Putnam
Tax-Free
Insured
Fund
SEMIANNUAL REPORT
January 31, 1995
(LOGO--Balance Scales)
BOSTON-LONDON-TOKYO
<PAGE>
Performance highlights
> "Demand for tax-free income and lack of new issuance in many states is
helping to drive (municipal bond) prices higher."
-- Bloomberg, February 1, 1995
> Performance should always be considered in light of a fund's investment
strategy. Putnam Tax-Free Insured Fund is for investors seeking high
current income free from federal income tax through investments primarily
in insured investment-grade tax-exempt securities.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C> <C> <C> <C>
Total return: NAV POP NAV CDSC
......................................................................................................
(change in value during
period plus reinvested
distributions)
6 months ended 1/31/95 0.64 % -4.13% 0.32% -4.56 %
Class A Class B
Share value: NAV POP NAV
......................................................................................................
7/31/94 $14.67 $15.40 $14.68
1/31/95 14.33 15.04 14.34
Capital gains(1)
Distributions: Short-
No. Income term Total
......................................................................................................
Class A 7 $0.417890 $0.005 $0.422890
Class B 7 0.372578 0.005 0.377578
Current return: NAV POP NAV
......................................................................................................
End of period
Current dividend rate(2) 5.67% 5.41% 5.05%
Taxable equivalent(3) 9.39 8.96 8.36
Current 30-day SEC yield(4) 5.68 5.40 5.03
Taxable equivalent(3) 9.40 8.94 8.33
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see page 8. POP assumes 4.75% maximum
sales charge for class A shares. CDSC for class B shares assumes 5% maximum
contingent deferred sales charge. (1)Capital gains are taxable for federal
and, in most cases, state tax purposes. For some investors, investment income
may also be subject to the federal alternative minimum tax. Investment income
may be subject to state and local taxes. (2)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period.
(3)Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous. (4)Based only on investment
income, calculated using SEC guidelines. The yield and value of Fund shares
is neither insured nor guaranteed and will fluctuate.
<PAGE>
From the Chairman
(Photo-George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
Putnam Tax-Free Insured Fund reached the midpoint of fiscal 1995 as the
Federal Reserve Board pushed short- term interest rates to their highest
level in four years. The Fed's sustained strategy for keeping inflation in
check by tightening credit has made investors understandably nervous. For
more than a year, their jitters have translated into an extremely unsettled
municipal bond market.
The market is likely to remain volatile for a while. Nevertheless, Fund
Manager Richard Wyke believes your fund is well positioned to benefit from a
market that may hold great opportunity in 1995. Evidence of rising investor
demand for tax-free securities is beginning to appear, even as the flow of
new issues to market remains well below 1993's record levels. Although there
can never be any assurances, Rick believes this combination could translate
into higher bond prices in coming months.
Because he expects market volatility to persist over the next few months,
Rick continues to position the fund's portfolio somewhat defensively. He
advises shareholders, however, that having a defensive posture does not
preclude investing in promising areas of the municipal bond market. In the
report that follows, Rick reviews fiscal '95 progress to date and reveals
what he and his management team see ahead.
Respectfully yours,
(Signature-George Putnam)
George Putnam
Chairman of the Trustees
March 15, 1995
<PAGE>
Report from the fund manager
Richard P. Wyke
Putnam Tax-Free Insured Fund began calendar 1995 as most fixed-income
investors were still nursing the financial wounds they sustained during
calendar 1994. During the first half of fiscal 1995, rising short-term
interest rates and growing inflationary expectations combined to attack the
total returns of most bond funds. Thus, while we became more optimistic about
the bond market's prospects for 1995, the fund's performance -- like that of
most bond funds -- was disappointing.
However, investors can take heart in the fact that the fund generated an
attractive level of current income in the period ended January 31, 1995. The
fund's class B shares produced a current dividend rate of 5.05%. For
investors in the 39.6% tax bracket this would be equivalent to a taxable
yield of 8.36%. Of course, results for investors in lower brackets would not
be as advantageous. Class A shares yielded 5.67%.
Despite a challenging year for the municipal bond market, we are confident
the fund is well positioned for the future, and want to show you why we
believe the market offers rewarding possibilities for tax-conscious investors
in 1995.
> 1994 -- AN OVERVIEW
During 1994, many investors asked us "What happened?" First and foremost, the
Federal Reserve Board raised short-term interest rates six times. While the
Fed's efforts were intended to head off inflation, which erodes the value of
fixed-income investments, investors believed the Fed was not doing enough.
Furthermore, since the prices of existing bonds fall and their yields rise
when interest rates increase, continually declining bond prices, accompanied
by substantial market volatility, dominated the fixed-income market for most
of the year.
Interest-rate upturns were not the only hurdles facing the municipal bond
market last year. By early October, when relative calm returned to the
market, tax-loss selling in the municipal bond mar
<PAGE>
ket added another blow to bond performance. These fiscal-year-end adjustments
that money managers and individuals made to their portfolios for tax purposes
depressed prices further. This sell off created yet another disruption in an
already-battered municipal bond market.
In early December, as municipals were enjoying a short rally, the financial
woes of Orange County, California, shook the market. The immediate drop in
value of county-related bonds was only the beginning of the fallout from the
$2 billion in losses sustained by the county's investment fund. As the major
rating agencies downgraded Orange County bonds almost overnight, investors
across the country began questioning the safety of municipal bonds.
> PROACTIVE MANAGEMENT MAXIMIZES TOTAL RETURN POTENTIAL
In our daily management of the fund, we continually search for municipal
bonds that offer the right balance of credit quality, yield, and relative
price stability. To do so, we constantly reevaluate the portfolio's current
holdings. Under the right circumstances, we may sell one security while
simultaneously buying another in order to take advantage of differences in
such factors as coupon rates, maturities, and marketability -- a strategy
known as bond swapping.
(Bar Chart)
TOP FIVE STATE CONCENTRATIONS*
California 11.1%
Florida 9.6%
New York 8.6%
Pennsylvania 7.2%
Texas 7.1%
As a percentage of net assets as of 1/31/95
Holdings will vary over time.
<PAGE>
Last fall, we sold bonds priced at par, or face value. At the same time, we
purchased bonds we believed offered greater price- appreciation potential.
Although newer holdings may experience greater price fluctuation over the
near term, we believe they also have the potential to make a noticeable
impact on the fund's overall total return, should the market rally.
While we are continually positioning the portfolio for the long term, we are
not discounting the likelihood of ongoing short-term volatility. Therefore,
we have maintained the portfolio's call protection by purchasing bonds that
cannot be called or paid off for several years. Additional defensive measures
also include maintaining a relatively short duration (a measure of
volatility) and sustaining a higher-than-average coupon structure -- as
evidenced by the fund's high income stream.
> POSITIVE OUTLOOK FOR CALENDAR 1995
Although Putnam Management expects further volatility in the bond market for
at least the first half of the new year, 1995 is off to an encouraging start.
The municipal bond market enjoyed an extended January rally, which translated
into a 3.22% total return at net asset value for class A shares for the
month. Recently, there is some evidence of positive changes in the municipal
market as seen in yields of existing tax-exempt debt (see chart on page 7).
Because of the inverse relationship of yields to bond prices, when yields
decline, prices will rise.
We also see signs of optimism in the broader markets. Specifically, the
flattening of the U.S. Treasury yield curve suggests that investors believe
the Fed's inflation-fighting measures will satisfactorily slow economic
expansion. It also appears likely that the supply/ demand imbalance detailed
in the fund's annual report has started to develop. The $6 billion in
municipal bonds issued in January is the lowest monthly new-issue figure
recorded since 1988. Not surprisingly, as noted in Bloomberg (February 1,
1995), market
<PAGE>
(Line Chart)
MUNICIPAL BOND YIELDS IN DECLINE
Bond prices rise as bond yields decline.
7.44
7.92
7.92
8.04
7.6
7.28
7.44
7.32
7.28
7.18
6.96
7.08
6.86
11/1/94 12/1/94 1/1/94 2/1/95
Evidence of positive changes in the municipal bond market can be seen in the
falling yields of existing tax-exempt debt. (Bond yields move in the opposite
direction from their prices.) The Bond Buyer Municipal Bond Index is a list
of 40 unmanaged individual municipal bonds. It is not intended to represent
the fund's performance. Source: Bloomberg; data plotted weekly.
analysts are reporting heightened demand for quality issues. Since your
fund's portfolio consists primarily of AAA-rated insured securities, we
expect this trend, if it continues, to affect the value of fund holdings
relatively favorably. Of course, there can be no guarantee of this result.
Despite a difficult calendar 1994, Putnam Management is optimistic about
1995. We will, of course, continue to monitor any political or economic
events that could impact your fund's portfolio. We also believe that as time
goes on, municipal bonds will become more attractive to tax-conscious
investors when compared to taxable alternatives.
Bond insurance does not guarantee principal or protect against changes in
market price. 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 January 31, 1995, there is no guarantee
the fund will continue to hold these securities in the future. Consult your
tax advisor for more guidance.
<PAGE>
Performance summary
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. We show total return in two ways:
on a cumulative long-term basis, and on average how the fund might have grown
each year over varying periods. For comparative purposes, we show how the
fund performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 1/31/95
<TABLE>
<CAPTION>
Class A Class B
Lehman Bros.
Municipal Bond
NAV POP NAV CDSC Index CPI
<S> <C> <C> <C> <C> <C> <C>
6 months 0.64% -4.13% 0.32 % -4.56 % 0.25 % 1.28%
1 year -3.86 -8.44 -4.47 -9.00 -3.56 2.80
5 years -- -- 36.09 34.09 44.07 17.98
Annual average -- -- 6.36 6.04 7.58 3.36
Life of class A -1.86 -6.51 -- -- -1.09 3.58
Annual average -1.37 -4.83 -- -- -0.80 2.62
Life of class B -- -- 106.37 106.37 126.78 39.17
Annual average -- -- 8.02 8.02 9.11 3.58
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C> <C> <C>
NAV POP NAV CDSC
1 year -5.78% -10.25% -6.38% -10.82%
5 years -- -- 30.43 28.48
Annual average -- -- 5.46 5.14
Life of class A -4.92 -9.43 -- --
Annual average -3.87 -7.44 -- --
Life of class B -- -- 100.04 100.04
Annual average -- -- 7.73 7.73
</TABLE>
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. The fund began investment operations on
9/9/85, offering shares now known as class B. Class A shares were offered as
of 9/20/93. Performance data represent past results and will differ for each
share class. Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than their original
cost.
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred 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. POP performance figures
shown here assume the maximum 4.75% sales charge for Tax-free Funds.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year to
1% during the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
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.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
<PAGE>
The Putnam Fund Selector(tm)
The Putnam Fund Selector shows the many opportunities
for investors within every investment strategy. All investors
should first accumulate a base of conservative, cash-equivalent investments.
Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family
of Funds.
(Graphic)
Pyramid showing risk/reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE FUNDS
MOST CONSERVATIVE INVESTMENTS
<PAGE>
Putnam Family of Funds
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND
INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
Please call your financial advisor or Putnam to
obtain a prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully before you
invest or send money.
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds+
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio, and
Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS++
Putnam money market funds:
Money Market Fund'SS'.
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts**
*Formerly Energy-Resources Trust.
+Not available in all states.
++Relative to above.
'SS'Formerly Daily Dividend Trust.
**Not offered by Putnam Investments. Certificates of deposit offer a fixed rate
of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
<PAGE>
Portfolio of investments owned
January 31, 1995 (unaudited)
MUNICIPAL BONDS AND NOTES (97.6%)*
PRINCIPAL AMOUNT RATINGS**
PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
RATINGS** VALUE
<S> <C> <C> <C>
Alaska (0.1%)
$425,000 AK Hsg. Fin. Corp. Home Mtge. Rev. Bonds Ser. A, Government
National Mortgage Assn. (GNMA), Coll., 8-3/8s, 12/1/16 AAA $ 439,875
Arizona (1.3%)
AZ Muni. Fin. Program Certif. of Participation (COP) Bond
Investors Guaranty Insurance Co. (BIGI),
1,000,000 Ser. 31, 7-1/4s, 8/1/09 AAA 1,096,250
5,700,000 Ser. 34, 7-1/4s, 8/1/09 AAA 6,248,625
-----------
7,344,875
California (11.1%)
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 3,104,063
8,000,000 CA State General Obligation (G.O.) Bonds Financial Security
Assurance (FSA), 5-1/2s, 3/1/20 AAA 6,950,000
3,110,000 CA State Pub. Works Board Lease Rev. Bonds Floating Rate
Stepped-Coupon (5.35s, 1/25/04), (Motion-Picture & TV), AMBAC,
5s, 12/1/19 AAA 2,530,763
3,000,000 CA Statewide Cmntys. Dev. Auth. Step-Up Recovery Floater COP
(Motion Picture & TV), AMBAC, 5.35s, 1/1/24 # AAA 2,872,500
3,250,000 LA Cnty., Convention and Exhibition Ctr. Auth. Lease Rev.
Bonds Ser. A, MBIA Ser. A, 5-3/8s, 8/15/18 AAA 2,835,625
2,500,000 LA Cnty., Trans. Comm. Sales Tax Rev. Bonds Ser. A,
Financial Guaranty Insurance Corp. (FGIC), (Proposition C),
MBIA AAA 2,709,375
4,000,000 6-3/4s, 7/1/19 AAA 4,355,000
3,455,000 6-1/2s, 7/1/20 AAA 3,709,806
2,500,000 LA Cnty., Waste Wtr. Syst. Rev. Bonds Ser. D, FGIC, 6s,
11/1/14 AAA 2,400,000
10,000,000 LA Dept. Wtr. & Pwr. Elec. Plant Rev. Bonds MBIA, 5-1/4s,
11/15/26 AAA 8,337,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. Rev. Rfdg. Bonds Ser. Y,
MBIA, 6-3/4s, 9/1/19 AAA 5,425,000
5,000,000 San Diego Regional Bldg. Auth. Lease Rev. Bonds 6.9s, 5/1/23 AAA 4,712,500
3,680,000 Santa Anna, Fing. Auth. Lease Rev. Bonds (Police Admin. &
Hldg. Fac.) Ser. A, MBIA, 6-1/4s, 7/1/17 AAA 3,634,000
6,300,000 U. of CA, Rev. Bonds (Multi-Purpose Projects), Ser. A, MBIA,
6-7/8s, 9/1/16 AAA 6,914,250
-----------
60,490,382
Colorado (2.6%)
4,225,000 CO Hlth. Fac. Auth. Rev. Bonds (Cmnty. Provider Pooled Loan
Program), Ser. A, Capital Guarantee Insurance Co. (CGIC),
7-1/4s, 7/15/17 AAA 4,446,813
3,750,000 CO River Texas Muni. Wtr. Dist. Rev. Bonds AMBAC 5.15s, 1/1/21 AAA 3,103,125
6,225,000 El Paso Cnty., Home Mtge. Rev. Bonds Ser. A, GNMA Coll., 8s,
3/1/21 AAA 6,489,563
-----------
14,039,501
<PAGE>
Delaware (1.0%)
$5,000,000 DE Econ. Dev. Auth. Poll. Rfdg. Rev. Bonds (Delmarva Pwr.),
Ser. B, FGIC, 7.15s, 7/1/18 AAA $ 5,318,750
Florida (9.6%)
900,000 Dade Cnty., Hlth. Fac. Auth. Hosp. Rev. Bonds (North Shore
Med. Ctr. Project), AMBAC, 9-1/8s, 10/1/13 AAA 942,750
13,675,000 Hernando Cnty., Rev. Bonds (Criminal Justice Complex), FGIC,
7.65s, 7/1/16 AAA 16,085,219
5,500,000 Orange Cnty., Hlth. Fac. Auth. Inverse Floating Bonds,
Ser. 91-C, MBIA, 7.905s, 10/29/21 AAA 5,555,000
Orange Cnty., Hlth. Fac. Rev. Bonds (Pooled Hosp. Loan
Project), S
150,000 Ser. A, FGIC, 7-7/8s, 12/1/25 AAA 158,625
10,870,000 Ser. B, BIGI 7-7/8s, 12/1/25 AAA 11,495,025
5,000,000 Orlando & Orange Cnty. Expressway Auth. Rev. Bonds FGIC,
8-1/4s, 7/1/14 AAA 6,150,000
16,495,000 Plantation, Wtr. & Swr. Auth. Rev. Bonds zero %, MBIA, 3/1/07 AAA 8,000,075
4,000,000 Sumter Cnty., School Dist. Rev. Bonds (Multi Dist. Loan
Program), CGIC, 7.15s, 11/1/15 AAA 4,430,000
-----------
52,816,694
Georgia (3.2%)
GA Muni. Elec. Auth. Pwr. Rev. Bonds,
7,500,000 Ser. B, AMBAC, 6-1/4s, 1/1/12 AAA 7,425,000
10,000,000 Ser. B, BIGI, zero %, 1/1/08 AAA 4,537,500
5,500,000 GA Muni. Elec. Special Obligation Rev. Bonds
(Project One), AMBAC, 6.4s, 1/1/13 AAA 5,527,500
-----------
17,490,000
Idaho (0.1%)
500,000 ID Hlth. Fac. Auth. Rev. Bonds
(Kootenai Med. Ctr. Project), MBIA, 9-1/8s, 8/1/15 AAA 520,625
Illinois (4.0%)
950,000 Aurora, Hosp. Fac. Rev. Bonds (Mercy Ctr. Hlth. Care Svcs.),
Ser. A, AMBAC 9-5/8s, 10/1/09 AAA 999,875
2,600,000 Chicago, Central Pub. Library Rev. Bonds Ser. B,
AMBAC, 6.85s, 1/1/17 AAA 2,821,000
6,780,000 Chicago, Pub. Bldg. Rev. Bonds (Cmnty. Bldg.), Ser. A, MBIA,
7s, 1/1/20 AAA 7,237,650
5,000,000 Chicago, Res. Mtge. Rev. Bonds Ser. B., MBIA, zero %,
10/1/09 AAA 1,750,000
2,000,000 Chicago, School Fin. Auth. Rev. Bonds FGIC, 8-3/4s, 6/1/09 AAA 2,067,500
5,000,000 Metro. Pier & Exposition Auth. Tax Rev. Bonds Ser. A, FGIC,
zero %, 6/15/17 AAA 1,150,000
5,000,000 Regional Trans. Auth. Bonds Ser. A, AMBAC, 8s, 6/1/17 AAA 6,018,750
-----------
22,044,775
Indiana (2.6%)
7,500,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds (Columbus Regl.
Hosp.), CGIC, 7s, 8/15/15 AAA 7,893,750
5,000,000 Marion Cnty., Hosp. Auth. Fac. Rev. Bonds (Cmnty. Hosp.
Proj.), MBIA, 9s, 5/1/08 AAA 5,150,000
<PAGE>
Indiana (continued)
$1,000,000 Vigo Cnty., Hosp. Auth. Rev. Bonds (Union Hosp.),
AMBAC, 9.3s, 5/1/11 AAA $ 1,031,875
-----------
14,075,625
Kentucky (0.1%)
425,000 KY Hsg. Corp. Multi-Fam. Mtge. Rev. Bonds Ser. A, BIGI,
8-7/8s, 7/1/19 AAA 433,500
Louisiana (1.3%)
3,120,500 East Baton Rouge, Mtge. Fin. Auth. Single-Fam. Mtge. Bonds
Ser. B, GNMA Coll., 8-1/4s, 2/25/11 AAA 3,241,421
LA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
510,000 Ser. 85A, FGIC, 9-3/8s, 2/1/15 AAA 528,488
1,310,000 GNMA Coll., 9-1/8s, 11/1/18 AAA 1,365,675
1,700,000 New Orleans, Intl. Arpt. Rev. Bonds MBIA, 9s, 8/1/15 AAA 1,785,000
-----------
6,920,584
Massachusetts (4.8%)
MA Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (Metro. West Hlth. Inc.), Ser C, AMBAC 6.4s, 11/15/11 AAA 2,022,500
5,000,000 (Baystate Med. Ctr.), Ser. D, FGIC, 6s, 7/1/15 AAA 4,718,750
995,000 MA Hsg. Fin. Agcy. Multi-Fam. Hsg. Rev. Bonds Ser. A,
MBIA, 8-7/8s, 7/1/18 AAA 1,024,850
5,200,000 MA Hsg. Fin. Agcy. Rev. Bonds (Hsg. Projects), Ser. A,
AMBAC, 5.95s, 10/1/08 AAA 5,083,000
MA Mun. Whsl. Elec. Co. Pwr. Sply. Svs. Rev. Bonds
9,500,000 Ser. E, MBIA, 6s, 7/1/11 AAA 8,989,375
5,000,000 Ser. A, AMBAC, 5s, 7/1/17 AAA 4,175,000
-----------
26,013,475
Michigan (3.8%)
800,000 Kent Cnty., Hosp. Fin. Auth. Fac. Rev. Bonds (Pine Rest
Christian Hosp. Assn.), FGIC, 9s, 11/1/10 AAA 841,000
MI State Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. A, FGIC
800,000 8-7/8s, 7/1/17 AAA 827,000
3,000,000 8-3/8s, 7/1/19 AAA 3,120,000
4,500,000 MI Strategic Fund Ltd. Oblig. Rev. Bonds (Consumers Pwr. Co.
Project), Capital Market Assurance Corp.
(CMAC), 5.8s, 6/15/10 AAA 4,286,250
MI Strategic Fund Ltd. Oblig. Rev. Bonds (Detroit Edison
Project Co. Project),
4,000,000 Ser. BB, AMBAC, 7s, 5/1/21 AAA 4,280,000
2,750,000 Ser. AA, FGIC, 6.95s, 5/1/11 AAA 2,945,938
4,735,000 MI Trunk Line Rev. Bonds AMBAC, zero %, Ser. A, 10/1/11 AAA 1,675,006
3,500,000 West Bloomfield, School Dist. Rev Bonds MBIA, 5-1/8s, 5/1/14 AAA 2,996,875
-----------
20,972,069
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 3,450,000
<PAGE>
Montana (0.1%)
$500,000 Missoula, Hosp. Fac. Rev. Bonds (Sisters of Charity-St.
Patrick), AMBAC, 9.4s, 9/1/12 AAA $ 523,125
Nebraska (1.8%)
900,000 NE Investment Fin. Auth. Single Fam. Mtge. GNMA. Coll., IFB,
Ser. B, 10.543s, 3/15/22 AAA 975,375
5,820,000 NE Investments Fin. Auth. Single Fam. Mtg. Rev. Bonds, Ser. 1,
MBIA, 8-1/8s, 8/15/38 AAA 6,038,250
3,000,000 NE Investment Fin. Auth. Hosp. Rev. IFB MBIA, 8-5/8s, 11/15/16 AAA 3,090,000
-----------
10,103,625
Nevada (0.9%)
4,500,000 Clark Cnty., School Dist. General Obligation (GO) Bonds Ser.
A, MBIA, 7s, 6/1/10 AAA 4,826,250
New Hampshire (0.5%)
2,500,000 NH State Tpk. Syst. IFB FGIC, 10.245s, 11/1/17 AAA 2,656,250
New Jersey (5.9%)
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB Ser. A, MBIA, 7.95s,
8/15/10 AAA 2,996,250
5,925,000 NJ Econ. Dev. Auth. Mkt. Transition Fac. Rev. Bonds Sr.-Lien,
Ser A, MBIA, 5-7/8s, 7/1/11 AAA 5,754,656
6,000,000 NJ Econ. Dev. Auth. Wtr. Facs. Rev. Bonds (Hackensack Water),
MBIA, 5.9s, 3/1/24 AAA 5,460,000
105,000 NJ Hlth. Care Fac. Finance Auth. Rev. Bonds (Bayshore Cmnty.
Hosp.), Issue A, MBIA, zero %, 7/1/08 AAA 46,725
10,000,000 Salem Cnty, Ind. Poll. Control Fin. Auth. Rev. Bonds (Pub.
Svc. Elec. & Gas Co. Project), Ser A, MBIA, 5.45s, 2/1/32 AAA 8,275,000
10,000,000 Salem Cnty. Indl. Poll. Control Fin. Auth. Rev. Bonds (Public
Svc. Elec. & Gas Co. Project) Ser. C, MBIA, 6.2s, 8/1/30 AAA 9,562,500
-----------
32,095,131
New Mexico (1.5%)
7,650,000 Los Alamos Cnty., Util. Sys. Rev. Bonds Ser. A, FSA, 6s,
7/1/15 AAA 7,267,500
1,075,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds Ser. C, FGIC,
8-1/2s, 7/1/07 AAA 1,085,750
-----------
8,353,250
New York (8.6%)
635,000 Erie Cnty., Wtr. Auth. Rev. Rfdg. Bonds, AMBAC, zero %,
12/1/17 AAA 123,825
1,900,000 Erie Cnty., Auth. Rev. Bonds, Ser. A, AMBAC, 2.05s, 12/1/16 VMIG1 1,900,000
NY City Muni. Wtr. Fin. Auth. Wtr. & Swr. Sys. Rev. Bonds,
7,265,000 Ser. B, FGIC, 7-1/2s, 6/15/11 AAA 8,191,288
2,735,000 Rfdg., Ser. B, FGIC, 7-1/2s, 6/15/11 AAA 3,066,619
10,000,000 Ser. B, 5-5/8s, 6/15/19 AAA 9,125,000
5,500,000 NY State Dorm. Auth. Rev. Bonds (Mt. Sinai Medical School),
Ser. A, MBIA, 5s, 7/1/21 AAA 4,496,250
3,000,000 NY State Energy Research & Dev. Auth. Rev. Bonds (Gas
Facilities), MBIA, 7.539s, 7/8/26 AAA 2,246,250
<PAGE>
New York (continued)
$4,350,000 NY State Med. Care Fac. Fin. Agcy. Rev. Rfdg. Bonds
(Mental Hlth. Svcs.), Ser. F, FSA, 5-1/4s, 2/15/21 AAA $ 3,637,688
NY State Med. Care Facs. Fin. Rev. Bonds
(Mental Hlth. Svcs. Fac.),
10,000,000 Ser. A, AMBAC, 5.8s, 8/15/22 AAA 9,200,000
5,870,000 Ser. A, FGIC, 5-1/2s, 8/15/21 AAA 5,150,925
-----------
47,137,845
North Carolina (1.3%)
8,000,000 NC Muni. Pwr. Agcy. Rev. Bonds (Catawba Electric), 5.6s,
1/1/20 AAA 7,280,000
Ohio (4.0%)
7,390,000 Cleveland, Waterworks 1st Mtge. Rev. Bond, Ser. F-92A, AMBAC,
6-1/2s, 1/1/21 AAA 7,888,825
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
3,374,000 Ser. B, GNMA Coll., 8-1/4s, 12/15/19 AAA 3,466,785
6,820,000 Ser. C, GNMA Coll., 8-1/8s, 3/1/20 AAA 7,135,425
13,884,355 Ser. 85-A, FGIC, zero %, 1/15/15 AAA 2,030,587
OH State Wtr. Dev. Auth. Rev. Bonds AMBAC
265,000 9-3/8s, 12/1/18 AAA 275,600
1,020,000 Rfdg. 9-3/8s, 12/1/18 AAA 1,066,538
-----------
21,863,760
Oklahoma (1.1%)
6,020,000 OK Hsg. Fin. Agcy. Single Fam. Rev. Bonds Ser. A, GNMA Coll.,
8-1/4s, 12/1/20 AAA 6,200,600
Pennsylvania (7.2%)
5,000,000 Delaware Cnty., Hlth. Care Auth. Rev. Bonds (Mercy Hlth.
Corp., Southeastern), Connie Lee Insd., Ser. A, 5-1/8s,
11/15/12 AAA 4,268,750
4,000,000 Keystone Oaks, School Dist. Rev. Bonds, Ser. C, AMBAC, 5.829s,
9/1/16 AAA 3,670,000
7,000,000 Leigh Cnty. Indl. Dev. Auth. Poll. Control Rev. Bonds (PA
Power & Light Co. Project-B), MBIA, 6.4s, 9/1/29 AAA 6,947,500
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp. Rev. Bonds
(Scared Heart Hosp. Norristown), Ser. A, BIGI, 6.8s, 2/1/13 AAA 1,982,500
4,500,000 PA State Higher Edl. Fac. Auth. Rev. Bonds (Hahnemann U.
Project), MBIA, 7.2s, 7/1/19 AAA 4,770,000
5,000,000 PA State COP Ser. A, AMBAC, 5s, 7/1/15 AAA 4,131,250
Philadelphia, Muni-Auth. Rfdg. Rev. Bonds, FGIC,
620,000 DTD 8/15/93, 7.8s, 4/1/18 AAA 675,025
6,045,000 DTD 7/1/91, 7.8s, 4/1/18 AAA 6,672,169
3,000,000 Philadelphia, Regl. Port Auth. Lease IFB MBIA, 8.15s, 9/1/13 AAA 2,966,250
3,000,000 Philadelphia, Wtr. & Swr. Linked Floater Annuity FGIC 4.8s,
6/15/05 AAA 1,383,750
2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds Ser. A, FGIC,
7-1/8s, 6/1/13 AAA 2,155,000
-----------
39,622,194
<PAGE>
Puerto Rico (0.6%)
$3,700,000 Cmnwlth. of Puerto Rico, Rfdg. Rev. Bonds, MBIA, 5-1/4s,
7/1/18 AAA $ 3,205,125
Rhode Island (0.8%)
4,315,000 RI Depositors Econ. Protection Corp. Special Oblig. Ser. A,
MBIA, 7-1/4s, 8/1/21 AAA 4,530,750
South Carolina (2.0%)
12,505,000 SC State Pub. Svcs. Auth. Rev. Bonds, Ser. A, MBIA, 5-1/2s,
7/1/21 AAA 11,020,031
Tennessee (0.2%)
900,000 Metro. Nashville Arpt. Auth. Rev. Bonds FGIC, 9-3/4s, 7/1/15 AAA 934,875
Texas (7.1%)
Dallas Cnty, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds
(Lomas & Nettleton Co.), FGIC
347,000 10s, 10/1/07 AAA 357,844
15,000 9.2s, 7/1/06 AAA 15,488
5,000,000 Harris Cnty., Hosp. Dist. Mtge. Rev. Rfdg. Bonds, AMBAC, 7.4s,
2/15/10 AAA 5,531,250
Harris Cnty. Toll Rd. Rfdg. Rev. Bonds,
2,520,000 Ser. A, AMBAC, 6-5/8s, 8/15/11 AAA 2,649,150
4,000,000 Ser. A, FGIC, 6-1/2s, 8/15/17 AAA 4,270,000
Houston, Wtr. & Swr. Syst. Rev. Rfdg. Bonds, FGIC
2,310,000 9-3/8s, 12/1/13 AAA 2,439,938
390,000 9-3/8s, 12/1/13 AAA 411,938
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds, MBIA,
6-5/8s, 4/1/12 AAA 7,131,250
10,000,000 Lower Colo. Riv. Auth. Rev. Rfdg. Jr. Lien Bonds, FSA, 5-5/8s,
1/1/17 AAA 8,950,000
4,630,000 Lubbock, Hsg. Fin. Corp. Single-Fam. Mtge. Rev. Bonds, Ser. A,
GNMA Coll., zero %, 11/25/17 AAA 781,313
1,500,000 North Central Hlth. Fac. Dev. Corp. Rfdg. Rev. Bonds
(Methodist Hosp.-Dallas), Ser. A, BIGI, 9-1/2s, 10/1/15 AAA 1,576,875
5,000,000 Rio Grande Valley. Hlth. Fac. Dev. Corp. Hosp. IFB (Baptist
Med. Ctr.), Ser. B, MBIA, 9.438s, 8/1/12 AAA 4,906,250
-----------
39,021,296
Utah (1.0%)
6,400,000 Intermountain Pwr. Supply Agcy. Rev. Bonds, Ser. A, AMBAC
5.6s, 7/1/21 AAA 5,640,000
Virginia (2.5%)
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB FGIC, 9.773s,
8/15/23 AAA 10,312,500
3,000,000 Roanoke Cnty., Wtr. Sys. Rev. Bonds, FGIC, 6-1/2s, 7/1/21 AAA 3,202,500
-----------
13,515,000
Washington (1.9%)
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 3,757,000
6,000,000 (Nuclear Project No. 3), Ser. B, MBIA, 7.12s, 7/1/16 AAA 6,420,000
-----------
10,177,000
<PAGE>
West Virginia (--%)
$140,000 WV Hsg. Dev. Auth. Home Ownership Mtge. Rev. Bonds
Ser. A., FGIC, 9.1s, 1/1/14 AAA $ 143,500
Wisconsin (1.4%)
2,000,000 Superior, Ltd. Oblig. Rev. Rfdg. Bonds (Midwest Energy
Resources), Ser. E, FGIC, 6.9s, 8/1/21 AAA 2,107,500
5,000,000 WI Hlth. Fac. Auth. Rev. Bonds (Meriter Hosp. Inc.), FGIC,
8-3/8s, 12/1/09 AAA 5,487,500
-----------
7,595,000
Wyoming (1.0%)
5,000,000 Laramie Cnty., Indl. Dev. Rev. Bonds (Cheyenne Lt. & Fuel &
Pwr. Co.), Ser. A, AMBAC, 7-1/4s, 9/1/21 AAA 5,212,494
-----------
Total Municipal Bonds and Notes (cost $524,136,300) $534,027,831
PUT OPTIONS PURCHASED (cost $113,150) (--%)* EXPIRATION DATE/ VALUE
NUMBER OF CONTRACTS STRIKE PRICE
10 U.S. Treasury Bond Futures March 1995/$100.00 $ 34,000
Total Investments (cost $524,249,450)*** $534,061,831
</TABLE>
<PAGE>
NOTES
* Percentages indicated are based on net assets of $547,352,027, which
correspond to a net asset value per class A and class B share of $14.33 and
$14.34, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at January 31, 1995 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, 1995. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
# A portion of this security was pledged to cover margin requirements for
futures contracts at January 31, 1995. The market value of segrated
securities with the custodian for transactions on futures contract is
$2,872,500 or 0.5% of net assets.
*** The aggregate identified cost on a tax cost basis is $524,406,986,
resulting in gross unrealized appreciation and depreciation of $20,946,199,
and $11,291,354, respectively, or net unrealized appreciation of $9,654,845.
The rates shown on Variable Rate Demand Notes (VRDN), Inverse Floating Bonds
(IFB) and linked Floater Annuties which are securities paying variable
interest rates that vary inversely to changes in the market interest rates,
are the current interest rates at January 31, 1995, which are subject to
change based on terms of the security.
The Fund had the following industry group concentrations greater than 10% at
January 31, 1995 (as a percentage of net assets):
Utilities 22.5%
Hospitals / Health Care 19.1
Water & Sewerage 12.0
Housing 11.9
The Fund had the following insurance concentrations greater than 10% at
January 31, 1995 (as a percentage of net assets):
MBIA 34.1%
FGIC 18.5
AMBAC 21.1
<PAGE>
WRITTEN OPTIONS OUTSTANDING
(PREMIUMS RECEIVED $2,324)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
20 U.S. Treasury Bond Futures March 1995/$100.00 $3,625
U.S. Treasury Bond Futures Outstanding at January 31, 1995
<TABLE>
<CAPTION>
Total Aggregate Expiration Unrealized/
Value Face Value Date Depreciation
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures (Sell) $55,807,813 $54,500,000 March/95 $(1,307,813)
</TABLE>
<PAGE>
Statement of assets and liabilities
January 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value (identified cost $524,249,450)
(Note 1) $534,061,831
Cash 3,381,147
Interest receivable 8,494,033
Receivable for shares of the fund sold 27,498,611
Receivable for securities sold 4,350,716
------------
Total assets $577,786,338
Liabilities
Distributions payable to shareholders 1,012,596
Payable for shares of the fund repurchased 28,505,285
Payable for compensation of Manager (Note 2) 273,670
Payable for investor servicing and custodian fees (Note 2) 3,144
Payable for administrative services (Note 2) 10,496
Payable for variation margin on open futures contracts 257,813
Payable for distribution fees (Note 2) 308,775
Other accrued expenses 58,907
Written options outstanding (premium received $2,324) 3,625
------------
Total liabilities 30,434,311
------------
Net assets $547,352,027
Represented by
Paid-in capital (Notes 1 and 4) 547,434,105
Distributions in excess of net investment income (Note 1) (893,047)
Accumulated net realized loss on investment and futures
transactions (Note 1) (7,692,298)
Net unrealized appreciation of investments, futures contracts and
options 8,503,267
------------
Total -- Representing net assets applicable to capital shares
outstanding $547,352,027
Net asset and redemption price of class A shares ($180,044,836
divided by 12,561,398 shares) $14.33
Offering price per class A share (100/95.25 of $14.33)* $15.04
Net asset value and offering price of class B share ($367,307,191
divided by 25,607,103 shares)** $14.34
</TABLE>
*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 applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended January 31, 1995 (Unaudited)
<TABLE>
<S> <C>
Tax exempt interest income $ 18,647,253
Expenses:
Compensation of Manager (Note 2) $ 1,639,344
Investor servicing and custodian fees (Note 2) 173,173
Compensation of Trustees (Note 2) 9,601
Reports to shareholders 16,989
Auditing 16,972
Legal 7,562
Postage 30,248
Administrative services (Note 2) 9,187
Registration fees 32,667
Distribution fees--Class A (Note 2) 144,061
Distribution fees--Class B (Note 2) 1,746,132
Other 5,886
------------
Total expenses 3,831,822
------------
Net investment income 14,815,431
Net realized loss on investments (Notes 1 and 3) (3,229,732)
Net realized gain on futures contracts (Notes 1 and 3) 558,878
Net unrealized depreciation of investments, futures contracts
and options during the year (10,729,911)
------------
Net loss on investment transactions (13,400,765)
------------
Net increase in net assets resulting from operations $ 1,414,666
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Six months
ended Year ended
January 31* July 31
1995 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 14,815,431 $ 29,208,200
Net realized loss on investments (3,229,732) (846,042)
Net realized gain on futures contracts 558,878 856,097
Net unrealized depreciation of investments,
futures contracts and options (10,729,911) (29,129,498)
Net increase in net assets resulting from
operations 1,414,666 88,757
Distributions to shareholders:
From net investment income
Class A (4,228,163) (7,004,732)
Class B (10,702,177) (22,142,492)
From net realized gain on investments
Class A (50,889) (2,495)
Class B (140,141) (7,560)
In excess of net realized gain on
investments and futures
Class A -- (932,962)
Class B -- (2,827,335)
Increase (decrease) from capital share
transactions (Note 4) (14,915,495) 36,144,510
Total increase (decrease) in net assets (28,622,199) 3,315,691
Net assets
Beginning of period 575,974,226 572,658,535
End of period (including distributions in
excess of net investment income of
$893,047 and $778,138, respectively) $547,352,027 $575,974,226
</TABLE>
*Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
September 20,
1993
(commencement
Six months of operations) Six months
ended to ended
January 31* July 31 January 31* Year ended July 31
1995 1994 1995 1994 1993 1992
Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 14.67 $ 15.88 $ 14.68 $ 15.50 $ 15.42 $ 14.38
Investment operations
Net investment income .42 .73 .37 .74 .75 .76
Net realized and unrealized
gain (loss) on
investments (.33) (1.12 ) (.33) (.73) .28 1.14
Total from investment
operations .09 (.39 ) .04 .01 1.03 1.90
Less distributions:
From net investment income (.42) (.72 ) (.37) (.73) (.75) (.77)
From net realized gain on
investments (.01) -- (.01) -- (.20) (.09)
In excess of net realized
gain on investments -- (.10 ) -- (.10) -- --
Total distributions (.43) (.82 ) (.38) (.83) (.95) (.86)
Net asset value, end of
period $ 14.33 $ 14.67 $ 14.34 $ 14.68 $ 15.50 $ 15.42
Total investment return at
net asset value (%) (b) .64(c) (2.49 )(c) .32(c) -- 7.00 13.63
Net assets, end of period
(in thousands) $180,045 $143,079 $367,307 $432,895 $572,659 $466,135
Ratio of expenses to
average net assets (%) 0.45(c) .80 (c) 0.78(c) 1.53 1.74 1.79
Ratio of net investment
income to average net
assets (%) 2.94(c) 4.73 (c) 2.61(c) 4.81 4.88 5.16
Portfolio turnover (%) 16.94(c) 47.72 (c) 16.94(c) 47.72 42.01 66.18
</TABLE>
See page 22 for notes to Financial Highlights.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
For the period
September 9,
1985
(commencement
of operations) to
Year ended July 31 July 31
1991 1990 1989 1988 1987 1986
Class B
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 14.25 $ 14.79 $ 13.85 $ 13.77 $ 13.91 $ 12.57
Investment operations
Net investment income .79 .83 .85 .85 .84 .73(a)
Net realized and unrealized
gain (loss) on
investments .14 (.06) .93 .11 (.10) 1.41
Total from investment
operations .93 .77 1.78 .96 .74 2.14
Less distributions:
From net investment income (.80) (.83) (.84) (.85) (.84) (.80)
From net realized gain on
investments -- (.48) -- (.03) (.04) --
In excess of net realized
gain on investments -- -- -- -- -- --
Total distributions (.80) (1.31) (.84) (.88) (.88) (.80)
Net asset value, end of
period $ 14.38 $ 14.25 $ 14.79 $ 13.85 $ 13.77 $ 13.91
Total investment return at
net asset value (%) (b) 6.79 5.49 13.31 7.24 5.31 17.33(c)
Net assets, end of period
(in thousands) $359,465 $309,050 $293,127 $268,004 $264,916 $195,386
Ratio of expenses to
average net assets (%) 1.68 1.63 1.61 1.58 1.61 1.42(a)(c)
Ratio of net investment
income to average net
assets (%) 5.60 5.81 6.01 6.20 5.83 5.26(a)(c)
Portfolio turnover (%) 54.69 86.29 201.21 197.29 85.49 125.36(c)
</TABLE>
* 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) Not annualized.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to financial statements
January 31, 1995 (Unaudited)
Note 1
Significant accounting policies
The fund is a series of Putnam Tax-Free Income Trust (the "Trust") which is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund pursues its
objective of seeking high current income exempt from federal income tax by
primarily 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. Class A shares are sold with
a maximum 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. Expenses of the fund are borne
pro-rata by the shareholders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class). Each class votes as a class only with respect to
its own distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. 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) 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
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.
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.
<PAGE>
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.
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.
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 and stepped coupon bonds is
accreted 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 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 Inc. ("Putnam 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 amount over $100 million and by the
amount of certain brokerage commissions and fees (less expenses) received by
affiliates of the Manager of 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.
Trustees of the fund receive an annual Trustee's fee of $1,240, 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 Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended January 31, 1995 have been reduced by credits
allowed by PFTC.
<PAGE>
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 the Class A Plan is to compensate Putnam Mutual Funds
Corp., 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.
During the six months ended January 31, 1995, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $6,364 from the sale
of class A shares of the fund.
A deferred sales charge of up to 1% is assessed on certain redemption of
class A shares purchased as part of an investment of $1 million or more. For
the six months ended January 31, 1995, Putnam Mutual Funds Corp., acting as
the underwriter, received no monies on class A redemptions.
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
fund's average net assets attributable to class B shares. For the six months
ended January 31, 1995, the fund paid Putnam Mutual Funds Corp. distribution
fees of $397,930 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred
sales charges levied on class B share redemptions within six years of
purchase. The charge is based on declining rates, which begins at 5% of the
net asset value of the redeemed shares. For the six months ended January 31,
1995, Putnam Mutual Funds Corp. received contingent deferred sales charges of
$492,662 from such redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1995, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$149,489,035 and $177,166,437, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Written option transactions on U.S. Treasury Bond futures during the period
are summarized as follows:
<TABLE>
<CAPTION>
Premiums
Received
<S> <C>
Options written $2,324
Written options outstanding
at end of period $ 2,324
</TABLE>
Note 4 Capital shares
At January 31, 1995, there was an unlimited number of shares of beneficial
interest authorized divided into class A and class B shares. Transactions in
capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
September 20, 1993
(commencement
Six months ended of operations) to
January 31 July 31
1995 1994
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 3,730,494 $ 52,886,340 10,582,170 $ 168,126,740
Shares issued in
connection with
reinvestment of
distributions 176,824 2,500,138 345,090 4,608,153
3,907,318 55,386,478 10,927,260 172,734,893
Shares repurchased (1,097,030) (15,517,292) (1,176,150) (17,969,942)
Net increase 2,810,288 $ 39,869,186 9,751,110 $ 154,764,951
Six months ended
January 31 Year ended July 31
1995 1994
Class B Shares Amount Shares Amount
Shares sold 1,220,417 $ 17,294,800 4,899,248 $ 75,602,157
Shares issued in
connection with
reinvestment of
distributions 479,878 6,791,437 1,046,236 16,046,023
1,700,295 24,086,237 5,945,484 91,648,180
Shares repurchased (5,575,640) (78,870,918) (13,406,532) (210,268,621)
Net decrease (3,875,345) $(54,784,681) (7,461,048) $(118,620,441)
</TABLE>
<PAGE>
Our commitment to quality service
> CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past five years, through 1994. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every
category, Putnam outperformed the industry standard.
> HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your checking or savings account.*
> SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
> ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than their original
cost.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
> To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
*Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
<PAGE>
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
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
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
Gary N. Coburn
Vice President
James E. Erickson
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
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other
agency, and involve risk, including the possible loss of principal amount
invested.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
438/035-16924
<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) 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) Trademark symbol replaced with (TM)
