(LOGO)
Putnam
Tax-Free
Insured
Fund
Semiannual
Report
January 31, 1994
(ARTWORK)
For investors seeking
high current income
free from federal income
tax through investments
in high-quality
tax-exempt securities
A member
of the Putnam
Family of Funds
Contents
2 How your fund performed
4 Report from Putnam Management
Semiannual Report
7 Portfolio of investments owned
16 Financial statements
23 Fund performance supplement
<PAGE>
How your
fund performed
For periods ended January 31, 1994
Total return* Fund Lehman
(class B shares) Municipal Bond
NAV CDSC Index CPI
- ----------------------------------------------------------------
6 months 5.02% 0.02% 5.91% 1.24%
1 year 11.23 6.23 12.26 2.53
5 years 52.43 50.43 61.37 20.73
annualized 8.80 8.51 10.04 3.84
Life-of-fund 116.02 116.02 135.16 35.37
annualized 9.61 9.61 10.73 3.68
- ----------------------------------------------------------------
- -----------------------------------------------------------
Class B Class A
Share data NAV NAV POP
- -----------------------------------------------------------
July 31, 1993 $15.50 -- --
September 20, 1993 -- $15.88 $16.67
January 31, 1994 15.80 15.79 16.58
- -----------------------------------------------------------
- -----------------------------------------------------------------------------
Distributions+ Capital gains
Investment Short- Long-
Number Income term term Total
- -----------------------------------------------------------------------------
Class B:
7/31/93-1/31/94 7 $0.371130 $0.013 $0.085 $0.469130
Class A:
9/20/93-1/31/94 5 0.314439 0.013 0.085 0.412439
- -----------------------------------------------------------------------------
---------------------------------------------------------------
Current returns at the end of the period
- ---------------------------------------------------------------
Class B Taxable equivalents++
NAV NAV
- ---------------------------------------------------------------
Current dividend rate 4.61% 7.63%
Current 30-day yield 4.14 6.85
- ---------------------------------------------------------------
* Performance data represent past results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The fund began operations
September 9, 1985, offering shares now known as class B. On September 20,
1993, the fund began offering class A shares. Performance for each share
class will differ.
+ Capital gains are taxable and income from this fund may be subject to the
alternative minimum tax and/or state and local taxes.
++ Taxable equivalent rates cited assume the maximum federal tax rate of
39.6%. Results for investors subject to lower tax rates would not be as
advantageous, although many such investors would have the opportunity to
receive attractive tax benefits from a fund investment. Consult your tax
advisor for more guidance.
Please see the fund performance supplement on page 23 for total return at the
end of the most recent calendar quarter and additional information about
performance comparisons
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions. It may
be shown at net asset value or at public offering price.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of shares rather than the time of purchase. It generally
declines and eventually disappears over a stated period.
Class A shares are the shares of your fund offered subject to an initial
sales charge. Your fund's POP includes the maximum 4.75% sales charge.
Class B shares are the shares of your fund offered with no initial sales
charge. Within the first six years of purchase, they are subject to a CDSC
declining from 5% to 1%. After the sixth year, the CDSC no longer applies.
Current dividend rate is calculated by annualizing the net investment income
paid to shareholders in the fund's most recent distribution, then dividing by
the NAV or POP on the last day of the period.
Current 30-day yield, based only on the fund's net investment income
earnings, is calculated in accordance with Securities and Exchange Commission
guidelines.
Taxable equivalent return is the rate at which a taxable investment would
have to generate income to equal the fund's current dividend rate or yield.
<PAGE>
From the
Chairman
(George Putnam photo)
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
In the six months ended January 31, 1994, Putnam Tax-Free Insured Fund
continued to provide attractive tax-free income and total return performance
with its portfolio of high-quality investments. The portfolio quality is
reflected in the fund's AAAf rating from Standard & Poor's,(R) the highest
available for a mutual fund.
The past six months have been characterized by modest growth in the U.S.
economy, low interest rates, and a low rate of inflation. Amid this
encouraging investment environment, the municipal bond market flourished,
delivering some of its strongest performance in decades. Your fund's
proactive strategy of timely trading based on relative values and regional
supply/demand imbalances enabled it to benefit fully from these market
conditions.
In closing, I would like to draw your attention to the new format of this
report. Previous reports contained information on both of the portfolios that
compose Putnam Tax-Free Income Trust: Putnam Tax-Free High Yield Fund and
Putnam Tax-Free Insured Fund. Now, each fund will publish its own report,
thereby saving shareholders of only one fund the time and trouble of sorting
through information not directly related to their investment.
The following Report from Putnam Management contains fund manager Richard
Wyke's overview of the past six months and his insight into what
lies ahead.
Respectfully yours,
(SIGNATURE)
George Putnam
March 16, 1994
<PAGE>
Report from
Putnam Management
Building on its well-established record of dependable performance, Putnam
Tax-Free Insured Fund provided shareholders with solid tax-free income over
the six-month period ended January 31, 1994. At the same time, the fund
maintained its superior AAAf rating from Standard & Poor's, providing a
measure of security for quality-conscious investors. This is the highest
possible rating for a mutual fund based on the S&P(R) assessment of portfolio
quality. Of course, it does not guarantee the fund's market value nor
constitute approval of the shares.
The current dividend rate for class B shares on January 31, 1994, was 4.61%,
based on net asset value. For an investor in the new maximum 39.6% federal
tax bracket,* a fully taxable investment would have had to earn 7.63% to
equal the tax-free yields of this portfolio. Compare this level of after-tax
income with the 6.23% yield for 30-year Treasury bonds as of that date to
recognize the full advantage of tax-exempt investing.
Muni market strengthens The municipal bond market's strength remained in
evidence during the fund's semiannual period. The U.S. economy grew at a
moderate rate while inflation and interest rates remained low. The entire
fixed-income market responded positively to this environment, rallying almost
daily from June through September. Bond prices increased as yields on U.S.
Treasury securities reached 20-year lows, while yields on insured municipal
bonds, like those in which your fund invests, approached their lowest levels
in more than a decade.
In November and December, the Treasury market corrected. The insured
municipal bond market followed suit. Still, the relative value of municipal
securities was so compelling that in January these securities began to
outperform Treasuries on an after-tax basis. In fact as the semiannual period
drew to a close, municipal bond values actually began to appreciate from
their December lows while Treasury values remained flat.
High-quality portfolio An investment in a municipal bond mutual fund exposes
an investor to some risk, not the least of which is credit risk. Credit risk
involves the possibility that the issuer of a debt obligation will default.
Only the U.S. Treasury's bonds, notes, and bills are considered free of
credit risk.
The credit risk of this fund's holdings has been significantly reduced,
however. This fund invests in high-quality,
- ----------------------
* Results for investors subject to lower tax rates would not be as advantageous,
although many could receive tax benefits from a fund investment. Consult your
tax advisor for more guidance.
<PAGE>
tax-exempt bonds and notes. Each security that we purchase is either rated
AAA, or backed by the full faith and credit of the U.S. government or covered
by insurance guaranteeing the timely payment of principal and interest. At
least 70% of the fund's holdings are insured.
Compelling dynamics The recent relative outperformance of municipal bonds
over U.S. Treasuries has been rooted largely in a favorable supply/demand
relationship. For more than two years, the supply of municipal bonds has
surged as municipalities took advantage of low interest rates, to refinance
existing debt issued at higher interest rates.
In January 1994, the pace of this refinancing finally began to slow. At the
same time, investor demand for municipal bonds has continued to grow. With so
many other shelters now gone, municipal bonds have become one of the last tax
refuges for investment income. Their current after-tax yield advantage has
further increased investor demand. The resulting imbalance helped boost bond
prices, and in turn, the fund's net asset value, throughout the period.
(BAR CHART)
Top industry sectors (1/31/94)
- ------------------------------
Hospitals/Healthcare 17.6%
Housing 17.2
Utilities 15.8
Water & Sewer 10.4
Regional opportunities Regional supply/demand relationships continue to play
an important role in our investment strategy. For example, over the past six
months, we discovered some excellent values in California-insured municipal
securities. Abundant supply made these securities particularly attractive,
and the growing appetite of California investors for insured investments
should make these securities strong performers in the months ahead.
Our recent California securities purchase also highlights a new strategy of
seeking investments in states with higher taxes and where we expect higher
investor demand for tax-free income. If, as we expect, the supply of
municipal securities wanes, insured bonds issued by higher-tax, high-demand
states should perform particularly well. Thus far, we have found such
opportunities only in California. However, we are currently evaluating
investments with similar characteristics in New York, Minnesota, and Florida.
<PAGE>
Looking ahead We are maintaining our positive outlook for the municipal bond
market as a whole. Although there can never be any assurance, the market's
shift in the supply/demand balance toward higher demand should lead to strong
performance by insured bonds, especially those from higher-tax states and a
continuation of the relative advantage of tax-free yields over yields on
comparable taxable investments.
Going forward, we expect more of an income emphasis--reflecting the
beginnings of a trend toward higher interest rates. Rates began moving upward
after the end of the semiannual period and, while they may go somewhat
higher, there seems to be no serious inflationary threat driving the shift.
In this climate, municipal bonds should continue to provide solid income but
not the significant price appreciation we have seen in recent years. Your
fund's emphasis on regions and states with favorable supply/demand dynamics
and its somewhat higher-yielding portfolio position it well for what we see
ahead.
<PAGE>
Portfolio of
investments owned
January 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds and Notes (99.1%)(a)
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alaska (0.3%)
$ 1,490,000 AK Hsg. Fin. Corp. Rev. Bonds Ser. A, Government National Mortgage Assn.
(GNMA) Coll., 8-3/8s, 12/1/16 AAA $ 1,558,913
- --------------------------------------------------------------------------------------------------------------------------------
Arizona (4.3%)
AZ Muni. Fin. Program Certif. of Participation
1,000,000 Ser. 31, Bond Investors Guaranty Insurance Co. (BIGI), 7-1/4s, 8/1/09 AAA 1,232,500
5,700,000 Ser. 34, BIGI, 7-1/4s, 8/1/09 AAA 7,025,250
16,000,000 Pima Cnty., Indl. Dev. Auth. Rev. Bonds (Tucson Elec Pwr. Co.), Ser. A,
Financial Security Assurance, Inc. (FSA), 7-1/4s, 7/15/10(c) AAA 18,220,000
- --------------------------------------------------------------------------------------------------------------------------------
26,477,750
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California (12.4%)
3,850,000 CA Hlth. Fac. Fin. Auth. Insd. Rev. Bonds (Catholic), Ser. B, American
Municipal Bond Assurance Corp. (AMBAC), 5s, 7/1/21 AAA 3,667,125
CA Pub. Works Board Lease Rev. Bonds
8,000,000 (U. of CA), Ser. A, AMBAC, 6.4s,
12/1/16 AAA 8,740,000
3,110,000 (Dept. of Corrections-State Prisons), AMBAC, 5s, 12/1/19 AAA 3,008,925
7,000,000 El Cajon, Redev. Agcy. Tax Alloc. Rev. Bonds (El Cajon Redev. Project),
AMBAC, 6.6s,
10/1/22 AAA 7,875,000
3,090,000 LA Cnty., Cap. Asset Leasing Corp. Rev. Bonds AMBAC, 3.85s, 12/1/08 AAA 3,306,300
LA Cnty., Trans. Comm. Sales Tax Rev. Bonds
2,500,000 Ser. A, Financial Guaranty Insurance Corp. FGIC, 6-3/4s, 7/1/20 AAA 2,946,875
4,000,000 (Proposition C), Ser. A, (Municipal Bond Insurance Association (MBIA),
6-3/4s, 7/1/19 AAA 4,755,000
3,455,000 (Proposition C), Ser. A, MBIA, 6-1/2s, 7/1/20 AAA 4,046,669
LA Cnty., Waste Wtr. Syst. Rev. Bonds Ser. D, FGIC
5,000,000 6s, 11/1/14 AAA 5,350,000
5,810,000 5.2s, 11/1/21 AAA 5,737,375
3,250,000 LA Cnty., Convention and Exhibition Ctr. Auth. Lease Rev. Bonds, Ser. A,
MBIA, 5-3/8s, 8/15/18 AAA 3,262,188
5,000,000 Sacramento, Muni. Util. Dist. Elec. Rev. Rfdg. Bonds Ser. Y, MBIA, 6-3/4s,
9/1/19 AAA 5,912,500
5,000,000 San Diego, Regl. Bldg. Auth. Lease Residual Interest Bonds (RIBS), MBIA,
3.81s, 5/1/23 (acquired 8/5/93, cost $4,971,000)(d) AAA 5,237,500
<PAGE>
Principal Amount Rating (b) Value
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California (continued)
$ 6,300,000 U. of CA, Rev. Rfdg. Bonds (Multi-Purpose Projects), Ser. A, MBIA, 6-7/8s,
9/1/16 AAA $ 7,189,875
4,700,000 Vallejo, Wtr. Rev. Bonds (Wtr. Impt. Project), Ser. B, FGIC, 6-1/2s, 11/1/14 AAA 5,228,750
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76,264,082
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Colorado (2.0%)
4,225,000 CO Hlth. Fac. Auth. Rev. Bonds (Cmnty. Provider Pooled Loan Program), Ser. A,
Capital Guarantee Insurance Co. 7-1/4s, 7/15/17 AAA 4,932,688
6,895,000 El Paso Cnty., Home Mtge. Rev. Bonds Ser. A, GNMA Coll., 8s, 3/1/21 AAA 7,351,794
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12,284,482
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Connecticut (1.1%)
1,000, CT Hlth. & Edl. Fac. Auth. Rev. Bonds (Hosp. of St. Raphael), Ser. H, AMBAC,
6-1/2s, 7/1/13 AAA 1,166,250
5,000,000 South Central CT Regl. Wtr. Auth. Sys. Rev. Bonds 11th Ser., FGIC, 5-3/4s,
8/1/12 AAA 5,343,750
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6,510,000
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Delaware (0.9%)
DE Econ. Dev. Auth. Poll. Rfdg. Rev. Bonds
5,000,000 (Delmarva Pwr.), Ser. B, FGIC, 7.15s, 7/1/18 AAA 5,787,500
- --------------------------------------------------------------------------------------------------------------------------------
Florida (11.6%)
$ 900,000 Dade Cnty., Hlth. Fac. Auth. Hosp. Rev. Bonds (North Shore Med. Ctr.
Project), AMBAC, 9-1/8s,
10/1/13 AAA $ 1,004,625
3,500,000 FL Muni. Pwr. Agcy. Rev. Bonds (Stanton II Project), AMBAC, 4-1/2s, 10/1/27 AAA 3,119,375
13,675,000 Hernando Cnty., Rev. Bonds (Criminal Justice Complex), FGIC, 7.65s, 7/1/16 AAA 18,358,688
2,000,000 Jacksonville, Hsg. Rev. Bonds (Windermere Manor Apt.), GNMA Coll., 9-1/8s,
9/20/10 AAA 2,147,500
3,500,000 Miami Beach, Hlth. Fac. Auth. Rev. Bonds (Mt. Sinai Med. Ctr. Project),
Capital Guananty Insurance Co., 6-1/8s, 11/15/14 AAA 3,771,250
5,500,000 Orange Cnty., Hlth. Fac. Auth. RIBS, Ser. 91-C, MBIA, 10.217s,
10/29/21 AAA 6,558,750
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds (Pooled Hosp. Loan Project)
150,000 Ser. A, FGIC, 7-7/8s, 12/1/25 AAA 169,688
10,930,000 Ser. B, BIGI, 7-7/8s, 12/1/25 AAA 12,364,563
5,000,000 Orlando & Orange Cnty. Expressway Auth. Rev. Bonds FGIC, 8-1/4s, 7/1/14 AAA 6,862,500
16,495,000 Plantation, Wtr. & Swr. Auth. Rev. Bonds MBIA, zero%, 3/1/07 AAA 8,577,400
<PAGE>
Principal Amount Rating (b) Value
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Florida (continued)
$ 4,000,000 Sumter Cnty., School Dist. Rev. Bonds (Multi Dist. Loan Program), Capital
Guaranty Insurance Co., 7.15s, 11/1/15 AAA $ 5,075,000
3,000,000 Tampa, Wtr. & Swr. Auth. RIBS, Ser. A-2, FGIC, 9.21s, 10/1/12 AAA 3,450,000
- --------------------------------------------------------------------------------------------------------------------------------
71,459,339
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Georgia (2.6%)
5,000,000 Burke Cnty., Dev. Auth. Poll. Control VRDN (Oglethorpe Power Corp.), Ser. A,
FGIC, 2.1s, 1/1/16 AAA 5,000,000
10,000,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds Ser. B, BIGI, zero %, 1/1/08 AAA 4,975,000
5,500,000 GA Muni. Elec. Pwr. Special Rev. Bonds (Project One), AMBAC, 6.4s, 1/1/13 AAA 6,359,375
- --------------------------------------------------------------------------------------------------------------------------------
16,334,375
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Idaho (0.1%)
500,000 ID Hlth. Fac. Auth. Rev. Bonds (Kootenai Med. Ctr. Project), MBIA, 9-1/8s,
8/1/15 AAA 550,625
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Illinois (5.8%)
Aurora, Hosp. Fac. Rev. Bonds
950,000 (Mercy Ctr. Hlth. Care Svcs.), Ser. A, AMBAC, 9-5/8s, Ser. A, AMBAC, 9-5/8s,
10/1/09 AAA 1,064,000
2,600,000 Chicago, Central Pub. Library Rev. Bonds Ser. B, AMBAC, 6.85s, 1/1/17 AAA 3,081,000
Illinois (continued)
$ 6,780,000 Chicago, Pub. Bldg. Rev. Bonds (Comnty. Bldg.), Ser. A, MBIA, 7s, 1/1/20 AAA $ 8,508,900
5,000,000 Chicago, Res. Mtge. Rev. Bonds Ser. B., MBIA, zero%, 10/1/09 AAA 1,743,750
2,000,000 Chicago, School Fin. Auth. Rev. Rfdg. Bonds FGIC, 8-3/4s, 6/1/09 AAA 2,185,000
2,000,000 Cook Cnty., Rev. Bonds MBIA, 7-1/4s, 11/1/07 AAA 2,437,500
1,290,000 IL Hlth. Fac. Auth. Rev. Bonds (Elmhurst Mem. Hosp. Project), MBIA, 6-1/2s,
1/1/12 AAA 1,407,713
5,000,000 Metro. Pier & Exposition Auth. Tax Rev. Bonds Ser. A, FGIC, zero%, 6/15/17 AAA 1,381,250
9,000,000 Streamwood, Multi-Fam. Rev. Rfdg. Bonds (Southgate Minors Project), Federal
Housing Authority (FHA) Insd., 6.7s, 11/1/28 AAA 9,720,000
4,005,000 Wheeling, Multi-Fam. Rev. Bonds (Arlington Club Project), Ser. A, FHA Insd.,
6.2s, 2/1/14 AAA 4,155,188
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35,684,301
- --------------------------------------------------------------------------------------------------------------------------------
Indiana (2.9%)
IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds
7,500, (Columbus Regl. Hosp.) Capital Guaranty, 7s, 8/15/15 AAA 9,056,250
2,000,000 (Cmnty. Hosp. Project), MBIA, 6.85s, 7/1/22 AAA 2,240,000
<PAGE>
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
Indiana (continued)
$5,000,000 Marion Cnty., Hosp. Auth. Fac. Rev. Bonds (Cmnty. Hosp. Project), MBIA, 9s,
5/1/08 AAA $ 5,431,250
1,000,000 Vigo Cnty., Hosp. Auth. Rev. Bonds (Union Hosp.), AMBAC, 9.3s, 5/1/11 AAA 1,097,500
- --------------------------------------------------------------------------------------------------------------------------------
17,825,000
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Kentucky (0.1%)
645,000 KY Hsg. Corp. Multi-Fam. Mtge. Rev. Bonds Ser. A, BIGI, 8-7/8s, 7/1/19 AAA 673,219
- --------------------------------------------------------------------------------------------------------------------------------
Louisiana (1.4%)
3,940,161 East Baton Rouge, Mtge. Fin. Auth. Single-Fam. Mtge. Bonds, Ser. B, GNMA
Coll., 8-1/4s, 2/25/11 AAA 4,137,675
LA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
695,000 Ser. 85A, FGIC, 9-3/8s, 2/1/15 AAA 726,275
1,580,000 GNMA Coll., 9-1/8s, 11/1/18 AAA 1,680,725
1,700,000 New Orleans, Intl. Arpt. Rev. Bonds MBIA, 9s, 8/1/15 AAA 1,893,375
- --------------------------------------------------------------------------------------------------------------------------------
8,438,050
- --------------------------------------------------------------------------------------------------------------------------------
Maryland (1.3%)
1,055,000 Baltimore, Pub. Impt. Rev. Bonds Ser. A, MBIA, 7s, 10/15/09 AAA 1,279,188
700,000 Montgomery Cnty., Cmnty. Hsg. Opportunities (Draper Lane Apts.), VRDN, FGIC,
2-1/2s, 2/1/26 AAA 700,000
Maryland (continued)
Prince Georges Cnty., Hsg. Auth. Mtge. Rev. Bonds Ser. A
$2,250,000 (Stevenson Apts. Project), GNMA Coll., 6.35s, 7/20/20 AAA $ 2,393,438
3,500,000 (Timber Ridge/Cypress Creek), GNMA Coll., Ser. A, 6s, 6/20/28 AAA 3,526,250
- --------------------------------------------------------------------------------------------------------------------------------
7,898,876
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts (2.1%)
5,000,000 MA Hlth. & Edl. Fac. Auth. Rev. Bonds (Baystate Med. Ctr.), Ser. D, FGIC, 6s,
7/1/15 AAA 5,306,250
MA Hsg. Fin. Agcy. Multi-Fam. Hsg. Rev. Bonds
1,000,000 Ser. A, MBIA, 8-7/8s, 7/1/18 AAA 1,060,000
1,250,000 Ser. D, Federal National Mortgage Association, FNMA, 6-7/8s, 11/15/21 AAA 1,364,063
5,200,000 MA Hsg. Fin. Agcy. Rev. Bonds (Hsg. Projects), Ser. A, AMBAC, 5.95s, 10/1/08 AAA 5,473,000
- --------------------------------------------------------------------------------------------------------------------------------
13,203,313
- --------------------------------------------------------------------------------------------------------------------------------
Michigan (4.0%)
1,000,000 Jackson Cnty., Hosp. Fin. Auth. Rev. Bonds (W.A. Foote Mem. Hosp.), Ser. A,
FGIC, 4-3/4s, 6/1/15 AAA 932,500
800,000 Kent Cnty., Hosp. Fin. Auth. Fac. Rev. Bonds (Pine Rest Christian Hosp.
Assn.), FGIC, 9s, 11/1/10 AAA 894,000
<PAGE>
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
Michigan (continued)
MI Hsg. Dev. Auth. Multi-Fam. Rev. Bonds Ser. A, FGIC
$ 800,000 8-7/8s, 7/1/17 AAA $ 837,000
3,000,000 8-3/8s, 7/1/19 AAA 3,183,750
MI Strategic Fund Ltd. Oblig. Rev. Bonds (Detroit Edison Co. Project),
4,000,000 Ser. BB, AMBAC, 7s, 5/1/21 AAA 5,105,000
2,750, Ser. AA, FGIC, 6.95s, 5/1/11 AAA 3,324,063
5,000,000 (Consumers Pwr. Co. Project), 5.8s, 6/15/10 AAA 5,243,750
4,735,000 MI Trunk Line Rev. Bonds Ser. A, AMBAC, zero %, 10/1/11 AAA 1,822,975
3,500,000 West Bloomfield, School Dist. Rev Bonds MBIA, 5-1/8s, 5/1/14 AAA 3,425,625
- --------------------------------------------------------------------------------------------------------------------------------
24,768,663
- --------------------------------------------------------------------------------------------------------------------------------
Missouri (0.6%)
4,000,000 Missouri Hlth. & Ed. Fac. Auth. Rev. Bonds (St. Luke's Health Syst.), MBIA,
5.1s, 11/15/13 AAA 3,955,000
- --------------------------------------------------------------------------------------------------------------------------------
Montana (2.3%)
12,000,000 Forsythe, Poll. Control Rev. Rfdg. Bonds (Puget Sound Pwr. & Lt. Project),
AMBAC, 6.8s, 3/1/22 AAA 13,500,000
500,000 Missoula, Hosp. Fac. Rev. Bonds (Sisters of Charity-St. Patrick), AMBAC,
9.4s, 9/1/12 AAA 558,750
- --------------------------------------------------------------------------------------------------------------------------------
14,058,750
- --------------------------------------------------------------------------------------------------------------------------------
Nebraska (2.2%)
$ 3,000,000 NE Investment Fin. Auth. Hosp. Rev. RIBS MBIA, 10.643s, 11/15/16 AAA $ 3,633,750
1,000,000 NE Investment Fin. Auth. Single Fam. Mtge. RIBS Ser. B, GNMA Coll. 12.606s,
3/15/22 AAA 1,172,500
8,350,000 NE Investment Fin. Auth. Single Fam. Mtge. Rev. Bonds 1st. Ser., GNMA Coll.,
MBIA, 8-1/8s,
8/15/38 AAA 8,851,000
- --------------------------------------------------------------------------------------------------------------------------------
13,657,250
- --------------------------------------------------------------------------------------------------------------------------------
Nevada (1.5%)
3,500,000 Clark Cnty., Poll. Control Rev. Rfdg. Bonds (NV Pwr. Co. Project), Ser. B,
FGIC, 6.6s, 6/1/19 AAA 3,902,500
4,500,000 Clark Cnty., School Dist. General Obligation (G.O.) Bonds, Ser. A, MBIA, 7s,
6/1/10 AAA 5,456,250
- --------------------------------------------------------------------------------------------------------------------------------
9,358,750
- --------------------------------------------------------------------------------------------------------------------------------
New Hampshire (1.1%)
3,700,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds (VHA New England Inc.), Ser. F,
AMBAC, 1.8s, 12/1/25 AAA 3,700,000
2,500,000 NH State Tpk. Syst. RIBS FGIC, 11.057s, 11/1/17 AAA 3,306,250
- --------------------------------------------------------------------------------------------------------------------------------
7,006,250
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey (1.9%)
3,000,000 Middlesex Cnty., Utils. Auth. Swr. RIBS Ser. A, MBIA, 8.85s, 8/15/10 AAA 3,547,500
<PAGE>
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey (continued)
$ 105,000 NJ Hlth. Care Fac. Finance Auth. Rev. Bonds (Bayshore Cmnty. Hosp.), Issue A,
MBIA, zero%, 7/1/08 AAA $ 50,925
8,000,000 Salem Cnty., Indl. Poll. Control Fin. Auth. Rev. Bonds (Pub. Svc. Elec. & Gas
Co. Project), Ser. C, MBIA, 5.55s, 11/1/33 AAA 8,190,000
- --------------------------------------------------------------------------------------------------------------------------------
11,788,425
- --------------------------------------------------------------------------------------------------------------------------------
New Mexico (0.6%)
2,000,000 NM Edl. Assistance Foundation Student Loan Rev. Bonds Ser. A, AMBAC, 6.85s,
4/1/05 AAA 2,220,000
1,375,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds Ser. C, FGIC, 8-1/2s, 7/1/07 AAA 1,460,938
- --------------------------------------------------------------------------------------------------------------------------------
3,680,938
- --------------------------------------------------------------------------------------------------------------------------------
New York (2.5%)
635,000 Erie Cnty., Wtr. Auth. Rev. Rfdg. Bonds AMBAC, zero%, 12/1/17 AAA 116,681
10,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst. Rev. Bonds, Ser. B, FGIC,
7-1/2s, 6/15/11 AAA 12,675,000
2,850,000 NY State Med. Care Fac. Fin. Rev. Bonds (Mental Hlth. Svcs.), Ser. F, FSA
Insd., 5-1/4s, 2/15/21 AAA 2,839,313
- --------------------------------------------------------------------------------------------------------------------------------
15,630,994
- --------------------------------------------------------------------------------------------------------------------------------
North Carolina (0.8%)
NC Eastern Muni. Pwr. Agcy. Rev. Bonds (Pwr. Syst. Project), Ser. A, FGIC,
$ 2,540,000 6.2s, 1/1/13 AAA $ 2,736,850
1,800,000 6.2s, 1/1/12 AAA 1,939,500
- --------------------------------------------------------------------------------------------------------------------------------
4,676,350
- --------------------------------------------------------------------------------------------------------------------------------
Ohio (4.6%)
7,390,000 Cleveland, Waterworks 1st Mtge. Rev. Bonds Ser. F-92A, AMBAC, 6-1/2s, 1/1/21 AAA 8,600,113
OH Hsg. Fin. Agcy. Single-Fam. Mtge. Rev. Bonds
4,319,000 Ser. B, GNMA Coll., 8-1/4s, 12/15/19 AAA 4,378,386
9,210,000 Ser. C, GNMA Coll., 8-1/8s, 3/1/20 AAA 9,877,725
15,225,000 Ser. 85-A, FGIC, zero%, 1/15/15 AAA 2,131,500
OH State Wtr. Dev. Auth. Rev. Bonds, AMBAC
360,000 9-3/8s, 12/1/18 AAA 392,850
1,020,000 9-3/8s, 6/1/95 AAA 1,133,475
1,400,000 Summit Cnty., Various Purpose Rev. Bonds AMBAC, 6-5/8s, 12/1/12 AAA 1,582,000
- --------------------------------------------------------------------------------------------------------------------------------
28,096,049
- --------------------------------------------------------------------------------------------------------------------------------
Oklahoma (1.3%)
7,480,000 OK Hsg. Fin. Agcy. Single Fam. Rev. Bonds Ser. A, GNMA Coll., 8-1/4s, 12/1/20 AAA 7,872,700
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania (7.4%)
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds (Altoona Hosp. Project), AMBAC, 6-1/2s,
7/1/22 AAA 1,653,750
<PAGE>
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania (continued)
$2,600,000 Coraopolis-Verona Hsg. Dev. Corp. Multi-Fam. Mtge. Rev. Rfdg. Bonds, Ser. A,
FHA Insd., 6s, 1/1/24 AAA $ 2,694,250
5,000,000 Delaware Cnty., Hlth. Care Auth. Rev. Bonds (Mercy Hlth. Corp.,
Southeastern), Ser. A, 5-1/8s, 11/15/12 AAA 4,856,250
3,000,000 Falls Township, Hosp. Auth. Rev. Bonds (Delaware Valley Med.), FHA Insd.,
6.9s, 8/1/11 AAA 3,442,500
4,000,000 Keystone Oaks, School Dist. Rev. Bonds Ser. C, AMBAC, 5.829s, 9/1/16 AAA 4,230,000
5,000,000 PA Certif. of Participation Bonds Ser. A, AMBAC, 5s, 7/1/15 AAA 4,862,500
4,500,000 PA Higher Edl. Fac. Auth. Rev. Bonds (Hahnemann U. Project), MBIA, 7.2s,
7/1/19 AAA 5,152,500
3,215,000 PA Hills, G.O. Bonds AMBAC, 5-7/8s, 12/1/15 AAA 3,383,788
Philadelphia, Muni. Auth. Rev. Bonds
6,040,000 FGIC, 7.8s, 4/1/18 AAA 7,331,050
625,000 FGIC, 7.8s, 4/1/18 AAA 728,125
3,000,000 Philadelphia, Regl. Port Auth. Lease RIBS MBIA, 8.15s, 9/1/13 (acquired
1/19/93, cost $3,000,000(d) AAA 3,648,750
3,000,000 Philadelphia, Wtr. & Swr. Rev. Bonds, RIBS VRDN, FGIC, 4.8s, 6/15/05 AAA 1,286,250
Pennsylvania (continued)
$2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds Ser. A, FGIC 7-1/8s, 6/1/13 AAA $ 2,387,500
- --------------------------------------------------------------------------------------------------------------------------------
45,657,213
- --------------------------------------------------------------------------------------------------------------------------------
Rhode Island (0.8%)
4,315,000 RI Depositors Econ. Protection Corp. Special Oblig. Ser. A, MBIA, 7-1/4s,
8/1/21 AAA 4,784,256
- --------------------------------------------------------------------------------------------------------------------------------
Tennessee (0.2%)
900,000 Metro. Nashville Arpt. Auth. Rev. Bonds FGIC, 9-3/4s, 7/1/15 AAA 993,375
- --------------------------------------------------------------------------------------------------------------------------------
Texas (8.9%)
55,000 Bell Cnty., Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds FGIC, 9.2s, 12/1/10 AAA 59,675
3,000,000 Bexar Cnty., Hsg. Fin. Corp. Multi-Fam. Hsg. Rev. (Sunpark Apt. Project),
FNMA, 6-7/8s, 12/1/12 AAA 3,240,000
40,000 Dallas Cnty., Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds (Lomas & Nettleton
Co.), FGIC, 9.2s, 7/1/06 AAA 41,950
452,000 Dallas, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds MBIA, 10s, 10/1/07 AAA 471,775
5,000,000 Harris Cnty., Hosp. Dist. Mtge. Rev. Rfdg. Bonds AMBAC, 7.4s, 2/15/10 AAA 6,256,250
Harris Cnty., Toll Rd. Rev. Bonds
3,000,000 Ser. B, FGIC, 6-5/8s, 8/15/11 AAA 3,251,250
<PAGE>
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
Texas (continued)
$ 4,750,000 Ser. A, AMBAC, 6-1/2s, 8/15/17 AAA $ 5,230,938
2,700,000 Houston, Wtr. & Swr. Syst. Rev. Rfdg. Bonds FGIC, 9-3/8s, 12/1/13 AAA 3,051,000
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds MBIA, 6-5/8s, 4/1/12 AAA 7,665,000
4,630,000 Lubbock, Hsg. Fin. Corp. Single-Fam. Mtge. Rev. Bonds Ser. A, GNMA Coll.,
zero%, 11/25/17 AAA 729,225
5,500,000 Matagorda Cnty., Navigation Dist. No. 1 Rev. Bonds (Houston Lt. & Pwr.), Ser.
A, AMBAC, 6.7s, 3/1/27 AAA 6,153,125
2,000,000 Metro. TX Hlth. Fac. Auth. Rev. Bonds (Wilson Hosp.), 5-3/8s, 1/1/23 AAA 1,950,000
North Central Hlth. Fac. Dev. Corp. Rev. Bonds
1,500,000 (Methodist Hosp.-Dallas), Ser. A, BIGI, 9-1/2s, 10/1/15 AAA 1,680,000
4,300,000 (Presbyterian Med. Ctr.), Ser. D, MBIA, 1-3/4s, 12/1/15 AAA 4,300,000
5,000,000 Rio Grande Vy. Hlth. Fac. Dev. Corp. Hosp. Rev. Rfdg. Bonds (Baptist Med.
Ctr.), Ser. B, RIB MBIA, 9.43s, 8/1/12 (acquired 1/20/93, cost
$5,190,000)(d) AAA 5,812,500
4,500,000 TX Dept. of Hsg. & Cmnty. Affairs Home Mtge. RIBS Ser. A, GNMA Coll.,
11.207s, 7/18/23 AAA 4,848,750
- --------------------------------------------------------------------------------------------------------------------------------
54,741,438
- --------------------------------------------------------------------------------------------------------------------------------
Vermont (0.6%)
$ 3,000,000 VT Edl. & Hlth. Bldg. Fin. RIBS FGIC, 9.969s, 9/1/13 (acquired 1/15/93, cost
$3,000,000)(d) AAA $ 3,476,250
- --------------------------------------------------------------------------------------------------------------------------------
Virginia (4.1%)
5,000,000 Fairfax Cnty., Redev. & Hsg. Auth. Multi.-Fam. Hsg. Rev. Bonds, Ser. A, FHA
Insd., 7s, 5/1/26 AAA 5,500,000
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Facs. RIBS FGIC, 10.474s, 8/15/23 AAA 12,087,500
3,000,000 Roanoke Cnty., Wtr. Sys. Rev. Bonds FGIC, 6-1/2s, 7/1/21 AAA 3,468,750
4,000,000 Roanoke, Indl. Dev. Auth. Hosp. RIBS (Roanoke Memorial Hosp.), Ser. B, MBIA,
8.38s, 7/1/20 (acquired 8/24/92, cost $4,000,000)(d) AAA 4,440,000
- --------------------------------------------------------------------------------------------------------------------------------
25,496,250
- --------------------------------------------------------------------------------------------------------------------------------
Washington (2.6%)
4,000,000 WA Hlth. Care Facs. Auth. Rev. Bonds (Swedish Hosp. Med Ctr.-Seattle), AMBAC,
6.3s, 11/15/12 AAA 4,330,000
WA State Pub. Pwr. Supply Syst. Rev. Bonds
3,400,000 (Nuclear Project No. 2), Ser. C, FGIC, 7-3/8s, 7/1/11 AAA 4,080,000
6,000,000 (Nuclear Project No. 3), Ser. B, MBIA, 7-1/8s, 7/1/16 AAA 7,395,000
- --------------------------------------------------------------------------------------------------------------------------------
15,805,000
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Amount Rating (b) Value
- --------------------------------------------------------------------------------------------------------------------------------
West Virginia (0.1%)
$ 525,000 WV Hsg. Dev. Auth. Home Ownership Mtge. Rev. Bonds Ser. A., FGIC, 9.1s,
1/1/14 AAA $ 542,710
- --------------------------------------------------------------------------------------------------------------------------------
Wisconsin (1.4%)
2,000,000 Superior, Ltd. Oblig. Rev. Rfdg. Bonds (Midwest Energy Resources), Ser. E,
FGIC, 6.9s, 8/1/21 AAA 2,497,500
5,000,000 WI Hlth. Fac. Auth. Rev. Bonds (Meriter Hosp. Inc.), FGIC, 8-3/8s,
12/1/09 AAA 5,912,500
- --------------------------------------------------------------------------------------------------------------------------------
8,410,000
- --------------------------------------------------------------------------------------------------------------------------------
Wyoming (0.8%)
5,000,000 Laramie Cnty., Indl. Dev. Rev. Bonds (Lt. & Fuel & Pwr. Co.) Ser. A, AMBAC,
7-1/4s, 9/1/21 AAA 5,462,500
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $549,082,674)(e) $610,868,936
--------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Percentages indicated are based on total net assets of $616,416,102, which correspond to a net asset value
per class A and class B share of $15.79 and $15.80, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
January 31, 1994, 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 January 31,
1994. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
(c) A portion of this security was pledged to cover margin requirements for futures contracts at January 31,
1994. The market value of segregated securities with the custodian for transactions on futures contracts is
$18,220,000.
(d) Restricted as to public resale. At the date of acquisition, these securities were valued at
cost. There were no outstanding unrestricted securities of the same class as those held. Total market value of
restricted securities owned at January 31, 1994 was $22,615,000, or 3.7% of net assets.
(e) The aggregate identified cost on a tax basis is $549,137,517, resulting in gross unrealized appreciation of
$62,021,225, and $289,806, respectively, or net unrealized appreciation of $61,731,419.
The rates shown on Variable Rate Demand Notes and Residual Interest Bonds are the current interest rates at
January 31, 1994, which are subject to change based on the terms of the security.
</TABLE>
<TABLE>
Futures Contracts Outstanding at January 31, 1994
<CAPTION>
- ---------------------------------------------------------------------
Aggregate
Total Face Expiration Appreciation
Sells Value Value Date (Depreciation)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Bond Futures
(Sell) $2,617,187 $2,585,691 Mar/94 $ (31,496)
U.S. Treasury
Bond Futures
(Sell) 6,401,500 6,310,698 Mar/94 90,802
U.S. Treasury
Bond Futures
(Sell) 2,811,750 2,639,977 Mar/94 (171,773)
- ---------------------------------------------------------------------
$(112,467)
- ---------------------------------------------------------------------
The Fund had the following industry group concentrations greater than
10% on January 31, 1994 (as a percentage of net assets):
Hospitals/Health Care 17.6%
Housing 17.2
Utilities 15.8
Water & Sewer 10.4
The Fund had the following insurance concentrations greater than 10% on
January 31, 1994, as a percentage of net assets:
FGIC 26.5%
MBIA 24.8
AMBAC 21.0
<PAGE>
Statement of
assets and liabilities
January 31, 1994 (Unaudited)
</TABLE>
<TABLE>
<S> <S> <C> <C>
--------------------------------------------------------------------------------------------------------
Assets Investments in securities, at value (identified cost $549,082,674) (Note 1) $ 610,868,936
Cash 14,549
Interest receivable 8,346,035
Receivable for shares of the Fund sold 1,827,605
Receivable for securities sold 5,890,872
Receivable for variation margin on open futures contracts 24,159
--------------------------------------------------------------------------------------------------------
Total assets 626,972,156
Liabilities Payable for securities purchased $8,140,822
Distributions payable to shareholders 1,038,475
Payable for shares of the Fund repurchased 433,431
Payable for compensation of Manager (Note 2) 297,638
Payable for investor servicing and custodian fees (Note 2) 133,073
Payable for administrative services (Note 2) 1,699
Payable for compensation of Trustees (Note 2) 137
Payable for distribution fees (Note 2) 433,589
Other accrued expenses 77,190
--------------------------------------------------------------------------------------------------------
Total liabilities 10,556,054
--------------------------------------------------------------------------------------------------------
Net assets $ 616,416,102
--------------------------------------------------------------------------------------------------------
Represented by Paid-in capital (Note 4) $557,018,680
Undistributed net investment income 896,257
Accumulated net realized loss on investment and futures transactions (3,172,686)
Net unrealized appreciation of investments and futures contracts 61,673,851
--------------------------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital shares outstanding $ 616,416,102
--------------------------------------------------------------------------------------------------------
Computation of Net asset and redemption price of Class A share
net asset value ($152,588,166 divided by 9,663,477 shares) $15.79
and offering price Offering price per Class A share (100/95.25 of $15.79)* $16.58
Net asset value and offering price of Class B share
($463,827,936 divided by 29,353,378 shares)** $15.80
--------------------------------------------------------------------------------------------------------
*On single retail sales of less than $25,000. On sales of $25,000 or more and on group
sales the offering price is reduced.
**Redemption price per share is equal to net asset value less any contingent deferred
sales charge.
</TABLE>
<PAGE>
Statement of
operations
Six months ended January 31, 1994 (Unaudited)
<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C>
Tax exempt interest income $18,745,131
Expenses:
Compensation of Manager (Note 2) $1,757,382
Investor servicing and custodian fees
(Note 2) 259,010
Compensation of Trustees (Note 2) 9,601
Reports to shareholders 16,989
Auditing 14,343
Legal 7,562
Postage 30,247
Administrative services (Note 2) 9,187
Registration fees 10,081
Distribution fees--Class A (Note 2) 150,638
Distribution fees--Class B (Note 2) 2,068,053
Other 12,399
- -------------------------------------------------------------------------------
Total expenses 4,345,492
- -------------------------------------------------------------------------------
Net investment income 14,399,639
- -------------------------------------------------------------------------------
Net realized gain on investments
(Notes 1 and 3) 2,335,561
Net realized loss on futures contracts
(Notes 1 and 3) (698,566)
Net unrealized appreciation of investments
and futures during the period 13,311,177
- -------------------------------------------------------------------------------
Net gain on investments transactions 14,948,172
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations $29,347,811
===============================================================================
</TABLE>
<PAGE>
Statement of
changes in net assets
<TABLE>
<caption
Six months
ended Year ended
January 31 July 31
1994* 1993
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $ 14,399,639 $ 25,121,946
Net realized gain on investments 2,335,561 4,446,719
Net realized loss on futures contracts (698,566) (2,317,616)
Net unrealized appreciation of investments
and futures contracts 13,311,175 9,088,250
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 29,347,809 36,339,299
Distributions to shareholders from:
Net investment income--Class A (3,006,680) --
Net investment income--Class B (11,432,488) (25,410,364)
Net realized gain on investments--Class
A (935,585) --
Net realized gain on investments--Class
B (2,823,305) (6,351,965)
Increase from capital share transactions
(Note 4) 32,607,816 101,946,150
- -------------------------------------------------------------------------------
Total increase in net assets 43,757,567 106,523,120
Net assets
Beginning of year 572,658,535 466,135,415
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income/distributions in excess
of net investment income of $896,257 and
$350,114, respectively) $616,416,102 $572,658,535
===============================================================================
*Unaudited.
</TABLE>
<PAGE>
Financial
Highlights*
(For a share
outstanding
throughout the
period)
<TABLE>
<CAPTION>
For the
period For the
September period
20, 1993 September
(com- 9, 1985
mence- (com-
ment of Six mence-
opera- months ment of
tions) to ended opera-
January January tions) to
31 31 Year ended July 31 July 31
--------- --------------------------------------------------------------------------------------
1994** 1994** 1993 1992 1991 1990 1989 1988 1987 1986
--------- ------- ------- ----- ----- ----- ----- ----- ----- ---------
Class A Class B
- ---------------------------------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $15.88 $15.50 $15.42 $14.38 $14.25 $14.79 $13.85 $13.77 $13.91 $12.57
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
Net Investment Income .30 .37 .75 .76 .79 .83 .85 .85 .84 .73(a)
Net Realized and
Unrealized Gain
(Loss) on
Investments .02 .40 .28 1.14 .14 (.06) .93 .11 (.10) 1.41
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations .32 .77 1.03 1.90 .93 .77 1.78 .96 .74 2.14
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions
from:
Net Investment Income (.31) (.37) (.75) (.77) (.80) (.83) (.84) (.85) (.84) (.80)
Net Realized Gain on
Investments (.10) (.10) (.20) (.09) -- (.48) -- (.03) (.04) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (.41) (.47) (.95) (.86) (.80) (1.31) (.84) (.88) (.88) (.80)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $15.79 $15.80 $15.50 $15.42 $14.38 $14.25 $14.79 $13.85 $13.77 $13.91
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment
Return at Net Asset
Value (%) (b) 5.75(c) 10.04(c) 7.00 13.63 6.79 5.49 13.31 7.24 5.31 19.47(c)
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of
Period
(in thousands) $152,588 $463,828 $572,659 $466,135 $359,465 $309,050 $293,127 $268,004 $264,916 $195,386
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets
(%) 1.01(c) 1.55(c) 1.74 1.79 1.68 1.63 1.61 1.58 1.61 1.59(a)(c)
Ratio of Net
Investment Income to
Average Net Assets
(%) 5.33(c) 4.68(c) 4.88 5.16 5.60 5.81 6.01 6.20 5.83 6.29(a)(c)
Portfolio Turnover (%) 19.04(d) 19.04(d) 42.01 66.18 54.69 86.29 201.21 197.29 85.49 125.36(d)
===========================================================================================================================
* Financial Highlights for periods ended through July 31, 1992 have been
restated to conform with requirements issued by the SEC in April 1993.
** Unaudited
(a) Reflects a waiver of a portion of the distribution plan payments during
the period. As a result of this waiver, expenses of the Fund at July 31, 1986
reflect a reduction of $0.01 per share.
(b) Total Investment Return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
<PAGE>
Notes to
financial statements
January 31, 1994 (Unaudited)
Note 1 Significant accounting policies
The Fund is a series of Putnam Tax-Free Income Trust which is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. Putnam Tax-Free Insured Fund seeks
high current income exempt from federal income tax by investing in tax exempt
securities that are covered by insurance guaranteeing the timely payment of
principal and interest, are rated AAA or Aaa, or are backed by the U.S.
government.
The Fund offers both Class A and Class B shares. The Fund commenced its
public offering of Class A shares on September 20, 1993. Class A shares are
sold with a front-end sales charge of 4.75%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than Class
A shares and are subject to a contingent deferred sales charge if those
shares are redeemed within six years of purchase. In addition, the Trustees
declare separate dividends on each class of shares. Each class bears expenses
unique to that class (including the distribution fees applicable to such
class), and votes as a class only with respect to its own distribution plan
or other matters on which a class vote is required by law to be determined by
the Trustees, all other expenses of the Fund are borne pro-rata by the
holders of both classes of shares. Shares of each class would receive their
pro rata share of the net assets of the Fund if the Fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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.
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) Option accounting principles When the Fund writes a call or put option, an
amount equal to the premium received by the Fund is included in the Fund's
"Statement of Assets and Liabilities" as an asset and an equivalent
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of an option is the last sale price or, in the absence of a sale, the
last offering price. If an option expires on its stipulated expiration date,
or if the Fund enters into a closing purchase transaction, the Fund realizes
a gain (or loss if the cost of a closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related
to such option is extinguished. If a written call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received. If a
written put option is exercised, the amount of the premium originally
received reduces the cost of the security the Fund purchases upon exercise of
the option.
The Fund writes covered call options; that is, options for which it holds the
underlying security or its equivalent. Accordingly, the risk in writing a
call option is that the Fund relinquishes the opportunity to profit if the
market price of the underlying security increases and the option is
exercised. In writing a put option, the Fund assumes the risk of incurring a
loss if the market price of the underlying security decreases and the option
is exercised.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of
the option. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, the
Fund realizes a gain or loss, depending on whether proceeds from the closing
sale transaction are greater or less than the cost of the option. If the Fund
exercises a call option, the cost of the securities acquired by exercising
the call is increased by the premium paid to buy the call. If the Fund
exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are decreased by the
premium originally paid.
<PAGE>
Futures A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract, the Fund is required to pledge to the broker an amount of cash or
U.S. government securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the Fund as unrealized gains or losses. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The potential risk to the Fund is that the change in
value of the underlying securities may not correspond to the change in value
of the futures contracts.
Options on futures Options on futures generally operate in the same manner as
options purchased or written directly on the underlying debt securities. The
Fund is required to deposit, in a manner similar to futures contracts,
"initial margin" and "variation margin" with respect to put and call options
written on futures contracts. In addition, upon exercise, net premiums will
decrease the unrealized loss or increase the unrealized gain on the future.
D) Federal taxes It is the policy of each 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 of securities held or excise tax on
income and capital gains.
E) Distributions to shareholders Income dividends are recorded daily by the
Fund and are distributed monthly. Capital gain distributions are recorded on
the ex-dividend date and paid annually, or as necessary to meet the
distribution requirements described above.
F) Amortization of bond premium and discount Any premium resulting from the
purchase of securities is amortized using the effective yield method for
bonds issued after September 27, 1985, and on a straight-line basis for bonds
issued prior thereto. The premium in excess of the call price, if any, is
amortized to the call date; thereafter, the remaining excess premium is
amortized to maturity. Discount on zero-coupon bonds is amortized according
to the effective yield method.
G) Expenses of the Trust Expenses directly charged or attributable to the
Fund will be paid from the assets of the Fund. Generally, expenses of the
Trust will be allocated between and charged to the assets of each Fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each Fund or the nature of the services performed and
relative applicability to each Fund.
Note 2 Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management the Fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the average net
assets of the Fund for the quarter. Such fee is based on 0.6% of the first
$500 million of average net assets; 0.5% of the next $500 million; 0.45% of
the next $500 million and 0.4% of any amount over $1.5 billion. Such fees are
subject to reduction under current law in any year to the extent that
expenses (exclusive of distribution fees, brokerage, interest and taxes) of
the Fund exceed 2.5% of the first $30 million of average net assets, 2.0% of
the next $70 million and 1.5% of any excess over $100 million and by the
amount of certain brokerage commissions and fees (less expenses) received by
affiliates of the Manager on the Fund's portfolio transactions.
The Fund also reimburses the Manager 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. For the six months
ended January 31, 1994, the Fund paid $9,187 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,270, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions are being provided to the Fund by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Invest-
<PAGE>
ments, Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC. Fees paid for these investor servicing
and custodian fees functions for the six months ended January 31, 1994
amounted to $259,010. Investor servicing and custodian fees reported in the
Statement of operations for the six months ended January 31, 1994 have been
reduced by credits allowed by PFTC.
The Fund has adopted a distribution plan with respect to its Class A shares
(the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of Class A Plan is to compensate Putnam Mutual Funds
Corp. (formerly known as Putnam Financial Services, Inc.), a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and expenses
incurred by it in distributing Class A shares. The Trustees have approved
payment by the Fund to Putnam Mutual Funds Corp. at an annual rate of up to
0.20% of the Fund's average net assets attributable to Class A shares. For
the six months ended January 31, 1994, the Fund paid Putnam Mutual Funds
Corp. distribution fees of $150,638, for Class A shares.
The Fund has adopted a separate distribution plan with respect to its Class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing Class B shares. The Class B Plan provides for payments by the
Fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.85% of the
funds average net assets attributable to Class B shares. For the six months
ended January 31, 1994, the Fund paid Putnam Mutual Funds Corp. distribution
fees of $2,068,052 for Class B shares.
During the six months ended January 31, 1994, Putnam Mutual Funds Corp., a
whollyowned subsidiary of Putnam Investments, Inc., acting as an underwriter,
received net commissions of $21,860 from the sale of Class A shares of the
Fund.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred
sales charges levied on Class B share redemptions within four years of
purchase. The charge is based on declining rates, which begin at 5.0% of the
net asset value of the redeemed shares . Putnam Mutual Funds Corp. received
contingent deferred sales charges of $370,307 from such redemptions for the
six months ended January 31, 1994.
A deferred sales charge of up to 1% is assessed on certain redemptions of
Class A shares purchased as part of an investment of $1 million or more. For
the six months ended January 31, 1994, Putnam Mutual Funds Corp., acting as
underwriter, received no monies on Class A redemptions.
Note 3 Purchases and sales of securities
During the six months ended January 31, 1994, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$134,075,069 and $110,688,155, respectively. Purchases and sales of
short-term municipal obligations aggregated $29,360,000 and $19,060,000
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Sales of futures
contracts
------------------------
Number
of Aggregate
Contracts Face Value
- ------------------------------------------------------------------------
Contracts open at
beginning of period 210 $ 23,732,146
Contracts opened 864 97,659,273
Contracts closed (969) (109,855,053)
- ------------------------------------------------------------------------
Open at end of period 105 $ 11,536,366
- ------------------------------------------------------------------------
<PAGE>
Note 4 Capital shares
At January 31, 1994, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
</TABLE>
<TABLE>
<CAPTION>
September 20, 1993
(commencement
of operations) to
January 31
-------------------------
1994
-------------------------
Class A Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 10,043,357 $160,080,844
Shares issued in connection with reinvestment
of distributions 188,642 2,289,738
- --------------------------------------------------------------------------------------------------
10,231,999 162,370,582
Shares repurchased (568,522) (8,961,785)
- --------------------------------------------------------------------------------------------------
Net increase 9,663,477 $153,408,797
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six months ended Year ended
January 31 July 31
-------------------------- --------------------------
1994 1993
-------------------------- --------------------------
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,053,466 $ 48,041,084 8,533,119 $129,627,042
Shares issued in connection with
reinvestment of distributions 596,710 9,380,958 1,319,439 19,989,290
- --------------------------------------------------------------------------------------------------
3,650,176 57,422,042 9,852,558 149,616,332
Shares repurchased (11,240,285) (178,223,023) (3,133,007) (47,670,182)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) (7,590,109) ($ 120,800,981) 6,719,551 $101,946,150
- --------------------------------------------------------------------------------------------------
</TABLE>
Note 5 Reclassification of Capital Accounts
Effective August 1, 1993, Putnam Tax-Free Income Trust--Putnam Tax-Free
Insured Fund has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies
(SOP)." The purpose of this SOP is to report the accumulated net investment
income (loss) and accumulated net realized gain (loss) accounts in such a
manner as to approximate amounts available for future distributions (or to
offset future realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $1,285,900 reducing
distributions in excess of net investment income, $1,031,356 reducing
accumulated net realized loss and $2,317,256 decreasing additional paid-in
capital.
These adjustments represent the cumulative amounts necessary to report these
balances through July 31, 1993, the close of the Fund most recent fiscal
year-end, for financial reporting and tax purposes.
<PAGE>
Fund
Performance
Supplement
Putnam Tax-Free Insured Fund is one of two separate portfolios composing
Putnam Tax-Free Income Trust, a series investment company. Each portfolio
seeks high current income exempt from federal income tax, consistent with its
particular investment policies. Putnam Tax-Free Insured Fund invests in
tax-exempt securities covered by insurance guaranteeing the timely payment of
principal and interest, but not market value, uninsured securities rated AAA
or Aaa, or securities backed by the U.S. government.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment-grade, fixed rate, long-term maturity
tax-exempt bonds, which are selected to be representative of the market in
terms of price movement and sector distribution. The average quality of bonds
held in the index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of the lower
rating classifications in which the fund may invest. The index does not take
into account brokerage commissions or other costs and may pose different
risks from the fund. Total return performance for the index reflects
mathematically derived changes of market price and reinvestment of interest
payments, as computed by Lehman Brothers. The fund portfolio contains
securities that do not match those in the index.
The Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
The fund performance supplement has been prepared by Putnam Management to
provide additional information about the fund and the indexes used for
performance comparisons. The information is not part of the portfolio of
investments owned or the financial statements.
Total return at end of most recent calendar quarter
Periods ended December 31, 1993
Class B
Cumulative Annualized
NAV CDSC NAV CDSC
- -------------------------------------------------------
1 year 11.20% 6.20% 11.20% 6.20%
5 years 52.95 50.95 8.87 8.58
Life-of-fund+
(since 9/9/85) 113.67 113.67 9.57 9.57
- -------------------------------------------------------
Please see page 2 for more information about fund performance and a
description of investment terms.
<PAGE>
Putnam
Tax-Free
Insured
Fund
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray
(DALBAR LOGO)
Putnam Investor Services
has received the DALBAR
award each year since
the award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
80/11-11192
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
James P. Erickson
Vice President
Richard P. Wyke
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul O'Neil
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Clerk and
Assistant Treasurer
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,
A.J.C. Smith, W. Nicholas Thorndike
Associate Trustee: Alla O'Brien
This report is for the information of shareholders of Putnam Tax-Free Insured
Fund. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Dagger footnote symbol replaced with plus sign (+).
(7) The (R) symbol has been given for registered trademark.
