Putnam
Municipal
Opportunities
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-01
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
The unfolding events that marked Putnam Municipal Opportunities Trust's
journey through the first half of fiscal 2002 provided a full measure of
challenges for Fund Manager Blake Anderson and the credit team that
supports him. On the one hand, the fund was clearly among the
beneficiaries of investors' quest for safety in the midst of volatile
equity markets. On the other hand, falling tax revenues were putting
pressure on state and local governments.
The task of closely monitoring the creditworthiness of fund holdings in
the wake of the changing environment became even more difficult in the
aftermath of September 11. It has been encouraging to note, however,
that even after the tragedies, municipal bonds generally continue to
enjoy the confidence of tax-conscious investors.
In the following report, Blake discusses in detail the environment in
which the team worked during the semiannual period and reviews the
strategy they used within that framework, both before and after the
attacks. As the fund enters the fiscal year's second half, he is
confident that the portfolio is well positioned to meet the challenges
that lie ahead.
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 12, 2001
REPORT FROM FUND MANAGEMENT
Blake E. Anderson
The six months ended October 31, 2001 represented a time of challenge
and change for all capital markets. While the municipal market was not
affected to the same degree as other investment areas, it could not
escape the impact of September 11 completely. In the tragedy's
aftermath, investors flocked to high-quality, low-risk investments,
driving prices of lower quality bonds down. While this development did
have a negative effect on some of Putnam Municipal Opportunities Trust's
holdings, much of the semiannual period had been completed beforehand,
somewhat muting the event's drag on performance at net asset value. This
shift in perception is, however, reflected in the market price.
Total return for 6 months ended 10/31/01
NAV Market price
-----------------------------------------------------------------------
6.93% 2.29%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 7.
* AS ECONOMIC STRENGTH WANED, MUNIS RETAINED STRENGTH
The U.S. economy has struggled through the past six months. Despite the
much-touted potential of the "new economy," many technology companies
have fallen far short of their earnings goals and even companies in the
more traditional sectors have stumbled. The terrorist attacks only
served to exacerbate these problems, although most analysts do not
anticipate a prolonged downturn as a result of the attacks.
Amid these difficulties, performance in the municipal bond market has
held up fairly well. With the stock market continuing to experience
weakness and volatility, investors have renewed their interest in bonds.
In the aftermath of September 11, investors staged a flight to quality.
While this move initially favored Treasuries, investors soon broadened
their horizons to include municipal bonds as well. These strong cash
inflows have provided a solid underpinning for the market and once
municipal issuance declines from the seasonal highs of October and early
November, market technicals should improve further.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 21.8%
Utilities 18.2%
Transportation 16.2%
Housing 10.9%
Water and sewer 6.7%
Footnote reads:
*Based on net assets as of 10/31/01. Holdings will vary over time.
The steepening Treasury yield curve was another important factor
affecting municipal bond market performance over the period. After
beginning 2001 in a relatively flat position, the yield curve steepened
dramatically as the Federal Reserve Board lowered short-term interest
rates numerous times while interest rates on long-term bonds crept
upward. The upward movement of long-term rates was caused, in part, by
increasing uncertainty about the economy.
There were also concerns that higher government spending and Fed-induced
liquidity, and resulting lower short-term interest rates, may induce
consumers and businesses to increase their spending and lead to
inflation. In this environment, with weak but positive economic growth,
credit yield spreads narrowed, then widened, after September 11. Credit
yield spreads are the difference in yield between Treasuries and bonds
with greater credit risk.
* AIRLINE BONDS HIT HARD BY TERRORIST ATTACKS
The events of September 11 wreaked havoc on the lower-rated bond
sectors, also known as the credit sectors, as concerned investors
shunned the added risk of these securities. Initially, credit yield
spreads widened to historic levels, and airline bonds were downgraded to
junk-bond status. This has affected the transportation sector of the
municipal bond market, since many bonds within the sector are backed by
airlines. We believe the airline downgrades may be an overreaction, and
while there may be some defaults and bankruptcies among the smaller
carriers, the larger ones should continue to operate.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 43.8%
AA/Aa -- 5.4%
A -- 11.5%
BBB/Baa -- 18.5%
BB or below -- 18.4%
VMIG1 -- 2.4%
Footnote reads:
*As a percentage of market value as of 10/31/01. A bond rated BBB/Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
While the fund's airline holdings were affected by the dramatic widening
of credit spreads, its airport holdings fared better. Spreads on these
bonds have widened only modestly following the attacks. An airport is by
definition a monopoly operation; it has no real competition. For
example, if you want to fly into Boston, you must fly into Logan Airport
and Logan can charge whatever it takes to run its operation. Consequently,
bonds issued for an airport generally carry a high credit quality rating
since their income source is relatively steady. Of course, airport credit
quality is likely to fall somewhat in the wake of September 11 as security
costs rise and revenues decline from concessions, car rentals, airlines,
and the like. Thus far, however, the effect on this sector's credit quality
has been modest.
Amidst this challenging environment for lower-rated municipal credits,
there were some bright spots. Some of these sectors, most notably the
hospital sector, have already undergone their own recessions and are now
showing improvement. For hospitals, the trouble began with the Federal
Balanced Budget Act of 1997 that significantly cut reimbursement for
health-care expenses. After enduring some very difficult years, many of
today's hospitals have emerged stronger, leaner, and more efficient and
the value of their municipal bonds is beginning to reflect these
changes.
* ADJUSTING PORTFOLIO STRUCTURE TO TAKE ADVANTAGE OF THE YIELD CURVE
In the months ahead, we expect that the Treasury yield curve may become
slightly steeper, as the Fed lowers rates even further, while the
increase in risk and concerns about the potential for inflation may push
up long rates even more. For much of the period, we have maintained the
portfolio in a bulleted shape. Holdings have been focused in the
intermediate part of the yield curve, with most maturities falling into
the 5- to 15-year range.
As the yield curve continues to steepen, we will seek opportunities to
move the portfolio to a barbell shape, in which the fund would mainly
own bonds of long maturities and bonds of short maturities, with fewer
intermediate-maturity bonds in between. This strategy may be helpful if
the yield curve reverts to a more typically flatter shape. While the
portfolio will sacrifice some income, it should enjoy much greater
protection of principal in the event of a rise in short-term rates
(which is likely after they are lowered significantly). When interest
rates rise and the yield curve flattens, intermediate rates tend to rise
the most dramatically, which has the largest negative impact on
principal. After the yield curve flattens out, we will seek to move back
into a laddered portfolio of intermediate maturity bonds.
* CAREFUL RESEARCH ESPECIALLY IMPORTANT IN CURRENT MARKET
In the months ahead, we believe the fund is well positioned to achieve
its objectives of income, total return, and protection against downside
risk. Our reliance on in-depth research and careful selection of
lower-rated bonds should continue to provide solid returns over the long
term. Currently, the market is favoring the highest-quality bonds
because investors are extremely risk-averse.
We believe that fear is overblown, however, and that the environment
will favor lower-rated issues for the next several years. In the near
term, we expect the airline sector to stabilize, aided by additional
government support. In the health-care area, we have become more
selective because the sector's strong performance has driven up bond
prices and there are not as many issues that meet our stringent
criteria.
Putnam's research team is crucial to our ability to evaluate and
purchase appropriate lower-rated bonds for the portfolio. When
considering unrated issues, we can only buy bonds that Putnam's analysts
rate BB- or above, so we are always purchasing the high end of the
sub-investment grade sector. Below-investment-grade investments provide
durable income and considerable room for asset growth; but selecting the
right bonds requires a great deal of time and expertise, along with the
patience to see them achieve their full potential.
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 10/31/01, there is no guarantee the fund
will continue to hold these securities in the future.
NEWS FROM THE TRUSTEES
In July 2001, we welcomed Charles B. Curtis to Putnam's Board of Trustees.
He brings an impressive list of credentials that include several key
positions in Washington and directorships in education and energy-related
industries. We look forward to the contributions Charles will make to the
continued success of the Putnam funds.
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 10/31/01
Lehman
Market Municipal Consumer
(common shares) NAV price Bond Index price index
-------------------------------------------------------------------------------
6 months 6.93% 2.29% 5.86% 0.45%
-------------------------------------------------------------------------------
1 year 11.70 12.20 10.52 2.13
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5 years 36.67 35.44 38.06 12.19
Annual average 6.45 6.25 6.66 2.33
-------------------------------------------------------------------------------
Life of fund
(since 5/28/93) 71.28 60.66 68.85 23.16
Annual average 6.59 5.79 6.42 2.51
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TOTAL RETURN FOR PERIODS ENDED 9/30/01 (most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------------------
6 months 4.13% 3.19%
-------------------------------------------------------------------------------
1 year 11.60 12.24
-------------------------------------------------------------------------------
5 years 36.59 36.72
Annual average 6.43 6.45
-------------------------------------------------------------------------------
Life of fund
(since 5/28/93) 68.94 59.78
Annual average 6.49 5.78
-------------------------------------------------------------------------------
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 6 MONTHS ENDED 10/31/01
-------------------------------------------------------------------------------
Distributions (common shares)
-------------------------------------------------------------------------------
Number 6
-------------------------------------------------------------------------------
Income 1 $0.453
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Capital gains 1 --
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Total $0.453
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Preferred shares Series A Series B Series C
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Number of shares (800) (1,620) (1,620)
-------------------------------------------------------------------------------
Income 1 $769.81 $327.69 $330.81
-------------------------------------------------------------------------------
Total $769.81 $327.69 $330.81
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Share value: (common shares) NAV Market Price
-------------------------------------------------------------------------------
4/30/01 $13.00 $13.590
-------------------------------------------------------------------------------
10/31/01 13.45 13.450
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Current
dividend
rate 2 6.74% 6.74%
-------------------------------------------------------------------------------
Taxable
equivalent 3 11.07 11.07
-------------------------------------------------------------------------------
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 POP at end of period.
3 Assumes maximum 39.1% 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 Municipal Bond Index is an unmanaged list of long-term fixed-rate
investment-grade tax-exempt bonds representative of the municipal bond
market.
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, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
October 31, 2001 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.3%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Alabama (4.9%)
-------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Wast Disp. James River Corp.),
8s, 9/1/28 BBB- $ 5,343,750
Jefferson Cnty., Swr. Rev. Bonds
7,000,000 Ser. D, FGIC, 5 3/4s, 2/1/27 Aaa 7,411,250
4,000,000 (Cap. Impt. Wtr.), Ser. A, FGIC, 5s, 2/1/41 Aaa 3,920,000
-------------
16,675,000
Alaska (1.5%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Valdez Marine Term Rev. Bonds
(BP Pipeline, Inc.), Ser. B,
5 1/2s, 10/1/28 Aa1 5,062,500
Arizona (1.3%)
-------------------------------------------------------------------------------------------------------------------
950,000 Casa Grande Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.), Ser. A,
7 5/8s, 12/1/29 BB-/P 990,375
495,000 Cochise Cnty., Indl. Dev. Auth. Rev.
Bonds (Sierra Vista Cmnty. Hosp.),
Ser. A, 6 3/4s, 12/1/26 BB+/P 486,956
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Villiage), 7 7/8s, 6/1/09 BB-/P 3,003,000
-------------
4,480,331
Arkansas (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Northwest Regl. Arpt. Auth. Rev.
Bonds, 7 5/8s, 2/1/27 BB/P 1,027,500
California (9.3%)
-------------------------------------------------------------------------------------------------------------------
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,695,313
1,500,000 Gilroy Project Rev. Bonds
(Bonfante Gardens), 8s, 11/1/25 B/P 1,505,625
3,000,000 Metropolitan Wtr. Dist. IFB
(Southern CA Waterworks),
8.63s, 8/10/18 Aa2 3,907,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB,
FGIC, 10.54s, 8/15/18 Aaa 5,402,250
5,000,000 San Bernardino Cnty., COP
(Med. Ctr. Fin.), Ser. A, MBIA,
6 1/2s, 8/1/17 (SEG) Aaa 6,125,000
San Diego Cnty., IF COP, AMBAC
3,000,000 8.32s, 9/1/07 Aaa 3,761,250
3,000,000 7.47s, 9/1/12 Aaa 3,967,500
3,000,000 Southern CA Pub. Pwr. Auth. Rev.
Bonds IFB, FGIC, 7.62s, 7/1/17 Aaa 3,476,250
1,500,000 Sunnyvale, Cmnty. Fac. Dist. Special Tax
Rev. Bonds, 7.65s, 8/1/21 BB-/P 1,539,375
-------------
31,380,063
Colorado (7.5%)
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1,000,000 CO Edl. Fac. Auth. Rev. Bonds
(Ocean Journey, Inc.), 8 3/8s, 12/1/26 BB/P 998,750
7,700,000 CO Pub. Hwy. Auth. Rev. Bonds, MBIA,
zero %, 9/1/33 Aaa 1,414,875
Denver, City & Cnty., Arpt. Rev. Bonds
6,935,000 8 3/4s, 11/15/23 A2 7,086,114
2,505,000 8 3/4s, 11/15/23, Prerefunded Aaa 2,559,609
1,585,000 7 3/4s, 11/15/21 A2 1,619,125
415,000 7 3/4s, 11/15/21, Prerefunded Aaa 423,939
10,000,000 MBIA, 5.7s, 11/15/25 Aaa 10,525,000
600,000 Northwest Parkway Pub. Hwy. Auth.
Rev. Bonds, Ser. D, 7 1/8s, 6/15/41 Ba1 614,250
-------------
25,241,662
Connecticut (1.5%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 CT State HFA Yale U. Ed. Fac. Auth.
VRDN, Ser. U, 1.8s, 7/1/33 VMIG1 5,000,000
District of Columbia (3.8%)
-------------------------------------------------------------------------------------------------------------------
12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Baa1 13,041,372
Florida (0.2%)
-------------------------------------------------------------------------------------------------------------------
600,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.8s, 11/15/31 Baa3 633,000
Georgia (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,400,000 Effingham Cnty., Indl. Dev. Auth. Rev.
Bonds (Pacific Corp.), 6 1/2s, 6/1/31 Baa3 1,454,250
Hawaii (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,990,000 HI State Hsg. Fin. & Dev. Corp. Single
Fam. Mtge. Rev. Bonds, Ser. A, FNMA
Coll., 5 3/4s, 7/1/30 AAA 2,047,213
Idaho (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,800,000 Idaho Hlth. Fac. Auth. VRDN
(St. Lukes Med. Ctr.), FSA, 2.04s,
7/1/30 VMIG1 1,800,000
Illinois (3.8%)
-------------------------------------------------------------------------------------------------------------------
3,500,000 Chicago, O'Hare Intl. Arpt. Special Fac.
Rev. Bonds (United Airlines, Inc.),
Ser. C, 6.3s, 5/1/16 B2 2,520,000
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Hsg. Rev.
Bonds, Ser. 91-A, 8 1/4s, 7/1/16 A1 10,234,700
-------------
12,754,700
Indiana (3.2%)
-------------------------------------------------------------------------------------------------------------------
4,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds
(Parkview Hlth. Syst., Inc.), MBIA,
4 3/4s, 11/15/28 Aaa 4,107,663
1,300,000 IN State Dev. Fin. Auth. Poll. Control
Rev. Bonds (Inland Steel Co. No. 12),
6.85s, 12/1/12 B+ 715,000
4,150,000 IN State Dev. Fin. Auth. Env. Impt. Rev.
Bonds (USX Corp.), 5.6s, 12/1/32 Baa1 3,932,125
2,000,000 Indianapolis, IN Arpt. Auth. Special Fac.
Rev. Bonds (Federal Express Corp.),
7.1s, 1/15/17 Baa2 2,107,500
-------------
10,862,288
Kentucky (1.3%)
-------------------------------------------------------------------------------------------------------------------
Kenton Cnty., Arpt. Board Special Fac.
Rev. Bonds (Delta Airlines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 BB+ 3,344,750
1,300,000 Ser. B, 7 1/4s, 2/1/22 BB+ 1,251,250
-------------
4,596,000
Louisiana (2.3%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/19 B-/P 2,077,500
5,500,000 Port of New Orleans, Indl. Dev. Rev.
Bonds (Continental Grain Co.),
7 1/2s, 7/1/13 BB- 5,740,625
-------------
7,818,125
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 5,032,350
Massachusetts (8.5%)
-------------------------------------------------------------------------------------------------------------------
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 3,786,075
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,620,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 AAA/P 2,986,800
1,875,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,966,406
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Res. Dev.), Ser. C, FNMA Coll.,
6.9s, 11/15/21 Aaa 3,979,401
11,280,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 11,773,500
2,997,000 MA State Indl. Fin. Agcy. Resource
Recvy. Rev. Bonds (Southeastern MA),
Ser. A, 9s, 7/1/15 BB-/P 3,104,502
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st. Mtge. Brookhaven), Ser. A,
7s, 1/1/15 BBB/P 1,031,250
-------------
28,627,934
Michigan (1.9%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Detroit, G.O. Bonds, Ser. A, FGIC,
5s, 7/1/30 Aaa 4,471,875
1,650,000 MI State Strategic Fund, Ltd. Oblig.
Rev. Bonds (Worthington
Armstrong Venture), 5 3/4s, 10/1/22 AAA/P 1,825,313
-------------
6,297,188
Minnesota (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,860,000 Minneapolis & St. Paul Metropolitan
Arpts. Comm. Rev. Bonds (North
West Air Lines, Inc.), Ser. A, 7s, 4/1/25 B+/P 1,492,650
1,275,000 Minneapolis & St. Paul Hsg. & Redev.
Auth. Hlth. Care VRDN (Children's
Hlth. Care), Ser. B, 2.05s, 8/15/25 VMIG1 1,275,000
1,250,000 Rochester Hlth. Care Fac. IFB
(Mayo Foundation), Ser. H,
9 1/2s, 11/15/15 AA 1,353,125
-------------
4,120,775
Mississippi (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Clairborne Cnty., Poll. Control Rev.
Bonds (Syst. Energy Resources, Inc.),
7.3s, 5/1/25 BBB- 1,357,911
1,000,000 Mississippi Bus. Fin. Corp. Poll. Control
Rev. Bonds (Syst. Energy Resources,
Inc.), 5.9s, 5/1/22 BBB- 988,750
-------------
2,346,661
Montana (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MT State Board Inv. Exempt Fac. Rev.
Bonds (Still Water Mining Project),
8s, 7/1/20 Ba2 2,125,000
Nevada (2.8%)
-------------------------------------------------------------------------------------------------------------------
3,505,000 Clark Cnty., G.O. Bonds (Pk & Regl.
Justice Ctr.), FGIC, 5 5/8s, 11/1/19 Aaa 3,675,869
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 2,862,228
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 3,033,750
-------------
9,571,847
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 2,483,000
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,228,125
-------------
3,711,125
New Jersey (6.9%)
-------------------------------------------------------------------------------------------------------------------
8,615,000 NJ Econ. Dev. Auth. Elec. Energy Fac.
Rev. Bonds (Vineland Cogeneration
L. P. ), 7 7/8s, 6/1/19 BB+ 8,873,450
2,090,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB-/P 2,137,025
10,000,000 Salem Cnty., Indl. Poll Ctrl. Fin. Auth.
Rev. Bonds, 8.841s, 10/1/29
(acquired 10/28/94, cost $9,750,000) (RES) Aaa 12,337,500
-------------
23,347,975
New York (0.9%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. &
Swr. Syst. Rev. Bonds, Ser. B, FSA,
5s, 6/15/29 Aaa 2,981,250
North Carolina (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev.
Bonds, Ser. B, MBIA, 6s, 1/1/22 Aaa 2,292,500
Ohio (1.5%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Cleveland, Arpt. Syst. Rev. Bonds, Ser. A,
FSA, 5s, 1/1/31 Aaa 3,955,000
1,000,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s, 4/1/22 Baa1 1,071,250
-------------
5,026,250
Oklahoma (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Hlth. Care), Ser. A,
5 5/8s, 8/15/29 B2 721,250
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 5,343,750
1,000,000 Carbon Cnty., Indl. Dev. Auth. Rev.
Bonds (Panther Creek Partners),
6.65s, 5/1/10 BBB- 1,066,250
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr.
Treatment Rev. Bonds (Sun Co., Inc.),
Ser. A, 7.6s, 12/1/24 Baa2 3,213,750
PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 3,217,500
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,055,000
5,000,000 PA State Higher Ed. Assistance Agcy.
Student Loan IFB, AMBAC, 11.14s,
9/1/26 Aaa 6,100,000
1,750,000 PA State Higher Edl. Fac. Auth. Rev.
Bonds (UPMC Hlth. Syst.), Ser. A,
6s, 1/15/31 A+ 1,833,125
3,000,000 Philadelphia Auth. For Indl. Dev. Special
Fac. Rev. Bonds (U.S. Airways, Inc.),
8 1/8s, 5/1/30 B-/P 1,350,000
-------------
23,179,375
South Carolina (2.4%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 SC Tobacco Settlement Rev. Mgt. Rev.
Bonds, Ser. B, 6 3/8s, 5/15/30 A1 3,318,750
4,500,000 Spartanburg Cnty., Solid Waste Disp.
Rev. Bonds (BMW Project), 7.55s,
11/1/24 A1 4,876,875
-------------
8,195,625
Tennessee (1.3%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Johnson City, Hlth. & Edl. Fac. Hosp.
Board Rev. Bonds (Mtn. States Hlth.),
Ser. A, 7 1/2s, 7/1/33 Baa2 4,385,000
Texas (11.9%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev.
Bonds (American Airlines, Inc.),
7 1/2s, 12/1/29 Ba2 5,328,125
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev.
Bonds (St. Luke's Lutheran Hosp.)
4,800,000 7.9s, 5/1/18 AAA/P 5,196,000
1,885,000 7.9s, 5/1/11 AAA/P 2,021,663
12,000,000 FSA, 6.1s, 11/15/23 Aaa 13,260,000
4,000,000 Dallas-Fort Worth, Regl. Apt. Joint Rev.
Bonds, Ser. A, FGIC, 6 5/8s, 11/1/21 Aaa 4,137,440
3,000,000 Lower Neches Valley Indl. Dev. Swr. Auth.
Rev. Bonds (Mobil Oil Refining Corp.),
6.4s, 3/1/30 Aaa 3,210,000
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 A2 5,120,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa2 1,950,000
-------------
40,223,228
Utah (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosp. Inc.),
11.249s, 5/15/20 (acquired 6/6/97,
cost $1,168,906) (RES) Aaa 1,041,390
Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Pocahontas Pk. Way Assn. Toll Rd. Rd.
Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 Baa3 1,782,500
Washington (2.7%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty., Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s, 12/1/31 A1 4,195,000
2,250,000 King Cnty., G.O. Bonds, Ser. C,
6 1/4s, 1/1/32 Aa1 2,444,063
2,850,000 Port of Seattle, Special Fac. Rev. Bonds
(Northwest Airlines Project),
7 1/4s, 4/1/30 B+/P 2,329,875
-------------
8,968,938
West Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds
(Cmnty. Hosp. Assn., Inc.), 6.1s, 5/1/29 BB+ 1,622,500
Wyoming (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty., Solid Waste Disp.
Rev. Bonds (FMC Corp.), Ser. A,
7s, 6/1/24 Baa2 3,031,031
-------------------------------------------------------------------------------------------------------------------
Total Investments
(cost $325,341,836) (b) $ 332,505,696
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $338,356,036.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 2001 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, 2001. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $325,940,316,
resulting in gross unrealized appreciation and depreciation of
$16,125,211 and $9,559,831, respectively, or net unrealized appreciation
of $6,565,380.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2001 was
$17,164,965 or 5.1% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at October
31, 2001.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, and VRDN's are the current interest rates at October 31, 2001.
The fund had the following industry group concentrations greater
than 10% at October 31, 2001 (as a percentage of net assets):
Health care 21.8%
Utilities 18.2
Transportation 16.2
Housing 10.9
The fund had the following insurance concentrations greater than
10% at October 31, 2001 (as a percentage of net assets):
MBIA 10.7%
------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 2001 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
------------------------------------------------------------------------------
Muni Bond Index
(Long) $5,965,781 $5,835,711 Dec-01 $130,070
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2001 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $325,341,836) (Note 1) $332,505,696
-------------------------------------------------------------------------------------------
Cash 603,252
-------------------------------------------------------------------------------------------
Interest receivable 7,110,216
-------------------------------------------------------------------------------------------
Receivable for securities sold 5,002
-------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 44,687
-------------------------------------------------------------------------------------------
Total assets 340,268,853
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,860
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 613,108
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 54,997
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19,206
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 736
-------------------------------------------------------------------------------------------
Other accrued expenses 54,764
-------------------------------------------------------------------------------------------
Total liabilities 1,962,671
-------------------------------------------------------------------------------------------
Net assets $338,306,182
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) (565,755)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (14,623,180)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,293,930
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $338,306,182
Computation of net asset value
-------------------------------------------------------------------------------------------
Series A, B and C remarketed preferred shares $121,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 41,203
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares --
liquidation preference $121,041,203
-------------------------------------------------------------------------------------------
Net assets available to common shares $217,264,979
-------------------------------------------------------------------------------------------
Net asset value per common share
($217,264,979 divided by 16,157,092 shares) $13.45
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended October 31, 2001 (Unaudited)
Tax exempt interest income: $10,986,271
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,207,565
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 114,270
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,981
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,182
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 144,528
-------------------------------------------------------------------------------------------
Other 92,388
-------------------------------------------------------------------------------------------
Total expenses 1,569,914
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (24,085)
-------------------------------------------------------------------------------------------
Net expenses 1,545,829
-------------------------------------------------------------------------------------------
Net investment income 9,440,442
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,916,902)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 466,048
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 8,113,241
-------------------------------------------------------------------------------------------
Net gain on investments 6,662,387
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $16,102,829
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
October 31 April 30
2001* 2001
--------------------------------------------------------------------------------------------------
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 9,440,442 $ 18,596,542
--------------------------------------------------------------------------------------------------
Net realized loss on investments (1,450,854) (1,549,476)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,113,241 10,664,279
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 16,102,829 27,711,345
Distributions to remarketed preferred
shareholders: (Note 1)
--------------------------------------------------------------------------------------------------
From net investment income (1,682,616) (5,071,524)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on remarketed preferred shares of
$41,203 and $108,257, respectively) 14,420,213 22,639,821
--------------------------------------------------------------------------------------------------
Distributions to common shareholders: (Note 1)
--------------------------------------------------------------------------------------------------
From net investment income (7,319,163) (14,642,620)
--------------------------------------------------------------------------------------------------
Total increase in net assets 7,101,050 7,997,201
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 331,205,132 323,207,931
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $515,901 and $1,004,418,
respectively) $338,306,182 $331,205,132
--------------------------------------------------------------------------------------------------
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.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share October 31
operating performance (Unaudited) Year ended April 30
-------------------------------------------------------------------------------------------------------------------
2001 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period (common shares) $13.00 $12.51 $14.11 $14.05 $13.61 $13.50
-------------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------------
Net investment income (a) .58 1.15 1.18 1.19 1.16 .99
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .42 .56 (1.59) .03 .51 .20
-------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 1.71 (.41) 1.22 1.67 1.19
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net investment income:
-------------------------------------------------------------------------------------------------------------------
To preferred shareholders (.10) (.31) (.28) (.25) (.23)(e) (.09)
-------------------------------------------------------------------------------------------------------------------
To common shareholders (.45) (.91) (.91) (.91) (.93) (.96)
-------------------------------------------------------------------------------------------------------------------
In excess if net investment income:
-------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.03)
-------------------------------------------------------------------------------------------------------------------
Total distributions: (.55) (1.22) (1.19) (1.16) (1.16) (1.08)
-------------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- -- -- (.07) --
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $13.45 $13.00 $12.51 $14.11 $14.05 $13.61
-------------------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $13.450 $13.590 $11.625 $14.750 $13.812 $13.875
-------------------------------------------------------------------------------------------------------------------
Total return, at market value
(common shares)(%)(b) 2.29* 25.32 (15.25) 13.57 6.13 9.24
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund)(in thousands) $338,356 $331,205 $323,208 $349,126 $348,038 $260,008
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .73* 1.44 1.46 1.42 1.30 1.08
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) 3.65* 6.50 6.93 6.58 6.64 6.60
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.72* 14.59 13.84 10.18 26.37 20.52
-------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Ratios reflect net assets available to common shares only: net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(e) Series B and C preferred shares were issued on July 7, 1997.
NOTES TO FINANCIAL STATEMENTS
October 31, 2001 (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, LLC
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, LLC, 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 accounting principles generally accepted in the United States of
America 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. All premiums/discounts
are amortized/accreted 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.
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. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin". 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, 2001, the fund had a capital loss carryover of
approximately $11,045,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$2,046,000 April 30, 2003
4,581,000 April 30, 2004
126,000 April 30, 2007
2,789,000 April 30, 2008
1,503,000 April 30, 2009
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 October 31, 2001 was Series A 1.85%, Series B 1.90% and Series
C 1.90%. 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.
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, LLC.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended October 31,
2001, the fund's expenses were reduced by $24,085 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $588 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
Purchase and sales of securities
During the six months ended October 31, 2001, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $21,963,363 and $28,428,740, respectively. There
were no purchases or 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, 2001, no such
restrictions have been placed on the fund.
Note 5
New accounting pronouncement
As required, effective January 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies. This Guide requires that the fund amortize premium and
accrete discount on all fixed-income securities, and classify as
interest income gains and losses realized on paydowns on mortgage-backed
securities. Prior to January 1, 2001, the fund did not amortize premium
and accrete discounts for certain fixed income securities and
characterized as realized gains and losses paydowns on mortgage backed
securities. Adopting these accounting principles will not affect the
fund's net asset value, but will change the classification of certain
amounts between interest income and realized and unrealized gain/loss in
the Statement of operations. The adoption of this principle is not
material to the financial statements.
RESULTS OF OCTOBER 11, 2001 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 11,
2001. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares Preferred Shares
Votes Votes
Votes for withheld Votes for withheld
Jameson Adkins Baxter 14,702,337 197,235 3,565 425
Charles B. Curtis 14,685,622 213,950 3,565 425
Ronald J. Jackson 14,696,827 202,745 3,565 425
Paul L. Joskow 14,702,951 196,621 3,565 425
Elizabeth T. Kennan 14,685,378 214,194 3,565 425
Lawrence J. Lasser 14,701,146 198,426 3,565 425
John H. Mullin III 14,701,110 198,462 3,565 425
George Putnam, III 14,702,654 196,918 3,565 425
A.J.C. Smith 14,693,291 206,281 3,565 425
W. Thomas Stephens 14,701,867 197,705 3,565 425
W. Nicholas Thorndike 14,692,457 207,115 3,565 425
John A. Hill -- -- 3,565 425
Robert E. Patterson -- -- 3,565 425
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
Charles B. Curtis
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 and Treasurer
Patricia C. Flaherty
Senior Vice President
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. The fund's Statement of Additional Information contains
additional information about the fund's Trustees and is available without
charge upon request by calling 1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
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