Putnam
Tax-Free
Health Care
Fund
[GRAPHIC OMITTED: ARTWORK]
SEMIANNUAL REPORT
November 30, 1995
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
*"By concentrating on health-care municipal bonds in 25 key states,
we seek to put our research capabilities to very efficient use,
reviewing individual state policies, identifying key markets and
targeting the strongest, best-managed facilities in each area."
Howard Manning, Manager, Putnam Tax-Free Health Care Fund
*"Munis offer unusually attractive yields right now because of
unwarranted fears that a flat-rate income tax will end the tax advantage
they have over taxable bonds."
-- Kiplinger's Personal Finance Magazine, December 1995
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
16 Financial statements
[GRAPHIC OMITTED: photo of George Putnam]
* Karsh, Ottawa
From the Chairman
Dear Shareholder:
Tax-exempt bond investors will long remember 1995 as a year of highs and
lows in the market. The year began as the bond market was coming off one
of its worst periods in recent memory. Just as things began to look
brighter for tax-exempt bonds, talk in Washington about tax reform
sparked a wave of uncertainty among investors.
By the time Putnam Tax-Free Health Care Fund entered its new fiscal year
in June, investors had begun to regain their composure, realizing how
remote enactment of any tax-reform legislation was likely to be during
an election year. As the fund reached the fiscal year's midpoint on
November 30, 1995, shareholders could look back on a period of
impressive recovery.
Fund Manager Howard Manning expects the rally to be sustained into 1996
as the tax-exempt bond market continues to make up lost ground. He also
believes that the current trend toward consolidation in the health-care
sector will continue to benefit your fund, as ongoing mergers and
acquisitions have helped boost the prices of a number of portfolio
holdings. His report, which follows, provides more detail.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
January 17, 1996
Report from the Fund Manager
Howard Manning
After overcoming a brief stall in midsummer, the broad fixed-income
market continued its impressive run throughout the six months ended
November 30, l995. Increased investor confidence in the Federal Reserve
Board's ability to thwart inflation and effectively manage economic
growth over the long term fueled the gains of most fixed-income
investments. Indeed, the rally had gained such momentum by period's end
that the current yield on the benchmark 30-year Treasury bond seemed to
be approaching the historically low level of 5.79% reached on October
15, l993.
On an absolute basis, municipal bonds participated in the rally's
strength in a highly respectable fashion, and Putnam Tax-Free Health
Care Fund prospered along with the market. For the first half of the
fiscal year that ended November 30, l995, your fund generated a total
return of 5.45% at net asset value and -0.25% at market price. Your fund
generated total returns of 16.37% and 28.04% at net asset value for the
one- and three-year periods ended November 30, 1995, respectively. Your
fund's current dividend rate as of November 30, 1995 was 6.26% at net
asset value. For investors in the highest 39.6% federal income tax
bracket, this is the equivalent of a 10.36% taxable return. Investors in
lower brackets would also have benefited, although not to the same
extent.
* THE MEDICARE QUESTION
During the past six months, the public debate over Medicare reform
figured prominently in the management of the fund. We have evaluated
each of the fund's holdings to determine what effect changes in Medicare
spending might have. We feel confident that the bonds in which we have
invested have the potential to continue to produce attractive returns
even as Congress seeks to curb the growth of Medicare costs.
* OUR TOP-DOWN APPROACH TO SECURITY SELECTION
Our strategy for selecting securities has not changed since the fund's
inception; however, we are constantly seeking to refine it. We continue
to take a top-down approach in managing the fund. We concentrate on
health-care municipal bonds in 25 states. Because each state has a
distinctive health-care environment, we review its individual policies
and evaluate them in conjunction with federal health-care policy. We
then focus on key markets within each state, before examining individual
health-care facilities. Finally, we select bonds issued by those
facilities we believe are the strongest and best managed.
At the end of the period, over 70% of the bonds we held in the portfolio
were rated BBB or better by national rating services. Within this
category, there is a wide range of prices and quality. We also invest in
non-rated bonds when Putnam's own internal rating system deems them
worthy for inclusion in the portfolio. We search for municipal bonds
that offer the right balance of credit quality, yield, and relative
price stability. We constantly reassess the financial strength of each
security, working to ensure the continued high quality of the portfolio.
* MERGERS AND ACQUISITIONS HELP BOOST RETURNS
For more than a year, the health-care sector has been dominated by
hospital mergers and acquisitions. Because most of your fund's assets
are concentrated in hospital bonds, your fund has benefited from this
trend. For example, we have held Tulsa Oklahoma Regional Medical Center
bonds in the portfolio since 1992. Recently the facility was acquired by
Columbia/HCA, a large, for-profit health care company. After the
acquisition, we sold the Tulsa Oklahoma Regional Medical Center bonds at
a significant premium.
The merger between Cooley Dickinson Hospital in Massachusetts and Mary
Hitchcock Hospital in New Hampshire was also advantageous for your fund.
We purchased Cooley Dickinson bonds as unrated securities in l993. When
the hospital merged with Mary Hitchcock in l995, its bonds were
prerefunded, that is, Mary Hitchcock issued new bonds in order to pay
off the older debt. Proceeds from the sale of the new bonds were
invested in AAA-rated government securities, which will be used to pay
the interest and principal on the bond issue. Prerefunded bonds
immediately improve the credit quality of the securities, which in turn,
may help increase their prices.
We increased the number of nursing home bonds in the portfolio, and at
the end of the period, roughly 6.5% of the fund's net assets were
invested in this sector. We found nursing home bonds attractive because
they tend to be less affected by the ups and downs of the economic
cycle. In addition, there is a shortage of nursing homes -- and
consequently nursing home debt. The insufficient supply of nursing home
bonds should have a positive effect on the value of the bonds we hold in
the portfolio.
* OUR OUTLOOK
Looking at the broader market, we believe that the attention to fiscal
responsibility at both state and national levels on the part of
government bodes well for the fundamental structure of the municipal
market. Going forward, we will continue to carefully monitor market
events as they unfold and attempt to position your fund to benefit from
longer-term trends.
The debate over tax reform is likely to continue to influence tax-exempt
bonds in fiscal 1996, and may at times cause pockets of instability.
However, we believe investors have come to realize that a simplification
of the existing system is more probable than a major overhaul.
[GRAPHIC OMITTED: horizontal bar chart TOP 5 STATE HOLDINGS (11/30/95)]
showing:
Michigan 14.5%
Pennsylvania 14.1%
Massachusetts 13.9%
Arizona 8.6%
Texas 8.2%
Footnote reads:
These holdings represent 59.3% of the fund's total net assets. Portfolio
holdings will vary over time.
We expect the health-care sector to be influenced more by credit
fundamentals than by interest rate movements. In selecting securities
for the portfolio, we will continue to address changes in health-care
delivery systems, as we believe the current trend toward consolidation
in the health-care sector will result in fewer, but more competitive
hospitals and fewer bond issues in the future. Demand for these
securities should, consequently, increase over time and we will seek to
position your fund to take advantage of it.
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 11/30/95, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
Historical performance should always be considered in light of a fund's
investment strategy. Putnam Tax-Free Health Care Fund is designed for
investors seeking high current income free from federal income tax and
consistent with preservation of capital through a portfolio of
securities in the health care sector.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
NAV Market price
- -----------------------------------------------------------------------
6 months 5.45% -0.25%
- -----------------------------------------------------------------------
1 year 16.37 7.64
- -----------------------------------------------------------------------
3 years 28.04 15.74
Annual average 8.59 4.99
- -----------------------------------------------------------------------
Life of fund
(since 6/29/92) 34.48 11.50
Annual average 9.05 3.23
- -----------------------------------------------------------------------
COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- -----------------------------------------------------------------------
6 months 5.18% 0.92%
- -----------------------------------------------------------------------
1 year 18.90 2.61
- -----------------------------------------------------------------------
3 years 25.14 8.17
Annual average 7.76 2.65
- -----------------------------------------------------------------------
Life of fund
(since 6/29/92) 29.49 9.56
Annual average 7.85 2.71
- -----------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns , net asset
value and market price will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
NAV Market price
- -----------------------------------------------------------------------
1 year 14.12% 5.80%
- -----------------------------------------------------------------------
3 years 27.04 13.29
Annual average 8.30 4.25
- -----------------------------------------------------------------------
Life of fund
(since 6/29/92) 34.85 9.34
Annual average 8.89 2.58
- -----------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 MONTHS ENDED 11/30/95
NAV Market price
- -----------------------------------------------------------------------
Distributions (number) 6 6
- -----------------------------------------------------------------------
Income $0.4782 $0.4782
- -----------------------------------------------------------------------
Share value:
- -----------------------------------------------------------------------
5/31/95 $14.13 $13.375
- -----------------------------------------------------------------------
11/30/95 14.38 12.875
- -----------------------------------------------------------------------
Current return:
- -----------------------------------------------------------------------
End of period
- -----------------------------------------------------------------------
Current dividend rate1 6.26% 6.99%
- -----------------------------------------------------------------------
Taxable equivalent2 10.36 11.57
- -----------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and
divided by NAV or POP at end of period.
2 Assumes maximum federal tax rate of 39.6% . Results for investors
subject to lower tax rates would not be as advantageous. Investment
income may also be subject to the federal alternative minimum tax.
Investment income may be subject to state and local taxes.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of the fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
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.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund. 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.
<TABLE>
Portfolio of investments owned
November 30, 1995 (Unaudited)
<CAPTION>
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Federal Guaranty Insurance Company
FSA -- Financial Security Assurance
. FHA Insd -- Federal Housing Administration Insured
IF -- Inverse Floating
IFB -- Inverse Floating Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (100.0%)*
PRINCIPAL AMOUNT RATINGS** VALUE
Arizona (8.6%)
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,000,000 Payson, Indl. Dev. Auth. Hosp. Rev. Bonds
(Payson Regl. Med. Ctr. Inc. Project), 7.7s, 10/1/23 B/P 3,565,000
Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.)
4,105,000 9s, 12/1/13 BB/P 4,263,125
1,875,000 Ser. A, 8 1/8s, 12/1/22 BB/P 2,017,969
6,455,000 Sierra Vista, Indl. Dev. Auth. Hosp. Rev. Bonds
(Sierra Vista Cmnty. Hosp. Project), 8 1/2s, 12/1/21 BBB/P 7,173,118
-----------
17,019,212
California (4.9%)
- -------------------------------------------------------------------------------------------------
2,130,000 CA Hlth. Fac. Fin. Auth. Rev. Bonds
(Summit Med. Ctr.), Ser. A, 7 1/2s, 5/1/09 Ba 2,191,238
3,000,000 San Bernardino Cnty. IF COP
(Medical Center Financing Project), MBIA,
8.66s, 8/1/28 (acquired 6/27/95 cost $3,237,720)++ AAA 3,453,750
4,145,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BBB 4,051,738
-----------
9,696,726
Connecticut (3.7%)
- -------------------------------------------------------------------------------------------------
CT State Dev. Auth. 1st Mtge Rev. Bonds
3,500,000 9 5/8s, 4/1/21 BB/P 3,906,875
1,200,000 9 1/2s, 5/1/13 BB/P 1,332,000
2,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Healthcare Inc.), Ser. A, 8.7s, 7/1/22 BBB/P 2,167,500
-----------
7,406,375
Florida (6.4%)
- -------------------------------------------------------------------------------------------------
Largo, Sun Coast Hlth. Syst. Rev. Bonds
4,865,000 6.3s, 3/1/20 BBB 4,591,344
1,500,000 6.2s, 3/1//13 BBB 1,426,875
2,000,000 Miami, Hlth. Fac. Auth. Rev. Bonds
(Cedars Med. Ctr.), Ser. A, 8 3/8s, 10/1/17 AAA 2,192,500
2,600,000 Orange Cnty., Hlth. Fac. Auth. IFB Ser. 91-C,
MBIA, 8.655s, 10/29/21 AAA 2,902,250
1,380,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc. Project), 8 7/8s, 12/1/18 BBB 1,590,450
-----------
12,703,419
Illinois (2.0%)
- -------------------------------------------------------------------------------------------------
3,665,000 IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.), 8 3/4s, 7/1/11 BBB/P 3,967,363
Kentucky (1.9%)
- -------------------------------------------------------------------------------------------------
2,000,000 Jefferson Cnty., Hosp. Rev. IFB
(Alliant Hlth. Syst. Project), MBIA, 8.644s, 10/23/14 AAA 2,262,500
1,470,000 Muhlenberg Cnty., Hosp. Rev. Bonds
(Muhlenberg Cmnty. Hosp. Project), 9 1/2s, 8/1/10 BBB/P 1,593,113
-----------
3,855,613
Maryland (2.8%)
- -------------------------------------------------------------------------------------------------
2,880,000 Berlin, Hosp. Rev. Bonds
(Atlantic Gen. Hosp. Fac.), 8 3/8s, 6/1/22 BB/P 3,081,600
2,765,000 Prince Georges Cnty., Hosp. Rev. Bonds
(Greater Southeast Healthcare Syst.), 6 3/8s, 1/1/23 Baa 2,592,188
-----------
5,673,788
Massachusetts (13.9%)
- -------------------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,880,000 (Cooley Dickinson Hospital), Issue A,
7 1/8s, 11/15/18 AAA 3,373,200
3,300,000 (Mass. Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa 3,258,125
2,320,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 Aaa 2,673,800
2,175,000 (New England Hlth. Syst.), Ser. A, 6 1/8s, 8/1/13 Baa 1,960,219
(Norwood Hosp.)
3,830,000 Ser. E, 8s, 7/1/12 Ba 3,858,725
115,000 Ser. E, 8s, 7/1/05 Ba 116,294
1,070,000 Ser. C, 7s, 7/1/14 Ba 940,263
4,000,000 (Rehab. Hosp. Cape & Islands),
Ser. A, 7 7/8s, 8/15/24 BB/P 4,125,000
2,225,000 (St. Joseph's Hosp.), Ser. C, 9 1/2s, 10/1/20 AAA 2,689,469
3,300,000 (Waltham-Weston Hosp. Project),
Ser. B, 8 3/8s, 7/1/15 Baa 3,522,750
MA State Indl. Fin. Agcy. Rev. Bonds
1,000,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB/P 1,086,250
-----------
27,604,095
Michigan (14.5%)
- -------------------------------------------------------------------------------------------------
5,500,000 Dickinson Cnty., Hosp. Rev Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 Baa 6,043,125
MI State Hosp. Fin. Auth. Rev. Bonds
1,785,000 (Detroit-Macomb Hosp. Corp.), Ser. A, 7.4s, 6/1/13 BB 1,760,452
(Garden City Hosp.)
4,130,000 8 1/2s, 9/1/17 BBB 4,439,750
2,370,000 Prerefunded, 8 1/2s, 9/1/17 AAA 2,891,400
3,500,000 (Genesys Hlth. Syst.), Ser. A, 7 1/2s, 10/1/27 Baa 3,692,500
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Serv. for Aging Project), 9.4s, 5/1/20 BBB/P 3,360,000
4,500,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/23 Baa 4,016,250
1,430,000 Tawas City, Hosp. Fin. Auth. Rev. Bonds
(St. Joseph's Hosp. Project), Ser. A, 8 1/2s, 3/15/12 BB/P 1,492,148
1,000,000 Waterford Township, Econ. Dev. Corp.
Rev. Bonds, 8 3/8s, 7/1/23 BB/P 1,051,250
-----------
28,746,875
Minnesota (1.2%)
- -------------------------------------------------------------------------------------------------
2,300,000 Rochester, Hlth. Care Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB/P 2,389,125
Missouri (2.6%)
- -------------------------------------------------------------------------------------------------
4,900,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr. Project), 8 3/4s, 1/1/15 BBB/P 5,243,000
New Hampshire (1.1%)
- -------------------------------------------------------------------------------------------------
1,930,000 NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp. Project),
9 3/8s, 11/1/20 BBB/P 2,108,525
New Jersey (3.5%)
- -------------------------------------------------------------------------------------------------
3,000,000 NJ Econ. Dev. Auth. Hlth. Care Fac. Rev. Bonds
(Ocean Nursing Pavilion), Ser. A, 7 3/8s, 12/1/25 BB/P 3,003,750
3,600,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth's Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 3,919,500
-----------
6,923,250
New Mexico (0.7%)
- -------------------------------------------------------------------------------------------------
1,320,000 Grant Cnty., Hosp. Fac. Rev. Bonds
(Gila Regl. Med. Ctr. Project), 10s, 2/1/12 BBB/P 1,392,217
Ohio (1.2%)
- -------------------------------------------------------------------------------------------------
2,081,690 Holland, Indl. Dev. Mtge. Rev. Bonds
(Spring Meadow Extended Care Project),
FHA Insd., 11s, 4/15/13 BBB/P 2,292,460
Pennsylvania (14.1%)
- -------------------------------------------------------------------------------------------------
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
3,000,000 (Divine Providence Hosp.), Ser. B, 8 3/4s, 1/1/14 BBB 3,225,000
1,000,000 (Divine Providence Hosp.), Ser. A, 8 3/4s, 1/1/14 AAA 1,130,000
1,000,000 (Southside Hosp. Pittsburgh), Ser. A, 8 3/4s, 6/1/10 BBB 1,040,000
3,355,000 College Township, Indl. Dev. Auth. 1st Mtge.
Hlth. Fac. Rev. Bonds (Nittany Valley Rehab.
Hosp. Project), 7 5/8s, 11/1/07 BBB/P 3,539,525
2,500,000 Langhorne Manor Boro Higher Edl. & Hlth. Auth.
Rev. Bonds (Lower-Bucks Hosp. Project),
7.35s, 7/1/22 Ba 2,421,875
1,800,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds, Ser. B, 8 1/4s, 11/1/18 BBB 2,085,750
4,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project),
Ser. B, 8 3/8s, 11/1/11 Ba 4,330,000
2,950,000 Philadelphia Hosp. & Higher Edl. Fac. Auth.
Hosp. IFB, FGIC, 6.247s, 2/15/12 AAA 2,861,500
Philadelphia Hosp. & Higher Edl. Fac. Auth.
Hosp. Rev. Bonds
4,250,000 (Graduate Health Systems), Ser. A & B,
7 1/4s, 7/1/18 Baa 4,420,000
2,760,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York Project),
7 1/2s, 9/1/07 BB/P 2,935,950
-----------
27,989,600
South Carolina (1.4%)
- -------------------------------------------------------------------------------------------------
3,000,000 Spartanburg Cnty., Hlth Svcs. Rev. Bonds, AMBAC,
5.3s, 4/15/20 AAA 2,895,000
Tennessee (1.7%)
- -------------------------------------------------------------------------------------------------
1,294,562 Meigs Cnty., Hlth. Edl. & Hsg. Fac. Board Rev. Bonds
(Meigs Cnty., Hlth. Ctr.), FHA Insd., 12s, 7/1/25 A/P 1,464,473
1,700,000 Nashville & Davidson Cnty., Wtr. & Swr. IFB,
AMBAC, 7.973s, 1/1/22 AAA 1,819,000
-----------
3,283,473
Texas (8.2%)
- -------------------------------------------------------------------------------------------------
3,650,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB
(High Plains Baptist Hosp.), FSA, 8.937s, 1/3/22 AAA 4,151,875
5,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp. Project), 7.9s, 5/1/11 AAA 6,006,250
1,060,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nan Travis Memorial Hosp. Project), 10s, 5/15/13 B/P 1,148,775
1,625,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Woodlands Med. Ctr. Project), 8.85s, 8/15/14 BB/P 1,783,438
2,000,000 North Central Hlth. Fac. Dev. Corp. IFB
(Baylor Hlth. Care Syst.), Ser. B, 7.65s, 5/15/08 AA 2,205,000
1,415,000 Tarrant Cnty., Hlth. Facs. Dev. Corp. Hosp. Rev. Bonds
(Cmnty. Hlth. Care Foundation Inc. Project),
10 1/8s, 4/1/21 B/P 1,061,250
-----------
16,356,588
Virginia (0.7%)
- -------------------------------------------------------------------------------------------------
1,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Project), Ser. C, 9.327s, 8/29/23 AA 1,297,500
Washington (4.9%)
- -------------------------------------------------------------------------------------------------
2,250,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,508,750
7,200,000 WA State Hlth. Care Facs. VRDN, 3.7s, 10/1/05 VMIG1 7,200,000
-----------
9,708,750
-----------
Total Investments (cost $189,582,310) *** 198,552,954
- -------------------------------------------------------------------------------------------------
NOTES
- -------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $198,521,324.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at November 30, 1995 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, 1995. Securities rated by
Putnam are indicated by "/P" and are not publicly rated.
++ Restricted as to public resale. At the date of acquisition these securities were valued at
cost. There were no outstanding securities of the same class as those held. Total market
value of restricted securities owned at November 30, 1995 was $3,453,750 or 1.7% of net assets.
*** The aggregate identified cost for federal income tax purposes is $189,582,310 resulting in
gross unrealized appreciation and depreciation of $10,362.788 and $1,392,144 respectively,
or net unrealized appreciation of $8,970,644.
The rates shown on IFB's, which are securities paying variable interest rates that vary
inversely to changes in the market interest rates, and VRDNs are the current interest rates
at November 30, 1995, which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Statement of assets and liabilities
November 30,1995 (Unaudited)
<CAPTION>
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $189,582,310) (Note 1) $198,552,954
- --------------------------------------------------------------------------------
Cash 29,743
- --------------------------------------------------------------------------------
Interest receivable 3,964,908
- --------------------------------------------------------------------------------
Receivable for securities sold 260,000
- --------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 12,837
- --------------------------------------------------------------------------------
Total assets 202,820,442
Liabilities
- --------------------------------------------------------------------------------
Distributions payable to shareholders 1,035,474
- --------------------------------------------------------------------------------
Payable for securities purchased 2,839,890
- --------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 341,555
- --------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 139
- --------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 36,859
- --------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,425
- --------------------------------------------------------------------------------
Other accrued expenses 43,776
- --------------------------------------------------------------------------------
Total liabilities 4,299,118
- --------------------------------------------------------------------------------
Net assets $198,521,324
Represented by
- --------------------------------------------------------------------------------
Paid-in-capital (Note 1) $191,840,225
- --------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 55,089
- --------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (2,344,634)
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments 8,970,644
- --------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $198,521,324
Computation of net asset value and offering price
- --------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share
($198,521,324 divided by 13,807,168 shares) $14.38
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Statement of operations
Six months ended November 30,1995 (Unaudited)
<CAPTION>
Investment Income
- -----------------------------------------------------------------------------------
<S> <C>
Tax exempt interest income $7,313,746
- -----------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------
Compensation of Manager (Note 2) 689,898
- -----------------------------------------------------------------------------------
Investor Servicing and custodian fees (Note 2) 121,781
- -----------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,098
- -----------------------------------------------------------------------------------
Administrative services (Note 2) 4,266
- -----------------------------------------------------------------------------------
Reports to shareholders 37,814
- -----------------------------------------------------------------------------------
Postage 23,617
- -----------------------------------------------------------------------------------
Auditing 23,689
- -----------------------------------------------------------------------------------
Legal 7,752
- -----------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,174
- -----------------------------------------------------------------------------------
Other expenses 17,775
- -----------------------------------------------------------------------------------
Total expenses 936,864
- -----------------------------------------------------------------------------------
Expense reduction (Note 2) (50,921)
- -----------------------------------------------------------------------------------
Net expenses 885,943
- -----------------------------------------------------------------------------------
Net investment income 6,427,803
- -----------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,203,092)
- -----------------------------------------------------------------------------------
Net unrealized appreciation on investments during the period (Note 1) 4,820,053
- -----------------------------------------------------------------------------------
Net gain on investments 3,616,961
- -----------------------------------------------------------------------------------
Net increase in net assets resulting from operations $10,044,764
- -----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Statement of changes in net assets
<CAPTION>
Six months ended Year ended
November 30 May 31
1995* 1995
- ----------------------------------------------------------------------------------------------
Increase/(decrease) in net assets
- ----------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $6,427,803 $13,205,208
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (1,203,092) (1,130,388)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,820,053 1,574,883
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,044,764 13,649,703
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------
From net investment income (6,602,161) (13,986,810)
From net realized gain on investments -- (1,910,060)
- ----------------------------------------------------------------------------------------------
Total increase/(decrease) in net assets 3,442,603 (2,247,167)
- ----------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------
Beginning of period 195,078,721 197,325,888
- ----------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $55,089 and $229,447 respectively) $198,521,324 $195,078,721
- ----------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 13,807,168 13,807,168
- ----------------------------------------------------------------------------------------------
* (Unaudited)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Financial highlights
(For a share outstanding throughout the period)
<CAPTION>
For the period
June 29, 1992
(commencement of
Six months ended operations) to
November 30 Year Ended May 31 May 31
1995+ 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.13 $14.29 $14.73 $ 13.89*
- ----------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------
Net investment income .47 .96 .98 .95(a)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .26 .03 (.22) .80
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations .73 .99 .76 1.75
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net investment income (0.48) (1.01) (1.01) (.84)
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments (note 1) -- (.14) (.19) (.07)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.48) (1.15) (1.20) (.91)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.38 $14.13 $14.29 $14.73
- ----------------------------------------------------------------------------------------------------------------
Market value, end of period $12.875 $13.375 $14.375 $14.625
- ----------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%) (b) (0.25)(c) 1.20 6.46 3.75(c)
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $198,521 $195,079 $197,326 $203,408
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) .48(c) .90 .91 .49(a)(c)
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.30(c) 6.85 6.58 6.71(a)(c)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.04(c) 39.44 36.92 69.11(c)
- ----------------------------------------------------------------------------------------------------------------
+ Unaudited
* Represents initial net asset of $13.95 less offering expenses of approximately $0.06.
(a) Reflects an 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.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the six months ended November 30, 1995 includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts (See Note 2).
</TABLE>
Notes to financial statements
November 30, 1995 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The
fund seeks as high a level of current income exempt from federal income
tax as Putnam Investment Management, Inc., (Putnam Management), the
Fund's Manager, a wholly owned subsidiary of Putnam Investments, Inc.,
believes is consistent with preservation of capital by investing
primarily in a portfolio of tax-exempt securities in the health care
sector of the tax-exempt securities market.
The following is a summary of significant accounting policies
consistently 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 following procedures
approved by the Trustees and such valuations and procedures as 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 unrealized
appreciation of securities held and excise tax on income and capital
gains.
At November 30, 1995, the fund had a capital loss carryover of
approximately $198,000 available to offset future capital gains, if any.
The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------------------------
$198,000 May 31, 2003
D) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid 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.
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. Discounts on original issue bonds are accreted
according to the effective yield method.
F) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $41,646. These expenses are being
amortized on a straight-line basis over a five-year period. The fund
will reimburse Putnam Management for the payment of these expenses.
Note 2
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. Such fee is based on the annual rate of 0.70% of average
weekly net assets.
The fund also reimburses Putnam Management for the compensation and
related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all
such reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $790 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
During the six months ended November 30, 1995, the fund adopted a
Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to
defer the receipt of all or a portion of Trustees Fees payable on or
after July 1, 1995. The deferred fees remain in the fund and are
invested in the fund or in other Putnam funds until distribution in
accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended November 30, 1995, fund expenses were reduced
by $50,921 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 the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the six months ended November 30, 1995, purchases and sales of
investment securities other than short-term investments aggregated
$63,206,251 and $70,604,755, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
<TABLE>
<CAPTION>
Selected quarterly data
(Unaudited)
Net realized Net increase
and unrealized (decrease) in net
Investment Net investment gain (loss) assets from Net assets at
income income on investments operations end of period
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter Per Per Per Per Per
Ended Total Share Total Share Total Share Total Share Total Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/93 $3,906,776 $.29 $3,416,527 $.25 $ 4,293,095 $.31 $ 7,709,622 $.56 $207,629,192 $15.04
11/30/93 3,883,176 .27 3,414,063 .24 1,804,283 .14 5,216,346 .38 209,341,170 15.16
2/28/94 3,833,864 .28 3,373,354 .25 (264,663) (.02) 3,108,691 .23 206,407,850 14.95
5/31/94 3,775,827 .27 3,339,676 .24 (8,917,744) (.65) (5,578,068) (.41) 197,325,888 14.29
8/31/94 3,771,355 .27 3,318,192 .24 254,825 .02 3,573,017 .26 197,401,016 14.30
11/30/94 3,763,452 .27 3,365,265 .24 (11,789,485) (.85) (8,424,220) (.61) 185,480,993 13.43
2/28/95 3,706,008 .27 3,293,266 .24 9,342,288 .68 12,635,554 .92 192,709,139 13.96
5/31/95 3,698,558 .27 3,228,485 .24 2,636,867 .18 5,865,352 .42 195,078,721 14.13
8/31/95 3,654,588 .26 3,198,370 .23 (810,783) (.06) 2,387,587 .17 193,970,333 14.05
11/30/95 3,659,158 .27 3,229,433 .24 4,427.744 .32 7,657,177 .56 198,521,324 14.38
</TABLE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary Coburn
Vice President
James E. Erickson
Vice President
Blake Anderson
Vice President
Howard Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Senior Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 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.
[LOGO: PUTNAM INVESTMENTS]
The Putnam Funds
One Post Office Square
Boston Massachusetts, 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
22200-168 1/96
