Putnam
Tax-Free
Insured
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Risk-averse investors became more adventuresome in recent months and began
to retreat from the relative security of U.S. Treasury bonds. As prices on
these and other taxable bonds declined, their yields rose. The exodus
accelerated somewhat following Federal Reserve Board Chairman Alan
Greenspan's comments in July that tighter monetary policy might help stave
off inflation.
Since this shift in investor mood had a relatively mild impact on
tax-exempt bonds, the result was a slight widening in the yield spread
relative to taxable bonds. With the gap back around a more traditional 90%
- -- a modest retreat from earlier ratios of close to 100% -- municipal
bonds are now considered to be at fair value.
In this investment climate, Putnam Tax-Free Insured Fund's manager,
Richard Wyke, continues to place heavy emphasis on maximizing current
income while maintaining a portfolio as free of volatility as possible.
Rick explains his strategies in the following review of your fund's
performance during the fiscal year that ended on July 31, 1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Manager
Richard P. Wyke
Considerable change has taken place in the municipal bond environment
since the midpoint of Putnam Tax-Free Insured Fund's 1999 fiscal year. In
our semiannual report, we commented on a relatively quiet year in the
municipal market, dominated by bargain prices and high yields compared to
Treasury yields. Lately the bond markets (including municipals) have been
under pressure because of concerns about rising interest rates and
inflation. While rising rates have a negative effect on bond prices,
dragging down short-term total return performance, they do provide an
opportunity to potentially lock in higher yields and increase the
portfolio's income over time. The impact of rising interest rates on your
fund's total return for the 12 months ended July 31, 1999, can be seen in
the table below.
Total return for 12 months ended 7/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------
0.96% -3.85% 1.00% -3.78% -0.09% -1.04% 0.91% -2.39%
- --------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* FED POLICY AFFECTS YIELD CURVE
Given the strength of the economy and Federal Reserve Board Chairman Alan
Greenspan's comments to Congress on June 22 implying that interest rates
could rise again, we focused on reducing volatility in the portfolio as
well as providing a steady flow of tax-free income. Although Greenspan
made it clear that the Fed did not see signs of inflation (the bond
market's enemy), he felt it might be prudent to take back the three
interest-rate cuts that occurred in late 1998. While his statements were
balanced and lacked any crisis tone, the market responded negatively,
forcing interest rates upward.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 17.5%
Transportation 16.9%
Water and
sewer 16.1%
Utilities 15.1%
Education 7.8%
Footnote reads:
*Based on net assets as of 7/31/99. Holdings will vary over time.
Climbing interest rates and hospital credit woes continued to take their
toll on new-issue volume of municipal bonds as the national supply fell
approximately 25% in comparison to the first half of 1998. However, we
have seen continued healthy demand for municipal bonds, which provided
strong technical support for the municipal bond market and helped support
bond prices.
For most of the fiscal year, we saw opportunity in intermediate-term bonds
(8 to 15 years), but the lack of demand from insurance companies (the
primary buyers of intermediate bonds) held their performance back. Then,
at the end of June (and again in mid August, shortly after the close of
fiscal 1999), the Fed tightened short-term interest rates, each by a
quarter of a percentage point. These moves flattened the shape of the
yield curve at the shorter end and created more value for intermediate
bonds relative to longer-term bonds. A flatter yield curve means that the
difference between short- and long-term rates is relatively small.
"While rising rates have a negative effect on bond prices, dragging down
short-term total return performance, they do provide an opportunity to
potentially lock in higher yields and increase the portfolio's income over
time."
- -- Richard P. Wyke, Fund manager
The reward for extending maturities is small as well, and more investors
prefer to stay in the short and intermediate ranges of the curve. We
anticipate that this pattern will hold and look forward to better
performance from intermediate bonds in the future.
* NEW ACQUISITIONS INCREASE CALL PROTECTION
Call protection seeks to keep higher-yielding bonds in the portfolio for a
longer period of time. There are a few ways to protect the bonds in the
portfolio from being called away. One way to is to buy discount bonds with
low coupon rates. This strategy confers a certain amount of call
protection because these bonds are less likely to be refinanced by the
issuer. Another way to increase call protection is to purchase noncallable
bonds or bonds with distant call dates.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Hernando County, Florida,
Criminal Justice Revenue Bonds,
7.65% 7/1/16
Portland, Oregon, Sewer System
Revenue Bonds,
5.00% 6/1/12
Utah Intermountain Power Agency
Revenue Bonds,
6.15% 7/1/14
Fredericksburg, Virginia, Industrial
Development Authority Hospital
Inverse Floating Rate Bonds,
9.72% 8/15/23
New York State Energy Niagra
Mohawk Power Corp. Revenue Bonds,
7.20% 7/1/29
Massachusetts State Tufts University
Revenue Bonds,
4.75% 2/15/28
State of California General
Obligation Bonds,
5.50% 4/1/12
Houston, Texas, Water and Sewer
Revenue Bonds,
6.38% 12/1/17
Massachusetts Turnpike Authority
Revenue Bonds,
5.00% 1/1/37
Cook County, Illinois, General
Obligation Bonds,
5.00% 1/15/08
Footnote reads:
These holdings represent 20.5% of the fund's net assets as of 7/31/99.
Portfolio holdings will vary over time.
One example of a newly acquired noncallable bond is the Cook County,
Illinois, general obligation bonds that mature in 2008. Also during the
period, at a discount we purchased Portland, Oregon, sewer system revenue
bonds, which mature in 2012. While these holdings and others discussed in
this report were viewed favorably at the end of the period, all are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
Reimbursement and regulatory concerns have hurt some of the credit ratings
of issuers within the health-care industry. However, there are some
attractive fundamental values in this sector that make health-care
holdings like the Fredericksburg, Virginia, revenue bonds valuable
contributors to performance. The health-care industry is a good example of
a sector in which bond insurance -- which reduces risk by assuring the
timely payment of principal and interest of the bonds -- is especially
beneficial.
* VOLATILITY EXPECTED NEAR TERM, FOLLOWED BY IMPROVED OUTLOOK
In summary, there are many high-profile issues to be concerned about that
may affect the bond markets: inflationary and Fed fears and irrational
reactions to the arrival of the year 2000 (Y2K). After much research, we
believe that a sharp reaction in the markets to Y2K is not warranted by
the fundamentals and is not a likely event.
The rise in interest rates over the past few months is a normal reaction
to fears of inflation and an overheated economy. While such an environment
is not ideal, it is part of the cyclical nature of the financial markets
and one of the reasons we have always advised shareholders to diversify
their investments. Interest rates are likely to trend higher over the next
several months, but over the longer term we believe that inflation will be
held in check by the Fed's vigilant stance. Interest rates should
eventually decline, providing a positive environment for future
performance.
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 7/31/99, there is no guarantee the fund will
continue to hold these securities in the future. Shares of the fund are
not insured and their price will fluctuate with market conditions.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Tax-Free
Insured Fund is designed for investors seeking high current income free from
federal income tax through investments primarily in insured and Aaa-rated
tax-exempt securities.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 7/31/99
Class A Class B Class C Class M
(inception dates) (9/20/93) (9/9/85) (7/26/99) (6/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.96% -3.85% 1.00% -3.78% -0.09% -1.04% 0.91% -2.39%
- --------------------------------------------------------------------------------------
5 years 32.20 25.93 30.51 28.51 26.90 26.90 29.92 25.73
Annual average 5.74 4.72 5.47 5.15 4.88 4.88 5.37 4.69
- --------------------------------------------------------------------------------------
10 years 82.05 73.35 78.81 78.81 72.57 72.57 78.01 72.19
Annual average 6.17 5.66 5.98 5.98 5.61 5.61 5.94 5.58
- --------------------------------------------------------------------------------------
Life of fund 173.35 160.29 168.50 168.50 157.51 157.51 167.29 158.64
Annual average 7.51 7.13 7.37 7.37 7.05 7.05 7.33 7.08
- --------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
Lehman
Brothers Municipal Consumer
Bond Index price index
- --------------------------------------------------------------------------
1 year 2.88% 2.14%
- --------------------------------------------------------------------------
5 years 38.27 12.33
Annual average 6.70 2.35
- --------------------------------------------------------------------------
10 years 102.79 34.00
Annual average 7.33 2.97
- --------------------------------------------------------------------------
Life of fund 212.87 54.35
Annual average 8.54 3.17
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class A and class M
shares for periods prior to their inception are derived from the
historical performance of class B shares, adjusted in the case of public
offering price to reflect the initial sales charge currently applicable to
each class, but have not been adjusted to reflect differences in expenses,
which are lower for class A and M shares than for class B shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for the
first year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/31/89
Lehman Bros. Municipal Consumer price
Date Fund's class B shares Bond Index index
7/31/89 10,000 10,000 10,000
7/31/90 10,055 10,693 10,482
7/31/91 11,306 11,627 10,949
7/31/92 12,803 13,224 11,294
7/31/93 13,700 14,394 11,608
7/31/94 13,701 14,667 11,929
7/31/95 14,595 15,823 12,259
7/31/96 15,390 16,867 12,621
7/31/97 16,891 18,599 12,902
7/31/98 17,703 19,712 13,119
7/31/99 $17,881 $20,279 $13,400
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class A and M shares would
have been valued at $18,205 and $17,801, respectively ($17,335 and $17,219
at public offering price). A $10,000 investment in the fund's class C
shares would have been valued at $17,257 and no contingent deferred sales
charges would apply. See first page of performance section for performance
calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 -- 12
- --------------------------------------------------------------------------------------
Income $0.720923 $0.724482 $0.012011 1 $0.664368
- --------------------------------------------------------------------------------------
Capital gains2
Long-term 0.096500 0.096500 -- 0.096500
- --------------------------------------------------------------------------------------
Short-term 0.025100 0.025100 -- 0.025100
- --------------------------------------------------------------------------------------
Total $0.842523 $0.846082 $0.012011 $0.785968
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
7/31/98 $15.40 $16.17 $15.42 -- $15.39 $15.91
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- $14.83 -- --
- --------------------------------------------------------------------------------------
7/31/99 14.72 15.45 14.74 14.72 14.76 15.26
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate3 4.92% 4.69% 4.52% * 4.62% 4.47%
- --------------------------------------------------------------------------------------
Taxable equivalent4 8.15 7.77 7.48 -- 7.65 7.40
- --------------------------------------------------------------------------------------
Current 30-day SEC yield5 5.10 4.85 4.60 * 4.79 4.63
- --------------------------------------------------------------------------------------
Taxable equivalent4 8.44 8.03 7.62 -- 7.93 7.67
- --------------------------------------------------------------------------------------
1 This amount has been declared but not distributed.
2 Capital 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.
3 Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
4 Assumes maximum 39.6% federal tax rate. Results for investors subject to lower tax
rates would not be as advantageous.
5 Based only on investment income, calculated using SEC guidelines.
*Class C inception date. Due to their brief performance history, no yield information
is yet available for class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (9/20/93) (9/9/85) (7/26/99) (6/1/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.87% -3.92% 0.97% -3.81% -0.02% -0.97% 0.80% -2.49%
- --------------------------------------------------------------------------------------
5 years 34.10 27.75 32.36 30.36 28.96 28.96 31.81 27.50
Annual average 6.04 5.02 5.77 5.45 5.22 5.22 5.68 4.98
- --------------------------------------------------------------------------------------
10 years 83.22 74.58 80.04 80.04 74.13 74.13 79.28 73.50
Annual average 6.24 5.73 6.06 6.06 5.70 5.70 6.01 5.66
- --------------------------------------------------------------------------------------
Life of fund 172.52 159.50 167.79 167.79 157.43 157.43 166.66 158.03
Annual average 7.54 7.15 7.40 7.40 7.09 7.09 7.37 7.11
- --------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. See first
page of performance section for performance calculation method.
</TABLE>
Terms and definitions
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.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 4.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended July 31, 1999
To the Trustees of Putnam Tax-Free Income Trust and
Shareholders of Putnam Tax-Free Insured Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings),
and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the
financial position of Putnam Tax Free Insured Fund (the "fund") at July
31, 1999, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at July 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 13, 1999
<TABLE>
<CAPTION>
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
BIGI -- Bond Investor Guaranty Insurance
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
The fund's portfolio
July 31, 1999
MUNICIPAL BONDS AND NOTES (102.0%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
$3,000,000 Alabama A&M U. Rev. Bonds, MBIA ,
6 1/2s,11/1/25 Aaa $ 3,367,500
Jefferson Cnty., Swr. Rev. Bonds
8,750,000 (Rites-PA), Ser. 487 R, FRB, 8.2s, 2/1/38
(acquired 3/23/99, cost $9,982,335) (RES) AAA 9,089,063
5,000,000 Ser. A, FGIC, 5s, 2/1/33 Aaa 4,562,500
--------------
17,019,063
Alaska (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 AK Hsg. Fin. Corp. Rev. Bonds, Ser. A,
MBIA, 5.9s, 12/1/19 Aaa 6,112,500
Arizona (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
AZ State Muni. Fin. Program COP
1,000,000 Ser 31, BIGI, 7 1/4s, 8/1/09 Aaa 1,200,000
5,700,000 Ser 34, BIGI, 7 1/4s, 8/1/09 Aaa 6,840,000
--------------
8,040,000
California (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,300,000 Beverly Hills, Fin. Auth. Rev. Bonds, FRB, MBIA,
7.87s, 6/1/15 Aaa 1,371,500
4,000,000 CA Hsg. Fin. Agcy. Rev. Bonds (Home Mtge.),
Ser. Q, MBIA, 5.85s, 8/1/16 Aaa 4,095,000
9,500,000 CA State G.O. Bonds, MBIA, 5 1/2s, 4/1/12 Aaa 9,998,750
3,000,000 CA Statewide Cmnty. Dev. Auth. Step-up
Recovery Floater COP (Motion Picture
& TV Fund), AMBAC, 5.68s, 1/1/24 Aaa 2,936,250
2,000,000 East Bay, Muni. Util. Dist. Wtr. Syst. Rev. Bonds,
MBIA, 4 3/4s, 6/1/34 Aaa 1,750,000
Los Angeles Cnty. Trans. Comm. Sales Tax
Rev. Bonds
2,500,000 Ser. A, FGIC, 6 3/4s, 7/1/20 Aaa 2,678,125
4,000,000 (Proposition C), Ser. A, MBIA, 6 3/4s, 7/1/19 Aaa 4,375,000
3,455,000 (Proposition C), Ser. A, MBIA, 6 1/2s, 7/1/20 Aaa 3,752,994
3,000,000 Ser. B, AMBAC, 6 1/2s, 7/1/13 Aaa 3,172,500
5,000,000 Los Angeles Cnty., Pub. Wks. Fin. Auth. Lease
Rev. Bonds (Multiple Cap. Fac.), Ser. B,
AMBAC, 5 1/8s, 12/1/17 Aaa 4,887,500
5,000,000 Sacramento, Muni. Util. Dist. Elec. Rev. Bonds,
Ser. Y, MBIA, 6 3/4s, 9/1/19 Aaa 5,381,250
3,500,000 San Diego Cnty., Wtr. Auth. IF COP, FGIC,
7.73735s, 4/23/08 Aaa 4,020,625
5,000,000 San Diego, Regl. Bldg. Auth. Lease COP, MBIA,
6.9s, 5/1/23 Aaa 5,150,000
3,680,000 Santa Ana, Fin. Auth. Lease Rev. Bonds
(Police Admin. & Hldg. Fac.), Ser. A, MBIA,
6 1/4s, 7/1/17 Aaa 4,112,400
2,500,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 6.72s, 7/1/12 Aaa 2,581,250
6,300,000 U. of CA Rev. Bonds (Multi-Purpose), Ser. A,
MBIA, 6 7/8s, 9/1/16 Aaa 6,937,875
--------------
67,201,019
Colorado (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,224,000 CO Hlth. Fac. Auth. Rev. Bonds
(Cmnty. Provider Pooled Loan Program),
Ser. A, FSA, 7 1/4s, 7/15/17 Aaa 4,477,440
6,800,000 CO Pub. Hwy. Auth. Rev. Bonds, Ser. B,
MBIA, zero %, 9/1/20 AAA 2,116,500
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. C, MBIA
1,180,000 6 3/4s, 11/15/22 Aaa 1,267,025
1,765,000 6 3/4s, 11/15/13 Aaa 1,903,994
235,000 Ser. C, 6 3/4s, 11/15/13, Prerefunded Aaa 256,150
6,000,000 Jefferson Cnty., School Dist. G.O. Bonds,
MBIA, 6 1/2s, 12/15/10 Aaa 6,825,000
10,500,000 Metropolitan Football Stadium Sales Tax
Rev. Bonds, Ser. A, MBIA, zero %, 1/1/09 AAA 6,628,125
--------------
23,474,234
Delaware (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 DE State Econ. Dev. Auth. Poll. Control Rev. Bonds
(Delmarva Pwr.), Ser. B, FGIC, 7.15s, 7/1/18 Aaa 5,325,000
6,240,000 DE Trans. Auth.Syst. Rev. Bonds, AMBAC,
5 1/8s, 7/1/16 Aaa 6,138,600
--------------
11,463,600
District of Columbia (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,440,000 DC G.O. Bonds, Ser. B, MBIA, 6s, 6/1/11 Aaa 9,020,250
9,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 Aaa 7,841,250
--------------
16,861,500
Florida (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Dade Cnty., Professional Sports Franchise
Fac. Tax Rev. Bonds, MBIA, 4 3/4s, 10/1/30 Aaa 5,295,000
2,235,000 FL Hsg. Fin. Agcy. Home Ownership Rev. Bonds,
Ser. 1987 G2, Class B, GNMA Coll.,
8.595s, 11/1/18 AAA 2,500,406
13,675,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 Aaa 17,350,156
5,500,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.908s, 10/29/21 Aaa 6,256,250
5,000,000 Orlando & Orange Cnty., Expressway Auth.
Rev. Bonds FGIC, 8 1/4s, 7/1/14 Aaa 6,575,000
4,000,000 Sumter Cnty., School Dist. Rev. Bonds
(Multi Dist. Loan Program), FSA, 7.15s, 11/1/15 Aaa 4,835,000
--------------
42,811,812
Georgia (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
GA Muni. Elec. Pwr. Auth. Rev. Bonds
3,815,000 Ser. V, MBIA, 6 1/2s, 1/1/12 Aaa 4,277,569
1,315,000 Ser. V, MBIA, 6 1/2s, 1/1/12, Prerefunded Aaa 1,479,375
5,500,000 Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 6,125,625
7,500,000 Ser. B, AMBAC, 6 1/4s, 1/1/12 Aaa 8,240,625
5,700,000 Ser. A, FSA, 5 1/2s, 1/1/12 Aaa 5,878,125
--------------
26,001,319
Illinois (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,525,000 Chicago, Res. Recvy. Mtge. Rev. Bonds, Ser. B,
MBIA, zero %, 10/1/09 Aaa 754,875
10,000,000 Chicago, Board of Ed. G.O. Bonds, Ser. B, zero %,
FGIC, 12/1/09 Aaa 5,962,500
2,600,000 Chicago, Central Pub. Library Rev. Bonds, Ser. B,
AMBAC, 6.85s, 1/1/17 Aaa 2,817,750
9,755,000 Cook Cnty., G.O. Bonds, Ser. B, FGIC, 5s, 11/15/08 Aaa 9,840,356
5,000,000 Regional Trans. Auth. Rev. Bonds, Ser. A, AMBAC,
8s, 6/1/17 Aaa 6,462,500
--------------
25,837,981
Indiana (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,250,000 Fort Wayne, Hosp. Auth. Rev. Bonds
(Parkview Hlth. Syst., Inc.), MBIA,
4 3/4s, 11/15/28 Aaa 5,406,250
7,500,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds
(Columbus Regl. Hosp.), FSA, 7s, 8/15/15 Aaa 8,821,875
--------------
14,228,125
Louisiana (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
913,161 East Baton Rouge, Mtge. Fin. Auth. Single Fam.
Mtge. Rev. Bonds (Mortgage-Backed
Securities Program), Ser. B, GNMA Coll.,
8 1/4s, 2/25/11 Aaa 956,536
Massachusetts (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,105,000 MA State Indl. Fin. Agcy. Rev. Bonds (Tufts U.),
Ser. H, MBIA, 4 3/4s, 2/15/28 Aaa 10,607,006
MA State Tpk. Auth. Hwy. Syst. Rev. Bonds, Ser. A
6,300,000 AMBAC, 5s, 1/1/39 Aaa 5,670,000
11,000,000 MBIA, 5s, 1/1/37 Aaa 9,913,750
6,000,000 MA State Wtr. Resources Auth. Rev. Bonds,
Ser. A, FSA, 4 3/4s, 8/1/37 Aaa 5,167,500
--------------
31,358,256
Michigan (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Grand Traverse Cnty., Hosp. Rev. Bonds
(Munson Healthcare), Ser. A, AMBAC, 5s, 7/1/28 Aaa 2,268,750
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
4,000,000 AMBAC, 7s, 5/1/21 Aaa 4,785,000
2,750,000 Ser. AA, FGIC, 6.95s, 5/1/11 Aaa 3,217,500
5,000,000 (Detroit Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 4,793,750
--------------
15,065,000
Minnesota (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,750,000 MN Agricultural & Econ. Dev. Board Rev. Bonds
(Benedictine Hlth.), MBIA, Ser. A, 5 1/4s, 2/15/13 AAA 3,754,688
Missouri (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 MO State Hlth. & Edl. Fac. Auth. Hlth. Fac.
Rev. Bonds (Heartland Hlth. Sys. Project),
AMBAC, 6.35s, 11/15/17 Aaa 2,656,250
5,000,000 Sikeston Elec. Rev. Bonds, MBIA, 6s, 6/1/14 Aaa 5,450,000
--------------
8,106,250
Nebraska (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.234s, 11/15/16 Aaa 3,375,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
8,000,000 Ser. B, GNMA Coll., 9.452s, 3/15/22 Aaa 8,492,880
2,800,000 Ser. 2, GNMA Coll., 8.64s, 9/10/30 Aaa 3,013,500
--------------
14,881,380
Nevada (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Clark Cnty., Passenger Fac. Rev. Bonds
(Las Vegas McCarran Intl.), MBIA, 4 3/4s, 7/1/22 Aaa 4,468,750
Clark Cnty., School Dist. G.O. Bonds
5,800,000 Ser. A, MBIA, 7s, 6/1/10 (SEG) Aaa 6,786,000
6,935,000 FSA, 5s, 6/15/08 Aaa 7,030,356
7,350,000 Nevada State G.O. Bonds, MBIA, 4 3/4s, 5/15/26 AAA 6,486,375
--------------
24,771,481
New Hampshire (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. VRDN
(VHA New England Inc.), AMBAC
1,900,000 Ser. B, 3.2s, 12/1/25 A-1 1,900,000
1,400,000 Ser. D, 3.2s, 12/1/25 A-1 1,400,000
2,500,000 NH State Tpk. Sys. IFB, FGIC, 10.083s, 11/1/17 Aaa 3,153,125
--------------
6,453,125
New Jersey (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A, MBIA,
6 1/4s, 8/15/10 Aaa 3,337,350
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
1,700,000 (Meridian Hlth. Syst. Oblig. Group), FSA,
5 1/4s, 7/1/29 AAA 1,640,500
2,480,000 (St. Barnabas Hlth.), Ser. B, MBIA, 5 1/4s, 7/1/12 Aaa 2,492,400
6,000,000 NJ State Trans. Fund Auth. Rev. Bonds, Ser. A,
AMBAC, 5 1/4s, 6/15/09 Aaa 6,165,000
--------------
13,635,250
New Mexico (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
445,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds,
Ser. C, FGIC, 8 1/2s, 7/1/07 Aaa 450,474
New York (9.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,670,000 Long Island Pwr. Auth. FRB, Ser. 66, MBIA,
6.92s, 4/1/10 (acquired 11/3/98,
cost $5,270,660) (RES) Aaa 4,850,963
Metropolitan Trans. Auth. Commuter Fac.
Rev. Bonds, MBIA
4,500,000 5.7s, 7/1/17 Aaa 4,640,625
7,425,000 Ser. A, 5.7s, 7/1/17 Aaa 7,657,031
NY City, Muni. Wtr. & Swr. Syst. Fin. Auth.
Rev. Bonds
7,265,000 Ser. B, FGIC, 7 1/2s, 6/15/11 Aaa 8,790,650
2,735,000 Ser. B, FGIC, 7 1/2s, 6/15/11, Prerefunded Aaa 3,302,513
7,000,000 Ser. D, MBIA, 4 3/4s, 6/15/25 Aaa 6,238,750
3,000,000 NY City, Transitional Fin. Auth. Rev. Bonds, Ser. A,
FGIC, 5 1/4s, 11/15/13 Aa3 3,022,500
5,000,000 NY State Dorm. Auth. Rev. Bonds
(State U. Edl. Facs.), Ser. A, MBIA,
4 3/4s, 5/15/25 AAA 4,456,250
3,000,000 NY State Energy Res. & Dev. Auth. IFB,
MBIA, 7.591s, 7/8/26 Aaa 3,007,500
9,750,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Niagra Mohawk Pwr. Corp.),
Ser. A, FGIC, 7.2s, 7/1/29 Aaa 10,993,125
--------------
56,959,907
North Carolina (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
(No. 1, Catawba Elec.), MBIA, 5.6s, 1/1/20 Aaa 4,010,000
Ohio (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,505,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
Ser. 85-A, FGIC, zero %, 1/15/15 Aaa 329,219
Oregon (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
14,250,000 Portland, Swr. Syst. Rev. Bonds, Ser. A,
FGIC, 5s, 6/1/12 Aaa 14,160,939
Pennsylvania (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,730,000 Allegheny Cnty. Port. Auth. Rev. Bonds, MBIA,
5 1/2s, 6/1/09 AAA 3,888,525
2,000,000 Keystone Oaks, School Dist IFB, AMBAC,
8.95s, 9/1/16 Aaa 2,257,500
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (Sacred Heart Hosp. Norristown),
Ser. A, MBIA, 6.8s, 2/1/13 Aaa 2,007,700
3,000,000 Philadelphia, Regl. Port Auth. Lease IFB
(Kidder Peabody), MBIA, 8.15s, 9/1/13 Aaa 3,378,750
2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 2,130,000
--------------
13,662,475
South Carolina (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
Piedmont, Muni. Pwr. Agcy. Rev. Bonds, Ser. A, MBIA
1,500,000 5 1/2s, 1/1/13 Aaa 1,546,875
1,100,000 5 1/4s, 1/1/12 Aaa 1,116,500
3,500,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. IFB
(St. Francis Hosp.-Franciscan Sisters),
AMBAC, 7.02s, 8/1/15 Aaa 3,530,625
--------------
6,194,000
Tennessee (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,895,000 Johnson, Hlth. & Edl. Rev. Bonds
(Johnson City Med. Ctr.), MBIA, 5 1/2s, 7/1/12 AAA 7,101,850
4,840,000 Knox Cnty., Hlth., Ed. & Hsg. Fac. Rev. Bonds
(Fort Sanders Alliance), MBIA, 5 3/4s, 1/1/14 Aaa 5,082,000
--------------
12,183,850
Texas (9.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,680,000 Austin, Arpt. Syst. Rev. Bonds, Ser. A, MBIA,
6.1s, 11/15/11 Aaa 6,006,600
3,490,000 Brownsville, Util. Syst. Rev. Bonds, AMBAC,
6 1/4s, 9/1/11 Aaa 3,856,450
36,000 Dallas Cnty., Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds, MBIA, 10s, 10/1/07 Aaa 36,221
Harris Cnty., Hlth. Facs. Dev. Rev. Bonds
(Christus Health), Ser. A, MBIA
4,000,000 5 1/2s, 7/1/10 AAA 4,155,000
7,000,000 5 3/8s, 7/1/08 AAA 7,218,750
5,000,000 Harris Cnty., Hosp. Dist. Mtge. Rev. Bonds,
AMBAC, 7.4s, 2/15/10 Aaa 5,825,000
Houston, Wtr. & Swr. Syst. Rev. Bonds
9,400,000 Ser. C, AMBAC, 6 3/8s, 12/1/17 Aaa 9,917,000
6,000,000 Ser. A, FSA, 5 1/2s, 12/1/08 Aaa 6,292,500
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds,
MBIA, 6 5/8s, 4/1/12 Aaa 7,280,000
5,000,000 Rio Grande Valley, Hlth Fac. Dev. Corp. Rev. Bonds,
MBIA, 6.4s, 8/1/12 Aaa 5,306,250
--------------
55,893,771
Utah (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
12,400,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 A1 13,438,500
Virginia (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.722s, 8/15/23 Aaa 11,350,000
Washington (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Tacoma, Elec. Syst. IFB, AMBAC, 9.347s, 1/2/15 Aaa 2,207,500
WA State Pub. Pwr. Supply Syst. Rev. Bonds
3,400,000 (Nuclear No. 2), Ser. C, FGIC, 7 3/8s, 7/1/11 Aaa 3,616,750
6,000,000 (Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 7,170,000
5,000,000 (Nuclear No. 1), Ser. A, AMBAC, 5.7s, 7/1/09 Aaa 5,268,750
--------------
18,263,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $564,935,556) (b) $ 584,929,254
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $573,633,094.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
July 31, 1999 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 July 31, 1999. Securities rated by
Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $565,338,257, resulting in gross unrealized appreciation and
depreciation of $29,051,489 and $9,460,492, respectively, or net unrealized appreciation of $19,590,997.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
July 31, 1999 was $13,940,026 or 2.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at July 31, 1999.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes in the
market interest rates, FRB's and VRDN's are the current interest rates at July 31, 1999.
The fund had the following industry group concentrations greater than 10% at July 31, 1999 (as a percentage of net
assets):
Health care 17.5%
Transportation 16.9
Water & sewerage 16.1
Utilities 15.1
The fund had the following insurance concentrations greater than 10% at July 31, 1999 (as a percentage of net
assets):
MBIA 48.6%
FGIC 21.5
AMBAC 18.5
- ------------------------------------------------------------------------------------
Futures Contracts Outstanding at July 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ------------------------------------------------------------------------------------
Muni Bond
Index (Short) $16,528,750 $16,621,578 Sep-99 $92,828
- ------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $564,935,556) (Note 1) $584,929,254
- -----------------------------------------------------------------------------------------------
Interest and other receivables 6,329,660
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 539,328
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,596,434
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 105,000
- -----------------------------------------------------------------------------------------------
Total assets 595,499,676
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 8,202,384
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 11,580,875
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,050,894
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 359,836
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 289,563
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 70,333
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 26,394
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,314
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 212,318
- -----------------------------------------------------------------------------------------------
Other accrued expenses 70,671
- -----------------------------------------------------------------------------------------------
Total liabilities 21,866,582
- -----------------------------------------------------------------------------------------------
Net assets $573,633,094
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $560,918,438
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (356,689)
- -----------------------------------------------------------------------------------------------
Distributions in excess of gains on investments (Note 1) (7,015,181)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 20,086,526
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $573,633,094
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($243,845,309 divided by 16,567,995 shares) $14.72
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $14.72)* $15.45
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($327,920,440 divided by 22,250,957 shares)+ $14.74
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($986 divided by 67 shares)+ $14.72
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,866,359 divided by 126,454 shares) $14.76
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $14.76)** $15.26
- -----------------------------------------------------------------------------------------------
* 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 an 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
Year ended July 31, 1999
<S> <C>
Tax exempt interest income: $32,964,997
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,464,735
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 708,454
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,435
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,759
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 484,858
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 565,933
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 10,685
- -----------------------------------------------------------------------------------------------
Reports to shareholders 28,798
- -----------------------------------------------------------------------------------------------
Registration Fees 6,515
- -----------------------------------------------------------------------------------------------
Auditing 41,702
- -----------------------------------------------------------------------------------------------
Legal 6,378
- -----------------------------------------------------------------------------------------------
Postage 31,237
- -----------------------------------------------------------------------------------------------
Other 51,576
- -----------------------------------------------------------------------------------------------
Total expenses 5,425,065
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (164,318)
- -----------------------------------------------------------------------------------------------
Net expenses 5,260,747
- -----------------------------------------------------------------------------------------------
Net investment income 27,704,250
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 537,857
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,246,346)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (21,829,346)
- -----------------------------------------------------------------------------------------------
Net loss on investments (22,537,835)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 5,166,415
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 27,704,250 $ 27,565,470
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (708,489) 1,833,865
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (21,829,346) (3,409,371)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,166,415 25,989,964
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (11,291,598) (10,576,810)
- ---------------------------------------------------------------------------------------------------------------
Class B (16,324,557) (16,563,021)
- ---------------------------------------------------------------------------------------------------------------
Class C (1) --
- ---------------------------------------------------------------------------------------------------------------
Class M (91,950) (69,217)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,869,573) (969,004)
- ---------------------------------------------------------------------------------------------------------------
Class B (2,780,386) (1,476,320)
- ---------------------------------------------------------------------------------------------------------------
Class M (18,696) (6,563)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 32,439,522 12,564,138
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 5,229,176 8,893,167
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 568,403,918 559,510,751
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $356,689 and
$316,312, respectively) $573,633,094 $568,403,918
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.40 $15.50 $14.94 $14.86 $14.67
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .72 .74(c) .79 .81 .83
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.56) (.04) .67 .08 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .70 1.46 .89 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.72) (.73) (.80) (.81) (.82)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.12) (.07) (.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.80) (.90) (.81) (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.72 $15.40 $15.50 $14.94 $14.86
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.96 4.63 10.09 6.06 7.21
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $243,845 $230,283 $219,265 $196,948 $184,241
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 .94 .92 .90 .89
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.65 4.80 5.22 5.37 5.68
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.60 40.38 36.13 54.58 37.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 ended July 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.42 $15.52 $14.96 $14.87 $14.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .72 .77(c) .74 .71 .73
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.56) (.04) .68 .09 .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .73 1.42 .80 .93
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.72) (.76) (.76) (.71) (.73)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.12) (.07) (.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.83) (.86) (.71) (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.74 $15.42 $15.52 $14.96 $14.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.00 4.83 9.76 5.44 6.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $327,920 $336,286 $339,354 $354,431 $377,443
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90 .74 1.22 1.58 1.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.69 5.00 4.93 4.72 5.05
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.60 40.38 36.13 54.58 37.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 ended July 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.66)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .08*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.60
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 ended July 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 1, 1995+
operating performance Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.39 $15.50 $14.94 $14.86 $15.11
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .66 .69(c) .74 .76 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.51) (.04) .67 .08 (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .65 1.41 .84 (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.66) (.69) (.75) (.76) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.12) (.07) (.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.78) (.76) (.85) (.76) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.76 $15.39 $15.50 $14.94 $14.86
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.91 4.24 9.76 5.74 (0.87)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,866 $1,835 $892 $325 $17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.24 1.24 1.22 1.19 .14*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.35 4.50 4.87 4.99 .73*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.60 40.38 36.13 54.58 37.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 ended July 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
July 31, 1999
Note 1
Significant accounting policies
Putnam Tax-Free Insured Fund (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, class C, and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C shares pay
a higher ongoing distribution fee than class B shares, and have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front-end sales charge of
3.25% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C 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. Restricted
securities are stated at fair value following procedures approved by the
Trustees.
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). Gain or loss on securities sold are determined on the
identified cost basis.
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. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended July
31, 1999, the fund had no borrowings against the line of credit.
E) 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, as amended. Therefore, no provision has been made
for federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At July 31, 1999, the fund had a capital loss carryover of approximately
$468,000 available to offset future net capital gain, if any, which will
expire on July 31, 2007.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
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. These
differences include temporary and permanent differences of losses on wash
sale transactions, post-October loss deferrals, dividends payable, and
unrealized gains and losses on certain futures contracts.
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. For the year ended July 31,
1999, the fund reclassified $36,521 to increase distributions in excess of
net investment income and $36,521 to decrease distributions in excess of
gains on investments. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
G) 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.
H) Amortization of bond premium and accretion of bond 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 discount are accreted according to the
yield-to-maturity basis.
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 and 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% thereafter. On June 4,
1999, the Trustees approved a management fee schedule to become effective
July 1, 1999, based upon the lesser of (i) an annual rate of 0.50% of the
average net asset value of the fund or (ii) the initial tiers mentioned
above.
The fund reimburses Putnam Management an allocated amount 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 Putnam Fiduciary
Trust Company ("PFTC"), a subsidiary of Putnam Investments Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
As part of the subcustodian 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 fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At July 31, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
For the year ended July 31, 1999, fund expenses were reduced by $164,318
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.
Each Trustee of the fund receives an annual Trustee fee, of which $845 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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
invested in certain Putnam funds until distribution in accordance with the
Deferral 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, class C, 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 annual rates up to 0.35%, 1.00%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.20%, 1.00% and 0.50% of the
average net assets attributable to class A, class C and class M shares,
respectively. Effective April 21, 1999, the Trustees approved
reinstatement of payment by the fund to an annual rate of 0.60% of the
average net assets attributable to class B shares.
For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $32,325 and $1,398 from the sale
of class A and class M shares, respectively and $371,865 and no monies in
contingent deferred sales charges from redemptions of class B and class C
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the year ended July 31, 1999, Putnam
Mutual Funds Corp., acting as underwriter received $9,702 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended July 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $244,450,558 and $205,954,639, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At July 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,977,221 $60,892,766
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 502,787 7,716,895
- -----------------------------------------------------------------------------
4,480,008 68,609,661
Shares
repurchased (2,863,444) (43,724,849)
- -----------------------------------------------------------------------------
Net increase 1,616,564 $24,884,812
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,565,662 $54,957,758
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 422,298 6,519,264
- -----------------------------------------------------------------------------
3,987,960 61,477,022
Shares
repurchased (3,182,810) (48,957,254)
- -----------------------------------------------------------------------------
Net increase 805,150 $12,519,768
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,994,939 $77,030,641
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 772,327 11,885,935
- -----------------------------------------------------------------------------
5,767,266 88,916,576
Shares
repurchased (5,322,327) (81,482,473)
- -----------------------------------------------------------------------------
Net increase 444,939 $ 7,434,103
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,236,109 $65,348,127
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 710,130 10,974,575
- -----------------------------------------------------------------------------
4,946,239 76,322,702
Shares
repurchased (5,006,852) (77,226,385)
- -----------------------------------------------------------------------------
Net decrease (60,613) $ (903,683)
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 67 $ 1,000
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
67 1,000
Shares
repurchased -- --
- -----------------------------------------------------------------------------
Net increase 67 $ 1,000
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 52,454 $ 814,919
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,593 70,350
- -----------------------------------------------------------------------------
57,047 885,269
Shares
repurchased (49,771) (765,662)
- -----------------------------------------------------------------------------
Net increase 7,276 $ 119,607
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 102,035 $1,568,065
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,074 62,868
- -----------------------------------------------------------------------------
106,109 1,630,933
Shares
repurchased (44,505) (682,880)
- -----------------------------------------------------------------------------
Net increase 61,604 $ 948,053
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]**
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN043-54559 035/438/629/849 9/99
