-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SCGerKTGuouydzfmgo7MB2lS+Jvkxh8DAjKOL4kmXTh2c0hWANLybPczcJR5KW7P iUyc77j/KUTu7eWCOTH7WQ== 0000928816-96-000183.txt : 19960701 0000928816-96-000183.hdr.sgml : 19960701 ACCESSION NUMBER: 0000928816-96-000183 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960628 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MUNICIPAL OPPORTUNITIES TRUST CENTRAL INDEX KEY: 0000900422 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043187549 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07626 FILM NUMBER: 96588670 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 MAIL ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 N-30D 1 PUTNAM MUNICIPAL OPPURTUNITIES TRUST Putnam Municipal Opportunities Trust ANNUAL REPORT April 30, 1996 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "[I]n the months ahead, municipal bond funds may begin to provide investors fewer bumps and better returns, many bond analysts say . . . investors are becoming skittish about the sky-high returns on equity funds and are beginning to seek some less-risky tax-free income; yields on municipal bonds hover around an attractive 6 percent range, and investors in some tax-high states can do better on an after-tax basis investing in municipals than in Treasuries." -- The New York Times, April 7, 1996 *"[G]iven that 1996 is an election year, the popularity of tax deductions, and complexity of implementing any substantial changes to the tax codes help make the outlook for the muni market optimistic." -- The Value Line Mutual Fund Survey, March 19, 1996 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 18 Financial statements [GRAPHIC OMITTED: photo of George Putnam] (copyright) Karsh, Ottawa From the Chairman Dear Shareholder: The tax-exempt bond market provided quite a ride for shareholders of Putnam Municipal Opportunities Trust during the fiscal year ended April 30, 1996. The year got off to a solid start as the U.S. bond market enjoyed what would become one of the strongest advances in recent memory. The euphoria proved short-lived for municipal bond investors, however, as talk of a flat tax gave rise to concern over the continued viability of tax-exempt securities. Once raised, the flat-tax worries provided a negative undercurrent throughout much of the remainder of the year. It subsided just in time to temper the decline in tax-exempt securities when the entire bond market suddenly plunged in March. Through all these market gyrations, your fund was able to close fiscal 1996 solidly in the black. During the period, Richard Wyke assumed the reins as your fund's manager. Rick has been a portfolio manager at Putnam since 1987 and currently manages a number of other funds in the tax-exempt group. He has 13 years of investment experience. Respectfully yours, /s/ George Putnam George Putnam Chairman of the Trustees June 19, 1996 Report from the Fund Manager Richard P. Wyke Calendar 1995 was indeed a stellar year for bond market performance. Putnam Municipal Opportunities Trust tallied its share of positive returns, despite flat-tax fears that threatened to dampen the performance of many tax-free investments. Although this positive momentum continued through February 1996, the tide quickly turned in March, when evidence of a strengthening economy, along with technical factors in the municipal bond market, brought the extended rally to an abrupt halt. For the 12 months ended April 30, 1996, your fund delivered a total return of 9.76% at net asset value and 19.64% at market price while continuing to provide a competitive level of tax-free income. Although we remain confident in the long-term prospects for municipal investments, the coming months could bring some additional uncertainty as investors adjust to new realities with regard to the economy and inflation. * MUNICIPALS EXHIBIT RELATIVE STRENGTH While fixed-income markets have been declining or flat since March, tax- exempt investments have outperformed comparable Treasury securities on an after-tax basis. As the Forbes presidential candidacy dissolved and the flat-tax proposal receded from public prominence, the municipal market began to shed a major cloud that had been concerning investors for some time. While we expect discussions of broader tax reform to reappear this fall as the presidential election nears, radical changes now appear less likely than they did just a few months ago. In addition, municipal market supply and demand dynamics remain fairly favorable. Supply continues to be low as the current higher interest rates limit the appeal of refinancing. (When interest rates were lower, municipal bond issuers had more incentive to refinance older bonds in order to reduce financing costs.) On the demand side, insurance companies have emerged as major buyers of municipal securities. With their large supplies of cash, these buyers have kept demand relatively firm. * MARKET SLIDE MAY BE OVERDONE Early 1996 saw a significant rally in the municipal securities market as municipal bond yields reached lows near those last seen in October 1993. In February, several factors converged to stop the rally and cause interest rates to begin moving higher. In Washington, balanced-budget negotiations failed and the government released data showing a strong rise in employment growth. These events fueled fears of renewed inflation and a possible end to the Federal Reserve Board's program of lowering short-term interest rates. At the same time, technical changes involving large flows of capital added to volatility within the municipal market. In our opinion, investor anxieties concerning an overheating economy are premature. We anticipate the remainder of 1996 to be marked by steady but manageable economic growth and foresee only limited risk of a sharp increase in inflationary pressures. The bounce back from the end of the government shutdown, the severe winter weather, and the General Motors strike may all be exaggerating the strength of the economy's rebound. While there may be some inflation surprises in the coming months, fundamental indicators do not appear strong enough for the economy to expand too rapidly. * DEFENSIVE STRATEGY MAKES INCOME THE PRIORITY In contrast with the trend toward lower interest rates in last year's slowing economy, the current climate of steady economic growth is unlikely to lead to falling interest rates and price appreciation in the bond market. In fact, we believe coupon income will provide most of the total return for fixed-income investors for the rest of 1996. [GRAPHIC OF HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS*] Information in chart reads: Airlines 21.9% Utilities 18.1% Health/hospitals 16.4% Housing 8.2% Cogeneration 6.6% *Based on net assests as of 4/30/96. Holdings will vary over time. Given this scenario, we have begun to shorten the portfolio's duration by approximately one year to bring it more in line with the municipal market averages. This more defensive strategy is designed to preserve the fund's net asset value and reduce its sensitivity to interest-rate changes that may occur in coming months. Duration is a mathematical formula used to assess a portfolio's potential price volatility. The longer the duration (expressed in years), the greater the probable swing in prices when interest rates change. We have also begun to take a more focused, or "bulleted," approach to capturing yield for the fund. In practice, this has led us to concentrate fund holdings in intermediate-term securities with maturities of 10 to 15 years, rather than splitting holdings between short- and long-term securities as we had previously done. With insurance companies now accounting for much of the demand in the municipal market, intermediate issues have become sought after. This high demand provides a degree of price support for these securities. As of the end of the fiscal year, demand levels, along with solid yields, made intermediate issues attractive choices for the portfolio. * AIRLINES, HOSPITALS STAY STRONG, UTILITIES ALLOCATION DOWN A BIT Airline, hospital, and investor-owned utilities remain the three largest investment sectors in the fund's portfolio. Over the past year, the airline holdings have increased significantly. These holdings are industrial revenue bonds issued by municipalities and backed by the credit of corporations including Delta, United, and American airlines. The air transportation industry has emerged from a period of restructuring in much stronger shape, tallying record earnings in recent months. This uplift has led to improving credit fundamentals for many of these securities, resulting in higher ratings for some fund holdings. In addition to stronger balance sheets, the airline industry is also shedding its cyclical nature as domestic carriers expand their international business and regional carriers take on a more national character. These changes are making the airlines less vulnerable to cyclical forces, enabling them to establish steadier year-round revenue streams. [GRAPHIC OF PIE CHART OMITTED: CREDIT QUALITY OVERVIEW] Information in chart reads: A 8.2% AA 7.8% AAA/VMIGI 22.8% BB 20.7% BBB 40.5% As a percentage of market value as of 4/30/96. A bond rated BBB or higher is considered investment grade. All ratings reflect Standard & Poor's and Moody's descriptions; the fund also holds a small portion of unrated securities determined by Putnam Mangement to be of comparable quality. Holdings will vary over time. Although the hospital sector has recently lagged other sectors of the municipal bond market, we still consider it an opportunity for strong yields and good relative value. We continue to evaluate hospital bonds on an individual basis, focusing on those facilities best positioned to emerge successfully from the mergers and acquisitions that are reshaping the health-care industry. Time and again, we find that established hospitals with solid market share and good relationships with doctors and HMOs are more likely to be purchased or form profitable affiliations. These, in turn, can lead to increases in the value of their bonds. In the utility sector, we have begun to reduce holdings slightly, although we continue to find good value on an individual basis. Currently the utility industries are undergoing an intense period of deregulation as different states reassess their statutes and do away with many of the regulations that had been in place since the inception of utility regulation. Utilizing Putnam's superior credit analysis capabilities, we are reducing the fund's exposure to noncompetitive utilities and focusing on investor-owned utilities. In comparison to utilities owned and operated by municipalities, investor-owned utilities tend to have more efficient operations and relatively stable income streams. One particularly solid name in the portfolio is Southwest Gas. With little competition and no burdensome uneconomic power generation facilities to support, Southwest Gas is currently experiencing strong growth in its gas and electric services business. * OUTLOOK CAUTIOUS, BUT CONSTRUCTIVE A climate of steadier economic growth clearly requires a more cautious approach to fixed-income investing. The coming months are unlikely to bring a rise in bond prices and may even see a short run-up in inflation. Given this scenario, astute credit analysis will become even more important as we place greater emphasis on coupon income and on enhancing the price stability and liquidity of the portfolio. Careful maturity selection and a focus on larger, well-known municipal names will play an increasingly vital role in your fund's strategy over the next six months. 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 4/30/96, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. Putnam Municipal Opportunities Trust is designed for investors seeking high current income free from federal income tax, consistent with preservation of capital. This section provides, at a glance, information about your fund's performance. 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. TOTAL RETURN FOR PERIODS ENDED 4/30/96 (Common shares) Lehman Bros. Market Municipal Consumer NAV price Bond Index Price Index - ------------------------------------------------------------------------ 1 year 9.76% 19.64% 7.95% 2.50% - ------------------------------------------------------------------------ Life of fund (since 5/28/93) 18.73 12.40 14.77 7.98 Annual average 6.04 4.07 4.84 2.65 - ------------------------------------------------------------------------ TOTAL RETURN FOR PERIODS ENDED 3/31/96 (most recent calendar quarter) Market NAV price - ------------------------------------------------------------------------ 1 year 10.22% 12.90% - ------------------------------------------------------------------------ Life of fund (since 5/28/93) 18.80 9.68 Annual average 6.26 3.31 - ------------------------------------------------------------------------ Performance data represent past results, and is not indicative of future s performance. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 12 months ended 4/30/96 - ------------------------------------------------------------------------ Distributions (number) 12 - ------------------------------------------------------------------------ (Common shares) - ------------------------------------------------------------------------ Income $0.990 - ------------------------------------------------------------------------ Total $0.990 - ------------------------------------------------------------------------ (Preferred shares) Series A (800 shares) - ------------------------------------------------------------------------ Income $1,819.19 - ------------------------------------------------------------------------ Total $1,819.19 - ------------------------------------------------------------------------ Share value: (Common shares) NAV Market price - ------------------------------------------------------------------------ 4/30/95 $13.23 $12.250 - ------------------------------------------------------------------------ 4/30/96 13.50 13.625 - ------------------------------------------------------------------------ Current return (Common Shares) NAV Market price - ------------------------------------------------------------------------ End of period - ------------------------------------------------------------------------ Current dividend rate1 7.33% 7.27% - ------------------------------------------------------------------------ Taxable equivalent2 12.14% 12.03% - ------------------------------------------------------------------------ 1 Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. 2 Assumes maximum 39.6% federal tax rate. Certain high income investors may be subject to the Alternative Minimum Tax on a portion of investment income. Income may be subject to state and local taxes. Capital gains, if any, are taxable for federal, and in most cases, state purposes. Results for investors subject to lower tax rates would not be as advantageous. TERMS AND DEFINITIONS Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, the liquidation preference and cumulative undeclared dividends on the 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 Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lehman Brothers Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. The index assumes reinvestment of all distributions and interest payments and does not take into account brokerage fees or taxes. Securities in the fund do not match those in the index and performance of the fund will differ. It is not possible to invest directly in an index. Report of independent accountants For the fiscal year ended April 30, 1996 To the Trustees and Shareholders of Putnam Municipal Opportunities Trust We have audited the accompanying statement of assets and liabilities of Putnam Municipal Opportunities Trust, including the portfolio of investments owned, as of April 30, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of April 30, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Municipal Opportunities Trust as of April 30, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts June 18, 1996
Portfolio of investments owned April 30, 1996 Key to Abbreviations AMBAC -- AMBAC Indemnity Corporation COP -- Certificate of Participation FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance GNMA Coll. -- Government National Mortgage Association Collateralized G.O.Bonds -- General Obligation Bonds IF COP -- Inverse Floater Certificate of Participation IFB -- Inverse Floating Rate Bonds LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance Corporation VRDN -- Variable Rate Demand Notes Municipal Bonds and Notes (98.0%)* PRINCIPAL AMOUNT RATINGS** VALUE Alabama (2.1%) - ---------------------------------------------------------------------------------------------------------------- $5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste Disp. James River Corp. Project), 8s, 9/1/28 BBB $ 5,525,000 Arizona (1.2%) - ---------------------------------------------------------------------------------------------------------------- 2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds (Westminster Village Project), 7 7/8s, 6/1/09 BB/P 3,031,600 California (11.3%) - ---------------------------------------------------------------------------------------------------------------- 5,000,000 Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds (CA Toll Rd.), Ser. A, 5s, 1/1/35 Baa 3,993,750 3,000,000 Metro. Wtr. Dist. IFB (Southern CA Waterworks.), 7.715s, 8/10/18 AA 2,932,500 2,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste Mgt.), 7 7/8s, 12/1/13 BBB 2,087,500 5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin. Project), Ser. A, MBIA, 6 1/2s, 8/1/17 # AAA 5,400,000 3,000,000 San Diego Cnty., IF COP, AMBAC, 7.27s, 9/1/07 AAA 3,030,000 6,000,000 San Diego Cnty., Rev. Bonds, AMBAC, 5 5/8s, 9/1/12 AAA 5,955,000 3,000,000 So. CA Pub. Pwr. Auth. IFB, FGIC, 4.24s, 7/1/17 AAA 2,628,750 3,000,000 Thousand Oaks, Cmnty. Fac. Dist. Special Tax Rev. Bonds (No. 94-1), 6 7/8s, 9/1/24 BB/P 3,015,000 -------------- 29,042,500 Colorado (5.7%) - ---------------------------------------------------------------------------------------------------------------- Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A 9,440,000 8 3/4s, 11/15/23 Baa 11,151,000 3,160,000 MBIA, 8 1/2s, 11/15/23 AAA 3,669,550 -------------- 14,820,550 Connecticut (2.1%) - ---------------------------------------------------------------------------------------------------------------- CT State G.O. Bonds, Ser. A 2,000,000 5.3s, 5/15/10 AA 1,952,500 3,500,000 5.2s, 5/15/09 AA 3,421,250 -------------- 5,373,750 Florida (3.8%) - ---------------------------------------------------------------------------------------------------------------- 3,000,000 Broward Cnty., Resource Recvy. Rev. Bonds (SES Broward Cnty. LP South Project), 7.95s, 12/1/08 A 3,307,500 5,775,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds (Indiantown Cogen. Project), Ser. A, 7 7/8s, 12/15/25 Baa 6,446,344 -------------- 9,753,844 Illinois (14.2%) - ---------------------------------------------------------------------------------------------------------------- Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds (United Air Lines, Inc.) 10,900,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,180,750 10,930,000 Ser. C, 8.2s, 5/1/18 Baa 11,777,075 10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A, 8 1/4s, 7/1/16 A 10,637,500 1,900,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 10.483s, 2/1/20 (acquired 5/28/93, cost $2,152,225) ++ Aa 2,066,250 -------------- 36,661,575 Indiana (2.0%) - ---------------------------------------------------------------------------------------------------------------- 3,000,000 IN State Dev. Fin. Auth. Poll. Control Rev. Bonds (Inland Steel Co. Project No. 12), 6.85s, 12/1/12 Ba 3,033,750 2,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds Federal Express Corp. Project), 7.1s, 1/15/17 Baa 2,117,500 -------------- 5,151,250 Kentucky (1.9%) - ---------------------------------------------------------------------------------------------------------------- Kenton Cnty., Arpt. Board Special Facs. Rev. Bonds (Delta Air Lines, Inc. Project) 3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa 3,595,500 1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa 1,363,375 -------------- 4,958,875 Louisiana (3.4%) - ---------------------------------------------------------------------------------------------------------------- 5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds (Continental Grain Co. Project), 7 1/2s, 7/1/13 BB 5,692,500 2,850,000 St. Charles Parish, Poll. Control Rev. Bonds (LA Pwr. & Lt.), 8s, 12/1/14 Baa 3,106,500 -------------- 8,799,000 Massachusetts (5.3%) - ---------------------------------------------------------------------------------------------------------------- 2,000,000 MA State VRDN, Ser. E, 3.9s, 12/1/97 (ABN Amro Bank N.V. (LOC)) VMIGI 2,000,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds 3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,178,106 3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 BB/P 3,086,250 3,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA Project), Ser. A, 9s, 7/1/15 BB/P 3,326,250 2,500,000 MA State Wtr. Res. Auth. Rev. Bonds, Ser. B, MBIA, 4 3/4s, 12/1/21 AAA 2,090,625 -------------- 13,681,231 Michigan (1.7%) - ---------------------------------------------------------------------------------------------------------------- 1,700,000 Dickinson Cnty., Hosp. Rev. Bonds (Memorial Hosp. Syst.), 8 1/8s, 11/1/24 BBB 1,861,500 2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds, Ser. A, FSA, 7.55s, 4/1/23 AAA 2,628,125 -------------- 4,489,625 Mississippi (1.1%) - ---------------------------------------------------------------------------------------------------------------- 2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 Ba 2,709,375 Nebraska (1.2%) - ---------------------------------------------------------------------------------------------------------------- 2,700,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB, Ser. 2, GNMA Coll., 11.328s, 9/10/30 AAA 3,010,500 Nevada (3.4%) - ---------------------------------------------------------------------------------------------------------------- Clark Cnty., Indl. Dev. Rev. Bonds Southwest Gas Corp.) 2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa 2,897,813 6,000,000 Ser. A, 6 1/2s, 12/1/33 Baa 5,745,000 -------------- 8,642,813 New Jersey (9.6%) - ---------------------------------------------------------------------------------------------------------------- 9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds (Vineland Cogen. L.P. Project), 7 7/8s, 6/1/19 BB 9,618,750 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds 1,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 1,593,750 2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,632,088 10,000,000 Salem Cnty., Indl. Poll. Control Fin. Auth. IFB, 9.015s, 10/1/29 (acquired 10/28/94, Cost $9,750,000) ++ AAA 11,037,500 -------------- 24,882,088 New York (2.8%) - ---------------------------------------------------------------------------------------------------------------- 4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds (American Airlines, Inc. Project), 8s, 7/1/20 Baa 4,922,000 2,500,000 NY State Dorm. Auth. Rev. Bonds (U. Syst. Construction), Ser. A, 5 5/8s, 7/1/16 Baa 2,353,125 -------------- 7,275,125 North Carolina (0.7%) - ---------------------------------------------------------------------------------------------------------------- 2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B, 6s, 1/1/22 A 1,927,500 Ohio (1.2%) - ---------------------------------------------------------------------------------------------------------------- 2,913,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2, GNMA Coll., 9.9s, 3/24/31 AAA 3,069,574 Pennsylvania (6.5%) - ---------------------------------------------------------------------------------------------------------------- 3,000,000 Beaver Cnty., Indl. Dev. Auth. Rev. Bonds (Cleveland Elec. Project), 7 5/8s, 5/1/25 Ba 3,067,500 7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp. Rev. Bonds (UTD Hosp. Project), Ser. B, 8 3/8s, 11/1/11 Ba 7,455,000 1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds (Colver Project), Ser. D, 7.15s, 12/1/18 BBB 1,040,000 5,000,000 PA State Higher Edl. Assistance Agcy. Student Loan IFB, AMBAC, 9.622s, 9/3/26 AAA 5,312,500 -------------- 16,875,000 South Carolina (1.9%) - ---------------------------------------------------------------------------------------------------------------- 4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds (Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,803,750 Texas (11.9%) - ---------------------------------------------------------------------------------------------------------------- 5,500,000 Alliance Arpt. Auth. Special. Fac. Rev. Bonds (American Airlines, Inc. Project), 7 1/2s, 12/1/29 Baa 5,836,875 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (St. Luke's Lutheran Hosp. Project) 4,800,000 7.9s, 5/1/18 AAA/P 5,628,000 2,000,000 7.9s, 5/1/11 AAA/P 2,345,000 4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds (TX Utils. Elec. Co. Project), Ser. A, 7 7/8s, 3/1/21 Baa 4,938,750 2,450,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev. Bonds (Baptist Healthcare Syst. Project), 8 7/8s, 6/1/21 Ba 2,517,375 3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds (Valero Refining & Marketing Co.), Ser. A, 10 1/4s, 6/1/17 Baa 3,818,223 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 AA 5,718,750 -------------- 30,802,973 Virginia (1.4%) - ---------------------------------------------------------------------------------------------------------------- 3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.), Ser. C, 9.707s, 8/29/23 AAA 3,675,000 Washington (1.6%) - ---------------------------------------------------------------------------------------------------------------- 4,650,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds (Solid Waste-Occidental Petroleum), 5.8s, 9/1/29 Baa 4,115,250 -------------- Total Investments (cost $252,414,395)*** $253,077,748 - ---------------------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $258,119,397. Net assets available to common shareholders are $218,047,891. ** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at April 30, 1996 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, 1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
The table below shows the percentage of the fund's investments on April 30, 1996 in securities assigned to various rating categories by Moody's or Standard & Poor's and in unrated securities determined by Putnam Management to be of comparable quality.
Unrated securities Rated securities of comparable quality, as a percentage of as a percentage of Rating fund's net assets fund's net assets - --------------------------------------------------------------------------------------------------- AAA/Aaa 18.5% 3.1% AA/Aa 7.7 -- A/A 6.1 1.9 BBB/Baa 39.7 -- BB/Ba 14.4 5.8 VMIGI 0.8 -- - --------------------------------------------------------------------------------------------------- 87.2% 10.8% - --------------------------------------------------------------------------------------------------- Ratings are not covered by the Report of independent accountants. *** The aggregate identified cost on a tax basis is $252,414,395, resulting in gross unrealized appreciation and depreciation of $6,208,327 and $5,544,974 respectively, or net unrealized appreciation of $663,353. ++ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at April 30, 1996 was $13,103,750 or 5.1% of net assets. # A portion of this security was pledged to cover margin requirements for futures contracts at April 30, 1996. The market value of segregated securities with the custodian for transactions in futures contracts is $334,800 or less than 0.1% of net assets. The rates shown on IFBs and IF COP, which are securities paying interest rates that vary inversely to changes in the market interest rates, and VRDNs are the current interest rates at April 30, 1996. The fund had the following industry group concentrations greater than 10% on April 30, 1996 (as a percentage of net assets): Airlines 21.9% Utilities 18.1 Health/Hospitals 16.4
- -------------------------------------------------------------------------------------------- Futures Contracts Outstanding at April 30, 1996 (aggregate face value $12,159,063) Aggregate Face Expiration Unrealized Total Value Value Date Appreciation - -------------------------------------------------------------------------------------------- U.S. Treasury Bond Futures (Sell) $12,007,188 $12,159,063 Jun 96 $151,875 The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities April 30, 1996 Assets - -------------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $ 252,414,395) (Note 1) $253,077,748 - -------------------------------------------------------------------------------------------------------- Cash 175,664 - -------------------------------------------------------------------------------------------------------- Interest receivable 5,993,685 - -------------------------------------------------------------------------------------------------------- Receivable for securities sold 708,622 - -------------------------------------------------------------------------------------------------------- Receivable for variation margin 75,625 - -------------------------------------------------------------------------------------------------------- Unamortized organization expenses (Note 1) 13,258 - -------------------------------------------------------------------------------------------------------- Total assets 260,044,602 Liabilities - -------------------------------------------------------------------------------------------------------- Distributions payable to shareholders 1,332,925 - -------------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 447,668 - -------------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 50,312 - -------------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 669 - -------------------------------------------------------------------------------------------------------- Payable for organization expenses (Note 2) 36,681 - -------------------------------------------------------------------------------------------------------- Other accrued expenses 56,950 - -------------------------------------------------------------------------------------------------------- Total liabilities 1,925,205 - -------------------------------------------------------------------------------------------------------- Net assets $ 258,119,397 Represented by - -------------------------------------------------------------------------------------------------------- Remarketed preferred shares (800 shares issued and outstanding at $50,000 per share liquidation preference) (Note 4) $ 40,000,000 - -------------------------------------------------------------------------------------------------------- Paid in capital-common shares (Note 1) 226,378,559 - -------------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 940,417 - -------------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (10,014,807) - -------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 815,228 - -------------------------------------------------------------------------------------------------------- Net assets $ 258,119,397 Net assets available to: - -------------------------------------------------------------------------------------------------------- Remarketed preferred shares at liquidation preference $ 40,000,000 - -------------------------------------------------------------------------------------------------------- Cumulative undeclared dividends on remarketed preferred shares 71,506 - -------------------------------------------------------------------------------------------------------- Net assets allocated to remarketed preferred shares $ 40,071,506 - -------------------------------------------------------------------------------------------------------- Net assets available to common shares $ 218,047,891 - -------------------------------------------------------------------------------------------------------- Net asset value per common share ($218,047,891 divided by 16,157,092 shares) $ 13.50 - -------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended April 30, 1996 Tax exempt interest income $18,293,098 - -------------------------------------------------------------------------------------------------------- Expenses: - -------------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,831,837 - -------------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 201,909 - -------------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 10,275 - -------------------------------------------------------------------------------------------------------- Administrative services (Note 2) 8,421 - -------------------------------------------------------------------------------------------------------- Amortization of organization expenses (Note 2) 6,369 - -------------------------------------------------------------------------------------------------------- Reports to shareholders 46,024 - -------------------------------------------------------------------------------------------------------- Auditing 55,849 - -------------------------------------------------------------------------------------------------------- Legal 10,830 - -------------------------------------------------------------------------------------------------------- Postage 40,780 - -------------------------------------------------------------------------------------------------------- Exchange listing fees 24,685 - -------------------------------------------------------------------------------------------------------- Preferred share remarketing agent fees 96,428 - -------------------------------------------------------------------------------------------------------- Other 1,809 - -------------------------------------------------------------------------------------------------------- Total expenses 2,335,216 - -------------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (70,380) - -------------------------------------------------------------------------------------------------------- Net expenses 2,264,836 - -------------------------------------------------------------------------------------------------------- Net investment income 16,028,262 - -------------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 2,003,399 - -------------------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Notes 1 and 3) 136,202 - -------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and futures contracts during the year 3,617,324 - -------------------------------------------------------------------------------------------------------- Net gain on investments 5,756,925 - -------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $21,785,187 - -------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended April 30 ---------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - -------------------------------------------------------------------------------------------------------- Operations: - -------------------------------------------------------------------------------------------------------- Net investment income $ 16,028,262 $ 16,512,895 - -------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions 2,139,601 (11,564,849) - -------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment transactions 3,617,324 9,027,102 - -------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 21,785,187 13,975,148 - -------------------------------------------------------------------------------------------------------- Distributions to remarketed preferred shareholders: - -------------------------------------------------------------------------------------------------------- From net investment income (1,455,352) (1,287,696) - -------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations applicable to common shareholders (excluding cumulative undeclared dividends on remarketed preferred shares of $71,506 and $0, respectively) 20,329,835 12,687,452 - -------------------------------------------------------------------------------------------------------- Distributions to common shareholders: - -------------------------------------------------------------------------------------------------------- From net investment income (15,995,243) (15,998,793) - -------------------------------------------------------------------------------------------------------- From net realized gains -- (1,481,046) - -------------------------------------------------------------------------------------------------------- In excess of net realized gains -- (499,303) - -------------------------------------------------------------------------------------------------------- Common share offering and closing costs charged to paid-in capital -- (218,436)+ - -------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 4,334,592 (5,510,126) - -------------------------------------------------------------------------------------------------------- Net assets - -------------------------------------------------------------------------------------------------------- Beginning of year 253,784,805 259,294,931 - -------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $940,417 and $2,272,494, respectively) $258,119,397 $253,784,805 - -------------------------------------------------------------------------------------------------------- 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 800 800 - -------------------------------------------------------------------------------------------------------- + Adjustments of the original offering costs to reflect actual costs incurred. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) For the period May 28, 1993 (commencement of Year ended operations) to April 30 April 30 April 30 ------------------------------------------------------------------ 1996 1995 1994 ------------------------------------------------------------------ Net asset value, beginning of period (common shares) $13.23 $13.57 $14.07* - ------------------------------------------------------------------------------------------------------------------- Investment operations: - ------------------------------------------------------------------------------------------------------------------- Net investment income .99 1.02 .94(a) - ------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .36 (.16) (.59) - ------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.35 86 .35 - ------------------------------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------------------------------- From net investment income: - ------------------------------------------------------------------------------------------------------------------- To preferred shareholders (.09) (.08) (.05)** - ------------------------------------------------------------------------------------------------------------------- To common shareholders (.99) (.99) (.70) - ------------------------------------------------------------------------------------------------------------------- Capital gains: - ------------------------------------------------------------------------------------------------------------------- To common shareholders -- (.09) (.05) - ------------------------------------------------------------------------------------------------------------------- In excess of capital gains: - ------------------------------------------------------------------------------------------------------------------- To common shareholders -- (.03) -- - ------------------------------------------------------------------------------------------------------------------- Total distributions (1.08) (1.19) (.80) - ------------------------------------------------------------------------------------------------------------------- Preferred share offering costs -- -- (.05) - ------------------------------------------------------------------------------------------------------------------- Common share offering costs -- (.01)+ -- - ------------------------------------------------------------------------------------------------------------------- Net asset value, end of period (common shares) $13.50 $13.23 $13.57 - ------------------------------------------------------------------------------------------------------------------- Market value, end of period (common shares) $13.625 $12.250 $12.625 - ------------------------------------------------------------------------------------------------------------------- Total investment return, at market value (common shares) (%) (c) 19.64 5.82 (11.22)(b) - ------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $258,119 $253,785 $259,295 - ------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%) (d)(e) 1.05 .95 .94(b) - ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) (d) 6.54 6.04 6.14(b) - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 49.97 59.13 60.52(b) - ------------------------------------------------------------------------------------------------------------------- *Represents initial net asset value of $14.10 less offering expenses of $0.03. **Preferred shares were issued on August 3, 1993. (See Note 4) +Adjustments of the original offering costs to reflect actual costs incurred. (a) Reflects a waiver of the management fee for the period May 28, 1993 to June 13, 1993. As a result of the waiver, expenses of the fund for the period ended April 30, 1994 reflect a reduction of less than $0.01per share. (See Note 2) (b) Not annualized. (c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (d)Ratios reflect net assets available to common shares only: net investment income ratio also reflects reduction for dividend payments to preferred shareholders. (e) The ratio of expenses to average net assets for the year ended April 30, 1995 and thereafter, include amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2)
Notes to financial statements April 30, 1996 Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The fund's investment objective is to seek a high level of current income exempt from federal income tax, consistent with preservation of capital. The fund intends to achieve its objective by investing in a portfolio of investment grade municipal bonds that Putnam Investment Management, Inc. ("Putnam Management"), the Fund's Manager, a wholly- owned subsidiary of Putnam Investments, Inc., believes to be consistent with preservation of capital. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. The fair value of restricted securities is determined by the Manager following procedures approved by the Trustees, and 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). Interest income is recorded on the accrual basis. C) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. D) Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held and for excise tax on income and capital gains. At April 30, 1996, the fund had a capital loss carryover of approximately $9,215,000 available to offset future net capital gain, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration ---------------------------- $4,634,000 4/30/2003 $4,581,000 4/30/2004 E) Distributions to shareholders Distributions to common and preferred shareholders are recorded by the fund on the ex-dividend date. 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. The applicable dividend rate for the remarketed preferred shares on April 30, 1996 was 3.625%. 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 treatment of market discount. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended April 30, 1996, the fund reclassified $90,256 to increase undistributed net investment income with an increase to accumulated net realized losses of $90,256. The calculation of net investment income per share in the financial highlights table excludes these adjustments. F) Determination of net asset value Net asset value of the common shares is determined by dividing the value of all assets of the fund (including accrued interest and dividends), less all liabilities (including accrued expenses and undeclared dividends on remarketed preferred shares) and the liquidation value of any outstanding remarketed preferred shares, by the total number of common shares outstanding. G) Amortization of bond premium and discount Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discounts on zero coupon bonds, original issue, stepped-coupon bonds and payment in kind bonds are accreted according to the effective yield method. H) Unamortized organization expenses Expenses incurred by the fund in connection with its organization, its registration with the Securities and Exchange Commission and with various states and the initial public offering of its shares were $36,681. These expenses are being amortized on a straight-line basis over a five-year period. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services and administrative services is paid quarterly based on the average net assets of the fund, including amounts attributable to any preferred shares that may be outstanding. Such fees in the aggregate are based on the annual rate of 0.70% of the first $500 million of the average net asset value of the fund, 0.60% of the next $500 million, 0.55% of the next $500 million, and 0.50% of any amount over $1.5 billion of such average net asset value subject, under current law, to reduction in any year by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of Putnam Management on the fund's portfolio transactions. If dividends payable on remarketed preferred shares during any dividend payment period plus any expenses attributable to remarketed preferred shares for the period exceed the fund's net 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 an agreed upon formula. See "Administration Services Contract." The fund reimburses Putnam Management 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 Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended April 30, 1996, fund expenses were reduced by $70,380 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of these assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the fund receive an annual Trustees fee of $790 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in the fund or in other Putnam funds until distribution in accordance with the Plan. Note 3 Purchases and sales of securities During the year ended April 30, 1996, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $127,957,774 and $126,337,866, respectively. Purchases and sales of short-term municipal obligations aggregated $64,800,000 and $68,000,000, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Remarketed preferred shares On August 3, 1993, the fund issued 800 remarketed preferred shares. Proceeds to the fund, before underwriting expenses of $600,000 and offering expenses of $182,000, amounted to $40,000,000. Such offering expenses and the fund underwriting expenditures were paid initially by Putnam Management, and the fund reimbursed Putnam Management for such costs. Theses expenses were charged against net assets of the fund available to common shareholders. The Series A shares are redeemable at the option of the fund on any dividend payment date at a redemption price of $50,000 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 approximately 100% of total distributions and dividends paid during fiscal 1996 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, 1996, no such restrictions have been placed on the fund. Federal tax information (Unaudited) The fund has designated 100% of dividends paid from net investment income during the fiscal year as tax exempt for federal income tax purposes. The Form 1099 you receive in January 1997 will show the tax status of all distributions paid to your account in calendar 1996. - ----------------------------------------------------------------------
Selected Quarterly Data (Unaudited) Net realized and Net increase (decrease) Investment Net investment unrealized gain in net assets Income Income* (loss) on investments* from operations* - --------------------------------------------------------------------------------------- Per Per Per Per Quarter Common Common Common Common Ended Totals Share Total Share Total Share Total Share - --------------------------------------------------------------------------------------- 1-31-94 $4,826,033 $.30 $3,957,895 $.24 $ 1,382,956 $.09 $ 5,340,851 $.33 4-30-94 4,762,164 .30 3,863,391 .25 (19,384,620) (1.20) (15,521,229) (.95) 7-31-94 4,830,847 .30 3,920,099 .24 (241,070) (.01) 3,679,029 .23 10-31-94 4,800,324 .30 3,864,423 .24 (11,848,099) (.73) (7,983,676) (.49) 1-31-95 4,693,515 .28 3,814,166 .24 2,986,140 .18 6,800,306 .42 4-30-95 4,579,698 .29 3,626,511 .22 6,565,282 .40 10,191,793 .62 7-31-95 4,572,037 .28 3,659,874 .23 3,918,401 .24 7,578,275 .47 10-31-95 4,550,958 .28 3,548,979 .21 5,783,632 .37 9,332,611 .58 1-31-96 4,595,509 .28 3,630,843 .22 5,175,763 .32 8,806,606 .54 4-30-96 4,574,594 .29 3,661,708 .24 (9,120,871) (.57) (5,459,163) (.33) * Available to common shareholders.
Fund information Investment Manager Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 Marketing Services Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 Custodian Putnam Fiduciary Trust Company Legal Counsel Ropes & Gray Independent Accountants Coopers & Lybrand L.L.P. Trustees George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike Officers George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Gary Coburn Vice President James E. Erickson Vice President Blake Anderson Vice President Richard P. Wyke Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date information about the fund's net asset value. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- 25120-582 6/96 -----END PRIVACY-ENHANCED MESSAGE-----