PUTNAM MUNICIPAL OPPORTUNITIES TRUST |
c/o Putnam Investment Management, LLC |
100 Federal Street |
Boston, Massachusetts 02110 |
February 27, 2019 |
Securities and Exchange Commission | |||
100 F Street, N.E. | |||
Washington, DC 20549 | |||
Attn: | Chief Accountant | ||
Division of Investment Management | |||
Re: | Putnam Municipal Opportunities Trust—File No. 811-07626 | ||
Request pursuant to Rule 19b-1(e) under the | |||
Investment Company Act of 1940, as amended |
This request (including exhibits) consists of 10 pages. The exhibit index is | |
on page 6. |
Ladies and Gentlemen: |
I. | INTRODUCTION |
Putnam Municipal Opportunities Trust, a Massachusetts business trust organized under | |
the laws of The Commonwealth of Massachusetts (the “Fund”), is filing this request pursuant | |
to Rule 19b-1(e) under the Investment Company Act of 1940, as amended (the “1940 Act”). | |
The Fund, which is registered as a closed-end investment company under the 1940 Act, | |
primarily invests in municipal bonds issued by U.S. states or U.S. territories. The Fund is | |
taxed as a regulated investment company (“RIC”) under Subchapter M of the Internal | |
Revenue Code of 1986, as amended (the “Code”). The Fund’s inception date was May 28, | |
1993. The Fund has a fiscal and taxable year ending on April 30 of each year. The total net | |
asset value of the Fund as of April 30, 2018 was $481,133,807. |
The Fund is advised by Putnam Investment Management, LLC (“Putnam Management”). | |
Putnam Management provides day-to-day management for the Fund’s portfolio. |
The Fund, because of the circumstances beyond its control described below, proposes to | |
characterize as capital gain dividends within the meaning of section 852(b)(3)(C) of the Code |
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certain distributions1 (or portions thereof) made in respect of the excise period for the twelve |
months ended October 31, 2018 (“Excise 2018”) on its series B preferred shares of beneficial |
interest (the “Series B Preferred Shares”) and series C preferred shares of beneficial interest |
(the “Series C Preferred Shares” and, together with the Series B Preferred Shares, the |
“Preferred Shares”). The Fund declared a capital gain dividend allocable to its common |
shares of beneficial interest (the “Common Shares”) with an ex-dividend date of December |
20, 2018 to shareholders of record on December 21, 2018 in accordance both with Code |
section 855 in respect of the fiscal year ending April 30, 2018 and Code section 4982 in |
respect of Excise 2018 (the “Distribution”). The Fund paid the Distribution on January 2, |
2019. The Distribution, coupled with the various distributions on the Preferred Shares that |
are proposed to be characterized as capital gain dividends, would result in the Fund having |
paid capital gain dividends in excess of the limits of Section 19(b) of the 1940 Act and Rule |
19b-1 thereunder. The Fund must characterize as capital gain dividends certain of the prior |
distributions to the Preferred Shares, along with the Distribution, to avoid the imposition of |
income tax under Code section 852(b)(3) and to comply with Revenue Ruling 89-81, which |
requires distributions of different types of income among different classes of shares to be |
proportional in order for the designation of a distribution as a capital gain dividend to be |
respected. |
II. | THE FUND’S DISTRIBUTIONS |
The facts and circumstances which required the Distribution and which require the
characterization of certain distributions with respect to the Preferred Shares as capital
gain dividends are as follows:
1. The Fund has Common Shares and Preferred Shares outstanding. The Fund pays | |
dividends to holders of its Preferred Shares and normally distributes net capital gains (that is, | |
the excess, if any, of net long-term capital gains over net short-term capital losses) (as | |
“capital gain dividends”) to holders of Common Shares once a year, usually near the end of | |
the calendar year. Dividends on each class of Preferred Shares are declared and paid, | |
normally at 7-day intervals (a “rate period”), at a rate determined pursuant to an auction | |
conducted on the business day immediately prior to the start of the applicable rate period (the | |
“Remarketing Procedures”) or, if the remarketing agent is unable to remarket the Preferred | |
Shares pursuant to the Remarketing Procedures, at the maximum dividend rate (as defined in | |
the Fund’s By-Laws). Because of the failure to remarket the Preferred Shares, the maximum | |
dividend rate is currently the applicable rate. |
2. In order to avoid a Fund-level tax, the Fund must distribute all net capital gains | |
realized with resect to each taxable year and with respect to each 12-month period ending on | |
October 31. As required by Revenue Ruling 89-81, the Fund allocates net capital gains | |
between its Common Shares and Preferred Shares pro rata based on the values of total | |
distributions made to the holders of Common Shares and Preferred Shares, respectively, for | |
the year in which such income is realized. |
1 See Exhibit C for additional detail regarding the distributions of capital gain dividends to the Preferred Shares.
Page 2 of 10 |
3. The Fund realized net capital gains of $7,236,042 during Excise 2018. Although the | |
Fund monitored the amount of net capital gains realized during Excise 2018, because of the | |
unpredictability of market movements and the need to wait until the end of the calendar year | |
before determining the final amount of net capital gains to be distributed and the appropriate | |
allocation, the Fund did not foresee that the amount of net capital gains realized during the | |
year would necessitate distributions of net capital gains on the Preferred Shares in excess of | |
the limits of Section 19(b) of the 1940 Act and Rule 19b-1 thereunder. |
4. The portion of the Fund’s net capital gains realized during Excise 2018 that will be | |
allocated to the Series B Preferred Shares and Series C Preferred Shares is $551,847 and | |
$511,452, respectively, which will be allocated to the Preferred Shares through the | |
characterization of prior distributions to the holders of Preferred Shares. The Fund will | |
characterize prior distributions to the holders of Preferred Shares using the following | |
methodology: the net capital gains will be allocated equally to the minimum number of | |
distributions necessary to cover the net capital gains allocable to the Preferred Shares. Using | |
this methodology, 18 distributions with respect to each of Series B Preferred Shares and | |
Series C Preferred Shares (for a total of 36 distributions with respect to the Preferred Shares) | |
will be characterized as having consisted, in part, of capital gain dividends.2 | |
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5. The portion of the Fund’s net capital gains for Excise 2018 that will be allocated to |
the Common Shares amounts to $6,172,743. In order to distribute these gains fully, the Fund | |
paid the Distribution on January 2, 2019. | |
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6. In light of the Distribution and the proposed characterizations of prior distributions to |
the Preferred Shares, a total of 18 distributions per class of Preferred Shares (36 distributions | |
in total) of net capital gains in respect of Excise 2018 will be needed to distribute the full | |
amount of net capital gains allocable to the Preferred Shares. | |
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III. REQUEST FOR RELIEF |
For the foregoing reasons, the Fund requests authorization to characterize as capital gain | |
dividends the minimum number of distributions to holders of the Preferred Shares necessary | |
to distribute the full amount of net capital gains allocable to the Preferred Shares in respect of | |
Excise 2018. It should be recognized that, although Section 19(b) of the 1940 Act and Rule | |
19b-1 thereunder serve very important purposes, there are some situations where tax rules | |
mandated under the Code could require specific characterizations of the tax character of prior | |
distributions. |
2 See Exhibit C for additional detail regarding the distributions of capital gain dividends to the Preferred Shares.
Page 3 of 10 |
Section 19(b) of the 1940 Act provides that: | |
It shall be unlawful in contravention of such rules, regulations, or orders as | |
the Commission may prescribe as necessary or appropriate in the public | |
interest or for the protection of investors for any registered investment | |
company to distribute long-term capital gains, as defined in Title 26, more | |
often than once every twelve months (emphasis added). |
As a result, we believe that relief is justified under Rule 19b-1(e) under the 1940 Act. As | |
discussed above, a portion of 36 prior distributions to the Preferred Shares will be | |
characterized as capital gain dividends and the need to so characterize such distributions was | |
unforeseen when the distributions were made. |
Further, as discussed above, a failure to properly report and treat the distributions as | |
capital gain dividends for tax purposes would result in taxation at the Fund level, potential | |
penalties to the Fund for incorrect Form 1099-DIV reports, and unfavorable tax treatment for | |
Fund shareholders. As a result, an application of Rule 19b-1(e) in the current situation would | |
be consistent with the goal of protecting investors under Section 19(b) of the 1940 Act. |
Pursuant to Rule 19b-1(e) under the 1940 Act, this request will be deemed granted | |
unless the Commission, within 15 days after the filing of this request, denies the request as | |
not being necessary or appropriate in the public interest or for the protection of investors and | |
notifies the Fund in writing of such denial. |
The undersigned officer of the Fund is authorized to file this request under Rule | |
19b-1(e) pursuant to the Fund’s By-Laws and resolutions approved by a majority of the | |
Board of Trustees of the Fund at a meeting held on February 21, 2019, attached hereto as | |
Exhibit B. |
The verification required by Rule 0-2 is attached hereto as Exhibit A. |
If you have any questions regarding this request, please do not hesitate to contact Venice | |
Monagan, Esq. of Putnam Management at (617) 760-2577. |
[The remainder of this page has been left blank intentionally.] |
Page 4 of 10 |
A copy of the Amended and Restated Agreement and Declaration of Trust, as amended, | |
of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice | |
is given that this instrument is executed on behalf of the Fund by an officer of the Fund as an | |
officer and not individually and the obligations of or arising out of this instrument are not | |
binding upon any of the Trustees, officers or shareholders individually but are binding only | |
upon the assets and property of the Fund. |
Sincerely yours, | |
/s/ Jonathan S. Horwitz | |
Jonathan S. Horwitz | |
Executive Vice President and Principal Executive | |
Officer | |
Putnam Municipal Opportunities Trust |
cc: | Venice Monagan, Esq., Counsel, Putnam Investment Management, LLC |
James E. Thomas, Esq., Ropes & Gray LLP | |
Bryan Chegwidden, Esq., Ropes & Gray LLP |
Page 5 of 10 |
Exhibits to Request | |
The following materials are made a part of the request and are attached hereto: | |
Designation | Document |
Exhibit A | Verifications |
Exhibit B | Resolutions of the Board of Trustees of Putnam |
Municipal Opportunities Trust | |
Exhibit C | Dividend Distributions with respect to Preferred Shares |
Page 6 of 10 |
Exhibit A
Verification of Putnam Municipal Opportunities Trust |
The undersigned states that he has duly executed the attached request dated February 27, |
2019 for and on behalf of Putnam Municipal Opportunities Trust (the “Fund”) in his capacity |
as Executive Vice President and Principal Executive Officer of the Fund and that all actions |
by the holders and other bodies necessary to authorize the undersigned to execute and file |
such instrument have been taken. The undersigned further states that he is familiar with such |
instrument, and the contents thereof, and that the facts therein set forth are true to the best of |
his knowledge, information and belief. |
/s/ Jonathan S. Horwitz | ||
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President and Principal | |
Executive Officer |
Page 7 of 10 |
Exhibit B
Votes of the Board of Trustees of Putnam Municipal Opportunities Trust | |
VOTED: | That the officers and agents of Putnam Municipal Opportunities Trust (the |
“Fund”) be, and they are, authorized and directed to file with the Securities | |
and Exchange Commission a request for authorization, pursuant to Rule 19b- | |
1(e) under the 1940 Act, for the Fund to make one or more capital gain | |
distributions which would otherwise be prohibited by Rule 19b-1, and that | |
each of the officers and agents of the Fund, acting alone, is authorized, | |
empowered, and directed on behalf of the Fund to cause to be prepared, | |
executed and filed with the Securities and Exchange Commission any and all | |
amendments of and exhibits to the request, to be in such form as the officers | |
or agents of the Fund shall approve, such approval to be conclusively | |
evidenced by their filing thereof. | |
VOTED: | That each officer and agent of the Fund, acting with advice of counsel, be, and |
is, authorized and empowered to make such changes as may be necessary by | |
reason of any comment on such materials by the Securities and Exchange | |
Commission or for any other reason deemed appropriate by the officers or | |
agents of the Fund. | |
VOTED: | That each officer and agent of the Fund, acting alone, be, and is, authorized, |
empowered and directed to take any and all additional acts and to prepare, | |
execute and deliver any and all other agreements, documents, instruments and | |
certificates, as they, or any of them acting alone deems necessary, appropriate | |
or convenient to carry out the intent and purposes of the foregoing resolutions, | |
such determination to be conclusively evidenced by the taking of such actions | |
and the preparation, execution and delivery of such agreements, documents, | |
instruments and certificates. |
Page 8 of 10 |
Exhibit C
Distributions with respect to | |||
Series B Preferred Shares | |||
# | Date Payable | Total Dividend | Portion Characterized as |
Capital Gain Dividend | |||
1 | 5/22/2018 | $39,429.96 | $30,658.16 |
2 | 7/3/2018 | $39,199.88 | $30,658.15 |
3 | 7/10/2018 | $39,429.96 | $30,658.15 |
4 | 8/28/2018 | $40,724.16 | $30,658.15 |
5 | 9/4/2018 | $40,925.48 | $30,658.15 |
6 | 9/11/2018 | $40,494.08 | $30,658.15 |
7 | 9/18/2018 | $38,969.80 | $30,658.15 |
8 | 9/25/2018 | $38,969.80 | $30,658.15 |
9 | 10/9/2018 | $40,494.08 | $30,658.15 |
10 | 10/16/2018 | $39,861.36 | $30,658.15 |
11 | 10/23/2018 | $39,976.40 | $30,658.15 |
12 | 10/30/2018 | $40,724.16 | $30,658.15 |
13 | 11/6/2018 | $41,356.88 | $30,658.15 |
14 | 11/13/2018 | $41,586.96 | $30,658.15 |
15 | 11/20/2018 | $41,817.04 | $30,658.15 |
16 | 11/27/2018 | $42,679.84 | $30,658.15 |
17 | 12/4/2018 | $43,312.56 | $30,658.15 |
18 | 12/11/2018 | $43,312.56 | $30,658.15 |
Page 9 of 10 |
Distributions with respect to | |||
Series C Preferred Shares | |||
# | Date Payable | Total Dividend | Portion Characterized as |
Capital Gain Dividend | |||
1 | 7/6/2018 | $36,620.10 | $28,413.99 |
2 | 7/13/2018 | $36,620.10 | $28,413.99 |
3 | 8/24/2018 | $37,822.95 | $28,413.99 |
4 | 8/31/2018 | $38,010.06 | $28,413.99 |
5 | 9/7/2018 | $37,609.11 | $28,413.99 |
6 | 9/14/2018 | $36,192.42 | $28,413.99 |
7 | 9/21/2018 | $36,192.42 | $28,413.99 |
8 | 10/5/2018 | $37,609.11 | $28,413.99 |
9 | 10/12/2018 | $37,021.05 | $28,413.99 |
10 | 10/19/2018 | $37,127.97 | $28,413.99 |
11 | 10/26/2018 | $37,822.95 | $28,413.99 |
12 | 11/2/2018 | $38,411.01 | $28,413.99 |
13 | 11/9/2018 | $38,624.85 | $28,413.99 |
14 | 11/16/2018 | $38,838.69 | $28,413.99 |
15 | 11/23/2018 | $39,640.59 | $28,413.99 |
16 | 11/30/2018 | $39,640.59 | $28,413.99 |
17 | 12/7/2018 | $40,228.65 | $28,413.99 |
18 | 12/14/2018 | $40,228.65 | $28,413.99 |
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