Putnam
Tax-Free
Health Care
Fund
ANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Over the long term, we predict greater credit stability overall for
health-care providers as they become larger and more efficient, merger
activity settles, distinct business units become better integrated, and
the supply and demand for health care achieves greater equilibrium."
Moody's Investors Service; Special Comment
February 1998
* According to Lipper Analytical Services, Putnam Tax-Free Health Care
Fund's total return ranked 4 out of 56 among general municipal debt
closed-end funds for the 5 years ended June 30, 1998, placing the fund
in the top 8% of its investment category.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
* Performance data represent past results and do not reflect future
performance. Lipper Analytical Services, an independent research
organization, ranks funds according to total return performance. Their
rankings vary over time and do not reflect the effects of sales charges.
For the period ended 6/30/98, the fund's shares ranked 34 out of 64 and 22
out of 62 for 1- and 3-year returns, respectively. The fund was not
ranked over longer periods.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Analyzing risk premiums, yield spreads, call dates, yield curves, credit
ratings, supply-and-demand dynamics, taxable versus tax-exempt yield
relationships, and a host of other factors is all in a day's work for Putnam's
Tax-Exempt Bond Group. The result was another period of competitive
performance for Putnam Tax-Free Health Care Fund's fiscal year that closed on
May 31, 1998.
Using his knowledge of the environment for tax-exempt health-care securities
and backed by Putnam's extensive credit analysis capability, Fund Manager
Blake Anderson made the strategic and tactical decisions that provided these
positive results. In the following report, Blake discusses the fund's
performance during fiscal 1998 and then takes a look at prospects for the
tax-exempt market, especially with regard to the tax-free health-care
universe, in the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Blake Anderson
Health-care bonds continued to provide opportunity over the past year as
health-care institutions improved financially and strong demand for higher
yields whetted investors' appetites for a limited supply of bonds. Putnam
Tax-Free Health Care Fund took full advantage of this environment. Through
careful credit selection and an emphasis on income, your fund produced a total
return of 10.01% at net asset value (9.47% at market price) for the 12 months
ended May 31, 1998. For complete performance information, please turn to page
9.
* FAVORABLE CONDITIONS AND LIMITED SUPPLY PUSH PRICES HIGHER
Solid economic growth, improving creditworthiness, and positive
supply-and-demand factors framed the investment environment for health-care
bonds during the reporting period. The combination of continued economic
strength and low inflation generated higher tax revenues nationwide, creating
ample funds from which Medicare and Medicaid could reimburse health-care
institutions. Institutions that had strengthened financially -- through
cost-cutting and organizational restructuring measures that have been
characteristic of the industry over the past several years -- benefited to the
greatest extent from this trend. Meanwhile, the economy's strength and solid
credit conditions reduced the risks that can accompany investments in the
health-care sector.
The same low interest rates that helped create favorable investment conditions
also made it difficult for income-oriented investors to locate high,
sustainable yields. Health-care bonds attracted investors because they
continued to provide generous yields, particularly the lower-rated,
higher-coupon bonds. With a favorable economic environment and improving
credits, investors felt more comfortable assuming the additional credit risk
inherent in lower-rated bonds. The resulting demand, combined with a limited
supply of health-care bonds, contributed to your fund's attractive returns
over the past 12 months.
* INCOME AND CREDIT SELECTION KEY TO STRATEGY
The fund's investment strategy was governed by disciplined credit selection
and an emphasis on income. We also reduced the portfolio's interest-rate
sensitivity by keeping the fund's duration relatively short. Measured in
years, duration expresses a fund's sensitivity to interest-rate changes; the
shorter the duration, the less sensitive a fund is to changes in interest
rates. Conversely, the longer a fund's duration, the more sensitive it is to
interest-rate changes.
Credit analysis is of paramount importance in the health-care sector,
particularly in light of all the relationship changes that have occurred in
the sector over the past few years. For example, our credit analysts monitor
such factors as conditions in the market in which a hospital is located, the
hospital's position within that market, whether a small hospital has a strong
relationship with a larger hospital having more sophisticated systems, and a
hospital's proximity to other hospitals. All these factors affect a hospital's
bottom line and, by extension, the creditworthiness of its bonds. The
importance of credit analysis is further underscored when one considers the
consumers' growing emphasis on quality of care and of services provided and
the impact of this demand for quality on a health-care institution's business.
We monitor these important trends as a part of our credit analysis and are
cautious regarding those institutions with unwise affiliations or costs that
are poorly managed.
[GRAPHIC OMITTED: pie chart of CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
B -- 5.3%
Ba -- 25.9%
Baa -- 16.7%
A -- 5.5%
Aa -- 2.2%
Aaa -- 43.1%
VMIGI -- 1.3%
Footnote reads:
* Based on percentage of market value as of 5/31/98. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's descriptions
unless noted otherwise; percentages may include unrated bonds considered by
Putnam Management to be of comparable quality. Ratings will vary over time.
Staying current on individual health-care credits helps us determine which
bonds present the best opportunities for price appreciation from credit
improvement or from prerefundings. In a prerefunding, new bonds are issued to
replace older debt. The proceeds from the sale of these new bonds are usually
invested in top-quality securities, such as U.S. Treasuries, which are then
pledged to pay off the older debt. A prerefunding immediately improves the
credit quality of the older bonds because of the safety of principal
represented by the investment in high-quality securities. Furthermore, because
of these changes, the price of the bonds often rises considerably. Several of
the fund's investments benefited from prerefundings during the reporting
period.
In addition to monitoring credit quality, we also focused on income
generation, especially by investing in bonds with higher coupons. These bonds
provided a stronger income stream for the portfolio and, in our opinion,
presented better relative value. We also invested in bonds sold in the
secondary market rather than those that were newly issued. Typically, bonds in
the primary market were expensive on a relative basis, since investors sought
the most recently issued debt and bought bonds aggressively. In many cases,
investors sold older bonds to make way for new issues. Furthermore, older
bonds usually were not followed as closely from a credit standpoint by
investors without extensive research capabilities. Because fewer investors
were familiar with some of the older bonds, they were less expensive.
The fund's ability to take advantage of opportunities in the secondary market
draws heavily on the capabilities of Putnam's research analysts and bond
traders. Our research team continuously monitors individual credits, while our
bond traders follow the yield relationships between various bonds. Frequently
the bonds that a portfolio manager seeks may not be readily available in the
market. When they appear, our team of experts is aware of whether changes have
occurred in the bonds' underlying credit conditions and can quickly discern
whether their selling price represents attractive value.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Cochise County (Arizona) Industrial Development
Revenue bonds
Bexar County (Texas) Health Facilities Development Corp.
Revenue bonds
Orange County (Florida) Health Facilities Authority
Inverse floating rate bonds
New Jersey Health Care Facilities Financing Authority (Kimball Medical Center)
Revenue bonds
San Francisco City and County Community International Airport
Inverse floating rate bonds
Dickinson County (Michigan)
Hospital revenue bonds
Kansas City, Missouri, Industrial Development Authority
Health facilities revenue bonds
Michigan State Hospital Finance Authority (Garden City Hospital)
Revenue bonds
City of Corona (California)
Certificate of participation
Valley Health System (California)
Certificate of participation
These holdings represent 26.0% of the fund's net assets as of 5/31/98.
Portfolio holdings will vary over time.
* SELECTIVITY AND CAUTION FOR CONTINUED OPPORTUNITY
Going forward, we expect the health-care sector to continue to provide
opportunity for generous yields and total return. We anticipate ongoing
consolidation within the industry. Therefore, we believe credit selection and
an accurate determination of value will be more important than ever.
While the health-care sector still offers higher yields than most other
sectors in the tax-exempt bond market, strong demand has caused yields to fall
and prices to rise so that these bonds provide less of a yield advantage than
they have in the past. We believe that careful credit selection will continue
to reveal opportunity and that those bonds should experience further price
appreciation. However, we believe that weaker credits that have benefited from
the recent demand for high-yielding bonds may begin to experience some price
deterioration as investors become aware that the underlying credit conditions
did not warrant such extensive price appreciation.
We believe the key to success in this environment is to continue to emphasize
disciplined credit selection and income generation. We expect health-care
institutions in strong markets with solid financial operations to remain in
demand and benefit from trends such as mergers, affiliations, and
prerefundings that investors have witnessed and benefited from over the past
several years. Following these guidelines, we will continue to seek out the
yield advantages and potential for price appreciation we believe the
health-care sector can provide.
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 5/31/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Tax-Free Health Care Fund is designed for investors seeking high current
income free from federal income tax and consistent with the preservation
of capital through a portfolio of securities in the health-care sector.
TOTAL RETURN FOR PERIODS ENDED 5/31/98
NAV Market price
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1 year 10.01% 9.47%
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5 years 46.52 42.46
Annual average 7.94 7.33
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Life of fund (since 6/29/92) 65.32 47.80
Annual average 8.86 6.82
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 9.39% 1.69%
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5 years 38.53 12.90
Annual average 6.74 2.46
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Life of fund 52.55 16.12
Annual average 7.40 2.56
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/98
(most recent calendar quarter)
NAV Market price
- ------------------------------------------------------------------------------
1 year 9.16% 12.75%
- ------------------------------------------------------------------------------
5 years 45.03 44.19
Annual average 7.72 7.59
- ------------------------------------------------------------------------------
Life of fund (since 6/29/92) 66.03 53.02
Annual average 8.82 7.35
- ------------------------------------------------------------------------------
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
12 months ended 5/31/98
- ------------------------------------------------------------------------------
Distributions (common shares)
- ------------------------------------------------------------------------------
Number 12
- ------------------------------------------------------------------------------
Income $0.908
- ------------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------------
Long-term 0.040
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Short-term --
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Total $0.948
- ------------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------------
5/31/97 $14.56 $14.125
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5/31/98 15.02 14.500
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Current return (common shares) NAV Market price
- ------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------
Current dividend rate2 5.99% 6.21%
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Taxable equivalent3 9.92 10.28
- ------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by NAV
or market price at end of period.
3Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and 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 assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the indexes and
performance of the fund will differ. It is not possible to invest directly
in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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Report of independent accountants
To the Trustees and Shareholders of
Putnam Tax-Free Health Care Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam Tax-Free Health Care Fund (the "fund") at May 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31, 1998
by correspondence with the custodian and the application of alternative
auditing procedures where investments purchased were not yet received by the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 13, 1998
Portfolio of investments owned
May 31, 1998
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.0%) (a)
PRINCIPAL AMOUNT RATINGS (RAT) VALUE
Alaska (1.1%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 2,000,000 Valdez, Marine Term. Rev. Bonds
(Sohio Pipeline), 7 1/8s, 12/1/25 AA2 $ 2,220,000
Arizona (4.5%)
- -------------------------------------------------------------------------------------------------------------
6,420,000 Cochise Cnty., Indl. Dev. Rev. Bonds
(Sierra Vista Cmnty. Hosp.), Ser. B, 8 1/2s, 12/1/21 BBB-/P 7,350,900
1,875,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.),
Ser. A, 8 1/8s, 12/1/22 B/P 2,015,625
--------------
9,366,525
California (15.0%)
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Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Cap. Appn. Sub. Pub. Impt.), Ser. C
17,000,000 FSA, zero %, 9/1/30 Aaa 3,166,250
17,000,000 FSA, zero %, 9/1/29 Aaa 3,336,250
1,835,000 CA Hlth. Fac. Fin. Auth. Rev. Bonds
(Merritt Peralta Hosp.), Ser. A, 7 1/2s, 5/1/09 Baa3 1,931,117
4,000,000 Corona, COP (Hosp. Syst. Inc.), Ser. C, 8 3/8s, 7/1/11 B/P 4,550,000
17,105,000 Riverside Cnty., Asset Leasing Corp. Leasehold
Rev. Bonds (Riverside Cnty. Hosp.), MBIA,
zero %, 6/1/25 Aaa 4,169,344
3,000,000 San Bernardino Cnty., IF COP (PA-100-Med. Ctr. Fin.),
MBIA, 9.1238s, 8/1/28 (acquired 6/27/95,
cost $3,237,720) (RES) (SEG) Aaa/P 3,937,500
4,750,000 San Francisco, City & Cnty. Cmnty. Intl. Arpts. IFB,
FGIC, 7.99s, 5/1/25 (acquired 1/3/96,
cost $5,354,105) (RES) AAA 5,486,250
4,145,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 4,502,506
--------------
31,079,217
Connecticut (3.8%)
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CT State Dev. Auth. 1st Mtge. Rev. Bonds
(Inter-Church Residences Inc.)
3,500,000 9 5/8s, 4/1/21 Aaa 4,125,625
1,200,000 9 1/2s, 5/1/13 Aaa 1,410,000
2,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 BB-/P 2,260,000
--------------
7,795,625
Florida (3.4%)
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4,850,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.695s, 10/29/21 Aaa 5,771,500
1,270,000 Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(JFK Med. Ctr. Inc.), 8 7/8s, 12/1/18 AAA/P 1,327,036
--------------
7,098,536
Georgia (1.1%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 GA Muni. Elec. Auth. Pwr. Rev. Bonds, Ser. Y,
AMBAC, 6.4s, 1/1/13 A/P 2,320,000
Illinois (1.8%)
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IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.)
2,190,000 8 3/4s, 7/1/11 BB/P 2,425,425
1,125,000 Prerefunded, 8 3/4s, 7/1/11 AAA/P 1,282,500
--------------
3,707,925
Kentucky (1.8%)
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2,000,000 Jefferson Cnty., Hosp. IFB (Alliant Hlth. Syst.),
MBIA, 8.796s, 10/1/14 Aaa 2,382,500
1,375,000 Muhlenberg Cnty., Hosp. Rev. Bonds
(Muhlenberg Cmnty. Hosp.), 9 1/2s, 8/1/10 AAA/P 1,414,683
--------------
3,797,183
Maryland (1.4%)
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2,780,000 Berlin, Hosp. Rev. Bonds (Atlantic Gen. Hosp. Fac.),
8 3/8s, 6/1/22 BB-/P 2,971,125
Massachusetts (16.2%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 MA Hsg. Fin. Agcy. Rev. Bonds (Residential Dev.),
Ser. E, FNMA Coll., 6 1/4s, 11/15/12 Aaa 3,243,750
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,225,000 (St. Joseph's Hosp.), Ser. C, 9 1/2s, 10/1/20 Aaa/P 2,416,906
3,300,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B,
8 3/8s, 7/1/15 Baa3 3,646,500
2,500,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba2 2,554,775
4,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 4,495,000
1,000,000 (Beth Israel Hosp.), 7 3/4s, 7/1/08 A2 1,023,050
3,360,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 3,574,200
2,000,000 (Charlton Memorial Hosp.), Ser. B, 7 1/4s, 7/1/07 A2 2,217,500
2,775,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 3,180,844
3,500,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 AAA 3,976,875
MA State Indl. Fin. Agcy. Rev. Bonds
925,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB- 979,344
2,090,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 Aaa 2,225,578
--------------
33,534,322
Michigan (9.5%)
- -------------------------------------------------------------------------------------------------------------
4,500,000 Dickinson Cnty., Hosp. Rev. Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 Ba1 5,231,250
MI State Hosp. Fin. Auth. Rev. Bonds
4,130,000 (Garden City Hosp.), 8 1/2s, 9/1/17 Ba3 4,754,663
1,750,000 (Sinai Hosp.), 6.7s, 1/1/26 A2 1,951,250
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 AAA 3,330,000
1,500,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/23 Baa3 1,539,375
3,000,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth. Care, Inc.), 8 3/8s, 7/1/23 B-/P 2,940,000
--------------
19,746,538
Minnesota (0.7%)
- -------------------------------------------------------------------------------------------------------------
1,300,000 Rochester Hlth. Care Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB+/P 1,426,750
Missouri (3.3%)
- -------------------------------------------------------------------------------------------------------------
4,700,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 4,964,375
1,700,000 MO State Hlth. & Edl. Fac. Auth. Hlth. Fac. Rev. Bonds
(Jefferson Memorial Hosp.), 6.8s, 5/15/25 Baa2 1,857,250
--------------
6,821,625
New Hampshire (1.0%)
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1,910,000 NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
(Alice Peck Day Memorial Hosp.), 9 3/8s, 11/1/20 BB+ 2,110,550
New Jersey (4.5%)
- -------------------------------------------------------------------------------------------------------------
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,600,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 3,973,500
5,000,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 5,493,750
--------------
9,467,250
New York (1.3%)
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NY City, Hlth. & Hosp. Corp. VRDN (Hlth. Syst.)
1,300,000 Ser. A, 3.9s, 2/15/26 VMIG1 1,300,000
1,400,000 Ser. C, 3.8s, 2/15/26 VMIG1 1,400,000
--------------
2,700,000
Ohio (1.0%)
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1,967,364 Holland, Indl. Dev. Mtge. Rev. Bonds
(Spring Meadow Extended Care), FHA Insd.,
11s, 4/15/13 A-/P 2,062,034
Pennsylvania (12.3%)
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Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
3,000,000 (Divine Providence Hosp.), Ser. B, 8 3/4s, 1/1/14 AAA/P 3,071,310
2,210,000 (UPMC Hlth.), Ser. B, MBIA, 6s, 7/1/24 Aaa 2,483,488
2,980,000 College Township, Indl. Dev. Auth. 1st Mtge. Hlth. Fac.
Rev. Bonds (Nittany Valley Rehab. Hosp.),
7 5/8s, 11/1/07 BB/P 3,348,775
2,000,000 Langhorne Manor Boro Higher Ed. Hlth. Auth.
Rev. Bonds (Lower-Bucks Hosp.), 7.35s, 7/1/22 Ba3 2,127,500
1,800,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds, Ser. B, 8 1/4s, 11/1/18 BBB+ 1,939,500
4,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp.), Ser. B, 8 3/8s, 11/1/11 AAA 4,315,000
1,285,000 PA State Higher Ed. Assistance Agcy. Student Loan,
Ser. A&B, 7 1/4s, 7/1/18 BB 1,363,706
1,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Hosp.
Rev. Bonds (Graduate Hlth. Syst.), Ser. B,
6 1/4s, 7/1/13 BB 992,500
2,950,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Hosp.
IFB, FGIC, 6.479s, 3/6/12 Aaa 3,075,375
2,450,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York),
7 1/2s, 9/1/07 BB/P 2,695,000
--------------
25,412,154
South Carolina (1.6%)
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3,000,000 SC Jobs Econ. Dev. Auth. Rev. Bonds
(St. Francis Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 3,281,250
Tennessee (1.0%)
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1,700,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 8.216s, 1/1/22 Aaa 1,980,500
Texas (7.3%)
- -------------------------------------------------------------------------------------------------------------
3,650,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB
(High Plains Baptist Hosp.), FSA, 9.038s, 1/3/22 Aaa 4,348,063
5,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 5,800,000
990,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 1,215,224
1,560,000 Montgomery Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Woodlands Med. Ctr.), 8.85s, 8/15/14 A-/P 1,669,200
North Central Hlth. Fac. Dev. Corp.
VRDN (Hosp.), Ser. B
1,810,000 7.86s, 5/15/08 Aa2 1,991,000
190,000 Prerefunded, 7.86s, 5/15/08 AA 211,850
--------------
15,235,337
Utah (0.6%)
- -------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps. Inc.),
9.566s, 5/15/20 (acquired 6/6/97,
cost $1,171,200) (RES) Aaa 1,167,500
Vermont (0.9%)
- -------------------------------------------------------------------------------------------------------------
1,870,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Northwestern Med. Ctr.), 6 1/4s, 9/1/18 BBB 1,965,838
Virginia (0.6%)
- -------------------------------------------------------------------------------------------------------------
1,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp. Syst.),
Ser. C, 9.527s, 8/29/23 Aaa 1,207,500
Washington (1.2%)
- -------------------------------------------------------------------------------------------------------------
2,125,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,390,624
West Virginia (1.1%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 Randolph Cnty. Rev. Bonds (Davis Memorial Hosp.),
Ser. A, 7.65s, 11/1/21 Baa1 2,250,000
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $188,919,420) (b) $ 203,115,908
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $207,330,667.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1998 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 May 31, 1998. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings
are not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $188,919,420 resulting in gross unrealized appreciation
and depreciation of $15,322,917 and $1,126,429, respectively, or net unrealized appreciation of
$14,196,488.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1998 was $10,591,250 or 5.1% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1998.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to
changes in the market interest rates, and VRDN's are the current interest rates at May 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1998
Unrealized
Total Aggregate Expiration Appreciation/
Value Face Value Date Depreciation
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Municipal Bond Index
(Long) $12,530,312 $12,253,969 Jun-98 $276,343
U.S. Treasury Bond
(Short) 5,842,500 5,798,438 Jun-98 (44,062)
- --------------------------------------------------------------------------------------------
$232,281
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $188,919,420) (Note 1) $203,115,908
- ---------------------------------------------------------------------------------------------------
Cash 408,100
- ---------------------------------------------------------------------------------------------------
Interest receivable 3,534,817
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 1,740,000
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 6,938
- ---------------------------------------------------------------------------------------------------
Total assets 208,805,763
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,035,438
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 360,587
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,787
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,487
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,084
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 36,713
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,475,096
- ---------------------------------------------------------------------------------------------------
Net assets $207,330,667
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 1) 191,839,876
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,033,761
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 28,261
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 14,428,769
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $207,330,667
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($207,330,667 divided by
13,807,168 shares) $15.02
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1998
<S> <C>
Tax exempt interest income: $14,359,544
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,438,640
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 238,456
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,822
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,525
- --------------------------------------------------------------------------------------------------
Reports to shareholders 26,644
- --------------------------------------------------------------------------------------------------
Auditing 28,698
- --------------------------------------------------------------------------------------------------
Legal 5,332
- --------------------------------------------------------------------------------------------------
Postage 23,260
- --------------------------------------------------------------------------------------------------
Exchange listing fees 24,260
- --------------------------------------------------------------------------------------------------
Other 23,101
- --------------------------------------------------------------------------------------------------
Total expenses 1,826,738
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (57,462)
- --------------------------------------------------------------------------------------------------
Net expenses 1,769,276
- --------------------------------------------------------------------------------------------------
Net investment income 12,590,268
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,277,956
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (86,940)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts during the year 4,650,333
- --------------------------------------------------------------------------------------------------
Net gain on investments 6,841,349
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,431,617
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
--------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 12,590,268 $ 12,834,287
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 2,191,016 (63,133)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,650,333 5,885,844
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,431,617 18,656,998
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (12,535,530) (12,425,187)
From net realized gain on investments (552,287) --
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 6,343,800 6,231,811
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 200,986,867 194,755,056
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,033,761 and $855,732, respectively) $207,330,667 $200,986,867
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of year 13,807,168 13,807,168
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.56 $14.11 $14.13 $14.29 $14.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .91 .93 .94 .96 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .50 .42 (.03) .03 (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.41 1.35 .91 .99 .76
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.91) (.90) (.93) (1.01) (1.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) -- -- (.14) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.90) (.93) (1.15) (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.02 $14.56 $14.11 $14.13 $14.29
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $14.500 $14.125 $13.500 $13.375 $14.375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 9.47 11.68 8.74 1.20 6.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $207,331 $200,987 $194,755 $195,079 $197,326
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89 .90 .92 .90 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.11 6.45 6.62 6.85 6.58
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.25 7.92 44.68 39.44 36.92
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
May 31, 1998
Note 1
Significant accounting policies
Putnam Tax-Free Health Care Fund (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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
E) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. These
differences include temporary and permanent differences of dividends payable,
unrealized gains and losses on certain futures contracts, and market discount.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended May 31, 1998, the fund
reclassified $123,291 to increase undistributed net investment income and $417
to decrease paid-in-capital, with a decrease to accumulated net realized gain
on investments of $122,874. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds and
original issue discount bonds are accreted according to the yield-to-maturity
basis.
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 reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended May 31, 1998, fund expenses were reduced by $57,462 under
expense offset arrangements with PFTC. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered into
such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $460 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended May 31, 1998 purchases and sales of investment
securities other than short-term investments aggregated $32,508,184 and
$34,833,327, 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.
Federal tax information
(Unaudited)
The fund has designated 99.1% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund
hereby designates $724,539 as 20% capital gain, for its taxable year ended
May 31, 1998.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER]Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Tax-Free Health
Care Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
43760 168 7/98
