AAA/Aaa -- 44.9%
AA/Aa -- 6.9%
Footnote reads:
*As a percentage of market value as of 4/30/99. A bond rated Baa or higher
is considered investment grade. All ratings reflect Standard & Poor's and
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.
Lipper, Inc., ranked the fund 3 out of 46 leveraged general municipal debt
closed-end funds tracked for the year-to-date performance as of April 30,
1999, placing it in the top 7% of the funds rated.*
*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 21 out of 46 (top 45%), 22 out of 44 (top 49%), and 21 out of
43 (top 48%) for 1-, 3-, and 5-year performance, respectively, as of 4/30/99.
Past performance is not indicative of future results.
* PORTFOLIO EMPHASIZES TRANSPORTATION
From time to time, when our convictions run deep about prospects in a
certain sector that is benefiting from favorable long-term trends, the
fund will invest heavily in that sector. The fund's sizable weighting in
transportation bonds represents such strength of conviction and continues
to pay off handsomely. The healthy economy, high passenger demand, and
relatively low petroleum prices continue to support the airline industry's
high performance. Having priced themselves effectively in their respective
hub markets, airline-backed industrial revenue bonds represent some of the
most rewarding opportunities in the sector. Airlines are posting record
profits and are in the best fiscal shape of the decade. Furthermore,
increased fees and cash flow from airport operations and associated
facilities such as restaurants, parking, hotels, and retail outlets are
also boosting profits. Current holdings include bonds backed by American
Airlines and Delta Airlines.
Utilities have been another area of emphasis. During the past few years,
deregulation and the ensuing restructuring of the utility sector have
created some dynamic investment opportunities. Since the implementation of
deregulation varies across the nation, we must thoroughly investigate each
state's regulatory structure to discern how favorable the environment is.
In an unfriendly climate, the state may not be taking steps to protect the
older utilities and, in fact, may favor the newer, low-cost start-ups. A
utility-friendly state takes a more evolutionary approach. Typically, this
is where the better credit risks lie.
We also analyze the cost of a utility company's generation process
relative to its competitors. An expensive nuclear plant would be less
attractive, since lower-cost providers have greater pricing flexibility to
maintain market dominance. In addition, while the fund invests in both
investor-owned and municipal utilities, we are particularly attracted to
investor-owned companies, which are for-profit entities and thus better
equipped to compete in a market-driven environment. Bonds issued by
Clairborne County in Mississippi for Middle South Energy and Clark County
in Nevada, which carry coupons of 8.25% and 6.50%, respectively, exemplify
the kind of companies we believe will be strong survivors in a more
competitive environment.
"The credit quality of municipal bond issuers is the highest it's been in a
decade."
- -- Tax Angles, April 1999
With regard to credit quality, the fund's AA/Aa average quality rating is
a function of its barbell structure. This strategy currently concentrates
holdings at both ends of the investment-grade spectrum. Nearly 45% of
portfolio holdings are securities of the highest credit quality (AAA/Aaa),
while 23.3% of the holdings are invested in BBB/Baa-rated bonds. This
profile is chiefly a function of the fund's leveraging strategy, in which
the fund invests in long-term bonds, pays dividends at short-term rates to
preferred shareholders, and uses the difference to enhance dividends for
the common shareholders.
* LOWER INFLATION MEANS HIGHER REAL RATES OF RETURN
With core inflation in the United States remaining historically low
despite strong economic growth and low unemployment, a new awareness is
emerging that strong growth does not necessarily translate into higher
prices or runaway inflation.
With inflation ranging from 0% to 2% over the past 12 months, depending on
the measure used, investors should realize that recent real rates of
return have actually been unusually high. Simply put, a tax-free yield of
5% with 1% inflation is better than a 6% return with 3% inflation. It is
always important to factor in the effects of inflation -- positive
effects, in this case -- as you evaluate your fund's performance.
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 4/30/99, 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 4/30/99
Lehman Bros.
Market Municipal Consumer
(common shares) NAV price Bond Index price index
- ----------------------------------------------------------------------------
1 year 7.02% 13.57% 6.95% 2.28%
- ----------------------------------------------------------------------------
5 years 48.65 66.70 43.57 12.75
Annual average 8.25 10.76 7.50 2.43
- ----------------------------------------------------------------------------
Life of fund 51.22 47.99 45.85 15.26
(since 5/28/93)
Annual average 7.24 6.85 6.59 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 12 MONTHS ENDED 4/30/99
- -----------------------------------------------------------------------------
Distributions (common shares)
- -----------------------------------------------------------------------------
Number 12
- -----------------------------------------------------------------------------
Income $0.909
- -----------------------------------------------------------------------------
Total $0.909
- -----------------------------------------------------------------------------
Preferred shares Series A Series B Series C
(800 shares) (1,620 shares) (1,620 shares)
- -----------------------------------------------------------------------------
Income $1,709.67 $860.14 $831.90
- -----------------------------------------------------------------------------
Total $1,709.67 $860.14 $831.90
- -----------------------------------------------------------------------------
Share value (common shares) NAV Market price
- -----------------------------------------------------------------------------
4/30/98 $14.05 $13.812
- -----------------------------------------------------------------------------
4/30/99 14.11 14.750
- -----------------------------------------------------------------------------
Current return (common shares)
- -----------------------------------------------------------------------------
Current dividend rate1 6.42% 6.14%
- -----------------------------------------------------------------------------
Taxable equivalent2 10.63 10.17
- -----------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or Market price at end of period.
2 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 3/31/99 (most recent calendar quarter)
Market
(common shares) NAV price
- ----------------------------------------------------------------------------
1 year 6.49% 12.01%
- ----------------------------------------------------------------------------
5 years 48.62 67.30
Annual average 8.25 10.84
- ----------------------------------------------------------------------------
Life of fund (since 5/28/93) 50.84 49.11
Annual average 7.29 7.08
- ----------------------------------------------------------------------------
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 face amount of 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, preceded by the Report of independent
accountants, 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 is determined. All investment and non-investment 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
amounts 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-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended April 30, 1999
To the Trustees and Shareholders of
Putnam Municipal Opportunities Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, except for bond ratings, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of Putnam Municipal Opportunities Trust (the "fund") at April 30,
1999, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at April 30,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 11, 1999
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999
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
MBIA -- Municipal Bond Investors Assurance Corporation
MUNICIPAL BONDS AND NOTES (98.3%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Alabama (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River Corp.),
8s, 9/1/28 BBB- $ 5,693,750
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 7,516,250
--------------
13,210,000
Alaska (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Valdez Marine Term. Rev. Bonds
(BP Pipeline, Inc.), Ser. B, 5 1/2s, 10/1/28 Aa1 5,106,250
Arizona (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB-/P 3,174,600
California (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 2,207,813
3,000,000 Metropolitan Wtr. Dist. IFB
(Southern CA Waterwks.), 7.961s, 8/10/18 Aa2 3,667,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB,
FGIC, 9.477s, 8/15/18 Aaa 5,887,500
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.),
Ser. A, MBIA, 6 1/2s, 8/1/17 (SEG) Aaa 5,981,250
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,660,000
3,000,000 San Diego Cnty., COP, IFB, AMBAC, 7.47s, 9/1/07 Aaa 3,592,500
3,000,000 Southern CA, Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 6.92s, 7/1/17 Aaa 3,311,250
--------------
31,307,813
Colorado (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,935,000 8 3/4s, 11/15/23 Baa1 7,723,856
2,505,000 8 3/4s, 11/15/23, Prerefunded Aaa 2,852,569
2,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,141,044
275,000 MBIA, 8 1/2s, 11/15/23, Prerefunded Aaa 300,438
1,585,000 7 3/4s, 11/15/21 Baa1 1,733,594
415,000 7 3/4s, 11/15/21, Prerefunded Aaa 462,206
13,000,000 MBIA, 5.7s, 11/15/25 Aaa 13,780,000
--------------
29,993,707
District of Columbia (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Ba1 13,228,125
Florida (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,635,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 2,770,623
Hawaii (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 HI State Hsg. Fin. & Dev. Corp. Single Fam.
Mtge. Rev. Bonds, Ser. A, FNMA Coll.,
5 3/4s, 7/1/30 Aa1 2,075,000
Illinois (8.8%)
- --------------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,230,000 Ser. 84A, 8.85s, 5/1/18 Baa2 11,176,275
8,355,000 Ser. C, 8.2s, 5/1/18 Baa2 8,605,650
300,000 IL Hsg. Dev. Auth. IFB, 10.214s, 2/1/20
(acquired 5/28/93, cost $339,825) (RES) Aa1 316,083
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91A, 8 1/4s, 7/1/16 A1 10,662,500
--------------
30,760,508
Indiana (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds
(Parkview Hlth. Syst., Inc.), MBIA,
4 3/4s, 11/15/28 Aaa 4,945,575
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds
(USX Corp.), 5.6s, 12/1/32 Baa2 4,113,688
2,000,000 Indianapolis Indl. Arpt. Auth. Special Fac.
Rev. Bonds (Federal Express Corp.),
7.1s, 1/15/17 Baa2 2,242,500
--------------
11,301,763
Kentucky (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Special Fac.
Rev. Bonds (Delta Airlines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa3 3,693,250
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,407,250
--------------
5,100,500
Louisiana (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 B- 5,754,375
2,850,000 St. Charles, Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 2,987,085
--------------
8,741,460
Maryland (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA Insd, 6.85s, 5/15/25 Aa3 5,163,525
Massachusetts (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,900,000 MA State Hlth. & Ed. Fac. Auth. Rev. Bonds
(Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s,
8/15/24 BB/P 3,465,500
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), Ser. C, FNMA Coll., 6.9s,
11/15/21 Aaa 4,187,494
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,858,100
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,322,500
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB-/P 1,085,000
--------------
23,918,594
Michigan (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 Detroit, Swr. Disp. Rev. Bonds
(Wtr. Supply System), MBIA, 5s, 7/1/25 Aaa 8,741,250
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,681,250
--------------
11,422,500
Minnesota (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Rochester Hlthcare Fac. IFB (Mayo Foundation),
Ser. H, 8.524s, 11/15/15 AA+ 1,443,750
Mississippi (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
2,500,000 (Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 Ba1 2,580,550
1,350,000 (Syst. Energy Resources, Inc.), 7.3s, 5/1/25 BBB- 1,409,171
--------------
3,989,721
Nebraska (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.835s, 9/10/30 Aaa 1,748,000
Nevada (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 3,014,688
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 3,221,250
--------------
6,235,938
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 2,723,500
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,306,250
--------------
4,029,750
New Jersey (8.2%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 9,798,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 3,749,375
2,490,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 B-/P 2,558,475
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 12,550,000
--------------
28,656,600
North Carolina (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, MBIA, 6s, 1/1/22 Aaa 2,262,500
Ohio (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,063,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB,
Ser. A-2, GNMA Coll., 10.095s, 3/24/31 Aaa 2,292,509
Oklahoma (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Healthcare), Ser. A, 5 5/8s, 8/15/29 Baa2 987,500
Pennsylvania (7.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 5,462,500
7,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B,
8 3/8s, 11/1/11 AAA 7,312,130
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,416,250
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 3,483,750
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,117,500
5,000,000 PA State Higher Ed. Assistance Agcy. Student
Loan IFB, AMBAC, 10.103s, 9/1/26 Aaa 6,156,250
--------------
26,948,380
South Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 5,124,375
Texas (13.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 5,864,375
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 13,605,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 4,843,125
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,215,000
2,365,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba1 2,418,804
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aa2 3,333,750
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 5,562,500
--------------
47,662,554
Utah (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB, AMBAC
(IHC Hosps. Inc.), 9.971s, 5/15/20
(acquired 6/6/97, cost $1,168,906) (RES) Aaa 1,151,250
Virginia (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 10.027s, 8/29/23 Aaa 3,532,500
Washington (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 4,170,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,525,622
--------------
6,695,622
Wyoming (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 3,191,906
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $331,331,635) (b) $ 343,227,823
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $349,125,532.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
April 30, 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 April 30, 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 $331,331,635, resulting in gross unrealized appreciation and
depreciation of $16,013,773 and $4,117,585, respectively, or net unrealized appreciation of $11,896,188.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at April 30, 1999 was $14,017,333 or 4.0% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at April 30, 1999.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the
market interest rates, are the current interest rates at April 30, 1999.
The fund had the following industry group concentrations greater than 10% at April 30, 1999 (as a percentage
of net assets):
Health care 21.1%
Transportation 20.7
Utilities 19.9
Housing 11.7
The fund had the following insurance concentration greater than 10% at April 30, 1999 (as a percentage of net
assets):
MBIA 14.6%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
Muni Bond Index (long) $4,804,313 $4,796,397 Jun-99 $7,916
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $331,331,635) (Note 1) $343,227,823
- -----------------------------------------------------------------------------------------------
Interest receivable 7,640,917
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 450,000
- -----------------------------------------------------------------------------------------------
Total assets 351,318,740
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 187,156
- -----------------------------------------------------------------------------------------------
Payable for variation margin 49,969
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,800
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 612,583
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 21,745
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,135
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,077
- -----------------------------------------------------------------------------------------------
Other accrued expenses 87,743
- -----------------------------------------------------------------------------------------------
Total liabilities 2,193,208
- -----------------------------------------------------------------------------------------------
Net assets $349,125,532
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) 141,277
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (9,121,036)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 11,904,104
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $349,125,532
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
- -----------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 94,066
- -----------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred
shares -- liquidation preference $121,094,066
- -----------------------------------------------------------------------------------------------
Net assets available to common shares $228,031,466
- -----------------------------------------------------------------------------------------------
Net asset value per common share
($228,031,466 divided by 16,157,092 shares) $14.11
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended April 30, 1999
<S> <C>
Tax exempt interest income: $22,415,988
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,458,678
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 273,642
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,737
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,343
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 571
- -----------------------------------------------------------------------------------------------
Reports to shareholders 20,390
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 29,566
- -----------------------------------------------------------------------------------------------
Legal 17,116
- -----------------------------------------------------------------------------------------------
Postage 22,512
- -----------------------------------------------------------------------------------------------
Exchange listing fees 24,260
- -----------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 358,389
- -----------------------------------------------------------------------------------------------
Other 26,587
- -----------------------------------------------------------------------------------------------
Total expenses 3,247,866
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (25,949)
- -----------------------------------------------------------------------------------------------
Net expenses 3,221,917
- -----------------------------------------------------------------------------------------------
Net investment income 19,194,071
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (722,659)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 154,866
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 1,251,126
- -----------------------------------------------------------------------------------------------
Net gain on investments 683,333
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,877,404
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended April 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $19,194,071 $18,777,182
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (567,793) 706,599
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,251,126 7,410,481
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,877,404 26,894,262
Distributions to remarketed preferred shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (4,108,842) (3,723,124)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares of
$94,066 and $96,746 respectively) 15,768,562 23,171,138
- ---------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (14,681,450) (14,961,504)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions -- 81,000,000
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred share offering costs (Note 4) -- (1,179,044)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,087,112 88,030,590
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 348,038,420 260,007,830
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income and distributions in excess of net investment
income of $141,277 and $263,547, respectively) $349,125,532 $348,038,420
- ---------------------------------------------------------------------------------------------------------------
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 4,040 800
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares issued (Note 4) -- 3,240
- ---------------------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at end of year 4,040 4,040
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
(common shares) $14.05 $13.61 $13.50 $13.23 $13.57
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.19 1.16 .99 .99 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .03 .51 .20 .36 (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.22 1.67 1.19 1.35 .86
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.25) (.23)(d) (.09) (.09) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.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: (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) $14.11 $14.05 $13.61 $13.50 $13.23
- ------------------------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $14.750 $13.812 $13.875 $13.625 $12.250
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return, at market value
(common shares) (%)(a) 13.57 6.13 9.24 19.64 5.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (total fund)
(in thousands) $349,126 $348,038 $260,008 $258,119 $253,785
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.42 1.30 1.08 1.05 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.58 6.64 6.60 6.54 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 10.18 26.37 20.52 49.97 59.13
- ------------------------------------------------------------------------------------------------------------------------------------
(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
April 30, 1999
Note 1
Significant accounting policies
Putnam Municipal Opportunities Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment objective
is to seek a high level of current income exempt from federal income tax,
consistent with preservation of capital. The fund intends to achieve its
objective by investing in a portfolio of investment grade municipal bonds
that Putnam Investment Management, Inc. ("Putnam Management"), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes
to be consistent with preservation of capital.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The fair
value of restricted securities is determined by Putnam Management
following procedures approved by the Trustees, and such valuations and
procedures are reviewed periodically by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At April 30, 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 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, 1999 was Series A 3.21%, Series B 3.70%, and Series C 3.40%. 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 post-October loss deferrals, dividends payable,
unrealized gains and losses on certain futures contracts 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, 1999, the fund reclassified $1,045 to increase undistributed net
investment income and $7 to decrease paid-in-capital, with an increase to
accumulated net realized losses of $1,038. 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 are accreted according to the yield to maturity basis.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $31,878. The expenses have been fully
amortized on a projected net asset basis over a five-year period as of
April 30, 1999.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services and administrative services is paid quarterly based on the
average net assets of the fund, including amounts attributable to any
preferred shares that may be outstanding. Such fees in the aggregate are
based on the annual rate of 0.70% of the first $500 million of the average
net asset value of the fund, 0.60% of the next $500 million, 0.55% of the
next $500 million, and 0.50% thereafter.
If dividends payable on remarketed preferred shares during any dividend
payment period plus any expenses attributable to remarketed preferred
shares for that period exceed the fund's gross income attributable to the
proceeds of the remarketed preferred shares during that period, then the
fee payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than 0.70% 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, 1999, 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, 1999, fund expenses were reduced by $25,949
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 $510 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
Purchase and sales of securities
During the year ended April 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $18,217,358 and
$17,386,575, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Remarketed preferred shares
On July 7, 1997, the fund issued 1,620 Series B and 1,620 Series C
remarketed preferred shares. Proceeds to the fund, before underwriting
expenses of $810,000 and offering expenses of $369,044, amounted to
$81,000,000. Such offering expenses and the fund underwriting expenditures
were paid initially by Putnam Management, and the fund reimbursed Putnam
Management for such costs. 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, 1999, 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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of October 1, 1998 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 1, 1998. At
the meeting, each of the nominees for Trustees was elected, as follows:
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
Jameson Adkins Baxter 11,395,902 230,376 3,160 0
Hans H. Estin 11,383,770 242,508 3,160 0
John A. Hill -- -- 3,160 0
Ronald J. Jackson 11,396,075 230,203 3,160 0
Paul L. Joskow 11,392,703 233,575 3,160 0
Elizabeth T. Kennan 11,383,845 242,433 3,160 0
Lawrence J. Lasser 11,398,822 227,456 3,160 0
John H. Mullin III 11,397,177 229,101 3,160 0
Robert E. Patterson -- -- 3,160 0
Donald S. Perkins 11,381,482 244,796 3,160 0
William F. Pounds 11,380,372 245,906 3,160 0
George Putnam 11,385,841 240,437 3,160 0
George Putnam, III 11,388,192 238,086 3,160 0
A.J.C. Smith 11,394,370 231,908 3,160 0
W. Thomas Stephens 11,396,686 229,592 3,160 0
W. Nicholas Thorndike 11,391,737 234,541 3,160 0
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows:
Common Shares - 11,330,609 votes for, and 59,339 votes against, with 236,330
abstentions.
Preferred Shares - 3,138 votes for, and 22 votes against.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was approved as follows:
Common Shares - 8,391,535 votes for, and 723,668 votes against, with 2,511,075
abstentions and broker non-votes.
Preferred Shares - 2,487 votes for, and 353 votes against, with 320
abstentions.
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
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 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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
52521 582 6/99
