Putnam
Tax-Free
Health Care
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Although municipal bonds did not experience the turbulence endured by
taxable bonds in the wake of last fall's global flight to quality,
investments in the tax-free health-care sector presented some special
challenges over the past year. Two high-visibility defaults and investor
concerns over the future of Medicare and the effects of the millennium bug
on health-care providers were among the more prominent worries.
In the prevailing environment, Blake Anderson, who manages Putnam Tax-Free
Health Care Fund, has been focusing on generating maximum current income
without undue risk to principal. He has done this primarily through
careful selection of portfolio holdings and strategies aimed at risk
reduction.
In the following report, Blake explains these strategies in detail as he
reviews your fund's performance during the fiscal year that ended on May
31, 1999. Then he explains why despite current concerns, he believes
prospects for investment in health care have a potentially bright future.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
Blake E. Anderson
A review of the broad fixed-income market over the past 12 months shows a
capricious environment that was less than friendly to just about every
type of fixed-income security at one point or another. Nevertheless,
pockets of considerable strength occurred in several areas, the U.S.
Treasury market's historic rally throughout late summer and the fall being
the most noteworthy. In general, the municipal bond market provided a
relatively stable ride in comparison to its taxable counterparts, missing
out on any major rallies but sidestepping the dramatic declines
experienced by other sectors.
Consequently, for the 12 months ended May 31, 1999, Putnam Tax-Free Health
Care Fund produced modest gains at net asset value and market price. More
detailed performance information can be found on pages 6 and 7 of this
report.
Total return for 12 months ended 5/31/99
Net asset value Market price
- ----------------------------------------------------------------
2.80% 6.89%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* TREASURY MARKET TRENDS AFFECT MUNICIPAL SUPPLY
Over the fiscal period, one of the more positive trends affecting the
municipal market was the improvement in the overall balance between supply
and demand. Calendar 1998 was a banner year for new bond issuance, largely
as a result of prerefundings. A prerefunding occurs when a municipal
issuer sells new bonds at lower rates of interest and buys high-quality
securities, such as U.S. Treasury bonds, which are pledged to pay off the
older, higher-yielding debt. Because of the safety associated with
Treasury securities, a prerefunding improves the credit quality of the
older bond, which, in turn, may help boost its price.
[GRAPHIC OMITTED: horizontal bar chart TOP STATE ALLOCATIONS]
TOP STATE ALLOCATIONS
Massachusetts 15.4%
California 15.0%
Michigan 9.6%
Texas 9.2%
Pennsylvania 8.9%
Footnote reads:
These holdings represent 58.1% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
The large number of prerefundings pushed many bonds upward in price,
including several in your fund's portfolio. These included the New
Hampshire Development Authority Rivermead and Massachusetts Health and
Education Finance Authority Saint Joseph's. While the holdings discussed
in this report were viewed favorably at the end of the period, all are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
As the fiscal year progressed, new municipal bond issuance slowed because
of the unprecedented decline in Treasury bond yields in the fall and their
abrupt rise this past spring. When Treasury yields hit their low point as
a result of the global flight to quality, it became financially
impractical for municipalities to prerefund the older, higher-yielding
municipal debt. As Treasury yields began to rise, municipalities were
forced to deliberate more carefully the merits of a particular project or
service in order to justify borrowing at higher costs.
Furthermore, the Treasury market's dramatic rally created a highly
favorable yield relationship between Treasury securities and comparable
municipal issues. Investors took note of the attractive municipal bond
yields, and prices and demand picked up. In the past couple of months,
inflation concerns have reappeared on investors' radar screens and
interest rates have risen as a result. Most fixed-income securities
experienced downturns in price but the pent-up demand for municipal bonds
helped lend support to the sector.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 2.8%
BBB/Baa -- 23.8%
BB/Ba -- 18.4%
VMIG1 -- 2.8%
B -- 7.6%
CCC -- 0.4%
AAA/Aaa -- 42.0%
AA/Aa -- 2.2%
Footnote reads:
* As a percentage of market value as of 5/31/99. A bond rated Baa or higher
is considered investment grade. Percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings will
vary over time.
Several health-care related events further influenced the performance of
health-care bonds and your fund. A few widely publicized defaults last
summer in the health-care sector -- namely, those of the Allegheny Health,
Education, and Research Foundation and the Philadelphia Graduate Hospital
System -- caused investors and municipal issuers to shy away from
health-care bonds, causing a downturn in the sector. The Federal Balanced
Budget Act of 1997 and its implications for Medicaid and Medicare
reimbursement programs further worried investors. In addition, the Y2K
problem has many U.S. firms, as well as health-care institutions,
scrambling to make their computer systems compliant. The potential costs
associated with such an undertaking could detract from many hospitals'
bottom lines -- yet another cause for investor concern.
"During the first three months of the year, many investors suffered as
interest rates rose -- but not investors in municipal bonds . . .
But what investors may not realize is that they may be able to get an even
better deal through closed-end municipal bond funds."
- -- "Bondwatch, a Better Way to Buy Munis," SmartMoney, June 1, 1999
* PORTFOLIO BALANCES INCOME, TOTAL RETURN, AND RISK MANAGEMENT
Because your fund's top priority is to generate a high level of current
income with as little risk as possible, our strategies and target
investments create a relatively defensive orientation as a natural
byproduct. Consequently, the fund held its own when credit spreads -- the
difference in yield between bonds of varying credit quality -- widened
during last fall's tumult and this spring's inflation scare.
The bulk of your fund's net assets is invested in premium coupon bonds --
those selling at prices above par value and whose coupons are higher than
current market rates. Because their higher income streams represent a
greater portion of their return, thus providing a temporary floor for
their prices, premium bonds tend to be less seriously affected when prices
decline and yields rise. As such, they help keep the fund's average
duration relatively short.
"If an investor owns a portfolio that is heavily weighted in stocks and he
or she is looking to add a fixed-income component as part of a rebalancing
strategy -- one that offers high current income potential and a relatively
defensive interest-rate stance -- Putnam Tax-Free Health Care Fund may offer
the right fit."
- -- Blake E. Anderson, manager
Duration, as you may know, is a measure of a fund's sensitivity to
interest-rate changes. The shorter the duration, the less susceptible the
fund is to the price volatility associated with rising interest rates.
Conversely, a longer duration makes the fund more sensitive to
interest-rate changes but offers potential advantages during periods of
declining rates. Over the period, the short duration helped buoy the
portfolio during periods of pressure. However, it also, prevented the fund
from fully benefiting when the Federal Reserve Board cut interest rates
three times between September and November. In such cases, a longer
duration stance would have been more advantageous.
Throughout the year, we anchored the fund's holdings at opposite ends of
the quality spectrum. At period's end, roughly 40% of the fund's net
assets were invested in AAA-rated bonds and 40% in BB-rated and below and
nonrated bonds. The remainder was invested in BBB-rated issues, those that
fall within the lowest tier of the investment-grade category. These
so-called cusp bonds took the brunt of the downturn in the hospital
sector. The fund's limited exposure to them was a positive. The
higher-rated issues contributed to performance when rates declined in 1998
and credit spreads widened. The lower-rated issues boosted performance as
rates rose over the past few months and should also lend further price
support should rates continue to rise.
* CHANGING DEMOGRAPHICS CREATE ATTRACTIVE INVESTMENT OPPORTUNITIES
One of our ongoing goals is to make your fund more resilient to changes in
health-care legislation and demographics as well as to fluctuations in the
market and the economy. In pursuit of this goal, we try to target bond
issuers that offer an essential service, ones that have a specific
health-care mission, whatever the payer system. The graying of the
baby-boom generation and its widespread implications for the health-care
sector have presented us with several select buying opportunities in
life-care and assisted living facilities. The Massachusetts Development
Finance Authority Merrimac Place was a bond from this sector added to the
portfolio over the fiscal year.
* POTENTIAL FOR RISING RATES MAY CONTINUE TO CAUSE UNEASE
Fixed-income markets are greeting the summer on the proverbial fence --
poised to jump at the slightest change in the direction of interest rates.
Experience has taught us, however, that some of the best investment
opportunities are created during times of market uncertainty. The present,
we believe, offers no exception. While the psychological impact of a
potential increase in short-term interest rates by the Federal Reserve
Board could well cause further market jitters, we believe Putnam's
extensive research capabilities give us the flexibility to create a
structurally favorable portfolio of bonds for any market climate. We look
to fiscal 2000 with confidence in our ability to provide your investment
with the optimum balance of income, total return, and risk management.
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 5/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The fund concentrates its
investments in one region or industry and involves more risk than a fund
that invests more broadly.
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 5/31/99
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index price index
- -----------------------------------------------------------------------
1 year 2.87% 6.89% 4.67% 2.09%
- -----------------------------------------------------------------------
5 years 43.44 43.03 41.51 12.68
Annual average 7.48 7.42 7.19 2.42
- -----------------------------------------------------------------------
Life of fund 70.07 57.98 59.68 18.54
(since 6/29/92)
Annual average 7.98 6.83 7.00 2.49
- -----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, 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 5/31/99
- ------------------------------------------------------------------------
Distributions (common shares) 12
- ------------------------------------------------------------------------
Number
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Income $0.9000
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Capital gains1
Long-term 0.0125
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Short-term 0.0332
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Total $0.9457
- ------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ------------------------------------------------------------------------
5/31/98 $15.02 $14.500
- ------------------------------------------------------------------------
5/31/99 14.50 14.563
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Current return (common shares) (end of period)
- ------------------------------------------------------------------------
Current dividend rate2 6.21% 6.18%
- ------------------------------------------------------------------------
Taxable equivalent3 10.28 10.23
- ------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
TOTAL RETURN FOR PERIODS ENDED 6/30/99
Market
NAV price
- -----------------------------------------------------------------------
1 year 1.55% 2.88%
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5 years 41.88 40.47
Annual average 7.25 7.03
- -----------------------------------------------------------------------
Life of fund (since 6/29/92) 68.60 57.42
Annual average 7.75 6.70
- -----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
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 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. Securities indexes assume reinvestment of all
distributions and interest payments and do not take in 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended May 31, 1999
To the Trustees and Shareholders of
Putnam Tax-Free Health Care Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, (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, 1999,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
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
U.S. Govt. Coll. -- U.S. Government Collateralized
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.8%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alaska (1.1%)
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$ 2,000,000 Valdez, Marine Term. Rev. Bonds (Sohio Pipeline),
7 1/8s, 12/1/25 AA+ $ 2,187,500
Arizona (4.6%)
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6,400,000 Cochise Cnty., Indl. Dev. Rev. Bonds (Sierra Vista
Cmnty. Hosp.), Ser. B, 8 1/2s, 12/1/21 BBB-/P 7,136,000
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 1,992,188
--------------
9,128,188
California (15.0%)
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Anaheim, Pub. Fin. Auth. Lease Rev. Bonds
(Cap. Appn. Sub. Pub. Impt.), Ser. C, FSA
17,000,000 zero % 9/1/30 Aaa 3,187,500
17,000,000 zero % 9/1/29 Aaa 3,357,500
1,000,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 966,250
4,000,000 Corona, COP (Hosp. Syst. Inc.), Ser. C,
8 3/8s, 7/1/11 (acquired 3/5/96,
cost $4,000,000) (RES) B-/P 4,080,000
17,105,000 Riverside Cnty., Asset Leasing Corp. Leasehold
Rev. Bonds (Riverside Cnty. Hosp.),
MBIA, zero %, 6/1/25 Aaa 4,233,488
3,000,000 San Bernardino Cnty., IF COP
(PA-100-Med. Ctr. Fin.), MBIA, 6 1/2s, 8/1/28
(acquired 6/27/95, cost $3,237,006) (RES) (SEG) AAA/P 3,892,500
4,750,000 San Francisco, City & Cnty. Arpts. Rev. Bonds,
FGIC, 7.386s, 5/1/25 (acquired 1/3/96,
cost $5,327,006) (RES) AAA 5,800,938
4,145,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 4,414,425
--------------
29,932,601
Colorado (0.7%)
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1,500,000 Denver, Hlth. & Hosp. Rev. Bonds,
Ser. A, 5 3/8s, 12/1/28 Baa2 1,430,625
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 3,976,875
1,200,000 9 1/2s, 5/1/13 Aaa 1,360,500
2,000,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Norwalk Health Care Inc.), Ser. A, 8.7s, 7/1/22 BB-/P 2,332,500
--------------
7,669,875
Florida (2.8%)
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4,850,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 7.605s, 10/29/21 Aaa 5,632,063
Georgia (1.6%)
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1,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds
(Babtist Hlthcare Sys.), 6 1/4s, 10/1/18 B/P 977,500
2,000,000 GA Muni. Elec. Auth. Pwr. Rev. Bonds,
Ser. Y, AMBAC, 6.4s, 1/1/13 Aaa 2,292,500
--------------
3,270,000
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 2,428,163
1,125,000 8 3/4s, 7/1/11 Prerefunded AAA/P 1,234,688
--------------
3,662,851
Kentucky (1.2%)
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Jefferson Cnty., Hosp. IFB, MBIA
1,400,000 9.242s, 10/23/14 Aaa 1,664,250
600,000 6.436s, 10/23/14 AAA 710,250
--------------
2,374,500
Maryland (1.5%)
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2,740,000 Berlin, Hosp. Rev. Bonds (Atlantic Gen. Hosp. Fac.),
8 3/8s, 6/1/22 BB-/P 2,914,675
Massachusetts (15.4%)
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3,000,000 MA Hsg. Fin. Agcy. Rev. Bonds (Residential Dev.),
Ser. E, FNMA Coll., 6 1/4s, 11/15/12 Aaa 3,213,750
1,500,000 MA State Dev. Fin. Agcy. Rev. Bonds
(Merrimack Place), 6 3/4s, 7/1/30 B/P 1,475,625
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 2,312,687
3,300,000 (Waltham-Weston Hosp. & Med. Ctr.),
Ser. B, 8 3/8s, 7/1/15 Baa3 3,538,359
3,685,000 (Rehab. Hosp. Cape & Islands),
Ser. A, 7 7/8s, 8/15/24 BB/P 4,375,938
3,360,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 3,658,200
2,000,000 (Charlton Memorial Hosp.), Ser. B, 7 1/4s, 7/1/07 A2 2,175,000
2,715,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 3,064,556
3,500,000 (Sisters Providence Hlth. Syst),
Ser. A, 6 5/8s, 11/15/22 Aaa 3,928,750
MA State Indl. Fin. Agcy. Rev. Bonds
900,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB-/P 933,561
2,090,000 (Morton Hosp. & Med. Ctr.), Ser. A,
U.S. Govt. Coll., 8 3/4s, 7/1/11 Aaa 2,138,091
--------------
30,814,517
Michigan (9.6%)
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4,500,000 Dickinson Cnty., Hosp. Rev. Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 Ba1 5,124,375
MI State Hosp. Fin. Auth. Rev. Bonds
4,130,000 (Garden City Hosp.), 8 1/2s, 9/1/17 BB 4,620,438
1,750,000 (Sinai Hosp.), 6.7s, 1/1/26 A- 1,830,938
3,000,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 3,189,390
1,500,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/23 Baa3 1,528,125
3,100,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39
(acquired 12/31/98, cost $3,100,000) (RES) B-/P 2,883,000
--------------
19,176,266
Minnesota (0.7%)
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1,300,000 Rochester Hlthcare Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB+/P 1,503,125
Missouri (3.3%)
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4,600,000 Kansas City, Indl. Dev. Auth. Hlth. Fac. Rev. Bonds
(Park Lane Med. Ctr.), 8 3/4s, 1/1/15 BB+/P 4,756,630
1,700,000 MO State Hlth. & Edl. Fac. Auth. Hlth. Fac.
Rev. Bonds (Jefferson Memorial Hosp.),
6.8s, 5/15/25 Baa2 1,829,625
--------------
6,586,255
New Hampshire (1.5%)
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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+/P 2,060,413
1,000,000 NH Higher Edl. & Hlth. Facs. Auth. Rev. Bonds
(Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 980,000
--------------
3,040,413
New Jersey (5.8%)
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1,000,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 993,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
3,600,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 3,826,584
5,000,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 5,347,050
1,450,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 B 1,498,938
--------------
11,666,322
New York (2.8%)
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1,300,000 NY City, Hlth. & Hosp. Corp. VRDN (Hlth. Syst.),
Ser. D, 3.05s, 2/15/26 VMIG1 1,300,000
NY State Hsg. Fin. Agcy. VRDN
100,000 (Mt. Sinai School), Ser. A, 3 1/4s, 11/1/14 VMIG1 100,000
2,200,000 (Special Surgery Hosp. Staff),
Ser. A, 3.15s, 11/1/10 VMIG1 2,200,000
2,000,000 NY State Med. Care Fac. Fin. Agcy. VRDN
(Lenox Hill Hosp.), Ser. A, 3.15s, 11/1/08 VMIG1 2,000,000
--------------
5,600,000
Oklahoma (0.5%)
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1,000,000 OK Dev. Fin. Auth. Rev. Bonds
(Hillcrest Healthcare), Ser. A, 5 5/8s, 8/15/29 BBB+ 972,500
Pennsylvania (8.9%)
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2,210,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(UPMC Hlth.), Ser. B, MBIA, 6s, 7/1/24 Aaa 2,472,438
2,770,000 College Township, Indl. Dev. Auth. 1st Mtge. Hlth.
Fac. Rev. Bonds (Nittany Valley Rehab. Hosp.),
7 5/8s, 11/1/07 BBB-/P 3,064,313
1,800,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds, Ser. B, 8 1/4s, 11/1/18 BBB+ 1,871,856
4,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp.), Ser. B, 8 3/8s, 11/1/11 AAA 4,162,560
1,285,000 PA State Higher Ed. Assistance Agcy. Student Loan,
Ser. A&B, 7 1/4s, 7/1/18 (In default) (NON) CCC 424,050
2,950,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Hosp.
IFB, FGIC, 7.767s, 3/6/12 (acquired 2/17/94,
cost $2,950,000) (RES) Aaa 3,082,750
1,000,000 Philadelphia, Hosp. & Higher Ed. Fac. Auth. Hosp.
Rev. Bonds (Graduate Hlth. Syst.), Ser. B,
6 1/4s, 7/1/13 (In default) (acquired 8/28/96,
cost $946,326) (RES) (NON) CCC 330,000
2,275,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York),
7 1/2s, 9/1/07 BBB-/P 2,465,531
--------------
17,873,498
South Carolina (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 SC Jobs Econ. Dev. Auth. Rev. Bonds
(St. Francis Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 3,221,250
Tennessee (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,700,000 Metropolitan Govt. Nashville & Davidson Cnty.,
Tenn. Wtr. & Swr. IFB, AMBAC, 9.23s, 1/1/22 Aaa 1,942,250
Texas (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,650,000 Amarillo, Hlth. Fac. Hosp. Corp. IFB
(High Plains Baptist Hosp.), FSA, 9.443s, 1/1/22 Aaa 4,256,813
5,000,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp.), 7.9s, 5/1/11 AAA/P 5,693,743
960,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 1,126,800
3,700,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds
(Mem. Hlth. Syst. of East TX), 5.7s, 2/15/28 BBB 3,639,875
1,520,000 Montgomery Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (Woodlands Med. Ctr.),
8.85s, 8/15/14 A-/P 1,562,849
North Central Hlth. Fac. Dev. Corp. Rev. Bonds
(Hosp.)
1,810,000 Ser. B, 7.861s, 5/15/08 AA 1,959,325
190,000 Ser. B, 7.861s, 5/15/08, Prefunded AA 207,100
--------------
18,446,505
Utah (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Salt Lake City, Hosp. IFB (IHC Hosps. Inc.),
9.363s, 5/15/20 Aaa 1,140,000
Vermont (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,870,000 VT Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(Northwestern Med. Ctr.), 6 1/4s, 9/1/18 BBB 1,947,138
Virginia (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 9.577s, 8/29/23 Aaa 1,165,000
Washington (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,125,000 Grant Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds
(Samaritan Hosp.), 9 1/4s, 9/1/10 BBB/P 2,287,031
West Virginia (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,950,000 Randolph Cnty. Rev. Bonds (Davis Memorial Hosp.),
Ser. A, 7.65s, 11/1/21 Baa1 2,135,250
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $188,917,298) (b) $ 197,720,198
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $200,148,362.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
May 31, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While
the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do
not necessarily represent what the agencies would ascribe to these securities at May 31, 1999. Securities rated by
Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $188,917,298, resulting in gross unrealized appreciation and
depreciation of $11,469,271 and $2,666,371, respectively, or net unrealized appreciation of $8,802,900.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
May 31, 1999 was $20,069,188 or 10.0% 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, 1999.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes in the
market interest rates, and VRDN's are the current interest rates at May 31, 1999.
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond
Index (long) $7,950,938 $7,986,142 Sep-99 $(35,204)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $188,917,298) (Note 1) $197,720,198
- -----------------------------------------------------------------------------------------------
Cash 186,342
- -----------------------------------------------------------------------------------------------
Interest receivable 3,371,511
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 300,969
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 18,562
- -----------------------------------------------------------------------------------------------
Total assets 201,597,582
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,035,423
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 357,662
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 17,010
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,509
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,088
- -----------------------------------------------------------------------------------------------
Other accrued expenses 26,528
- -----------------------------------------------------------------------------------------------
Total liabilities 1,449,220
- -----------------------------------------------------------------------------------------------
Net assets $200,148,362
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $191,839,876
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 953,987
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,413,197)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,767,696
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $200,148,362
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($200,148,362 divided by 13,807,168 shares) $14.50
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1999
<S> <C>
Tax exempt interest income: $14,075,702
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,437,520
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 245,913
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,881
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,355
- -----------------------------------------------------------------------------------------------
Reports to shareholders 24,932
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 29,165
- -----------------------------------------------------------------------------------------------
Legal 2,727
- -----------------------------------------------------------------------------------------------
Postage 26,400
- -----------------------------------------------------------------------------------------------
Exchange listing fees 24,260
- -----------------------------------------------------------------------------------------------
Other 36,864
- -----------------------------------------------------------------------------------------------
Total expenses 1,845,092
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (32,469)
- -----------------------------------------------------------------------------------------------
Net expenses 1,812,623
- -----------------------------------------------------------------------------------------------
Net investment income 12,263,079
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (850,187)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 122,111
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures contracts during the year (5,661,073)
- -----------------------------------------------------------------------------------------------
Net loss on investments (6,389,149)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 5,873,930
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 12,263,079 $ 12,590,268
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (728,076) 2,191,016
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (5,661,073) 4,650,333
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,873,930 19,431,617
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (12,425,247) (12,535,530)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (630,988) (552,287)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (7,182,305) 6,343,800
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 207,330,667 200,986,867
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $953,987 and $1,033,761, respectively) $200,148,362 $207,330,667
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.02 $14.56 $14.11 $14.13 $14.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .89 .91 .93 .94 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) .50 .42 (.03) .03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .43 1.41 1.35 .91 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.90) (.91) (.90) (.93) (1.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.05) (.04) -- -- (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.95) (.90) (.93) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.50 $15.02 $14.56 $14.11 $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $14.563 $14.500 $14.125 $13.500 $13.375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) 6.89 9.47 11.68 8.74 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $200,148 $207,331 $200,987 $194,755 $195,079
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90 .89 .90 .92 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.98 6.11 6.45 6.62 6.85
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.53 16.25 7.92 44.68 39.44
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the 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, 1999
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. At May 31,
1999, the fund had a capital loss carryover of approximately $277,000
available to offset future capital gains, if any, which will expire on May
31, 2007.
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. These
differences include temporary and permanent differences of post-October
loss deferrals, defaulted bond interest, 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, 1999, the fund reclassified
$82,394 to increase undistributed net investment income, with an increase
to accumulated net realized loss of $82,394. 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, 1999, fund expenses were reduced by $32,469
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.
Notes 3
Purchase and sales of securities
During the year ended May 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $17,169,132 and
$19,517,560, 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 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of September 4, 1998 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on September 4, 1998. At
the meeting, each of the nominees for Trustees was elected, as follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 9,640,738 314,453
Hans H. Estin 9,669,219 285,972
John A. Hill 9,666,682 288,509
R.J. Jackson 9,671,234 283,957
Paul L. Joskow 9,678,599 276,592
Elizabeth T. Kennan 9,683,099 272,092
Lawrence J. Lasser 9,687,116 268,075
John H. Mullin III 9,687,916 267,275
Robert E. Patterson 9,694,916 260,275
Donald S. Perkins 9,694,216 260,975
William F. Pounds 9,694,216 260,975
George Putnam 9,694,216 260,975
George Putnam, III 9,694,916 260,275
A.J.C. Smith 9,694,916 260,275
W. Thomas Stephens 9,694,916 260,275
W. Nicholas Thorndike 9,694,916 260,275
A proposal to ratify the selection of PricewaterhouseCoopers L.L.P. as
auditors for the fund was approved as follows: 9,736,146 votes for, 59,485
votes against, with 159,560 abstentions and non-broker votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was approved as follows:
7,407,950 votes for, 651,786 votes against, with 1,895,455 abstentions and
non-broker votes.
All tabulations are rounded to the nearest whole number.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
53204 168 7/99
