Putnam
Tax-Free
Health Care
Fund
Semiannual
Report
November 30, 1993
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Portfolio of investments owned
12 Financial statements
19 Fund performance supplement
Your Trustees
For investors seeking
high current income
exempt from federal
income tax and
consistent with
preservation of capital
through a portfolio of
securities in the
health care sector
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended November 30, 1993
<TABLE>
<CAPTION>
Total return* Fund Lehman
Brothers
Market Municipal Consumer
NAV price Bond Index Price Index
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months 6.41% 5.16% 4.38% 1.11%
Life-of-fund
(since 6/29/92) 20.08 9.10 14.95 4.00
annualized 13.75 6.33 10.31 2.80
----------------------------------------------------------------------------
Share data Market
NAV price
- ------------------------------------------- ---------- ------------
May 31, 1993 $14.73 $14.625
November 30, 1993 $15.16 $14.875
- ------------------------------------------- ---------- ------------
----------------------------------------------------------------------------
Distributions (a) Investment Capital
6 months ended Number income gains Total
----------------------------------------------------------------------------
November 30, 1993 6 $0.5064 -- $ 0.5064
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Taxable equivalents+
Current returns NAV Market NAV Market
at the end of the period price price
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current dividend rate 6.68% 6.81% 11.06% 11.27%
------------------------------------------------------------------------
</TABLE>
*Performance data represent past results. Investment return, market price and
net asset value will fluctuate so that an investor's shares, when sold, may
be worth more or less than their original cost.
(a) Capital gains, if any, are taxable. The fund will not invest in
securities subject to the federal alternative minimum tax for individual
investors.
+Taxable equivalent rates cited assume the maximum federal tax rate of 39.6%.
Results for investors subject to lower tax rates would not be as
advantageous, although many such investors would have the opportunity to
receive attractive tax benefits from a fund investment. Consult your tax
advisor for more guidance.
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions. It may
be shown at net asset value or at market price.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
sales charge.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Current dividend rate is calculated by annualizing the income portion of the
fund's most recent distribution and dividing by the NAV or market price on
the last day of the period.
Taxable equivalent return is the return that a taxable investment would have
to produce to equal the fund's current return.
Please see the fund performance supplement on page 19 for additional
information about performance comparisons.
<PAGE>
From the
Chairman
[George Putnam photo]
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
As Putnam Tax-Free Health Care Fund began its second fiscal year, your fund's
managers continued the investment strategy adopted at the fund's inception in
June 1992. This strategy--which calls for focusing on health care facilities
in selected metropolitan areas of key states--has served you well over the
past six months. As the tables on the opposite page indicate, your fund
continued to provide competitive monthly income and a solid total return.
For a time during the semiannual period, the national debate over health care
reform took a back seat to more immediate issues: the federal budget package,
passed by Congress in July and the North American Free Trade Agreement
(NAFTA), passed in November. Once these two pieces of legislation became law,
however, the administration began to focus its attention on health care.
Whether or not we'll see reform legislation in 1994 is still a big question.
In addition to President Clinton's plan, a number of health care programs
have been proposed by Democrats and Republicans. While the health care reform
debate will continue to be front-page news for many months to come, your
fund's goal remains constant: to seek investments that hold the greatest
potential for providing tax-free income from investments in publicly-financed
health-care facilities.
Initiatives such as sweeping health care reform can create tremendous
opportunities in the investment world, and Putnam's extensive research
capabilities should be a real plus as your fund's management team screen
securities to find the best values in the health-care arena. Since the
introduction of the fund in 1992, they have been positioning the portfolio to
take full advantage of the opportunities that health care reform may create.
We look forward to continuing this strategy and to meeting your tax-free
income needs through prudent investments in this dynamic industry.
Respectfully yours,
[George Putnam signature]
George Putnam
January 19, 1994
<PAGE>
Report from
Putnam Management
Top 10 holdings (11/30/93)
MI State Hosp. Fin. Auth. Rev. Bonds
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
Sierra Vista, Indl. Dev. Auth. Hosp. Rev. Bonds
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regional Med. Ctr.)
Rancho Mirage, Joint Pwr. Fin. Auth. Certif. of Participation
Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
MA Hlth. & Edl. Fac. Auth. Rev. Bonds
Orange Cnty., Hlth. Fac. Auth.
For the six months ended November 30, 1993, Putnam Tax-Free Health Care Fund
posted a total return of 6.41% at net asset value, significantly outpacing
the Lehman Brothers Municipal Bond Index's 4.38% for the same period. During
the semi-annual period, the fund made monthly distributions totaling $0.5064
per share. Its current dividend rate of 6.68% at net asset value at the
period's end was the equivalent of a 11.06% return on a fully taxable
investment for investors in the maximum 39.6% tax bracket.
The big picture While we continue to evaluate your fund's health care
investments on a state-by-state basis, it's important to point out how the
overall health care picture is changing. For the past few years, health care
reform, largely driven by individual states, has been moving along in advance
of the federal government's efforts. Reform has been taking place because it
makes economic sense, and we have been seeing the effects market forces can
have on health care costs.
Last year total pharmaceutical product price increases matched the 3%
increase in the Consumer Price Index (CPI). In previous years, prices for
pharmaceuticals far outdistanced the rate of inflation. Medical inflation is
at its lowest point in about seven years. Much of this is because hospital
administrators are becoming more skillful at controlling costs and have
become less dependent on price increases. Hospitals now have to vie for
managed-care contracts with Health Maintenance Organizations (HMOs) and
Preferred Provider Organizations (PPOs). This gives them an incentive to keep
their pricing competitive. Nationwide, HMOs now account for about 16% of
health care delivery.
Comprehensive credit analysis During the past six months, we maintained the
investment strategy we established when the fund was introduced eighteen
months ago, and we continue to accompany the securities selection process
with in-depth credit analysis. We look at a particular state's political and
legislative environment as they pertain to health care. We also analyze key
factors such as how Medicaid and uncompensated care for the uninsured
population are funded, and the relationships between hospitals and
managed-care providers, such as HMOs and PPOs.
Next, we analyze the overall economic environment affecting each security.
Hospitals in communities with high unemployment or heavy reliance on a
particular industry or company are carefully screened. They may be treating
large numbers of uninsured people and have sizeable "uncollectible fee"
entries on their financial statements. While
bonds issued by these hospitals are often less attractive investments, those
in potential turnaround situations can also offer exceptional values.
We visit many different hospitals around the country--urban hospitals,
teaching hospitals, and rural hospitals. The team talks with their financial
officers and review their financial statements and annual reports before
making the decision to invest in a particular security. But the analytical
process does not stop once an investment is made. Putnam Credit Analysts
continually assess the financial strength of current, as well as potential,
portfolio holdings, making sure each security meets Putnam's standards.
Analyzing new investment opportunities To date your fund has made no
investments in securities issued by psychiatric hospitals. This is a sector
we believe may hold opportunity in 1994. For many years, psychiatric
hospitals were run on a cost-based reimbursement system, which meant there
was no incentive to control costs.
Over the past few years, issuers and other third party payors have been
reining in costs in these hospitals and demanding the most cost-effective
treatments. As a result, the average stay in a psychiatric hospital has been
cut by as much as 80%, as patients were treated on an outpatient basis or in
home health settings. As with any industry restructuring, these hospitals
have gone through difficult times, but we believe the worst may be over. In
analyzing individual hospitals in this sector, we look for facilities that
are operating within new guidelines and within markets where there are
relatively few hospitals.
We continue to find the nursing home sector attractive. Nationally, there is
a shortage of nursing home beds and the over-65 population is increasing
rapidly, so demand for these facilities is growing. Right now, nursing homes
are underweighted in the portfolio, but we may increase exposure to as much
as 7.5% in 1994.
Looking ahead Generally, it is credit impact, rather than interest rate
movements, that drives the total return of this fund. If interest rates rise
in the future, your fund is defensively structured and should perform well
relative to other fixed-income funds. Our credit analysis capability allows
us to focus on bonds carrying (BBB) or equivalent ratings. We believe that
health care reform will ultimately result in fewer hospitals, and while this
will reduce the supply of securities available for investment, demand for
these securities should not
abate. From a supply and demand standpoint, the tax-free health care sector
should perform well, and your fund is positioned to take full advantage of
the opportunities inherent in a changing health care environment.
<PAGE>
Portfolio of
investments owned
November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds and Notes (97.4%)(a)
Principal Amount Ratings (b) Value
--------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Alabama (1.9%)
$3,360,000 Selma, Special Care Fac. Fin. Auth. Hosp. Rev. Bonds (Vaughan Regl. Med. Ctr.
Project), 9-1/2s, 6/1/14 Aaa/P $ 4,032,000
--------------------------------------------------------------------------------------------------------------------------------
Arizona (5.8%)
4,360,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds (Casa Grande Regl. Med. Ctr.), 9s,
12/1/13 BB/P 4,654,300
6,490,000 Sierra Vista, Indl. Dev. Auth. Hosp. Rev. Bonds (Sierra Vista Cmnty. Hosp.
Project), 8-1/2s, 12/1/21 BBB/P 7,398,600
--------------------------------------------------------------------------------------------------------------------------------
12,052,900
--------------------------------------------------------------------------------------------------------------------------------
California (11.1%)
2,000,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates Med. Ctr.), Ser. A, 6.55s,
12/1/22 BBB 2,022,500
CA Hlth. Fac. Auth. Rev. Bonds
3,195,000 (Summit Med. Ctr.), Ser. 85-A, 9s, 5/1/15 BB 3,334,781
1,000,000 (Valley Presbyterian Hosp. Project), Ser. A, 9s, 5/1/12 B 1,017,500
2,295,000 (Summit Med. Ctr.), Ser. A, 7-1/2s, 5/1/09 BB 2,349,502
4,000,000 LA Habra, Certif. of Participation (Friendly Hills Health Care Foundation),
Ser. A, 7.15s, 7/1/23 BB/P 4,165,000
5,200,000 Rancho Mirage, Joint Pwr. Fin. Auth. Certif. of Participation (Eisenhower
Memorial Hosp.), 7s, 3/1/22 Baa 5,635,500
$2,560,000 San Bernardino, Hosp. Rev. Bonds (San Bernardino, Cmnty. Hosp.), 7-7/8s,
12/1/08 Ba $ 2,710,400
2,000,000 Valley Hlth. Syst. Certif. of Participation 6-7/8s, 5/15/23 BB/P 2,042,500
--------------------------------------------------------------------------------------------------------------------------------
23,277,683
--------------------------------------------------------------------------------------------------------------------------------
Colorado (1.8%)
CO Hlth. Fac. Auth. Rev. Bonds
2,500,000 (Nat'l Jewish Ctr. Immunization Project), 7.1s, 2/15/22 BBB 2,703,125
1,000,000 (Swedish Med. Ctr. Project), Ser. A, 6.8s, 1/1/23 A 1,076,250
--------------------------------------------------------------------------------------------------------------------------------
3,779,375
--------------------------------------------------------------------------------------------------------------------------------
Connecticut (0.6%)
1,200,000 CT State Dev. Auth. Hlth. Care Rev. Bonds (AHF/Windsor Inc. Project), Ser. A,
9-1/2s, 1/1/22 B/P 1,291,500
--------------------------------------------------------------------------------------------------------------------------------
Florida (8.0%)
2,500,000 Cape Coral, Hlth. Fac. Auth. Hosp. Rev. Bonds (Cape Coral Med. Ctr. Inc.
Project), 7-1/2s, 11/15/21 BBB 2,778,125
Miami, Hlth. Fac. Auth. Rev. Bonds (Cedars Med. Ctr.), Ser. A
2,000,000 8-3/8s, 10/1/17 AAA/P 2,337,500
2,000,000 8.3s, 10/1/07 AAA/P 2,332,500
2,000,000 Orange Cnty., Hlth. Fac. Auth. 1st Mtge. Rev. Bonds (Princeton Hosp.), 9s,
7/1/21 B/P 2,205,000
$2,600,000 Orange Cnty., Hlth. Fac. Auth. Residual Interest Bonds (RIBS), Municipal Bond
Insurance Assn. (MBIA), 9.963s, 10/29/21 AAA $ 3,019,250
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds (JFK Med. Ctr. Inc. Project)
1,645,000 8-7/8s, 12/1/18 BBB 1,881,469
1,855,000 8-7/8s, 12/1/18 BBB 2,267,738
--------------------------------------------------------------------------------------------------------------------------------
16,821,582
--------------------------------------------------------------------------------------------------------------------------------
Illinois (4.8%)
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab. Providers Fac.)
2,410,000 8-3/4s, 7/1/11 BBB/P 2,518,450
940,000 8-3/4s, 3/1/10 BBB/P 984,650
IL Hlth. Fac. Auth. Rev. Bonds
2,750,000 (St. Elizabeth's Hosp.), 10-1/8s, 7/1/16 B/P 2,860,000
2,000,000 (Grant Hosp. of Chicago), 7-1/2s, 6/1/13 BB 2,040,000
1,685,000 (Grant Hosp. of Chicago), Ser. B, 7-1/4s, 6/1/99 BB 1,714,488
--------------------------------------------------------------------------------------------------------------------------------
10,117,588
--------------------------------------------------------------------------------------------------------------------------------
Kentucky (2.0%)
2,000,000 Jefferson Cnty., Hosp. RIBS (Alliant Hlth. Syst. Project), MBIA, 9.952s,
10/1/14 AAA 2,352,500
1,570,000 Muhlenberg Cnty., Hosp. Rev. Bonds (Muhlenberg Cmnty. Hosp. Project), 9-1/2s,
8/1/10 BB/P 1,776,063
--------------------------------------------------------------------------------------------------------------------------------
4,128,563
--------------------------------------------------------------------------------------------------------------------------------
Maryland (2.4%)
$2,935,000 Berlin, Hosp. Rev. Bonds (Atlantic Gen. Hosp. Fac.), 8-3/8s, 6/1/22 BB/P $ 3,147,788
2,100,000 MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds (Doctors Cmnty. Hosp.),
5-1/2s, 7/1/24 BBB 1,926,750
--------------------------------------------------------------------------------------------------------------------------------
5,074,538
--------------------------------------------------------------------------------------------------------------------------------
Massachusetts (7.6%)
MA Indl. Fin. Agcy. Rev. Bonds
1,000,000 (Oddfellows Home), 9.6s, 1/1/15 BB/P 1,073,750
2,445,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8-3/4s, 7/1/11 Aaa/P 2,943,169
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,235,000 (St. Joseph's Hosp.), Ser. C, 9-1/2s, 10/1/20 Aaa/P 2,849,625
3,300,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 3,646,500
3,000,000 (Cooley Dickinson Hosp.), Ser. A, 7-1/8s, 11/15/18 BBB/P 3,236,250
2,000,000 (Metro West Hlth. Inc.), Ser. C, 6-1/2s, 11/15/18 A 2,117,500
--------------------------------------------------------------------------------------------------------------------------------
15,866,794
--------------------------------------------------------------------------------------------------------------------------------
Michigan (9.4%)
1,990,000 Detroit, Hosp. Fin. Auth. Fac. Rev. Bonds (MI Hlth. Care Corp.), 10s, 12/1/20 B 2,213,875
55,000 Highland Park, Fin. Auth. Hosp. Fac. Rev. Bonds (MI Hlth. Care Corp.
Project), Ser. A, 9-3/4s, 12/1/06 B 58,231
MI State Hosp. Fin. Auth. Rev. Bonds
$5,000,000 (Garden City Hosp.), 8-1/2s, 9/1/17 BBB $ 5,556,250
5,530,000 (Port Huron Hosp.), Ser. A, 7-5/8s, 7/1/15 BBB 5,841,063
2,430,000 (Detroit-Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 B 2,426,963
1,000,000 (Detroit-Macomb Hosp. Corp.), Ser. A, 7.3s, 6/1/01 B 1,005,000
2,470,000 Tawas City, Hosp. Fin. Auth. Rev. Bonds (St. Joseph's Hosp. Project), Ser. A,
8-1/2s, 3/15/12 BB/P 2,627,463
--------------------------------------------------------------------------------------------------------------------------------
19,728,845
--------------------------------------------------------------------------------------------------------------------------------
Minnesota (1.0%)
2,000,000 Minneapolis - St. Paul, Hsg. & Redev. Auth. Hlth. Care Syst. Rev. Bonds
(Group Hlth. Plan Inc. Project), 6.9s, 10/15/22 A 2,172,500
--------------------------------------------------------------------------------------------------------------------------------
Missouri (2.7%)
5,000,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds (Park Lane Med. Ctr.
Project), 8-3/4s, 1/1/15 BBB/P 5,600,000
--------------------------------------------------------------------------------------------------------------------------------
New Hampshire (1.0%)
1,965,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds (Alice Peck Day Memorial Hosp.
Project), 9-3/8s, 11/1/20 BBB/P 2,117,288
--------------------------------------------------------------------------------------------------------------------------------
New Jersey (3.2%)
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
$2,810,000 (Mountainside Hosp.), Ser. A, Federal Housing Administra- tion (FHA) Insd.,
9s, 8/1/25 AA $ 3,112,075
3,200,000 (St. Elizabeth Hosp.), Ser. 90B, 8-1/4s, 7/1/20 BBB 3,560,000
--------------------------------------------------------------------------------------------------------------------------------
6,672,075
--------------------------------------------------------------------------------------------------------------------------------
New Mexico (0.7%)
1,375,000 Grant Cnty., Hosp. Fac. Rev. Bonds (Gila Regl. Med. Ctr. Project), 10s,
2/1/12 BBB/P 1,512,500
--------------------------------------------------------------------------------------------------------------------------------
New York (7.4%)
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
4,945,000 (Mental Hlth. Svcs. Fac.), Ser. B, 7-7/8s, 8/15/20 BBB 5,655,844
3,500,000 (Buffalo Gen. Hosp.), Ser. C, FHA Insd., 7.7s, 2/15/22 AAA 3,959,375
5,000,000 (St. Luke's Hosp.), Ser. B, FHA Insd., 7.45s, 2/15/29 AA 5,850,000
--------------------------------------------------------------------------------------------------------------------------------
15,465,219
--------------------------------------------------------------------------------------------------------------------------------
Ohio (1.7%)
1,000,000 Hamilton Cnty., Hlth. Syst. Rev. Bonds (St. Francis-St. George-Franciscan),
9-3/8s, 7/1/15 BBB 1,061,250
2,153,097 Holland, Indl. Dev. Mtge. Rev. Bonds (Spring Meadow Extended Care Project),
FHA Insd., 11s, 4/15/13 A 2,446,456
--------------------------------------------------------------------------------------------------------------------------------
3,507,706
--------------------------------------------------------------------------------------------------------------------------------
Oklahoma (2.8%)
Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regional Med. Ctr.)
$2,395,000 7-5/8s, 6/1/17 BBB $ 2,598,575
3,000,000 7.2s, 6/1/17 BBB 3,191,250
--------------------------------------------------------------------------------------------------------------------------------
5,789,825
--------------------------------------------------------------------------------------------------------------------------------
Pennsylvania (8.5%)
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
3,000,000 (Divine Providence Hosp.), Ser. B, 8-3/4s, 1/1/14 BBB 3,330,000
1,000,000 (Divine Providence Hosp.), Ser. A, 8-3/4s, 1/1/14 BBB 1,110,000
1,000,000 (Southside Hosp.-Pittsburgh), Ser. A, 8-3/4s, 6/1/10 BBB 1,076,250
3,685,000 College Township, Indl. Dev. Auth. 1st Mtge. Hlth. Facs. Rev. Bonds (Nittany
Valley Rehab. Hosp. Project), 7-5/8s, 11/1/07 BBB/P 3,896,888
1,800,000 Lebanon Cnty., Hosp. Auth. Rev. Bonds (Good Samaritan Hosp.), Ser. B, 8-1/4s,
11/1/18 BBB 2,009,250
2,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp. Rev. Bonds (UTD Hosp.
Project), Ser. B, 8-3/8s, 11/1/11 Ba 2,172,500
1,000,000 Washington Cnty., Hosp. Auth. Rev. Bonds (Canonsburg Gen. Hosp. Project),
7.35s, 6/1/13 BB/P 1,003,750
$3,030,000 York Cnty., Indl. Dev. Auth. 1st Mtge. Hlth. Fac. Rev. Bonds (Rehabilitation
Hosp. of York Project), 7-1/2s, 9/1/07 BBB/P $ 3,185,288
--------------------------------------------------------------------------------------------------------------------------------
17,783,926
--------------------------------------------------------------------------------------------------------------------------------
Tennessee (0.7%)
1,319,220 Meigs Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds (Meigs Cnty., Hlth.
Ctr.), FHA Insd., 12s, 7/15/25 A 1,487,421
--------------------------------------------------------------------------------------------------------------------------------
Texas (7.6%)
1,000,000 Amarillo, Hlth. Fac. RIBS (High Plains Baptist Hosp.), 10.417s, 1/3/22 AAA 1,143,750
4,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (St. Luke's Lutheran Hosp.
Project), 7.9s, 5/1/11 BBB 4,380,000
1,105,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (Nancy Travis Memorial Hosp.
Project), 10s, 5/15/13 B/P 1,222,406
1,555,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds (Woodlands Med. Ctr.
Project), 8.85s, 8/15/14 BB/P 1,739,656
2,000,000 North Central Hlth. Fac. Dev. Corp. RIBS (Baylor Hlth. Care Syst.), Ser. B,
9.05s, 5/15/08 AA 2,247,500
$3,500,000 Northeast Hosp. Auth. Rev. Bonds (Northeast Med. Ctr. Hosp.), Ser. B,
Financial Guaranty Insurance Co., 7-1/4s, 7/1/22 BBB $ 3,688,125
1,415,000 Tarrant Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev. Bonds (Cmnty. Hlth. Care
Foundation Inc. Project), 10-1/8s, 4/1/21 B/P 1,542,350
--------------------------------------------------------------------------------------------------------------------------------
15,963,787
--------------------------------------------------------------------------------------------------------------------------------
Virginia (2.7%)
1,000,000 Fairfax Cnty., Indl. Dev. Auth. RIBS Ser. C, 10.77s, 8/29/23 AA 1,285,000
4,000,000 Roanoke, Indl. Dev. Auth. Hosp. RIBS (Roanoke Memorial Hosp.), Ser. B, MBIA,
7.98s, 7/1/20 AAA 4,360,000
--------------------------------------------------------------------------------------------------------------------------------
5,645,000
--------------------------------------------------------------------------------------------------------------------------------
West Virginia (2.0%)
4,000,000 WV State Hosp. Fin. Auth. Hosp. Rev. Bonds (St. Francis Hosp. Charleston),
7-3/4s, 8/15/13 B 4,075,000
--------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $190,454,498)(c) $203,963,615
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes
(a) Percentages indicated are based on total net assets of $209,341,170 which
corresponds to a net asset value per share of $15.16.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at November 30, 1993 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 November 30, 1993. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(c) The aggregate identified cost for tax purposes is $190,454,498, resulting
in gross unrealized appreciation and depreciation of $13,697,469 and
$188,352, respectively, or net unrealized appreciation of $13,509,117.
The rates shown on the Residual Interest Bonds (RIBS) are the current
interest rates at November 30, 1993, which are subject to change based on the
terms of the security.
<PAGE>
Statement of
assets and liabilities
November 30, 1993 (Unaudited)
<TABLE>
---------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Assets Investments in securities, at value (identified cost
$190,454,498) (Note 1) $203,963,615
Interest receivable 4,783,464
Receivable for securities sold 2,830,193
Unamortized organization expenses (Note 1) 29,558
---------------------------------------------------------------------------------------------
Total assets 211,606,830
Liabilities Payable to subscustodian bank (Note 3) $ 495,985
Distributions payable to shareholders 1,165,284
Payable for securities purchased 135,177
Payable for compensation of Manager (Note 3) 368,029
Payable for compensation of Trustees (Note 3) 157
Payable for investor servicing and custodian fees (Note 3) 67,007
Payable for administrative services (Note 3) 1,386
Other accrued expenses 32,635
---------------------------------------------------------------------------------------------
Total liabilities 2,265,660
---------------------------------------------------------------------------------------------
Net assets $209,341,170
=============================================================================================
Represented by Paid-in capital $191,832,474
Undistributed net investment income 1,286,287
Accumulated net realized gain on investment transactions 2,713,292
Net unrealized appreciation of investments 13,509,117
---------------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital
shares outstanding $209,341,170
=============================================================================================
Computation of net Net asset value per share
asset value ($209,341,170 divided by 13,807,168 shares) $ 15.16
=============================================================================================
</TABLE>
<PAGE>
Statement of
operations
For the six months ended
November 30, 1993 (Unaudited)
<TABLE>
------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Tax exempt interest income $ 7,789,952
Expenses:
Compensation of Manager (Note 3) $737,503
Investor servicing and custodian fees (Note 3) 147,541
Compensation of Trustees (Note 3) 6,844
Reports to shareholders 18,831
Postage 3,746
Auditing 16,037
Legal 3,637
Administrative services (Note 3) 2,358
Amortization of organization expenses (Note 1) 4,174
Registration fees 439
Exchange listing fees 16,262
Other 1,990
------------------------------------------------------------------------------------------
Total expenses 959,362
------------------------------------------------------------------------------------------
Net investment income 6,830,590
------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 1,420,217
Net unrealized appreciation of investments during the
period 4,675,161
------------------------------------------------------------------------------------------
Net gain on investments 6,095,378
------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,925,968
------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
For the period
June 29, 1992
(commencement
For the six months of operations) to
ended November 30 May 31
-------------------------------------------
1993* 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase in net assets Operations:
Net investment income $ 6,830,590 $ 13,105,010
Net realized gain on investments 1,420,217 2,238,349
Net unrealized appreciation of investments 4,675,161 8,833,956
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 12,925,968 24,177,315
Distributions to shareholders from:
Net investment income (6,992,483) (11,656,830)
Net realized gain on investments -- (945,274)
Increase from capital share transactions (Note 2) -- 191,732,474
--------------------------------------------------------------------------------------------------
Total increase in net assets 5,933,485 203,307,685
Net assets Beginning of period 203,407,685 100,000
--------------------------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $1,286,287 and $1,448,180,
respectively) $209,341,170 $203,407,685
--------------------------------------------------------------------------------------------------
Number of fund shares Shares outstanding at beginning of period 13,807,168 7,168
Shares issued in connection with initial offering -- 13,800,000
--------------------------------------------------------------------------------------------------
Shares outstanding at end of period 13,807,168 13,807,168
--------------------------------------------------------------------------------------------------
</TABLE>
*Unaudited
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
June 29, 1992
For the six months (commencement
ended of operations) to
November 30 May 31
------------------ -------------------
1993** 1993*
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 14.73 $ 13.89
-----------------------------------------------------------------------------------------------------
Investment Operations:
Net Investment Income .49 .95(a)
Net Realized and Unrealized Gain on Investments .45 .80
-----------------------------------------------------------------------------------------------------
Total from Investment Operations .94 1.75
-----------------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income (.51) (.84)
Net Realized Gain on Investments (Note 1) -- (.07)
-----------------------------------------------------------------------------------------------------
Total Distributions (.51) (.91)
-----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.16 $ 14.73
-----------------------------------------------------------------------------------------------------
Market Value, End of Period $ 14.875 $ 14.625
-----------------------------------------------------------------------------------------------------
Total Investment Return at Market Value (%) (b) 10.32(c) 4.08(c)
-----------------------------------------------------------------------------------------------------
Net assets, End of Period (in thousands) $209,341 $203,408
-----------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) .92(c) .53(a)(c)
Ratio of Net Investment Income to Average Net Assets (%) 6.56(c) 7.27(a)(c)
Portfolio Turnover (%) 15.03(d) 69.11(d)
-----------------------------------------------------------------------------------------------------
</TABLE>
* Represents initial net asset value of $13.95 less offering expenses of
approximately $0.06.
** Unaudited.
(a) Reflects voluntary absorption of expenses incurred by the Fund. As a
result of this limitation, expenses for the period ended May 31, 1993
reflects a reduction of $0.05 per share. See Note 3.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not Annualized.
<PAGE>
Notes to
financial statements
November 30, 1993 (Unaudited)
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940, as amended,
as a closed-end diversified management investment company. The Fund seeks as
high a level of current income exempt from federal income tax as Putnam
Investment Management believes is consistent with preservation of capital by
investing primarily in a portfolio of health care tax exempt securities.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A) Security valuation Tax exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. The fair value of
restricted securities is determined by the Manager following procedures
approved by the Trustees, and 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). Interest income is recorded on the accrual basis.
C) Federal taxes It is the policy of the Fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or of securities held or excise tax on income and capital
gains.
D) Distributions to shareholders Distributions to shareholders are recorded
by the Fund on the ex-dividend date.
E) Amortization of bond premium and discount Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discount on original issue discount bonds is
accreted according to the effective yield method.
F) Unamortized organization expenses Expenses incurred by the Fund in
connection with its organization, aggregated $41,646. Such organization
expenses were paid initially by Putnam Investment Management, Inc., ("Putnam
Management") the Fund's Manager, a wholly-owned subsidiary of Putnam
Investments Inc., and the Fund reimbursed the Manager for such costs. These
expenses are being amortized over a five-year period based on a straight-line
basis.
Note 2 Initial capitalization and offering of shares
The Fund was established as a Massachusetts business trust under the law of
the Commonwealth of Massachusetts on May 1, 1992.
During the period May 1, 1992 to June 26, 1992 the Fund had no operations
other than those related to organizational matters, including the initial
capital contribution of $100,000 and the issuance of 7,168 shares to Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., on
June 15, 1992.
On June 26, 1992, the Fund completed the initial offering of 12,000,000 of
its shares for which it received net proceeds of $166,622,474, after
deducting $777,526 of initial offering expenses. Such offering expenses were
paid initially by Putnam Management. On July 27, 1992, the Fund received net
proceeds of $25,110,000 from the supplementary offering of 1,800,000 common
shares. Regular investment operations commenced on June 29, 1992.
Note 3 Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the Fund.
Effective December 19, 1992, such fee is based on the annual rate of 0.70% of
average weekly net assets. Prior to December 19, 1992 the Manager had
voluntarily agreed to waive its management fee.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the six months
ended November 30, 1993, the Fund paid $2,358 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,120, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the Fund 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.
Fees paid for these investor servicing and custodial functions for the six
months ended November 30, 1993 amounted to $147,541.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended November 30, 1993 have been reduced by credits
allowed by PFTC.
As part of the custodian contract between PFTC and its custodian bank, the
custodian has a lien on the securities of the Fund, to the extent permitted
by the Fund's investment restrictions to cover any advances made to the Fund.
At November 30, 1993 the payable to custodian represents the amount due for
cash advanced for the settlement of a security purchased.
Note 4 Purchases and sales of securities
During the six months ended November 30, 1993, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$30,725,260 and $32,825,626, respectively. Purchases and sales of short-term
municipal obligations aggregated $2,400,000 and $3,200,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Note 5 Reclassification of Capital Account
Effective June 1, 1993, Putnam Tax Free Health Care Fund has adopted the
provisions of Statement of Position (SOP) 93-2 "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of
Capital Distributions, by Investment Companies." The purpose of this SOP is
to report the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts
available for future distributions (or to offset future realized capital
gains) and to achieve uniformity in the presentation of distributions by
investment companies.
As of November 30, 1993, these balances through May 31, 1993, the close of
the Fund's most recent fiscal year-end, were the same for financial reporting
and tax purposes.
Selected
quarterly
data
(Unaudited)
<TABLE>
<CAPTION>
For the period
June 29, 1992
(commencement
of operations)
Three months ended to
------------------------------------------------------------------
November February November
30 August 31 May 31 28 30 August 31
---------- ---------- ---------- ---------- ---------- ----------------
1993 1993 1993 1993 1992 1992
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total investment income
Total $ 3,883,176 $ 3,906,776 $ 3,880,955 $ 3,867,862 $ 3,893,481 $ 2,419,259
Per Share $ .27 $ .29 $ .28 $ .28 $ .29 $ .17
-------------------------------------------------------------------------------------------------------------------------------
Net investment income
Total $ 3,414,063 $ 3,416,527 $ 3,414,250 $ 3,540,227 $ 3,765,663 $ 2,384,870
Per Share $ .24 $ .25 $ .25 $ .25 $ .28 $ .17
Net realized and unrealized gain
(loss) on investments
Total $ 1,802,283 $ 4,293,095 $ (1,139,899) $ 8,705,014 $ (57,854) $ 3,565,044
Per Share $ .14 $ .31 $ (.08) $ .63 $ (.01) $ .26
-------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations
Total $ 5,216,346 $ 7,709,622 $ 2,274,351 $ 12,245,241 $ 3,707,809 $ 5,949,914
Per Share $ .38 $ .56 $ .17 $ .88 $ .27 $ .43
-------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period
Total $209,341,170 $207,629,192 $203,407,685 $204,627,026 $196,953,640 $196,620,029
Per Share $ 15.16 $ 15.04 $ 14.73 $ 14.82 $ 14.26 $ 14.24
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Fund
performance
supplement
Putnam Tax-Free Health Care Fund is a portfolio managed for high current
income exempt from federal income tax and consistent with capital
preservation. This fund invests at least 70% of its portfolio in
investment-grade tax-exempt bonds. The balance may be invested in securities
rated below investment-grade. Because the fund's investments will be
concentrated in the health care sector, the fund will be subject to special
risks associated with that sector. The fund will not invest in securities
subject to the federal alternative minimum tax for individual investors.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment-grade, fixed rate, long-term maturity
tax-exempt bonds, which are selected to be representative of the market in
terms of price movement and sector distribution. The average quality of bonds
held in the index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of the lower
rating classifications in which the fund may invest. The index does not take
into account brokerage commissions or other costs and may pose different
risks from the fund. Total return performance for the index reflects
mathematically derived changes of market price and reinvestment of interest
payments, as computed by Lehman Brothers. The fund's portfolio contains
securities that do not match those in the index.
The Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
This fund performance supplement has been prepared by Putnam Management to
provide further detail about the fund and the indexes used for performance
comparisons. It is not part of the portfolio of investments owned or the
financial statements and notes.
<PAGE>
Putnam
Tax-Free
Health Care
Fund
Fund information
Investment manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
[Dalbar logo]
Putnam Investor Services has received the DALBAR award
each year since the award's
1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistant Treasurer
Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Hans H. Estin, John A. Hill,
Elizabeth T. Kennan, Lawrence J. Lasser,
Robert E. Patterson, Donald S. Perkins,
George Putnam, III, A.J.C. Smith,
W. Nicholas Thorndike
Associate Trusteee: Alla O'Brien
Call 1-800-634-1587 weekdays from 9 a.m. to 5 p.m. Eastern time for up-to-
date information about the fund's NAV or to request Putnam's quarterly
Closed-End Fund Commentary.
MHC 11/93-10022
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(3) Because the printed page breaks are not reflected, certain tabular
and columnar headings and symbols are displayed differently in
this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Dagger footnote symbol replaced with plus sign (+).
