Putnam
Municipal
Opportunities
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
We are pleased to report that Putnam Municipal Opportunities Trust was
generally able to hold its ground during the challenging economic and
market environment that prevailed throughout the fiscal year ended April
30, 2002. On the following pages, the report from your fund's management
team will provide a full discussion of what has been driving the fund's
performance as well as a view of prospects for fiscal 2003.
As economic fundamentals continue to improve, tax revenues should rise
and bring an improved outlook for municipal bonds. However, this
improvement is likely to be gradual, so we counsel patience as you view
your fund's progress in the months ahead.
You may notice as you read this report that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The names of the individuals who comprise the management
team are shown at the end of Management's discussion of performance.
We know that Putnam Investments values its relationship with you and its
other shareholders and appreciates your loyalty during these times of
restructuring of staff and products in the pursuit of superior
investment performance in the future.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 19, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the Putnam Tax Exempt Fixed-Income Team
In Putnam Municipal Opportunities Trust, you own a closed-end fund that
invests in bonds across several levels of credit quality to generate an
attractive level of income. The combination of higher- and lower-quality
bonds was right for the times during the fund's 2002 fiscal year, which
ended on April 30, 2002. Early in the year, the fund's lower-quality
bonds did well, but this trend reversed abruptly on September 11. The
terrorist events of that day prompted investors to flee to high-quality
bonds. As in other financial markets, however, these concerns eased in
subsequent months, and by the end of the fiscal year, lower-quality
credits were again showing improved performance. By having exposure to
both high- and low-quality credits, the fund achieved a gain at NAV and
mirrored the performance of its benchmark, the Lehman Brothers Municipal
Bond Index, though it underperformed the average for the Lipper General
Municipal Debt fund category. The market price performance was mildly
negative over the year, and we believe this reflects the negative market
perception regarding lower-rated bonds for much of the period.
Total return for 12 months ended 4/30/02
NAV Market price
-----------------------------------------------------------------------
7.01% -1.57%
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Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 7.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 18.7%
Health care 17.6%
Transportation 11.2%
Housing 11.0%
Metals 3.0%
Footnote reads:
*Based on market value as of 4/30/02. Holdings will vary over time.
* CREDIT DIVERSIFICATION BENEFICIAL AS MARKET CHANGED DIRECTION
Your fund typically owns a generous helping of bonds with the highest
credit rating, AAA, and counterbalances these with a large exposure to
the two lowest investment-grade tiers, A and BBB. In addition, the fund
usually owns some bonds rated below investment grade. During the past
year, this below-investment-grade portion of the fund averaged about
one-fifth of assets. Bonds with lower credit ratings generally offer
higher yields. We also seek to boost yield by using our research
capabilities to identify bonds with discounted prices caused by risks or
simply uncertainty. Since yields rise as bond prices fall, discounted
bonds can offer attractive income potential. Putnam has one of the
largest and most experienced tax-exempt research groups in the industry.
When there are questions surrounding a bond issue, we assign our credit
analysts to investigate. By identifying and buying bonds that we believe
are being discounted inappropriately, we believe we can add yield
without taking excessive risks.
Fund Profile
The fund seeks to provide high current income free from federal income
tax, consistent with the preservation of capital, by investing in
investment-grade and some below-investment-grade municipal bonds. The
fund is appropriate for investors who are seeking tax-exempt income and
are willing to accept a moderate degree of credit risk.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
AAA/Aaa -- 43.5%
AA/Aa -- 6.9%
A -- 11.7%
BBB/Baa -- 20.6%
BB/Ba -- 12.2%
B -- 3.5%
Other -- 1.6%
Footnote reads:
*As a percentage of market value as of 4/30/02. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's and Standard &
Poor's descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Lower-rated bonds were in favor when the fiscal period began, and the
bond market's yield curve was in the midst of steepening. During 2001,
the U.S. Federal Reserve Board was engaged in lowering short-term
interest rates to head off a recession. With short-term rates falling,
investors had to turn to lower-quality bonds in order to find attractive
yields. This environment did not last, however, because the terrorist
attacks of September 11 sent investors scrambling to high-quality bonds,
as they feared both a significant recession and heightened political
uncertainties. As these concerns eased in later months of the fiscal
year, lower-quality bonds again performed well.
As the market changed direction, we chose not to alter the portfolio
significantly, since it was already diversified. We stayed committed to
our typical sector overweightings in health care, utilities, and
transportation. In the wake of September 11, we put our research
capabilities into high gear. We evaluated the outlook for the travel
industry in light of the new realities, then applied this outlook to
assess the prospects for airline and airport-facility bonds. While we
made small adjustments to individual positions, we did not do any broad
selling or buying. We believe our discipline was rewarded when, in the
first three months of 2002, airline-related bonds again performed well.
* FUND FAVORED SECTORS WITH GREATER YIELD POTENTIAL
We favor bonds in sectors that feature strong yields, especially those
closely tied to the overall economy, such as utilities and
transportation. Many of these bonds are issued as part of regional
economic development initiatives that bring together public agencies
with private-sector companies. In the transportation sector, for
example, there are many bonds issued by municipalities in association
with airlines to finance expansion of airport facilities. These
holdings, in particular, felt the effects of September 11, as growth
expectations for travel and tourism were sharply reduced.
The fund also typically owns a large number of health-care bonds, an area
of the market that is growing as the American population ages and requires
more health-care services. The bonds offer attractive yields because the
constant political struggles over how to pay for health-care services
create risk for which investors must be compensated. Health-care bonds
contributed to the fund's performance primarily in the first half of the
fiscal year. The sector was recovering from a couple of years of weak
results, and became more popular with investors concerned about recession
because health-care spending is less sensitive to short-term economic
conditions.
For similar reasons, tax-exempt utilities bonds were in general demand
this past year. Like health care, the spending on power is relatively
steady even during a downturn. Utilities bonds performed better during
the first half of the year than during the second, when the economy
began to recover. The fund's utilities exposure is diversified across
many states and industries, and includes a number of pollution control
facilities insulated from the issues that affected power distributors
during the past year.
* INFLATION DORMANT BUT STATE BUDGETS UNDER PRESSURE
Economic conditions remained supportive for fixed-income securities
during the fund's fiscal year as disinflation remained the dominant
trend. It was only in the final months of the fund's fiscal year that
the economy grew above its long-term average growth potential. This
prompted some inflation concerns and temporary jumps in bond yields.
However, long-term interest rates at the close of the year were not far
off from where they had started the year.
A special factor affecting the municipal-bond market was the strain on
state budgets caused by the weak economy. Tax revenues were below
expectations, prompting many states to impose new financial restraints
in order to maintain balanced budgets. This put some upward pressure on
municipal-bond yields, but not the sort of problems that accompanied the
previous recession of 1991. At the federal level, there was no major
expansion in health-care funding, as some had anticipated before
September 11. However, the biggest health-care funding restraints were
put in place in 1996, and hospitals and nursing homes have figured out
ways to operate more frugally.
* CONDITIONS GENERALLY FAVORABLE AS EXPANSION BEGINS
While the volatility of equity prices in recent months has conveyed
widespread uncertainty, we believe the outlook for the economy and the
municipal-bond market raises fewer questions than in recent months. As
this report was being written, the economic recovery appeared solid,
though gross domestic product might grow more slowly than the 5.6%
revised annualized growth rate achieved in the first quarter. Lagging
tax revenues continue to heighten the importance of research in
identifying municipal bonds with solid backing. Given a continuing
economic expansion, we consider both short- and long-term interest rates
poised to move higher, but believe the yield curve is unlikely to
flatten. In these conditions, we will continue to focus on adding value
through credit research and sector positioning while limiting the fund's
interest-rate sensitivity. We believe bonds with lower credit ratings
have tremendous potential right now. It is unlikely that yield spreads
will widen further, especially given the improvements in the economy.
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 4/30/02, there is no guarantee the fund will
continue to hold these securities in the future.
This fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of this team are Jerome Jacobs, Blake Anderson, Joyce Dragone,
David Hamlin, Susan McCormack, and Richard Wyke.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 4/30/02
Lehman
Market Municipal Consumer
(common shares) NAV price Bond Index price index
-------------------------------------------------------------------------------
1 year 7.01% -1.57% 7.00% 1.53%
-------------------------------------------------------------------------------
5 years 33.49 25.91 36.79 12.12
Annual average 5.95 4.72 6.47 2.31
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Life of fund
(since 5/28/93) 71.40 54.59 70.67 24.48
Annual average 6.23 5.00 6.18 2.49
-------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 4/30/02
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Distributions (common shares)
-------------------------------------------------------------------------------
Number 12
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Income 1 $0.906
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Capital gains 1 --
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Total $0.906
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Preferred shares Series A Series B Series C
(800 shares) (1,620 shares) (1,620 shares)
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Income 1 $1,032.38 $516.12 $513.96
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Total $1,032.38 $516.12 $513.96
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Share value (distributions to common shares): NAV Market price
-------------------------------------------------------------------------------
4/30/01 $13.00 $13.590
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4/30/02 13.00 12.500
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Current return (common shares end of period)
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Current
dividend
rate 2 6.97% 7.25%
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Taxable
equivalent 3 11.35 11.81
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
3 Assumes maximum 38.6% federal tax rate for 2002. Results for investors
subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 3/31/02 (most recent calendar quarter)
NAV Market price
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1 year 3.48% -0.59%
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5 years 31.78 23.82
Annual average 5.67 4.37
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Life of fund
(since 5/28/93) 67.90 53.92
Annual average 6.04 5.00
-------------------------------------------------------------------------------
Past performance does not indicate 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.
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. Indexes assume reinvestment of all distributions and do not
account for fees. Securities and performance of a fund and an index
will differ. You cannot invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
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 year.
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
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, 2002, 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 of America. 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 of America, 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, 2002 by correspondence with the custodian, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 10, 2002
THE FUND'S PORTFOLIO
April 30, 2002
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
PSFG -- Permanent School Fund Guaranteed
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (100.0%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
Alabama (4.3%)
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$ 5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Wast Disp.
James River Corp.), 8s, 9/1/28 BBB- $ 5,243,750
Jefferson Cnty., Swr. Rev. Bonds
7,000,000 Ser. D, FGIC, 5 3/4s, 2/1/27 Aaa 7,236,250
1,500,000 (Cap. Impt.), Ser. A, FGIC, 5s, 2/1/41 Aaa 1,411,875
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13,891,875
Alaska (1.6%)
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5,000,000 Valdez Marine Term Rev. Bonds (BP Pipeline, Inc.),
Ser. B, 5 1/2s, 10/1/28 Aa1 4,981,250
Arizona (3.5%)
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950,000 Casa Grande Indl. Dev. Auth. Rev. Bonds
(Casa Grande, Regl. Med. Ctr.), Ser. A,
7 5/8s, 12/1/29 B/P 983,250
495,000 Cochise Cnty., Ind. Dev. Auth. Rev. Bonds
(Sierra Vista Cmnty. Hosp.), Ser. A, 6 3/4s, 12/1/26 BB+/P 482,625
Mesa, Util. Syst. Rev. Bonds, FGIC
4,000,000 5 1/4s, 7/1/16 Aaa 4,235,000
1,530,000 5 1/4s, 7/1/15 Aaa 1,631,363
1,000,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Co.-Irvington), 1.6s, 10/1/22 VMIG1 1,000,000
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Villiage), 7 7/8s, 6/1/09 BB-/P 2,995,850
-------------
11,328,088
Arkansas (0.3%)
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1,000,000 Northwest Regl. Arpt. Auth. Rev. Bonds, 7 5/8s, 2/1/27 BB/P 1,020,000
California (9.3%)
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1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 1,594,688
1,500,000 Gilroy, Project Rev. Bonds (Bonfante Gardens Pk.),
8s, 11/1/25 B/P 1,441,875
3,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterworks), 9.70s, 8/10/18 Aa2 3,693,750
5,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
10.95s, 8/15/18 Aaa 5,271,750
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 (SEG) Aaa 5,968,750
San Diego Cnty., IF COP, AMBAC
3,000,000 9.47s, 9/1/12 Aaa 3,802,500
3,000,000 9.22s, 9/1/07 Aaa 3,641,250
3,000,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 9.03s, 7/1/17 Aaa 3,333,750
1,500,000 Sunnyvale, Cmnty. Fac. Dist. Special Tax Rev. Bonds,
7.65s, 8/1/21 BB-/P 1,516,875
-------------
30,265,188
Colorado (3.9%)
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7,700,000 CO Pub. Hwy. Auth. Rev. Bonds, MBIA, zero %, 9/1/33 Aaa 1,299,375
1,000,000 CO State Edl. Fac. Auth. Rev. Bonds (Ocean
Journey, Inc.), 8 3/8s, 12/1/26 (In default) (NON) D/P 550,000
10,000,000 Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A,
5.7s, 11/15/25 Aaa 10,187,500
600,000 Northwest Parkway Pub. Hwy. Auth. Rev. Bonds,
Ser. D, 7 1/8s, 6/15/41 BBB-/P 614,250
-------------
12,651,125
District of Columbia (4.0%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 Baa1 12,823,500
Florida (0.2%)
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600,000 Miami Beach, Hlth. Fac. Auth. Hosp. Rev. Bonds
(Mount Sinai Med. Ctr.), Ser. A, 6.8s, 11/15/31 BB 503,250
Georgia (0.4%)
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1,400,000 Effingham Cnty., Indl. Dev. Auth. Rev. Bonds
(Pacific Corp.), 6 1/2s, 6/1/31 Baa3 1,363,250
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 2,012,388
Illinois (5.4%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago Pub. Bldg. Comm. Rev. Bonds (School
Reform Project), FGIC, 5 1/4s, 12/1/15 Aaa 5,381,250
3,500,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Airlines, Inc.), Ser. C, 6.3s, 5/1/16 B-/P 1,929,375
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Hsg. Rev. Bonds,
Ser. 91-A, 8 1/4s, 7/1/16 A1 10,132,900
-------------
17,443,525
Indiana (3.0%)
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4,405,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 3,958,994
4,150,000 IN State Dev. Fin. Auth. Env. Impt. Rev. Bonds
(USX Corp.), 5.6s, 12/1/32 Baa1 3,792,063
2,000,000 Indianapolis, Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp.), 7.1s, 1/15/17 Baa2 2,107,500
-------------
9,858,557
Kentucky (1.5%)
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Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Airlines, Inc.)
3,400,000 Ser. A, 7 1/2s, 2/1/20 BB+ 3,408,500
1,300,000 Ser. B, 7 1/4s, 2/1/22 BB+ 1,301,625
-------------
4,710,125
Louisiana (3.1%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 LA Local Govt. Env. Fac. Cmnty. Dev. Auth. Rev.
Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 2,067,500
2,500,000 LA Pub. Fac. Auth. Rev. Bonds (Tulane U.), Ser. A,
AMBAC, 5s, 7/1/32 Aaa 2,415,625
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB- 5,699,375
-------------
10,182,500
Maine (0.9%)
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3,000,000 Rumford Solid Waste Disp. Rev. Bonds (Boise
Cascade Corp.), 6 7/8s, 10/1/26 Baa3 3,067,500
Maryland (1.5%)
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4,770,000 MD Cmnty. Dev. Admin. Multi-Fam. Hsg., Ser. E,
GNMA Coll., FHA Insd., 6.85s, 5/15/25 Aa3 4,972,725
Massachusetts (8.4%)
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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 3,688,313
1,875,000 MA State Hlth. & Edl. Fac. Auth. Hlth. & Edl. Fac.
Auth. Rev. Bonds (UMass Memorial), Ser. C,
6 1/2s, 7/1/21 Baa2 1,853,906
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 2,944,225
1,300,000 Ser. E, 6 1/4s, 10/1/31 BBB+ 1,291,875
1,800,000 (Hlth. Care Syst. Covenant Hlth.), Ser. E, 6s, 7/1/31 A- 1,743,750
MA State Hsg. Fin. Agcy. Rev. Bonds
3,855,000 (Res. Dev.), Ser. C, FNMA Coll., 6.9s, 11/15/21 Aaa 3,934,567
10,595,000 Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 10,846,631
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (1st. Mtge.
Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,026,250
-------------
27,329,517
Michigan (1.9%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Detroit, G.O. Bonds, Ser. A, FGIC, 5s, 7/1/30 Aaa 4,308,750
1,650,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Worthington Armstrong Venture), 5 3/4s, 10/1/22 AAA/P 1,792,313
-------------
6,101,063
Minnesota (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,860,000 Minneapolis & St. Paul Metropolitan Arpt. Comm.
Special Fac. Rev. Bonds (North West Airlines, Inc.),
Ser. A, 7s, 4/1/25 B+/P 1,680,975
1,250,000 Rochester Hlth. Care Fac. IFB (Mayo Foundation),
Ser. H, 10.25s, 11/15/15 AA 1,324,975
-------------
3,005,950
Mississippi (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Clairborne Cnty. Poll. Control Rev. Bonds (Syst. Energy
Resources, Inc.), 7.3s, 5/1/25 BBB- 1,357,493
1,000,000 Mississippi Bus. Fin. Corp. Poll. Control Rev. Bonds
(Syst. Energy Resources, Inc.), 5.9s, 5/1/22 BBB- 963,750
1,580,000 Mississippi Bus. Fin. Corp. Rev. Bonds (Syst. Energy
Resources, Inc.), 5 7/8s, 4/1/22 BBB- 1,518,775
-------------
3,840,018
Montana (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 MT State Board Inv. Exempt Fac. Rev. Bonds
(Still Water Mining Project), 8s, 7/1/20 Ba2 2,002,500
Nevada (2.9%)
-------------------------------------------------------------------------------------------------------------------
3,505,000 Clark Cnty., G.O. Bonds (Pk. & Regl. Justice Ctr.),
FGIC, 5 5/8s, 11/1/19 Aaa 3,640,819
Clark Cnty., Indl. Dev. Rev. Bonds (Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa2 2,825,240
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa2 2,977,500
-------------
9,443,559
New Hampshire (1.2%)
-------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,600,000 (Riverwoods at Exeter), Ser. A, 6 1/2s, 3/1/23 Aa2 2,470,000
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,226,563
-------------
3,696,563
New Jersey (7.0%)
-------------------------------------------------------------------------------------------------------------------
8,415,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L. P.), 7 7/8s, 6/1/19 BB+ 8,593,903
2,090,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (Raritan Bay
Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,126,575
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 12,025,000
-------------
22,745,478
New York (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Buffalo, G.O. Bonds, Ser. D, FGIC, 5 1/2s, 12/15/13 Aaa 1,092,500
1,000,000 NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds, VRDN,
Ser. G, 1.65s, 6/15/24 VMIG1 1,000,000
2,500,000 Triborough Bridge & Tunnel Auth. Rev. Bonds,
Ser. A, 5s, 1/1/32 Aa3 2,371,875
-------------
4,464,375
North Carolina (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Syst. Rev. Bonds, Ser. B,
MBIA, 6s, 1/1/22 Aaa 2,250,000
Ohio (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,270,000 Erie Cnty., Hosp. Fac. Rev. Bonds (Firelands Regl.
Med. Ctr.), 5 5/8s, 8/15/32 A2 1,243,013
1,000,000 Montgomery Cnty., Hosp. Rev. Bonds (Kettering
Med. Ctr.), 6 3/4s, 4/1/22 Baa1 1,042,500
2,165,000 Rickenbacker Port Auth. Rev. Bonds (OASBO
Expanded Asset Pooled), Ser. A, 5 3/8s, 1/1/32 A2 2,102,756
-------------
4,388,269
Oklahoma (0.7%)
-------------------------------------------------------------------------------------------------------------------
OK Dev. Fin. Auth. Rev. Bonds
1,500,000 (Continuing Care Retirement), Ser. A, 8s, 2/1/32 B/P 1,453,125
1,000,000 (Hillcrest Hlth. Care), Ser. A, 5 5/8s, 8/15/29 B2 747,500
-------------
2,200,625
Pennsylvania (5.9%)
-------------------------------------------------------------------------------------------------------------------
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst. ), AMBAC,
5 5/8s, 8/15/26 Aaa 5,318,750
1,000,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds (Panther
Creek Partners), 6.65s, 5/1/10 BBB- 1,068,750
1,000,000 Delaware Cnty., Hosp. Auth. G.O. Bonds
(Crozer-Chester Med. Ctr.), 6 1/4s, 12/15/31 Baa2 976,250
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr. Treatment Rev.
Bonds (Sun Co., Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,168,750
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
3,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BBB-/P 3,187,500
1,000,000 Ser. D, 7.15s, 12/1/18 BBB- 1,046,250
1,750,000 PA State Higher Edl. Fac. Auth. Rev. Bonds
(UPMC Hlth. Syst.), Ser. A, 6s, 1/15/31 A+ 1,754,375
3,000,000 Philadelphia, Auth. Indl. Dev. Special Fac. Rev. Bonds
(U.S. Airways Inc.), 8 1/8s, 5/1/30 CCC/P 1,230,000
1,450,000 Sayre Hlth. Care Fac. Auth. Rev. Bonds (Guthrie Hlth.),
Ser. A, 5 7/8s, 12/1/31 A- 1,442,750
-------------
19,193,375
South Carolina (2.4%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 SC Tobacco Settlement Rev. Mgt. Rev. Bonds, Ser. B,
6 3/8s, 5/15/30 A1 3,030,000
4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds
(BMW Project), 7.55s, 11/1/24 A1 4,831,875
-------------
7,861,875
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 4,300,000
Texas (13.0%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 BB 5,121,875
Bexar Cnty. Hlth. Fac. Dev. Corp. Rev. Bonds
4,800,000 (St. Luke's Lutheran Hosp.), 7.9s, 5/1/18 AAA/P 5,079,408
1,760,000 (St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 1,848,669
12,000,000 Bexar Cnty. Hlth. Facs. Rev. Bonds (St. Luke's Hlth. Syst.),
FSA, 6.1s, 11/15/23 Aaa 13,095,000
2,000,000 Hays Cons. Indpt. School Dist. G.O. Bonds, PSFG,
5 1/2s, 8/15/10 Aaa 2,197,500
3,000,000 Houston Wtr. & Swr. Rev. Bonds (Jr. Lien), FSA,
5s, 12/1/30 Aaa 2,842,500
3,000,000 Lower Neches Valley Indl. Dev. Swr. Auth. Rev.
Bonds (Mobil Oil Refining Corp.), 6.4s, 3/1/30 Aaa 3,157,500
2,000,000 San Antonio Wtr. Rev. Bonds, Ser. A, FSA, 5s, 5/15/32 Aaa 1,892,500
5,000,000 Titus Cnty. Fresh Wtr. Supply Dist. No. 1 Poll. Rev.
Bonds (Southwestern Elec.Pwr. Co.), Ser. A,
8.2s, 8/1/11 A2 5,121,000
2,000,000 Tomball, Hosp. Auth. Rev. Bonds (Tomball Regl. Hosp.),
6s, 7/1/29 Baa2 1,850,000
-------------
42,205,952
Utah (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosp. Inc.),
AMBAC, 11.70s, 5/15/20 (acquired 6/6/97,
cost $1,168,906) (RES) Aaa 1,041,510
Virginia (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Pocahontas Parkway Assn. Toll Rd. Rd. Rev. Bonds,
Ser. A, 5 1/2s, 8/15/28 Baa3 1,377,500
Washington (2.8%)
-------------------------------------------------------------------------------------------------------------------
4,000,000 Chelan Cnty. Dev. Corp. Rev. Bonds (Poll. Control-Alcoa),
5.85s, 12/1/31 A1 4,075,000
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 2,636,250
-------------
9,155,313
West Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds (Cmnty. Hosp. Assn., Inc.),
6.1s, 5/1/29 BB+ 1,587,500
Wisconsin (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,400,000 WI State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Wheaton Franciscan), 5 3/4s, 8/15/30 A2 2,370,000
Wyoming (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,925,000 Sweetwater Cnty. Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa2 2,939,620
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $323,579,836) (b) $ 324,575,408
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on market value of $324,575,408.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2002 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, 2002. Securities rated by Putnam are indicated
by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
(NON) Non-income-producing security.
(b) The aggregate identified cost on a tax basis is $324,178,316,
resulting in gross unrealized appreciation and depreciation of
$11,272,595 and $10,875,503, respectively, or net unrealized
appreciation of $397,092.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2002 was
$16,754,823 or 5.2% of market value.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2002.
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 April 30, 2002.
The fund had the following industry group concentrations greater
than 10% at April 30, 2002 (as a percentage of market value):
Utilities 18.7%
Health care 17.6
Transportation 11.2
Housing 11.0
The fund had the following insurance concentrations greater than
10% at April 30, 2002 (as a percentage of market value):
FGIC 17.9%
MBIA 11.6
------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2002
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
------------------------------------------------------------------------------
Muni Bond Index
(Long) $5,832,750 $5,747,238 Jun-02 $85,512
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2002
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$323,579,836) (Note 1) $324,575,408
-------------------------------------------------------------------------------------------
Cash 2,563,973
-------------------------------------------------------------------------------------------
Interest and other receivable 6,771,678
-------------------------------------------------------------------------------------------
Receivable for securities sold 325,087
-------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 7,000
-------------------------------------------------------------------------------------------
Total assets 334,243,146
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,219,860
-------------------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 47,914
-------------------------------------------------------------------------------------------
Payable for securities purchased 1,245,694
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 560,407
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 32,965
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20,949
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,826
-------------------------------------------------------------------------------------------
Other accrued expenses 31,741
-------------------------------------------------------------------------------------------
Total liabilities 3,162,356
-------------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------
Net assets $210,080,790
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital -- common shares (Note 1) 225,201,187
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 483,856
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (16,685,337)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,081,084
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $210,080,790
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per common share
($210,080,790 divided by 16,157,092 shares) $13.00
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended April 30, 2002
Tax exempt interest income: $21,779,250
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,341,884
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 223,503
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,510
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,391
-------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 322,181
-------------------------------------------------------------------------------------------
Other 144,577
-------------------------------------------------------------------------------------------
Total expenses 3,054,046
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (38,101)
-------------------------------------------------------------------------------------------
Net expenses 3,015,945
-------------------------------------------------------------------------------------------
Net investment income 18,763,305
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (4,001,678)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 454,837
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts
during the year 1,900,395
-------------------------------------------------------------------------------------------
Net loss on investments (1,646,446)
-------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------
From tax exempt income (2,494,618)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations applicable
to common shares $14,622,241
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended April 30
------------------------------------
2002 2001
-------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $ 18,763,305 $ 18,596,542
-------------------------------------------------------------------------------------------------------
Net realized loss on investments (3,546,841) (1,549,476)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,900,395 10,664,279
-------------------------------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income: (2,494,618) (5,033,942)
-------------------------------------------------------------------------------------------------------
From ordinary income: -- (1,072)
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shares 14,622,241 22,676,331
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From tax exempt income: (14,638,326) (14,638,072)
-------------------------------------------------------------------------------------------------------
From ordinary income: -- (4,548)
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (16,085) 8,033,711
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of year 210,096,875 202,063,164
-------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income and
distributions in excess of net investment income of $483,856 and
$1,112,675 respectively) $210,080,790 $210,096,875
-------------------------------------------------------------------------------------------------------
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.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended April 30
-------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
(common shares) $13.00 $12.51 $14.11 $14.05 $13.61
-------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------
Net investment income (a) 1.16 1.15 1.18 1.19 1.16
-------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) .56 (1.59) .03 .51
-------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
-------------------------------------------------------------------------------------------------------
From net investment income (.15) (.31) (.28) (.25) (.23)(e)
-------------------------------------------------------------------------------------------------------
Total from investment operations
applicable to common shares .91 1.40 (.69) .97 1.44
-------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
-------------------------------------------------------------------------------------------------------
From net investment income: (.91) (.91) (.91) (.91) (.93)
-------------------------------------------------------------------------------------------------------
Total distributions: (.91) (.91) (.91) (.91) (.93)
-------------------------------------------------------------------------------------------------------
Preferred share offering costs -- -- -- -- (.07)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $13.00 $13.00 $12.51 $14.11 $14.05
-------------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $12.500 $13.590 $11.625 $14.750 $13.812
-------------------------------------------------------------------------------------------------------
Total return, at market value
(common shares)(%)(b) (1.57) 25.32 (15.25) 13.57 6.13
-------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)(in thousands) $210,081 $210,097 $202,063 $228,031 $226,942
-------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.43 1.44 1.46 1.42 1.30
-------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) 7.63 6.50 6.93 6.58 6.64
-------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 20.84 14.59 13.84 10.18 26.37
-------------------------------------------------------------------------------------------------------
(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.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2002
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, an indirect wholly-owned
subsidiary of Putnam, 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 in 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 an independent 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, 2002, the fund had a capital loss carryover of
approximately $13,290,000 available to the extent allowed by tax law 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
2,245,000 April 30, 2010
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, 2002 was Series A 1.35%, Series B 1.50%, and Series
C 1.65%. 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 losses on wash sale
transactions, post-October loss deferrals, dividends payable, unrealized
gains and losses on certain futures contracts, realized gains and losses
on certain futures contracts, and straddle loss deferrals.
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,
2002, the fund reclassified $33,830 to decrease undistributed net
investment income, with a decrease to accumulated net realized losses of
$33,830. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
As of April 30, 2002, the undistributed tax exempt and ordinary income
on a tax basis was $1,717,339 and $1,680, respectively.
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 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 wholly-owned subsidiary of Putnam,
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 year ended April 30, 2002, the
fund's expenses were reduced by $38,101 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $602 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended April 30, 2002, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $68,542,287 and $67,495,715, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Remarketed preferred shares
The Series A, B and C shares are redeemable at the option of the fund on
any dividend payment date at a redemption price of $50,000, $25,000 and
$25,000, respectively per share, plus an amount equal to any dividends
accrued 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, 2002, no such
restrictions have been placed on the fund.
Under Emerging Issues Task Force (EITF) promulgation Topic D-98,
Classification and Measurement of Redeemable Securities, which was
issued on July 19, 2001, preferred securities that are redeemable for
cash or other assets are to be classified outside of permanent equity to
the extent that the redemption is at a fixed or determinable price and
at the option of the holder or upon the occurrence of an event that is
not solely within the control of the issuer. Subject to the guidance of
the EITF, the fund's preferred stock, which was previously classified as
a component of net assets, has been reclassified outside of permanent
equity (net assets) in the accompanying financial statements. Prior year
amounts have also been reclassified to conform with this presentation.
The impact of this reclassification creates no change to the net assets
available to common shareholders.
Note 5
New accounting pronouncement
As required, 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 May 1, 2001, the fund
did not accrete discounts for certain fixed income securities. Adopting
these accounting principles did not affect the fund's net asset value,
but did 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 was not material to the
financial statements.
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 2003 will show the tax status of
all distributions paid to your account in calendar 2002.
TRUSTEES
Name, Address, 1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee
-------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a management digital imaging firm), Intermatic
consulting and private Corporation (manufacturer of energy
investments firm) control products), Ryerson Tull, Inc.
(a steel service corporation),
Advocate Health Care, and the
National Center for Nonprofit
Boards. Chairman Emeritus
of the Board of Trustees, Mount
Holyoke College.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations, the Electric Power
Nuclear Threat Research Institute Advisory Council,
Initiative (a private the Board of Directors of the Gas
foundation dedicated Technology Institute, the University
to reducing the threat of Chicago Board of Governors for
of weapons of mass Argonne National Laboratory, the
destruction) Board of Directors of the
Environment and Natural Resources
Program Steering Committee, John
F. Kennedy School of Government,
Harvard University. Until 2001,
Mr. Curtis was a Member of the
Department of Defense's Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support)
and prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company).
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
President of the Kathleen and
Ronald J. Jackson Foundation
(charitable trust). Member of the
Board of Overseers of WGBH (public
television and radio). Member of the
Board of Overseers of the Peabody
Essex Museum.
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group (a
Trustee since 1997 Killian Professor of UK-based holding company with
Economics and interests in electric power and
Management and telecommunications networks), and
Director of the Center the Whitehead Institute for
for Energy and Biomedical Research (a non-profit
Environmental Policy research institution). President of the
Research, Massachusetts Yale University Council. Prior to
Institute of Technology February 2002, March 2000, and
September 1998, Dr. Joskow was a
Director of State Farm Indemnity
Company (an automobile insurance
company), Director of New England
Electric System (a public utility
holding company) and a consultant
to National Economic Research
Associates, respectively.
Elizabeth T. Kennan President Emeritus of Chairman, Cambus-Kenneth
(2/25/38), Mount Holyoke College Bloodstock (a limited liability
Trustee since 1992 company involved in thoroughbred
horse breeding and farming),
Director, Northeast Utilities, and
Talbots (a distributor of women's
apparel). Trustee of Centre College,
Trustee of Notre Dame University,
and Member of the Oversight
Committee of Folger Shakespeare
Library. Prior to September 2000,
June 2000, and November 1999,
Dr. Kennan was a Director of
Chastain Real Estate, Bell Atlantic,
and Kentucky Home Life
Insurance, respectively.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm The Liberty Corporation (a company
Trustee since 1997 (a limited liability engaged in the broadcasting
company engaged in industry), and Progress Energy, Inc.
timber and farming) (a utility company, formerly known
as Carolina Power & Light). Prior to
October 1997, January 1998, and
May 2001, Mr. Mullin was a Director
of Dillon, Read and Co. Inc.,
The Ryland Group, Inc., and
Graphic Packaging International
Corp., respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, LLP and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust).
W. Thomas Stephens Corporate Director Director of Qwest Communications
(9/2/42), (communications company), Xcel
Trustee since 1997 Energy Incorporated (public utility
company), TransCanada Pipelines,
and Norske Canada, Inc. (paper
manufacturer). Prior to July 2001
and October 1999, Mr. Stephens was
Chairman of Mail-Well (printing
and envelope company) and
MacMillan-Bloedel (forest products
company), respectively.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable General Hospital. Prior to
organizations, September 2000, April 2000, and
including Courier December 2001, Mr. Thorndike was
Corporation (a book a Director of Bradley Real Estate,
manufacturer) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer Companies, Inc. and the United Way
Trustee since 1992 of Putnam of Massachusetts Bay. Member of the
Investments, LLC, Board of Governors of the Investment
and Putnam Investment Company Institute, Trustee of the
Management, LLC Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA
President since 2000 financial advisory and Education Association, Trustee of
other research services St. Mark's School, and Trustee of
relating to bankrupt and Shore Country Day School.
distressed companies)
and New Generation
Advisers, Inc.
(a registered
investment adviser)
A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Prior to May 2000 and
November 1999, Mr. Smith was
Chairman and CEO, respectively, of
Marsh & McLennan Companies, Inc.
--------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of April 30, 2002, there
were 115 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act
of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and
Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the
fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc.,
the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the
President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President,
Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985,
having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh &
McLennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of
Marsh & McLennan Companies, Inc.
OFFICERS
Name, Address, 1 Date of Birth, Inception of Service
Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years
---------------------------------------------------------------------------------------------------------------
Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments,
Executive Vice President, LLC and Putnam Management
Treasurer & Principal
Financial Officer
Patricia C. Flaherty Since 1993 Senior Vice President, Putnam
(12/1/46), Investments, LLC and Putnam Management
Senior Vice President
Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam
Senior Vice President, Investments, LLC
Assistant Treasurer and
Principal Accounting
Officer
Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Brett C. Browchuk Since 1994 Managing Director, Putnam Investments,
(2/27/63), Vice President LLC and Putnam Management
Ian Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments,
(10/31/63), Vice President LLC and Putnam Management. Prior to
February 1999, Managing Director at
J.P. Morgan.
Richard A. Monaghan Since 1998 Managing Director, Putnam Investments,
(8/25/54), LLC, Putnam Management and Putnam
Vice President Retail Management
John R. Verani Since 1988 Senior Vice President, Putnam
(6/11/39), Investments, LLC and Putnam
Vice President Management
Jerome Jacobs Since 1996 Managing Director of Putnam Management
(8/20/58),
Vice President
Stephen M. Oristaglio Since 1998 Senior Managing Director of Putnam
(8/21/55), Management. Prior to July 1998,
Vice President Managing Director, Swiss Bank Corp.
---------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Jerome J. Jacobs
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
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.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[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
79300 582 6/02