Putnam
Municipal
Opportunities
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
You may have read recent press coverage regarding investigations
involving Putnam Investments. Last month all Putnam shareholders were
sent a letter detailing the steps being taken by Putnam to address the
issues raised by federal and state regulators. Since then, a number of
remedial actions, some of which were discussed in last month's letter,
are being instituted under the terms of an order from the Securities and
Exchange Commission (SEC). These include stringent employee trading
restrictions, enhanced compliance standards and systems, new redemption
fees for certain fund shares held less than three months, and a process
for making full monetary restitution for any losses to fund
shareholders. This process will be directed by an independent third
party approved by the SEC and by Putnam's Board of Trustees.
The Board is also continuing its own independent investigation of these
issues and when complete a report will be issued detailing the
additional steps being taken to make sure that nothing like this happens
at Putnam again. We believe that the new senior management team at
Putnam is fully committed to re-establishing the firm as a model for the
highest ethical standards in the mutual fund industry. Our Board is
committed to working with Putnam's management to ensure that everything
possible is done to restore your full confidence in the Putnam
organization.
In terms of Putnam Municipal Opportunities Trust's performance, we are
pleased to report positive results for the six months ended October 31,
2003. In addition, your fund outperformed both its benchmark and its
Lipper category average at net asset value. The details are shown on the
facing page. In their report, your fund's managers cite the portfolio's
small allocation to higher-yielding, lower-rated issues and defensive
positioning as positive factors during the period. They also offer their
views on prospects for the fiscal year's second half.
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 17, 2003
Report from Fund Management
Fund highlights
* Putnam Municipal Opportunities Trust's total return for the six months
ended October 31, 2003, was 3.50% at net asset value (NAV) and 5.82% at
market price.
* The fund's return at NAV was significantly ahead of the Lehman
Municipal Bond Index, which returned 1.47% for the six-month period, in
large part reflecting price recovery in the fund's airline-related
industrial development bonds (IDBs).
* These IDB holdings and the fund's duration strategies also helped it
exceed (at NAV) the average for the Lipper Closed-End General Municipal
Debt Funds (Leveraged) category, which was 2.68% for the period.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Improving economic numbers and an environment of relative optimism this
spring made income-oriented investors more willing to accept the risks
associated with lower-quality, high-yield bonds. Consequently, for the
first time in many months, investment-grade and high-yield securities
began to outperform Treasuries. Nonetheless, the past six months were
volatile. The fund's positive results primarily reflect strong price
appreciation from its airline-related industrial development bonds
(IDBs), as discussed on page 4.
Adjustments we made to the fund's duration -- a measure of interest-rate
sensitivity -- also helped performance during the period. By shifting
the portfolio into a shorter, more defensive duration, we were able to
protect the portfolio's value early in the summer and again in October,
when rising interest rates depressed bond prices.
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 may be appropriate for investors seeking tax-free income and who
are willing to accept a moderate degree of risk.
However, generally rising stock prices took center stage during the past
six months, while lower tax rates reduced the attractiveness of
tax-exempt securities. Investor attention became more focused on
equities. We believe this may help explain the fact that returns at
market price lagged the fund's results at net asset value, despite the
overall demand for high-yield securities during the period.
Market overview
Municipal bond yields -- which move in the opposite direction of their
prices -- were unusually volatile between May 1 and October 31, 2003.
Concern about deflation led to falling yields and higher bond prices
through mid June. After rising through August, yields receded again in
September, on unfavorable housing and unemployment data. October's
positive economic surprises sent yields back up. Overall, yields ended
the semiannual period higher.
The spread, or difference between yields of 10-year municipal bonds and
10-year Treasuries, widened, with municipals yielding close to their
long-term average of 85% of comparable Treasury yields at the end of
October, after yielding nearly 100% of Treasury yields earlier in the
year. Investor demand for higher-yielding municipals increased. As the
economy improved, airline-related industrial development bonds
outperformed other municipal bonds. California general obligation bonds
were downgraded and underperformed as the state's budget crisis
worsened. Tobacco settlement bonds outperformed following the Illinois
Supreme Court's favorable ruling on one of the industry's ongoing
litigation matters.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 10/31/03
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 1.47%
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Lehman Aggregate Bond Index (broad bond market) 0.57%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) -0.19%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.61%
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Equities
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S&P 500 Index (broad stock market) 15.62%
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Russell 1000 Growth Index (large-company growth stocks) 16.81%
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Russell 1000 Value Index (large-company value stocks) 16.74%
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These indexes provide an overview of performance in different market
sectors for the six months ended 10/31/03.
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Strategy overview
We shortened duration (a measure of a fund's sensitivity to changes in
interest rates) in May because interest rates were at historically low
levels and were more likely, in our opinion, to rise than to fall. This
defensive strategy helped protect portfolio assets when rates rose
sharply between mid June and the end of July. We resumed a neutral
duration in August and September, as we believed rates were unlikely to
rise further. In September, rates fell again, so we shortened duration
somewhat. This was beneficial when rates rose in October. At the end of
the period, the portfolio's duration remained slightly defensive.
We continued to diversify the fund's holdings, capitalizing on the
opportunity afforded by strong demand for higher-yielding municipal
bonds to take profits and reduce positions in some of the fund's
lower-quality holdings, particularly airline-related industrial
development bonds (IDBs).
Although we had previously reduced the fund's holdings in tobacco
settlement bonds -- bonds secured by the income stream from tobacco
companies' settlement obligations to the states -- Putnam's bond analyst
for this sector has offered support for a more positive view of the
industry. Recently, numerous court cases have been decided in the
industry's favor and we believe these decisions have reduced, somewhat,
the perceived risk of unfavorable rulings that could affect the
stability of the bonds' income stream. Accordingly, the fund has
purchased more tobacco settlement bonds, and brought the weighting to
neutral (i.e., roughly the same percentage), in comparison to the fund's
benchmark.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 4/30/03 as of 10/31/03
Health care 18.5% 19.9%
Utilities 15.9% 16.5%
Housing 9.3% 8.8%
Water and sewer 7.2% 8.8%
Transportation 8.1% 8.1%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of market value.
Holdings will vary over time.
How fund holdings and sector allocations affected performance
Many of the fund's top performers during the period were airline-related
industrial development bonds (IDBs). These municipal bonds are usually
issued to finance local expansion by various businesses and are backed
by revenues from the companies benefiting from the financing. As a
result, IDB prices are affected by investor perceptions of the health of
the backing company or of the industry group. Especially since the
terrorist attacks of September 11, 2001, airline-backed IDBs (generally
issued to finance airport facility expansion) have been negatively
affected by declining air traffic, high fixed costs, and high-profile
bankruptcies. As the prospects for economic recovery have improved, the
airline market has strengthened and concerns about bankruptcies have
diminished. The result has been a sharp price recovery for these bonds,
and we used this opportunity to trim the fund's airline IDBs, including
airport facility improvement bonds in Illinois, Kentucky, Minnesota and
Texas for United Airlines, Delta Airlines, Northwest Airlines, and
American Airlines, respectively. Since all of them have been in the
portfolio for some time, none of the sales resulted in a profit based on
their acquisition cost, but the fund was able to sell on strength rather
than in distress.
The airline business is one of many industries that have been recovering
with the economy. One of the fund's larger holdings, Pocahontas Parkway
Association Toll Road Revenue Bonds, rose in value as traffic (and
tolls) picked up. We purchased $1.5 million of these bonds when they
were issued in 2000, with a coupon of 5.5% and a maturity date in 2028.
The Pocahontas Parkway, which opened in October of 2002, provides
improved access to the Richmond International Airport and includes the
only bridge crossing the James River for 15 miles. The price of the
bonds fell as traffic fell short of projections and investors became
concerned about the issuer's ability to service debt. However, road
traffic has picked up in the past six months and tolls are closing in on
projected levels. Although traffic will need to increase further in
order to support the bond payments, and the bonds are still trading at a
discount, the outlook for the project has improved and we are cautiously
optimistic.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (46.9%)
Aa/AA (5.7%)
A (17.4%)
Baa/BBB (18.3%)
Ba/BB (5.6%)
B (2.8%)
VMIG1/A-1+ (2.7%)
Other (0.6%)
Footnote reads:
As a percentage of market value as of 10/31/03. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
As part of our efforts to maintain broad diversification, we recently
added some tobacco settlement bonds after a series of favorable court
rulings made this sector more attractive again. These bonds are issued
by municipalities and secured by settlements from class-action lawsuits
against the tobacco industry. The fund had a modest exposure to tobacco
bonds last year, reflecting our concern about possible weakness in
tobacco companies' revenues. We trimmed the fund's holdings in March,
when several court cases threatened to go against the tobacco companies,
but a series of recent rulings have been more favorable. Since these
bonds have attractive coupons and provide a sector diversification that
is part of our overall strategy, we recently added $2.6 million in
Badger Tobacco Asset Securitization bonds issued in Wisconsin. They have
a coupon of 7%, mature in 2028, and are rated Baa2 by Moody's.
Also as part of our diversification program, in the past six months we
have been trimming some of the largest positions, while capitalizing on
increased demand for higher-yielding municipal bonds. For example, the
fund had a $4 million position in Johnson City, Tennessee Health and
Educational Facilities for Mountain States Health, the primary hospital
system in Tennessee. The bonds were issued with a coupon of 7.5%, mature
in 2033, and are rated Baa2 by Moody's. We trimmed back on this large
holding and used the proceeds to diversify into comparable issues in
other states. Specifically, we purchased $1.25 million in bonds issued
by South Carolina Economic Development Authority Hospital Facilities for
Palmetto Health Alliance. Palmetto has a capable management team and a
dominant market share in Columbia, South Carolina and the surrounding
region. The new bonds will refund Palmetto's existing bond debt and fund
construction of a 123-bed heart hospital. The securities we purchased
have a coupon of 6%, mature in 2020, and are rated Baa2 by Moody's.
Although the past several months have been positive for the bond market
as a whole -- especially higher-yielding municipal bonds -- not
everything has gone up. One example is Atlas Boston Tax Exempt Revenue
Bonds, a tax-exempt collateralized mortgage obligation (CMO). CMOs are
mortgage-backed securities composed of several classes of bonds, each
with its own risk characteristics and maturity, all backed by the same
mortgage collateral. In 1999, we bought the Atlas Boston bonds, which
had a coupon of 6.65% and a maturity date in 2035. The proceeds were
supposed to be spread over a wide variety of projects, but only two
multi-family housing projects were funded. Both projects had physical
problems requiring extensive repairs, and these resulted in cash-flow
shortages that prevented the issuer from being able to service its debt.
Over the past 12 months, we have sold approximately two thirds of the
original position, and we are currently negotiating the sale of the
remaining bonds.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. Members
of the team are David Hamlin (Portfolio Leader), Paul Drury (Portfolio
Member), Susan McCormack (Portfolio Member), James St. John (Portfolio
Member), Richard Wyke (Portfolio Member), and Kevin Cronin.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We anticipate continued volatility in the coming six months, and we
believe the Federal Reserve Board will hold the federal funds rate
steady at 1%. Our 12- to 18-month outlook is less certain. If economic
policy succeeds, we may experience a classic bear market for bonds that
may push yields higher. However, it is also possible that the economy
may not respond satisfactorily to fiscal and monetary policy, and the
yield on 10-year Treasuries could fall. Given this degree of
uncertainty, we have, at this time, positioned the fund's duration
somewhat defensively, and we believe rates may rise in the short term.
Currently, we no longer see much opportunity to capitalize on yield
spreads between municipal bonds and Treasuries, as the relationship
between them is now near the long-term average. We expect that the
credit quality of general obligation municipal bonds will remain under
pressure, because tax revenues cannot be expected to grow significantly
until taxpayers begin to report improved earnings. Although yield
spreads between high- and low-quality municipal bonds have narrowed
somewhat, we believe they could narrow further. As a result, we may see
more opportunity for potential gain in this area. In keeping with the
fund's objective, we will continue to monitor market conditions as we
pursue a high level of tax-free income and manage the fund's risk
exposures.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice.
Performance summary
This section provides information about your fund's performance during
the first half of its fiscal year, which ended October 31, 2003. In
accordance with regulatory requirements, we also include performance for
the most current calendar quarter-end. Performance should always be
considered in light of a fund's investment strategy. 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. A profile of your fund's strategy appears on the first page
of this report. See page 9 for definitions of some terms used in this
section.
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TOTAL RETURN FOR PERIODS ENDED 10/31/03
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Lipper
Closed-End
General
Lehman Municipal
Municipal Debt Funds
Market Bond (Leveraged)
NAV price Index category average*
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6 months 3.50% 5.82% 1.47% 2.68%
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1 year 9.50 12.96 5.12 8.08
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5 years 29.06 17.42 31.08 31.12
Annual average 5.24 3.26 5.56 5.56
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10 years 79.18 80.35 78.34 78.21
Annual average 6.01 6.07 5.96 5.94
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Annual average
Life of fund
(since 5/28/93) 6.37 5.55 6.24 6.34
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 10/31/03, there
were 64, 62, 48, and 45 funds, respectively, in this Lipper category.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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6 months 5.36% 10.22%
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1 year 6.42 6.32
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5 years 28.71 21.56
Annual average 5.18 3.98
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10 years 80.06 83.03
Annual average 6.06 6.23
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Annual average
Life of fund (since
5/28/93) 6.46 5.69
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 10/31/03
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Putnam Municipal Opportunities Trust
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Distributions from common shares
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Number 6
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Income $0.477
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Capital gains 1 --
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Total $0.477
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Distributions from preferred Series A Series B Series C
shares (800 shares) (1,620 shares) (1,620 shares)
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Income $245.14 $117.70 $122.80
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Capital gains 1 -- -- --
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Total $245.14 $117.70 $122.80
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Share value (common shares) NAV Market price
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4/30/03 $12.98 $12.48
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10/31/03 12.95 12.73
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Current return (common shares, end of period)
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Current dividend rate 2 7.37% 7.49%
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Taxable equivalent 3 11.34 11.52
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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 35% federal tax rate for 2003. 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 indexes
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in the
Russell 1000 chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
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.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, 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.
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, 2003 (Unaudited)
Key to Abbreviations
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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 MBIA Insurance Company
PSFG Permanent School Fund Guaranteed
U.S. Govt. Coll. U.S. Government Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (100.0%) (a)
Principal amount Rating (RAT) Value
Alabama (3.4%)
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$1,500,000 Butler, Indl. Dev. Board Rev. Bonds
(Solid Waste Disp. James River
Corp.), 8s, 9/1/28 BB+ $1,505,625
Jefferson Cnty., Swr. Rev. Bonds
7,000,000 Ser. D, FGIC, 5 3/4s, 2/1/27 Aaa 7,901,250
1,175,000 (Cap. Impt.), Ser. A, FGIC, 5s,
2/1/41 (U.S. Govt. Coll.) Aaa 1,318,938
325,000 (Cap. Impt.), Ser. A, FGIC, 5s,
2/1/41 Aaa 364,813
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11,090,626
Arizona (3.3%)
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750,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (John C. Lincoln Hlth.
Network), 6 3/8s, 12/1/37 BBB 766,875
950,000 Casa Grande, Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med.
Ctr.), Ser. A, 7 5/8s, 12/1/29 B-/P 978,500
490,000 Cochise Cnty., Indl. Dev. Auth.
Rev. Bonds (Sierra Vista Cmnty.
Hosp.), Ser. A, 6 3/4s, 12/1/26 BB+/P 496,738
Mesa, Util. Syst. Rev. Bonds, FGIC
4,000,000 5 1/4s, 7/1/16 Aaa 4,520,000
1,530,000 5 1/4s, 7/1/15 Aaa 1,725,075
2,300,000 Scottsdale, Indl. Dev. Auth.
Rev. Bonds (Westminster Village),
7 7/8s, 6/1/09 BB-/P 2,409,250
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10,896,438
Arkansas (1.4%)
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3,300,000 AR Dev. Fin. Auth. Rev. Bonds,
Ser. D, GNMA/FNMA Coll., 3s, 1/1/24 AAA 3,341,250
1,000,000 Northwest Regl. Arpt. Auth.
Rev. Bonds, 7 5/8s, 2/1/27 BB/P 1,087,500
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4,428,750
California (10.4%)
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2,000,000 CA State Dept. of Wtr. Resources
Rev. Bonds, Ser. A, 6s, 5/1/15 A3 2,235,000
2,000,000 CA State Dept. of Wtr. Resources
Pwr. Supply Pwr. Supply Rev. Bonds,
Ser. A, AMBAC, 5 1/2s, 5/1/16 Aaa 2,195,000
1,750,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s,
4/1/30 BBB- 1,610,000
4,000,000 Chula Vista COP, MBIA, 5s, 8/1/32 Aaa 4,025,000
1,475,000 Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 B/P 1,209,500
3,000,000 Metropolitan Wtr. Dist. IFB
(Southern CA Waterworks), 10.242s,
8/10/18 Aa2 3,971,250
5,000,000 San Bernardino Cnty., COP (Med. Ctr.
Fin.), Ser. A, MBIA, 6 1/2s, 8/1/17 Aaa 6,193,750
San Diego Cnty., IF COP, AMBAC
3,000,000 10.02s, 9/1/12 Aaa 3,881,250
3,000,000 9.77s, 9/1/07 Aaa 3,798,750
2,500,000 San Jose, Redev. Agcy. Tax Alloc.
Bonds (Merged Area Redev. Project),
MBIA, 5s, 8/1/32 Aaa 2,512,500
3,000,000 Santa Rosa, Waste Wtr. Rev. Bonds
(Cap. Appn.), Ser. B, AMBAC, zero %,
9/1/23 AAA 1,050,000
830,000 Sunnyvale, Cmnty. Fac. Dist. Special
Tax Rev. Bonds, 7.65s, 8/1/21 BB-/P 823,775
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33,505,775
Colorado (3.7%)
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7,700,000 CO Pub. Hwy. Auth. Rev. Bonds, MBIA,
zero %, 9/1/33 Aaa 1,482,250
10,000,000 Denver, City & Cnty. Arpt.
Rev. Bonds, Ser. A, MBIA, 5.7s,
11/15/25 Aaa 10,550,000
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12,032,250
District of Columbia (4.4%)
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12,450,000 DC G.O. Bonds, Ser. A, 6s, 6/1/26 A- 14,426,438
Florida (2.1%)
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1,750,000 Escambia Cnty., Poll. Control
Rev. Bonds (Champion Intl. Corp.),
6.9s, 8/1/22 Baa2 1,823,973
1,000,000 Lee Cnty., Indl. Dev. Auth.
Rev. Bonds (Alliance Cmnty.
Project), Ser. C, 5 1/2s, 11/15/29 BBB- 928,750
600,000 Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.8s, 11/15/31 BB 589,500
3,000,000 Tampa Bay Wtr. Util. Syst.
Rev. Bonds, FGIC, 6s, 10/1/29 Aaa 3,536,250
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6,878,473
Georgia (3.8%)
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3,000,000 Atlanta, Arpt. Rev. Bonds, Ser. B,
FGIC, 5 5/8s, 1/1/30 Aaa 3,135,000
2,800,000 Atlanta, Waste Wtr. VRDN, Ser. C,
FSA, 1.15s, 11/1/41 VMIG1 2,800,000
1,500,000 Burke Cnty., Poll. Control Dev.
Auth. Mandatory Put Bonds (GA Power
Co.), 4.45s, 1/1/32 A2 1,576,875
1,400,000 Effingham Cnty., Indl. Dev. Auth.
Rev. Bonds (Pacific Corp.), 6 1/2s,
6/1/31 Ba3 1,314,250
2,000,000 GA Loc. Govt. COP (Grantor Trust),
Ser. A, MBIA, 4 3/4s, 6/1/28 Aaa 1,980,000
1,500,000 Savannah, Econ. Dev. Auth. Poll.
Control Rev. Bonds (Intl. Paper
Co.), Ser. A, 5.1s, 8/1/14 Baa2 1,543,125
--------------
12,349,250
Hawaii (0.5%)
-------------------------------------------------------------------------------
1,710,000 HI State Hsg. Fin. & Dev. Corp.
Rev. Bonds, Ser. A, FNMA Coll.,
5 3/4s, 7/1/30 Aaa 1,752,750
Illinois (7.8%)
-------------------------------------------------------------------------------
5,000,000 Chicago, Pub. Bldg. Comm. Rev. Bonds
(School Reform Project), FGIC,
5 1/4s, 12/1/15 Aaa 5,606,250
5,900,000 IL Hlth. Fac. Auth. VRDN (Bromenn
Hlth. care), 1.15s, 8/15/32 A-1+ 5,900,000
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Hsg.
Rev. Bonds, Ser. 91-A, 8 1/4s,
7/1/16 A1 10,044,400
3,000,000 Metropolitan Pier & Exposition Auth.
Rev. Bonds (McCormick Place
Convention), 7s, 7/1/26 Aaa 3,888,750
--------------
25,439,400
Indiana (2.3%)
-------------------------------------------------------------------------------
4,150,000 IN State Dev. Fin. Auth. Env. Impt.
Rev. Bonds (USX Corp.), 5.6s,
12/1/32 Baa1 4,051,438
2,000,000 Indianapolis, Arpt. Auth. Special
Fac. Rev. Bonds (Federal Express
Corp.), 7.1s, 1/15/17 Baa2 2,101,900
1,300,000 Rockport, Poll. Control Mandatory
Put Bonds (Indiana Michigan Pwr.
Co.), Ser. C, 2 5/8s, 4/1/25 BBB 1,291,875
--------------
7,445,213
Iowa (0.2%)
-------------------------------------------------------------------------------
650,000 Tobacco Settlement Auth. of IA
Rev. Bonds, Ser. B, 5.6s, 6/1/35 Baa2 501,313
Kentucky (0.4%)
-------------------------------------------------------------------------------
1,300,000 Kenton Cnty., Arpt. Board Rev. Bonds
(Special Fac. -- Delta Airlines,
Inc.), Ser. B, 7 1/4s, 2/1/22 B 1,277,250
Louisiana (1.2%)
-------------------------------------------------------------------------------
2,000,000 LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/19 B-/P 1,862,500
2,000,000 Port of New Orleans, Indl. Dev.
Rev. Bonds (Continental Grain Co.),
7 1/2s, 7/1/13 BB- 2,042,500
--------------
3,905,000
Maine (0.2%)
-------------------------------------------------------------------------------
600,000 Rumford, Solid Waste Disp.
Rev. Bonds (Boise Cascade Corp.),
6 7/8s, 10/1/26 Ba2 600,000
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 Aa2 4,883,288
Massachusetts (5.7%)
-------------------------------------------------------------------------------
1,300,000 Atlas Boston Tax Exempt Rev. Bonds,
Ser. 1, 6.65s, 1/1/35 (In default)
(NON) D/P 715,000
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,570,000 (Rehab. Hosp. Cape & Islands),
Ser. A, 7 7/8s, 8/15/24 AAA/P 2,753,678
1,875,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 1,928,906
1,300,000 (Berkshire Hlth. Syst.), Ser. E,
6 1/4s, 10/1/31 BBB+ 1,322,750
1,800,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 1,845,000
7,535,000 MA State Hsg. Fin. Agcy. Rev. Bonds,
Ser. 53, MBIA, 6.15s, 12/1/29 Aaa 7,798,725
1,000,000 MA State Indl. Fin. Agcy. Rev. Bonds
(1st Mtge. Brookhaven), Ser. A, 7s,
1/1/15 BBB/P 1,030,000
1,000,000 MA State Wtr. Resource Auth.
Rev. Bonds, Ser. J, FSA, 5 1/2s,
8/1/20 Aaa 1,125,000
--------------
18,519,059
Michigan (2.4%)
-------------------------------------------------------------------------------
4,500,000 Detroit, G.O. Bonds, Ser. A, FGIC,
5s, 7/1/30 Aaa 4,533,750
500,000 MI Higher Ed. Fac. Auth.
Rev. Bonds (Kalamazoo College),
5 1/2s, 12/1/18 A1 526,875
1,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 A2 1,013,750
1,650,000 MI State Strategic Fund, Ltd.
Rev. Bonds (Worthington Armstrong
Venture), 5 3/4s, 10/1/22 AAA/P 1,841,813
--------------
7,916,188
Minnesota (1.0%)
-------------------------------------------------------------------------------
1,860,000 Minneapolis & St. Paul, Metropolitan
Arpt. Comm. Special Fac. Rev. Bonds
(Northwest Airlines, Inc.), Ser. A,
7s, 4/1/25 B+/P 1,692,600
1,500,000 Southern MN Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. A, AMBAC, 5 1/4s,
1/1/16 Aaa 1,676,250
--------------
3,368,850
Mississippi (1.2%)
-------------------------------------------------------------------------------
1,350,000 Clairborne Cnty., Poll. Control
Rev. Bonds (Syst. Energy Resources,
Inc.), 7.3s, 5/1/25 BBB- 1,365,026
1,000,000 Mississippi Bus. Fin. Corp. Poll.
Control Rev. Bonds (Syst. Energy
Resources, Inc.), 5.9s, 5/1/22 BBB- 1,000,000
1,580,000 Mississippi Bus. Fin. Corp.
Rev. Bonds (Syst. Energy Resources,
Inc.), 5 7/8s, 4/1/22 BBB- 1,580,000
--------------
3,945,026
Missouri (1.3%)
-------------------------------------------------------------------------------
1,750,000 Cape Girardeau Cnty., Indl. Dev.
Auth. Hlth. Care Fac. Rev. Bonds
(St. Francis Med. Ctr.),
Ser. A, 5 1/2s, 6/1/16 A 1,828,750
2,500,000 MO State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Washington U.), Ser. A,
5s, 2/15/33 Aa1 2,518,750
--------------
4,347,500
Montana (0.6%)
-------------------------------------------------------------------------------
1,075,000 Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 Aaa 1,170,406
750,000 MT State Board Inv. Exempt Fac.
Rev. Bonds (Still Water Mining
Project), 8s, 7/1/20 Ba3 716,250
--------------
1,886,656
Nevada (2.1%)
-------------------------------------------------------------------------------
3,505,000 Clark Cnty., G.O. Bonds (Pk. & Regl.
Justice Ctr.), FGIC, 5 5/8s, 11/1/19 Aaa 3,851,119
3,000,000 Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.), Ser. A,
6 1/2s, 12/1/33 Baa2 3,026,250
--------------
6,877,369
New Hampshire (1.1%)
-------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth.
Rev. Bonds
2,450,000 (Riverwoods at Exeter), Ser. A,
6 1/2s, 3/1/23 BB/P 2,428,563
1,250,000 (NH College), 6 3/8s, 1/1/27 BBB- 1,287,500
--------------
3,716,063
New Jersey (4.5%)
-------------------------------------------------------------------------------
1,590,000 NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds (Raritan Bay Med. Ctr.),
7 1/4s, 7/1/14 BB+/P 1,638,924
500,000 NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C,
5 1/8s, 7/1/22 A- 499,375
10,000,000 Salem Cnty., Indl. Poll Ctrl. Fin.
Auth. Rev. Bonds, 11.798s, 10/1/29
(acquired 10/28/94, cost $9,750,000)
(RES) Aaa 11,318,200
1,150,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 6 3/4s, 6/1/39 Baa2 1,049,375
--------------
14,505,874
New York (3.1%)
-------------------------------------------------------------------------------
1,000,000 Buffalo, G.O. Bonds, Ser. D, FGIC,
5 1/2s, 12/15/13 Aaa 1,127,500
3,000,000 NY City, G.O. Bonds, Ser. C, 5 1/4s,
8/1/11 A2 3,262,500
1,000,000 NY City, Transitional Fin. Auth.
Rev. Bonds (Future Tax), AMBAC,
5 1/4s, 8/1/15 Aaa 1,087,500
2,000,000 NY State Dorm. Auth. Rev. Bonds
(State Personal Income Tax), Ser. A,
5 1/2s, 3/15/13 AA 2,255,000
2,500,000 Triborough Bridge & Tunnel Auth.
Rev. Bonds, Ser. A, 5s, 1/1/32 Aa3 2,506,250
--------------
10,238,750
North Carolina (0.7%)
-------------------------------------------------------------------------------
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst.
Rev. Bonds, Ser. B, MBIA, 6s, 1/1/22 Aaa 2,372,500
Ohio (1.4%)
-------------------------------------------------------------------------------
1,270,000 Erie Cnty., Ohio Hosp. Fac.
Rev. Bonds (Firelands Regl. Med.
Ctr.), 5 5/8s, 8/15/32 A2 1,285,875
1,000,000 Montgomery Cnty., Hosp. Rev. Bonds
(Kettering Med. Ctr.), 6 3/4s,
4/1/22 Baa1 1,056,250
2,165,000 Rickenbacker, Port Auth. Rev. Bonds
(OASBO Expanded Asset Pooled),
Ser. A, 5 3/8s, 1/1/32 A2 2,267,838
--------------
4,609,963
Oklahoma (0.6%)
-------------------------------------------------------------------------------
OK Dev. Fin. Auth. Rev. Bonds
1,300,000 (Continuing Care Retirement),
Ser. A, 8s, 2/1/32 B/P 1,330,875
1,000,000 (Hillcrest Hlth. Care), Ser. A,
5 5/8s, 8/15/29 B1 686,250
--------------
2,017,125
Pennsylvania (8.2%)
-------------------------------------------------------------------------------
3,000,000 Allegheny Cnty., G.O. Bonds,
Ser. C-56, FSA, 5s, 10/1/15 Aaa 3,303,750
5,000,000 Allegheny Cnty., Hosp. Dev. Auth.
Rev. Bonds (Pittsburgh Mercy Hlth.
Syst. ), AMBAC, 5 5/8s, 8/15/26 Aaa 5,393,750
965,000 Carbon Cnty., Indl. Dev. Auth.
Rev. Bonds (Panther Creek Partners),
6.65s, 5/1/10 BBB- 1,037,375
1,000,000 Delaware Cnty., Hosp. Auth. G.O.
Bonds (Crozer-Chester Med. Ctr.),
6 1/4s, 12/15/31 Baa2 985,000
4,000,000 Delaware Valley, Regl. Fin. Auth.
Rev. Bonds, Ser. A, AMBAC, 5 1/2s,
8/1/28 Aaa 4,395,000
1,500,000 Lancaster Cnty., Hosp. Auth.
Rev. Bonds (Gen. Hosp.), 5 1/2s,
3/15/26 A- 1,486,875
1,000,000 Lehigh Cnty., Gen. Purpose Auth.
Rev. Bonds (Lehigh Valley Hosp.
Hlth. Network), Ser. A, 5 1/4s,
7/1/32 A2 962,500
1,000,000 PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver Project),
Ser. D, 7.15s, 12/1/18 BBB- 1,033,220
3,000,000 PA Econ. Dev. Fin. Auth. Wastewtr.
Treatment Rev. Bonds (Sun Co.,
Inc.), Ser. A, 7.6s, 12/1/24 Baa2 3,216,870
3,000,000 PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds (Colver),
Ser. E, 8.05s, 12/1/15 BBB-/P 3,122,310
1,450,000 Sayre, Hlth. Care Fac. Auth.
Rev. Bonds (Guthrie Hlth.), Ser. A,
5 7/8s, 12/1/31 A- 1,484,438
--------------
26,421,088
South Carolina (2.7%)
-------------------------------------------------------------------------------
1,250,000 SC Jobs Econ. Dev. Auth.
Rev. Bonds (Palmetto Hlth.), Ser. C,
6s, 8/1/20 Baa2 1,270,313
3,000,000 SC Tobacco Settlement Rev. Mgt.
Rev. Bonds, Ser. B, 6 3/8s, 5/15/30 Baa2 2,598,750
4,500,000 Spartanburg Cnty., Solid Waste Disp.
Rev. Bonds (BMW Project), 7.55s,
11/1/24 A1 4,820,895
--------------
8,689,958
Tennessee (0.9%)
-------------------------------------------------------------------------------
2,750,000 Johnson City, Hlth. & Edl. Fac.
Board Hosp. Rev. Bonds (Mountain
States Hlth.), Ser. A, 7 1/2s,
7/1/33 Baa2 2,987,181
Texas (9.3%)
-------------------------------------------------------------------------------
2,000,000 Alliance, Arpt. Auth. Rev. Bonds
(American Airlines, Inc.), 7 1/2s,
12/1/29 Caa2 1,420,000
12,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (St. Luke's Hlth. Syst.),
FSA, 6.1s, 11/15/23 Aaa 13,155,000
1,000,000 Comal Cnty. Hlth. Fac. Dev. Corp.
Rev. Bonds (Hlth. Care Syst. --
McKenna Memorial Project), Ser. A,
6 1/4s, 2/1/32 Baa2 1,002,500
2,000,000 Hays, Cons. Indpt. School Dist. G.O.
Bonds, PSFG, 5 1/2s, 8/15/10 Aaa 2,285,000
3,000,000 Lower Neches Valley Indl. Dev. Swr.
Auth. Rev. Bonds (Mobil Oil Refining
Corp.), 6.4s, 3/1/30 Aaa 3,123,750
2,000,000 San Antonio Wtr. Rev. Bonds, Ser. A,
FSA, 5s, 5/15/32 Aaa 2,005,000
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 Baa1 5,070,250
2,000,000 Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.), 6s, 7/1/29 Baa2 2,015,000
--------------
30,076,500
Utah (0.3%)
-------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosp.
Inc.), AMBAC, 12.354s, 5/15/20
(acquired 6/6/97, cost $1,168,906)
(RES) Aaa 1,005,000
Virginia (1.3%)
-------------------------------------------------------------------------------
500,000 Fredericksburg, Indl. Dev. Auth.
Rev. Bonds (Medicorp Hlth. Syst.),
Ser. B, 5 1/8s, 6/15/33 A3 485,000
1,500,000 Pocahontas Parkway Assn. Toll Rd.
Rev. Bonds, Ser. A, 5 1/2s, 8/15/28 BB 1,164,375
2,500,000 VA College Bldg. Auth. Rev. Bonds
(Washington and Lee U.), MBIA,
5 1/4s, 1/1/26 AAA 2,687,500
--------------
4,336,875
Washington (2.4%)
-------------------------------------------------------------------------------
4,000,000 Chelan Cnty. Dev. Corp. Rev. Bonds
(Poll. Control-Alcoa), 5.85s,
12/1/31 A2 4,140,000
2,250,000 King Cnty., G.O. Bonds, Ser. C,
6 1/4s, 1/1/32 Aa1 2,525,625
1,300,000 Tobacco Settlement Auth. of WA
Rev. Bonds, 6 1/2s, 6/1/26 Baa2 1,192,750
--------------
7,858,375
West Virginia (0.4%)
-------------------------------------------------------------------------------
2,000,000 Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 Ba3 1,445,000
Wisconsin (2.2%)
-------------------------------------------------------------------------------
Badger Tobacco Settlement
Asset Securitization Corp.
Rev. Bonds
2,600,000 7s, 6/1/28 Baa2 2,470,000
2,500,000 6 3/8s, 6/1/32 Baa2 2,171,875
2,400,000 WI State Hlth. & Edl. Fac. Auth.
Rev. Bonds (Wheaton Franciscan),
5 3/4s, 8/15/30 A2 2,454,000
--------------
7,095,875
-------------------------------------------------------------------------------
Total Investments (cost $316,975,747) $325,648,989
-------------------------------------------------------------------------------
(a) Percentages indicated are based on portfolio market value.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 2003 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, 2003. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2003 was
$12,323,200 or 3.8% of portfolio market value.
The rates shown on VRDN and mandatory put bonds are the current interest
rates shown at October 31, 2003.
The rates shown on IFB and IF COP, which are securities paying interest
rates that vary inversely to changes in the market interest rates, are
the current interest rates at October 31, 2003.
The fund had the following industry group concentrations greater than
10% at October 31, 2003
(as a percentage of portfolio market value):
Health care 19.9%
Utilities 16.5
The fund had the following insurance concentrations greater than 10% at
October 31, 2003
(as a percentage of portfolio market value):
MBIA 12.1%
FGIC 11.6
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
October 31, 2003 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$316,975,747) (Note 1) $325,648,989
-------------------------------------------------------------------------------
Cash 321,448
-------------------------------------------------------------------------------
Interest and other receivables 6,067,964
-------------------------------------------------------------------------------
Receivable for securities sold 210,650
-------------------------------------------------------------------------------
Total assets 332,249,051
Liabilities
-------------------------------------------------------------------------------
Distributions payable to common shareholders 1,284,400
-------------------------------------------------------------------------------
Accrued preferred shares distribution payable (Note 1) 18,761
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 550,142
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,836
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 27,248
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 526
-------------------------------------------------------------------------------
Other accrued expenses 119,798
-------------------------------------------------------------------------------
Total liabilities 2,031,711
-------------------------------------------------------------------------------
Series A remarketed preferred shares: (800 shares authorized
and issued at $50,000 per share (Note 4) 40,000,000
-------------------------------------------------------------------------------
Series B and C remarketed preferred shares: (3,240 shares
authorized and issued at $25,000 per share (Note 4) 81,000,000
-------------------------------------------------------------------------------
Net assets $209,217,340
Represented by
-------------------------------------------------------------------------------
Paid-in capital -- common shares (Note 1) $223,156,275
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,505,167
-------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (24,117,344)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,673,242
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to common shares
outstanding $209,217,340
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per common share ($209,217,340 divided by
16,157,092 shares) $12.95
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended October 31, 2003 (Unaudited)
Interest income: $9,530,150
-------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,102,168
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 109,092
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 5,773
-------------------------------------------------------------------------------
Administrative services (Note 2) 3,167
-------------------------------------------------------------------------------
Preferred share remarketing agent fees 172,722
-------------------------------------------------------------------------------
Other 108,013
-------------------------------------------------------------------------------
Total expenses 1,500,935
-------------------------------------------------------------------------------
Expense reduction (Note 2) (11,881)
-------------------------------------------------------------------------------
Net expenses 1,489,054
-------------------------------------------------------------------------------
Net investment income 8,041,096
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,042,897)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 5,814,555
-------------------------------------------------------------------------------
Net loss on investments (228,342)
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,812,754
-------------------------------------------------------------------------------
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (585,724)
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders $7,227,030
-------------------------------------------------------------------------------
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
Decrease in net assets 2003* 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $8,041,096 $17,642,636
-------------------------------------------------------------------------------
Net realized loss on investments (6,042,897) (3,462,398)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,814,555 1,777,603
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 7,812,754 15,957,841
Distributions to Series A, B, and C remarketed
preferred shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (585,724) (1,569,492)
-------------------------------------------------------------------------------
From ordinary income -- (231)
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations applicable to common shareholders 7,227,030 14,388,118
Distributions to common shareholders: (Note 1)
-------------------------------------------------------------------------------
From tax exempt income (7,706,582) (14,767,169)
-------------------------------------------------------------------------------
From ordinary income -- (4,847)
-------------------------------------------------------------------------------
Total decrease in net assets (479,552) (383,898)
Net assets
-------------------------------------------------------------------------------
Beginning of period 209,696,892 210,080,790
-------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $1,505,167 and
$1,756,377, respectively) $209,217,340 $209,696,892
-------------------------------------------------------------------------------
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
October 31
Per-share (Unaudited) Year ended April 30
operating performance 2003 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period
(common shares) $12.98 $13.00 $13.00 $12.51 $14.11 $14.05
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .50 1.09 1.16 1.15 1.18 1.19
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.01) (.10) (.10) .56 (1.59) .03
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .49 .99 1.06 1.71 (.41) 1.22
---------------------------------------------------------------------------------------------------------------------------------
Distributions to preferred shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.04) (.10) (.15) (.31) (.28) (.25)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations applicable to
common shareholders .45 .89 .91 1.40 (.69) .97
---------------------------------------------------------------------------------------------------------------------------------
Distributions to common shareholders:
---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.48) (.91) (.91) (.91) (.91) (.91)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions: (.48) (.91) (.91) (.91) (.91) (.91)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $12.95 $12.98 $13.00 $13.00 $12.51 $14.11
---------------------------------------------------------------------------------------------------------------------------------
Market price, end of period
(common shares) $12.730 $12.480 $12.500 $13.590 $11.625 $14.750
---------------------------------------------------------------------------------------------------------------------------------
Total return at market price (%)
(common shares) (b) 5.82* 7.35 (1.57) 25.32 (15.25) 13.57
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(common shares)
(in thousands) $209,217 $209,697 $210,081 $210,097 $202,063 $228,031
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .71* 1.41 1.43 1.44 1.46 1.42
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) 3.54* 7.65 7.63 6.50 6.93 6.58
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.41* 12.30 20.84 14.59 13.84 10.18
---------------------------------------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
October 31, 2003 (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, 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 valued on the basis
of valuations provided by an independent pricing service, approved by
the Trustees. Such services use 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 valued 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 recorded 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, any remaining premium is amortized to maturity.
C) 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, 2003, the fund had a capital loss carryover of $14,831,099
available to the extent allowed by tax law to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
--------------------------------
$4,581,245 April 30, 2004
126,586 April 30, 2007
2,788,662 April 30, 2008
1,503,027 April 30, 2009
2,243,569 April 30, 2010
3,588,010 April 30, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending April 30, 2004 approximately $2,849,439 of losses recognized
during the period November 1, 2002 to April 30, 2003.
The aggregate identified cost on a tax basis is $316,975,642, resulting
in gross unrealized appreciation and depreciation of $15,987,529 and
$7,314,182, respectively, or net unrealized appreciation of $8,673,347.
D) 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 Series C. The applicable dividend rate for the remarketed
preferred shares on October 31, 2003 was Series A 0.90%, Series B 0.89%,
and Series C 0.90%. 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.
E) 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 as of
period end.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on 0.65% of the fund's average weekly net
assets.
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 0.65% 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, 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,
2003, the fund's expenses were reduced by $11,881 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $687 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 Trustee compensation and expenses in
the Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the six months ended October 31, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $39,521,187 and $45,947,157, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
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 may 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, 2003, no such
restrictions have been placed on the fund.
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order
by the Securities and Exchange Commission (SEC) in partial
resolution of administrative and cease-and-desist proceedings
initiated by the SEC on October 28, 2003 in connection with alleged
excessive short-term trading by at least six Putnam Management
investment professionals. The SEC's findings reflect that four of
those employees engaged in such trading in funds over which they had
investment decision-making responsibility and had access to
non-public information regarding, among other things, current
portfolio holdings, and valuations. The six individuals no longer
have investment responsibilities with Putnam Management. Under the
order, Putnam Management will make restitution for losses
attributable to excessive short-term trading by Putnam employees,
institute new employee trading restrictions and enhanced employee
trading compliance, retain an independent compliance consultant, and
take other remedial actions. Putnam Management neither admitted nor
denied the order's findings, which included findings that Putnam
Management willfully violated provisions of the federal securities
laws. A civil monetary penalty and other monetary relief, if any,
will be determined at a later date. If a hearing is necessary to
determine the amounts of such penalty or other relief, Putnam
Management will be precluded from arguing that it did not violate
the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as
true by the hearing officer and additional evidence may be
presented. Putnam Management, and not the investors in any Putnam
fund, will bear all costs, including restitution, civil penalties
and associated legal fees. Administrative proceedings instituted by
the Commonwealth of Massachusetts on October 28, 2003 against Putnam
Management in connection with alleged market timing activities by
Putnam employees and by participants in some Putnam-administered
401(k) plans are pending. Putnam Management has committed to make
complete restitution for any losses suffered by Putnam shareholders
as a result of any improper market-timing activities by Putnam
employees or within Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also
serve as the general basis for numerous lawsuits, including
purported class action lawsuits filed against Putnam Management and
certain related parties, including certain Putnam funds. Putnam
Management has agreed to bear any costs incurred by Putnam funds in
connection with these lawsuits. Based on currently available
information, Putnam Management believes that the likelihood that the
pending private lawsuits and purported class action lawsuits will
have a material adverse financial impact on the fund is remote, and
the pending actions are not likely to materially affect its ability
to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by
separate independent counsel for the Putnam funds and their
independent Trustees is continuing. In addition, Marsh & McLennan
Companies, Inc., Putnam Management's parent company, has engaged
counsel to conduct a separate review of Putnam Management's policies
and controls related to short-term trading.
Results of October 7, 2003 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
2003. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common shares
Votes
Votes for withheld
------------------------------------------------------------------
Jameson Adkins Baxter 14,448,177 338,766
Charles B. Curtis 14,449,043 337,900
Ronald J. Jackson 14,451,330 335,613
Paul L. Joskow 14,435,117 351,826
Elizabeth T. Kennan 14,446,356 340,587
Lawrence J. Lasser* 14,448,441 338,501
John H. Mullin III 14,451,302 335,641
George Putnam, III 14,447,699 339,244
A.J.C. Smith 14,439,604 347,339
W. Thomas Stephens 14,447,244 339,699
W. Nicholas Thorndike 14,419,674 367,269
Preferred Shares
Votes
Votes for withheld
------------------------------------------------------------------
Jameson Adkins Baxter 3,845 6
Charles B. Curtis 3,845 6
John A. Hill 3,845 6
Ronald J. Jackson 3,845 6
Paul L. Joskow 3,845 6
Elizabeth T. Kennan 3,845 6
Lawrence J. Lasser* 3,845 6
John H. Mullin III 3,845 6
Robert E. Patterson 3,845 6
George Putnam, III 3,845 6
A.J.C. Smith 3,845 6
W. Thomas Stephens 3,845 6
W. Nicholas Thorndike 3,845 6
All tabulations are rounded to nearest whole number.
* Mr. Lasser resigned from the Board of Trustees of the Putnam funds
on November 3, 2003.
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 over 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 LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
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,
Treasurer and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[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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Shareholders can sign up for email delivery of shareholder reports on
www.putnaminvestments.com.
203411 582 12/03
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Items 5-6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
------------------
Item 9. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: December 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: December 23, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: December 23, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 23, 2003