Putnam
Tax-Free
Insured
Fund
SEMIANNUAL REPORT
January 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Insured bonds are constituting a larger percentage of bonds coming to
market than ever before, nearly 50% in 1996. However, this trend may reverse
itself as the rating agencies are making it more difficult for insurance
companies to insure lower-rated bonds. Such a development could have a
favorable impact on prices of all insured bonds."
-- Richard Wyke, fund manager,
Putnam Tax-Free Insured Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
19 Financial statements
28 Results of February 6, 1997, shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The current economic environment's steadfast adherence to the status quo --
manageable growth, tolerable inflation, and relatively stable interest rates
- -- suits municipal bond investors just fine. After a year of uncertainty on
all three counts, these investors finally have attained a sense of relative
calm.
The result is a municipal bond market climate that contributed to Putnam
Tax-Free Insured Fund's positive performance during the six months ended
January 31, 1997. But it was not the only factor. Management of the
portfolio's average duration also helped. Duration is a measure of a
portfolio's sensitivity to changes in interest rates and, ultimately, bond
prices. Effective management of duration is thus an important component of a
bond portfolio's performance.
In the following report, your fund's management team discusses fiscal 1997
performance so far and prospects for the remainder of the year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 19, 1997
Report from the Fund Manager
Richard P. Wyke
Although Putnam Tax-Free Insured Fund began its 1997 fiscal year under
somewhat unfavorable market conditions, the climate had become much more
hospitable by the year's midpoint. A three-month bond market rally, low
inflation, and the continuing shortage of new municipal bonds coming to market
have helped push prices of tax-free securities to higher levels during the
period.
These trends, combined with our portfolio positioning and securities
selection, enabled the fund to provide solid performance for the six months
ended January 31, 1997. Returns at net asset value for class A, class B, and
class M shares were 4.31%, 4.07%, and 4.16%, respectively. More performance
information can be found on pages 8 and 9. Returns at maximum public offering
price were -0.67% and 0.94% for class A and class M shares, respectively,
and -0.93% for class B shares after factoring in the contingent deferred
sales charge.
* INSURED BONDS BOOST OVERALL QUALITY OF MUNICIPAL MARKET
According to Grant's Municipal Bond Obeserver, the overall credit quality of
the municipal marketplace has been increasing over time. This trend developed
partly because nearly half of the new issuance coming to market is insured and
partly because credit upgrades outpaced downgrades in 1996.
Your fund reduces credit risk by investing only in AAA-rated and insured
bonds. Because their insurance assures the timely payment of principal and
interest in the event the issuer of the debt is unable to meet its
obligations, insured bonds are granted the highest possible rating by a
nationally recognized securities rating agency such as Standard & Poor's or
Moody's. While insured bonds offer greater safety than less creditworthy
sectors of the municipal market, they can also be more interest-rate sensitive
than other sectors. These higher-quality bonds are likely to decline to a
greater degree than lower-quality bonds in a rising rate environment, but they
are also quicker to appreciate during a rate decline.
During the semiannual period, insured bonds slightly underperformed the other
uninsured sectors of the municipal market. We consider this understandable,
given the market environment. When interest rates are low and bond investors'
confidence level is strong, investors are often more comfortable with
higher-risk investments such as higher-yielding lower-rated bonds.
Consequently, the gap between yields of lower-rated and higher-rated
securities often narrows. As more investors opt for higher-yielding bonds,
demand for insured bonds generally softens.
In the future, we will continue to monitor the volume of insured bonds coming
to market. It is quite possible that the pace of this issuance could slow as
the rating agencies make it more difficult for insurance companies to insure
higher-risk lower-quality municipal bonds by raising the capital requirements
for underwriting. If the insured portion of supply tightens, insured bonds
have the potential to outperform other segments of the municipal market.
[GRAPHIC OMITTED: horizontal bar chart DIVERSIFICATION BY STATE]
DIVERSIFICATION BY STATE*
California 13.3%
Texas 12.7%
Florida 10.0%
New York 7.5%
Michigan 6.7%
Footnote reads:
*Based on net assets as of 1/31/97. Allocations will vary over time.
* STATE AND SECTOR ALLOCATIONS CHANGE SLIGHTLY
Your fund's investments are spread across the country with greater emphasis on
certain regions. High taxes, strong investor demand, and a positive economic
outlook continue to draw our attention to California, New York, Texas, and
Florida. Interestingly Texas municipal bonds, which grew from 10.4% of net
assets at the end of fiscal 1996 to 12.7% at the midpoint of fiscal 1997,
benefited from heightened demand by casualty insurance companies. Casualty
insurance companies tend to be cyclical purchasers of a state's tax-free
securities, seeking the favorable tax status of municipal bonds when their
profits are strong.
Although the fund's top industry sectors -- utilities, health-care, and
limited-tax bonds -- remain intact, industry weightings within these and other
sectors have changed slightly. The shifts are not so much a reflection of our
assessment of each holding's potential as they are a reflection of our efforts
to re-position assets along the yield curve.
* DURATION SHORTENED AS MANAGEMENT FOCUSES ON INTERMEDIATE BONDS
Throughout the period, we steadily shifted assets from the short and long end
of the yield curve into the center in what is known as a bulleted strategy. By
the close of the period, 50% of the fund's bonds fell into the 10- to 20-year
maturity range. As the yield curve flattened during the period, these
intermediate bonds offered more attractive income than would have been
obtained from a combination of shorter- and longer-maturity bonds (otherwise
referred to as a barbell strategy).
The fund's duration has been adjusted in conjunction with this yield curve
positioning. Duration is a measure of the portfolio's maturity structure and
reflects the price sensitivity of holdings to changes in interest rates. A
longer duration can mean a more volatile net asset value if rates change, but
it can also mean one more likely to appreciate substantially if rates decline.
A shorter duration can help preserve portfolio value as interest rates rise.
The fund began fiscal 1997 with an effective duration of 8.13 years --
slightly longer than the duration of its benchmark index, the Lehman Brothers
Municipal Bond Index. This longer duration helped boost performance during the
early months of the period as the bond market rally solidified.
[GRAPHIC OMITTED: worm chart YIELD CURVES OF TAXABLE AND TAX-FREE ISSUES]
[plot points]
YIELD CURVES OF TAXABLE AND TAX-FREE ISSUES
Taxable-
equivalent
AAA-rated municipal U.S.
municipal bond Treasury
RANGE bonds yield Securities
1 3.69% 6.11% 5.56%
2 3.99% 6.61% 5.91%
3 4.19% 6.94% 6.03%
4 4.31% 7.14% 6.16%
5 4.41% 7.30% 6.25%
4.41% 7.30% 6.25%
7 4.61% 7.63% 6.36%
4.61% 7.63% 6.36%
4.61% 7.63% 6.36%
10 4.91% 8.13% 6.50%
4.91% 8.13% 6.50%
4.91% 8.13% 6.50%
4.91% 8.13% 6.50%
4.91% 8.13% 6.50%
15 5.31% 8.79% 6.68%
5.31% 8.79% 6.68%
5.31% 8.79% 6.68%
5.31% 8.79% 6.68%
5.31% 8.79% 6.68%
20 5.45% 9.02% 6.85%
5.45% 9.02% 6.85%
5.45% 9.02% 6.85%
5.45% 9.02% 6.85%
5.45% 9.02% 6.85%
25 5.49% 9.09% 6.82%
5.49% 9.09% 6.82%
5.49% 9.09% 6.82%
5.49% 9.09% 6.82%
5.49% 9.09% 6.82%
30 5.51% 9.12% 6.79%
Footnote reads:
Chart compares yields of U.S. Treasury securities and tax-free AAA-rated
municipal bonds of varying maturities on 1/31/97. 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.
However, with signs that tax-free securities had become fully priced in late
October, we began to shorten duration, thereby lowering the overall risk
profile. In December and January, strong economic data sounded a cautionary
note, and the bond market experienced a selloff even though inflation had
remained subdued. We believe the shorter duration helped minimize the effects
of the decline. The fund ended the period with a duration of 7.51 years, now
slightly shorter than its benchmark.
* SUPPLY PRESSURES EXPECTED TO EASE, OFFERING NEW OPPORTUNITIES
While supply has been tight in recent months, complicating our efforts to find
attractive bonds, these pressures are expected to ease in the coming months.
We expect overall 1997 bond issuance to approach that of 1996's $174 billion
but with a different composition: a likely rise in new issuance and, barring a
significant drop in interest rates, a smaller percentage of refunding issues.
As supply constraints ease, we expect to continue our push into the 15- to
20-year maturity range, where we currently expect to find the best value.
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 1/31/97, there is no guarantee the fund will continue to hold
these securities in the future. Shares of this fund are not insured, and their
price will fluctuate with market conditions.
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 1/31/97
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 4.31% -0.67% 4.07% -0.93% 4.16% 0.94%
- ------------------------------------------------------------------------------
1 year 2.83 -2.08 2.26 -2.58 2.58 -0.74
- ------------------------------------------------------------------------------
5 years -- -- 34.17 32.17 -- --
Annual average -- -- 6.06 5.74 -- --
- ------------------------------------------------------------------------------
10 years -- -- 86.43 86.43 -- --
Annual average -- -- 6.43 6.43 -- --
- ------------------------------------------------------------------------------
Life of class 15.67 10.18 -- -- 9.18 5.61
Annual average 4.41 2.92 -- -- 5.40 3.32
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/97
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 4.16% 1.34%
- ------------------------------------------------------------------------------
1 year 3.85 3.04
- ------------------------------------------------------------------------------
5 years 42.12 15.21
Annual average 7.28 2.87
- ------------------------------------------------------------------------------
10 years 106.10 43.08
Annual average 7.50 3.65
- ------------------------------------------------------------------------------
Life of class A 18.22 9.65
Annual average 5.14 2.77
- ------------------------------------------------------------------------------
Life of class M 11.11 4.53
Annual average 6.50 2.69
- ------------------------------------------------------------------------------
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 12/31/96
(most recent calendar quarter)
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 5.16% 0.17% 4.96% -0.04% 4.99% 1.58%
- ------------------------------------------------------------------------------
1 year 3.21 -1.72 2.70 -2.17 2.96 -0.38
- ------------------------------------------------------------------------------
5 years -- -- 34.00 32.00 -- --
Annual average -- -- 6.03 5.71 -- --
- ------------------------------------------------------------------------------
10 years -- -- 90.38 90.38 -- --
Annual average -- -- 6.65 6.65 -- --
- ------------------------------------------------------------------------------
Life of class 15.52 10.04 -- -- 9.07 5.51
Annual average 4.50 2.96 -- -- 5.61 3.43
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ foreach share class. They do not take into account any
adjustment for taxespayable 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 7 7 7
- ------------------------------------------------------------------------------
Income1 $0.408912 $0.375296 $0.385929
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.093 0.093 0.093
- ------------------------------------------------------------------------------
Short-term 0.005 0.005 0.005
- ------------------------------------------------------------------------------
Total $0.506912 $0.473296 $0.483929
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/96 $14.94 $15.69 $14.96 $14.94 $15.44
- ------------------------------------------------------------------------------
1/31/97 15.07 15.82 15.09 15.07 15.58
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.36% 5.11% 4.96% 5.06% 4.90%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.87 8.46 8.21 8.38 8.11
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 5.12 4.88 4.72 4.81 4.65
- ------------------------------------------------------------------------------
Taxable equivalent3 8.48 8.08 7.81 7.96 7.70
- ------------------------------------------------------------------------------
1Capital gains, if any, 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.
2Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
3Assumes maximum 39.6% federal income tax rate. Results for investors subject
to lower tax rates would not be as advantageous.
4Based only 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. It is not possible to invest directly in
an index.
WELCOME TO
www.putnaminv.com
Now you can get up-to-date information about your funds, learn more about
investing and retirement planning, and access market news and an economic
outlook from Putnam experts - with just a few clicks of the mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit
us at http://www.putnaminv.com -- often!
Portfolio of investments owned
January 31, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
BIGI -- Bond Investors Guaranty Insurance
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
GNMA Coll. -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<C> <S> <C> <C>
Alabama (0.6)
- ---------------------------------------------------------------------------------------------------------
3,000,000 Alabama A&M U Rev. Bonds, MBIA, 6 1/2s, 11/1/25 Aaa $ 3,240,000
Arizona (1.4%)
- ---------------------------------------------------------------------------------------------------------
AZ State Muni. Fin. Program COP
1,000,000 Ser. 31, B, BIGI, 7 1/4s, 8/1/09 Aaa 1,187,500
5,700,000 Ser. 34, B, BIGI, 7 1/4s, 8/1/09 Aaa 6,768,750
--------------
7,956,250
California (13.3%)
- ---------------------------------------------------------------------------------------------------------
6,000,000 CA Hlth. Fac. Fin. Auth. Rev. Bonds (Childrens
Hospital), MBIA, 5 3/8s, 7/1/16 Aaa 5,782,500
4,000,000 CA Hsg. Fin. Agcy. Rev. Bonds (Home Mtge.),
Ser. Q, MBIA, 5.85s, 8/1/16 Aaa 3,985,000
9,500,000 CA State G.O. Bonds, MBIA, 5 1/2s, 4/1/12 Aaa 9,606,875
3,000,000 CA Statewide Cmntys. Dev. Auth. Step-up
Recovery Floater COP (Motion Picture &
TV Fund), AMBAC, 5.35s, (5.68s, 1/1/99)
1/1/24 ++ Aaa 2,730,000
3,735,000 Los Angeles Cnty., Pub. Wks. Fin. Auth. Rev. Bonds,
Ser. B, MBIA, 5 1/4s, 9/1/13 Aaa 3,618,281
Los Angeles Cnty. Trans. Comm. Sales Tax
Rev. Bonds
2,500,000 Ser. A, FGIC, 6 3/4s, 7/1/20 Aaa 2,778,125
4,000,000 (Proposition C), Ser. A, MBIA, 6 3/4s, 7/1/19 Aaa 4,500,000
3,455,000 (Proposition C), Ser. A, MBIA, 6 1/2s, 7/1/20 Aaa 3,848,006
3,000,000 Ser. B, AMBAC, 6 1/2s, 7/1/13 Aaa 3,202,500
12,000,000 Orange Cnty. COP, Ser. A, MBIA, 6s, 7/1/26 Aaa 12,150,000
5,000,000 Sacramento Muni. Util. Dist. Elec. Rev. Bonds, Ser. Y,
MBIA, 6 3/4s, 9/1/19 Aaa 5,575,000
5,000,000 San Diego, Regl. Bldg. Auth. Lease Rev. Bonds,
MBIA, 6.9s, 5/1/23 Aaa 5,056,250
3,680,000 Santa Anna, Fin. Auth. Lease Rev. Bonds
(Police Admin. & Hldg. Fac.), Ser. A, MBIA,
6 1/4s, 7/1/17 Aaa 4,020,400
6,300,000 U. of CA Rev. Bonds (Multi-Purpose), Ser. A, MBIA,
6 7/8s, 9/1/16 Aaa 7,142,625
--------------
73,995,562
Colorado (2.4%)
- ---------------------------------------------------------------------------------------------------------
4,224,000 CO Hlth. Fac. Auth. Rev. Bonds (Cmnty. Provider
Pooled Loan Program), Ser. A, FSA, 7 1/4s,
7/15/17 Aaa 4,577,760
Denver, City & Cnty. Arpt. Rev. Bonds
1,500,000 MBIA, 6 3/4s, 11/15/22 Aaa 1,599,375
2,000,000 Ser. C, MBIA, 6 3/4s, 11/15/13 Aaa 2,142,500
4,770,000 El Paso Cnty. Home Mtge. Rev. Bonds, Ser. A,
GNMA Coll., 8s, 3/1/21 Aaa 4,948,875
--------------
13,268,510
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
District of Columbia (1.7%)
- ---------------------------------------------------------------------------------------------------------
8,875,000 DC G.O. Bonds, Ser. A, MBIA, 6s, 6/1/11 Aaa 9,274,375
Florida (10.0%)
- ---------------------------------------------------------------------------------------------------------
5,855,000 Brevard Cnty., School Board COP, Ser. A, AMBAC,
5 1/2s, 7/1/09 Aaa 6,037,969
4,310,000 FL Hsg. Fin. Agcy. Home Ownership Rev. Bonds,
Ser. 1987 G2, Class B, GNMA Coll., 8.595s,
11/1/18 AAA 4,773,325
13,675,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 Aaa 17,281,781
5,500,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.958s, 10/29/21 Aaa 6,586,250
9,000,000 Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
(Pooled Hosp. Loan), Ser. B, BIGI, 7 7/8s,
12/1/25 Aaa 9,285,210
5,000,000 Orlando & Orange Cnty., Expressway Auth.
Rev. Bonds (Expwy. Rev.), FGIC, 8 1/4s, 7/1/14 Aaa 6,587,500
4,000,000 Sumter Cnty., School Dist. Rev. Bonds (Multi Dist.
Loan Program), FSA, 7.15s, 11/1/15 Aaa 4,810,000
--------------
55,362,035
Georgia (4.8%)
- ---------------------------------------------------------------------------------------------------------
GA Muni. Elec. Auth. Pwr. Rev Bonds
5,700,000 Ser. A, FSA, 5 1/2s, 1/1/12 Aaa 5,814,000
7,500,000 Ser. B, AMBAC, 6 1/4s, 1/1/12 Aaa 8,268,750
6,100,000 GA Muni. Elec. Auth. Rev. Bonds (Project One),
Ser. A, AMBAC, 6 1/2s, 1/1/26 Aaa 6,565,125
5,500,000 GA Muni. Elec. Auth. Special Obligation Rev. Bonds
(Crossover Ser. Project One), AMBAC,
6.4s, 1/1/13 Aaa 6,125,625
--------------
26,773,500
Illinois (2.0%)
- ---------------------------------------------------------------------------------------------------------
3,490,000 Chicago Res. Mtge. Rev. Bonds, Ser. B., MBIA,
zero %, 10/1/09 Aaa 1,452,713
2,600,000 Chicago, Central Pub. Library Rev. Bonds, Ser. B,
AMBAC, 6.85s, 1/1/17 Aaa 2,908,750
5,000,000 Regional Trans. Auth. Rev. Bonds, Ser. A, AMBAC,
8s, 6/1/17 Aaa 6,456,250
--------------
10,817,713
Indiana (1.5%)
- ---------------------------------------------------------------------------------------------------------
7,500,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds
(Columbus Regl. Hosp.), FSA, 7s, 8/15/15 Aaa 8,531,250
Kentucky (--%)
- ---------------------------------------------------------------------------------------------------------
140,000 KY Hsg. Corp. Multi-Fam. Mtge. Rev. Bonds, Ser. A,
BIGI, 8 7/8s, 7/1/19 Aaa 141,957
Louisiana (0.6%)
- ---------------------------------------------------------------------------------------------------------
2,113,247 East Baton Rouge, Mtge. Fin. Auth. Single Fam. Mtge.
Rev. Bonds (Mortgage-Backed Securities
Program), Ser. B, GNMA Coll., 81/4s, 2/25/11 Aaa 2,255,891
1,080,000 LA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
GNMA Coll., 9 1/8s, 11/1/18 Aaa 1,120,306
--------------
3,376,197
Massachusetts (3.0%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst. Rev. Bonds,
Ser. A, AMBAC, 5s, 7/1/17 Aaa 4,543,750
7,000,000 MA State Hlth & Edl . Fac . Auth. Rev. Bonds
(Baystate Med. Ctr.), Ser. E, FSA, 6s, 7/1/26 Aaa 7,078,750
4,800,000 MA State Hlth & Edl. Fac. Auth. VRDN (Capital
Assets Program), Ser. D, MBIA 3.60s, 1/1/35 Aaa 4,800,000
--------------
16,422,500
Michigan (6.7%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 Detroit, Swr. Disp. Rev. Bonds, Ser. B, MBIA, 5 1/4s,
7/1/15 Aaa 4,781,250
MI Strategic Fund Ltd. Oblig. Rev. Bonds
4,000,000 (Detroit Edison), Ser. BB, AMBAC, 7s, 5/1/21 Aaa 4,760,000
2,750,000 Ser. AA, FGIC, 6.95s, 5/1/11 Aaa 3,196,875
18,215,000 MI State Bldg. Auth. Rev. Bonds, Ser. I, MBIA,
6 1/4s, 10/1/20 Aaa 18,829,756
2,505,000 MI State Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. A, FGIC, 8 3/8s, 7/1/19 Aaa 2,606,127
3,500,000 West Bloomfield School Dist. Rev. Bonds, MBIA,
5 1/8s, 5/1/14 Aaa 3,311,875
--------------
37,485,883
Missouri (2.8%)
- ---------------------------------------------------------------------------------------------------------
MO State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,500,000 (Heartland Hlth. Sys. Project), AMBAC, 6.35s,
11/15/17 Aaa 2,637,500
4,500,000 (St. Luke's Health Syst.), MBIA, 5.1s, 11/15/13 Aaa 4,258,125
Sikeston Elec. Rev. Bonds, MBIA
3,020,000 6 1/4s, 6/1/22 Aaa 3,314,450
5,000,000 6s, 6/1/14 Aaa 5,362,500
--------------
15,572,575
Nebraska (3.0%)
- ---------------------------------------------------------------------------------------------------------
3,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA, 9.396s,
12/8/16 Aaa 3,438,750
NE Investment Fin. Auth. Single Fam. Mtge. IFB
2,500,000 Ser. B, GNMA Coll., 11.166s, 3/15/22 Aaa 2,740,625
4,800,000 Ser. 2, GNMA Coll., 11.429s, 9/10/30 Aaa 5,322,000
4,815,000 NE Investment Fin. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. 1, MBIA, 8 1/8s, 8/15/38 Aaa 5,025,656
--------------
16,527,031
Nevada (1.2%)
- ---------------------------------------------------------------------------------------------------------
5,800,000 Clark Cnty. School Dist. G.O. Bonds, Ser. A,
MBIA, 7s, 6/1/10 # Aaa 6,720,750
New Hampshire (0.6%)
- ---------------------------------------------------------------------------------------------------------
2,500,000 NH State Tpk. Sys. IFB, FGIC, 10.032s, 11/1/17 Aaa 3,059,375
New Jersey (3.5%)
- ---------------------------------------------------------------------------------------------------------
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A,
MBIA, 7.20s, 8/15/10 Aaa 3,307,500
5,020,000 NJ State Tpk. Auth. Rev. Bonds, Ser. C, MBIA,
6 1/2s, 1/1/16 Aaa 5,653,775
11,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, MBIA, 5s, 6/15/15 Aaa 10,408,750
--------------
19,370,025
New Mexico (0.2%)
- ---------------------------------------------------------------------------------------------------------
825,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds,
Ser. C, FGIC, 8 1/2s, 7/1/07 Aaa 852,844
New York (7.5%)
- ---------------------------------------------------------------------------------------------------------
NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst. Rev. Bonds
2,735,000 Ser. B, FGIC, 7 1/2s, 6/15/11 Aaa 3,302,513
5,000,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst. IFB,
MBIA, 7.676s, 6/15/19 Aaa 4,881,250
7,265,000 NY City, Muni. Wtr. Fin. Auth. Wtr. & Swr. Syst.
Rev. Bonds, Ser. B, FGIC, 7 1/2s, 6/15/11 Aaa 9,044,925
5,500,000 NY State Dorm. Auth. Rev. Bonds (Mt. Sinai
Medical School), Ser. A, MBIA, 5s, 7/1/21 Aaa 4,970,625
3,000,000 NY State Energy Research & Dev. Auth. IFB, MBIA,
7.554s, 7/8/26 Aaa 2,756,250
9,750,000 NY State Energy Research & Dev. Auth. Poll. Control
Rev. Bonds (Niagara Mohawk Pwr. Corp.), Ser. A,
FGIC, 7.2s, 7/1/29 Aaa 11,066,250
6,000,000 Suffolk Cnty., Wtr. Auth. Waterworks. Rev. Bonds,
MBIA, 5s, 6/1/17 Aaa 5,520,000
--------------
41,541,813
North Carolina (0.7%)
- ---------------------------------------------------------------------------------------------------------
4,000,000 NC Muni. Pwr. Agcy. IFB (No 1 Catawba Elec.),
MBIA, 7.17s, 1/1/20 Aaa 3,730,000
Ohio (1.6%)
- ---------------------------------------------------------------------------------------------------------
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
2,484,000 Ser. B, GNMA Coll., 8 1/4s, 12/15/19 Aaa 2,595,780
5,055,000 Ser. C, GNMA Coll., 8 1/8s, 3/1/20 Aaa 5,301,431
6,830,000 Ser. 85-A, FCIC, zero %, 1/15/15 Aaa 1,126,950
15,000 OH State Wtr. Dev. Auth. Rev. Bonds, AMBAC,
9 3/8s, 12/1/18 Aaa 15,450
--------------
9,039,611
Oklahoma (0.9%)
- ---------------------------------------------------------------------------------------------------------
4,795,000 OK Hsg. Fin. Agy. Single Fam. Rev. Bonds, Ser. A,
GNMA Coll., 8 1/4s, 12/1/20 Aaa 4,950,838
Pennsylvania (4.7%)
- ---------------------------------------------------------------------------------------------------------
2,000,000 Keystone Oaks, School Dist IFB, AMBAC,
7.785s, 9/1/16 Aaa 2,022,500
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 2,037,500
5,000,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 4,612,500
4,500,000 PA State Higher Ed. Fac. Auth. Rev. Bonds
(Hahnemann U.), MBIA, 7.2s, 7/1/19 Aaa 4,905,000
Philadelphia, Muni. Auth. Rev. Bonds
6,045,000 FGIC, 7.8s, 4/1/18 Aaa 6,641,944
620,000 FGIC, 7.8s, 4/1/18 Aaa 660,300
3,000,000 Philadelphia, Regl. Port Auth. Lease IFB
(Kidder Mvrics), MBIA, 8.531s, 9/1/13 Aaa 3,210,000
2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 2,215,000
--------------
26,304,744
South Carolina (0.6%)
- ---------------------------------------------------------------------------------------------------------
3,500,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. IFB
(St. Francis Hosp.-Franciscan Sisters), AMBAC,
7.02s, 8/1/15 Aaa 3,298,750
Tennessee (0.9%)
- ---------------------------------------------------------------------------------------------------------
4,840,000 Knox Cnty., Hlth., Ed. & Hsg. Fac. Rev. Bonds
(Fort Sanders Alliance), MBIA, 5 3/4s, 1/1/14 Aaa 4,942,850
Texas (12.7%)
- ---------------------------------------------------------------------------------------------------------
5,680,000 Austin, Arpt. Syst. Rev. Bonds, Ser. A., MBIA, 6.1s,
11/15/11 Aaa 5,871,700
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
3,505,000 (Baptist Memorial Hosp. Sys.), MBIA, 6 1/2s,
2/15/15 Aaa 3,816,069
8,300,000 FSA, 6.1s, 11/15/23 Aaa 8,528,250
Brownsville Util. Sys. Rev. Bonds
5,250,000 AMBAC, 5 1/4s, 9/1/20 Aaa 4,961,250
3,490,000 AMBAC, 6 14s, 9/1/11 Aaa 3,821,550
Dallas Cnty. Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
272,000 MBIA, 10s, 10/1/07 Aaa 277,913
5,000 (Lomas & Nettleton Co.), FGIC, 9.2s, 7/1/06 Aaa 5,122
Harris Cnty., Toll Rd., Sr. Lien, Rev. Bonds, Ser. A
4,000,000 AMBAC, 6 1/2s, 8/15/17 Aaa 4,430,000
5,000,000 MBIA, 6 1/4s, 8/15/15 Aaa 5,343,750
5,000,000 Harris Cnty., Hosp. Dist. Mtge. Rev. Bonds,
AMBAC, 7.4s, 2/15/10 Aaa 5,956,250
10,000,000 Houston, Wtr. & Swr. Syst. Rev. Bonds, Ser. C,
AMBAC, 6 3/8s, 12/1/17 Aaa 10,612,500
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds,
MBIA, 6 5/8s, 4/1/12 Aaa 7,428,750
4,630,000 Lubbock, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds, Ser. A, GNMA Coll., zero %, 11/25/17 Aaa 897,063
5,000,000 Rio Grande Valley Hlth Facs. Dev. Corp. Rev. Bonds,
MBIA, 6.4s, 8/1/12 Aaa 5,268,750
3,250,000 Sabine River, Auth. Poll. Control Rev. Bonds
(Southwestern Elec. Pwr.), MBIA, 6.1s, 4/1/18 Aaa 3,359,688
--------------
70,578,605
Utah (3.2%)
- ---------------------------------------------------------------------------------------------------------
Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.)
12,400,000 Ser. A, MBIA, 6.15s, 7/1/14 Aaa 13,035,500
4,500,000 Ser. B, FSA, 6 1/8s, 7/1/07 Aaa 4,786,874
--------------
17,822,374
Virginia (2.2%)
- ---------------------------------------------------------------------------------------------------------
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac.
IFB, FGIC, 9.57s, 8/15/23 Aaa 11,975,000
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 3,803,750
6,000,000 (Nuclear Project No. 3), Ser. B,
MBIA, 7 1/8s, 7/1/16
Aaa 6,975,000
--------------
10,778,750
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 5,174,600
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $513,558,314) *** $ 544,473,767
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $554,747,913.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at January 31, 1997 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, 1997.
*** The aggregate identified cost on a tax basis is $513,721,368
resulting in gross unrealized appreciation and depreciation of
$32,000,700 and $1,248,301 or net unrealized appreciation of $30,752,399
++ The Interest rates and dates shown parenthetically represent the
new interest rate to be paid and the date the fund will begin receiving
interest at this rate.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at January
31, 1997.
The rates shown on VRDN and IFB which are securities paying interest
rates that vary inversely to changes in the market interest rates, are
the current interest rates at January 31, 1997.
The fund had the following industry group concentration greater than
10% at January 31, 1997 ( as percentage of net assets):
Utilities 22.1%
Hospitals/Healthcare 18.5
Transportation 12.6
Education 10.0
The fund had the following insurance concentrations greater greater
than 10% at January 31, 1997 (percentage of net assets):
MBIA 45.1%
AMBAC 17.9
FGIC 16.6
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 1997
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Muni Index Future (Short) $13,830,000 $ 13,860,000 Mar-97 $30,000
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $513,558,314) (Note 1) $544,473,767
- ---------------------------------------------------------------------------------------------------
Cash 162,293
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 7,033,756
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,902,300
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 990,481
- ---------------------------------------------------------------------------------------------------
Total assets 558,562,597
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 105,000
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,166,372
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,889,860
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note2) 276,079
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 57,033
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,626
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,797
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 211,000
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 92,917
- ---------------------------------------------------------------------------------------------------
Total liabilities 3,814,684
- ---------------------------------------------------------------------------------------------------
Net assets $554,747,913
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $526,551,529
- ---------------------------------------------------------------------------------------------------
Distributions in excess net investment income (Note 1) (236,987)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of gains on investments (Note 1) (2,512,082)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 30,945,453
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $554,747,913
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($209,702,448 divided by 13,917,103 shares) $15.07
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $15.07)* $15.82
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($344,403,680 divided by 22,827,499 shares)+ $15.09
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($641,785 divided by 42,600 shares) $15.07
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $15.07)** $15.58
- ---------------------------------------------------------------------------------------------------
* 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, 1997 (Unaudited)
<S> <C>
Tax exempt interest income $17,558,806
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,648,683
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 250,954
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,772
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,655
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 203,557
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,146,865
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,623
- --------------------------------------------------------------------------------------------------
Reports to shareholders 27,257
- --------------------------------------------------------------------------------------------------
Registration fees 125
- --------------------------------------------------------------------------------------------------
Auditing 15,292
- --------------------------------------------------------------------------------------------------
Legal 4,462
- --------------------------------------------------------------------------------------------------
Postage 69,507
- --------------------------------------------------------------------------------------------------
Other 10,088
- --------------------------------------------------------------------------------------------------
Total expenses 3,405,840
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (91,106)
- --------------------------------------------------------------------------------------------------
Net expenses 3,314,734
- --------------------------------------------------------------------------------------------------
Net investment income 14,244,072
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,568,059
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 35,751
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 6,680,571
- --------------------------------------------------------------------------------------------------
Net gain on investments 8,284,381
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,528,453
- --------------------------------------------------------------------------------------------------
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
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 14,244,072 $ 27,849,024
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,603,810 7,015,645
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 6,680,571 (3,721,338)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,528,453 31,143,331
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (5,501,898) (10,229,355)
- ----------------------------------------------------------------------------------------------------------------------
Class B (8,708,015) (17,514,787)
- ----------------------------------------------------------------------------------------------------------------------
Class M (16,558) (11,865)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,307,920) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,245,527) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (5,459) --
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (1,699,260) (13,383,750)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,043,816 (9,996,426)
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 551,704,097 561,700,523
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $236,987 and
$254,588, respectively) $554,747,913 $551,704,097
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
June 1, 1995
Six months ended (commencement
January 31 Year ended of operations) to
(unaudited) July 31 July 31
--------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------
Class M
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.94 $14.86 $15.11
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .38 .76 .12
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .24 .08 (.25)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .62 .84 (.13)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.39) (.76) (.12)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.10) -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.76) (.12)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.07 $14.94 $14.86
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.16* 5.74 (0.87)*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $642 $325 $17
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .62* 1.19 .14*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.56* 4.99 .73*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.39* 54.58 37.62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months ended Year Year
January 31 ended ended
(unaudited) July 31 July 31
--------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.94 $14.86 $14.67
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .81 .83
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .23 .08 .19
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .64 .89 1.02
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.41) (.81) (.82)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.10) -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.51) (.81) (.83)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.07 $14.94 $14.86
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.31* 6.06 7.21
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $209,702 $196,948 $184,241
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .47* .90 .89
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.71* 5.37 5.68
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.39* 54.58 37.62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
September 20, 1993
(commencement Six months ended
of operations) to January 31
July 31 (unaudited) Year Ended July 31
--------------------------------------------------------------------
1994 1997 1996
--------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.88 $14.96 $14.87
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .73 .38 .71
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.12) .23 .09
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.39) .61 .80
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.72) (.38) (.71)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.10) -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.10) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.82) (.48) (.71)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.67 $15.09 $14.96
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (2.49)* 4.07* 5.44
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $143,079 $344,404 $354,431
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .80* .67* 1.58
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.73* 2.52* 4.72
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47.72 19.39* 54.58
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
--------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.68 $15.50 $15.42
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .73 .74 .75
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .20 (.73) .28
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .93 .01 1.03
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.73) (.73) (.75)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.20) (.09)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.01) (.10) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.83) (.95)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.87 $14.68 $15.50
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 6.53 -- 7.00
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $377,443 $432,895 $572,659
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.54 1.53 1.74
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.05 4.81 4.88
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.62 47.72 42.01
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended
July 31
----------------------------
1992
----------------------------
Class B
- ---------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $14.38
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .76
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.14
- ---------------------------------------------------------------------------------
Total from investment operations 1.90
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.77)
- ---------------------------------------------------------------------------------
From net realized gain on investments --
- ---------------------------------------------------------------------------------
In excess of net realized gain on investments --
- ---------------------------------------------------------------------------------
Total distributions (.86)
- ---------------------------------------------------------------------------------
Net asset value, end of period $15.42
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.63
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $466,135
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.79
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.16
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 66.18
- ---------------------------------------------------------------------------------
* Not annualized
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996
and thereafter, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2).
</TABLE>
Notes to financial statements
January 31, 1997 (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 is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held and for excise tax
on income and capital gains.
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 at least 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
F) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that 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.
G) Amortization of bond premium and discount Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. 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. Discounts on zero coupon bonds and original issue bonds
are accreted according to the effective yield method.
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. Such fee is based on the following annual
rates: 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, 0.40% of the next $5
billion, 0.375% of the next $5 billion, 0.355% of the next $5 billion, 0.34%
of the next $5 billion and 0.33% of any excess over $21.5 billion. Prior to
November 20, 1996, any amount over $1.5 billion was based on 0.40%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by 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 six months ended January 31, 1997, fund expenses were reduced by
$91,106 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $670 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.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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%, 0.60%
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, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $8,793 and $411 from the sale of
class A and class M shares, respectively and $259,227 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received no monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$105,090,372 and $117,719,242, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 3,331,497 $50,148,747
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 194,787 2,934,906
- ------------------------------------------------------------
3,526,284 53,083,653
Shares
repurchased (2,787,418) (42,048,700)
- ------------------------------------------------------------
Net increase 738,866 $11,034,953
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 3,576,738 $53,667,796
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 376,177 5,664,207
- ------------------------------------------------------------
3,952,915 59,332,003
Shares
repurchased (3,174,889) (47,633,437)
- ------------------------------------------------------------
Net increase 778,026 $11,698,566
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,574,924 $23,746,881
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 357,871 5,398,153
- ------------------------------------------------------------
1,932,795 29,145,034
Shares
repurchased (2,796,433) (42,194,463)
- ------------------------------------------------------------
Net decrease (863,638) $(13,049,429)
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 3,390,957 $51,105,197
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 728,563 10,984,541
- ------------------------------------------------------------
4,119,520 62,089,738
Shares
repurchased (5,808,443) (87,484,662)
- ------------------------------------------------------------
Net decrease (1,688,923) $(25,394,924)
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 37,309 $562,145
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 919 13,854
- ------------------------------------------------------------
38,228 575,999
Shares
repurchased (17,363) (260,783)
- ------------------------------------------------------------
Net increase 20,865 $315,216
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 23,526 $356,322
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 746 11,219
- ------------------------------------------------------------
24,272 367,541
Shares
repurchased (3,700) (54,933)
- ------------------------------------------------------------
Net increase 20,572 $312,608
- ------------------------------------------------------------
Results of February 6, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on
February 6, 1997. At the meeting, each of the nominees for
Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 21,124,415 404,863
Hans H. Estin 21,118,796 410,482
John A. Hill 21,122,287 406,991
R.J. Jackson 21,121,905 407,373
Elizabeth T. Kennan 21,116,149 413,129
Lawrence J. Lasser 21,124,509 404,769
Robert E. Patterson 21,125,204 404,074
Donald S. Perkins 21,087,748 441,530
William F. Pounds 21,088,053 441,225
George Putnam 21,114,323 414,955
George Putnam, III 21,097,495 431,783
Eli Shapiro 21,049,770 479,508
A.J.C. Smith 21,127,447 401,831
W. Nicholas Thorndike 21,120,200 409,078
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 20,341,574 votes for, and
282,633 votes against, with 905,067 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification was approved as follows: 18,655,143 votes
for, and 1,064,388 votes against, with 1,809,743 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was
approved as follows: 18,196,655 votes for, and 1,255,758 votes
against, with 2,076,861 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans was approved as follows: 17,290,274 votes for,
and 21,152,876 votes against, with 2,086,124 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
17,739,026 votes for, and 1,786,602 votes against, with 2,003,646
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
18,184,012 votes for, and 1,334,485 votes against, with 2,010,777
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities was approved as follows:
17,494,463 votes for, and 2,084,814 votes against, with 1,949,997
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities was approved as follows: 18,318,174 votes
for, and 1,211,059 votes against, with 2,000,041 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which
management of the fund or Putnam Investment Management, Inc. owns
securities was approved as follows: 17,719,795 votes for, and
1,658,186 votes against, with 2,151,293 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows:
17,028,433 votes for, and 2,406,847 votes against, with 2,093,994
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 17,269,406 votes
for, and 2,168,886 votes against, with 2,090,982 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to pledging assets was approved as follows: 17,112,114
votes for, and 2,215,716 votes against, with 2,201,444 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 17,115,994 votes for, and 2,210,453 votes against, with
2,202,827 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas an mineral interests
was approved as follows: 17,973,447 votes for, and 1,666,270 votes
against, with 1,889,557 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management
was approved as follows: 17,400,296 votes for, and 2,038,331 votes
against, with 2,090,647 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
31268-035/438/629 3/97
