<PAGE>
Putnam
Tax-Free
High Yield
Fund
SEMIANNUAL REPORT
January 31, 1995
[LOGO OF PUTNAM APPEARS HERE]
BOSTON . LONDON . TOKYO
<PAGE>
Performance highlights
"Even with all these negatives weighing on the muni market, the prospects
for a rally in 1995 are good. One reason is supply. . . . With all that
older paper scheduled to disappear from the market, there is widespread
belief prices will improve."
- --Fortune, December 26, 1994.
Performance should always be considered in light of a fund's investment
strategy. Putnam Tax-Free High Yield Fund is designed for investors seeking
high current income free from federal income tax through higher-yielding
lower-rated tax-exempt securities.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
<S> <C> <C> <C> <C> <C>
(change in value during
period plus reinvested
distributions)
6 months ended 1/31/95 -0.16% -4.90% -0.49% -5.31%
<CAPTION>
Class A Class B Class M
Share value: NAV POP NAV NAV POP
<S> <C> <C> <C> <C> <C>
7/31/94 $14.24 14.95 14.24 -- --
12/29/94/1/ -- -- -- $13.43 $13.88
1/31/95 13.73 14.41 13.73 13.72 14.18
<CAPTION>
Distributions No. Income Capital gains/2/ Total
<S> <C> <C> <C> <C>
Class A 6 $0.477565 -- $0.477565
Class B 6 0.432014 -- 0.432014
Class M 2 0.147375 -- 0.147375
<CAPTION>
Current return NAV POP NAV
<S> <C> <C> <C>
End of period
Current dividend rate/3/ 7.01% 6.68% 6.36%
Taxable equivalent/4/ 11.61 11.06 10.53
Current 30-day
SEC yield/5/ 7.16 6.82 6.55
Taxable equivalent/4/ 11.85 11.29 10.84
</TABLE>
Performance data represent past results and will differ for each share class.
/1/Total return for class M shares, which commenced operations on 12/29/94, is
not shown because of the brevity of the reporting period. For performance over
longer periods, see page 8. POP assumes 4.75% maximum sales charge for class A
shares and 3.25% for class M shares. CDSC for class B shares assumes 5% maximum
contingent deferred sales charge. /2/Capital gains 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. /3/Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. /4/Assumes
maximum 39.6% federal tax rate. Results for investors subject to lower tax rates
would not be as advantageous. /5/Based only on investment income, calculated
using SEC guidelines.
The yield and value of fund shares is neither insured nor guaranteed and will
fluctuate.
2
<PAGE>
From the Chairman
[PHOTOGRAPH OF
GEORGE PUTNAM
APPEARS HERE]
(C)Karsh, Ottawa
Dear Shareholder:
Putnam Tax-Free High Yield Fund passed the midpoint of fiscal 1995 just as
the Federal Reserve Board pushed short-term interest rates to their highest
level in four years. The Fed's sustained strategy for keeping inflation in
check by tightening credit has made investors understandably nervous. For
more than a year now, their jitters have translated into an extremely
unsettled municipal bond market.
The market is likely to remain volatile for a while. Nevertheless, Fund
Manager Triet Nguyen believes your fund is well positioned to benefit from
a market that may hold great opportunity in 1995. Evidence of rising
investor demand for tax-free securities is beginning to appear, even as the
flow of new issues to the market remains well below 1993's record levels.
Although there can never be any assurance, Triet believes the combination
could translate into higher bond prices in coming months.
Because he expects market volatility to persist over the next few months,
Triet continues to position the fund's portfolio somewhat defensively. He
advises shareholders, however, that having a defensive posture does not
preclude investing in promising areas of the municipal bond market. In the
report that follows, Triet reviews fiscal 1995's progress to date and
reveals what he and his management team see ahead.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
March 15, 1995
3
<PAGE>
Report from the fund manager
Triet Nguyen
During the six months ended January 31, 1995, economic growth kept a steady
pace and interest rates moved higher as the Federal Reserve Board
maintained its strong anti-inflation stance. Early in the period, much of
the fixed-income market reacted negatively to these conditions. However, by
mid-December, we saw the beginning of a recovery. Because Putnam Tax-Free
High Yield Fund was less affected initially by the market decline, the fund
did not respond to the turnaround with as much vigor as most investment-
grade funds. Nevertheless, the fund's total return for the first six months
of fiscal 1995 certainly shows the benefits of the change in market
direction.
MARKET RALLIES AS CONFIDENCE GROWS
In February 1994, the Fed first signaled its intent to control inflation by
raising short-term interest rates to slow the galloping economy. But it
took some time and several more increases before investors realized that
the board meant business. In November 1994, the Fed posted a somewhat more
significant rise than earlier increases. Investors finally got the message
that the central bank intended to take the necessary steps to control
inflation by pushing rates high enough to slow growth perceptibly.
In early December, however, as municipals were enjoying a short rally, the
financial woes of Orange County, California, shook the market. The
immediate drop in value of county-related bonds was only the beginning of
the fallout from the $2 billion in losses sustained by the county's
investment fund. As the major rating agencies downgraded Orange County
bonds almost overnight, investors across the country began questioning the
safety of all municipal bonds.
In late December, the entire fixed-income market began to rally. Values of
municipal securities rose substantially, almost reaching last summer's high
levels. Your fund's portfolio of higher-yielding
4
<PAGE>
lower-rated municipal issues shared in the rally and continued to
outperform the portfolios of most higher-quality municipal bond funds.
THE EFFECTS OF A SCARCE SUPPLY
After a two-year period in which a record level of tax-exempt municipal
debt was issued, municipalities have begun to reassess their financing
needs in light of the higher interest rate environment. Many municipalities
have become more cautious about issuing new debt and have opted to curtail
refinancing activities, resulting in substantially lower supplies.
In 1994, the new-issue municipal bond supply declined 44% from 1993 levels.
Supply continued to dwindle into early 1995. According to the authoritative
industry periodical, The Bond Buyer, only $1.7 billion in municipal bonds
is scheduled for issuance during February, which is 70% below 1993's level
for the month.
Meanwhile, in January, municipal debt demand surged as many older bonds
matured or reached their call dates and bondholders sought out
replacements. Demand should increase again in July, when an even greater
number of bonds will mature or reach their call dates. If the interest-rate
environment remains relatively stable, investors will likely be seeking to
reinvest their redemption proceeds in other tax-free securities. While
there can be no assurances, the expectation of
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
TOP 5 STATE CONCENTRATIONS*
<S> <C>
California 18.0%
Massachusetts 8.0%
Michigan 6.7%
Colorado 6.1%
New York 6.1%
</TABLE>
5
<PAGE>
even lower supply and higher demand bodes well for your fund's prospects in
the coming months. Of course, municipal bond prices are affected by many
factors. A general rise in interest rates may result in declines in bond
prices even with rising demand and diminished supply.
FOCUSING ON COMMODITY-RELATED CYCLICALS
As the economy's growth cycle matures, we are continuing to rotate
portfolio holdings among different sectors to take advantage of changing
market conditions. Currently, our strategy more closely resembles that of a
corporate bond fund than a municipal bond fund. For example, over the past
nine months, we have continued to cut back positions in so-called "early
cyclicals," such as airline bonds, that tend to do well in a recovery's
early stages.
We have redeployed fund assets into "later" commodity-related cyclical
sectors, such as forest products and chemicals. Cyclical securities include
bonds issued by municipalities whose principal and interest payments are
secured by private companies. Generally, these are companies whose fortunes
are linked directly to the health of the economy. In the health care
sector, ongoing efforts to reduce costs and to consolidate have kept us
cautious, although we have begun to evaluate selected buying opportunities.
Geographically, the fund retains large holdings in California, where the
economy is already showing signs of improvement. More than half of your
fund's California holdings are insured. Besides providing solid income,
these issues have appreciated in price after the Orange County bankruptcy
last December. Following the bankruptcy declaration, the California market
experienced a flight to quality, as investors sold their lower-quality
municipal issues and sought out those with higher credit ratings. With
their AAA credit ratings, insured municipal securities are among the
highest-quality issues available.
OUTLOOK: IMPROVEMENT WITH SOME VOLATILITY
We believe that municipal bond investors have good reason to be cautiously
optimistic about performance in the months ahead. While the likelihood of
higher interest rates could produce some additional short-term market
volatility, market fundamentals remain strong. In fact, as the chart above
shows, evidence of positive changes in the
6
<PAGE>
[MUNICIPAL BOND YIELDS IN DECLINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date Yield
- ---- -----
<S> <C>
11/1/94 7.44
7.92
7.92
8.04
12/1/94 7.60
7.28
7.44
7.32
1/1/95 7.28
7.18
6.96
7.08
2/1/95 6.86
</TABLE>
Evidence of positive changes in the municipal bond-market can be seen in the
following yields of existing tax exempt debt. (Bond yields move in the opposite
direction from their prices.) The Bond Buyer Municipal Bond Index is a list of
40 unmanaged individual municipal bonds. It is not intended to represent the
fund's performance. Source: Bloomberg; data plotted weekly.
municipal bond market can be seen in the falling yields of existing tax-
exempt debt. (Bond yields move in the opposite direction of their prices.)
Despite a difficult calendar 1994, Putnam Management is optimistic about
1995. We will, of course, continue to monitor any political or economic
events that could impact your fund's portfolio. We also believe that as
time goes on, municipal bonds will become more attractive to tax-conscious
investors when compared to taxable alternatives.
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 January 31, 1995, there is no guarantee the fund
will continue to hold these securities in the future. The lower credit
ratings of high-yield municipal bonds reflect a greater possibility that
adverse changes in the economy or in the financial condition of their
issuers may affect issuers' ability to pay principal and interest on the
bonds.
7
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares changed
over time, assuming you held the shares through the entire period and
reinvested all distributions in the fund. We show total return in two ways:
on a cumulative long-term basis, and on average how the fund might have
grown each year over varying periods. For comparative purposes, we show how
the fund performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 1/31/95
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months -0.16% -4.90% -0.49% -5.31% 0.25% 1.28%
- --------------------------------------------------------------------------------
1 year -3.82 -8.38 -4.46 -8.95 -3.56 2.80
- --------------------------------------------------------------------------------
5 years -- -- 39.87 37.90 44.07 17.98
Annual average -- -- 6.94 6.64 7.58 3.36
- --------------------------------------------------------------------------------
Life of class A -1.15 -5.81 -- -- -1.09 3.58
Annual average -0.85 -4.31 -- -- -0.80 2.62
- --------------------------------------------------------------------------------
Life of class B -- -- 116.38 116.38 126.78 39.17
Annual average -- -- 8.57 8.57 9.11 3.58
- --------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1 year -5.42% -9.94% -5.99% -10.41%
- ----------------------------------------------------------
5 years -- -- 35.64 33.73
Annual average -- -- 6.29 5.99
- ----------------------------------------------------------
Life of class A -3.95 -8.48 -- --
Annual average -3.10 -6.69 -- --
- ----------------------------------------------------------
Life of class B -- -- 110.53 110.53
Annual average -- -- 8.32 8.32
- ----------------------------------------------------------
</TABLE>
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions. The fund began investment operations on 9/9/85,
offering shares now known as class B. Class A shares were offered as of 9/20/93
and class M shares began operations on 12/29/94. Performance data represent past
results and will differ for each share class; performance for class M shares is
not shown because of the brevity of the reporting period. Investment returns and
principal value will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost.
8
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public Offering Price (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 4.75% sales charge for class A shares and 3.25% for class M
shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term fixed-
rate investment-grade tax-exempt bonds representative of the municipal bond
market. The index does not take into account brokerage commissions or other
costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
9
<PAGE>
Relative risk/reward potential of Putnam funds
These illustrations provide a simplified guide to the risk/reward potential
for funds within each category of the Putnam Family of Funds and are not
intended as investment advice. Your investment advisor can help you
evaluate your risk tolerance.
These rankings are relative only to Putnam funds and should not be compared
to other investments. There is no guarantee that one Putnam fund will be
less volatile than another, since each fund has its own investment risks.
That's why it is essential to read the fund's prospectus before investing.
PUTNAM GROWTH FUNDS
OTC
Emerging
Europe Growth/2/
Growth/1/
Voyager Higher Risk
Natural Higher
Resources Reward
Global Potential
Growth/1/
Investors Asia Pacific
Growth/1/
Lower Risk New
Lower Reward Opportunities/2/
Potential Overseas
Growth/1/
Health
Sciences
Vista
Diversified
Equity/1/
PUTNAM GROWTH AND INCOME FUNDS
Fund for Growth
and Income
Convertible Higher Risk
Income- Higher Reward
Growth Potential
Utilities Dividend
Growth and Growth
Income Putnam
Growth and
Lower Risk Income Fund II
Lower Reward Equity
Potential Income
George
Managed Putnam
Income
/1/Foreign investments are subject to certain risks, such as currency
fluctuations and political developments, that are not present with domestic
investments.
/2/This fund invests all or a portion of its assets in small to medium-sized
companies, which increases the risk of price fluctuations.
/3/While U.S. government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal.
10
<PAGE>
PUTNAM INCOME FUNDS
High Yield
Global Advantage/5/
Income Gov't./1,5/
Federal Higher Risk
U.S. Gov't. Income/3/ Higher Reward
Adjustable Income/3/ Potential
Rate U.S.
Gov't./3/
Preferred High Yield/5/
Income
Diversified
Lower Risk Income/1,3,5/
Lower Reward American
Potential Gov't.
Money Balanced Income/3/
Market/4/ Gov't./3/
PUTNAM TAX FREE FUNDS/6/
Tax-Free
Single-state High Yield/5/
tax-free funds* Higher Risk
Higher Reward
Tax-Free Potential
Tax Exempt Insured/7/
Money
Market/4/ Municipal
Income
Lower Risk Tax Exempt
Lower Reward Income
Potential Intermediate
Tax Exempt
* State tax free funds available for Arizona, California, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and
Pennsylvania. Not available in all states.
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 are:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
Please call your financial advisor -- or Putnam at 1-800-225-1581 -- to
obtain a prospectus for any Putnam fund. The prospectus contains more
complete information, including risk considerations, charges, and expenses.
Read it carefully before you invest or send money.
/4/The fund is managed to maintain a steady price of $1.00 per share, although
there is no assurance this price can be maintained in the future.
/5/The lower credit ratings of high-yield corporate and municipal bonds
reflect a greater possibility that adverse changes in the economy or their
issuers may affect their ability to pay principal and interest on the bonds.
/6/Income may be subject to state and local taxes. Capital gains, if any, are
taxable for federal and, in most cases, state purposes.
/7/Bond insurance does not guarantee principal or protect against changes in
market price.
11
<PAGE>
Portfolio of investments owned
January 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES(100.5%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Alabama (0.5%)
- --------------------------------------------------------------------------------
$ 5,000,000 Anniston Indl. Dev. Rev. Bonds
(Hoover Group Inc. Project), 8 B/P $ 4,956,250
1/2s, 9/1/10
5,000,000 Jackson Cnty. Hlth. Care Auth.
Hosp. Tax Antic. Rev.
Bonds 7 7/8s, 5/1/19 BB/P 4,862,500
-----------
9,818,750
Alaska (0.2%)
- --------------------------------------------------------------------------------
5,050,000 Valdez, Marine Term Rev. Bonds
(Amerada Hess Pipeline Corp.), BB/P 4,437,688
6.1s, 2/1/24
Arizona (1.9%)
- --------------------------------------------------------------------------------
10,500,000 AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds
(St. Luke's Hosp. Syst.), Ser. Ba 10,933,125
A, 10 1/8s, 11/1/15
4,000,000 Phoenix, Indl. Dev. Auth. Rev.
Bonds
(Christian Care Retirement
Apts.), Ser. A, 10 1/4s,
1/1/18 B/P 4,190,000
Pinal Cnty., Indl. Dev. Auth.
Rev. Bonds
(Casa Grande Regl. Med. Ctr.)
1,875,000 Ser. A, 8 1/8s, 12/1/22 BB/P 1,910,156
3,625,000 Ser. B, 8 1/8s, 12/1/22 BB/P 3,692,969
4,500,000 Plainfield Indl. Economic Dev.
Rev. Bonds
8 1/2s, 9/1/04 B/P 4,606,875
Scottsdale, Indl. Dev. Auth.
1st Mtg. Rev. Bonds
2,300,000 Ser. A, 8s, 6/1/11 BB/P 2,294,250
3,150,000 Ser. B, 7.05s, 6/1/16 BB/P 3,142,125
3,245,000 Ser. B, 6.7s, 6/1/17 BB/P 3,236,888
-----------
34,006,388
Arkansas (0.8%)
- --------------------------------------------------------------------------------
12,890,000 Pope Cnty., Poll. Control Rev.
Bonds
(AR Pwr. & Lt. Co. Project), Baa 13,615,063
11s, 12/1/15
California (18.7%)
- --------------------------------------------------------------------------------
6,500,000 Alameda Cnty. Certif. of
Participation (COP)
(Santa Rita Jail Project),
Municipal Bond Assurance
Corp. (MBIA), 5s, 12/1/15 AAA 5,395,000
3,500,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Med. Ctr.), Ser. A, Baa 3,123,750
6.55s, 12/1/22
5,000,000 Brea, Redev. Agcy. Tax Alloc.
Rev. Bonds
MBIA, 5 1/2s, 8/1/17 AAA 4,418,750
15,220,000 CA Hlth. Fac. Auth. Rev. Bonds
(Valley Presbyterian Hosp. B 15,277,075
Project), Ser. A, 9s, 5/1/12
6,000,000 CA State General Obligation
(G.O.) Bonds
Financial Security Assurance, AAA 5,212,500
Inc. (FSA), 5 1/2s, 3/1/20
CA State Pub. Works Board Lease
Rev. Bonds
(Dept. of Corrections-State
Prisons),
8,500,000 Ser. B, MBIA, 5 3/8s, 12/1/19 AAA 7,384,375
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
California (continued)
- --------------------------------------------------------------------------------
$16,065,000 AMBAC, Ser. A, 5s, 12/1/19 AAA $13,072,894
10,000,000 CA State Rev. Antic. Wts.
(RAW) Notes
Ser. C, 5 3/4s, 4/25/96 MIG1 10,043,750
5,500,000 CA Statewide Cmnty. Dev. Auth.
Rev. Bonds
(Oakland Convention Ctr.
Project), AMBAC, 5 1/2s,
10/1/14 AAA 4,956,875
Central Valley, Fin. Auth.
Rev. Bonds
(Carson Ice-Cogeneration Project),
18,400,000 6.2s, 7/1/20 BBB 16,491,000
4,000,000 6.1s, 7/1/13 BBB 3,640,000
9,000,000 Concord, Redev. Agcy. Tax
Alloc. Rev. Bonds
(Central Concord Redev.
Project), Ser. SR, AMBAC,
5 1/4s, 7/1/19 AAA 7,638,750
7,640,000 Contra Costa, Wtr. Dist. Wtr.
Rev. Bonds
Ser. G, MBIA, 5s, 10/1/24 AAA 6,121,550
6,000,000 Corona, COP
(Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 BB/P 6,127,500
11,800,000 Irvine Ranch, Wtr. Dist.
Variable Rate Demand Notes
(VRDN)(Dist. Nos
140-240-105-250), 4 1/2s, VMIG1 11,800,000
4/1/33
8,000,000 LA Dept. Wtr. & Pwr. Elec.
Plant Rev. Bonds
MBIA, 5 1/4s, 11/15/26 AAA 6,670,000
10,000,000 La Habra, COP (Friendly Hills
Hlth. Care Foundation),
Ser. A, 7.15s, 7/1/23 BB/P 10,175,000
Los Angeles, Regl. Arpt. Impt.
Corp. Lease Rev. Bonds
8,500,000 (Western Airlines, Inc.-Delta
Airlines, Inc.), 11 1/4s,
11/1/25# Ba 9,052,500
5,700,000 (Air Canada Inc.-Los Angeles B 5,479,125
Intl.), 8 3/4s, 10/1/14
4,870,000 (United Airlines, Inc.-Los
Angeles Intl.), 6 7/8s,
11/15/12 Baa 4,626,500
5,000,000 Los Angeles, Wastewater Syst.
Inverse Floating Bond
(IFB), 5.712s, 11/1/06
(acquired 11/8/93,
cost $5,417,200)+++ AAA 4,450,000
12,000,000 Oakland, State Redev. Agcy.
Rev. Bonds
MBIA, 5.95s, 9/1/19 AAA 11,295,000
4,500,000 Ontario, Redev. Fin. Auth.
Rev. Bonds
(Ontario Redev. Project No. 1),
MBIA, 5 1/2s, 8/1/18 AAA 3,976,875
10,000,000 Orange Cnty., Pub. Fac. Corp.,
COP
(Solid Waste Management), AMBAC,
7 7/8s, 12/1/13 (acquired
12/28/94, cost $10,000,000)
(chapter 9)+++ BBB 10,025,000
12,000,000 Orange Cnty., Rev. Antic. Notes
Ser. A, 4 1/2s, 7/19/95
($1,000,000 par acquired
12/15/94, cost $900,000;
$1,000,000 par acquired
12/22/94, cost $920,000;
$10,000,000 par acquired
1/3/95, cost $9,125,000) MIG3 10,800,000
(chapter 9)+++
24,800,000 Orange Cnty., Sanitation
Dists. COP, VRDN
Ser C, Financial Guaranty
Insurance Co. (FGIC)
4 3/4s, 8/1/17 (chapter 9) VMIG1 24,800,000
Poway, Redev. Agcy. Tax Alloc.
Rev. Bonds
(Parguay Redev. Project), FGIC
10,600,000 5 3/4s, 12/15/26 AAA 9,593,000
12,000,000 5 1/2s, 12/15/23 AAA 10,485,000
Redondo Beach, Redev. Agcy.
Multi-Fam. Hsg.
Rev. Bonds (Heritage Point
Project),
3,130,000 Ser. B, 8 1/2s, 9/1/23 BB/P 3,098,700
5,100,000 Ser. A, 6 1/2s, 9/1/23 BBB/P 4,959,750
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
California (continued)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sacramento, Muni. Util. Dist.
Elec. Rev. Bonds
$5,500,000 Ser. E, MBIA, 5 3/4s, 5/15/22 AAA $ 5,046,250
19,500,000 Ser. A, MBIA, 5 3/4s, 8/15/13 AAA 18,451,875
2,000,000 San Bernardino, Hosp. Rev.
Bonds
(San Bernardino, Cmnty.
Hosp.), 7 7/8s, 12/1/08 B 1,830,000
10,000,000 San Diego, Regl. Bldg. Auth.
Lease Rev. Bonds
MBIA, 6.9s, 5/1/23 AAA 9,425,000
12,000,000 San Francisco City & Cnty.
Swr. Rev. Bonds
AMBAC, 5 1/2s, 10/1/15 AAA 10,740,000
San Joaquin Hills, Trans.
Corridor Agcy. Toll Rd.
Rev. Bonds zero %,
5,000,000 1/1/11 BBB/P 2,762,500
7,895,000 1/1/10 BBB/P 4,391,594
3,525,000 1/1/05 BBB/P 2,040,094
7,665,000 San Mateo Cnty., Jet Pwr. Fin.
Auth. Lease Rev.
Bonds (San Mateo Cnty. Hlth.
Care Ctr.), Ser. A,
FSA, 5 3/4s, 7/15/22 AAA 6,869,756
8,500,000 Santa Margarita/Dana Point
Auth. Rev. Bonds
Ser. B, MBIA, 5 3/4s, 8/1/20 AAA 7,745,625
Southern CA Pub. Pwr. Auth. IFB
3,000,000 (Transmission Project),
6.644s, 7/1/12 AA 2,823,750
8,500,000 Vallejo, COP (Marine World
Foundation),
8.1s, 2/1/21 BBB/P 8,648,750
10,000,000 Valley Hlth. Syst. COP 6 7/8s,
5/15/23 BB/P 8,600,000
-------------
339,565,413
Colorado (6.5%)
- ----------------------------------------------------------------------------------------
42,860,000 CO Hlth. Fac., Auth.
Retirement Fac. Rev. Bonds
(Liberty Heights), Ser. B,
zero %, s, 7/15/24 AAA 5,196,775
Denver, City & Cnty. Arpt.
Rev. Bonds
34,400,000 Ser. A, 8 3/4s, 11/15/23 Baa 36,421,000
8,000,000 Ser. D, 7 3/4s, 11/15/13 Baa 8,120,000
5,450,000 Ser. A, 7 1/4s, 11/15/25 Baa 5,286,500
9,545,000 Ser. B, 7 1/4s, 11/15/23 Baa 9,151,269
12,890,000 Ser. D, 7s, 11/15/25 Baa 11,971,588
1,250,000 Ser. C, 6 3/4s, 11/15/22 Baa 1,128,125
8,935,000 Ser. C, 6 3/4s, 11/15/13 Baa 8,264,875
36,865,000 Denver, City & Cnty. Arpt.
Special Fac. Rev. Bonds
(United Airlines, Inc.
Project), Ser. A, 6 7/8s,
10/1/32 Baa 33,132,419
------------
118,672,551
Connecticut (1.8%)
- ----------------------------------------------------------------------------------------
5,500,000 CT State Hlth. & Edl. Facs.
Auth. IFB
(Yale U.), 6.402s, 6/10/30 AAA 4,881,250
CT State Dev. Auth. 1st. Mtge.
Rev. Bonds
1,680,000 (Gladeview Hlth. Care BB/P
Project), 9 3/4s, 12/15/16 1,822,800
6,795,000 (East Hill Woods Project), 8 B/P
3/4s, 7/1/19 6,820,481
CT State Dev. Auth. Hlth. Care
Rev. Bonds
(Alzheimer Resource Ctr.),
Ser. A
6,500,000 10s, 8/15/21 BB/P 8,100,625
2,000,000 7 1/4s, 8/15/21 BB/P 1,932,500
4,625,000 7 1/8s, 8/15/14 BB/P 4,370,625
2,290,000 7s, 8/15/09 BB/P 2,229,888
2,825,000 CT State Dev. Auth. Solid
Waste & Elec. Rev. Bonds
(Ogden Martin Syst. Bristol,
Inc.), 10s, 7/1/14 BBB 2,955,656
------------
33,113,825
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
District of Columbia (0.4%)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
District of Columbia, Natl.
Pub. Radio Rev. Bonds
$4,400,000 7.7s, 1/1/23 BB/P $ 4,504,500
2,500,000 7 5/8s, 1/1/18 BB/P 2,556,250
------------
7,060,750
Florida (4.0%)
- -----------------------------------------------------------------------------------------
3,900,000 Atlantic Beach Rev. Bonds VRDN
(Fleet Landing), Ser. B, 4 VMIG1 3,900,000
3/4s, 10/1/24
9,260,000 Brevard Cnty., Hlth. Auth.
Rev. Bonds
(Courtenay Springs Village), 7 BB/P 8,565,500
3/4s, 11/15/24
7,000,000 Dade Cnty. IFB, 8.52s, 10/1/20
(acquired 11/23/94,
cost $5,288,360)+++ AAA 6,457,500
4,500,000 Escambia Cnty., Poll. Control
Rev. Bonds
(Gulf Power Co. Project), AAA 4,140,000
MBIA, 5.8s, 6/1/23
25,000,000 Hernando Cnty., Indl. Dev.
Rev. Bonds
(FL Crushed Stone Co.), 8 B/P 25,687,500
1/2s, 12/1/14
6,550,000 Hillsborough Cnty., Aviation
Auth. Special Purpose
Fac. Rev. Bonds (U.S. Air Inc. B 5,723,063
Project), 8.6s, 1/15/22
1,115,000 Jacksonville, Hlth. Fac. Auth.
Rev. Bonds
(Mental Hlth. Ctr.), 9 1/8s, B/P 1,133,119
10/15/19
3,280,000 Levy Cnty., Indl. Dev. Rev.
Bonds
(National Med. Assn. Inc. B/P 3,025,800
Project), 10s, 7/1/19
8,000,000 Orange Cnty., Hlth. Fac. Auth.
1st. Mtge. Rev. Bonds
(RHA/Princeton Hosp.), 9s, B/P 7,930,000
7/1/21
2,000,000 Orange Cnty., Hlth. Fac. Auth.
1st. Mtge. IFB
Ser. 91-C, MBIA, 7.905s, AAA 2,020,000
10/29/21
3,485,000 Palm Beach Cnty., Student Hsg.
Rev. Bonds
(Palm Beach Cmnty. College), B/P 3,323,819
Ser. A, 8 1/2s, 3/1/23
-----------
71,906,301
Georgia (5.9%)
- -----------------------------------------------------------------------------------------
5,100,000 Cobb Cnty., Dev. Auth. Indl.
Dev. Rev. Bonds
(Boise Cascade Corp. Project), Baa 4,915,125
7s, 9/1/14
De Kalb Cnty., Muni. Hsg.
Auth. Rev. Bonds
(Briarcliff Park Apts.
Project),
8,000,000 Ser. B, 10s, 4/1/17 BB/P 8,160,000
5,900,000 Ser. A, 7 1/2s, 4/1/17 A/P 5,922,125
9,500,000 Forsyth Cnty., Dev. Auth.
Indl. Rev. Bonds
(Hoover Group Inc. Project) 8 Ba 9,595,000
1/2s, 12/1/05
6,395,000 Fulton Cnty., Res. Elderly
Care Fac. Auth. Rev. Bonds
(Lenbrook Sq. Foundation Inc. B/P 6,586,850
Project), 9 3/4s, 1/1/17
3,900,000 GA Med. Ctr. Hosp. Auth. Rev.
Antic. COP IFB
(Columbus Regl. Hlth. Care
Syst.), Ser. B, 9.054s,
8/1/10 AAA 4,017,000
GA Muni. Elec. Auth. Pwr. Rev.
Bonds Ser. EE,
AMBAC,
5,000,000 7 1/4s, 1/1/24 AAA 5,587,500
8,370,000 5 1/2s, 1/1/26 AAA 7,260,975
22,000,000 GA Muni. Elec. Auth. Pwr. Rev.
Bonds
Ser. Z, MBIA, 5 1/2s, 1/1/20 AAA 19,415,000
8,500,000 Monroe Cnty., Dev. Auth. Poll.
Control Rev. Bonds
(GA Pwr. Co.-Plant Scherer A 8,925,000
Project), 10 1/2s, 9/1/15
55,260,000 Richmond Cnty., Dev. Auth.
Rev. Bonds
Ser. C, zero %, s, 12/1/21 Aaa 8,496,225
Rockdale Cnty., Dev. Auth.
Solid Waste Disp. Rev.
Bonds (Visay Paper Inc.
Project),
15,000,000 7.4s, 1/1/16 B/P 14,512,500
3,875,000 7 1/2s, 1/1/26 B/P 3,734,531
-----------
107,127,831
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Illinois (2.6%)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$2,245,000 Chicago, O'Hare Intl. Arpt.
Special Fac. Rev. Bonds
(United Airlines, Inc.), Ser.
84A, 8.85s, 5/1/18 Baa $ 2,435,825
5,000,000 IL Dev. Fin. Auth. Retirement
Hsg. Rev. Bonds (Regency
Park-Lincolnwood), Ser. A,
10 1/4s, 4/15/19+ B/P 3,500,000
IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab.
Providers Fac.),
1,450,000 8 3/4s, 7/1/11 BBB/P 1,459,063
2,890,000 8 1/4s, 8/1/12 BBB/P 2,788,850
3,065,000 Ser. A, 7 1/2s, 3/1/14 BB/P 2,785,319
1,105,000 Ser. A, 7 1/4s, 3/1/04 BB/P 1,044,225
1,240,000 IL Dev. Fin. Auth. Rev. Bonds
(Mercy Hsg. Corp. Project), 7s,
8/1/24 A 1,215,200
6,050,000 Lansing, Tax Increment Rev.
Bonds (Landing Redev. Project),
10s, 4/1/07 AAA/P 6,367,625
Robbins Res. Recvy. Rev. Bonds
3,000,000 Ser. B, 9 1/4s, 10/15/16 B/P 3,142,500
20,500,000 Ser. A, 9 1/4s, 10/15/14 B/P 21,473,750
-----------
46,212,357
Indiana (1.6%)
- -----------------------------------------------------------------------------------------
East Chicago, Poll. Control
Rev. Bonds
7,000,000 (Inland Steel Co. Project
Number 11), 7 1/8s, 6/1/07 Ba 6,842,500
10,000,000 (Inland Steel Co. Project
Number 10), 6.8s, 6/1/13 Ba 9,237,500
7,403,721 Hammond, Indl. Port Auth. COP,
9.65s, 6/1/14 BB/P 7,551,795
2,325,000 Mishawaka, Indl. Rev. Bonds
(Stone Container Corp.
Project), 9 1/4s, 2/1/97 B/P 2,403,469
1,769,077 Westfield, Econ. Dev. Rev.
Bonds (Westfield Village Hlth.
Care Ctr.), Federal Housing
Administration (FHA) Insd.,
12s, 5/15/14 BBB/P 2,078,665
-----------
28,113,929
Iowa (0.6%)
- -----------------------------------------------------------------------------------------
11,500,000 IA Fin. Auth. Hlth. Care Fac.
Rev. Bonds (Mercy Hlth.
Initiatives Project),
9.95s, 7/1/19 B/P 11,270,000
215,000 Marion, 1st Mtge. Rev. Bonds
(AHF/Kentucky Iowa, Inc.
Project), 10 1/4s, 1/1/20 B/P 217,956
-----------
11,487,956
Kentucky (0.7%)
- -----------------------------------------------------------------------------------------
5,000,000 Jefferson Cnty., Hosp. IFB
(Alliant Hlth. Syst. Project),
MBIA, 9.06s, 10/1/14 AAA 5,081,250
1,285,000 Lexington-Fayette Urban Cnty.,
Govt. 1st Mtge. Rev. Bonds
(AHF/Kentucky Iowa, Inc. Project),
10 1/4s, 1/1/20 B/P 1,302,669
3,680,000 Muhlenberg Cnty., Hosp. Rev.
Bonds (Muhlenberg Cmnty. Hosp.
Project), 9 1/2s, 8/1/10 BBB/P 3,951,400
1,975,000 Owensboro, Hosp. Auth. Rev.
Bonds (Children's Psychiatric
Hosp.), 13s, 11/1/10 B/P 2,044,125
-----------
12,379,444
Louisiana (4.4%)
- -----------------------------------------------------------------------------------------
Beauregard, Parish Rev. Bonds
(Boise Cascade Corp. Project),
2,900,000 7 3/4s, 6/1/21 Baa 2,954,375
3,000,000 6 1/8s, 3/1/23 Baa 2,561,250
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Louisiana (continued)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$5,000,000 Beauregard, Parish Solid Waste
Disp. Rev. Bonds (Boise Cascade
Corp. Project), 6.3s, 8/1/23 Baa $ 4,287,500
5,000,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s,
3/1/10 B/P 5,212,500
LA Pub. Fac. Auth. 1st Mtge.
Rev. Bonds
2,441,361 (Emily Morten Foundation),
10 1/4s, 5/1/19 B/P 2,535,964
2,000,000 (St. James Place Project), 10s,
11/1/21 B/P 2,107,500
3,000,000 LA State Recvy. Dist. Sales
Tax, VRDN MBIA, 3.85s, 7/1/98 VMIG1 3,000,000
17,000,000 Lake Charles, Harbor & Term.
Dist. Port Facs. Rev.
Bonds (Trunkline Co. Project),
7 3/4s, 8/15/22 Baa 17,573,750
Port of New Orleans, Indl. Dev.
Rev. Bonds
(Continental Grain Co. Project),
3,700,000 Ser. A, 14 1/2s, 2/1/02 BB 4,125,500
4,500,000 14 1/2s, 1/1/02 BB 5,011,875
5,000,000 7 1/2s, 7/1/13 BB 4,843,750
6,500,000 St. Charles Parish, Poll.
Control Rev. Bonds
(LA Power & Light), 8s, 12/1/14 Baa 6,873,750
13,000,000 St. James Parish, Solid Waste
Disp. Rev. Bonds
(Kaiser Aluminum Project),
7 3/4s, 8/1/22 B/P 13,000,000
6,000,000 West Feliciana Parish, Poll.
Control Rev. Bonds
(Gulf States Util. Co.
Project), 8s, 12/1/24 Baa 6,247,500
-----------
80,335,214
Maine (0.9%)
- -----------------------------------------------------------------------------------------
12,500,000 Bucksport, Solid Waste Disp.
Rev. Bonds (Champion Intl.
Corp. Project), 6 1/4s, 5/1/10 Baa 11,703,125
5,000,000 ME Fin. Auth. Solid Waste
Recycling Fac. Rev. Bonds
(Great Northern Paper Project),
7 3/4s, 10/1/22 Baa 5,137,500
-----------
16,840,625
Maryland (0.2%)
- -----------------------------------------------------------------------------------------
3,000,000 Denton, 1st. Mtge. Rev. Bonds
(Wesleyan Hlth. Care Ctr.
Project), 10 1/4s, 4/1/20 B/P 3,045,000
Massachusetts (8.3%)
- -----------------------------------------------------------------------------------------
MA State Hlth. & Edl. Fac.
Auth. Rev. Bonds
3,325,000 (Summerfield Nursing Home),
Ser. A, 9 1/2s, 7/1/14 B/P 2,485,000
2,485,000 (MA Eye & Ear Infirmary), Ser.
A, 7 3/8s, 7/1/11 Baa 3,092,250
4,150,000 Agawam, Resource Recvy. Rev.
Bonds (Springfield Resources
Recvy. Project), 8 1/2s, 12/1/08 BBB 4,399,000
18,450,000 MA Bay Trans. Auth. IFB
Ser. B, 7.62s, 3/1/22
($15,000,000 par acquired
12/14/93, cost $15,075,000;
$3,450,000 par acquired
2/2/94, cost $ 3,505,614)+++ Aaa 13,998,938
12,605,000 MA Muni. Wholesale Elec. Co.
Pwr. Supply Syst. Rev.
Bonds Ser. A, 8 3/4s, 7/1/18 AAA 13,833,988
3,000,000 MA State G.O. VRDN
Ser. E, 3.8s, 12/1/97 VMIG1 3,000,000
MA State Hlth. & Edl. Fac.
Auth. IFB
5,000,000 (St. Elizabeth Hosp.), Ser. E,
FSA, 9.77s, 8/15/21 AAA 5,193,750
2,000,000 (Boston U.), Ser. L, MBIA, 9s,
10/1/31 AAA 2,060,000
5,600,000 (Beth Israel Hosp.), AMBAC
8.472s, 7/1/25 AAA 4,914,000
10,000,000 MA State Hsg. Fin. Agcy. Rev.
Bonds Ser. A, 6.3s, 10/1/13 A 9,706,100
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (continued)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MA State Indl. Fin. Agcy. 1st
Mtge. Rev. Bonds
(Berkshire Retirement Home),
$2,500,000 9 7/8s, 7/1/18 AAA/P $ 2,750,000
MA State Indl. Fin. Agcy.
Resource Recvy. Rev. Bonds
(Southeastern MA Project),
4,000,000 Ser. B, 9 1/4s, 7/1/15 BB/P 4,395,000
29,850,000 Ser. A, 9s, 7/1/15 BB/P 32,648,423
MA State Indl. Fin. Agcy. Rev.
Bonds
6,100,000 (Atlanticare Med. Ctr.), Ser.
B, 10 1/8s, 11/1/14 BB/P 5,978,000
2,000,000 (Atlanticare Med. Ctr.), Ser.
A, 10 1/8s, 11/1/14 BB/P 1,960,000
6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 6,420,000
2,285,000 (Morton Hosp. & Med. Ctr.),
Ser. A, 8 3/4s, 7/1/11 Aaa 2,593,475
7,500,000 MA State Indl. Fin. Agcy.
Solid Waste Disposal Rev.
Bonds (Molten Metal Technology
Project) 8 1/4s, 8/1/14 B/P 7,312,500
2,410,000 MA State Indl. Fin. Agcy.
Tunnel Rev. Bonds
(MA Tpk.), 9s, 10/1/20 BBB/P 2,563,638
MA State Wtr. Resource Auth.
Rev. Bonds MBIA
8,000,000 Ser. B, 5 1/2s, 3/1/17 AAA 7,190,000
7,500,000 Ser. C, 5 1/4s, 12/1/15 AAA 6,553,125
4,000,000 Ser. B, 5s, 3/1/22 AAA 3,245,000
4,000,000 Worcester, Mtge. Rev. Bonds
(Briarwood Issue), 9 1/4s,
12/1/22 BB/P 4,100,000
-----------
150,392,187
Michigan (8.3%)
- -----------------------------------------------------------------------------------------
2,617,000 Ann Arbor, Econ. Dev. Corp.
Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc. Project),
8 3/4s, 1/15/19 B/P 2,617,000
18,677,000 Detroit, Hosp. Fac. Fin. Auth.
Rev. Bonds
(MI Hlth. Care Corp.), 10s,
12/1/20 ($15,113,000 par
acquired 12/12/91, cost
$14,958,847; $1,904,000 par
acquired 3/2/92, cost
$1,811,180; $1,660,000 par
acquired 7/15/92, cost
$1,716,540)+++ CCC 15,875,450
22,040,000 Detroit, Local Dev. Fin. Auth.
Tax Increment Rev.
Bond Ser. A, 9 1/2s, 5/1/21 BBB/P 26,613,300
10,000,000 Dickinson Cnty., Econ. Dev.
Corp. Poll. Ctl. Rev.
Bonds (Champion Intl. Corp.
Project), 5.85s, 10/1/18 Baa 8,662,500
Greater Detroit Resource
Recvy. Auth. Rev. Bonds
8,875,000 Ser. A, 9 1/4s, 12/13/08 BBB 9,274,375
6,050,000 Ser. E, 9 1/4s, 12/13/08 BBB 6,322,250
5,750,000 Ser. G, 9 1/4s, 12/13/08 BBB 6,008,750
5,790,000 Highland Park, Hosp. Fin.
Auth. Fac. Rev. Bonds
(MI Hlth. Care Corp. Project),
Ser. A, 9 7/8s,
12/1/19 ($4,125,000 par
acquired 6/22/87, cost
$4,104,375; $800,000 par
acquired 7/27/90, cost
$830,152; $250,000 par
acquired 11/12/90, cost
$241,335; $50,000 par acquired
7/23/91, cost $45,118; $35,000
par acquired 7/29/91, cost
$31,232; $530,000 par acquired
3/2/92, cost $498,407)+++ B 4,921,500
8,000,000 MI State Hosp. Fin. Auth. Rev.
Bonds (Detroit Macomb Hosp.
Corp.), Ser. A, 7.4s, 6/1/13 B 7,190,000
14,000,000 MI State Stragetic Fund Solid
Waste Disp. Rev. Bonds
(Genesee Pwr. Station
Project), 7 1/2s, 1/1/21 BB/P 13,072,500
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Michigan (continued)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MI State Strategic Fund Ltd.
Oblig. Rev. Bonds
$3,800,000 (Mercy Svcs. for Aging
Project), 9.4s, 5/15/20 BBB/P $ 3,980,500
930,000 (MI Hlth. Care Corp. Project),
9.1s, 12/1/14
(acquired 6/14/91, cost
$762,581)+++ CCC/P 790,500
12,500,000 (Blue Wtr. Fiber Project), 8s,
1/1/12 B/P 11,968,750
19,500,000 Midland Cnty., Econ. Dev.
Corp. Poll. Control Rev.
Bonds Ser. B, 9 1/2s, 7/23/09 B/P 20,572,500
5,390,000 Waterford, Econ. Dev. Corp.
Rev. Bonds
(Centerbury Hlth. Care), 8
3/8s, 7/1/23 BB/P 5,477,588
6,900,000 Wayne Charter Cnty., Special
Arpt. Fac. Rev. Bonds
(Republic Air Lines Inc.
Project), 10 3/8s, 12/1/15 B/P 7,236,375
-----------
150,583,838
Minnesota (0.8%)
- -----------------------------------------------------------------------------------------
2,975,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc.
Project), 10 1/4s, 9/1/20 BB/P 3,369,188
5,000,000 Intl. Falls, Env. Fac. Rev.
Bonds
(Boise Cascade Corp. Project),
7.2s, 10/1/24 Baa 4,993,750
1,840,000 Minneapolis, Cmnty. Dev. Agcy.
Multi-Fam. Hsg. Rev.
Rental Bonds (Lindsay Bros.
Project), Ser. A,
9 1/2s, 12/1/07 B/P 1,846,900
1,200,000 Minneapolis, Cmnty. Dev. Agcy.
Multi-Fam. Hsg. VRDN
(Lindsay Bros. Project), Ser.
B, 1 1/2s, 12/1/07 B/P 366,000
3,200,000 Shakopee, Multi-Fam. Rev. Bonds
8 1/2s, 12/1/08 B/P 3,292,000
-----------
13,867,838
Mississippi (2.0%)
- -----------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Control
Rev. Bonds
4,500,000 (Middle South Energy, Inc.),
Ser. C, 9 7/8s, 12/1/14 BBB/P 5,079,375
4,620,000 (Syst. Energy Resources Inc.),
9 1/2s, 4/1/16 Baa 4,931,850
10,000,000 (Middle South Energy, Inc.),
Ser. A, 9 1/2s, 12/1/13 BBB/P 11,162,500
7,500,000 Jackson Cnty., Poll. Control
VRDN
(Chevron U.S.A. Inc. Project),
3.7s, 12/1/16 MIG1 7,500,000
2,250,000 Lee Cnty., Indl. Rev. Bonds
(Great Southern Box Co. Inc.
Project), 9.55s, 5/1/97 B/P 2,345,625
4,000,000 MS Hosp. Equip. & Fac. Auth.
Rev. Bonds
(MS Methodist Hosp & Rehab.),
Ser. 1, 9 3/8s, 5/1/12 BB/P 4,555,000
-----------
35,574,350
Montana (0.2%)
- -----------------------------------------------------------------------------------------
3,000,000 Missoula Cnty., Rev. Bonds
(Cmnty. Med. Ctr. Inc.), Ser.
B, 9s, 6/1/18 BBB 3,180,000
Nebraska (1.2%)
- -----------------------------------------------------------------------------------------
2,000,000 NE Investment Fin. Auth. Hosp.
IFB
MBIA, 8 5/8s, 12/8/16 AAA 2,060,000
NE Investment Fin. Auth.
Single Fam. Mtge. IFB
3,100,000 Ser. 2, GNMA Coll., 10.543s,
9/10/30 AAA 3,402,250
2,200,000 Ser. B, GNMA Coll., 10.506s,
3/15/22 AAA 2,384,250
2,000,000 Ser. B, GNMA Coll., 9.628s,
9/15/23 AAA 2,060,000
2,000,000 GNMA Coll., 9.292s, 9/15/24 AAA 1,892,500
12,100,000 Ser. D, GNMA Coll., 8.284s,
3/24/26 AAA 9,680,000
-----------
21,479,000
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
New Hampshire (1.4%)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NH Higher Edl. & Hlth. Fac. Auth.
Rev. Bonds
$ 2,920,000 (Havenwood/Heritage Heights), 9
3/4s, 12/1/19 B/P $ 3,062,350
2,450,000 (Franklin Regl. Hosp.), 8 3/4s,
9/1/19 BBB/P 2,499,000
9,000,000 (1st. Mtge. Revermead
Peterborough), 8 1/2s, 7/1/24 B/P 8,595,000
5,500,000 (1st. Mtge. River Woods at
Exeter), 8s, 3/1/00 B/P 5,568,750
6,750,000 (Wentworth-Douglass Hosp.), MBIA,
5 3/8s, 1/1/15 AAA 5,948,438
-----------
25,673,538
New Jersey (1.3%)
- -----------------------------------------------------------------------------------------
5,000,000 Camden Cnty., Impt. Auth. Rev.
Bonds
8.4s, 4/1/24 (acquired 4/12/93,
cost $5,000,000)+++ BB/P 4,937,500
NJ Econ. Dev. Auth. Rev. Bonds
2,700,000 (Stolt Terminals Project), 10
1/2s, 1/15/18 BB/P 3,047,625
4,700,000 (Holt Hauling Co.), Ser. D, 10
1/4s, 9/15/14 BB/P 5,076,000
5,000,000 NJ Hlth. Care Fac. Fin. Auth.
Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8
1/4s, 7/1/20 Baa 5,212,500
2,000,000 NJ State Hsg. & Mtge. Fin. Agcy.
Rev. COP, IFB
Ser. I, 7.769s, 11/1/07 (acquired
2/11/93, cost
$2,073,120)+++ A 2,010,000
4,000,000 Salem Cnty., Indl. Poll. Ctl.
Fing. Auth. IFB
8.841s, 10/1/29 (acquired
10/28/94, Cost
$3,785,680)+++ AAA 4,100,000
-----------
24,383,625
New York (8.3%)
- -----------------------------------------------------------------------------------------
8,250,000 Metro. Trans. Auth. Svcs.
Contract Fac. Rev. Bonds
(Trans. Fac.), Ser. O, 5 3/4s,
7/1/13 Baa 7,342,500
NY City G.O. Bonds Ser. A,
10,000,000 6 1/4s, 8/1/16 A 8,875,000
15,000,000 6 1/4s, 8/1/08 A 13,818,750
NY City, G.O. VRDN
1,000,000 Ser. B, FGIC, 4.05s, 10/1/21 VMIG1 1,000,000
4,900,000 Ser. B2, 4.05s, 8/15/20 VMIG1 4,900,000
3,300,000 NY City, Hsg. Dev. Corp. Mtge.
VRDN
(East 96th St. Project), Ser. A,
2.45s, 8/1/15 VMIG1 3,300,000
NY City, Mun. Wtr. Fin. Auth.
Wtr. & Swr.
Syst. Rev. Bonds
3,250,000 Ser. F, MBIA, 5 3/4s, 6/15/20 AAA 2,969,688
2,200,000 Ser. G, FGIC, 3.7s, 6/15/24 VMIG1 2,200,000
NY State Dorm. Auth. Rev. Bonds
14,500,000 (State U. Edl. Fac.), Ser. C, 7
3/8s, 5/15/10 Baa 15,660,000
3,500,000 (State U. Edl. Facs.), Ser. B, 5
3/4s, 5/15/24 Baa 3,001,250
3,750,000 Ser. A, 5 3/8s, 5/15/16 Baa 3,140,625
2,000,000 (State U. Edl. Fac.), Ser. B, 5s,
5/15/18 Baa 1,590,000
7,750,000 (City U.), Ser. F, 5s, 7/1/14 Baa 6,209,688
15,000,000 NY State Energy Research & Dev.
Auth. Elec. Facs.
Rev. Bonds (Long Island Ltg.)
Ser. A, 7.15s, 12/1/20 Ba 13,837,500
8,000,000 NY State Energy Research & Dev.
Auth. Poll. Control
IFB FGIC, 8.671s, 7/1/29
(acquired 12/19/94, cost
$8,353,120)+++ AAA 8,870,000
NY State Local Govt. Asst. Corp.
Rev. Bonds
5,000,000 Ser. B, 6 1/4s, 4/1/21 A 4,843,750
8,000,000 Ser. C, 5 1/2s, 4/1/17 A 7,080,000
2,225,000 Ser. E, 5 1/4s, 4/1/16 A 1,919,063
NY State Med. Care Fac. Fin.
Agcy. Rev. Bonds
5,500,000 Ser. A, AMBAC, 6 1/2s, 8/15/29 AAA 5,500,000
9,750,000 (Mental Health Svcs.), Ser. D,
FSA, 5 1/4s, 8/15/23 AAA 8,043,750
9,830,000 (Mental Health Svcs.), Ser. F,
FSA, 5 1/4s, 2/15/19 AAA 8,269,488
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
New York (continued)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NY State Urban Dev. Corp. Rev.
Bonds
$ 7,000,000 (State Fac.), 7 1/2s, 4/1/20 Baa $ 7,315,000
13,575,000 (Correctional Fac.), Ser. 4, 5 Baa 11,012,719
3/8s, 1/1/23
-----------
150,698,771
Ohio (1.2%)
- -----------------------------------------------------------------------------------------
7,200,000 Dayton, Special Fac. Rev. Bonds
(Emery Air Freight Corp.), B/P 8,235,000
Ser. A, 12 1/2s, 10/1/09
5,700,000 OH State Air Quality Dev.
Auth. Poll. Control Rev.
Bonds (Cincinnati Gas & Baa 6,056,250
Elec.), 10 1/8s, 12/1/15
7,000,000 OH State Wtr. Dev. Auth. Poll.
Control Facs. Rev. Bonds
(Toledo Edison Co.), Ser. A, Ba 7,043,750
7.55s, 6/1/23
-----------
21,335,000
Oklahoma (0.3%)
- -----------------------------------------------------------------------------------------
6,000,000 Tulsa, Indl. Auth. Hosp. Rev.
Bonds
(Tulsa Regl. Med. Ctr.), Ser. BBB 6,045,000
A, 7 5/8s, 6/1/17
Pennsylvania (3.5%)
- -----------------------------------------------------------------------------------------
Allegheny Cnty., Indl. Dev.
Auth. Arpt. Special Fac.
Rev. Bonds (U.S. Air, Inc.
Project),
1,250,000 Ser. A, 8 7/8s, 3/1/21 B 1,156,250
7,450,000 Ser. B, 8 1/2s, 3/1/21 B 6,537,375
1,650,000 Allegheny Cnty., Indl. Dev.
Auth. Rev. Bonds
(Southwestern Arpt. Cargo BB/P 1,707,750
Fac.), 8 3/4s, 2/15/09
Beaver Cnty., Indl. Dev. Auth.
Poll. Control Rev. Bonds
3,420,000 (Toledo Edison Co.-Beaver
Valley), Ser. B, 12 1/4s,
9/15/15 Ba 3,573,900
2,500,000 (OH Edison Co.-Beaver Valley), Baa 2,665,625
Ser. A, 10 1/2s, 10/1/15
5,000,000 (Cleveland Elec. Illuminating Ba 5,168,750
Co.), 10 1/2s, 9/1/15
2,000,000 Fayette Cnty., Indl. Dev.
Auth. Rev. Bonds
(Beverly Enterprises Project), BB/P 1,697,500
6 1/2s, 6/1/13
Montgomery Cnty., Higher Edl.
& Hlth. Auth. Hosp.
Rev. Bonds (United Hosp. Inc.
Project),
3,745,000 8 1/2s, 11/1/17 Ba 3,815,219
5,300,000 Ser. A, 8 3/8s, 11/1/11 Ba 5,412,625
6,000,000 Montgomery Cnty., Indl. Dev.
Auth. Poll. Control Rev.
Bonds (Philadelphia Elec. Baa 6,270,000
Co.), Ser. A, 10 1/2s, 5/15/15
6,000,000 PA Economic Dev. Fin. Auth.
Resource Recvy. Rev.
Bonds Ser. E, 8.05s, 12/1/15 BBB 5,887,500
4,250,000 PA Hsg. Fin. Agcy. IFB
8.059s, 4/1/25 AA 3,729,375
2,500,000 PA State Higher Edl.
Assistance Agcy. Student Loan
IFB, AMBAC, 8.761s, 9/3/26 AAA 2,490,625
5,300,000 Philadelphia, Muni. Auth. Rev.
Bonds
(Justice Lease) Ser. C, 8 AAA 6,287,125
5/8s, 11/15/16
Philadelphia, Wtr. &
Wastewater, SWAP, FGIC,
4,760,000 5.2s, 6/15/05 AAA 4,325,650
4,760,000 4.8s, 6/15/05 AAA 1,761,200
-----------
62,486,469
Puerto Rico (0.2%)
- -----------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of Puerto Rico, IFB
MBIA, 8.084s, 7/1/08 AAA 3,930,000
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Rhode Island (0.6%)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$11,000,000 RI Depositors Econ. Protection
Corp. Rev. Bonds
Ser. B, 10s, 7/1/07 B/P $11,261,250
South Carolina (0.8%)
- -----------------------------------------------------------------------------------------
4,600,000 Lee Cnty., Indl. Rev. Bonds
(Mid-American Waste Syst. B/P 4,226,250
Project), 7s, 9/15/13
5,000,000 Spartanburg Cnty. Solid Waste
Disp. Rev. Bonds
(Bayerische Motoren Werke), A/P 5,093,750
7.55s, 11/1/24
5,000,000 Spartanburg Cnty., Hosp. Fac.
IFB
FSA, 8.188s, 4/13/22 AAA 4,975,000
-----------
14,295,000
Tennessee (1.1%)
- -----------------------------------------------------------------------------------------
11,250,000 Maury Cnty., Indl. Dev. Board
Poll. Control Rev. Bonds
(Saturn Corp. Project), 6 Baa 10,771,875
1/2s, 9/1/24
5,200,000 McMinn Cnty., Indl. Dev. Board
Solid Waste Recycling
Fac. Rev. Bonds (Calhoun Baa 5,330,000
Newsprint), 7.4s, 12/1/22
28,920,000 Metro. Nashville & Davidson
Cnty., Hlth. & Edl. Fac.
Board Rev. Bonds zero %, 6/1/21 Aaa 4,482,600
-----------
20,584,475
Texas (4.9%)
- -----------------------------------------------------------------------------------------
Bell Cnty., Hlth. Fac. Dev.
Corp. Rev. Bonds
(Adv. Living Tech. Inc.
Project),
1,600,000 Ser. AC, 10 1/2s, 6/15/18 B/P 1,472,000
5,500,000 Ser. AA, 10 1/2s, 6/15/18 B/P 5,060,000
4,830,000 Bexar Cnty., Hlth. Fac. Dev.
Corp. Rev. Bonds
(Heartway Corp.), Ser. A-1, 10 B/P 5,089,613
1/4s, 3/1/19
6,005,000 Cherokee Cnty., Hlth. Fac.
Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp. B/P 6,237,694
Project), 10s, 5/15/13
10,000,000 Dallas Cnty., G.O. Bonds
(Flood Control Dist. Number
1), stepped-coupon
zero %, (8.5s, 10/1/99), BBB/P 7,000,000
4/1/16++
Harris Cnty., Single Fam. Hsg.
Fin. Corp. Rev. Bonds
90,000 10 1/2s, 10/15/09 Aaa 90,338
970,000 Ser. 1983A, 10 3/8s, 7/15/14 B 976,063
910,000 9 7/8s, 3/15/14 BB 899,763
Houston, Hsg. Fin. Corp.
Single Fam. Mtge. Rev. Bonds
4,002,000 Ser. A, Verex Mtg. Ins., 10 A 4,067,033
7/8s, 2/15/16
5,835,000 (Lomas & Nettleton
Administration Co.), Ser. B,
10 3/8s, 12/15/13 Baa 5,937,113
2,340,000 10s, 9/15/14 BBB 2,366,325
Lower Neches Valley Auth., TX
Indl. Dev. Corp.
Poll. Control Rev. Bonds
(Neches River Treatment)
8,955,000 5.65s, 2/1/29 AA 7,634,138
2,000,000 5.35s, 11/1/28 AA 1,670,000
3,400,000 North Central Hlth. Fac. Dev.
Corp., Hosp. VRDN
(Presbyterian Med. Ctr.), Ser. A1 3,400,000
D, MBIA, 3.9s, 12/1/15
2,000,000 Port Corpus Christi, Indl.
Dev. Corp. Rev. Bonds
(Valero Refining & Marketing
Co.)
Ser. A, 10 1/4s, 6/1/17 Baa 2,207,500
Southeast TX Multi-Fam. Hsg.
Fin. Corp. Rev. Bonds
5,500,000 (Bayou Park Village Apt.
Project), Ser. B, 10.175s,
8/1/16 B/P 5,527,500
4,500,000 (Promenade Place Apts. B/P 4,466,250
Project), Ser. B, 9 1/2s,
8/1/16
9,700,000 (Pavilion Place Apts. BBB/P 5,383,500
Project), Ser. B, 9 1/2s,
7/1/16+
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Texas (continued)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 6,000,000 (Pavilion Place Apts. BBB/P $ 5,812,500
Project), Ser. A, 7.6s,
7/1/16
8,000,000 TX State Hsg. & Cmnty.
Affairs Home Mtg. IFB
9.967s, 7/2/24 AAA 8,080,000
5,000,000 Tarrant Cnty., Hlth. Facs.
Dev. Corp. Hosp. Rev.
Bonds (Cmnty. Hlth. Care
Foundation Inc. Project),
10 1/8s, 4/1/21 B/P 5,156,250
-----------
88,533,580
Virginia (0.6%)
- -----------------------------------------------------------------------------------------
4,500,000 Fredericksburg, Indl. Dev.
Auth. Hosp. Fac. IFB
FGIC, 9.773s, 8/15/23 AAA 4,640,625
2,000,000 Henrico Cnty., Indl. Dev.
Auth. IFB
(Bon Secours Hlth. Syst. AAA 1,712,500
Project), FSA, 7.416s,
8/23/27
3,900,000 Peninsula Port Auth. VRDN
Ser. A, 3 3/4s, 12/1/05 AAA 3,900,000
-----------
10,253,125
Washington (0.8%)
- -----------------------------------------------------------------------------------------
6,600,000 Spokane, Regl. Solid Waste
Mgmt. Syst. SWAP
AMBAC, 7.871s, 12/1/10 AAA 4,529,250
WA Pub. Pwr. Supply Syst.
Rev. Bonds
(Nuclear Project No. 3)
MBIA,
4,000,000 Ser. C, 7 1/2s, 7/1/08# AAA 4,465,000
5,000,000 Ser. B, 7 1/8s, 7/1/16 AAA 5,350,000
-----------
14,344,250
West Virginia (2.9%)
- -----------------------------------------------------------------------------------------
5,425,000 Kanawha Cnty., Bldg. Cmnty.
Rev. Bonds
(Kanawha Valley Memorial
Hosp. Inc.),
11 1/4s, 6/1/13 AAA 5,709,813
Marion Cnty., Cmnty. Solid
Waste Disp.
Fac. Rev. Bonds
(American Pwr. Paper
Recycling Project),
5,000,000 9s, 12/1/11 B/P 5,025,000
10,000,000 8 1/4s, 12/1/11 B/P 9,550,000
10,000,000 7 3/4s, 12/1/11 B/P 9,112,500
2,950,000 Mercer Cnty., Coml. Dev.
Rev. Bonds
(American Hlth. Enterprises BB/P 3,112,250
Ltd.), 12s, 12/1/15
2,935,000 Preston Cnty., Bldg. Cmnty.
Hosp. Rev. Bonds
(Preston Mem. Hosp. Corp.), BB/P 3,089,088
Ser. B, 10s, 4/1/14
4,045,000 WV State Certif. of
Participation
(Morris Sq. Complex),
9 1/4s, 8/15/08 BB/P 3,812,413
8,115,000 WV State Hosp. Fin. Auth.
Hosp. Rev. Bonds
(St. Francis Hosp.
Charleston), 7 3/4s, 8/15/13 CCC 8,439,600
3,600,000 Weirton, Poll. Control Rev.
Bonds
(Weirton Steel Project),
Ser. B, 8 5/8s, 11/1/14 B 3,735,000
-----------
51,585,664
Wisconsin (0.1%)
- -----------------------------------------------------------------------------------------
2,200,000 WI Hsg. & Econ. Dev. Auth.
IFB
9.653s, 10/25/22 AA 2,268,750
--------------
Total Municipal Bonds and
Notes
(cost $$1,829,685,955)*** $1,820,494,795
==============
</TABLE>
23
<PAGE>
NOTES
* Percentages indicated are based on total net assets of $1,811,884,142, which
correspond to a net asset value per class A, class B and class M shares of
13.73, 13.73, and 13.72, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at January 31, 1995 for the securities listed.
Ratings are generally ascribed to securities at the time of issuance. While
the agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings do not necessarily represent what the
agencies would ascribe to these securities at January 31, 1995. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
+ Non-income producing security.
++ The interest rate and date shown parenthetically represent the new interest
rate to be paid and the date the fund will begin receiving interest at this
rate.
+++ Restricted as to public resale. At the date of acquisition, these securities
were valued at cost. There were no outstanding unrestricted securities of
the same class as those held. The total market value of the restricted
securities owned at January 31, 1995 was $87,236,388 or 4.8% of net assets.
# These securities or a portion was pledged to cover margin requirements for
futures contracts at January 31, 1995. The market value of segregated
securities with the custodian for transactions on futures contracts is
$9,790,000.
*** The aggregate identified cost on a tax basis is $1,830,586,854, resulting in
gross unrealized appreciation and depreciation of $47,216,638 and
$57,308,697, respectively, or net unrealized depreciation of $10,092,059.
<TABLE>
<CAPTION>
U.S. Treasury Bond Futures Outstanding at January 31,1995
- ---------------------------------------------------------------------------------------------------------------
Total Value Aggregate Expiration Unrealized
Face Value Date Depreciation
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures (Sell) $45,965,344 45,130,125 March 95 (835,219)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The rates shown on Variable Rate Demand Notes (VRDN), fixed interest rate SWAPS
and Inverse Floating Bonds (IFB), which are securities paying variable interest
rates that vary inversely to changes in the market interest rates, are the
current interest rates at January 31, 1995, which are subject to change based on
the terms of the security.
The fund had the following industry group concentrations greater than 10% at
January 31, 1995 (as percentage of net assets):
Hospitals/Healthcare 22.7%
Utilities 18.4
Transportation 15.4
The table below shows the percentages of the fund's investments on January 31,
1995 in securities assigned to the various rating categories by Moody's,
Standard & Poor's and unrated securities determined by Putnam Management to be
of comparable quality.
<TABLE>
<CAPTION>
Unrated securities of
Rated securities as a comparable quality, as a
Percentage of fund's percentage of fund's
Rating net assets net assets
<S> <C> <C>
- -------------------------------------------------------------------------------
"AAA"/"Aaa" 23.4% 0.5%
- -------------------------------------------------------------------------------
"AA"/"Aa" 1.0 --
- -------------------------------------------------------------------------------
"A"/"A" 3.6 0.6
- -------------------------------------------------------------------------------
"BBB"/"Baa" 21.9 5.7
- -------------------------------------------------------------------------------
"BB"/"Ba" 5.5 11.8
- -------------------------------------------------------------------------------
"B"/"B" 2.9 17.4
- -------------------------------------------------------------------------------
"CCC" 1.4 --
- -------------------------------------------------------------------------------
"VMIG1"/"MIG1" 4.2 --
- -------------------------------------------------------------------------------
"MIG3" 0.6 --
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1995 (Unaudited)
<S> <C>
Assets
- -------------------------------------------------------------------------------
Investments in securities at value
(identified cost $1,829,685,955) (Note 1) $1,820,494,795
- -------------------------------------------------------------------------------
Interest receivable 31,343,677
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 20,902,264
- -------------------------------------------------------------------------------
Receivable for securities sold 14,648,564
- -------------------------------------------------------------------------------
Total assets 1,887,389,300
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 46,927,888
- -------------------------------------------------------------------------------
Distributions payable to shareholders 4,039,277
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 18,491,316
- -------------------------------------------------------------------------------
Payable to sub-custodian bank (Note 2) 3,509,009
- -------------------------------------------------------------------------------
Payable for variation margin on open futures contracts 212,344
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 828,919
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 229,565
- -------------------------------------------------------------------------------
Payable for administration services (Note 2) 17,046
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,509
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,070,440
- -------------------------------------------------------------------------------
Other accrued expenses 176,845
- -------------------------------------------------------------------------------
Total liabilities 75,505,158
- -------------------------------------------------------------------------------
Net assets $1,811,884,142
- -------------------------------------------------------------------------------
Represented by
Paid-in capital (Notes 1 and 4) $1,888,607,719
Distributions in excess of net investment income (Note 1) (3,449,822)
Accumulated net realized loss on investments and futures
transactions (Note 1) (63,247,376)
Net unrealized depreciation of investments and futures
contracts (10,026,379)
- -------------------------------------------------------------------------------
Total--Representing net assets applicable to
capital shares outstanding $1,811,884,142
- -------------------------------------------------------------------------------
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($412,452,684 divided by 30,038,009 shares) $13.73
Offering price per class A share (100/95.25 x $13.73) $14.41
Net asset value and offering price per class B share
($1,399,089,761 divided by 101,868,968 shares) $13.73
Net asset value and redemption price per class M share
($341,697 divided by 24,904 shares) $13.72
Offering price per class M share (100/96.75 x $13.72) $14.18
- -------------------------------------------------------------------------------
</TABLE>
* On single retail sales of less than $25,000. On sales of $25,000 or more and
on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Statement of operations
Six months ended January 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Tax exempt interest income $ 70,882,134
- ----------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) $ 4,992,419
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 757,865
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,896
- ----------------------------------------------------------------------
Auditing 28,112
- ----------------------------------------------------------------------
Legal 17,876
- ----------------------------------------------------------------------
Postage 110,584
- ----------------------------------------------------------------------
Reports to shareholders 65,693
- ----------------------------------------------------------------------
Administrative services (Note 2) 15,000
- ----------------------------------------------------------------------
Distribution fees (Note 2)
- ----------------------------------------------------------------------
Class A 365,679
- ----------------------------------------------------------------------
Class B 6,209,594
- ----------------------------------------------------------------------
Class M 42
- ----------------------------------------------------------------------
Other 50,643
- ----------------------------------------------------------------------
Total expenses 12,636,403
- ----------------------------------------------------------------------
Net investment income 58,245,731
- ----------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (45,193,697)
- ----------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 786,456
- ----------------------------------------------------------------------
Net unrealized depreciation of investments and futures
contracts during the year (23,563,637)
- ----------------------------------------------------------------------
Net loss on investments (67,970,878)
- ----------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (9,725,147)
- ----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
Statement of changes in net assets
Six months ended January 31, 1995
<TABLE>
<CAPTION>
Six months ended Year ended
January 31 July 31
- ------------------------------------------------------------------------------
1995* 1994
<S> <C> <C>
Increase (decrease) in net assets
- ------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------
Net investment income $ 58,245,731 $ 104,755,484
- ------------------------------------------------------------------------------
Net realized loss on investments and
futures contracts (44,407,241) (13,212,683)
- ------------------------------------------------------------------------------
Net unrealized depreciation of
investments and futures (23,563,637) (74,498,222)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (9,725,147) 17,044,579
- ------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------
From net investment income
- ------------------------------------------------------------------------------
Class A (12,648,231) (18,855,987)
- ------------------------------------------------------------------------------
Class B (45,582,397) (85,899,497)
- ------------------------------------------------------------------------------
Class M (462) --
- ------------------------------------------------------------------------------
In excess of net investment income
- ------------------------------------------------------------------------------
Class A -- (555,784)
- ------------------------------------------------------------------------------
Class B -- (2,531,906)
- ------------------------------------------------------------------------------
From net realized gain on investments
and futures --
- ------------------------------------------------------------------------------
Class A (556) (1,181,683)
- ------------------------------------------------------------------------------
Class B (454) (5,005,098)
- ------------------------------------------------------------------------------
In excess of net realized gain on
investments and futures --
- ------------------------------------------------------------------------------
Class A -- (1,074,658)
- ------------------------------------------------------------------------------
Class B -- (4,551,784)
- ------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (4,707,372) 485,625,941
- ------------------------------------------------------------------------------
Total increase (decrease) in net assets (72,664,619) 383,014,123
Net Assets:
- ------------------------------------------------------------------------------
Beginning of period 1,884,548,761 1,501,534,638
- ------------------------------------------------------------------------------
End of period (including distributions
in excess of net investment income of
$3,449,822 and $3,464,463, respectively) $1,811,884,142 $1,884,548,761
- ------------------------------------------------------------------------------
</TABLE>
*Unaudited
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period For the period
December 29, September 20,
1994 1993
(commencement Six months (commencement
of operations) to ended of operations) to
January 31 January 31 July 31
1995* 1995* 1994
- -----------------------------------------------------------------------------------------------------------
Class M Class A
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.43 $ 14.24 $ 15.34
- -----------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .14 .48 .83
- -----------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on investments .30 (.51) (.98)
- -----------------------------------------------------------------------------------------------------------
Total from Investment Operations .44 (.03) (.15)
- -----------------------------------------------------------------------------------------------------------
Less Distributions
From Net Investment Income (.15) (.48) (.83)
- -----------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income -- -- (.02)
- -----------------------------------------------------------------------------------------------------------
From Net Realized Gain on Investments -- -- (.05)
- -----------------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on Investments -- -- (.05)
- -----------------------------------------------------------------------------------------------------------
Total Distributions (.15) (.48) (.95)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.72 $ 13.73 $ 14.24
- -----------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 2.92(c) (.16)(c) (.99)(c)
- -----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 342 $412,453 $361,593
- -----------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) .12(c) .44(c) .71(c)
- -----------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) .55(c) 3.48(c) 5.58(c)
- -----------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 32.10(c) 32.10(c) 44.41(c)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
For the period
September 9, 1985
Six months (commencement
ended of operations) to
January 31 Year ended July 31 July 31
1995* 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------
Class B Class B
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.24 $ 15.01 $ 14.64 $ 13.79 $ 13.87 $ 14.30 $ 13.72 $ 13.77 $ 13.91 $12.57
- -----------------------------------------------------------------------------------------------------------------------------
43 .86 .95 .99 .99 1.00 .98 .96 .98 .94(a)
- -----------------------------------------------------------------------------------------------------------------------------
(.51) (.65) .41 .94 (.07) (.43) .56 (.05) .04 1.41
- -----------------------------------------------------------------------------------------------------------------------------
(.08) .21 1.36 1.93 .92 .57 1.54 .91 1.02 2.35
- -----------------------------------------------------------------------------------------------------------------------------
(.43) (.85) (.95) (.99) (1.00) (1.00) (.96) (.96) (.98) (1.01)
- -----------------------------------------------------------------------------------------------------------------------------
-- (.03) -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
-- (.05) (.04) (.09) -- -- -- -- (.18) --
- -----------------------------------------------------------------------------------------------------------------------------
-- (.05) -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
(.43) (.98) (.99) (1.08) (1.00) (1.00) (.96) (.96) (1.16) (1.01)
- -----------------------------------------------------------------------------------------------------------------------------
$ 13.73 $ 14.24 $ 15.01 $ 14.64 $ 13.79 $ 13.87 $ 14.30 $ 13.72 $ 13.77 $13.91
- -----------------------------------------------------------------------------------------------------------------------------
(.49)(c) 1.36 9.68 14.60 6.98 4.20 11.71 6.96 7.48 19.24(c)
- -----------------------------------------------------------------------------------------------------------------------------
$1,399,090 $1,522,955 $1,501,535 $1,015,866 $738,113 $651,152 $635,899 $586,721 $582,023 $251,736
- -----------------------------------------------------------------------------------------------------------------------------
.76(c) 1.45 1.38 1.45 1.52 1.66 1.75 1.77 1.78 1.51(a)(c)
- -----------------------------------------------------------------------------------------------------------------------------
3.15(c) 5.76 6.39 7.03 7.26 7.12 7.02 7.11 6.71 6.79(a)(c)
- -----------------------------------------------------------------------------------------------------------------------------
32.10(c) 44.41 52.29 82.31 49.83 46.66 96.97 101.02 132.87 148.70(c)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unaudited
(a) Reflects a waiver of a portion of the distribution plan payments during the
period. As a result of this waiver, expenses of the Fund for the period
ended July 31, 1986 reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized.
29
<PAGE>
Notes to financial statements
January 31, 1995 (Unaudited)
Note 1
Significant accounting policies
The fund is a series of Putnam Tax-Free Income Trust (the "Trust") which is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund pursues its
objective of seeking high current income exempt from federal income tax by
investing primarily in high-yielding, lower rated tax exempt securities
constituting a portfolio that Putnam Management believes does not involve undue
risk to income or principal.
The fund offers class A, class B and class M shares. The fund commenced its
public offering of class M shares on December 29, 1994. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and maybe subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase. Class M shares are sold with a
maximum front-end sales charge of 3.25% and pay an ongoing distribution fee that
is higher than class A shares but lower than class B shares. Expenses of the
fund are borne pro-rata by the shareholders of all classes of shares, except
that each class bears expenses unique to that class (including the distribution
fees applicable to such class). Each class votes as a class only with respect to
its own distribution plan or other matters on which a class vote is required by
law or determined by the Trustees. Shares of each class would receive their pro-
rata share of the net assets of the fund if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. Short-term investments are stated at amortized
cost, which approximates market value, and restricted securities are stated at
fair value following procedures approved 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 A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract, the fund is required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin," and are recorded by the
fund as unrealized gains or losses. When the contract is closed, the fund
records a realized gain or loss
30
<PAGE>
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. The potential risk to the fund
is that the change in value of the underlying securities may not correspond to
the change in value of the futures contracts.
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.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation of securities held or excise tax on income and
capital gains.
E Distributions to shareholders Income dividends are recorded daily by the
fund and are distributed monthly. Capital gain distributions are recorded on the
ex-dividend date and paid annually, or as necessary to meet the distribution
requirements described above.
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.
F Amortization of bond premium and discount Any premium resulting from the
purchase of securities is amortized using the effective yield method for bonds
issued after September 27, 1985, and on a straight-line basis for bonds issued
prior thereto. The premium in excess of the call price, if any, is amortized to
the call date: thereafter, the remaining excess premium is amortized to
maturity. Discount on zero-coupon and stepped coupon bonds is accreted according
to the effective yield method.
G Expenses of the Trust Expenses directly charged or attributable to the fund
will be paid from the assets of the fund. Generally, expenses of the Trust will
be allocated and charged to the assets of each fund on a basis that the Trustees
deem fair and equitable, which may be based on the relative assets of each fund
or the nature of the services performed and relative applicability to each fund.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management Inc. ("Putnam Management"), the
Fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., for
management and investment advisory services is paid quarterly based on the
average net assets of the fund for the quarter. Such fee is based on 0.65% of
the first $500 million of average net assets; 0.55% of the next $500 million;
0.50% of the next $500 million and 0.45% of any amount over $1.5 billion. The
fee is subject to reduction, under current law, in any year to the extent that
expenses (exclusive of distribution fees, brokerage, interest and taxes) of the
fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the
next $70 million and 1.5% of any excess over $100 million and by the amount of
certain brokerage commissions and fees (less expenses) received by affiliates of
the Manager on the fund's portfolio transactions.
The fund also reimburses the manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the Fund receive an annual Trustee's fee of $2,720, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
31
<PAGE>
Custodial functions are being provided to the fund 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.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended January 31, 1995 have been reduced by credits allowed
by PFTC.
The fund has adopted a distribution plan with respect to its class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments Inc., for services provided and
expenses incurred by it in distributing class A shares. The Trustees have
approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of
0.20% of the fund's average net assets attributable to class A shares.
During the six months ended January 31, 1995, Putnam Mutual Funds Corp., acting
as the underwriter, received net commissions of $30,764 from the sale of class A
shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For the
six months ended January 31, 1995, Putnam Mutual Funds Corp., acting as the
underwriter, received 24,272 on class A redemptions.
The fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
class B shares. The Class B Plan provides for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate of up to 0.85% of the fund's average net
assets attributable to class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred
sales charges levied on class B share redemptions within four years of purchase.
The charge is based on declining rates, which begins at 5.00% of the net asset
value of the redeemed shares. For the six months ended January 31, 1995, Putnam
Mutual Funds Corp. received contingent deferred sales charges of $1,689,381 from
such redemptions.
On December 29, 1994, the fund adopted a separate distribution plan with respect
to its class M shares (the "Class M Plan") pursuant to rule 12b-1 under the
Investment Act of 1940. The purpose of the Class M Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing class M shares. The Trustees have approved payment by the fund to
Putnam Mutual Funds Corp. at an annual rate of 0.50% of the fund's average net
assets attributable to class M shares. For the period December 29, 1994
(commencement of operations) to January 31, 1995 Putnam Mutual Funds Corp.,
acting as underwriter received $62 from the sale of class M shares of the fund.
As part of the custodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund. At
January 31, 1995, the payable to subcustodian bank represents the amount due for
cash advanced for the settlement of a security purchased.
32
<PAGE>
Note 3
Purchases and sales of securities
During the six months ended January 31, 1995, purchases and sales of investment
securities other than short-term municipal obligations aggregated $567,846,154
and $595,386,408, respectively. Purchases and sales of short-term municipal
obligations aggregated $473,305,000 and $417,289,100, respectively. In
determining the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
Note 4
Capital shares
At January 31, 1995, there was an unlimited number of shares of beneficial
interest authorized divided into class A, class B and class M shares.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
For the period
September 20, 1993
(commencement of
For the six months ended operations) to
January 31 1995 July 31 1994
- ---------------------------------------------------------------------------------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,250,837 $ 98,429,185 28,874,587 $438,055,664
Shares issued in connection
with reinvestment of
distributions 501,026 6,854,101 819,268 12,116,312
- ---------------------------------------------------------------------------------------------------------
7,751,863 105,283,286 29,693,855 450,171,976
- ---------------------------------------------------------------------------------------------------------
Shares repurchased (3,108,080) (42,358,089) (4,299,629) (63,285,846)
- ---------------------------------------------------------------------------------------------------------
Net increase 4,643,783 $ 62,925,197 25,394,226 $386,886,130
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
For the six months For the year
ended January 31, 1995 ended July 31, 1994
- ---------------------------------------------------------------------------------------------------------
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,978,641 $136,998,562 37,754,456 $564,070,574
Shares issued in connection
with reinvestment of
distributions 1,577,847 21,610,456 3,332,034 49,547,834
- ---------------------------------------------------------------------------------------------------------
11,556,488 158,609,018 41,086,490 613,618,408
- ---------------------------------------------------------------------------------------------------------
Shares repurchased (16,629,081) (226,580,200) (34,185,478) (514,878,597)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) (5,072,593) $(67,971,182) 6,901,012 $98,739,811
- ---------------------------------------------------------------------------------------------------------
For the period December 29, 1994
(commencement of operations) to
January 31, 1995
Class M Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 24,901 $338,576
Shares issued in connection
with reinvestment of
distributions 3 37
- ---------------------------------------------------------------------------------------------------------
24,904 338,613
Shares repurchased -- --
- ---------------------------------------------------------------------------------------------------------
Net increase 24,904 $338,613
- ---------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Our commitment to quality service
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has received the Dalbar Quality Tested Service Seal for
the past five years. The award is presented annually by Dalbar Financial
Services, an independent firm that monitors and evaluates the quality of service
provided by mutual fund companies throughout the United States. Dalbar ranks
firms by conducting 12,000 anonymous performance evaluations based on 38 service
components.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY EASILY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost.
For details about any of these or other services, contact your financial advisor
or call the toll-free number shown below and speak with a helpful Putnam
representative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
34
<PAGE>
Fund information
INVESTMENT
MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Triet Nguyen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Tax-Free High Yield
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.
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 principal amount invested.
35
<PAGE>
---------------
PUTNAM INVESTMENTS Bulk Rate
The Putnam Funds U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
---------------
500/036-16923
