Putnam
Municipal
Opportunities
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's manager discusses performance for the
period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Municipal Opportunities Trust that I will be signing. After more than
30 years as Chairman of the Trustees and President of the Putnam Funds,
the time has come for me to step aside. As of July 1, 2000, John Hill
will become Chairman. John is currently an independent Trustee and has
served on the board for the past 14 years. In addition, my son, George
Putnam, III, will take on the role of President. I am confident that the
leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGER
Blake Anderson
Compared with the stock market's roller coaster ride in recent months,
the municipal market has offered relatively calm waters for
tax-conscious investors. Unfortunately, steady interest-rate increases
throughout the annual period have also put a damper on municipal
performance. However, Putnam Municipal Opportunities Trust has
successfully navigated the challenge of rising rates, as duration
management, strong sector selection, and superior returns from
higher-yielding holdings enabled it to deliver competitive performance
and an attractive level of tax-free income for the 12 months ended April
30, 2000.
Total return for 12 months ended 4/30/00
NAV Market price
-------------------------------
-4.66% -15.25%
-------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 5.
* MUNIS PERFORM AS STOCKS SELL OFF
When the stock market first began to exhibit weakness in early April,
fixed-income investments enjoyed a bump up in price as nervous investors
flocked to bonds. The rise was short lived, however, as inflation
concerns and fears of continued interest-rate increases by the Federal
Reserve Board pushed down prices throughout the fixed-income market. The
good news is that municipal bond prices held up better than most -- and
continue to offer solid opportunity for investors with tax
considerations.
Long-term Treasury issues suffered the greatest price setback over the
period. For some time now, the U.S. government has been pursuing a
buyback program for these securities. At the start of the second
quarter, the program continued with the government purchasing
approximately $30 billion in 30-year Treasuries. Then the buyback halted
and it became apparent that any additional Treasury purchases would
occur much later in the quarter, if at all. Without the support of this
program, the Treasury market declined, as investors began selling
Treasuries in earnest and prices dropped substantially.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 23.9%
Utilities 19.6%
Transportation 15.5%
Housing 12.8%
Water & sewer 8.0%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
Against this backdrop of falling Treasury prices and general investor
apathy for bonds, municipal bonds retained more of their value. And
while a year of steady interest-rate increases has been difficult to
endure, the municipal bond market may finally be approaching the point
at which the news gets better. It may not always seem like a positive
thing, but a responsible Fed, like the one we have, is good news for
bond investors. True, Fed policy and rising interest rates have had a
negative effect on bond prices over the short term. However, in the
longer run, these increases should keep inflation, the bond market's
worst enemy, under control.
While insured municipal bonds have historically yielded about 85% of
comparable U.S. Treasury bonds, that ratio is now approximately 95%.
This translates into an exceptionally high level of tax-free income --
which is certainly good news for municipal bond fund shareholders.
* WIDENING CREDIT SPREADS PROMPT DEFENSIVE POSITIONING
For its part, your fund has continued to provide a high level of
tax-exempt income throughout the annual period. Total return performance
also remained strong in comparison to similar funds despite the
significant challenge presented by a tremendous widening of credit
spreads between investment-quality municipal bonds and higher-yielding
issues over the past six months. Widening credit spreads put price
pressure on interest-rate sensitive sectors of the market, such as
airlines and hospitals, which constitute a large portion of the fund's
portfolio.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 45.2%
AA/Aa -- 6.9%
A -- 10.0%
BBB/Baa -- 27.0%
BB/Ba -- 7.4%
B and under -- 3.5%
Footnote reads:
*As a percentage of market value as of 4/30/00. A bond rated 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.
Maintaining a modestly short portfolio duration has been one of our most
effective strategies for maintaining competitive performance. As
short-term interest rates backed up over the period, this slightly
shorter duration allowed the fund to gain competitive ground. In
addition to maximizing current income, the shorter duration stance kept
the fund flexible for the higher income opportunities that continued to
become available.
The portfolio's shape and industry concentration also contributed to
fund performance over the period. With credit spreads widening, we
underweighted higher-tier investment-grade securities, instead focusing
holdings among carefully selected, higher- yielding BBB issues. This
portfolio provided both high, current income and a hedge against an
economic downturn. In declining markets such as the recent one, when
yields are rising and bond prices are falling, the income generated by
these high-coupon bonds helps cushion the fund's share price.
In terms of industries, portfolio holdings remained concentrated largely
in the health-care and transportation sectors with a lesser emphasis on
utilities bonds. Within the health-care sector, hospital bonds have
offered particularly attractive prices in recent months, and we have
added to our holdings there. Among transportation holdings, airline
bonds have really outperformed, as the hot economy continues to keep
these companies financially healthy. The fund's older high-coupon
utilities bonds remain top income generators, although we have not added
to those positions over the past 12 months.
* MUNICIPAL BONDS OFFER A TIMELY OPPORTUNITY
When interest rates are rising, a natural reaction among conservative
investors can be to buy guaranteed certificates of deposit over bond
fund investments because the income from CDs seems more and more
appealing. However, in such an environment, investors may find they end
up with only one or two years of attractive income and are then out of
the bond market during the period of its strongest returns.
In addition, many investors may now find their portfolios underweight in
bonds either because they deliberately allocated more assets toward
stocks or because appreciation among their stock holdings has naturally
increased the stock proportion of their portfolios. The stock market's
gyrations over the past few weeks have reminded people why they own
bonds in the first place. With municipal bonds offering such good
values, now is an excellent time to invest. It is also a prudent time to
own a managed municipal fund such as this one. While municipals do offer
excellent values and many continue to pay high levels of current income,
the market is likely to experience some short-term volatility before the
Fed's monetary moves begin to slow down the economy -- making this just
the kind of environment where professional management can show its true
worth.
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 4/30/00, 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 4/30/00
Lehman Bros.
Market Municipal Consumer
(common shares) NAV price Bond Index price index
-------------------------------------------------------------------
1 year -4.66% -15.25% -0.92% 3.01%
-------------------------------------------------------------------
5 years 32.93 33.41 33.34 12.71
Annual average 5.86 5.93 5.92 2.42
-------------------------------------------------------------------
Life of fund
(since 5/28/93) 43.80 25.34 44.51 18.72
Annual average 5.39 3.32 5.47 2.51
-------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most current calendar quarter)
Market
NAV price
------------------------------------------------------
1 year -3.61% -18.67%
------------------------------------------------------
5 years 34.57 24.75
Annual average 6.12 4.52
------------------------------------------------------
Life of fund (since 5/28/93) 45.05 21.19
Annual average 5.59 2.85
------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 4/30/00
----------------------------------------------------------------------
Distributions (common shares)
----------------------------------------------------------------------
Number 12
----------------------------------------------------------------------
Income $0.906
----------------------------------------------------------------------
Capital gains1 --
----------------------------------------------------------------------
Total $0.906
----------------------------------------------------------------------
Preferred shares Series A (800 shares)
----------------------------------------------------------------------
Income $1826.86
----------------------------------------------------------------------
Total 1826.86
----------------------------------------------------------------------
Series B (1620 shares)
----------------------------------------------------------------------
Income 911.23
----------------------------------------------------------------------
Total 911.23
----------------------------------------------------------------------
Series C (1620 shares)
----------------------------------------------------------------------
Income 925.27
----------------------------------------------------------------------
Total 925.27
----------------------------------------------------------------------
Share value (common shares) NAV Market price
----------------------------------------------------------------------
4/30/99 $14.11 $14.750
----------------------------------------------------------------------
4/30/00 12.51 11.625
----------------------------------------------------------------------
Current return (common shares/end of period)
----------------------------------------------------------------------
Current dividend rate2 7.24% 7.79%
----------------------------------------------------------------------
Taxable equivalent3 11.99 12.90
----------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may be
subject to state and local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject
to lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, and the net assets allocated to remarketed preferred
shares, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index assumes reinvestment of all
distributions and interest payments and does not take into 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 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.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended April 30, 2000
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, 2000, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States. 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 auditing standards
generally accepted in the United States, 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, 2000 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 7, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000
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
FRB -- Floating Rate Bonds
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MUNICIPAL BONDS AND NOTES (97.8%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (3.8%)
-------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp.), 8s, 9/1/28 BBB $ 5,387,500
7,000,000 Jefferson Cnty., Swr. Rev. Bonds, Ser. D, FGIC,
5 3/4s, 2/1/27 Aaa 6,807,500
----------------
12,195,000
Alaska (1.4%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Valdez Marine Term. Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 Aa1 4,487,500
Arizona (1.1%)
-------------------------------------------------------------------------------------------------------------------
500,000 Cochise Cnty., Indl. Dev. Auth. Rev. Bonds (Sierra
Vista Cmnty. Hosp.), Ser. A, 6 3/4s, 12/1/26 BBB-/P 454,375
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village), 7 7/8s, 6/1/09 BB-/P 2,949,375
----------------
3,403,750
Arkansas (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Northwest Regl. Apt. Auth. Rev. Bonds,
7 5/8s, 2/1/27 BB/P 1,042,500
California (8.2%)
-------------------------------------------------------------------------------------------------------------------
2,250,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,811,250
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 7.12s, 8/10/18 Aa2 3,101,250
1,300,000 Ontario, Multifamily Rev. Bonds (Res. Park
Mtg. Ctr.), Ser. A, FRB, 4s, 8/1/07 (LOC-Royal Bk.
of Canada) VMIG1 1,300,000
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
8.77s, 8/15/18 Aaa 5,350,000
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 (SEG) Aaa 5,487,500
3,000,000 San Diego Cnty., IF COP, AMBAC, 6.72s, 9/1/07 Aaa 3,225,000
3,000,000 San Diego Cnty., IF COP, AMBAC, 7.25s, 9/1/12 AAA 3,213,750
3,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 6.02s, 7/1/17 Aaa 2,880,000
----------------
26,368,750
Colorado (7.8%)
-------------------------------------------------------------------------------------------------------------------
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
6,935,000 8 3/4s, 11/15/23 Baa1 7,385,775
2,505,000 8 3/4s, 11/15/23, Prerefunded Aaa 2,696,006
2,885,000 MBIA, 8 1/2s, 11/15/23 Aaa 2,995,780
275,000 MBIA, 8 1/2s, 11/15/23, Prerefunded Aaa 286,171
1,585,000 7 3/4s, 11/15/21 Baa1 1,668,213
415,000 7 3/4s, 11/15/21, Prerefunded Aaa 440,938
10,000,000 MBIA, 5.7s, 11/15/25 Aaa 9,550,000
----------------
25,022,883
District of Columbia (3.7%)
-------------------------------------------------------------------------------------------------------------------
12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 BAA3 11,889,750
Florida (0.8%)
-------------------------------------------------------------------------------------------------------------------
2,485,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South), 7.95s, 12/1/08 A3 2,564,520
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 1,862,500
Illinois (6.5%)
-------------------------------------------------------------------------------------------------------------------
9,975,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 10,402,529
300,000 IL Hsg. Dev. Auth. IFB, 9.66s, 2/1/20
(acquired 5/28/93, cost $339,825) (RES) Aa1 309,171
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A1 10,362,500
----------------
21,074,200
Indiana (3.0%)
-------------------------------------------------------------------------------------------------------------------
5,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 4,296,975
4,150,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 3,501,563
2,000,000 Indianapolis International Arpt. Auth. Special Fac.
Rev. Bonds (Federal Express Corp.),
7.1s, 1/15/17 Baa2 2,055,000
----------------
9,853,538
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 3,493,500
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa3 1,319,500
----------------
4,813,000
Louisiana (2.3%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Local Govt. Env. Facs.Comnty. Dev. Auth.
Rev. Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 2,005,000
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 5,451,875
----------------
7,456,875
Maryland (1.6%)
-------------------------------------------------------------------------------------------------------------------
4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA Insd, 6.85s, 5/15/25 Aa3 4,948,875
Massachusetts (8.8%)
-------------------------------------------------------------------------------------------------------------------
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) BBB/P 3,497,231
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 2,931,125
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 11,124,900
3,000,000 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA), Ser. A, 9s, 7/1/15 BB-/P 3,191,250
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (1st Mtge.
Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,010,000
3,000,000 MA State Tpk. Auth. Hwy. Syst. Rev. Bonds, Ser. A,
AMBAC, 5s, 1/1/39 Aaa 2,508,750
----------------
28,296,550
Michigan (3.2%)
-------------------------------------------------------------------------------------------------------------------
9,000,000 Detroit, Swr. Disp. Rev. Bonds (Wtr. Supply System),
MBIA, 5s, 7/1/25 Aaa 7,751,250
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,591,675
----------------
10,342,925
Minnesota (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,250,000 Rochester Hlthcare Fac. IFB (Mayo Foundation),
Ser. H, 7.66s, 11/15/15 AA+ 1,295,313
Mississippi (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 7.3s, 5/1/25 Ba1 1,380,375
1,000,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 5.9s, 5/1/22 Ba1 865,000
----------------
2,245,375
Nebraska (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,300,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 10.52s, 9/10/30 AAA 1,364,064
Nevada (2.8%)
-------------------------------------------------------------------------------------------------------------------
3,505,000 Clark Cnty. G.O. Bonds (Pk. & Regl. Justice Ctr.),
FGIC, 5 5/8s, 11/1/19 Aa2 3,412,994
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 2,868,750
----------------
9,152,057
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 2,336,750
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,115,625
----------------
3,452,375
New Jersey (8.0%)
-------------------------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 9,416,250
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,330,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 3,415,248
2,390,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 B/P 2,204,775
10,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds,
8.841s, 10/1/29 (acquired 10/28/94,
cost $9,750,000) (RES) Aaa 10,787,500
----------------
25,823,773
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 2,568,750
North Carolina (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, MBIA, 6s, 1/1/22 Aaa 2,025,000
Ohio (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Montgomery Cnty., Hosp. Rev. Bonds (Kettering
Med. Ctr.), 6 3/4s, 4/1/22 Baa1 940,000
1,563,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.415s, 3/24/31 Aaa 1,654,826
----------------
2,594,826
Oklahoma (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 Baa2 776,250
Pennsylvania (5.6%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 4,962,500
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment
Rev. Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,225,000
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 3,191,250
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,023,750
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.074s, 9/1/26 Aaa 5,800,000
----------------
18,202,500
South Carolina (1.5%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Spartanburg Cnty. Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,848,750
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 3,950,000
Texas (14.5%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 5,616,875
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,178,000
2,000,000 7.9s, 5/1/11 AAA/P 2,140,000
12,000,000 FSA, 6.1s, 11/15/23 Aaa 12,915,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 A3 4,671,225
4,000,000 Dallas-Fort Worth, Regl. Joint Rev. Bonds, Ser. A,
FGIC, 6 5/8s, 11/1/21 Aaa 4,103,640
2,330,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba1 2,332,167
3,000,000 Lower Neches Valley, Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 3,030,000
5,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1 Poll.
Rev. Bonds (Southwestern Elec. Pwr. Co.),
Ser. A, 8.2s, 8/1/11 A1 5,300,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl.
Hosp.), 6s, 7/1/29 Baa2 1,655,000
----------------
46,941,907
Utah (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps. Inc.),
9.261s, 5/15/20 Aaa 1,061,170
Virginia (1.0%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB, AMBAC
(Fairfax Hosp. Syst.), Ser. C, 9.277s, 8/29/23 Aaa 3,281,250
Washington (1.9%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 3,830,000
2,250,000 King Cnty., G.O. Bonds, Ser. C, 6 1/4s, 1/1/32 Aa1 2,286,563
----------------
6,116,563
West Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds
(Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 BBB 1,712,500
Wyoming (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 2,946,938
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $327,450,004) (b) $ 315,982,477
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $323,207,931.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 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 April 30, 2000. 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 $327,450,004,
resulting in gross unrealized appreciation and depreciation of
$4,301,780 and $15,769,307, respectively, or net unrealized depreciation
of $11,467,527.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at
April 30, 2000 was $14,593,902 or 4.5% 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, 2000.
The rates shown on Floating Rate Bonds (FRB) are the current
interest rates at April 30, 2000, which are subject to change based on
the terms of the security.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, are the current interest rates rates at April 30, 2000.
The fund had the following industry group concentrations greater
than 10% at April 30, 2000 (as a percentage of net assets):
Health care 23.9%
Utilities 19.6
Transportation 15.5
Housing 12.8
The fund had the following insurance concentration greater than
10% at April 30, 2000 (as a percentage of net assets):
MBIA 13.5%
-----------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2000
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
-----------------------------------------------------------------------------
Muni Bond Index (long) $3,169,438 $3,144,029 Jun-00 $ 25,409
U.S. Treasury Note
5yr (short) 2,607,188 2,565,716 Jun-00 (41,472)
-----------------------------------------------------------------------------
$(16,063)
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $327,450,004) (Note 1) $315,982,477
-------------------------------------------------------------------------------------------
Cash 2,960,086
-------------------------------------------------------------------------------------------
Interest receivable 7,184,644
-------------------------------------------------------------------------------------------
Receivable for securities sold 255,000
-------------------------------------------------------------------------------------------
Total assets 326,382,207
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 4,188
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,794
-------------------------------------------------------------------------------------------
Payable for securities purchased 1,308,999
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 557,508
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 21,062
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,820
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 500
-------------------------------------------------------------------------------------------
Other accrued expenses 47,405
-------------------------------------------------------------------------------------------
Total liabilities 3,174,276
-------------------------------------------------------------------------------------------
Net assets $323,207,931
Represented by
-------------------------------------------------------------------------------------------
Series A remarketed preferred shares (800 shares issued
and outstanding at $50,000 per share) (Note 4) $40,000,000
-------------------------------------------------------------------------------------------
Series B and C remarketed preferred shares (3,240 shares
issued and outstanding at $25,000 per share) (Note 4) 81,000,000
-------------------------------------------------------------------------------------------
Paid-in capital -- common shares (unlimited shares authorized) (Note 1) 225,201,187
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 110,081
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (11,619,747)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (11,483,590)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $323,207,931
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 144,767
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred
shares -- liquidation preference $121,144,767
-------------------------------------------------------------------------------------------
Net assets available to common shares $202,063,164
-------------------------------------------------------------------------------------------
Net asset value per common share
($202,063,164 divided by 16,157,092 shares) $12.51
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended April 30, 2000
<S> <C>
Tax exempt interest income: $22,016,183
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,318,117
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 233,171
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,528
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,388
-------------------------------------------------------------------------------------------
Reports to shareholders 22,249
-------------------------------------------------------------------------------------------
Registration fees 75
-------------------------------------------------------------------------------------------
Auditing 66,522
-------------------------------------------------------------------------------------------
Legal 7,036
-------------------------------------------------------------------------------------------
Postage 14,859
-------------------------------------------------------------------------------------------
Exchange listing fees 24,260
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 333,556
-------------------------------------------------------------------------------------------
Other 22,382
-------------------------------------------------------------------------------------------
Total expenses 3,062,143
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (84,969)
-------------------------------------------------------------------------------------------
Net expenses 2,977,174
-------------------------------------------------------------------------------------------
Net investment income 19,039,009
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,856,143)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (639,186)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (23,387,694)
-------------------------------------------------------------------------------------------
Net loss on investments (25,883,023)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (6,844,014)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended April 30
------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 19,039,009 $ 19,194,071
--------------------------------------------------------------------------------------------------
Net realized loss on investments (2,495,329) (567,793)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (23,387,694) 1,251,126
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,844,014) 19,877,404
Distributions to remarketed preferred shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (4,436,618) (4,108,842)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations applicable to common shareholders (excluding
cumulative undeclared dividends on remarketed preferred
shares of $144,767 and $94,066 respectively) (11,280,632) 15,768,562
--------------------------------------------------------------------------------------------------
Distributions to common shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (14,636,969) (14,681,450)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (25,917,601) 1,087,112
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 349,125,532 348,038,420
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income $110,081 and $141,277, respectively) $323,207,931 $349,125,532
--------------------------------------------------------------------------------------------------
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 and 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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period
(common shares) $14.11 $14.05 $13.61 $13.50 $13.23
------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------
Net investment income 1.18 1.19 1.16 .99 .99
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.59) .03 .51 .20 .36
------------------------------------------------------------------------------------------------
Total from investment operations (.41) 1.22 1.67 1.19 1.35
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net investment income:
------------------------------------------------------------------------------------------------
To preferred shareholders (.28) (.25) (.23)(d) (.09) (.09)
------------------------------------------------------------------------------------------------
To common shareholders (.91) (.91) (.93) (.96) (.99)
------------------------------------------------------------------------------------------------
In excess of net investment income:
------------------------------------------------------------------------------------------------
To common shareholders -- -- -- (.03) --
------------------------------------------------------------------------------------------------
Total distributions: (1.19) (1.16) (1.16) (1.08) (1.08)
------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- (.07) -- --
------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.51 $14.11 $14.05 $13.61 $13.50
------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $11.625 $14.750 $13.812 $13.875 $13.625
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return, at market value
(common shares)(%)(a) (15.25) 13.57 6.13 9.24 19.64
------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $323,208 $349,126 $348,038 $260,008 $258,119
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) 1.46 1.42 1.30 1.08 1.05
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.93 6.58 6.64 6.60 6.54
------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13.84 10.18 26.37 20.52 49.97
------------------------------------------------------------------------------------------------
(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. (Note 2)
(d) Series B and C preferred shares were issued on July 7, 1997.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
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 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. Distributions from 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. The applicable dividend rate for the remarketed preferred
shares on April 30, 2000 was Series A 4.00%, Series B 4.50%, and Series
C 4.20%. 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, 2000, the fund reclassified
$3,382 to increase undistributed net investment income and $3,382 to
increase accumulated net realized losses. 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.
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).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended April 30, 2000, fund expenses were reduced by $84,969
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 $606
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution
in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended April 30, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $44,952,537 and $47,921,752, respectively. There were no
purchases or sales of U.S. government obligations.
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, 2000, 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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
RESULTS OF OCTOBER 7, 1999 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
1999. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 14,814,528 175,618
Hans H. Estin 14,803,464 186,682
Ronald J. Jackson 14,817,600 172,546
Paul L. Joskow 14,811,064 179,082
Elizabeth T. Kennan 14,811,578 178,568
Lawrence J. Lasser 14,820,000 170,146
John H. Mullin III 14,818,200 171,946
William F. Pounds 14,804,389 185,757
George Putnam 14,809,339 180,807
George Putnam, III 14,811,019 179,127
A.J.C. Smith 14,814,550 175,596
W. Thomas Stephens 14,819,000 171,146
W. Nicholas Thorndike 14,811,954 178,192
Preferred Shares
Votes
Votes for withheld
John A. Hill 3,718 0
Robert E. Patterson 3,718 0
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows:
Common Shares -- 14,713,336 votes for, and 76,257 votes against, with
200,553 abstentions.
Preferred Shares -- 3,718 votes for, and 0 votes against.
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
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
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.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
61441 582 6/00
