PUTNAM
TAX-FREE
HIGHYIELD
FUND
ANNUAL REPORT
July 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
Morningstar awarded the fund's class B shares four out of a possible
five stars for risk-adjusted performance for the period ended July 31,
1995. There are 694 funds in the municipal category over this period.
Morningstar is an independent rating agency.*
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
TOTAL RETURN: NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
12 months ended
7/31/95 6.24% 1.19% 5.54% 0.58%
Life of class M -- -- -- -- 9.69% 6.13%
- ---------------------------------------------------------------------
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
- ---------------------------------------------------------------------
7/31/94 $14.24 $14.95 $14.24 -- --
12/29/94 -- -- -- $13.43 $13.88
7/31/95 14.14 14.85 14.14 14.13 14.60
- ---------------------------------------------------------------------
DISTRIBUTIONS: NO. INCOME CAPITAL GAINS(1) TOTAL
- ---------------------------------------------------------------------
Class A 12 $0.939544 -- $0.939544
Class B 12 0.848344 -- 0.848344
Class M 8 0.583344 -- 0.583344
- ---------------------------------------------------------------------
CURRENT RETURN NAV POP NAV NAV POP
- ---------------------------------------------------------------------
End of period
Current dividend rate(2) 6.55% 6.24% 5.93% 6.24% 6.04%
Taxable equivalent(3) 10.84 10.33 9.82 10.33 10.00
Current 30-day SEC yield(4) 6.68 6.36 6.01 6.38 6.15
Taxable equivalent(3) 11.06 10.53 9.95 10.56 10.18
- ---------------------------------------------------------------------
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. For performance
over longer periods, see pages 8 and 9. POP assumes 4.75% maximum
sales charge for class A shares and 3.25% for class M shares, which
commenced operations on 12/29/94. CDSC for class B shares assumes 5%
maximum contingent deferred sales charge. (1) 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. (2) Income portion of most recent distribution,
annualized and divided by NAV or POP at end of period. (3) Assumes
maximum 39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous. (4)Based only on investment
income, calculated using SEC guidelines.
* Morningstar, Inc., rates a fund in relation to other funds with
similar investment objectives, based on the fund's 3- and 5-year
average annual returns, adjusted for risk factors and sales
charges. Ratings are updated monthly. The four-star rating for
the period ending 7/31/95 puts the fund in the top 32.5% of all
694 municipal funds rated. For the 3-year and 5-year periods the
fund earned four and four stars, respectively, and there were 694
and 472 funds in the municipal category. Past performance is not
indicative of future results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
SO FAR IN 1995, THE BOND MARKET HAS AMPLY REWARDED INVESTORS WHO CHOSE
LAST YEAR TO STAY THE COURSE. VIRTUALLY ALL FIXED- INCOME INVESTMENTS
TOOK SUBSTANTIAL STEPS TOWARD A RECOVERY FROM 1994'S DECLINES.
HOWEVER, WHILE TAXABLE BONDS HAVE SHOWN CONTINUING STRENGTH OVER THE
PAST FEW MONTHS, MUNICIPAL BONDS HAVE MADE LITTLE HEADWAY SINCE EARLY
APRIL.
IT IS IMPORTANT TO KEEP IN MIND, THOUGH, THAT WHILE DEBATE IN
WASHINGTON OVER TAX REFORM HAS CAUSED SOME UNCERTAINTY IN THE
MUNICIPAL-BOND MARKET, IT HAS ALSO CREATED OPPORTUNITIES. VALUES OF
TAX-FREE BONDS, RELATIVE TO THEIR TAXABLE COUNTERPARTS, ARE EXTREMELY
ATTRACTIVE AT PRESENT. THE FEDERAL RESERVE BOARD'S WILLINGNESS IN JULY
TO LOWER ITS TARGET FOR THE FEDERAL FUNDS RATE WAS ALSO A SIGN THAT A
BOND-FRIENDLY ENVIRONMENT OF MODERATE GROWTH WITH LOW INFLATION MAY
CONTINUE OVER THE NEAR TERM. THERE CAN BE NO ASSURANCE, OF COURSE,
AGAINST CHANGES IN THE ECONOMIC LANDSCAPE LATER IN 1995.
IN THE FOLLOWING REPORT, TRIET NGUYEN, MANAGER OF PUTNAM TAX-FREE HIGH
YIELD FUND, REVIEWS THE FUND'S PERFORMANCE DURING THE FISCAL YEAR
ENDED JULY 31, 1995, AND PRESENTS HIS VIEWS ON THE FISCAL YEAR AHEAD.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
SEPTEMBER 20, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
TRIET M. NGUYEN
Fixed-income investors who stayed in the bond market throughout the
past year and a half were able to give themselves a collective "high
five" as they saw a disastrous 1994 turn into a rather prosperous
1995, year to date. Putnam Tax-Free High Yield Fund shared in the
rally during the latter half of the fiscal year that ended on July 31,
1995. However, while the municipal-bond market strengthened
significantly during the broader fixed-income market recovery earlier
this year, it did not do so to the same extent as many taxable income
investments.
For the fiscal year, your fund's class B shares and class A shares had
a total return of 5.54% and 6.24%, respectively, both at net asset
value. This was a dramatic reversal from the 1.36% total return for
class B shares for the last fiscal year.
FLAT-TAX CONCERNS CREATE OPPORTUNITY
Throughout the first quarter of calendar 1995, all fixed-income
markets advanced more or less in tandem. In fact, municipal bonds
rallied sharply, with yields falling more than 90 basis points, or
nine tenths of one percentage point. (Bond yields move in the opposite
direction of their prices.) After the first quarter, however, taxable
bonds continued to rally as municipal bonds eased somewhat.
Since spring, the perceived threat of the current flat-tax proposals
in Congress to the tax advantage enjoyed by municipal bonds has cast a
shadow over this $1.2 trillion market. As a result, yields on most
high-grade municipal bonds remain at the very attractive level of more
than 90% of those of comparable taxable Treasuries. Although further
volatility cannot be ruled out, we believe concerns about tax reform
are premature; in fact, we do not expect any changes before 1997.
Therefore, we believe there is a buying opportunity in municipal
bonds.
<PAGE>
At the close of the fund's fiscal year, the investment community
appeared to be questioning whether the short-term downturn in the
municipal-bond market was grounded in reality and if it created more
possibilities than it quashed. An August 7, 1995, Barron's article
entitled "Tax-Exempts Still Deliver" reminds us that "for now, . . .
taxes remain, and along with them, the tax-free advantage of munis."
VALUE IN AIRPORT BONDS
One area of the municipal-bond market that continues to offer
exceptional value is the transportation sector, in particular, bonds
related to major airports. Our focus on this type of bond has proved
quite rewarding.
One example is the fund's holdings in bonds related to the new Denver
International Airport. Problems with the facility's automated baggage
system, as well as various other delays, caused many investors to
ignore what we believe is a valuable project for a major Western air-
traffic hub. Our investment in these bonds enabled the fund to realize
some profits following their rally in February, just prior to the
airport's long-awaited opening.
We are also optimistic about the long-term prospects for Chicago's
O'Hare Airport. Your fund owns revenue bonds supported by fees from
O'Hare's United Airlines terminal. It is the largest terminal in what
is considered the world's busiest
[BAR CHART]
TOP INDUSTRY SECTORS*
- ---------------------------------------------------------------------
Hospital/Health care 19.8%
Utilities 18.5%
Transportation 16.6%
- ---------------------------------------------------------------------
* Based on net assets on 7/31/95. Holdings will vary over time.
<PAGE>
airport. As more and more people choose air travel over other forms of
transportation, airports such as O'Hare can only benefit.
HOSPITALS LITTLE CHANGED; UTILITIES ON THE RISE
Over the past six months, bond performance in the hospital/health-care
sector has lagged on a total-return basis. Consequently, we reduced
the fund's holdings in this sector from about 23% at the close of the
fund's semiannual period to over 19% of net assets. However, we still
hold major positions in hospitals in Michigan, California, and
Arizona, in part because of what we believe are favorable
merger/acquisition situations in these states.
Conversely, we have redeployed some of the fund's assets into public
utility bonds. Like transportation, utilities offer great value in
today's market, in our view. Additionally, as we have discussed in
previous reports, municipal bonds issued by utilities have
historically performed well in periods of slow economic growth.
LONG MATURITY CONCENTRATION MAY PAY OFF LATER
One way we seek to fulfill the fund's objective of providing high
current income is to invest in bonds with longer maturities. In fact,
the average bond in your portfolio tends to mature in 20 years or
more. Because of flat-tax fears, institutional investors have been
reluctant to commit their money to bonds with maturities greater than
10 years. Therefore, investors may notice that funds emphasizing bonds
that mature in 10 years or less tended to outperform longer-maturity
funds.
As more investors recognize the attractiveness of the municipal- bond
market, however, we believe those searching for value (and those
willing to assume greater risk) will find it at the longer end of the
maturity spectrum. While there can be no guarantee that a rally will
occur, the higher risks assumed with investing in longer-maturity
funds should translate into a higher return potential.
<PAGE>
[MOUNTAIN CHART]
YIELD CURVES OF TAXABLE AND TAX-FREE BONDS
- ---------------------------------------------------------------------
AA-rated U.S. Treasury Taxable-
municipal bonds securities equivalent yield
1 3.80 5.65 6.29
2 4.00 5.86 6.62
3 4.20 6.00 6.95
4 4.35 6.07 7.20
5 4.50 6.15 7.45
7 4.75 6.26 7.86
10 5.06 6.42 8.37
15 5.61 6.53 9.28
20 5.87 6.64 9.71
25 5.95 6.74 9.85
30 years 5.97 6.85 9.88
- ---------------------------------------------------------------------
Source: Bloomberg. Chart compares yields of taxable U.S. Treasury
securities and tax-free AA-rated municipal bonds of varying maturities
on 7/31/95. Yields of 30-year AA-tax-free bonds were 87% of 30-year
Treasury bonds on that date. Tax-free bonds also enjoyed a significant
advantage on a taxable-equivalent basis. The taxable-equivalent yield
for municipal bonds assumes the maximum 39.6% federal income tax rate.
Returns would not be as advantageous for investors in lower tax
brackets. No assurance can be made that the fund will attain any
particular yield. Unlike municipal bonds, principal and interest
payments on U.S. Treasury securities are backed by the full faith and
credit of the U.S. Government; market prices and investment returns
will vary and are not guaranteed.
In addition to appealing returns relative to taxable investments, the
municipal-bond market also has attractive supply/demand dynamics: new
issuance of municipal bonds remains low relative to historical
standards and fund managers continue to hold cash generated from
summer refundings and maturities. All in all, we believe the municipal-
bond market has the potential to finish out calendar 1995 with the
same strength it demonstrated at the beginning of the year.
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 7/31/95, 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.
<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.
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.
TOTAL RETURN FOR PERIODS ENDED 7/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------
1 year 6.24% 1.19% 5.54% 0.58% -- --
- ---------------------------------------------------------------------
3 years -- -- 17.34 14.44 -- --
Annual average -- -- 5.48 4.60 -- --
- ---------------------------------------------------------------------
5 years -- -- 43.87 41.87 -- --
Annual average -- -- 7.55 7.24 -- --
- ---------------------------------------------------------------------
Life-of-class A 5.18 0.22 -- -- -- --
Annual average 2.75 0.12 -- -- -- --
- ---------------------------------------------------------------------
Life-of-class B -- -- 129.49 129.49 -- --
Annual average -- -- 8.76 8.76 -- --
- ---------------------------------------------------------------------
Life-of-class M -- -- -- -- 9.69% 6.13%
- ---------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------
1 year 7.30% 2.23% 6.59% 1.59% -- --
- ---------------------------------------------------------------------
3 years -- -- 20.89 17.90 -- --
Annual average -- -- 6.53 5.64 -- --
- ---------------------------------------------------------------------
5 years -- -- 44.72 42.72 -- --
Annual average -- -- 7.67 7.37 -- --
- ---------------------------------------------------------------------
Life-of-class A 4.60 -0.33 -- -- -- --
Annual average 2.56 -0.19 -- -- -- --
- ---------------------------------------------------------------------
Life-of-class B -- -- 128.35 128.35 -- --
Annual average -- -- 8.78 8.78 -- --
- ---------------------------------------------------------------------
Life-of-class M -- -- -- -- 9.11% 5.57%
- ---------------------------------------------------------------------
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. The fund commenced
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 commenced
operations on 12/29/94. Performance data represent past results and
will differ for each share class. Investment returns and principal
value will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost.
</TABLE>
<PAGE>
[MOUNTAIN CHART]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/9/85
- ---------------------------------------------------------------------
FundOs class B shares Lehman Brothers Consumer
Date at CDSC Municipal Bond Index Price Index
9/9/85 $10,000 $10,000 $10,000
7/31/86 $11,924 $11,781 $10,139
7/31/87 $12,816 $12,850 $10,537
7/31/88 $13,707 $13,753 $10,972
7/31/89 $15,311 $15,428 $11,519
7/31/90 $15,953 $16,497 $12,074
7/31/91 $17,067 $17,938 $12,611
7/31/92 $19,559 $20,402 $13,009
7/31/93 $21,452 $22,206 $13,370
7/31/94 $21,745 $22,622 $13,741
7/31/95 $22,949 $24,403 $14,120
- ---------------------------------------------------------------------
Past performance is no assurance of future results. A $10,000
investment in the fundOs class A shares at inception on 9/20/93 would
have been valued at $10,518 at net asset value on 7/31/95 ($10,022 at
the maximum applicable 4.75% sales charge). A $10,000 investment in
the fund's class M shares at commencement of operations on 12/29/94
would have been valued at $10,969 at net asset value on 7/31/95
($10,613 at the maximum applicable 3.25% sales charge).
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 INDEX RETURNS FOR PERIOD ENDED 7/31/95
<TABLE><CAPTION>
<S> <C> <C>
CONSUMER LEHMAN BROS. MUNICIPAL
PRICE INDEX BOND INDEX
- ----------------------------------------------------------------------
1 year 2.76% 7.87%
- ---------------------------------------------------------------------
3 years 8.54 19.61
Annual average 2.77 6.15
- ---------------------------------------------------------------------
5 years 16.95 47.92
Annual average 3.18 8.15
- ---------------------------------------------------------------------
Life of class A 5.10 6.44
Annual average 2.71 3.41
- ---------------------------------------------------------------------
Life of class B 41.20 144.03
Annual average 3.55 9.44
- ---------------------------------------------------------------------
Life of class M 1.87 13.12
- ---------------------------------------------------------------------
</TABLE>
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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the fiscal year ended July 31, 1995
To the Trustees and Shareholders of
Putnam Tax-Free High Yield Fund
(a series of Putnam Tax-Free Income Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond
ratings), and the related statements of operations and of changes in
net assets and the financial highlights present fairly, in all
material respects, the financial position of Putnam Tax-Free High
Yield Fund (the "fund") (a series of Putnam Tax-Free Income Trust) at
July 31, 1995, and the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of portfolio positions at July 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 18, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
July 31, 1995
KEY TO ABBREVATIONS
AMBAC --AMBAC Indemnity Corporation
COP --Certificate of Participation
FGIC --Federal Guaranty Insurance Company
FHA Insd. --Federal Housing Administration Insured
FNMA Coll. --Federal National Mortgage Association Collaterallized
FSA --Financial Security Assurance
GNMA Coll. --Government National Mortgage Association
Collateralized
G.O. Bonds --General Obligation Bonds
IF --Inverse Floating
IFB --Inverse Floating Bonds
MBIA --Municipal Bond Investors Assurance Corporation
RAW --Revenue Anticipation Warrants
TRAN --Tax & Revenue Anticipation Notes
VRDN --Variable Rate Demand Notes
<TABLE><CAPTION>
<S> <C> <C>
MUNICIPAL BONDS AND NOTES (97.9%)*
PRINCIPAL AMOUNT RATINGS** VALUE
ALABAMA (0.5%)
- ---------------------------------------------------------------------
$5,000,000Anniston Indl. Dev. Rev. Bonds
(Hoover Group Inc. Project),
8 1/2s, 9/1/10 Aa $5,075,000
3,500,000Jackson Cnty., Hlth. Care Auth. Hosp.
Tax Antic Rev. Bonds, 7 7/8s, 5/1/19 BB/P 3,666,250
----------
8,741,250
ALASKA (0.2%)
- ---------------------------------------------------------------------
5,050,000 Valdez, Marine Term Rev. Bonds
(Amerada Hess Pipeline Corp.),
6.1s, 2/1/24 BB/P 4,614,438
ARIZONA (1.7%)
- ---------------------------------------------------------------------
10,500,000AZ Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds (St. Luke's Hosp.
Syst.),Ser. A, 10 1/8s, 11/1/15 Aaa 10,867,500
4,000,000 Phoenix, Indl. Dev. Auth.
Rev. Bonds (Christian Care
Retirement Apts.),
Ser. A, 10 1/4s, 1/1/18 BB/P 4,225,000
3,625,000 Pinal Cnty., Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl.
Med. Ctr.), Ser. B,
8 1/8s, 12/1/22 BB/P 3,824,375
4,500,000 Plainfield Indl. Economic Dev.
Rev. Bonds 8 1/2s, 9/1/04 B/P 4,815,000
Scottsdale, Indl. Dev. Auth. 1st Mtg. Rev. Bonds
2,300,000 Ser. A, 8s, 6/1/11 BB/P 2,389,125
3,150,000 Ser. B, 7.05s, 6/1/16 BB/P 3,311,438
3,245,000 Ser. B, 6.7s, 6/1/17 BB/P 3,419,419
----------
32,851,857
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
ARKANSAS (0.7%)
- ---------------------------------------------------------------------
$12,890,000Pope Cnty., Poll. Control Rev. Bonds
(Arkansas Pwr. & Lt. Co. Project),
11s, 12/1/15 Baa $13,373,375
CALIFORNIA (16.8%)
- ---------------------------------------------------------------------
6,500,000Alameda Cnty., COP (Santa Rita Jail
Project), MBIA, 5s, 12/1/15 AAA 5,711,875
7,000,000 Brea, Redev. Agcy. Tax Alloc.
Rev. Bonds MBIA, 5 1/2s, 8/1/17 AAA 6,501,250
14,840,000CA Hlth. Fac. Auth. Rev. Bonds
(Valley Presbyterian Hosp. Project),
Ser. A, 9s, 5/1/12 BB 14,840,000
6,000,000 CA State G.O. Bonds FSA,
5 1/2s, 3/1/20 AAA 5,512,500
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 7,724,375
16,065,000 Ser. A, AMBAC, 5s, 12/1/19 AAA 13,835,981
10,000,000 CA State RAW Notes, Ser. C,
5 3/4s, 4/25/96 MIG1 10,135,300
5,500,000 CA Statewide Cmnty. Dev. Auth.
Rev. Bonds (Oakland Convention
Ctr. Project), AMBAC, 5 1/2s, 10/1/14 AAA 5,197,500
9,000,000Concord, Redev. Agcy. Tax Alloc.
Rev. Bonds (Central Concord Redev.
Project), Ser. SR, AMBAC,
5 1/4s, 7/1/19 AAA 8,043,750
7,640,000 Contra Costa, Wtr. Dist. Wtr.
Rev. Bonds, Ser. G, MBIA, 5s, 10/1/24 AAA 6,503,550
6,000,000Corona, COP (Vista Hosp. Syst.),
Ser. B, 9 1/2s, 7/1/20 BB/P 6,300,000
Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
5,000,000 (California Toll Roads),
Ser. A, 6s, 1/1/34 BBB 4,518,750
12,000,000(CA Toll Roads), Ser. A, 5s, 1/1/35 Baa 9,105,000
13,915,000(California Toll Roads), zero %, 1/1/20 Baa 2,417,731
7,000,000 Irvine Ranch Wtr. Dist. VRDN
(Dist. Nos. 105-250-290), 3.8s, 8/1/16 A1 7,000,000
5,500,000Irvine Ranch, Wtr. Dist. COP VRDN
(Cap. Impt. Project), 3.8s, 8/1/16 VMIG1 5,500,000
8,000,000Los Angeles, Dept. Wtr. & Pwr. Elec.
Plant Rev. Bonds (2nd Issue Electric
Plant), MBIA, 5 1/4s, 11/15/26 AAA 7,120,000
Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev. Bonds
8,500,000(Western Air Lines, Inc. -- Delta
Air Lines, Inc.), 11 1/4s, 11/1/25 Ba 8,871,875
5,700,000(Air Canada Inc.-Los Angeles Intl.),
8 3/4s, 10/1/14 B 6,213,000
5,070,000(United Airlines, Inc.-Los Angeles
Intl.), 6 7/8s, 11/15/12 Baa 5,171,400
5,000,000Los Angeles, Wastewater Syst. IFB
FGIC, 6.063s, 11/1/06 (acquired
11/08/93, cost $5,417,200)++ AAA 5,043,750
4,500,000Ontario, Redev. Fin. Auth. Rev.
Bonds (Ontario Redev. Project No. 1),
MBIA, 5 1/2s, 8/1/18 AAA 4,173,750
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
CALIFORNIA (continued)
- ---------------------------------------------------------------------
$10,000,000Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management), 7 7/8s,
12/1/13 (acquired 12/28/94, cost
$10,000,000) (Chapter 9)++ BBB $ 10,075,000
15,000,000Orange Cnty., TRAN Ser. A, (Chapter 9),
4 1/2s, 6/30/96 (acquired various
dates from 12/15/94 to 3/16/95,
cost $13,632,500)++ D 13,500,000
12,000,000Poway, Redev. Agcy. Tax Alloc.
Rev. Bonds (Parguay Redev. Project),
FGIC, 5 1/2s, 12/15/23 AAA 11,055,000
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 3,161,300
5,100,000 Ser. A, 6 1/2s, 9/1/23 BB/P 5,106,375
21,000,000San Bernardino Cnty. IF COP (PA-100-
Med. Ctr. Fing. Project), MBIA, 6 1/2s,
8/1/28 (acquired 6/27/95,
cost $22,664,040)++ AAA 22,338,750
5,000,000(Med. Ctr. Fing. Project), Ser. A,
MBIA, 6 1/2s, 8/1/17 AAA 5,218,750
3,000,000(Med. Ctr. Fing. Project) 5s, 8/1/26 A 2,313,750
2,000,000San Bernardino, Hosp. Rev. Bonds
(San Bernardino, Cmnty. Hosp.),
7 7/8s, 12/1/08 B 1,887,500
10,000,000San Diego, Regl. Bldg. Auth. Lease
Rev. Bonds MBIA, 6.9s, 5/1/23 AAA 10,012,500
12,000,000San Francisco, City & Cnty. Swr.
Rev. Bonds AMBAC, 5 1/2s, 10/1/15 AAA 11,205,000
Santa Ana, Cmnty. Redev. Agcy. Tax
Alloc. Rev. Bonds
21,420,000 Ser. B, 7 1/2s, 9/1/16 BBB 22,089,375
8,000,000 Ser. B, 6 3/4s, 9/1/19 BBB 7,780,000
8,500,000Santa Margarita/Dana Point Auth.
Rev. Bonds, Ser. B, MBIA,
5 3/4s, 8/1/20 AAA 8,032,500
3,000,000Southern CA Pub. Pwr. Auth. IFB
(Transmission Project), 6.644s, 7/1/12 AA 2,996,250
18,820,000Vallejo, COP (Marine World Foundation),
8.1s, 2/1/21 BBB/P 19,855,100
10,000,000Valley Hlth. Syst. COP 6 7/8s,
5/15/23 BB/P 9,437,500
------------
321,505,987
COLORADO (6.2%)
- ---------------------------------------------------------------------
48,945,000CO Hlth. Fac., Auth. Retirement Fac.
Rev. Bonds (Liberty Heights), Ser. B,
zero %, 7/15/24 AAA 6,607,575
Denver City & Cnty. Arpt. Rev. Bonds
34,400,000 Ser. A, 8 3/4s, 11/15/23 Baa 39,431,000
12,750,000 Ser. A, 8 1/2s, 11/15/23 Baa 14,248,125
8,000,000 Ser. D, MBIA, 7 3/4s, 11/15/13 AAA 9,400,000
5,450,000 Ser. A, 7 1/4s, 11/15/25 Baa 5,736,125
5,000,000 Ser. D, 7s, 11/15/25 Baa 5,093,750
8,935,000 Ser. C, 6 3/4s, 11/15/13 Baa 8,990,844
12,500,000 Ser. C, 6 1/8s, 11/15/25 Baa 11,640,625
17,115,000Denver, City & Cnty. Special Fac.
Arpt. Rev. Bonds (United Air Lines,
Inc. Project), Ser. A, 6 7/8s, 10/1/32Baa 17,136,394
------------
118,284,438
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
CONNECTICUT (1.7%)
- ---------------------------------------------------------------------
CT State Dev. Auth. 1st. Mtge. Rev. Bonds
$1,680,000(Gladeview Hlth. Care Project),
9 3/4s, 12/15/16 BB/P $ 1,850,100
7,195,000(East Hill Woods Project), 8 3/4s, 7/1/19 B/P 7,401,856
CT State Dev. Auth. Hlth. Care Rev. Bonds
6,500,000 (Alzheimers Resource Ctr.),
Ser. A, 10s, 8/15/21 AAA/P 8,401,250
2,000,000 (Alzheimers Resource Ctr.),
Ser. A, 7 1/4s, 8/15/21 BB/P 2,007,500
4,625,000 (Alzheimers Resource Ctr.),
Ser. A, 7 1/8s, 8/15/14 BB/P 4,613,438
2,290,000 (Alzheimers Resource Ctr.),
Ser. A, 7s, 8/15/09 BB/P 2,298,588
5,500,000CT State Hlth. & Edl. Facs. Auth.
Rev. IFB (Yale U.), 7.436s, 6/10/30 AAA 5,438,125
------------
32,010,857
DISTRICT OF COLUMBIA (0.9%)
- ---------------------------------------------------------------------
10,500,000 DC, COP 7.3s, 1/1/13 B 10,526,250
DC, Natl. Pub. Radio Rev. Bonds
4,400,000 7.7s, 1/1/23 BB/P 4,570,500
2,500,000 7 5/8s, 1/1/18 BB/P 2,593,750
------------
17,690,500
FLORIDA (2.8%)
- ---------------------------------------------------------------------
9,260,000Brevard Cnty., Hlth. Auth. Rev. Bonds
(Courtenay Springs Village),
7 3/4s, 11/15/24 BB/P 9,040,075
25,000,000Hernando Cnty., Indl. Dev. Rev.
Bonds (FL Crushed Stone Co.),
8 1/2s, 12/1/14 B/P 26,937,500
6,350,000Hillsborough Cnty., Aviation Auth.
Special Purpose Fac. Rev. Bonds,
(U.S. Air Inc. Project), 8.6s, 1/15/22 B 6,556,375
1,115,000Jacksonville, Hlth. Fac. Auth. Rev.
Bonds (Mental Hlth. Ctr.),
9 1/8s, 10/15/19 B/P 1,158,206
3,250,000Levy Cnty., Indl. Dev. Rev. Bonds
(National Med. Assn. Inc. Project),
10s, 7/1/19 B/P 3,241,875
2,250,000Orange Cnty., Hlth. Fac. Auth. IFB,
Ser. 91-C, MBIA, 8.259s, 10/29/21 AAA 2,407,500
3,485,000Palm Beach Cnty., Student Hsg. Rev.
Bonds (Palm Beach Cmnty. College),
Ser. A, 8 1/2s, 3/1/23 B/P 3,402,231
------------
52,743,762
GEORGIA (6.2%)
- ---------------------------------------------------------------------
5,100,000Cobb Cnty., Dev. Auth. Indl. Dev.
Rev. Bonds (Boise Cascade Corp.
Project), 7s, 9/1/14 Baa 5,214,750
De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts. Project),
8,000,000 Ser. B, 10s, 4/1/17 BB/P 8,280,000
5,900,000 Ser.A, 7 1/2s, 4/1/17 A/P 6,003,250
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
GEORGIA (continued)
- ---------------------------------------------------------------------
$9,500,000Forsyth Cnty., Dev. Auth. Indl.
VRDN (Hoover Group Inc. Project)
8 1/2s, 12/1/05 VMIG3 $ 9,618,750
6,395,000Fulton Cnty., Res. Elderly Care Fac.
Auth. Rev. Bonds (Lenbrook Sq.
Foundation Inc. Project),
9 3/4s, 1/1/17 B/P 6,578,856
3,900,000GA Med. Ctr. Hosp. Auth. Rev. Antic.
IF, COP (Columbus Regl. Hlth. Care
Syst.), Ser. B, MBIA, 8.293s, 8/1/10 AAA 4,265,625
GA Muni. Elec. Auth. Pwr. Rev. Bonds,
5,000,000 Ser. EE, AMBAC, 7 1/4s, 1/1/24 AAA 5,893,750
15,370,000 Ser. EE, AMBAC, 5 1/2s, 1/1/26 AAA 14,294,100
22,000,000GA Muni. Elec. Auth. Pwr. COP Ser. Z,
MBIA, 5 1/2s, 1/1/20 AAA 20,872,500
8,500,000 Monroe Cnty., Dev. Auth. Poll.
Control Rev. Bonds (GA Pwr. Co.-Plant
Scherer Project), 10 1/2s, 9/1/15 A 8,712,500
55,260,000Richmond Cnty., Dev. Auth. Rev. Bonds,
Ser. C, zero %, 12/1/21 Aaa 9,048,825
Rockdale Cnty., Dev. Auth. Solid Waste
Disp. Rev. Bonds (Visay Paper Inc. Project)
3,875,000 7 1/2s, 1/1/26 B/P 3,913,750
15,000,000 7.4s, 1/1/16 B/P 15,300,000
------------
117,996,656
ILLINOIS (2.2%)
- ---------------------------------------------------------------------
2,210,000Chicago, O'Hare Intl. Arpt. Spl. Fac.
Rev. Bonds (United Air Lines, Inc.),
Ser. 84A, 8.85s, 5/1/18 Baa 2,511,113
5,000,000IL Dev. Fin. Auth. Retirement Hsg.
Rev. Bonds (Regency Park-Lincolnwood),
Ser. A, 10 1/4s, 4/15/19 (In Default)+B/P 3,500,000
IL Dev. Fin. Auth. Rev. Bonds
2,790,000(Cmnty. Rehab. Providers Fac.),
8 1/4s, 8/1/12 BBB/P 2,870,213
3,065,000(Cmnty. Rehab. Providers Fac.),
Ser. A, 7 1/2s, 3/1/14 BB/P 2,950,063
1,090,000(Cmnty. Rehab. Providers Fac.),
Ser. A, 7 1/4s, 3/1/04 BB/P 1,064,113
1,190,000(Mercy Hsg. Corp. Project), 7s,
8/1/24 A/P 1,219,750
6,050,000Lansing, Tax Increment Rev. Bonds
(Landing Redev. Project), 10s, 4/1/07AAA/P 6,292,000
20,500,000Robbins Res. Recvy. Rev. Bonds
(Recov. Partners), Ser. A,
9 1/4s, 10/15/14 B/P 22,473,125
------------
42,880,377
INDIANA (2.5%)
- ---------------------------------------------------------------------
East Chicago, Poll. Control Rev. Bonds
12,000,000(Inland Steel Co. Project Number 11),
7 1/8s, 6/1/07 Ba 12,510,000
10,000,000(Inland Steel Co. Project Number 10),
6.8s, 6/1/13 Ba 10,000,000
7,332,446Hammond, Indl. Port Auth. COP 9.65s,
6/1/14 BB/P 7,726,565
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
INDIANA (continued)
- ---------------------------------------------------------------------
$14,000,000Indianapolis Arpt. Auth. Spcl.
Facs. Rev. Bonds (United Airlines
Project), Ser. A, 6 1/2s, 11/15/31 Baa $ 13,335,000
2,325,000 Mishawaka, Indl. Rev. Bonds
(Stone Container Corp. Project),
9 1/4s, 2/1/97 B/P 2,432,531
1,757,063Westfield, Econ. Dev. Rev. Bonds
(Westfield Village Hlth. Care Ctr.),
FHA Insd., 12s, 5/15/14 BBB/P 2,075,531
------------
48,079,627
IOWA (0.6%)
- ---------------------------------------------------------------------
11,500,000IA 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 223,600
------------
11,493,600
KENTUCKY (1.9%)
- ---------------------------------------------------------------------
5,000,000Jefferson Cnty., Hosp. IFB (Alliant
Hlth. Syst. Project), MBIA,
8.228s, 10/1/14 AAA 5,293,750
25,000,000 Kenton Cnty., Arpt. Brd. Spl.
Facs. Rev. Bonds (Delta Air Lines,
Inc. Project), Ser. A, 6 1/8s, 2/1/22 Ba 23,000,000
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 1,336,400
3,550,000Muhlenberg Cnty., Hosp. Rev. Bonds
(Muhlenberg Cmnty. Hosp. Project),
9 1/2s, 8/1/10 BBB/P 3,847,313
1,975,000Owensboro, Hosp. Auth. Rev. Bonds
(Children's Psychiatric Hosp.),
13s, 11/1/10 B/P 2,026,844
------------
35,504,307
LOUISIANA (5.1%)
- ---------------------------------------------------------------------
Beauregard, Parish Rev. Bonds
2,900,000 (Boise Cascade Corp. Project),
7 3/4s, 6/1/21 Baa 3,063,125
3,000,000 (Boise Cascade Corp. Project),
6 1/8s, 3/1/23 Baa 2,797,500
5,600,000Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 6,006,000
LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
2,441,361 (Emily Morten Foundation),
10 1/4s, 5/1/19 B/P 2,587,843
2,000,000 (St. James Place Project),
10s, 11/1/21 B/P 2,155,000
17,000,000Lake Charles, Harbor & Term. Dist.
Port Facs. Rev. Bonds (Trunkline Co.
Project), 7 3/4s, 8/15/22 Baa 18,615,000
Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project),
3,700,000 Ser. A, 14 1/2s, 2/1/02 BB 4,083,875
4,500,000 14 1/2s, 1/1/02 BB 4,944,375
7,000,000 7 1/2s, 7/1/13 BB 7,140,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
LOUISIANA (continued)
- ---------------------------------------------------------------------
$6,500,000St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa $ 7,003,750
13,000,000St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum Project), 7 3/4s, 8/1/22B/P 13,536,250
West Feliciana Parish, Poll. Control Rev. Bonds
6,000,000(Gulf States Util. Co. Project),
8s, 12/1/24 Ba 6,345,000
19,000,000(Gulf States Util. Co. Project),
7.7s, 12/1/14 Ba 20,140,000
------------
98,417,718
MARYLAND (0.2%)
- ---------------------------------------------------------------------
2,975,000 Denton, 1st. Mtge. Rev. Bonds
(Wesleyan Hlth. Care Ctr. Project),
10 1/4s, 4/1/20 B/P 3,112,594
MASSACHUSETTS (7.8%)
- ---------------------------------------------------------------------
4,150,000Agawam, Resource Recvy. Rev. Bonds
(Springfield Resources Recvy. Project),
8 1/2s, 12/1/08 BBB 4,424,938
18,450,000MA Bay Trans. Auth. IFB Ser. B, MBIA,
6.63s, 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 16,051,500
12,605,000MA Muni. Wholesale Elec. Co. Pwr.
Supply Syst. Rev. Bonds Ser. A,
8 3/4s, 7/1/18 AAA 13,928,525
MA State Hlth. & Edl. Fac. Auth. IFB
5,000,000(St. Elizabeth's Hosp.), Ser. E, FSA,
9.02s, 8/15/21 AAA 5,425,000
5,600,000 (Beth Israel Hosp.) AMBAC,
7.863s, 7/1/25 AAA 5,474,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,445,000(Summerfield Nursing Home), Ser. A,
9 1/2s, 7/1/14 B/P 2,500,013
3,325,000(MA Eye & Ear Infirmary), Ser. A,
7 3/8s, 7/1/11 Baa 3,275,125
2,000,000MA State Hlth. & Edl. Fac. Auth. IFB
(Boston U.), Ser. L, MBIA, 8.736s,
10/1/31 AAA 2,192,500
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
4,000,000(Southeastern MA Project), Ser. B,
9 1/4s, 7/1/15 BB/P 4,435,000
29,850,000(Southeastern MA Project), Ser. A,
9s, 7/1/15 BB/P 32,984,250
MA State Indl. Fin. Agcy. Rev. Bonds
2,000,000(Atlanticare Med. Ctr.), Ser. A,
10 1/8s, 11/1/14 B/P 1,840,000
6,100,000(Atlanticare Med. Ctr.), Ser. B,
10 1/8s, 11/1/14 B/P 5,612,000
2,500,000(1st Mtge. Berkshire Retirement
Home), 9 7/8s, 7/1/18 AAA/P 2,731,250
8,800,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 9,922,000
2,220,000 (Morton Hosp. & Med. Ctr.),
Ser. A, 8 3/4s, 7/1/11 AAA 2,550,225
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (continued)
- ---------------------------------------------------------------------
$7,500,000MA State Indl. Fin. Agcy. Solid
Waste Disposal Rev. Bonds
(Molten Metal Technology Project),
8 1/4s, 8/1/14 B/P $ 7,818,750
2,410,000MA State Indl. Fin. Agcy. Tunnel
Rev. Bonds (Mass Tpk.,) 9s, 10/1/20 BBB/P 2,632,925
MA State Wtr. Resource Auth. Rev. Bonds
8,000,000 Ser. B, MBIA, 5 1/2s, 3/1/17 AAA 7,480,000
7,500,000 Ser. C, MBIA, 5 1/4s, 12/1/15 AAA 6,890,625
8,500,000 Ser. B, MBIA, 5s, 3/1/22 AAA 7,288,750
4,000,000 Worcester, Mtge. Rev. Bonds
(Briarwood Issue), 9 1/4s, 12/1/22 BB/P 4,330,000
------------
149,787,376
MICHIGAN (8.5%)
- ---------------------------------------------------------------------
2,617,000Ann Arbor, Econ. Dev. Corp. Ltd.
Oblig. Rev. Bonds (Glacier Hills
Inc. Project), 8.37s, 1/15/19 B/P 2,679,154
4,000,000Detroit Wtr. Supply Syst. Rev. Bonds
FGIC, 5s, 7/1/23 AAA 3,435,000
18,677,000Detroit, Hosp. Fac. Fin. Auth.
Rev. Bonds (MI Hlth. Care Corp.),
10s, 12/1/20 (acquired various
dates from 12/12/91 to 7/15/92,
cost $18,486,567) (Chapter 11)+++ Caa 7,470,800
Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev. Bonds
20,865,000 (Chrysler Corp.) Ser. A,
9 1/2s, 5/1/21 BBB/P 25,846,519
Detroit, Swr. Disp. Rev. Bonds
22,000,000 FGIC, 5.7s, 7/1/23 AAA 21,010,000
Greater Detroit Resource Recvy. Auth. Rev. Bonds
8,875,000 Ser. A, 9 1/4s, 12/13/08 BBB 9,241,094
6,050,000 Ser. E, 9 1/4s, 12/13/08 BBB 6,299,563
5,750,000 Ser. G, 9 1/4s, 12/13/08 BBB 5,987,188
5,790,000Highland Park, Hosp. Fin. Auth. Fac.
Rev. Bonds (MI Hlth. Care Corp.
Project), Ser. A, 9 7/8, 12/1/19
(acquired various dates from 6/22/87
to 3/2/92, cost $5,750,618)
(Chapter 11)+++ Caa 2,316,000
8,000,000MI State Hosp. Fin. Auth. Rev. Bonds
(Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 B 7,500,000
14,000,000MI State Stragetic Fund Solid Waste
Disp. Rev. Bonds (Genesee Pwr.
Station Project), 7 1/2s, 1/1/21 BB/P 14,052,500
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
3,700,000(Mercy Svcs. for Aging Project),
9.4s, 5/15/20BBB/P 3,949,750
930,000 (MI Hlth. Care Corp. Project),
9.1s, 12/1/14 (acquired 6/14/91,
cost $762,581) (Chapter 11)+++ CCC/P 372,000
15,500,000(Blue Wtr. Fiber Project), 8s, 1/1/12 B/P 14,666,875
19,500,000Midland Cnty., Econ. Dev. Corp.
Poll. Control Rev. Bonds, Ser. B,
9 1/2s, 7/23/09 B/P 21,060,000
5,000,000Pontiac Hosp. Fin. Auth. Rev. Bonds
6s, 8/1/13 Baa 4,356,250
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MICHIGAN (continued)
- ---------------------------------------------------------------------
$5,390,000Waterford, Econ. Dev. Corp. Rev.
Bonds (Centerbury Hlth. Care),
8 3/8s, 7/1/23 BB/P $5,605,600
6,900,000Wayne Charter Cnty., Special Arpt.
Fac. Rev. Bonds (Republic Air Lines,
Inc. Project), 10 3/8s, 12/1/15 B/P 7,176,000
------------
163,024,293
MINNESOTA (0.7%)
- ---------------------------------------------------------------------
2,975,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc. Project),
10 1/4s, 9/1/20 BB/P 3,436,125
5,000,000Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp. Project),
7.2s, 10/1/24 Baa 5,231,250
Minneapolis, Cmnty. Dev. Agcy.
Multi-Fam. Hsg. Rev. Rental Bonds (Lindsay Bros.
Project)
1,840,000 Ser. A, 9 1/2s, 12/1/07 B/P 1,879,100
1,200,000 Ser. B, 1 1/2s, 12/1/07 B/P 387,000
3,200,000Shakopee, Multi-Fam. Rev. Bonds,
8 1/2s, 12/1/08 B/P 3,292,000
------------
14,225,475
MISSISSIPPI (1.5%)
- ---------------------------------------------------------------------
Claiborne Cnty., Poll. Control Rev. Bonds
4,500,000 (Middle South Energy, Inc.),
Ser. C, 9 7/8s, 12/1/14 BBB/P 5,191,875
4,620,000 (Syst. Energy Resources Inc.),
9 1/2s, 4/1/16 Baa 4,885,650
10,000,000 (Middle South Energy, Inc.),
Ser. A, 9 1/2s, 12/1/13 BBB/P 11,425,000
2,250,000 Lee Cnty., Indl. Rev. Bonds
(Great Southern Box Co. Inc.
Project), 9.55s, 5/1/97 B/P 2,379,375
4,000,000 MS Hosp. Equip. & Fac. Auth.
Rev. Bonds (MS Methodist Hosp &
Rehab.), Ser. 1, 9 3/8s, 5/1/12 AAA/P 4,635,000
------------
28,516,900
MONTANA (0.2%)
- ---------------------------------------------------------------------
3,000,000Missoula Cnty., Rev. Bonds (Cmnty.
Med. Ctr. Inc.), Ser. B, 9s, 6/1/18 BBB 3,217,500
NEBRASKA (1.3%)
- ---------------------------------------------------------------------
2,000,000 NE Investment Fin. Auth. Hosp.
IFB MBIA, 8.726s, 11/15/16 AAA 2,152,500
NE Investment Fin. Auth. Single Fam. Mtge. IFB
5,800,000Ser. 2, GNMA Coll., 10.771s, 9/10/30 AAA 6,575,750
2,100,000Ser. B, GNMA Coll., 10.557s, 3/15/22 AAA 2,349,375
1,900,000Ser. B, GNMA Coll., 9.354s, 9/19/23 AAA 1,999,750
,000,000 GNMA Coll., 8.664s, 9/15/24 AAA 2,017,500
12,100,000Ser. D, GNMA Coll., 7.518s, 3/24/26 AAA 10,406,000
------------
25,500,875
NEW HAMPSHIRE (1.4%)
- ---------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
2,920,000 (Havenwood/Heritage Heights),
9 3/4s, 12/1/19 B/P 3,160,900
2,450,000 (Franklin Regl. Hosp.),
8 3/4s, 9/1/19 BBB/P 2,618,438
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW HAMPSHIRE (continued)
- ---------------------------------------------------------------------
NH Higher Edl. & Hlth. Fac. Auth. Rev. Bonds
$9,000,000(1st. Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P $ 9,112,500
5,500,000(1st. Mtge. River Woods at Exeter),
8s, 3/1/00 B/P 5,623,750
6,750,000(Wentworth-Douglass Hosp.), MBIA,
5 3/8s, 1/1/15 AAA 6,243,750
------------
26,759,338
NEW JERSEY (1.3%)
- ---------------------------------------------------------------------
5,000,000Camden Cnty., Impt. Auth. Rev. Bonds
8.4s, 4/1/24 (acquired 4/12/93, cost
$5,000,000)++ BB/P 5,218,750
NJ Econ. Dev. Auth. Rev. Bonds
2,700,000 (Stolt Terminals Project),
10 1/2s, 1/15/18 BB/P 3,044,250
4,700,000 (Holt Hauling Co.), Ser. D,
10 1/4s, 9/15/14 BB/P 5,040,750
5,000,000NJ Hlth. Care Fac. Fin. Auth. Rev.
Bonds (St. Elizabeth Hosp.),
Ser. B, 8 1/4s, 7/1/20 Baa 5,337,500
2,000,000NJ State Hsg. & Mtge. Fin. Agcy.
Rev. IFCOP Ser. I, 3.837s, 11/1/07
(acquired 2/11/93, cost $2,073,120)++ A/P 2,105,000
4,000,000Salem Cnty., Indl. Poll. Ctl. Fing.
Auth. IFB MBIA, 8.841s, 10/1/29
(acquired 10/28/94, cost $3,785,680)++AAA 4,340,000
------------
25,086,250
NEW YORK (6.5%)
- ---------------------------------------------------------------------
Metro. Trans. Auth. Svcs. Contract
Commuter Fac. Rev. Bonds
4,000,000 Ser. O, 5 3/4s, 7/1/13 Baa 3,805,000
8,250,000(Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 Baa 7,847,813
NY City G.O. Bonds
6,650,000 Ser. F, 6 5/8s, 2/15/25 Baa 6,625,063
12,020,000 Ser. D, 5 3/4s, 8/15/12 Baa 11,118,500
NY State Dorm. Auth. Rev. Bonds
14,500,000 (City U. Syst.), Ser. A.,
5 3/4s, 7/1/13 Baa 13,611,875
2,000,000 (State U. Edl. Fac.), Ser. B,
5s, 5/15/18 Baa 1,680,000
7,750,000 (City U.), Ser. F, 5s, 7/1/14 Baa 6,597,188
8,000,000NY State Energy Research & Dev. Auth.
Poll. Control IFB FGIC, 8.804s, 7/1/29
(acquired 12/19/94, cost $8,353,120)++AAA 9,450,000
9,300,000NY State Energy Research & Dev. Auth.
Poll. Control VRDN (NY State Elec. &
Gas Co.), Ser. C, 3.4s, 6/1/29 VMIG1 9,300,000
NY State Local Govt. Assistance Corp. Rev. Bonds
8,000,000 Ser. C, 5 1/2s, 4/1/17 A 7,430,000
2,225,000 Ser. E, 5 1/4s, 4/1/16 A 2,027,531
NY State Med. Care Fac. Fin. Agcy. Rev. Bonds
5,500,000 Ser. A, AMBAC, 6 1/2s, 8/15/29 AAA 5,706,250
9,750,000(Mental Health Svcs.), Ser. D, FSA,
5 1/4s, 8/15/23 AAA 8,592,188
9,830,000(Mental Health Svcs.), Ser. F, FSA,
5 1/4s, 2/15/19 AAA 8,834,713
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
NEW YORK (continued)
- ---------------------------------------------------------------------
$3,000,000NY State Twy. Auth. Hwy. & Brdg.
Rev. Bonds, Ser. A, MBIA, 5 1/2s, 4/1/15AAA $2,850,000
NY State Urban Dev. Corp. Rev. Bonds
7,000,000 (State Fac.), 7 1/2s, 4/1/20 Baa 7,682,500
13,575,000 (Correctional Fac.), Ser. 4,
5 3/8s, 1/1/23 Baa 11,725,406
------------
124,884,027
NORTH CAROLINA (1.8%)
- ---------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Pwr. Syst. Rev. Bonds
9,250,000 Ser. A, 6 1/2s, 1/1/18 A 9,250,000
7,480,000 Ser. B, 6 1/8s, 1/1/09 A 7,358,450
5,755,000 Ser. B, 6s, 1/1/26 A 5,337,763
13,890,000 Ser. D, 5 7/8s, 1/1/13 A 12,987,150
------------
34,933,363
OHIO (1.2%)
- ---------------------------------------------------------------------
7,200,000Dayton, Special Fac. Rev. Bonds
(Emery Air Freight Corp.),
Ser. A, 12 1/2s, 10/1/09 B/P 8,460,000
14,315,000Lucas Plaza Hsg. Dev. Corp. Mtge.
Rev. Rfdg. Bonds FHA Insd., zero %,
6/1/24 Aaa 2,236,719
5,700,000OH State Air Quality Dev. Auth.
Rev. Bonds (Cincinnati Gas & Elec.),
10 1/8s, 12/1/15 Baa 5,942,250
7,000,000OH State Wtr. Dev. Auth. Poll. Control
Facs. Rev. Bonds (Toledo Edison Co.),
Ser. A, 7.55s, 6/1/23 Ba 7,148,750
------------
23,787,719
OKLAHOMA (0.3%)
- ---------------------------------------------------------------------
6,000,000Tulsa, Indl. Auth. Hosp. Rev. Bonds
(Tulsa Regl. Med. Ctr.),
Ser. A, 7 5/8s, 6/1/17 BBB 6,045,000
PENNSYLVANIA (5.2%)
- ---------------------------------------------------------------------
Allegheny Cnty., Indl. Dev. Auth. Arpt.
Special Fac. Rev. Bonds (U.S. Air, Inc. Project),
1,250,000 Ser. A, 8.87s, 3/1/21 B 1,320,313
4,935,000 Ser. B, 8 1/2s, 3/1/21 B 5,058,375
1,600,000Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Southwestern Arpt. Cargo
Fac.), 8 3/4s, 2/15/09 BB/P 1,702,000
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 3,509,775
2,500,000 (OH Edison Co.-Beaver Valley),
Ser. A, 10 1/2s, 10/1/15 Baa 2,600,000
5,000,000(Cleveland Elec. Illuminating Co.),
10 1/2s, 9/1/15 Baa 5,112,500
3,750,000 (Toledo Edison Co. Project),
7 5/8s, 5/1/20 Ba 3,750,000
Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp.
Rev. Bonds (United Hosp. Inc. Project),
3,745,000 8 1/2s, 11/1/17 Ba 3,871,394
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (continued)
- ---------------------------------------------------------------------
$5,300,000 Ser. A, 8.37s, 11/1/11 Ba $5,498,750
23,700,000 PA Economic Dev. Fing. Auth.
Recycling Rev. Bonds (Ponderosa Fibres
Project), Ser. A, 9 1/4s, 1/1/22 B/P 24,914,625
PA Economic Dev. Fing. Auth. Resource Recvy. Rev. Bonds
6,000,000(Colver Project), Ser. E, 8.05s,
12/1/15 BBB 6,240,000
6,950,000(Northampton Generating), Ser. A,
6.6s, 1/1/19 BB/P 6,724,125
4,800,000PA Hsg. Fin. Agcy. IFB 7.604s, 4/1/25 AA 4,518,000
2,500,000PA State Higher Edl. Assistance Agcy.
Student Loan IFB AMBAC, 9.034s, 9/3/26AAA 2,659,375
5,300,000Philadelphia, Muni. Auth. Rev. Bonds
(Justice Lease) Ser. C, 8 5/8s,
11/15/16 AAA 6,538,875
4,760,000Philadelphia, Wtr. & Wastewater Rev.
Bond FGIC, 10s, 6/15/05 AAA 6,536,051
8,090,000Pittsburgh, Urban Redev. Auth. Mtge.
Rev. Bonds Ser. A, AMBAC 5.65s, 10/1/24AAA 7,614,713
------------
98,168,871
PUERTO RICO (0.4%)
- ---------------------------------------------------------------------
8,000,000 Cmnwlth. of Puerto Rico, G.O.
Bonds MBIA, 5.782s, 7/1/08 AAA 8,170,000
SOUTH CAROLINA (0.8%)
- ---------------------------------------------------------------------
4,600,000 Lee Cnty., Indl. Rev. Bonds
(Mid-American Waste Syst. Project),
7s, 9/15/13 B/P 3,852,500
5,000,000Spartanburg Cnty., Solid Waste Disp.
Rev. Bonds (Bayerische Motoren Werke),
7.55s, 11/1/24 A/P 5,381,250
5,000,000Spartanburg Cnty., Hosp. Fac. IFB FSA,
8.188s, 4/13/22 AAA 5,206,250
------------
14,440,000
TENNESSEE (1.8%)
- ---------------------------------------------------------------------
29,785,000Maury Cnty., Indl. Dev. Board Poll.
Control Rev. Bonds (Saturn Corp.
Project), 6 1/2s, 9/1/24 A 30,082,850
28,920,000Metro. Nashville & Davidson Cnty.,
Hlth. & Edl. Fac. Board Rev. Bonds
(Volunteer Hlth. Care), zero %, 6/1/21Aaa 4,844,100
------------
34,926,950
TEXAS (3.6%)
- ---------------------------------------------------------------------
Bell Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (Adv. Living Tech. Inc. Project),
6,785,000 Ser. A, 10 1/2s, 6/15/18 B/P 5,902,950
4,785,000Bexar Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (Heartway Corp.), Ser. A-1,
10 1/4s, 3/1/19 B/P 4,785,000
5,890,000Cherokee Cnty., Hlth. Fac. Dev. Corp.
Rev. Bonds (Nancy Travis Memorial
Hosp. Project), 10s, 5/15/13 B/P 6,294,938
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
TEXAS (continued)
- ---------------------------------------------------------------------
$10,000,000Dallas Cnty., G.O. Bonds (Flood
Control Dist. #1), zero %, 4/1/16 BB/P $ 7,900,000
Harris Cnty., Single Fam. Hsg. Fin. Corp. Rev. Bonds
5,000 FHA Insd., 10 1/2s, 10/15/09 Aaa 5,044
925,000 Ser. 1983A, 10 3/8s, 7/15/14 BBB 927,313
840,000 9 7/8s, 3/15/14 BB 848,400
Houston, Hsg. Fin. Corp. Single Fam. Mtge. Rev. Bonds
3,762,000Ser. A, Verex Mtg. Ins., 10 7/8s, 2/15/16 A 3,837,240
2,260,000 10s, 9/15/14 B 2,254,350
2,000,000Port Corpus Christi, Indl. Dev. Corp.
Rev. Bonds (Valero Refining & Marketing
Co.), Ser. A, 10 1/4s, 6/1/17 Baa 2,222,500
Southeast TX Multi-Fam. Hsg. Fin. Corp. Rev. Bonds
5,500,000(Bayou Pk. Village Apt. Project),
Ser. B, 10.175s, 8/1/16 B/P 5,575,625
4,500,000(Promenade Place Apts. Project),
Ser. B, 10.175s, 8/1/16 B/P 4,522,500
9,700,000(Pavilion Place Apts. Project),
Ser. B, 9 1/2s, 7/1/16 (In Default)+BBB/P 3,880,000
6,000,000(Pavilion Place Apts. Project),
Ser. A, 7.6s, 7/1/16 BBB/P 5,955,000
8,000,000TX State Hsg. & Cmnty. Affairs Home
Mtg. IFB Ser. C, GNMA Coll., FNMA
Coll., 9.313s, 7/2/24 AAA 8,400,000
5,000,000Tarrant Cnty., Hlth. Facs. Dev.
Corp. Hosp. Rev. Bonds (Cmnty. Hlth.
Care Foundation. Inc. Project),
10 1/8s, 4/1/21 B/P 4,943,750
------------
68,254,610
VIRGINIA (0.4%)
- ---------------------------------------------------------------------
4,500,000Fredericksburg, Indl. Dev. Auth.
Hosp. Fac. IFB FGIC, 8.607s, 8/15/23 AAA 4,837,500
2,000,000Henrico Cnty., Indl. Dev. Auth. IFB
(Bon Secours Hlth. Syst. Project),
FSA, 7.284s, 8/23/27 AAA 1,940,000
------------
6,777,500
WASHINGTON (1.0%)
- ---------------------------------------------------------------------
8,200,000WA State Hsg. Fin. Comm. Single
Family Mtge. IFB GNMA Coll., 9.485s,
12/1/17 (acquired 4/12/95, cost
$9,225,000)++ AAA/P 9,122,500
WA State Pub. Pwr. Supply Syst. Rev. Bonds
4,000,000(Nuclear Project No. 3), Ser. C,
MBIA, 7 1/2s, 7/1/08 AAA 4,720,000
5,000,000(Nuclear Project No. 3), Ser. B,
MBIA, 7 1/8s, 7/1/16 AAA 5,662,500
------------
19,505,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
West Virginia (1.9%)
- ---------------------------------------------------------------------
Marion Cnty., Cmnty. Solid Waste
Disp. Fac. Rev. Bonds
$12,000,000(American Pwr. Paper Recycling Project),
9s, 12/1/11 B/P $ 11,970,000
10,000,000(American Pwr. Paper Recycling Project),
8 1/4s, 12/1/11 B/P 9,462,500
2,950,000Mercer Cnty., Coml. Dev. Rev. Bonds
(American Hlth. Enterprises Ltd.),
12s, 12/1/15 BB/P 3,071,688
2,935,000Preston Cnty., Bldg. Cmnty. Hosp.
Rev. Bonds (Preston Mem. Hosp. Corp.),
Ser. B, 10s, 4/1/14 BB/P 3,122,106
4,045,000WV State COP (Morris Sq. Complex),
9 1/4s, 8/15/08 BB/P 3,979,257
3,600,000Weirton, Poll. Control Rev. Bonds
(Weirton Steel Project), Ser. B,
8 5/8s, 11/1/14 B 3,811,500
------------
35,417,051
WISCONSIN (0.1%)
- ---------------------------------------------------------------------
WI Hsg. & Econ. Dev. Auth. Home Ownership IFB
2,200,000 9.449s, 10/25/22 AA 2,332,000
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS AND NOTES
(cost $1,834,355,559)*** $1,873,061,441
- ---------------------------------------------------------------------
<FN>
NOTES
- ---------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,913,796,279,
which correspond to a net asset value per class A, class B and
class M of $14.14, $14.14 and $14.13, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at July 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 July 31, 1995. Securities rated by
Putnam are indicated by "/P" and are not publicly rated. Ratings
are not covered by the Report of Independent Accountants.
+ Non-income-producing security.
++ Restricted as to public resale. At the date of acquistion these
securities were valued at cost. There were no outstanding
securities of the same class as those held. Total market value of
restricted securities owned at July 31, 1995 was $107,404,050 or
5.6 % of net assets.
*** The aggregate identified cost on a tax basis is $1,835,319,199,
resulting in gross unrealized appreciation and depreciation of
$78,968,834 and $41,226,592, respectively, or net unrealized
appreciation of $37,742,242.
The rates shown on IF and IFB, which are securities paying
variable interest rates that vary inversely to changes in the
market interest rates, and VRDNs are the current interest rates
at July 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% of net assets at July 31,1995:
Hospitals/ Health Care 19.8%
Utilities 18.5
Transportation 16.6
</TABLE>
<PAGE>
The table below shows the percentage of the fund's investments on July
31, 1995 in securities assigned to the various rating categories by
Moody's and Standard & Poor's and in unrated securities determined by
Putnam Management to be of comparable quality:
<TABLE><CAPTION>
<S> <C> <C>
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY
AS A PERCENTAGE OF AS A PERCENTAGE OF
RATINGS FUNDOS NET ASSETS FUNDOS NET ASSETS
- ---------------------------------------------------------------------
"AAA"/"Aaa" 24.6% 1.6%
"AA"/"Aa" 0.8 --
"A"/"A" 4.6 0.8
"BBB"/"Baa" 19.9 4.7
"BB"/"Ba" 7.1 11.1
"B"/"B" 2.4 16.9
"CCC"/"Caa" 0.5 --
"D" 0.7 --
"VMIG1"/"MIG1" 1.3 --
"VMIG3" 0.5 --
"A1" 0.4 --
- ---------------------------------------------------------------------
62.8% 35.1%
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
<TABLE>
<S> <C>
ASSETS
- ---------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,834,355,559) (Note 1) $1,873,061,441
- ---------------------------------------------------------------------
Cash 171,460
- ---------------------------------------------------------------------
Interest receivable 32,491,308
- ---------------------------------------------------------------------
Receivable for shares of the fund sold 7,295,424
- ---------------------------------------------------------------------
Receivable for securities sold 16,572,211
- ---------------------------------------------------------------------
TOTAL ASSETS 1,929,591,844
LIABILITIES
- ---------------------------------------------------------------------
Payable for securities purchased 2,445,561
- ---------------------------------------------------------------------
Distributions payable to shareholders 4,020,682
- ---------------------------------------------------------------------
Payable for shares of the fund repurchased 6,783,774
- ---------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 880,408
- ---------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 439,045
- ---------------------------------------------------------------------
Payable for administrative services (Note 2) 2,417
- ---------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 902
- ---------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,123,436
- ---------------------------------------------------------------------
Other accrued expenses 99,340
- ---------------------------------------------------------------------
TOTAL LIABILITIES 15,795,565
- ---------------------------------------------------------------------
NET ASSETS $1,913,796,279
- ---------------------------------------------------------------------
REPRESENTED BY
- ---------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,936,689,307
- ---------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,337,732)
- ---------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (58,261,178)
- ---------------------------------------------------------------------
Net unrealized appreciation of investments 38,705,882
- ---------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,913,796,279
- ---------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ---------------------------------------------------------------------
Net asset value and redemption price of class A share
($474,984,535 divided by 33,600,985 shares) $14.14
- ---------------------------------------------------------------------
Offering price per class A share (100/95.25 of $14.14)* $14.85
- ---------------------------------------------------------------------
Net asset value and offering price of class B share
($1,436,480,889 divided by 101,591,475 shares)** $14.14
- ---------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,330,855 divided by 164,963 shares) $14.13
- ---------------------------------------------------------------------
Offering price per class M share (100/96.75 of $14.13)*** $14.60
- ---------------------------------------------------------------------
<FN>
* 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.
*** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended July 31, 1995
<TABLE>
<S> <C>
Tax exempt interest income $140,969,969
- ---------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Compensation of Manager (Note 2) 10,082,299
- ---------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,800,807
- ---------------------------------------------------------------------
Compensation of Trustees (Note 2) 44,774
- ---------------------------------------------------------------------
Auditing 66,885
- ---------------------------------------------------------------------
Legal 43,685
- ---------------------------------------------------------------------
Postage 47,836
- ---------------------------------------------------------------------
Reports to shareholders 143,009
- ---------------------------------------------------------------------
Administrative services (Note 2) 30,277
- ---------------------------------------------------------------------
Distribution fees (Note 2)
- ---------------------------------------------------------------------
Class A 813,093
- ---------------------------------------------------------------------
Class B 12,279,217
- ---------------------------------------------------------------------
Class M 3,092
- ---------------------------------------------------------------------
Other 62,598
- ---------------------------------------------------------------------
TOTAL EXPENSES 25,417,572
- ---------------------------------------------------------------------
NET INVESTMENT INCOME 115,552,397
- ---------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (35,949,396)
- ---------------------------------------------------------------------
Net realized loss on written options (Notes 1 and 3) (1,637,614)
- ---------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,835,043)
- ---------------------------------------------------------------------
Net unrealized appreciation of investments during the year 25,168,624
- ---------------------------------------------------------------------
NET LOSS ON INVESTMENTS (14,253,429)
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $101,298,968
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED JULY 31
---------------------------
1995 1994
- ---------------------------------------------------------------------
INCREASE NET ASSETS
- ---------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------
Net investment income $115,552,397 $104,755,484
- ---------------------------------------------------------------------
Net realized loss on investments (39,422,053) (13,212,683)
- ---------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 25,168,624 (74,498,222)
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 101,298,968 17,044,579
- ---------------------------------------------------------------------
Distributions to shareholders
- ---------------------------------------------------------------------
From net investment income
- ---------------------------------------------------------------------
Class A (27,401,547) (18,855,987)
- ---------------------------------------------------------------------
Class B (87,980,365) (85,899,497)
- ---------------------------------------------------------------------
Class M (43,754) --
- ---------------------------------------------------------------------
In excess of net investment income
- ---------------------------------------------------------------------
Class A -- (555,784)
- ---------------------------------------------------------------------
Class B -- (2,531,906)
- ---------------------------------------------------------------------
From net realized gain
- ---------------------------------------------------------------------
Class A -- (1,181,683)
- ---------------------------------------------------------------------
Class B -- (5,005,098)
- ---------------------------------------------------------------------
In excess of net realized gain
- ---------------------------------------------------------------------
Class A -- (1,074,658)
- ---------------------------------------------------------------------
Class B -- (4,551,784)
- ---------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 43,374,216 485,625,941
- ---------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 29,247,518 383,014,123
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
$3,337,732 and $3,464,463, respectively) $1,913,796,279 $1,884,548,761
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 29, 1994 SEPTEMBER 20, 1993
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED OF OPERATIONS) TO
JULY 31 JULY 31 JULY 31
-----------------------------------------------------
1995 1995 1994
- ---------------------------------------------------------------------
Class M Class A
- ---------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $13.43 $14.24 $15.34
- ---------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .58 .94 .83
Net realized and unrealized gain
(loss) on investments .70 (.10) (.98)
- ---------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.28 .84 (.15)
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (.58) (.94) (.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 (.58) (.94) (.95)
- ---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.13 $14.14 $14.24
- ---------------------------------------------------------------------
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(a) 9.69(b) 6.24 (.99)(b)
- ---------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $2,331 $474,984 $361,593
- ---------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .71(b) .87 .71(b)
- ---------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.98(b) 6.73 5.58(b)
- ---------------------------------------------------------------------
Portfolio turnover (%) 60.41 60.41 44.41
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C>
YEAR ENDED JULY 31
- ---------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------
$14.24 $15.01 $14.64 $13.79 $13.87
- ---------------------------------------------------------------------
.85 .86 .95 .99 .99
(.10) (.65) .41 .94 (.07)
- ---------------------------------------------------------------------
.75 .21 1.36 1.93 .92
- ---------------------------------------------------------------------
(.85) (.85) (.95) (.99) (1.00)
-- (.03) -- -- --
-- (.05) (.04) (.09) --
-- (.05) -- -- --
- ---------------------------------------------------------------------
.85 (.98) (.99) (1.08) (1.00)
- ---------------------------------------------------------------------
$14.14 $14.24 $15.01 $14.64 $13.79
- ---------------------------------------------------------------------
5.54 1.36 9.68 14.60 6.98
- ---------------------------------------------------------------------
$1,436,481 $1,522,955 $1,501,535 $1,015,866 $738,113
- ---------------------------------------------------------------------
1.51 1.45 1.38 1.45 1.52
- ---------------------------------------------------------------------
6.10 5.76 6.39 7.03 7.26
- ---------------------------------------------------------------------
60.41 44.41 52.29 82.31 49.83
- ---------------------------------------------------------------------
<FN>
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1995
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 and 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 OPTION ACCOUNTING PRINCIPLES The fund may, to the extent
consistent with its investment objectives and policies, seek to
increase its current returns by writing covered call and put options
on securities it owns or in which it may invest. When a fund writes a
call or put option, an amount equal to the premium received by the
fund is included in the fund's "Statement of assets and liabilities"
as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-
<PAGE>
market" to reflect the current market value of an option written. The
current market value of an option is the last sale price or, in the
absence of a sale, the last offering price. If an option expires on
its stipulated expiration date, or if the fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the closing
purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the fund realizes
a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received.
If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security that the fund
purchases upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the
opportunity to profit if the market price of the underlying security
increases and the option is exercised. In writing a put option, the
fund assumes the risk of incurring a loss if the market price of the
underlying security decreases and the option is exercised. In
addition, there is the risk the fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment
objectives and policies, buy put options to protect its portfolio
holdings in an underlying security against a decline in market value.
The fund may buy call options to hedge against an increase in the
price of the securities that the fund ultimately wants to buy. The
fund may also buy and sell combinations of put and call options on the
same underlying security to earn additional income. The premium paid
by the fund for the purchase of a put or call option is included in
the fund's "Statement of assets and liabilities" as an investment and
is subsequently "marked-to-market" to reflect the current market value
of the option. If an option the fund has purchased expires on the
stipulated expiration date, the fund realizes a loss in the amount of
the cost of the option. If the fund enters into a closing sale
transaction, the fund realizes a gain or loss, depending on whether
proceeds from the closing sale transaction are greater or less than
the cost of the option. If the fund exercises a call option, the cost
of securities acquired by exercising the call is increased by the
premium paid to buy the call. If the fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security and
the proceeds from such sale are decreased by the premium originally
paid. The risk associated with purchasing options is limited to the
premium originally paid.
<PAGE>
D FUTURES A futures contract is an agreement between two parties to
buy or sell units of a particular index or a certain amount of a U.S.
Government security at a set price on a future date. The fund may
purchase and sell financial futures contracts to hedge against changes
in the values of tax- exempt municipal securities the fund owns or
expects to purchase.
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 futures. 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 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 futures
contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in value of the
hedged instruments. In addition, there is a risk that the fund may not
be able to close out its futures positions due to an illiquid
secondary market.
E 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.
At July 31, 1995, the fund had a capital loss carryover of
approximately $25,560,000 available to offset future net capital
gains, if any, which will expire on July 31, 2003.
F DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from
net investment income are recorded by the fund on the ex-dividend
date. Capital gain distributions, if any, are recorded on the ex-
dividend date and paid annually. The amount and character of income
and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences include treatment of defaulted bond
interest, losses on wash sales transactions, capital loss carryover,
post-October loss deferrals and realized gains and losses on certain
futures contracts. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
<PAGE>
G 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.
H 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 $2,700, 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.
During the year ended July 31, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "Plan") which allows the Trustees to defer the
receipt of all or a portion of Trustees fees payable on or after July
1, 1995. The deferred fees remain in the fund and are invested in the
fund or in other Putnam funds until distribution in accordance with
the Plan.
Custodial functions are being provided to the fund by Putnam Fiduciary
Trust Company (PFTC), a wholly- owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC. Investor servicing and
custodian fees reported in the Statement of operations for the year
ended July 31, 1995 have been reduced by credits allowed by PFTC.
<PAGE>
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans 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 shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate up
to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.20%, 0.85% and
0.50% of the average net assets attributable to class A, class B and
class M shares, respectively.
For the year ended July 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $84,096 from the sale of class
A shares and $2,088 for the sale of class M shares. There was
$2,930,977 in contingent deferred sales charges from redemptions of
class B shares. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares purchased as part of an
investment of $1 million or more. For the year ended July 31, 1995,
Putnam Mutual Funds Corp., acting as underwriter received $4,769 on
class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended July 31, 1995, purchases and sales of investment
securities other than short-term municipal obligations aggregated
$1,118,114,197 and $1,090,450,504, respectively. Purchases and sales
of short-term municipal obligations aggregated $768,220,000 and
$773,660,232, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Written options transactions during the year are summarized as
follows:
<TABLE><CAPTION>
<S> <C> <C>
CONTRACT PREMIUMS
AMOUNT RECEIVED
- ---------------------------------------------------------------------
Contracts outstanding at begininng of period $ -- $ --
- ---------------------------------------------------------------------
Options opened 115,000,000 1,621,926
- ---------------------------------------------------------------------
Options closed (115,000,000) (1,621,926)
- ---------------------------------------------------------------------
Written options outstanding at the
end of the year $ -- $ --
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 4
CAPITAL SHARES
At July 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>
<S> <C> <C>
FOR THE YEAR ENDED JULY 31
- ---------------------------------------------------------------------
1995
- ---------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 12,577,731 $173,500,764
Shares issued in connection with
reinvestment of distributions 1,065,564 14,825,327
- ---------------------------------------------------------------------
13,643,295 188,326,091
- ---------------------------------------------------------------------
Shares repurchased (5,436,536) (75,318,844)
- ---------------------------------------------------------------------
NET INCREASE 8,206,759 $113,007,247
- ---------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 20, 1993
(COMMENCEMENT OF
OPERATIONS) TO JULY 31
- ---------------------------------------------------------------------
1994
- ---------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 28,874,587 $438,055,664
Shares issued in connection with
reinvestment of distributions 819,268 12,116,312
- ---------------------------------------------------------------------
29,693,855 450,171,976
- ---------------------------------------------------------------------
Shares repurchased (4,299,629) (63,285,846)
- ---------------------------------------------------------------------
NET INCREASE 25,394,226 $386,886,130
- ---------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31
- ---------------------------------------------------------------------
1995
- ---------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 21,898,422 $305,485,198
Shares issued in connection with
reinvestment of distributions 2,993,689 41,602,126
- ---------------------------------------------------------------------
24,892,111 347,087,324
- ---------------------------------------------------------------------
Shares repurchased (30,242,197) (419,033,947)
- ---------------------------------------------------------------------
NET DECREASE (5,350,086) $(71,946,623)
- ---------------------------------------------------------------------
YEAR ENDED JULY 31
- ---------------------------------------------------------------------
1994
- ---------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 37,754,456 $564,070,574
Shares issued in connection with
reinvestment of distributions 3,332,034 49,547,834
- ---------------------------------------------------------------------
41,086,490 613,618,408
- ---------------------------------------------------------------------
Shares repurchased (34,185,478) (514,878,597)
- ---------------------------------------------------------------------
NET INCREASE 6,901,012 $98,739,811
- ---------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 29, 1994
(COMMENCEMENT
OF OPERATIONS)
TO JULY 31
- ---------------------------------------------------------------------
1995
- ---------------------------------------------------------------------
CLASS M SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 165,046 $2,314,737
Shares issued in connection with
reinvestment of distributions 2,323 32,847
- ---------------------------------------------------------------------
167,369 2,347,584
- ---------------------------------------------------------------------
Shares repurchased (2,406) (33,992)
- ---------------------------------------------------------------------
NET INCREASE 164,963 $2,313,592
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes. The Form 1099 you receive in January 1996 will show the tax
status of all distributions paid to your account in calendar 1995.
<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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
James E. Erickson
Vice President
Triet M. 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.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
19835-500/036/679
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
