Putnam
Tax-Free
Insured
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund's manager discusses performance
for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam Tax
Free Insured Fund that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. In June, John Hill will become Chairman. John
is currently an independent Trustee and has served on the board for the
past 14 years. In addition, my son, George Putnam, III, will take on the
role of President. I am confident that the leadership of the funds will be
in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 15, 2000
Report from the Fund Manager
Richard P. Wyke
A resilient U.S. economy and heightened worry over inflation provided for
some anxious times in the fixed-income markets during the six months ended
January 31, 2000. In an effort to keep economic growth on target and tame
inflation over the longer term, the Federal Reserve Board raised interest
rates repeatedly, much to the regret of bondholders, who watched their
investments lose value with each rate increase. Putnam Tax-Free Insured
Fund's results for the first half of fiscal 2000 reflect this environment.
We do not believe, however, that the sharp run-up in yields and the
corresponding fall in bond prices are likely to continue for too long.
While another rate increase or two probably remain in the cards, the bond
market is beginning to look ahead to brighter days. For investors with a
penchant for bargains, today's well-valued municipal bonds offer excellent
opportunities for tax-sheltered income.
Total return for 6 months ended 1/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
-2.85% -7.44% -3.11% -7.84% -3.24% -4.18% -3.06% -6.23%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* CAPTURING HIGHER INCOME IN RISING-RATE MARKET
To be sure, your fund's semiannual period coincided with the most
difficult environment for bonds since 1994. However, the news is not all
bad. When inflation is present, bond yields must rise to attract money to
the fixed-income markets. In theory, the higher interest rates compensate
bondholders for the risk of inflation, or lost purchasing power, at some
future date. Consequently yields on 30-year insured municipal bonds, such
as those in your fund, climbed from 5.55% on July 31, 1999, to 6.18% on
January 31, 2000. The emergence of these higher-yielding bonds provides a
valuable opportunity for us to augment the fund's income stream for years
to come.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 20.9%
Utilities 18.4%
Transportation 13.8%
Water and sewer 13.3%
Housing 5.7%
Footnote reads:
*Based on net assets as of 1/31/00. Holdings will vary over time.
Another sign of the income opportunity before us is the taxable-equivalent
yield comparison. A good proxy for the tax-free bond market is the 10-year
insured municipal bond, which offered a yield of 5.42% on January 31. If
you are in the top 39.6% federal income tax bracket, that is like getting
an 8.97% yield on a fully taxable investment. Such levels of income are
not currently available on U.S. Treasury bonds, let alone lower-rated
higher-yielding (junk) bonds.
The relatively dramatic rise in municipal bond yields also resulted in a
steeper municipal bond yield curve. From the outset, the fund's heavy
emphasis on bonds with intermediate maturities (in the 8- to 15-year
range) proved advantageous and helped protect the portfolio's value. With
the fund's duration shorter than many of its peers', however, we had some
room to add higher-yielding, longer-term bonds. Scouting for buys like
bargain basement shoppers, we scoured the marketplace for 20- to 30-year
municipal bonds, buying during periods of price weakness. (Duration is a
measure of the portfolio's maturity structure and reflects the price
sensitivity of holdings to changes in interest rates.)
* TAKING THE ROAD LESS TRAVELED
As part of our strategy to lengthen the fund's duration, we have been
selling selected intermediate-maturity bonds from high-tax states such as
New York, Florida, and California, where demand for municipal bonds is
high. Finding alternative investments has been difficult at best. Higher
interest rates have discouraged new municipal bond issuance, thereby
limiting the supply of offerings coming to market. Furthermore a large
number of bonds issued near the end of 1998, when yields were low and
prices were high, are severely underperforming the market at this time. We
limited the fund's exposure to these bonds, a decision that proved to be
beneficial for performance.
"If you've taken advantage of the tremendous bull run of the equity market,
offsetting your portfolio with tax-free investments is a smart choice,
analysts say."
- -- CNNfn.com, 2/1/00
We invested the proceeds from the high-tax-state bond sales
opportunistically in municipal bonds backed by the credit of companies
facing short-term uncertainty. Late last year, for example, we purchased
Tennessee Energy Acquisition Corporation bonds from a distressed seller.
The fate of the issuer, along with other municipalities that buy natural
gas in bulk, came into question when the Internal Revenue Service
conducted an audit and hearing to determine if the business constituted
arbitrage. Our decision to continue holding the bonds proved to be a good
one. After a thorough review by the most prominent bond counsels, the
bonds were permitted to retain their tax-exempt status.
Within the health-care sector, many providers are undergoing major
restructuring and cost-cutting programs in response to federal funding
cutbacks and high drug prices. Many of these companies are falling victim
to a general aversion by investors regardless of the underlying
fundamentals. As is generally the case, some health-care providers are
unfairly tarred, and it falls on in-depth research on our part to
determine the more financially secure among them.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Hernando County, Florida Criminal Justice
Revenue Bonds, 7.65%, 7/1/16
Utah Intermountain Power Agency
Revenue Bonds, 6.15%, 7/1/14
Portland, Oregon Sewer System
Revenue Bonds, 5.00%, 6/1/12
Fredericksburg, Virginia Ind. Development Authority
Hospital Revenue Bonds, 9.215% 8/15/23
New York State Energy Niagara Mohawk
Revenue Bonds, 7.20%, 7/1/29
California State
General Obligation Bonds, 5.50%, 4/1/12
Massachusetts State
Tufts University
Revenue Bonds, 4.75%, 2/15/28
Houston, Texas,
Water and Sewer
Revenue Bonds, 6.38%, 12/1/17
Massachusetts Turnpike Authority
Revenue Bonds, 5.00%, 1/1/37
District of Columbia
General Obligation Bonds, 6.00%, 6/1/11
Footnote reads:
These holdings represent 21.3% of the fund's net assets as of 1/31/00.
Portfolio holdings will vary over time.
In another twist of the health-care story, we added bonds issued by the
Financial Securities Assurance Corporation (FSA) when many investors were
selling them. The strength of FSA's guarantee came into question when
three of the health-care providers it insures announced significant losses
for 1999. As an insurer, FSA provides peace of mind to investors by
guaranteeing that in the event that an issuer fails to meet a scheduled
principal or interest payment, it will act as a third-party guarantor and
make the debt service payment. The insurance, in essence, transforms a
lower-rated bond into Aaa/AAA-rated status. FSA is weathering this test
well, and its guarantee remains very solid. While these holdings, as well
as others discussed in this report, were viewed favorably during the
period, all holdings are subject to review in accordance with the fund's
investment strategy and may vary in the future.
* PROSPECTS RISE FOR TAX-EXEMPT BONDS
After rising significantly in 1999, interest rates continued to climb in
the new year's first month. Just as importantly, the yield curve has
become inverted; short-term interest rates are now higher than long-term
interest rates. Historically such an inversion has been associated with a
slowdown of economic growth and a decline in core inflation over time. In
the meantime, the markets remain nervous about inflation, especially with
prices of oil and other commodities rising sharply.
At their current price levels, tax-exempt bonds are not only especially
attractive but also offer an effective strategy for investors who have
benefited from the stock market's recent strength. Furthermore, your
fund's insured and Aaa/AAA-rated municipal bonds tend to fluctuate less
than lower-quality bonds in volatile markets, making them valuable
components of any well-diversified portfolio.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 1/31/00, 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 1/31/00
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>
6 months -2.85% -7.44% -3.11% -7.84% -3.24% -4.18% -3.06% -6.23%
- --------------------------------------------------------------------------------------------
1 year -5.82 -10.32 -6.13 -10.61 -6.80 -7.69 -5.89 -8.94
- --------------------------------------------------------------------------------------------
5 years 27.61 21.58 26.04 24.09 22.43 22.43 25.60 21.53
Annual average 5.00 3.99 4.74 4.41 4.13 4.13 4.66 3.98
- --------------------------------------------------------------------------------------------
10 years 75.10 66.78 71.54 71.54 65.40 65.40 70.94 65.41
Annual average 5.76 5.25 5.54 5.54 5.16 5.16 5.51 5.16
- --------------------------------------------------------------------------------------------
Life of fund 165.54 152.86 160.15 160.15 149.18 149.18 159.23 150.83
Annual average 7.02 6.66 6.87 6.87 6.55 6.55 6.84 6.60
- --------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/00
Lehman Brothers Municipal Consumer
Bond Index price index
- ---------------------------------------------------------------------------
6 months -1.96% 1.44%
- ---------------------------------------------------------------------------
1 year -3.63 2.67
- ---------------------------------------------------------------------------
5 years 35.23 12.28
Annual average 6.22 2.34
- ---------------------------------------------------------------------------
10 years 94.87 32.73
Annual average 6.90 2.87
- ---------------------------------------------------------------------------
Life of fund 206.74 56.57
Annual average 8.08 3.16
- ---------------------------------------------------------------------------
Past performance is not indicative of future results. More recent returns
may be worth 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 B 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/00
Class A Class B Class C Class M
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 6 6 6 6
- ----------------------------------------------------------------------------------------------
Income $0.372448 $0.344196 $0.316559 $0.351856
- ----------------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- ----------------------------------------------------------------------------------------------
Total $0.372448 $0.344196 $0.316559 $0.351856
- ----------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ----------------------------------------------------------------------------------------------
7/31/99 $14.72 $15.45 $14.74 $14.72 $14.76 $15.26
- ----------------------------------------------------------------------------------------------
1/31/00 13.93 14.62 13.94 13.93 13.96 14.43
- ----------------------------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------------------------
Current dividend rate2 5.29% 5.04% 4.89% 4.48% 4.98% 4.82%
- ----------------------------------------------------------------------------------------------
Taxable equivalent3 8.76 8.34 8.10 7.42 8.25 7.98
- ----------------------------------------------------------------------------------------------
Current 30-day
SEC yield4 5.09 4.85 4.69 4.33 4.79 4.63
- ----------------------------------------------------------------------------------------------
Taxable equivalent3 8.43 8.03 7.76 7.17 7.93 7.67
- ----------------------------------------------------------------------------------------------
</TABLE>
1 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (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>
6 months -2.02% -6.71% -2.28% -7.05% -2.61% -3.56% -2.23% -5.43%
- --------------------------------------------------------------------------------------------
1 year -4.08 -8.64 -4.34 -8.90 -5.06 -5.97 -4.15 -7.28
- --------------------------------------------------------------------------------------------
5 years 32.44 26.12 30.79 28.79 27.11 27.11 30.33 26.08
Annual average 5.78 4.75 5.51 5.19 4.91 4.91 5.44 4.74
- --------------------------------------------------------------------------------------------
10 years 74.07 65.84 70.58 70.58 64.52 64.52 69.97 64.46
Annual average 5.70 5.19 5.49 5.49 5.10 5.10 5.45 5.10
- --------------------------------------------------------------------------------------------
Life of fund 167.01 154.25 161.67 161.67 150.72 150.72 160.72 152.27
Annual average 7.10 6.74 6.95 6.95 6.63 6.63 6.93 6.68
- --------------------------------------------------------------------------------------------
</TABLE>
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.
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 assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index 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.
Welcome to www.putnaminv.com
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VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
A guide to the financial statements
These sections of the report 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
January 31, 2000 (Unaudited)
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
MUNICIPAL BONDS AND NOTES (98.3%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,000,000 Alabama A&M U. Rev. Bonds, MBIA, 6 1/2s, 11/1/25 Aaa $ 3,266,250
Jefferson Cnty., Swr. Rev. Bonds
8,750,000 (Rites-PA), Ser. 487 R, FRB, FGIC, 7.449s, 2/1/38
(acquired 3/23/99, cost $9,941,511) (RES) AAA 7,317,188
5,000,000 Ser. A, FGIC, 5s, 2/1/33 Aaa 4,050,000
--------------
14,633,438
Alaska (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 AK Hsg. Fin. Corp. Rev. Bonds, Ser. A, MBIA,
5.9s, 12/1/19 Aaa 5,812,500
Arizona (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
AZ State Muni. Fin. Program COP
1,000,000 Ser. 31, BIGI, 7 1/4s, 8/1/09 Aaa 1,145,000
5,700,000 Ser. 34, BIGI, 7 1/4s, 8/1/09 Aaa 6,505,125
--------------
7,650,125
California (8.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,300,000 Beverly Hills, Pub. Fin. Auth. IFB, MBIA, 8.27s, 6/1/15 Aaa 1,288,625
4,000,000 CA Hsg. Fin. Agcy. Rev. Bonds (Home Mtge.),
Ser. Q, MBIA, 5.85s, 8/1/16 Aaa 3,960,000
9,500,000 CA State G.O. Bonds, MBIA, 5 1/2s, 4/1/12 Aaa 9,666,250
CA Statewide Cmnty. Dev. Auth.
4,700,000 COP, FSA, 5 1/2s, 8/15/31 AAA 4,224,125
3,000,000 Step-up Recovery Floater COP, (Motion Picture
& TV Fund), AMBAC, 5.35s, 1/1/24 Aaa 2,730,000
2,000,000 East Bay, Muni. Util. Dist. Wtr. Syst. Rev. Bonds,
MBIA, 4 3/4s, 6/1/34 Aaa 1,542,500
2,000,000 Los Angeles Cnty. Trans. Comm. Sales Tax
Rev. Bonds, Ser. B, AMBAC, 6 1/2s, 7/1/13 Aaa 2,085,000
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 4,531,250
3,500,000 San Diego Cnty., Wtr. Auth. IF COP, FGIC,
7.433s, 4/23/08 Aaa 3,784,375
5,000,000 San Diego, Regl. Bldg. Auth. Lease COP, MBIA,
6.9s, 5/1/23 Aaa 4,762,500
3,680,000 Santa Ana, Fin. Auth. Lease Rev. Bonds
(Police Admin. & Hldg. Fac.), Ser. A, MBIA,
6 1/4s, 7/1/17 Aaa 3,887,000
2,500,000 Southern CA Pub. Pwr. Auth. Rev. Bonds IFB,
FGIC, 5.82s, 7/1/12 Aaa 2,434,375
--------------
44,896,000
Colorado (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,224,000 CO Hlth. Fac. Auth. Rev. Bonds (Cmnty. Provider
Pooled Loan Program), Ser. A, FSA,
7 1/4s, 7/15/17 Aaa 4,414,080
6,800,000 CO Pub. Hwy. Auth. Rev. Bonds, Ser. B, MBIA,
zero %, 9/1/20 AAA 1,844,500
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. C, MBIA
1,180,000 6 3/4s, 11/15/22 Aaa 1,237,525
1,765,000 6 3/4s, 11/15/13 Aaa 1,851,044
235,000 6 3/4s, 11/15/13, Prerefunded Aaa 250,569
6,000,000 Jefferson Cnty., School Dist. G.O. Bonds, MBIA,
6 1/2s, 12/15/10 Aaa 6,540,000
10,500,000 Metropolitan Football Stadium Sales Tax
Rev. Bonds, Ser. A, MBIA, zero %, 1/1/09 AAA 6,391,875
--------------
22,529,593
Connecticut (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
9.09s, 6/10/30 Aaa 2,752,500
Delaware (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 DE State Econ. Dev. Auth. Poll. Control Rev. Bonds
(Delmarva Pwr.), Ser. B, FGIC, 7.924s, 7/1/18 Aaa 5,225,000
District of Columbia (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,440,000 DC G.O. Bonds, Ser. B, MBIA, 6s, 6/1/11 Aaa 8,714,300
9,000,000 DC Convention Ctr. Auth. Rev. Bonds, AMBAC,
4 3/4s, 10/1/28 Aaa 6,963,750
--------------
15,678,050
Florida (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Dade Cnty., FL School Dist. G.O. Bonds, FSA,
5 3/8s, 8/1/15 AAA 1,447,500
6,000,000 Dade Cnty., Professional Sports Franchise Fac.
Tax Rev. Bonds, MBIA, 4 3/4s, 10/1/30 Aaa 4,680,000
2,010,000 FL Hsg. Fin. Agcy. Home Ownership Rev. Bonds,
Ser. 1987 G2, Class B, GNMA Coll.,
8.595s, 11/1/18 AAA 2,140,650
13,675,000 Hernando Cnty. Rev. Bonds (Criminal Justice
Complex Fin.), FGIC, 7.65s, 7/1/16 Aaa 16,410,000
5,500,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.512s, 10/29/21 Aaa 6,050,000
5,000,000 Orlando & Orange Cnty., Expressway Auth.
Rev. Bonds, FGIC, 8 1/4s, 7/1/14 Aaa 6,268,750
4,000,000 Sumter Cnty., School Dist. Rev. Bonds (Multi Dist.
Loan Program), FSA, 7.15s, 11/1/15 Aaa 4,630,000
--------------
41,626,900
Georgia (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
GA Muni. Elec. Pwr. Auth. Rev. Bonds
3,815,000 Ser. V, MBIA, 6 1/2s, 1/1/12 Aaa 4,091,588
1,315,000 Ser. V, MBIA, 6 1/2s, 1/1/12, Prerefunded Aaa 1,431,706
5,500,000 Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 5,885,000
7,500,000 Ser. B, AMBAC, 6 1/4s, 1/1/12 Aaa 7,884,375
--------------
19,292,669
Illinois (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,180,000 Chicago, Res. Recvy. Mtge. Rev. Bonds, Ser. B, MBIA,
zero %, 10/1/09 Aaa 604,750
10,000,000 Chicago, Board of Ed. G.O. Bonds, Ser. B, FGIC,
zero %, 12/1/09 Aaa 5,775,000
2,600,000 Chicago, Central Pub. Library Rev. Bonds, Ser. B,
AMBAC, 6.85s, 1/1/17 Aaa 2,756,000
5,000,000 Regional Trans. Auth. Rev. Bonds, Ser. A, AMBAC,
8s, 6/1/17 Aaa 6,106,250
--------------
15,242,000
Indiana (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,250,000 Fort Wayne, Hosp. Auth. Rev. Bonds (Parkview
Hlth. Syst., Inc.), MBIA, 4 3/4s, 11/15/28 Aaa 4,851,563
7,500,000 IN Hlth. Fac. Fin. Auth. Hosp. Rev. Bonds
(Columbus Regl. Hosp.), FSA, 7s, 8/15/15 Aaa 8,315,625
--------------
13,167,188
Louisiana (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
777,546 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 805,732
Massachusetts (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Facs. Auth. Rev. Bonds
(Harvard Pilgrim Hlth.), Ser. A, FSA
4,500,000 5s, 7/1/14 AAA 3,796,875
1,000,000 4 1/8s, 7/1/02 AAA 958,750
12,105,000 MA State Indl. Fin. Agcy. Rev. Bonds (Tufts U.),
Ser. H, MBIA, 4 3/4s, 2/15/28 Aaa 9,441,900
MA State Tpk. Auth. Hwy. Syst. Rev. Bonds, Ser. A
6,300,000 AMBAC, 5s, 1/1/39 Aaa 5,040,000
11,000,000 MBIA, 5s, 1/1/37 Aaa 8,813,750
6,000,000 MA State Wtr. Resources Auth. Rev. Bonds,
Ser. A, FSA, 4 3/4s, 8/1/37 Aaa 4,560,000
--------------
32,611,275
Michigan (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Grand Traverse Cnty., Hosp. Rev. Bonds (Munson
Healthcare), Ser. A, AMBAC, 5s, 7/1/28 Aaa 2,037,500
5,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Mercy Hlth. Svcs.), Ser. X, MBIA, 6s, 8/15/34 AAA 4,750,000
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
4,000,000 AMBAC, 7s, 5/1/21 Aaa 4,440,000
2,750,000 Ser. AA, FGIC, 6.95s, 5/1/11 Aaa 3,086,875
5,000,000 (Detroit Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 4,431,250
--------------
18,745,625
Missouri (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 MO State Hlth. & Edl. Fac. Auth. Hlth. Fac.
Rev. Bonds (Heartland Hlth. Sys. Project),
AMBAC, 6.35s, 11/15/17 Aaa 2,540,625
5,000,000 Sikeston Elec. Rev. Bonds, MBIA, 6s, 6/1/14 Aaa 5,168,750
--------------
7,709,375
Nebraska (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.183s, 11/15/16 Aaa 3,225,000
NE Investment Fin. Auth. Single Fam. Mtge. IFB
6,600,000 Ser. B, GNMA Coll., 10.983s, 3/15/22 Aaa 6,864,000
2,400,000 Ser. 2, GNMA Coll., 11.328s, 9/10/30 Aaa 2,534,448
--------------
12,623,448
Nevada (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Clark Cnty., Passenger Fac. Rev. Bonds (Las Vegas
McCarran Intl.), MBIA, 4 3/4s, 7/1/22 Aaa 4,018,750
5,800,000 Clark Cnty., School Dist. G.O. Bonds, Ser. A, MBIA,
7s, 6/1/10 (SEG) Aaa 6,503,250
7,350,000 Nevada State G.O. Bonds, MBIA, 4 3/4s, 5/15/26 AAA 5,806,500
--------------
16,328,500
New Hampshire (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 NH State Tpk. Sys. IFB, FGIC, 8.867s, 11/1/17 Aaa 2,809,375
New Jersey (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A, MBIA,
6 1/4s, 8/15/10 Aaa 3,187,500
1,700,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds (Meridian
Hlth. Syst. Oblig. Group), FSA, 5 1/4s, 7/1/29 AAA 1,468,375
5,700,000 NJ State Trans. Fund Auth. Rev. Bonds, Ser. A,
AMBAC, 5 1/4s, 6/15/09 Aaa 5,692,875
--------------
10,348,750
New Mexico (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 NM Mtge. Fin. Auth. Single Fam. Mtge. Rev. Bonds,
Ser. C, FGIC, 8 1/2s, 7/1/07 Aaa 401,996
New York (12.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,670,000 Long Island Pwr. Auth. FRB, Ser. 66, MBIA, 6.94s,
4/1/10 (acquired11/3/98, cost $5,233,360) (RES) Aaa 4,547,413
4,000,000 Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds,
Ser. A, FSA, 5 1/2s, 12/1/13 Aaa 3,950,000
Metropolitan Trans. Auth. Commuter Fac.
Rev. Bonds, MBIA
4,500,000 5.7s, 7/1/17 Aaa 4,342,500
7,425,000 Ser. A, 5.7s, 7/1/17 Aaa 7,165,125
Nassau Cnty., Hlth. Care Syst. Rev. Bonds
(Nassau Hlth. Care Corp.)
4,610,000 FSA, 6s, 8/1/13 Aaa 4,707,963
2,285,000 FSA, 6s, 8/1/12 Aaa 2,350,694
5,000,000 NY City G.O. Bonds, Ser. H, MBIA, 5s, 8/1/22 AAA 4,175,000
NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev. Bonds
7,265,000 Ser. B, FGIC, 7 1/2s, 6/15/11 Aaa 8,490,969
2,735,000 Ser. B, FGIC, 7 1/2s, 6/15/11, Prerefunded Aaa 3,186,275
7,000,000 Ser. D, MBIA, 4 3/4s, 6/15/25 Aaa 5,565,000
5,000,000 NY State Dorm. Auth. Rev. Bonds
(State U. Edl. Facs.), Ser. A, MBIA,
4 3/4s, 5/15/25 Aaa 3,975,000
3,000,000 NY State Energy Res. & Dev. Auth. IFB,
MBIA, 7.133s, 7/8/26 Aaa 2,501,250
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 10,566,563
--------------
65,523,752
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 3,480,000
Ohio (--%)
- --------------------------------------------------------------------------------------------------------------------------
690,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds,
Ser. 85-A, FGIC, zero %, 1/15/15 Aaa 158,700
Oklahoma (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,850,000 OK Indl. Dev. Auth. Rev. Bonds
(Hlth. Syst.-Oblig. Group), Ser. A, MBIA,
5 3/4s, 8/15/29 AAA 6,327,688
Oregon (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
13,145,000 Portland, Swr. Syst. Rev. Bonds, Ser. A,
FGIC, 5s, 6/1/12 Aaa 12,323,438
Pennsylvania (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,730,000 Allegheny Cnty., Port. Auth. Rev. Bonds,
MBIA, 5 1/2s, 6/1/09 AAA 3,790,613
2,000,000 Keystone Oaks, School Dist IFB, AMBAC,
5.829s, 9/1/16 Aaa 2,170,000
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 2,006,100
3,000,000 Philadelphia, Regl. Port Auth. Lease IFB
(Kidder Peabody), MBIA, 8.332s, 9/1/13 Aaa 3,127,500
2,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 2,100,000
--------------
13,194,213
South Carolina (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
Piedmont, Muni. Pwr. Agcy. Rev. Bonds, Ser. A, MBIA
1,500,000 5 1/2s, 1/1/13 Aaa 1,481,250
1,100,000 5 1/4s, 1/1/12 Aaa 1,069,750
3,500,000 SC Jobs Econ. Dev. Auth. Hosp. Fac. IFB (St. Francis
Hosp.-Franciscan Sisters), AMBAC, 5.45s, 8/1/15 Aaa 3,145,625
--------------
5,696,625
Tennessee (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
6,895,000 Johnson, Hlth. & Edl. Rev. Bonds (Johnson City
Med. Ctr.), MBIA, 5 1/2s, 7/1/12 AAA 6,748,481
4,840,000 Knox Cnty., Hlth., Ed. & Hsg. Fac. Rev. Bonds
(Fort Sanders Alliance), MBIA, 5 3/4s, 1/1/14 Aaa 4,827,900
4,000,000 TN Energy Acquisition Corp. Gas Rev. Bonds,
Ser. B, AMBAC, 4.05s, 9/1/00 Aaa 3,988,840
--------------
15,565,221
Texas (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,680,000 Austin, Arpt. Syst. Rev. Bonds, Ser. A., MBIA,
6.1s, 11/15/11 Aaa 5,843,300
3,490,000 Brownsville, Util. Syst. Rev. Bonds, AMBAC,
6 1/4s, 9/1/11 Aaa 3,716,850
Houston, Wtr. & Swr. Syst. Rev. Bonds,
Ser. C, AMBAC
8,815,000 6 3/8s, 12/1/17 Aaa 8,969,257
585,000 6 3/8s, 12/1/17, Prerefunded Aaa 614,250
7,000,000 Lockhart, Correctional Fac. Fin. Corp. Rev. Bonds,
MBIA, 6 5/8s, 4/1/12 Aaa 7,175,000
5,000,000 Rio Grande Valley Hlth Fac. Dev. Corp. Rev. Bonds,
MBIA, 6.4s, 8/1/12 Aaa 5,206,250
--------------
31,524,907
Utah (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,400,000 Utah Pwr. Supply Rev. Bonds (Intermountain
Pwr. Agcy.), Ser. A, MBIA, 6.15s, 7/1/14 AAA 12,648,000
Virginia (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.215s, 8/15/23 Aaa 11,087,500
Washington (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Tacoma, Elec. Syst. IFB, AMBAC, 8.952s, 1/2/15 Aaa 2,158,100
WA State Pub. Pwr. Supply Syst. Rev. Bonds
6,000,000 (Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 6,735,000
5,000,000 (Nuclear No. 1), Ser. A, AMBAC, 5.7s, 7/1/09 Aaa 5,062,500
--------------
13,955,600
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $514,059,545) (b) $ 502,375,683
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $511,066,895.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
January 31, 2000 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at January 31, 2000.
(b) The aggregate identified cost on a tax basis is $514,462,246, resulting in gross unrealized appreciation and
depreciation of $13,088,064 and $25,174,627, respectively, or net unrealized depreciation of $12,086,563.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
January 31, 2000 was $11,864,601 or 2.3% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at January 31, 2000.
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 are the current interest rates at January 31, 2000.
The fund had the following industry group concentrations greater than 10% at January 31, 2000 (as a percentage of
net assets):
Health care 20.9%
Utilities 18.4
Transportation 13.8
Water & sewer 13.3
The fund had the following insurance concentrations greater than 10% at January 31, 2000 (as a percentage of net
assets):
MBIA 47.1%
FGIC 20.6
AMBAC 17.3
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
Muni Bond
Index (Short) $18,590,938 $19,268,248 Mar-00 $677,310
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $514,059,545) (Note 1) $502,375,683
- -----------------------------------------------------------------------------------------------
Interest and other receivables 6,171,128
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 61,807
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 5,833,756
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 121,719
- -----------------------------------------------------------------------------------------------
Total assets 514,564,093
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 695,846
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 931,036
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,368,462
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 220,540
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 48,420
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 15,615
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 749
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 184,605
- -----------------------------------------------------------------------------------------------
Other accrued expenses 31,925
- -----------------------------------------------------------------------------------------------
Total liabilities 3,497,198
- -----------------------------------------------------------------------------------------------
Net assets $511,066,895
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $528,731,322
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (317,826)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,340,049)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (11,006,552)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $511,066,895
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($235,582,248 divided by 16,917,878 shares) $13.93
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $13.93)* $14.62
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($272,243,691 divided by 19,525,340 shares)+ $13.94
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,419,055 divided by 101,863 shares)+ $13.93
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,821,901 divided by 130,493 shares) $13.96
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.96)** $14.43
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group
sales, the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $ 16,362,147
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,325,230
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 230,961
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,760
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,586
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 241,037
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 917,982
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 2,295
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,682
- -----------------------------------------------------------------------------------------------
Reports to shareholders 4,804
- -----------------------------------------------------------------------------------------------
Auditing 23,985
- -----------------------------------------------------------------------------------------------
Legal 3,769
- -----------------------------------------------------------------------------------------------
Postage 13,768
- -----------------------------------------------------------------------------------------------
Other 18,350
- -----------------------------------------------------------------------------------------------
Total expenses 2,800,209
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (59,596)
- -----------------------------------------------------------------------------------------------
Net expenses 2,740,613
- -----------------------------------------------------------------------------------------------
Net investment income 13,621,534
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (512,699)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,187,831
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (31,093,078)
- -----------------------------------------------------------------------------------------------
Net loss on investments (30,417,946)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(16,796,412)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 13,621,534 $ 27,704,250
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 675,132 (708,489)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (31,093,078) (21,829,346)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (16,796,412) 5,166,415
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (6,247,413) (11,291,598)
- ---------------------------------------------------------------------------------------------------------------
Class B (7,278,763) (16,324,557)
- ---------------------------------------------------------------------------------------------------------------
Class C (10,631) (1)
- ---------------------------------------------------------------------------------------------------------------
Class M (45,864) (91,950)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (1,869,573)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (2,780,386)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (18,696)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (32,187,116) 32,439,522
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (62,566,199) 5,229,176
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 573,633,094 568,403,918
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $317,826
and $356,689, respectively) $511,066,895 $573,633,094
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.72 $15.40 $15.50 $14.94 $14.86 $14.67
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .37 .72 .74(c) .79 .81 .83
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.79) (.56) (.04) .67 .08 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.42) .16 .70 1.46 .89 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.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 (.37) (.84) (.80) (.90) (.81) (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.93 $14.72 $15.40 $15.50 $14.94 $14.86
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.85)* 0.96 4.63 10.09 6.06 7.21
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $235,582 $243,845 $230,283 $219,265 $196,948 $184,241
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .40* .94 .94 .92 .90 .89
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.62* 4.65 4.80 5.22 5.37 5.68
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.96* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.74 $15.42 $15.52 $14.96 $14.87 $14.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .34 .72 .77(c) .74 .71 .73
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.80) (.56) (.04) .68 .09 .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.46) .16 .73 1.42 .80 .93
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.34) (.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 (.34) (.84) (.83) (.86) (.71) (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.94 $14.74 $15.42 $15.52 $14.96 $14.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.11)* 1.00 4.83 9.76 5.44 6.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $272,244 $327,920 $336,286 $339,354 $354,431 $377,443
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* .90 .74 1.22 1.58 1.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.42* 4.69 5.00 4.93 4.72 5.05
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.96* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 July 26, 1999+
operating performance (Unaudited) to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $14.72 $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .32 .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.79) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.93 $14.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.24)* (0.66)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,419 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.35* .08*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.96* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 June 1, 1995+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.76 $15.39 $15.50 $14.94 $14.86 $15.11
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .35 .66 .69 (c) .74 .76 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.80) (.51) (.04) .67 .08 (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.45) .15 .65 1.41 .84 (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.66) (.69) (.75) (.76) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.07) (.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.78) (.76) (.85) (.76) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.96 $14.76 $15.39 $15.50 $14.94 $14.86
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.06)* 0.91 4.24 9.76 5.74 (0.87)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,822 $1,866 $1,835 $892 $325 $17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.24 1.24 1.22 1.19 .14*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.47* 4.35 4.50 4.87 4.99 .73*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.96* 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
January 31, 2000 (Unaudited)
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. 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 are subject to the same fees and expenses as class B shares, except
that class C shares 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 that 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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. Such valuations and procedures are reviewed periodically 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). Gains or losses 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 six months
ended January 31, 2000, 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 Income dividends are recorded daily by
the fund and are paid monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
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 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 lessor of (i) an
annual rate of 0.50% of the average net asset value of the fund or (ii)
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.
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.
Under 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 January 31, 2000, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the six months ended January 31, 2000, fund expenses were reduced by
$59,596 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 $844 has
been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 an annual rate 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 at an annual rate of 0.20%, 0.60%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the six months ended January 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $15,603 and $373 from
the sale of class A and class M shares, respectively, and received
$350,803 and $914 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up to
1% is assessed on certain redemptions of class A shares that were
purchased without an initial sales charge as part of an investment of $1
million or more. For the six months ended January 31, 2000, Putnam Mutual
Funds Corp., acting as underwriter received $3,094 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended January 31, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $53,271,091 and $100,347,004, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At January 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,062,276 $29,254,639
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 254,615 3,619,468
- -----------------------------------------------------------------------------
2,316,891 32,874,107
Shares
repurchased (1,967,008) (27,895,263)
- -----------------------------------------------------------------------------
Net increase 349,883 $ 4,978,844
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 968,335 $ 13,861,966
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 297,103 4,230,813
- -----------------------------------------------------------------------------
1,265,438 18,092,779
Shares
repurchased (3,991,055) (56,757,116)
- -----------------------------------------------------------------------------
Net decrease (2,725,617) $(38,664,337)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 108,058 $ 1,528,242
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 313 4,406
- -----------------------------------------------------------------------------
108,371 1,532,648
Shares
repurchased (6,575) (92,849)
- -----------------------------------------------------------------------------
Net increase 101,796 $ 1,439,799
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 34,249 $490,713
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,356 33,582
- -----------------------------------------------------------------------------
36,605 524,295
Shares
repurchased (32,566) (465,717)
- -----------------------------------------------------------------------------
Net increase 4,039 $ 58,578
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
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
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity 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
Small Cap 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
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
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
SA043 58959 035/438/629 3/00