Putnam
Tax-Free
Insured
Fund
SEMIANNUAL REPORT
January 31, 1996
[GRAPHIC OMITTED: PUTNAM SCALES LOGO]
BOSTON * LONDON * TOKYO
Fund highlights
* "Putnam Tax-Free Insured Fund relies on a value-based approach to
derive income from a wide range of sectors, including health care,
utilitities, waste management, and housing."
-- Richard P. Wyke, Manager
* "...Tax-overhaul fears are overblown. Once these fears begin to abate,
investors are expected to return to the municipal market for undervalued
opportunities that have been created by the fear of tax reform..."
-- The Wall Street Journal, January 2, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
21 Financial statements
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
By the time Putnam Tax-Free Insured Fund entered its new fiscal year
last August, municipal-bond investors had begun showing signs of
recovery from their anguish over the possible negative effect that a
flat tax might have on the tax-exempt market. As the fund reached the
fiscal year's midpoint on January 31, 1996, the market was in a somewhat
brighter mood and shareholders could look back on a period of positive
fund performance.
Ironically, the interruption in the municipal-bond market's rise from
1994's lows may have enhanced your fund's fiscal 1996 prospects. Your
fund's management currently believes the market's renewed vigor has the
potential to be sustained during the second half of fiscal 1996 as tax-
exempt bonds continue to make up lost ground. Other positive factors, in
management's view, include a favorable supply/demand situation and
interest-rate trends. The report, which follows, provides more detail.
I am pleased to announce the addition of James Prusko to your fund's
management team. Jim joined Putnam in 1992 from Salomon Brothers. He has
five years of investment experience.
Respectfully yours,
/s/George Putnam
Chairman of the Trustees
March 20, 1996
Report from the Fund Managers
Richard P. Wyke
James M. Prusko
Inspired by persistent evidence of slowing economic growth and a benign
rate of inflation, the fixed-income markets greeted the new year in
festive spirits. Putnam Tax-Free Insured Fund's ability to anticipate
developing trends and successfully exploit market inefficiencies is
demonstrated by its solid, competitive performance during the semiannual
period ended January 31, 1996. See pages 8 and 9 for complete
performance information.
* INSURED BONDS LEAD MUNICIPAL MARKET
Although flat-tax concerns prevented municipal-bond returns from
reaching the heights attained by U.S. Treasury securities during
calendar 1995, the market nevertheless staged a dramatic comeback from
1994's disappointing performance. We are pleased to note that, within
the municipal sector, insured bonds scored among the highest returns
last year. According to Lipper Analytical Services, the average return
for insured municipal funds over the 12 months ended January 31, 1996,
was 14.61%, compared with a 14.03% average return for general national
municipal funds.
When interest rates fall, bonds at the higher end of the quality
spectrum tend to appreciate the most rapidly. For this reason, AAA-rated
insured bonds often enjoy popularity during market rallies. In addition,
the discount-coupon structure and favorable call protection prevalent in
the insured sector are generally sought after by bullish investors.
Consequently, your fund's focus has enabled it to profit from the
growing demand for attractively structured insured paper. Our emphasis
on bond structure throughout the period -- investing 24% of the
portfolio in noncallable bonds and another 22% in discounts -- paid off
handsomely as the value of these holdings rose.
* STRUCTURE IS KEY TO FAVORABLE RETURNS
We believe a portfolio of price-sensitive bonds with low call risk
offers the greatest possibility for price gains in a declining interest
rate environment. Your fund is subject to frequent rebalancing in order
to maintain this desired structure. For instance, as yields fell over
the past six months, many bonds we had originally purchased at a
discount advanced to the point where they were fast approaching their
face value. As a bond's price nears par value, its capacity to
appreciate tends to stall. We therefore took profits in such "par bond"
holdings and swapped the proceeds into discount bonds with greater
potential for price appreciation.
In order to enhance the liquidity of your fund without compromising its
price sensitivity, we recently began to reallocate a portion of its
"barbelled" maturity distribution. That is, a combination of shorter-
and longer-term holdings were replaced with bonds having 13- to 14-year
maturities. During unsettled periods in the market, bonds in this
maturity range tend to enjoy more favorable price support than longer
maturities while still benefiting from price gains when the market
rallies.
Toward the end of the period, particularly during the months of
November and December, municipal bond buyers began to brace themselves
for a large influx of cash from sizable coupon income payable January 1.
Insured municipals were the primary beneficiaries of the ensuing
scramble to acquire attractively structured issues in advance of
anticipated reinvestment demand.
[GRAPHIC OMITTED: Horizontal bar chart TOP FILE STATE CONCENTRATIONS*
California 19.4%
New York 10.1%
Florida 9.7%
Texas 8.7%
Pennsylvania 6.3%
Footnote reads:
*As a percentage of net assets on 1/31/96. Holdings will vary over
time.]
* BUYING OPPORTUNITY IN CALIFORNIA; PROFITS TAKEN IN NEW YORK
Your fund's performance is frequently enhanced by our ability to take
advantage of temporary supply/demand imbalances occurring in many high-
tax states. Over the past six months, the "specialty states" of
California and New York presented rewarding opportunities.
In early fall, a flood of selling in anticipation of increased supply
caused prices of California insured bonds to become relatively cheap. In
fact, on several occasions, yields on Golden State insured issues were
driven above those of the national market -- an almost unheard-of
situation for bonds in a state with one of the highest income tax rates
in the country.
We seized this chance to increase the fund's exposure to California
bonds at very attractive levels, believing that, over the longer term,
demand for California tax-exempt income will again exceed supply. There
are two main reasons for this belief. First, as a percentage of the
overall market, supply of California paper is likely to shrink somewhat,
as the large float of issues resulting from the barrage of 1993
refundings eventually matures. Secondly, we expect prices of AAA-
insured California bonds to gain as the state's recovering economy
becomes more widely acknowledged.
Our program of increasing exposure to New York bonds over the first half
of calendar 1995 proved lucrative. As winter approached, the New York
new-issue calendar dropped off precipitously, causing an interim
shortage of bonds in the state. Differences in yields among higher- and
lower-rated New York bonds compressed significantly, presenting the
opportunity to realize considerable profits on positions purchased
earlier in the year.
* OUTLOOK REMAINS CAUTIOUS, BUT OPTIMISTIC
The backdrop for the overall fixed-income markets remains constructive.
The new era of fiscal responsibility favors lower interest rates, since
the federal government is expected to put less demand on the debt
markets going forward. In addition, the Federal Reserve Board recently
lowered a key short-term interest rate, signaling its resolve to avert
an excessively weak economy in 1996.
The perceived threat of a flat tax is likely to be the municipal
market's biggest obstacle during the remainder of your fund's fiscal
year. We sense, however, that as the flat-tax issue comes under
increased scrutiny, its more draconian elements -- among them,
elimination of the tax advantage enjoyed by municipals -- are likely to
be tempered. Furthermore, we doubt that new legislation would come
before well into 1997, if at all.
[GRAPHIC OMITTED: worm chart YIELD CURVES OF TAXABLE AND TAX-FREE BONDS
Y-axis reads (top to bottom) 9.00% to 3.00% in 1.0% decrements
X-axis read (left to right) 1 to 30 in 1.0 to 5.0 increments
A solid black line represents AAA-rated municipal bonds
A solid white line represents U.S. Treasury securities
A solid gray line represents Taxable-equivalent municipal bond yield
AAA-rated U.S. Treasury Taxable-equivalent
municipal bonds securities municipal bond yield
--------------- ------------- --------------------
1 3.44% 4.90% 5.70%
2 3.69 4.93 6.11
3 3.89 5.06 6.44
4 3.99 5.15 6.61
5 4.09 5.23 6.77
7 4.29 5.38 7.10
10 4.59 5.58 7.60
15 5.03 5.70 8.33
20 5.14 5.81 8.51
25 5.18 5.93 8.58
30 5.20 6.04 8.61
Footnote reads:
Chart compares yields of U.S. Treasury payments on securities and tax-
free AAA-rated municipal bonds of varying maturities on 1/31/96. The
taxable-equivalent yield for municipal bonds assumes the maximum 39.6%
federal income tax rate. Returns would not be as advantageous for
investors in lower tax brackets. No assurances can be made that the fund
will attain any particular yield. Unlike municipal bonds, principal and
interest payments on U.S. Treasury securities are backed by the full
faith and credit of the U.S. government; market prices and investment
returns will vary and are not guaranteed. Source: Bloomberg.]
At prices yielding approximately 91% of comparable taxable Treasury
securities as of January 31, 1996, insured municipals represent
attractive value for investors searching for bargains in a somewhat
pricey financial marketplace. Indeed, even a modest movement back to the
pre-flat-tax ratio of 85% would translate into sizable gains for insured
bonds. Another significant leg down in rates, however, carries the
caveat of potentially higher refunding volume. Be assured that we will
keep a careful watch on developments in both Washington and the markets
in charting our investment course over the next six months.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 1/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Tax-Free Insured Fund is for investors seeking high
current income free from federal income tax through investments in
insured, investment-grade tax-exempt securities.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 1/31/96
Class A Class B Class M
Inception date (9/20/93) (9/9/85) (6/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 7.60% 2.49% 7.32% 2.32% 7.37% 3.87%
- ------------------------------------------------------------------------
1 year 14.62 9.21 13.95 8.95 -- --
- ------------------------------------------------------------------------
5 years -- -- 44.17 42.17 -- --
Annual average -- -- 7.59 7.29 -- --
- ------------------------------------------------------------------------
10 years -- -- 108.00 108.00 -- --
Annual average -- -- 7.60 7.60 -- --
- ------------------------------------------------------------------------
Life of class 12.49 7.15 135.15 135.15 6.43 2.96
Annual average 5.09 2.96 8.57 8.57 -- --
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.92% 1.25%
- ------------------------------------------------------------------------
1 year 15.05 2.73
- ------------------------------------------------------------------------
5 years 51.73 14.71
Annual average 8.70 2.78
- ------------------------------------------------------------------------
10 years 130.30 40.88
Annual average 8.70 3.49
- ------------------------------------------------------------------------
Life of class A 13.80 6.41
Annual average 5.61 2.66
- ------------------------------------------------------------------------
Life of class B 160.91 42.96
Annual average 9.66 3.50
- ------------------------------------------------------------------------
Life of class M 6.99 1.44
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 4.75% maximum sales charge for class A shares
and 3.25% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 7.85% 2.72% 7.42% 2.42% 7.54% 4.03%
- ------------------------------------------------------------------------
1 year 17.72 12.10 16.96 11.96 -- --
- ------------------------------------------------------------------------
5 years -- -- 44.94 42.94 -- --
Annual average -- -- 7.70 7.41 -- --
- ------------------------------------------------------------------------
10 years -- -- 117.09 117.09 -- --
Annual average -- -- 8.06 8.06 -- --
- ------------------------------------------------------------------------
Life of class 11.93 6.62 133.96 133.96 5.93 2.47
Annual average 5.07 2.85 8.59 8.59 -- --
- ------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distribution (number) 6 6 6
- ------------------------------------------------------------------------
Income1 $0.404958 $0.355642 $0.382137
- ------------------------------------------------------------------------
Total $0.404958 $0.355642 $0.382137
- ------------------------------------------------------------------------
Share value NAV POP NAV NAV POP
- ------------------------------------------------------------------------
7/31/95 $14.86 $15.60 $14.87 14.86 15.36
- ------------------------------------------------------------------------
1/31/96 15.57 16.35 15.59 $15.56 $16.08
- ------------------------------------------------------------------------
Current return
End of period
- ------------------------------------------------------------------------
Current dividend
rate2 5.15% 4.90% 4.50% 4.86% 4.71%
- ------------------------------------------------------------------------
Taxable equivalent3 8.53% 8.12% 7.45% 8.05% 7.79%
- ------------------------------------------------------------------------
Current 30-day
SEC yield4 4.86 4.62 4.21 4.56 4.41
- ------------------------------------------------------------------------
Taxable equivalent3 8.05 7.65 6.97 7.55 7.30
- ------------------------------------------------------------------------
1 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 on investment income, calculated
using SEC guidelines.
*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.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on 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
class A shares and 3.25% for class M shares.
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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
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
LIFESTAGESM 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:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certian limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund it contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market 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 the
original cost of the shares.
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.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
BIGI -- Bond Investor Guaranty Insurance
CGIC -- Capital Guaranty Insurance Corporation
COP -- Certificate of Participation
FGIC -- Federal Guaranty Insurance Corporation
FSA -- Financi Guaranty Insurance Corporation
G.O. Bonds -- General Obligation Bonds
GNMA Coll. -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (101.4%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <S> <C>
Alaska (-%)
- ----------------------------------------------------------------------------------------------------------
$ 120,000 AK Hsg. Fin. Corp. Home Mtge. Rev. Bonds
Ser. A, GNMA Coll. 8 3/8s, 12/1/16 AAA $ 124,717
Arizona (1.4%)
- ----------------------------------------------------------------------------------------------------------
AZ State Muni. Fin. Program COP
1,000,000 Ser. 31, BIGI, 7 1/4s, 8/1/09 AAA 1,215,000
5,700,000 Ser. 34, BIGI, 7 1/4s, 8/1/09 AAA 6,975,375
------------------
8,190,375
California (19.4%)
- ----------------------------------------------------------------------------------------------------------
8,500,000 CA Hlth Fac. Fing. Auth. Rev. Bonds (Childrens
Hospital), MBIA, 5 3/8s, 7/1/16 AAA 8,468,125
3,000,000 CA Statewide Cmntys. Dev. Auth. Step Up
Recovery Floater COP (Motion Picture & TV),
AMBAC 5.35s, 1/1/24 AAA 2,808,750
LA Cnty. Tran. Comm. Sales Tax Rev. Bonds
2,500,000 Ser. A, FGIC, 6 3/4s, 7/1/20 AAA 2,865,625
3,000,000 Ser. B, AMBAC, 6 1/2s, 7/1/13 AAA 3,232,500
LA Cnty. Tran. Comm. Sales Tax Rev. Bonds
(Propostion C), Ser. A, MBIA
4,000,000 6 3/4s, 7/1/19 AAA 4,640,000
3,455,000 6 1/2s, 7/1/20 AAA 3,960,294
14,500,000 Los Angeles, Convention & Exhib. Ctr. Rev. Bonds
Ser. A, MBIA, 5 1/8s, 8/15/21 AAA 13,829,375
5,000,000 Los Angeles, Dept. Wtr, & Pwr. Elec. Plant Rev. Bonds
(2nd issue Electric Plant), MBIA, 5 1/4s,
11/15/26 AAA 4,806,250
20,000,000 Orange Cnty., Recv. Rev. Bonds
Ser. A, MBIA, 5 3/4s, 6/1/15 AAA 20,400,000
20,000,000 Paramount Redev. Agcy. Tax Allocation Rev. Bonds
MBIA, 6 1/4s, 8/1/23 AAA 21,425,000
Riverside Cnty. Rev. Bonds FGIC
2,500,000 6s, 6/1/09 AAA 2,753,125
2,000,000 6s, 6/1/08 AAA 2,212,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. Rev. Bonds
Ser. Y, MBIA, 6 3/4s, 9/1/19 AAA 5,750,000
5,000,000 San Diego, Regl. Bldg. Auth. Lease Rev. Bonds
MBIA, 6.9s, 5/1/23 AAA 5,237,500
3,680,000 Santa Anna, Fing. Auth. Lease Rev. Bonds
(Police Admin. & Hldg. Fac.), Ser. A, MBIA,
6 1/4s, 7/1/17 AAA 4,144,600
6,300,000 U. Of CA, Rev. Bonds (Multi-Purpose Projects),
Ser. A, MBIA, 6 7/8s, 9/1/16 AAA 7,371,000
------------------
113,904,644
Colorado (2.5%)
- ----------------------------------------------------------------------------------------------------------
4,224,000 CO Hlth. Fac. Auth. Rev. Bonds
(Cmnty. Provider Pooled Loan Program), Ser. A,
CGIC, 7 1/4s, 7/15/7 AAA 4,662,240
Denver City & Cnty. Arpt. Rev. Bonds MBIA
1,500,000 6 3/4s, 11/15/22 AAA 1,616,250
2,000,000 Ser. C, MBIA, 6 3/4s, 11/15/13 AAA 2,155,000
5,725,000 El Paso Cnty., Home Mtge. Rev Bonds Ser. A,
GNMA Coll., 8s, 3/1/21 AAA 6,018,406
------------------
14,451,896
Connecticut (0.6%)
- ----------------------------------------------------------------------------------------------------------
CT State Muni. Elec. Energy Coop. Rev. Bonds MBIA
1,295,000 6s, 1/1/07 AAA 1,426,119
2,000,000 5s, 1/1/08 AAA 2,010,000
------------------
3,436,119
Delaware (1.0%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 DE State Econ. Dev. Auth. Poll. Control Rev. Bonds
(Delmarva Pwr.), Ser. B, FGIC, 7.15s, 7/1/18 AAA 5,587,500
Florida (9.7%)
- ----------------------------------------------------------------------------------------------------------
4,930,000 FL Hsg. Fin. Agy. Home Ownership Rev. Bonds
1987 G2-CL. B, GNMA Coll., 8.595s, 11/1/18 AAA 5,558,575
4,000,000 FL State Turnpike Auth., Rev. Bonds
FGIC 5s, 7/1/16 AAA 3,850,000
13,675,000 Hernando Cnty Rev. Bonds (Criminal Justice
Complex Fin. Project), FGIC, 7.65s, 7/1/16 AAA 17,931,344
5,500,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.553s, 10/29/21 AAA 6,270,000
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
(Pooled Hosp. Loan)
145,000 Ser. A, FGIC, 7 7/8s, 12/1/25 AAA 153,881
10,825,000 Ser. B, BIGI, 7 7/8s, 12/1/25 AAA 11,488,031
5,000,000 Orlando & Orange Cnty. Expwy. Auth. Rev. Bonds
(Expwy. Rev.), FGIC, 8 1/4s, 7/1/14 AAA 6,812,500
4,000,000 Sumter Cnty. School Dist. Rev. Bonds (Multi Dist.
Loan Program), CGIC, 7.15s, 11/1/15 AAA 4,965,000
------------------
57,029,331
Georgia (3.4%)
- ----------------------------------------------------------------------------------------------------------
GA Muni. Elec. Auth. Pwr. Rev. Bonds
7,500,000 Ser. B, AMBAC, 6 1/4s, 1/1/12 AAA 8,371,875
10,000,000 Ser. B, BIGI, zero %, 1/1/08 AAA 5,475,000
5,500,000 GA Muni. Elec. Auth. Special Obligation Rev.
Bonds (Crossover Ser. Project One),
AMBAC, 6.4s, 1/1/13 AAA 6,242,500
------------------
20,089,375
Illinois (3.8%)
- ----------------------------------------------------------------------------------------------------------
2,600,000 Chicago, Central Pub. Library Rev. Bonds Ser. B,
AMBAC, 6.85s, 1/1/17 AAA 2,996,500
8,530,000 Chicago, Pub. Bldg. Comm. Bldg. Rev. Bonds
(Cmnty. Bldg.), Ser. A, MBIA, 7s, 1/1/20 AAA 10,481,238
4,735,000 Chicago Res. Mtge. Rev. Bonds Ser. B., MBIA,
zero % 10/1/09 AAA 1,852,569
5,000,000 Regional Trans. Auth. Rev. Bonds Ser. A, AMBAC,
8s, 6/1/17 AAA 6,725,000
------------------
22,055,307
Indiana (1.5%)
- ----------------------------------------------------------------------------------------------------------
7,500,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds
(Columbus Regl. Hosp.), CGIC, 7s, 8/1/15 AAA 8,878,125
Kentucky (0.1%)
- ----------------------------------------------------------------------------------------------------------
425,000 KY Hsg. Corp. Multi-Fam. Mtge. Rev. Bonds
Ser. A, BIGI, 8 7/8s, 7/1/19 AAA 435,357
Louisiana (2.8%)
- ----------------------------------------------------------------------------------------------------------
2,635,571 East Baton Rouge, Mtge. Fin. Auth. Single-Fam. Mtge.
Rev. Bonds Ser. B, GNMA Coll., 8 1/4s, 2/25/11 AAA 2,862,889
LA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
1,230,000 GNMA Coll., 9 1/8s, 11/1/18 AAA 1,291,500
5,685,000 MBIA 6.45s, 6/1/27 AAA 5,912,400
2,500,000 LA State Recvy. Dist. Sales Tax VRDN FGIC,
3.75, 7/1/97 VMIG1 2,500,000
3,400,000 New Orleans G.O. Bonds AMBAC, 6 1/8s,
10/01/16 AAA 3,587,000
------------------
16,153,789
Massachusetts (2.1%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 MA Mun. Whsl. Elec. Co. Pwr. Supply. Sys. Rev. Bonds
Ser. A, AMBAC, 5s, 7/1/17 AAA 4,806,250
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
5,000,000 (Baystate Med. Ctr.),Ser. D, FGIC, 6s, 7/1/15 AAA 5,212,500
2,000,000 (Metro West Hlth. Inc.),Ser. C, AMBAC,
6.4s, 11/15/11 AAA 2,192,500
------------------
12,211,250
Michigan (3.4%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 Detroit Swr. Disp. Rev Bonds MBIA, Ser. B,
5 1/4s, 7/1/15 AAA 4,950,000
3,000,000 MI State Hsg. Dev. Auth. Multi-Fam. Rev. Bonds
Ser. A, FGIC, 8 3/8s, 7/1/19 AAA 3,202,500
MI Strategic Fund Ltd. Oblig. Rev. Bonds
4,000,000 (Detroit Edison), Ser. BB, AMBAC, 7s, 5/1/21 AAA 4,985,000
2,750,000 Ser. AA, FGIC, 6.95s, 5/1/11 AAA 3,258,750
3,500,000 West Bloomfield School Dist. Rev Bonds
MBIA, 5 1/8s, 5/1/14 AAA 3,399,375
------------------
19,795,625
Missouri (1.7%)
- ----------------------------------------------------------------------------------------------------------
MO, State Hlth. & Ed. Fac. Auth. Rev. Bonds
2,500,000 (Heartland Hlth. Sys. Project), AMBAC,
6.35s, 11/15/17 AAA 2,706,250
4,000,000 (St. Luke's Health Syst.), MBIA, 5.1s, 11/15/13 AAA 3,910,000
3,020,000 Sikeston Elec. Rev. Bonds MBIA, 6 1/4s, 6/1/22 AAA 3,416,375
------------------
10,032,625
Nebraska (1.6%)
- ----------------------------------------------------------------------------------------------------------
3,000,000 NE Investment Fin. Auth. Hosp. IFB MBIA,
8.891s, 12/8/16 AAA 3,495,000
900,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. B, GNMA, 10.781s, 3/15/22 AAA 1,036,125
4,650,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds Ser. I, MBIA, 8 1/8s 8/15/38 AAA 4,876,688
------------------
9,407,813
Nevada (0.9%)
- ----------------------------------------------------------------------------------------------------------
4,500,000 Clark Cnty., School Dist. G.O. Bonds Ser. A,
MBIA, 7s, 6/1/10 AAA 5,416,875
New Hampshire (0.5%)
- ----------------------------------------------------------------------------------------------------------
2,500,000 NH State Tpk. Sys. IFB FGIC, 9.364s, 11/1/7 AAA 3,196,875
New Jersey (3.7%)
- ----------------------------------------------------------------------------------------------------------
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB Ser. A, MBIA,
7.033s, 8/15/10 AAA 3,408,750
5,925,000 NJ Econ. Dev. Auth. Mkt. Transition Fac. Rev. Bonds
Ser. A, MBIA, 5 7/8s, 7/1/11 AAA 6,295,313
11,110,000 Salem Cnty. Indl. Poll. Control Fin. Auth. Rev. Bonds
(Pub. Svc. Elec. & Gas Co. Proj),
Ser. C, MBIA, 6.2s, 8/1/30 AAA 11,721,050
------------------
21,425,113
New Mexico (0.2%)
- ----------------------------------------------------------------------------------------------------------
970,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds
Ser. C, FGIC, 8 1/2s, 7/1/07 AAA 1,012,438
New York (10.1%)
- ----------------------------------------------------------------------------------------------------------
635,000 Erie Cnty. Wtr. Auth. Rev. Bonds (Fourth Resolution),
AMBAC, zero % , 12/1/17 AAA 132,798
NY City Muni. Wtr. Fin. Auth. Wtr & Swr. Rev. Bonds
2,735,000 Ser. B, FGIC, 7 1/2s, 6/15/11 AAA 3,411,913
7,265,000 Refunded, Ser. B, FGIC, 7 1/2s, 6/15/11 AAA 9,153,900
1,500,000 NY City, Muni. Wtr. Fin. Auth. VRDN, FGIC,
Ser G. 3.40 6/15/24 VMIG1 1,500,000
10,000,000 NY City Muni. Wtr. Fin. Wtr. & Swr. System
Rev. Bonds MBIA, 5 5/8s, 6/15/19 AAA 10,225,000
5,000,000 NY City VRDN Ser. C, FGIC, 3.80, 10/1/11 VMIG1 5,000,000
5,500,000 NY State Dorm. Auth. Rev. Bonds, (Mt. Sinai
Medical School),Ser. A, MBIA, 5s, 7/1/21 AAA 5,273,125
3,000,000 NY State Energy Research & Dev. Auth. IFB
MBIA, 7.539s, 7/8/26 AAA 3,022,500
9,750,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Niagara Mohawk Pwr. Corp.),Ser. A,
FGIC, 7.2s, 7/1/29 AAA 11,273,438
4,350,000 NY State Med. Care Fac. Fin. Agy. Rev. Bonds
(Mental Hlth. Svcs.), Ser. F, FSA, 5 1/4s, 2/15/21 AAA 4,230,375
6,000,000 Suffolk Cnty., Wtr. Auth. Wtrwks. Rev. Bonds,
MBIA, 5s, 6/1/17 AAA 5,752,500
------------------
58,975,549
North Carolina (2.3%)
- ----------------------------------------------------------------------------------------------------------
4,000,000 NC Muni. Pwr. Agy. (No 1 Catawba Elec.)
IFB, MBIA, 7.02s, 1/1/20 AAA 4,065,000
8,995,000 NC Muni. Pwr. Agy. (No 1 Catawba Elec.) Rev. Bonds
MBIA, 5 1/4s, 1/1/06 AAA 9,332,313
------------------
13,397,313
Ohio (1.9%)
- ----------------------------------------------------------------------------------------------------------
OH Hsg. Fin. Agy. Single Fam. Mtge. Rev. Bonds
2,949,000 Ser. B, GNMA Coll., 8 1/4s, 12/15/19 AAA 3,118,568
6,130,000 Ser. C, GNMA Coll., 8 1/8s, 3/1/20 AAA 6,505,463
10,224,355 Ser. 85-A, FGIC, zero % 1/15/15 AAA 1,546,434
150,000 OH State Wtr. Dev. Auth. Rev. Bonds
AMBAC, 9 3/8s, 12/1/18 AAA 156,258
------------------
11,326,723
Oklahoma (1.0%)
- ----------------------------------------------------------------------------------------------------------
5,495,000 OK Hsg. Fin. Agy. Single Fam. Rev. Bonds Ser. A,
GNMA Coll., 8 1/4s, 12/1/20 AAA 5,749,144
Pennsylvania (6.3%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 Hazleton Area Sch. Dist. Rev. Bonds Ser. A,
FGIC, 6s 3/1/16 AAA 5,218,750
2,000,000 Keystone Oaks School Dist. Rev Bonds
AMBAC, 8.95s, 9/1/16 AAA 2,120,000
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds,
(Sacred Heart Hosp. Norristown), Ser. A,
BIGI 6.8s, 2/1/13 AAA 2,052,500
5,000,000 PA State 2nd Ser. AMBAC, 5s 11/15/11 AAA 4,925,000
5,000,000 PA State COP. Ser. A. AMBAC, 5s, 7/1/15 AAA 4,750,000
4,500,000 PA State Higher Edl. Facs. Auth. Rev. Bonds
(Hahnemann U. Project), MBIA, 7.2s, 7/1/19 AAA 4,893,750
Philadelphia, Muni. Auth. Rev. Bonds
620,000 FGIC, 7.8s, 4/1/18 AAA 681,225
6,045,000 FGIC, 7.8s, 4/1/18 AAA 6,891,300
3,000,000 Philadelphia, Regl. Port Auth. Lease IFB,
(Kidder Mvrics) MBIA, 8.12s, 9/1/13 AAA 3,386,250
2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds
Ser. A, FGIC, 7 1/8s, 6/1/13 AAA 2,267,500
------------------
37,186,275
Puerto Rico (1.1%)
- ----------------------------------------------------------------------------------------------------------
6,000,000 Conmwlth. of Puerto Rico, IFB, FSA,
7.632s, 7/1/20 AAA 6,435,000
Rhode Island (0.8%)
- ----------------------------------------------------------------------------------------------------------
4,315,000 RI Depositors Econ. Protn. Corp. Special Oblig.
Rev. Bonds Ser. A, MBIA, 7 1/4s, 8/1/21 AAA 4,481,861
South Carolina (1.5%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. Rev. Bonds
AMBAC, 5.45s, 8/1/15 AAA 5,025,000
4,000,000 Spartanburg Cnty. Hlth. Svcs. Rev Bonds AMBAC
5.38s, 4/15/20 AAA 3,930,000
------------------
8,955,000
Texas (8.7%)
- ----------------------------------------------------------------------------------------------------------
3,505,000 Bexar Cnty. Hlth. Facs. Dev. Corp. Hosp. Corp. Rev. Bonds
(Baptist Memorial Hosp. Sys. Pr), MBIA,
6 1/2s, 2/15/15 AAA 3,842,356
5,250,000 Brownsville Util. Sys. Rev. Bonds, AMBAC,
5 1/4s, 9/1/20 AAA 5,131,875
Dallas Cnty, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
277,000 MBIA, 10s, 10/1/07 AAA 284,465
10,000 (Lomas & Nettleton Co.), FGIC, 9.2s, 7/1/06 AAA 10,349
5,000,000 Harris Cnty., Hosp. Dist. Mtge. Rev Rfdg. Bonds
AMBAC 7.4s, 2/15/10 AAA 6,143,750
Harris Cnty Toll Rd. Rev. Bonds
2,520,000 Ser. B, FGIC, 6 5/8s, 8/15/11 AAA 2,680,650
4,000,000 Ser. A, AMBAC, 6 1/2s, 8/15/17 AAA 4,555,000
5,000,000 Ser. A, MBIA 6 1/4s, 8/15/15 AAA 5,368,750
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds
MBIA, 6 5/8s, 4/1/12 AAA 7,463,750
4,630,000 Lubbock, Hsg. Fin. Corp. Single-Fam. Mtge. Rev.
Bonds Ser. A, GNMA Coll. zero %, 11/25/17 AAA 844,975
9,500,000 North Central TX Hlth. Fac. Dev. Corp. Hosp.
VRDN (Presbyterian Med. Ctr.),Ser. D,
MBIA, 6s, 12/1/15 VMIG1 9,500,000
5,000,000 Rio Grande Valley Hlth Facs. Dev. Corp.
Rev. Bonds MBIA, 6.4s, 8/1/12 AAA 5,375,000
------------------
51,200,920
Virginia (3.2%)
- ----------------------------------------------------------------------------------------------------------
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB
FGIC, 8.916s, 8/15/23 AAA 11,650,000
6,985,000 Riverside Reg. Jail Auth. Fac. Rev. Bonds MBIA,
5 7/8s, 7/1/14 AAA 7,334,250
------------------
18,984,250
Washington (1.9%)
- ----------------------------------------------------------------------------------------------------------
WA State Pub. Pwr. Supply Sys. Rev. Bonds
3,400,000 (Nuclear Project No. 2), Ser. C, FGIC, 7 3/8s,
7/1/11 AAA 3,931,250
6,000,000 (Nuclear Project No. 3), Ser. B, MBIA, 7 1/8s,
7/1/16 AAA 7,252,500
------------------
11,183,750
Wisconsin (1.4%)
- ----------------------------------------------------------------------------------------------------------
2,000,000 Superior, Ltd. Oblig. Rev. Bonds (Midwest Energy
Resources),Ser. E, FGIC, 6.9s, 8/1/21 AAA 2,420,000
5,000,000 WI Hlth. Fac. Auth. Rev. Bonds (Meriter Hosp. Inc.),
FGIC, 8 3/8s, 12/01/09 AAA 5,500,000
------------------
7,920,000
Wyoming (0.9%)
- ----------------------------------------------------------------------------------------------------------
5,000,000 Laramie Cnty. Indl. Dev. Rev. Bonds (Cheyene Lt.,
Fuel & Pwr. Co.),Ser. A, AMBAC, 7 1/4s, 9/1/21 AAA 5,312,494
- ----------------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes
(cost $543,383,857)*** $593,943,428
- ----------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $585,939,818
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at January 31, 1996 for the securities listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings, they undertake no olbligation to do
so, and the ratings do not necessarily represent what the agencies would ascribe to these securities
at January 31, 1996.
*** The aggregate identified cost on a tax cost basis is $543,549,998 resulting in gross unrealized
appreciation and depreciation of $50,722,660 and $329,230, respectively, or net unrealized appreciation of $50,393,430.
The rates shown on IFBs, which are securities paying variable interest rates that vary inversely to changes in
the market interest rates, and VRDNs are the current interest rates at January 31, 1996, which are subject to
change based on the terms of the security.
The fund had the following insurance concentration greater than 10% of net assets at January 31, 1996:
MBIA 45.7%
FGIC 22.3
AMBAC 15.5
The fund had the following industry group concentration greater than 10% of net assets at January 31, 1996:
Utilities 18.8%
Hospitals/ Healthcare 13.1
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31,1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $ 543,383,857) (Note 1) $593,943,428
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,644,586
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,172,167
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 2,947,108
- ---------------------------------------------------------------------------------------------------
Total assets 605,707,289
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 42,421
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 970,414
- ---------------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 64,276
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 16,884,667
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,165,466
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager(Note 2) 268,990
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees(Note 2) 832
- ---------------------------------------------------------------------------------------------------
Payable for administrative services(Note 2) 1,062
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees(Note 2) 311,202
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 58,141
- ---------------------------------------------------------------------------------------------------
Total liabilities 19,767,471
- ---------------------------------------------------------------------------------------------------
Net assets $585,939,818
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in-capital (Note 4) $539,047,531
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (573,045)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,094,239)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 50,559,571
- ---------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $585,939,818
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($ 198,329,117 divided by 12,737,993 shares) $15.57
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $15.57)* $16.35
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($ 387,281,512 divided by 24,849,302 shares)*** $15.59
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($ 329,189 divided by 21,151 shares) $15.56
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $15.56)** $16.08
- ---------------------------------------------------------------------------------------------------
* 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.
** On single retail sales of less than $50,000. On sales of $50,000 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31,1996 (Unaudited)
<S> <C>
Tax Exempt interest income $17,585,847
- ---------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 1,685,580
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 154,455
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,629
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 56,758
- ---------------------------------------------------------------------------------------------------
Auditing 23,153
- ---------------------------------------------------------------------------------------------------
Legal 7,370
- ---------------------------------------------------------------------------------------------------
Postage 18,078
- ---------------------------------------------------------------------------------------------------
Registration Fees 9,123
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 190,556
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,632,911
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 387
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,424
- ---------------------------------------------------------------------------------------------------
Other expenses 6,222
- ---------------------------------------------------------------------------------------------------
Total expenses 3,801,646
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (141,933)
- ---------------------------------------------------------------------------------------------------
Net expenses 3,659,713
- ---------------------------------------------------------------------------------------------------
Net investment income 13,926,134
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 6,591,553
- ---------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (2,290,397)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments during the period 22,573,351
- ---------------------------------------------------------------------------------------------------
Net gain on investments 26,874,507
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 40,800,641
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1996* 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------- -------------------
Increase (decrease) in net assets
- --------------------------------------------------------------------------------------------------- -------------------
Operations:
- --------------------------------------------------------------------------------------------------- -------------------
Net investment income $ 13,926,134 $ 29,175,078
- --------------------------------------------------------------------------------------------------- -------------------
Net realized gain (loss) on investments 4,301,156 (2,373,727)
- --------------------------------------------------------------------------------------------------- -------------------
Net unrealized appreciation of investments 22,573,351 8,753,042
- --------------------------------------------------------------------------------------------------- -------------------
Net increase in net assets resulting from operations 40,800,641 35,554,393
- --------------------------------------------------------------------------------------------------- -------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------- -------------------
From net investment income
Class A (5,055,010) (9,224,293)
- --------------------------------------------------------------------------------------------------- -------------------
Class B (8,915,543) (19,697,447)
- --------------------------------------------------------------------------------------------------- -------------------
Class M (3,785) (41)
- --------------------------------------------------------------------------------------------------- -------------------
In excess of net realized gain
Class A -- (50,968)
- --------------------------------------------------------------------------------------------------- -------------------
Class B -- (140,286)
- --------------------------------------------------------------------------------------------------- -------------------
Decrease from capital share transactions (Note 4) (2,587,008) (20,715,061)
- --------------------------------------------------------------------------------------------------- -------------------
Total increase (decrease) in net assets 24,239,295 (14,273,703)
- --------------------------------------------------------------------------------------------------- -------------------
Net Assets
- --------------------------------------------------------------------------------------------------- -------------------
Beginning of period $561,700,523 $575,974,226
- --------------------------------------------------------------------------------------------------- -------------------
End of period (including distributions in excess of
net investment income of $573,045 and
$524,841, respectively) $585,939,818 $561,700,523
- --------------------------------------------------------------------------------------------------- -------------------
* Unaudited
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------
For the period
June 1, 1995
Six months (commencement Six months
ended of operations) ended Year ended
January 31 to July 31 January 31 July 31
- ------------------------------------------------------------------------------------------------------
1996* 1995 1996* 1995
- ------------------------------------------------------------------------------------------------------
Class M Class A
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.86 $15.11 $14.86 $14.67
- ------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------
Net investment income .37 .12 .40 .83
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .71 (.25) .72 .19
- ------------------------------------------------------------------------------------------------------
Total from investment operations 1.08 (.13) 1.12 1.02
- ------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------
From net investment income (.38) (.12) (.41) (.82)
- ------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------
Total distributions (.38) (.12) (.41) (.83)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.56 $14.86 $15.57 $14.86
- ------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 7.37(a) (.87)(a) 7.60(a) 7.21
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $329 $17 $198,329 $184,241
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) .58(a) .14(a) .45(a) .89
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.37(a) .73(a) 2.66(a) 5.68
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.57(a) 37.62 43.57(a) 37.62
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------
For the period
September 20, 1993
(commencement Six months
of operations) ended Year ended
to July 31 January 31 July 31
- ---------------------------------------------------------------------------------------------------
1994 1996* 1995 1994
- ---------------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.88 $14.87 $14.68 $15.50
- ---------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------
Net investment income .73 .35 .73 .74
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.12) .73 .20 (.73)
- ---------------------------------------------------------------------------------------------------
Total from investment operations (.39) 1.08 .93 .01
- ---------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------
From net investment income (.72) (.36) (.73) (.73)
- ---------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- ---------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments (.10) -- (.01) (.10)
- ---------------------------------------------------------------------------------------------------
Total distributions (.82) (.36) (.74) (.83)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $14.67 $15.59 $14.87 $14.68
- ---------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) (2.49)(a) 7.32(a) 6.53 --
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $143,079 $387,282 $377,443 $432,895
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) .80(a) .78(a) 1.54 1.53
- ---------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.73(a) 2.33(a) 5.05 4.81
- ---------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47.72 43.57(a) 37.62 47.72
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- -----------------------------------------------------------------------------------
Year ended
July 31
- -----------------------------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.42 $14.38 $14.25
- -----------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------
Net investment income .75 .76 .79
- -----------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .28 1.14 .14
- -----------------------------------------------------------------------------------
Total from investment operations 1.03 1.90 .93
- -----------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------
From net investment income (.75) (.77) (.80)
- -----------------------------------------------------------------------------------
From net realized gain on investments (.20) (.09) --
- -----------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- --
- -----------------------------------------------------------------------------------
Total distributions (.95) (.86) (.80)
- -----------------------------------------------------------------------------------
Net asset value, end of period $15.50 $15.42 $14.38
- -----------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 7.00 13.63 6.79
- -----------------------------------------------------------------------------------
Net assets, end of period (in thousands) $572,659 $466,135 $359,465
- -----------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.74 1.79 1.68
- -----------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.88 5.16 5.60
- -----------------------------------------------------------------------------------
Portfolio turnover (%) 42.01 66.18 54.69
- -----------------------------------------------------------------------------------
* Unaudited
(a) Not annualized.
(b) Total investment return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) The ratio of expenses to average net assets for the period ended January 31,
1996 includes amounts paid through expense offset arrangements. Prior period
ratios exclude these amounts.
(See Note 2).
</TABLE>
Notes to financial statements
January 31, 1996 (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 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 class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, 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. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class 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 preparation of financial statements are in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or which it invests to increase its current returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation of securities held or excise tax on income and capital
gains.
At July 31, 1995, the fund had a
capital loss carryover of approximately $1,064,000 available to offset
future net capial gain, if any, which will expire on July 31, 2003.
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. 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 in excess of maturity value 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, original issue and stepped coupon bonds is
accreted according to the effective yield method.
H) 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 among 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 0.60% of the first $500 million of average net assets; 0.50% of
the next $500 million; 0.45% of the next $500 million and 0.40% 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 Putnam Management on the fund's portfolio transactions.
As part of the custodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the funds investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At January 31, 1996, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $1,200 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly owned subsidiary of Putnam
Investments, Inc.. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period ended January 31, 1996, fund expenses were reduced by
$141,933 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicng and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested the assets utilized in connection with the expense offset
arrangements in an income producing asset if it had not entered into
such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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 shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.20%, 0.85% and 0.50% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the six months ended January 31, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $14,212 and $358 from
the sale of class A and class M shares, respectively and received
$345,044 in contingent deferred sales charges from redemptions of class
B shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the six months ended January 31,
1996, Putnam Mutual Funds Corp., acting as underwriter received $379 on
class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$145,490,044 and $145,487,835, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At January 31, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
January 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 819,633 $12,468,869
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 186,661 2,830,136
- ----------------------------------------------------
1,006,294 15,299,005
Shares
repurchased (668,512) (10,116,848)
- ----------------------------------------------------
Net increase 337,782 $5,182,157
- ----------------------------------------------------
Year ended
July 31,1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,343,427 $61,969,526
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 366,885 5,321,976
- ----------------------------------------------------
4,710,312 67,291,502
Shares
repurchased (2,061,211) (29,864,967)
- ----------------------------------------------------
Net increase 2,649,101 $37,426,535
- ----------------------------------------------------
Six months ended
January 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,390,681 $21,130,473
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 368,532 5,592,622
- ----------------------------------------------------
1,759,213 26,723,095
Shares
repurchased (2,289,971) (34,795,694)
- ----------------------------------------------------
Net decrease (530,758) $(8,072,599)
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,875,400 $41,920,297
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 858,519 12,416,984
- ----------------------------------------------------
3,733,919 54,337,281
Shares
repurchased (7,836,307) (112,496,308)
- ----------------------------------------------------
Net decrease (4,102,388) $(58,159,027)
- ----------------------------------------------------
Six months ended
January 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 19,774 $300,160
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 214 3,274
- ----------------------------------------------------
19,988 303,434
Shares
repurchased -- --
- ----------------------------------------------------
Net increase 19,988 $303,434
- ----------------------------------------------------
June 1, 1995
(commencement of
operations) to
July 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 1,161 $17,400
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2 31
- ----------------------------------------------------
1,163 17,431
Shares
repurchased -- --
- ----------------------------------------------------
Net increase 1,163 $17,431
- ----------------------------------------------------
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
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
James E. Erickson
Vice President
Richard P. Wyke
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
23307-438/035/629 3/96
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
