Putnam
Municipal
Opportunities
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 20, 2000
REPORT FROM FUND MANAGEMENT
Blake E. Anderson
Over the past six months, bond investors have been reminded of one of
the basic principles of investing: when a turnaround occurs in the
financial markets, it usually happens so quickly that unless you are
already positioned in the comeback sector, you will be too late to
benefit fully. When the Nasdaq plunged in March, setting off a long
string of declines in other equity markets, suddenly bonds became the
place to be. Most bond investors benefited as the equity markets fell.
However, for investors in Putnam Municipal Opportunities Trust,
improving performance was somewhat impaired by the fund's emphasis on
lower-rated tax-exempt bonds, which went through a difficult semiannual
period.
Total return for 6 months ended 10/31/00
NAV Market price
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6.64% 14.25%
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Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* AMID OVERALL MUNI IMPROVEMENT, LOWER-RATED BONDS LAGGED
For much of the year, we have been anticipating the beginning of a
slowdown in the economy and better bond performance even though the
Federal Reserve Board was absorbed in raising interest rates. The latest
figures from the U.S. Commerce Department reported a drop in the pace of
economic growth for the third quarter. The nation's gross domestic
product grew just 2.7% in the third quarter, although many analysts
believe the dip is temporary. Prior to the spring drop in the Nasdaq,
however, most equity markets experienced five consecutive years of
positive returns, and many investors ignored the bond market. In
general, bond prices moved up over the semiannual period, but prices of
lower-rated municipal bonds lagged. The highest-quality municipal bonds
(AAA/Aaa-rated) performed better. As a result, we witnessed a dramatic
difference in yield between the highest-rated and lowest-rated municipal
bonds, a condition known as yield spread.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 20.8%
Transportation 18.9%
Housing 12.7%
Utilities 10.7%
Pollution control 9.3%
Footnote reads:
*Based on net assets as of 10/31/00. Holdings will vary over time.
In our quest for high current tax-exempt income, we continue to seek
higher-yielding Baa/BBB issues. In addition to attractive income levels,
these holdings also provide a hedge against an economic downturn. During
a declining market, when yields are rising and bond prices are falling,
the income generated by these high-coupon bonds helps cushion the fund's
share price. Although the wide credit spreads of the past six months
have taken their toll on the fund's performance while investors favored
higher-quality bonds, we believe focusing on higher-yield bonds remains
a wise strategy. The lower-rated sector currently offers an unusually
attractive buying opportunity for prudent investors, and we firmly
believe that today's wide yield spreads will begin to narrow. Over
time, funds with a strong complement of high-yield holdings tend to
outperform higher-grade funds with less volatility.
* INDIVIDUAL BOND SELECTION AND SECTOR EMPHASES GUIDE STRATEGY
Your fund has continued to provide a high level of tax-exempt income
throughout the semiannual period. Total return performance also has
remained strong in comparison to that of similar funds, despite the
significant challenge presented by continued wide yield spreads between
investment-quality municipal bonds and higher-yielding issues over the
past six months. These wide spreads put pressure on interest-rate
sensitive market sectors, including airlines and hospitals, which
continue to constitute a large portion of the fund's portfolio.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 46.5%
Aa/AA -- 5.2%
A -- 12.5%
Baa/BBB -- 19.9%
Ba/BB -- 13.4%
B or below -- 2.5%
Footnote reads:
*As a percentage of market value as of 10/31/00. 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.
In this environment, we have focused our strategy on selecting the most
appropriate bonds for the portfolio and on maintaining solid positions
in top-performing industry sectors, rather than using duration
management as a primary tool for achieving performance. At present, the
future direction of interest rates and the economy remains uncertain. On
the one hand, stock market volatility and interest-rate tightenings by
the Fed and the world's other central banks seem to be pushing the U.S.
economy into a slower growth phase. On the other hand, we currently have
full employment and very robust growth. With no compelling reason to
move it, we kept the fund's duration slightly shorter than its benchmark
throughout the past six months. This position helped maximize current
income while keeping the fund flexible enough to take advantage of
higher income opportunities when they become available.
In contrast to the unclear direction of interest rates, today's
attractive municipal bond prices are obvious. Through careful research
and analysis, we continue to uncover attractively priced bonds with
solid income and excellent price appreciation potential. Although
relatively high U.S. Treasury prices and the inverted Treasury yield
curve (whereby yields on short-term Treasury instruments are higher than
those on long-term bonds) have limited the number of pre-refundings in
today's market, we continue to identify credits with strong refunding
prospects for the future. Pre-refundings of portfolio holdings are one
way for the fund to capture significant price appreciation, because they
improve an issue's credit quality, which generally leads to a higher
price.
In terms of sectors, health care, transportation, and housing are the
fund's largest positions. Together, these sectors make up approximately
52% of your fund's portfolio. With bond prices so attractive now, health
care continues to provide numerous buying opportunities. We continue to
seek out hospitals in markets without excessive competition from managed
care providers, along with hospitals featuring new management with the
ability to implement financial turnarounds and improve efficiency. We
also are evaluating assisted-living facility bonds on a
project-by-project basis and have recently added to the fund's holdings
in this area. In transportation, we have a large concentration among
airport bonds that continue to benefit from high air traffic volumes.
The fund's housing bonds continue to provide strong income for the
portfolio. With steady, though slower, growth on the horizon, housing
remains an important sector for the fund.
* PROSPECTS FOR LOWER-RATED CREDITS BEGINNING TO IMPROVE
One of the reasons for our faith in the lower-rated bond sector is that
the decline in lower-rated bond prices was not caused by rising defaults
or by a looming recession. Instead it was the result of previous cash
flows out of municipal bond funds. There is a positive aspect to waiting
for the sector's recovery: investors earn a higher income as they wait.
With better performance in the general municipal bond market, extremely
low valuations in the lower-rated sectors, and the return of many
investors to the muni market, we have begun to see signs that credit
spreads have peaked and are beginning to close. We recently observed the
first indications of rising prices on lower-rated bonds within the
hospital, health care, and utilities sectors.
Putnam has always been known for its expertise in security selection and
in-depth credit analysis. Credit selection is especially important in a
fund such as yours that emphasizes bonds that are below
investment-grade. These bonds add tremendously to a fund's income level,
but they also carry greater credit risk. Their selection requires
meticulous research efforts. We always have believed that as long as
lower-rated credit investments are widely diversified across public
sectors, states, and maturities, they are an intelligent investment
choice for tax-free investors.
Recent economic reports indicate that the U. S. economy is still
expanding at a healthy clip, though at a slower pace than earlier in the
year. Comments by the Fed show that it believes the economy can grow for
sustained periods without triggering higher inflation. We believe that
this line of thinking is the primary reason why the Fed did not raise
interest rates in October, even as it maintained its tightening bias.
Based on these reports and the improving cash flow situation, we believe
the investments in your fund, especially the lower-rated securities, are
well positioned to reap the benefits of narrowing credit spreads.
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 10/31/00, there is no guarantee the fund
will continue to hold these securities in the future.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same address.
This change will automatically apply to all shareholders except those who
notify us. If you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
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 10/31/00
Lehman Bros.
Market Municipal Consumer
Common shares NAV price Bond Index price index
--------------------------------------------------------------------------
6 months 6.64% 14.25% 5.72% 1.52%
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1 year 9.05 11.59 8.51 3.45
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5 years 31.12 33.25 32.05 13.14
Annual average 5.57 5.91 5.72 2.50
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Life of fund
(since 5/28/93) 53.35 43.19 52.78 20.60
Annual average 5.92 4.95 5.88 2.56
--------------------------------------------------------------------------
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 redeemed may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 10/31/00
-------------------------------------------------------------------------------
Distributions (common shares)
-------------------------------------------------------------------------------
Number 6
-------------------------------------------------------------------------------
Income $0.453
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Capital gains1 --
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Total $0.453
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Preferred shares Series A Series B Series C
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(800 shares) (1,620 shares) (1,620 shares)
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Income $1,188.64 $561.17 $537.71
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Total $1,188.64 $561.17 $537.71
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Share value: (common shares) NAV Market price
-------------------------------------------------------------------------------
4/30/00 $12.51 $11.625
-------------------------------------------------------------------------------
10/31/00 12.87 12.813
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Current return (common shares/end of period)
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Current
dividend
rate2 7.04% 7.07%
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Taxable
equivalent3 11.66 11.71
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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 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject
to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 9/30/00(most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------------------
6 months 4.37% 17.47%
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1 year 5.25 7.28
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5 years 31.20 37.10
Annual average 5.58 6.51
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Life of fund
(since 5/28/93) 51.39 42.36
Annual average 5.81 4.93
-------------------------------------------------------------------------------
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 into account
brokerage fees or taxes. Securities in the fund do not match those in
the index 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, 2000 (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
MUNICIPAL BONDS AND NOTES (98.4%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (3.8%)
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$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB $ 5,400,000
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 7,043,750
-------------
12,443,750
Alaska (1.5%)
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5,000,000 Valdez Marine Term. Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 Aa1 4,750,000
Arizona (1.0%)
-------------------------------------------------------------------------------------------------------------------
500,000 Cochise Cnty., Indl. Dev. Auth. Rev. Bonds (Sierra
Vista Cmnty. Hosp.), Ser. A, 6 3/4s, 12/1/26 BBB-/P 456,875
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB-/P 2,956,525
-------------
3,413,400
Arkansas (0.3%)
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1,000,000 Northwest AK Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 1,048,750
California (8.0%)
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2,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,935,000
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 6.785s, 8/10/18 Aa2 3,341,250
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
8.564s, 8/15/18 Aaa 5,375,000
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 Aaa 5,756,250
San Diego Cnty., IF COP
3,000,000 AMBAC, 7.070s, 9/1/12 AAA 3,408,750
3,000,000 AMBAC, 6.720s, 9/1/07 Aaa 3,386,250
3,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 5.960s, 7/1/17 Aaa 3,067,500
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26,270,000
Colorado (7.7%)
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1,000,000 CO Edl. Fac. Auth. Rev. Bonds (Ocean
Journey, Inc.), 8 3/8s, 12/1/26 B+/P 1,113,750
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,935,000 8 3/4s, 11/15/23 A2 7,307,271
2,505,000 8 3/4s, 11/15/23, Prerefunded Aaa 2,659,108
1,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 1,925,075
275,000 MBIA, 8 1/2s, 11/15/23, Prerefunded Aaa 280,847
1,585,000 7 3/4s, 11/15/21 A2 1,655,168
415,000 7 3/4s, 11/15/21, Prerefunded Aaa 436,601
10,000,000 MBIA, 5.7s, 11/15/25 Aaa 10,037,500
-------------
25,415,320
District of Columbia (3.7%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 BBB 12,232,125
Florida (1.5%)
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2,485,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 2,540,913
2,500,000 Orange Cnty., FL Tourist Dev. Tax Rev. Bonds,
AMBAC, 5 1/2s, 10/1/31 AAA 2,475,000
-------------
5,015,913
Hawaii (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,995,000 HI State Hsg. Fin. & Dev. Corp. Single Fam. Mtge.
Rev. Bonds, Ser. A, FNMA Coll., 5 3/4s, 7/1/30 AAA 1,947,619
Illinois (6.3%)
-------------------------------------------------------------------------------------------------------------------
9,975,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 BB+ 10,418,484
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A1 10,314,300
-------------
20,732,784
Indiana (3.1%)
-------------------------------------------------------------------------------------------------------------------
5,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 4,513,175
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa1 3,703,875
2,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 2,105,000
-------------
10,322,050
Kentucky (1.5%)
-------------------------------------------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Air Lines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa3 3,531,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,343,875
-------------
4,875,625
Louisiana (2.3%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Local Govt. Env. Facs. Cmnty. Dev. Auth. Rev.
Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 2,015,000
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB- 5,527,500
-------------
7,542,500
Maryland (1.5%)
-------------------------------------------------------------------------------------------------------------------
4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Rev. Bonds
Ser. E, GNMA Coll., FHA Insd., 6.85s, 5/15/25 Aa3 5,020,425
Massachusetts (8.0%)
-------------------------------------------------------------------------------------------------------------------
3,555,000 Atlas Boston Tax Exempt Rev. Bonds, Ser. 1,
6.65s, 1/1/35 (acquired 11/18/99,
cost 3,555,000) (RES) BB+/P 3,621,656
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 2,944,225
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Residential Dev.), Ser. C, FNMA Coll.,
6.9s, 11/15/21 Aaa 4,033,294
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,435,100
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,152,880
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,013,750
-------------
26,200,905
Michigan (3.3%)
-------------------------------------------------------------------------------------------------------------------
9,000,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 8,145,000
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,571,100
-------------
10,716,100
Minnesota (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,250,000 Rochester, Hlthcare Fac. IFB (Mayo Foundation),
Ser. H, 7.418s, 11/15/15 AA+ 1,321,875
Mississippi (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Claiborne Cnty., Poll. Control Rev. Bonds (Syst.
Energy Resources, Inc.), 7.3s, 5/1/25 BBB- 1,375,907
1,000,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Res., Inc.), 5.9s, 5/1/22 BBB- 920,000
-------------
2,295,907
Montana (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Montana State Board Investment Exempt Fac. Rev.
Bonds (Still Water Mining Project), 8s, 7/1/20 Ba2 2,112,500
Nebraska (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,200,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 10.567s, 9/10/30 Aaa 1,249,500
Nevada (2.9%)
-------------------------------------------------------------------------------------------------------------------
3,505,000 Clark Cnty., G.O. Bonds (Pk. & Regl. Justice Ctr.),
FGIC, 5 5/8s, 11/1/19 AAA 3,544,431
Clark Cnty., Indl. Dev. Rev. Bonds (Southwest
Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 2,870,313
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 2,992,500
-------------
9,407,244
New Hampshire (1.1%)
-------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,600,000 (Riverwoods at Exeter), Ser. A, 6 1/2s, 3/1/23 BB/P 2,359,500
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,200,000
-------------
3,559,500
New Jersey (6.8%)
-------------------------------------------------------------------------------------------------------------------
8,815,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 9,145,563
2,190,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (Raritan
Bay Med. Ctr.), 7 1/4s, 7/1/14 B/P 2,031,225
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 11,112,500
-------------
22,289,288
New York (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Fin. Syst.
Rev. Bonds, Ser. B, FSA, 5s, 6/15/29 Aaa 2,722,500
North Carolina (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, MBIA, 6s, 1/1/22 Aaa 2,110,000
Ohio (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Montgomery Cnty., Hosp. Rev. Bonds (Kettering
Med. Ctr.), 6 3/4s, 4/1/22 Baa1 1,006,250
1,363,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.081s, 3/24/31 Aaa 1,434,558
-------------
2,440,808
Oklahoma (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest
Healthcare), Ser. A, 5 5/8s, 8/15/29 Ba1 697,500
Pennsylvania (6.9%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 5,056,250
1,000,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panter Creek Partners PJ), 6.65s, 5/1/10 BBB- 1,025,000
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,232,500
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 3,206,250
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,033,750
5,000,000 PA State Higher Ed. Assistance Agcy. Student
Loan IFB, AMBAC, 10.534s, 9/1/26 Aaa 6,111,150
3,000,000 Philadelphia, Auth. for Indl. Dev. Special Fac. Rev.
Bonds (U.S. Airways Inc. Project), 8 1/8s, 5/1/30 B/P 3,060,000
-------------
22,724,900
South Carolina (1.5%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,860,000
Tennessee (1.2%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Johnson City, Hlth. & Edl. Facs. Rev. Bonds
(Mtn. States Hlth.), Ser. A, 7 1/2s, 7/1/33 AAA 4,020,000
Texas (14.3%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 5,619,570
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,172,000
2,000,000 7.9s, 5/1/11 AAA/P 2,140,000
12,000,000 FSA, 6.1s, 11/15/23 Aaa 13,065,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 4,626,585
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,130,000
2,290,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba1 2,269,963
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 3,112,500
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 A2 5,234,300
2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball
Regl. Hosp.), 6s, 7/1/29 Baa2 1,665,000
-------------
47,034,918
Utah (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps., Inc.),
8.907s, 5/15/20 Aaa 1,055,180
Virginia (1.5%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.),
Ser. C, 9.327s, 8/29/23 Aaa 3,214,920
2,000,000 Pocahontas Parkway Assn. Toll Rd. Rev. Bonds,
Ser. A, 5 1/2s, 8/15/28 Baa3 1,650,000
-------------
4,864,920
Washington (1.9%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 4,005,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,342,813
-------------
6,347,813
West Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp.
Assn., Inc.), 6.1s, 5/1/29 BBB 1,785,000
Wyoming (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 2,987,156
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $328,291,093) (b) $ 323,833,775
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $329,025,812.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 2000 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, 2000. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $328,291,093,
resulting in gross unrealized appreciation and depreciation of
$7,150,159 and $11,607,477, respectively, or net unrealized depreciation
of $4,457,318.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2000 was
$14,734,156 or 4.5% of net assets.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, are the current interest rates at October 31, 2000.
The fund had the following industry group concentrations greater
than 10% at October 31, 2000 (as a percentage of net assets):
Health care 20.8%
Transportation 18.9
Housing 12.7
Utilities 10.7
The fund had the following insurance concentration greater than
10% at October 31, 2000 (as a percentage of net assets):
MBIA 13.4%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $328,291,093) (Note 1) $323,833,775
-------------------------------------------------------------------------------------------
Interest receivable 7,283,983
-------------------------------------------------------------------------------------------
Total assets 331,117,758
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 139,946
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,793
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 594,118
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 51,668
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 15,593
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,940
-------------------------------------------------------------------------------------------
Other accrued expenses 68,888
-------------------------------------------------------------------------------------------
Total liabilities 2,091,946
-------------------------------------------------------------------------------------------
Net assets $329,025,812
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
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (474,642)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (12,243,415)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (4,457,318)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $329,025,812
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 78,725
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $121,078,725
-------------------------------------------------------------------------------------------
Net assets available to common shares $207,947,087
-------------------------------------------------------------------------------------------
Net asset value per common share
($207,947,087 divided by 16,157,092 shares) $12.87
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended October 31, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $10,945,780
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,169,373
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 107,223
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,980
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,894
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 167,468
-------------------------------------------------------------------------------------------
Other 67,791
-------------------------------------------------------------------------------------------
Total expenses 1,520,729
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,082)
-------------------------------------------------------------------------------------------
Net expenses 1,480,647
-------------------------------------------------------------------------------------------
Net investment income 9,465,133
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (568,558)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (55,110)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 7,026,272
-------------------------------------------------------------------------------------------
Net gain on investments 6,402,604
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,867,737
-------------------------------------------------------------------------------------------
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
2000* 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 9,465,133 $ 19,039,009
--------------------------------------------------------------------------------------------------
Net realized loss on investments (623,668) (2,495,329)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 7,026,272 (23,387,694)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 15,867,737 (6,844,014)
Distributions to remarketed preferred shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (2,731,098) (4,436,618)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders
(excluding cumulative undeclared dividends on
remarketed preferred shares of $78,725 and
$144,767, respectively) 13,136,639 (11,280,632)
--------------------------------------------------------------------------------------------------
Distributions to common shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (7,318,758) (14,636,969)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,817,881 (25,917,601)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 323,207,931 349,125,532
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net
investment income of $474,642 and
$110,081, respectively) $329,025,812 $323,207,931
--------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period
(common shares) $12.51 $14.11 $14.05 $13.61 $13.50 $13.23
--------------------------------------------------------------------------------------------------------------
Investment operations:
--------------------------------------------------------------------------------------------------------------
Net investment income .59 1.18 1.19 1.16 .99 .99
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .38 (1.59) .03 .51 .20 .36
--------------------------------------------------------------------------------------------------------------
Total from investment operations .97 (.41) 1.22 1.67 1.19 1.35
--------------------------------------------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------------------------------------------
From net investment income:
--------------------------------------------------------------------------------------------------------------
To preferred shareholders (.16) (.28) (.25) (.23)(d) (.09) (.09)
--------------------------------------------------------------------------------------------------------------
To common shareholders (.45) (.91) (.91) (.93) (.96) (.99)
--------------------------------------------------------------------------------------------------------------
In excess of net investment income:
--------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- (.03) --
--------------------------------------------------------------------------------------------------------------
Total distributions: (.61) (1.19) (1.16) (1.16) (1.08) (1.08)
--------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- -- (.07) -- --
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.87 $12.51 $14.11 $14.05 $13.61 $13.50
--------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $12.813 $11.625 $14.750 $13.812 $13.875 $13.625
--------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------------------------------------------------
Total return, at market value
(common shares)(%)(a) 14.25* (15.25) 13.57 6.13 9.24 19.64
--------------------------------------------------------------------------------------------------------------
Net assets, end of period (total
fund) (in thousands) $329,026 $323,208 $349,126 $348,038 $260,008 $258,119
--------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .74* 1.46 1.42 1.30 1.08 1.05
--------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 3.32* 6.93 6.58 6.64 6.60 6.54
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 3.10* 13.84 10.18 26.37 20.52 49.97
--------------------------------------------------------------------------------------------------------------
* 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) Includes amounts paid through expense offset arrangements (Note 2).
(d) Series B and C preferred shares were issued on July 7, 1997.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 2000 (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 and consistent with the 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 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
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, 2000, the fund had a capital loss carryover of
approximately $10,140,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$2,643,000 April 30, 2003
4,581,000 April 30, 2004
127,000 April 30, 2007
2,789,000 April 30, 2008
E) Distributions to shareholders Distributions to common and preferred
shareholders from net investment income are recorded by the fund on the
ex-dividend date. Capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. 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,
respectively. The applicable dividend rate for the remarketed preferred
shares on October 31, 2000 was Series A 4.25%, Series B 4.13%, and
Series C 4.13%. 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 fee is based on the following annual rates: 0.70% of the
first $500 million of average net assets, 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.
Under the subcustodian contract between the subcustodian bank and PFTC,
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 October 31, 2000, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the six months ended October 31, 2000, fund expenses were reduced by
$40,082 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 $565
has been allocated to the fund, and an additional fee for each Trustees
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, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $11,437,890 and $9,860,990, 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, 2000, no such
restrictions have been placed on the fund.
RESULTS OF OCTOBER 5, 2000 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 5,
2000. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 14,899,150 215,656
Hans H. Estin 14,886,178 228,628
Ronald J. Jackson 14,890,399 224,407
Paul L. Joskow 14,900,020 214,786
Elizabeth T. Kennan 14,880,160 234,646
Lawrence J. Lasser 14,899,072 215,734
John H. Mullin III 14,890,868 223,938
George Putnam, III 14,897,264 217,542
A.J.C. Smith 14,892,627 222,179
W. Thomas Stephens 14,899,786 215,020
W. Nicholas Thorndike 14,891,252 223,554
Preferred Shares
Votes
Votes for withheld
John A. Hill 4,025 14
Robert E. Patterson 4,025 14
A proposal to ratify the selection of PricewaterhouseCoopers LLP as
independent auditors of your fund was approved as follows:
Common Shares -- 14,788,464 votes for, and 136,277 votes against, with
190,065 abstentions.
Preferred Shares -- 4,039 votes for, and 0 votes against.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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.putnaminvestments.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
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
66576 582 12/00
