Putnam
Tax-Free
High Yield
Fund
SEMIANNUAL REPORT
January 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[Putnam Tax-Free High Yield Fund's] search for value-priced bonds has
always been the engine behind its respectable income returns."
-- Morningstar Mutual Funds, October 11, 1996
* Morningstar, Inc., an independent rating agency, awarded the fund's class B
shares its highest rating of 5 stars for overall performance out of the 1,170
in the municipal bond category based on 3-, 5-, and 10-year returns as of
January 31, 1997.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
27 Financial statements
36 Results of February 6, 1997 shareholder meeting
*Morningstar ratings reflect risk adjusted performance through 1/31/97 and are
subject to change every month. Morningstar ratings are calculated from a
fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess of 90-day
Treasury bill returns and a risk factor that reflects performance below 90-day
Treasury bill returns. For the 5-, and 10-year performance, the fund received
5 stars. There were 586 and 259 funds rated. 10% of the funds in an
investment category receive 5 stars. For the 1-year period ended 1/31/97, the
fund received 2 stars out of 1,724 funds. Performance for other share classes
will vary. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The current economic environment's steadfast adherence to the status quo --
manageable growth, tolerable inflation, and relatively stable interest rates
- -- suits municipal bond investors just fine. After a year of uncertainty on
all three counts, these investors finally have attained a sense of relative
calm.
The result is a municipal bond market climate that contributed favorably to
Putnam Tax-Free High Yield Fund's positive performance during the six months
ended January 31, 1997. But it was not the only factor. Management of the
portfolio's average duration also helped. Duration is a measure of a
portfolio's sensitivity to changes in interest rates and, ultimately, bond
prices. Effective management of duration is thus an important component of a
bond portfolio's performance. In your fund's case, careful selection among
industry sectors also plays a role, since many of the bonds in which it
invests are used to finance industrial development projects and their fate
rests in the hands of the underlying businesses.
In the following report, your fund's portfolio manager discusses fiscal 1997
performance so far and prospects for the remainder of the year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 19, 1997
Report from the Fund Manager
Triet M. Nguyen
As Putnam Tax-Free High Yield Fund reached the midpoint of its 1997 fiscal
year, investors' apprehensions about the economy relaxed into a mood of
guarded optimism. Although inflationary fears have proved groundless thus far,
the economy continues to grow at a healthy pace. As interest rates moved
slightly lower, bond prices, for the most part, moved up -- and your fund has
been well positioned to take advantage of this improving environment.
Performance at net asset value for all three share classes was closely in line
with the fund's market benchmark, the Lehman Brothers Municipal Bond Index.
Returns were 4.39%, 4.12%, and 4.31% for class A, class B, and class M shares,
respectively, compared with 4.16% for the index. At public offering price,
class A and class M shares returned -0.56% and 0.93%, respectively, while
class B shares returned -0.88% after the maximum contingent deferred sales
charge. Please see pages 9 and 10 for longer-term and comparative performance
information.
* POSITIVE ECONOMIC AND TECHNICAL FACTORS HELP SUPPORT PERFORMANCE
The combination of low interest rates and steady yet controlled economic
growth has created a positive scenario for fixed-income markets as well as
equity markets. Although they faltered somewhat in December and January, bond
prices generally rallied over the semiannual period. Nevertheless, early
uncertainty about the direction of interest rates and the booming stock
market kept many investors away from the municipal bond market.
Under normal conditions, this lack of investor interest might have had a
negative influence on bond prices. However, November and December were marked
by high levels of bond calls and redemptions. The resulting cash became
available for reinvestment in municipal securities, which created a modest
increase in demand, and helped offset any negative effect.
* DURATION AND QUALITY REMAIN DEFENSIVE
Our strategy in this environment has been moderately defensive. Anticipating
stable to slightly lower interest rates, we kept the fund's duration in the
6.5- to 7-year range, which is neither particularly aggressive nor
conservative. Duration, measured in years, indicates a portfolio's sensitivity
to interest-rate changes. A longer duration can mean a more volatile net asset
value if rates change -- but also one more likely to appreciate if rates
decline. Since interest rates fluctuated throughout the period but ended
slightly lower, the fund's average-length duration first helped stabilize and
then boosted the net asset value.
We also used what is known as a "barbell" strategy to determine the quality
makeup of the fund's portfolio. This means we favored holdings with ratings at
both ends of the credit-quality spectrum. We did this because the "spread," or
difference, between Aaa and Baa bond yields is quite narrow at present,
enabling us to upgrade the overall portfolio quality while continuing to
seek high income through bonds with ratings of Ba or below.
* VALUE ENHANCED BY FOCUSING ON KEY SECTORS
As part of our goal to enhance value through sector selection, we have
emphasized certain industries in the fund's portfolio. For example, many bond
issuers in the transportation industry, especially airlines and airports, have
posted record earnings. Also, when the economy performs well, so do
travel-related businesses. These are among the reasons transportation sector
bonds currently represent 15.1% of the fund's portfolio.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
Aaa 35.2%
Aa 5.5%
A 2.34%
Baa 17.2%
Ba 17.7%
B 13.9%
Caa 1.9%
D 0.2%
VMIG1 (short-term) 2.4%
Footnote reads:
*As a percentage of market value as of 1/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions, unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
Denver International Airport bonds make up 3.4% of this allocation. Although
the airport was initially plagued by construction delays and baggage system
problems, our analysts considered these bonds fundamentally strong.
Consequently, despite tremendous public scrutiny and a fair amount of bad
press regarding the bonds, we have maintained a position in these bonds over
the past five years. Now that airport revenues have become solid, we have
been able to realize significant profits from these bonds.
The hospital and health-care sector also performed well over the period,
reflecting the widespread consolidation now taking place in this industry.
Hospitals throughout the country are merging in an attempt to lower medical
costs and avoid unnecessary duplication of services. At the end of the period,
15.8% of the portfolio was invested within this sector.
Utility bond prices have been depressed in recent months, responding to fears
that deregulation would reduce rates as it increased competition. However, as
investors began to realize that the changes implied by deregulation cannot be
implemented overnight, utility bond performance has shown signs of
improvement.
In July, we reported that performance of our holdings in the forest products
sector had dampened the fund's return. Paper prices were extremely high and
demand was falling off. But we were optimistic that supply would eventually
meet demand, and so we maintained our holdings. Unfortunately pricing has
continued to be soft in this sector, although it has shown signs of stability
in recent months. Forest products made up 7.8% of the portfolio at the end of
the period.
We've recently established a position in Washington, DC, general obligation
bonds. The District of Columbia's financial troubles have been highly
publicized by the media, especially around the November elections.
Furthermore, pressure has been put on President Clinton to help the city in
which he resides, and consequently, the federal government has made promises
of financial aid. We believe these bonds will provide attractive income with
minimal credit risk. A key factor in our decision, in addition to the promised
aid, is that Washington, DC, is the only municipal entity able to borrow from
the U.S. Treasury.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 15.8%
Transportation 15.1%
Utilities 13.6%
Footnote reads:
*Based on net assets as of 1/31/97. Sector allocations will vary over time.
* LOOKING AHEAD, WE ARE CAUTIOUSLY OPTIMISTIC
As we move into 1997, we are positioning the fund for a quieter market
environment but one that will need careful monitoring. With a strong economy
and a Federal Reserve Board that isn't inclined to raise interest rates, we
believe the municipal market should stay on a steadier course.
Despite the positive economic news, we are aware that strong economies don't
last forever. As a precaution, we will continue to modestly upgrade the
quality of the portfolio while yield spreads between the higher-rated and
lower-rated credits remain narrow. Bonds with higher credit ratings are
generally more resilient when the economy slows down. Another goal is to keep
duration in a neutral range in order to help preserve the fund's relative
stability of net asset value.
There may also be periods over the next year during which the supply of
municipal bonds may exceed demand, putting pressure on bond prices. However,
if the stock market's ascent should run out of steam, investors may develop a
renewed interest in bonds. This could reverse the supply/demand scenario and
return the status quo.
With municipal bond yields nearly as high as Treasury yields on a
tax-equivalent basis, we believe your fund remains a good choice for long-term
investors looking for high current income that is free from federal taxes.
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 1/31/97, 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 the issuer's
ability to pay principal and interest on the bonds.
Performance summary
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 investments primarily
in high yield tax-exempt securities.
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 1/31/97
Class A Class B Class M
(inception date) (9/20/93) (9/9/85) (12/29/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 4.39% -0.56% 4.12% -0.88% 4.31% 0.93%
- ------------------------------------------------------------------------------
1 year 2.81 -2.05 2.22 -2.62 2.57 -0.74
- ------------------------------------------------------------------------------
5 years -- -- 39.22 37.22 -- --
Annual average -- -- 6.84 6.53 -- --
- ------------------------------------------------------------------------------
10 years -- -- 92.60 92.60 -- --
Annual average -- -- 6.77 6.77 -- --
- ------------------------------------------------------------------------------
Life of class 16.12 10.65 -- -- 20.23 16.33
Annual average 4.54 3.05 -- -- 9.21 7.50
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/97
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 4.16% 1.34%
- ------------------------------------------------------------------------------
1 year 3.85 3.04
- ------------------------------------------------------------------------------
5 years 42.12 15.21
Annual average 7.28 2.87
- ------------------------------------------------------------------------------
10 years 106.10 43.08
Annual average 7.50 3.65
- ------------------------------------------------------------------------------
Life of class A 18.22 9.65
Annual average 5.14 2.77
- ------------------------------------------------------------------------------
Life of class M 22.91 6.28
Annual average 10.39 2.96
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class A distribution
plan in 1993. Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their original
cost. POP assumes 4.75% maximum sales charge for class A shares and 3.25% for
class M shares. CDSC for class B shares assumes the applicable sales charge,
with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (9/20/93) (9/9/85) (12/29/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 4.64% -0.33% 4.29% -0.71% 4.48% 1.10%
- ------------------------------------------------------------------------------
1 year 3.17 -1.72 2.50 -2.35 2.86 -0.47
- ------------------------------------------------------------------------------
5 years -- -- 39.14 37.14 -- --
Annual average -- -- 6.83 6.52 -- --
- ------------------------------------------------------------------------------
10 years -- -- 95.48 95.48 -- --
Annual average -- -- 6.93 6.93 -- --
- ------------------------------------------------------------------------------
Life of class 15.69 10.24 -- -- 19.81 15.93
Annual average 4.54 3.02 -- -- 9.41 7.63
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. Investment returns and principal value
will fluctuate so that an investor's shares, when sold, may be worth more or
less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income1 $0.439772 $0.393326 $0.417871
- ------------------------------------------------------------------------------
Total $0.439772 $0.393326 $0.417871
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/96 $14.05 $14.75 $14.05 $14.04 $14.51
- ------------------------------------------------------------------------------
1/31/97 14.22 14.93 14.23 14.22 14.70
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 6.04% 5.75% 5.39% 5.73% 5.55%
- ------------------------------------------------------------------------------
Taxable equivalent3 10.00 9.52 8.92 9.49 9.19
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 6.00 5.71 5.33 5.69 5.50
- ------------------------------------------------------------------------------
Taxable equivalent3 9.93 9.45 8.82 9.42 9.11
- ------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state tax
purposes. For some investors, investment income may also be subject to the
federal alternative minimum tax. Investment income may be subject to state
and local taxes.
2 Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
3 Assumes maximum 39.6% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
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 assumes reinvestment of all distribution and interest
payments and does not take into account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed
to maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured up to
certain limit by federal/state agencies. Savings accounts
may also be insured up to certain limits. Please call your
financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Please read it
carefully before you invest or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
RAN -- Revenue Anticipation Notes
UGRIC -- United Guarantee Residential Insurance Company
VRDN -- Variable Rate Demand Note
MUNICIPAL BONDS AND NOTES (98.3%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Alabama (0.4%)
- ---------------------------------------------------------------------------------------------------------
$ 5,000,000 Anniston, Indl. Dev. Rev. Bonds (Hoover Group Inc.),
8 1/2s, 9/1/10 B/P $ 5,112,500
2,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. Tax Antic.
Rev. Bonds, 7 7/8s, 5/1/19 Ba/P 2,150,000
--------------
7,262,500
Arizona (1.5%)
- ---------------------------------------------------------------------------------------------------------
Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(American West Airlines)
6,818,890 Ser. A 95-1, 8.3s, 1/1/06 B/P 6,906,376
2,105,263 Ser. B-95-2, 8.2s, 1/1/99 B/P 2,132,295
3,960,000 Phoenix, Indl. Dev. Auth. Rev. Bonds (Christian
Care Retirement Apts.), Ser. A, 10 1/4s, 1/1/18 Aa/P 4,184,413
3,625,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds (Casa
Grande Regl. Med. Ctr.), Ser. B, 8 1/8s, 12/1/22 Ba/P 4,050,938
Scottsdale, Indl. Dev. Auth. 1st Mtge. Rev. Bonds
2,300,000 Ser. A, 8s, 6/1/11 Ba/P 2,469,625
3,150,000 Ser. B, 7.05s, 6/1/16 Ba/P 3,488,625
3,245,000 Ser. B, 6.7s, 6/1/17 Ba/P 3,614,119
12,880,000 Tuscon & Pima Cnty., Indl. Dev. Auth. Rev. Bonds,
Ser. 83A, UGRIC, zero %, 12/1/14 Aaa 4,459,700
--------------
31,306,091
California (11.7%)
- ---------------------------------------------------------------------------------------------------------
6,500,000 Alameda Cnty., COP (Santa Rita Jail), MBIA,
5s, 12/1/15 Aaa 6,020,625
14,440,000 CA Hlth. Fac. Auth. Rev. Bonds (Valley Presbyterian
Hosp.), Ser. A, 9s, 5/1/12 Ba/P 14,482,598
CA State Pub. Wks. Board Lease Rev. Bonds
7,500,000 (CA State U.), Ser. A, AMBAC, 5 3/8s, 10/1/17 Aaa 7,256,250
16,065,000 (Dept. of Corrections-State Prisons), Ser. A,
AMBAC, 5s, 12/1/19 Aaa 14,840,030
7,640,000 Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G, MBIA,
5s, 10/1/24 Aaa 6,961,950
6,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 B/P 6,337,500
14,150,000 Foothill/Eastern, Trans. Corridor Agcy. Rev. Bonds
(CA Toll Rd.), Ser. A, 5s, 1/1/35 Baa 12,009,813
Los Angeles Cnty., Metro. Trans. Auth.
Sales Tax Rev. Bonds
5,000,000 Ser. 2, AMBAC, 5s, 7/1/25 Aaa 4,481,250
17,000,000 FGIC, 5s, 7/1/21 Aaa 15,215,000
Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev. Bonds
5,700,000 (Air Canada), 8 3/4s, 10/1/14 Ba 6,255,750
5,070,000 (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa 5,361,525
5,000,000 Los Angeles, Wastewater Syst. IFB, FGIC, 6.735s,
11/1/06 (acquired 11/8/93, cost $5,417,200) [DBL. DAGGER] Aaa 5,256,250
10,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 Baa 10,512,500
Redondo Beach, Redev. Agcy. Multi-Fam. Hsg.
Rev. Bonds (Heritage Point)
3,130,000 Ser. B, 8 1/2s, 9/1/23 Baa/P 3,219,988
5,100,000 Ser. A, 6 1/2s, 9/1/23 Baa/P 5,202,000
San Bernardino Cnty., COP (Med. Ctr. Fin.)
5,000,000 Ser. A, MB Aaa 5,550,000
8,000,000 MBIA, 5s, Aaa 7,120,000
21,000,000 San Bernardino Cnty., IF COP (PA-100-Med.
Ctr. Fin.), MBIA, 8.225s, 8/1/28 (acquired 6/27/95,
cost $22,664,040) [DBL. DAGGER] Aaa/P 26,932,500
10,000,000 San Diego, Regl. Bldg. Auth. Lease Rev. Bonds,
MBIA, 6.9s, 5/1/23 Aaa 10,112,500
6,500,000 San Francisco, Bldg. Auth. Lease Rev. Bonds
(San Francisco Civic Ctr. Complex), Ser. A,
AMBAC, 5 1/4s, 12/1/16 Aaa 6,199,375
5,650,000 Southern CA Pub. Pwr. Auth. IFB (Transmission),
7.812s, 7/1/12 AA 5,939,563
14,200,000 Southern CA Pub. Pwr. Auth. Rev. Bonds, FGIC,
5.35s, 7/1/12 Aaa 13,685,250
19,100,000 Vallejo, COP (Marine World Foundation), 7.2s,
2/1/26 Ba/P 19,123,875
10,500,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BBB 10,762,500
Valley Hlth. Syst. Hosp. Rev. Bonds
5,000,000 6 1/2s, 5/15/25 BBB 5,012,500
4,000,000 Ser. A, 6 1/2s, 5/15/15 BBB 4,040,000
--------------
237,891,092
Colorado (5.5%)
- ---------------------------------------------------------------------------------------------------------
32,000,000 Arapahoe Cnty., Cap. Impt. Rev. Bonds, Ser. C,
zero %, 8/31/15 Baa 9,280,000
Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, (Ser. E-470)
13,000,000 7s, 8/31/26 Baa 14,202,500
5,025,000 6.9s, 8/31/15 Baa 5,496,094
Denver City & Cnty., Arpt Rev. Bonds
24,400,000 Ser. A, 8 3/4s, 11/15/23 Baa 28,822,500
10,000,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 11,925,000
12,750,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 14,694,375
3,915,000 Ser. A, 7 1/4s, 11/15/25 Aaa 4,497,356
8,000,000 Ser. D, MBIA, 7 3/4s, 11/15/13 Aaa 9,810,000
6,350,000 Douglas Cnty., School Distr. G.O. Bonds
(North Regl. 1, Douglas & Elebert Cntys.),
MBIA, 7s, 12/15/12 Aaa 7,445,375
12,800,000 Jefferson Cnty., Single Fam. Mtge. Rev. Bonds,
Ser. A, MBIA, zero %, 3/1/16 Aaa 4,176,000
--------------
110,349,200
Connecticut (1.1%)
- ---------------------------------------------------------------------------------------------------------
7,195,000 CT State Dev. Auth. 1st Mtge. Rev. Bonds
(East Hill Woods), 8 3/4s, 7/1/19 + Caa/P 4,317,000
CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A
6,500,000 10s, 8/15/21 Aaa/P 8,076,250
4,625,000 7 1/8s, 8/15/14 Ba/P 4,763,750
5,500,000 CT State Hlth. & Ed. Fac. Auth. IFB (Yale U.),
7.845s, 6/10/30 Aaa 5,589,375
--------------
22,746,375
Delaware (0.2%)
- ---------------------------------------------------------------------------------------------------------
4,000,000 DE State Econ. Dev. Auth. Indl. VRDN
(City Waste Recvy.), Ser. A, 3.6s, 12/1/28 VMIG1 4,000,000
District of Columbia (2.2%)
- ---------------------------------------------------------------------------------------------------------
26,000,000 DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 Baa/P 26,357,500
DC Rev. Bonds
4,400,000 (National Public Radio), 7.7s, 1/1/23 Ba/P 4,581,500
2,500,000 (National Public Radio), 7 5/8s, 1/1/18 Ba/P 2,600,000
10,500,000 7.3s, 1/1/13 Baa/P 10,893,750
--------------
44,432,750
Florida (2.8%)
- ---------------------------------------------------------------------------------------------------------
9,260,000 Brevard Cnty., Hlth. Auth. Rev. Bonds
(Courtenay Springs Village), 7 3/4s, 11/15/24 Ba/P 9,792,450
24,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B/P 26,700,000
5,970,000 Hillsborough Cnty., Aviation Auth. Special Purpose
Fac. Rev. Bonds (U.S. Air Inc.), 8.6s, 1/15/22 B 6,522,225
1,085,000 Jacksonville, Hlth. Fac. Auth. Rev. Bonds
(Mental Hlth. Ctr.), 9 1/8s, 10/15/19 B/P 1,120,263
2,250,000 Orange Cnty., Hlth. Fac. Auth. IFB, Ser. 91-C,
MBIA, 8.958s, 10/29/21 Aaa 2,694,375
5,000,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A,
8 1/2s, 3/1/23 B/P 4,000,000
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals Inc.), Ser. A
3,125,000 7 3/4s, 5/1/21 Ba/P 3,160,156
2,880,000 7 1/2s, 5/1/15 Ba/P 2,905,200
--------------
56,894,669
Georgia (6.0%)
- ---------------------------------------------------------------------------------------------------------
5,100,000 Cobb Cnty., Dev. Auth. Indl. Dev. Rev. Bonds
(Boise Cascade Corp.), 7s, 9/1/14 Baa 5,457,000
2,000,000 De Kalb Cnty., Hsg. Auth. Multi-Fam. Hsg. Adj. Rate
Rev. Bonds (Wood Hills Apt.), 3.5s, 12/1/07 VMIG1 2,000,000
De Kalb Cnty., Muni. Hsg. Auth. Rev. Bonds
(Briarcliff Park Apts.)
8,000,000 Ser. B, 10s, 4/1/17 B/P 8,330,000
5,900,000 Ser. A, 7 1/2s, 4/1/17 Baa/P 6,113,875
9,500,000 Forsyth Cnty., Dev. Auth. Indl. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/05 B/P 9,690,000
GA Muni. Elec. Auth. Pwr. Rev. Bonds
5,000,000 Ser. EE, AMBAC, 7 1/4s, 1/1/24 # Aaa 6,193,750
9,200,000 Ser. B, FSA, 6 3/8s, 1/1/16 Aaa 10,177,500
21,500,000 Ser. Z, AMBAC, 5 1/2s, 1/1/12 Aaa 22,010,625
21,500,000 Ser. Z, MBIA, 5 1/2s, 1/1/20 Aaa 21,553,750
7,070,000 GA State G.O. Bonds, Ser. C, 6 1/2s, 4/1/10 Aaa 7,962,588
Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.)
3,875,000 7 1/2s, 1/1/26 Ba/P 4,039,688
14,825,000 7.4s, 1/1/16 Ba/P 15,455,063
3,160,000 Savannah, Econ. Dev. Auth. Poll. Ctrl. Rev. Bonds
(Stone Container Corp.), 8 1/8s, 7/1/15 B/P 3,483,900
--------------
122,467,739
Hawaii (1.0%)
- ---------------------------------------------------------------------------------------------------------
HI State G.O. Bonds
8,330,000 Ser. CM, FGIC, 6 1/2s, 12/1/16 Aaa 9,464,963
5,330,000 Ser. C, FGIC, 6 1/2s, 12/1/15 Aaa 6,036,225
5,000,000 Ser. C, FGIC, 6 1/2s, 12/1/14 Aaa 5,675,000
--------------
21,176,188
Illinois (1.4%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Gas Supply Rev. Bonds (Peoples Gas),
Ser. A, 6 7/8s, 3/1/15 Aa 5,437,500
700,000 Chicago, O'Hare Intl. Aprt. VRDN (American
Airlines, Inc.), Ser. C, 3.65s, 12/1/17 VMIG1 700,000
2,170,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa 2,443,963
1,200,000 IL Dev. Auth. Rev. Bonds (Mercy Hsg. Corp.),
7s, 8/1/24 Baa 1,257,000
5,000,000 IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
(Regency Park-Lincolnwood), Ser. A,
10 1/4s, 4/15/19 (In default) + D/P 3,650,000
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
2,685,000 8 1/4s, 8/1/12 Ba/P 2,792,400
8,000,000 Ser. A, 7 7/8s, 7/1/20 Ba/P 7,850,000
3,065,000 Ser. A, 7 1/2s, 3/1/14 Ba/P 3,034,350
925,000 Ser. A, 7 1/4s, 3/1/04 Ba/P 940,031
--------------
28,105,244
Indiana (2.7%)
- ---------------------------------------------------------------------------------------------------------
East Chicago, Poll. Ctrl. Rev. Bonds
12,000,000 (Inland Steel Co., Number 11), 7 1/8s, 6/1/07 Ba 12,660,000
11,000,000 (Inland Steel Co., Number 10), 6.8s, 6/1/13 Ba 11,220,000
7,116,005 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 Ba/P 7,694,180
14,225,000 IN Dev. Fin. Auth. Poll. Ctrl. Rev. Bonds
(Inland Steel, No. 13), 7 1/4s, 11/1/11 Ba 14,882,906
2,325,000 Mishawaka, Ind. Dev. Rev. Bonds (Stone Container),
9 1/4s, 2/1/97 B/P 2,325,186
4,500,000 Plainfield, Indl. Econ. Dev. Rev. Bonds
(Jorgensen Steel), 8 1/2s, 9/1/04 B/P 4,803,750
1,716,401 Westfield, Econ. Dev. Rev. Bonds (Westfield Village
Hlth. Care Ctr.), FHA Insd., 12s, 5/15/14 A/P 1,945,971
--------------
55,531,993
Iowa (1.2%)
- ---------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac Rev. Bonds
(Care Initiatives)
19,000,000 9 1/4s, 7/1/25 Ba/P 23,251,250
1,500,000 9.15s, 7/1/09 Ba/P 1,813,125
215,000 Marion, 1st Mtge. Rev. Bonds (AHF/Kentucky
Iowa, Inc.), 10 1/4s, 1/1/20 B/P 223,063
--------------
25,287,438
Kentucky (1.1%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 Jefferson Cnty., Hosp. IFB (Alliant Hlth. Syst.), MBIA,
9.09s, 10/1/14 Aaa 5,487,500
10,000,000 Kenton Cnty., Spec. Fac. Arpt. Rev. Bonds
(Delta Airlines), Ser. A, 7 1/2s, 2/1/12 Baa 10,825,000
1,265,000 Lexington-Fayette Urban Cnty., Govt. 1st Mtge.
Rev. Bonds (AHF/Kentucky Iowa, Inc.),
10 1/4s, 1/1/20 B/P 1,312,438
3,430,000 Muhlenberg Cnty., Hosp. Rev. Bonds
(Muhlenberg Cmnty. Hosp.), 9 1/2s, 8/1/10 Aaa/P 3,768,713
--------------
21,393,651
Louisiana (4.6%)
- ---------------------------------------------------------------------------------------------------------
2,900,000 Beauregard Parish, Rev. Bonds
(Boise Cascade Corp.), 7 3/4s, 6/1/21 Baa 3,164,625
3,800,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 4,104,000
LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
2,391,110 (Emily Morten Foundation), 10 1/4s, 5/1/19 B/P 2,543,544
2,000,000 (St. James Place), 10s, 11/1/21 B/P 2,200,000
20,500,000 Lake Charles, Dist. Port Facs. Rev. Bonds
(Trunkline Co.), 7 3/4s, 8/15/22 Baa 23,293,125
7,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB 7,498,750
6,500,000 St. Charles Parish, Poll. Ctrl. Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 7,068,750
13,000,000 St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum), 7 3/4s, 8/1/22 B/P 14,023,750
West Feliciana Parish, Poll. Ctrl. Rev. Bonds
(Gulf States Utils. Co.)
6,000,000 8s, 12/1/24 Baa 6,442,500
19,000,000 7.7s, 12/1/14 Ba 20,876,250
1,600,000 West Felincia Parish, Poll. Ctrl. VRDN, 3.7s, 4/1/16 VMIG1 1,600,000
--------------
92,815,294
Maryland (0.5%)
- ---------------------------------------------------------------------------------------------------------
2,940,000 Denton, 1st Mtge. Rev. Bonds (Wesleyan Hlth.
Care Ctr.), 10 1/4s, 4/1/20 B/P 2,646,000
6,250,000 Prince Georges Cnty., Poll. Ctrl. Rev. Bonds
(Potomac Electric), 5 3/4s, 3/15/10 A 6,515,625
--------------
9,161,625
Massachusetts (7.6%)
- ---------------------------------------------------------------------------------------------------------
4,150,000 Agawam, Res. Recvy. Rev. Bonds (Springfield
Res. Recvy.), 8 1/2s, 12/1/08 BBB 4,313,427
13,400,000 MA Bay Trans. Auth. Rev. Bonds (Gen. Trans. Sys.),
Ser. A, MBIA, 5 1/2s, 3/1/22 Aaa 13,065,000
19,330,000 MA State G.O. Bonds, Ser. A, 6s, 11/1/11 A 20,731,425
MA State Hlth. & Ed. Fac. Auth. IFB
5,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.67s, 8/15/21 Aaa 5,687,500
5,600,000 (Beth Israel Hosp.), AMBAC, 8.37s, 7/1/25 Aaa 5,712,000
2,000,000 (Boston U.), Ser. L, MBIA, 9.497s, 10/1/31 Aaa 2,262,500
MA State Hlth. & Ed. Fac. Auth. Rev. Bonds
3,250,000 (Summerfield Nursing Home), Ser. A,
9 1/2s, 7/1/14 + Caa/P 2,112,500
3,325,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa/P 3,374,875
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,000,000 Ser. B, 9 1/4s, 7/1/15 Ba/P 4,525,000
30,225,000 Ser. A, 9s, 7/1/15 Ba/P 34,078,688
MA State Indl. Fin. Agcy. Rev. Bonds
1,900,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 1,845,375
5,900,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 5,730,375
8,800,000 (Orchard Cove Inc.), 9s, 5/1/22 Ba/P 10,747,000
2,360,000 (Mass Tpk.,), 9s, 10/1/20 Aaa/P 2,755,300
2,155,000 (Morton Hosp. & Med. Ctr.), Ser. A,
8 3/4s, 7/1/11 Aaa 2,367,806
3,000,000 (Emerson College), 8 1/4s, 1/1/17 Ba/P 3,266,250
7,500,000 (Molten Metal Tech.), 8 1/4s, 8/1/14 B/P 7,996,875
5,000,000 (Evanswood Bethzatha Corp.), 8s, 1/15/18 B/P 5,012,500
MA State Wtr. Res. Auth. Rev. Bonds
7,500,000 Ser. C, MBIA, 5 1/4s, 12/1/15 Aaa 7,387,500
8,500,000 Ser. B, MBIA, 5s, 3/1/22 Aaa 7,596,875
3,965,000 Worcester, Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 Ba/P 4,311,938
--------------
154,880,709
Michigan (5.4%)
- ---------------------------------------------------------------------------------------------------------
2,562,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 B/P 2,626,050
18,587,000 Detroit, Hosp. Fac. Fin. Auth. Rev. Bonds
(MI Hlth. Care Corp.), 10s, 12/1/20 (In default)+ Caa 3,624,465
20,630,000 Detroit, Local Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 8.72s, 5/1/21 Baa/P 25,349,113
5,790,000 Highland Park, Hosp. Fin. Auth. Fac. Rev. Bonds
(MI Hlth. Care Corp.), Ser. A, 9 7/8s, 12/1/19
(Chapter 11) + Caa 1,129,050
10,740,000 MI State Hosp. Fin. Auth. Adj. Rate Rev. Bonds
(Detroit-Macomb Hosp. Corp.), Ser. A,
7.4s, 6/1/13 BB 10,780,275
5,000,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Detroit-Macomb Hosp. Corp), Ser. A, 7s, 6/1/15 BB 4,962,500
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
5,800,000 (Mercy Svcs. for Aging), 9.4s, 5/15/20 Baa/P 6,481,500
910,000 (MI Hlth. Care Corp.), 9.1s, 12/1/14 (In default) + Caa 177,450
15,500,000 (Blue Wtr. Fiber), 8s, 1/1/12 Caa/P 11,237,500
15,000,000 (Detroit Edison Co. Coll- AA), MBIA, 6.4s, 9/1/25 Aaa 15,843,750
19,500,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B/P 21,303,750
5,390,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth. Care), 8 3/8s, 7/1/23 Ba/P 5,699,925
--------------
109,215,328
Minnesota (1.3%)
- ---------------------------------------------------------------------------------------------------------
2,920,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc.), 10 1/4s, 9/1/20 Ba/P 3,328,800
3,800,000 Duluth, Tax Increment VRDN (Lake Superior Paper),
3.55s, 9/1/10 VMIG1 3,800,000
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa 5,437,500
Minneapolis, Cmnty. Dev. Agcy. Multi-Fam. Hsg.
Rev. Bonds (Lindsay Bros.)
1,790,000 Ser. A, 9 1/2s, 12/1/07 B/P 1,836,988
1,200,000 Ser. B, 1 1/2s, 12/1/07 B/P 439,500
8,125,000 MN State G.O. Bonds, 5s, 11/1/00 Aaa 8,358,594
3,200,000 Shakopee, Multi-Fam. Rev. Bonds (Riva Ridge Apts.),
8 1/2s, 12/1/08 B/P 3,200,000
--------------
26,401,382
Mississippi (1.1%)
- ---------------------------------------------------------------------------------------------------------
Claiborne Cnty., Poll. Ctrl. Rev. Bonds
(Middle South Energy, Inc.)
4,500,000 Ser. C, 9 7/8s, 12/1/14 Ba 4,966,875
10,000,000 Ser. A, 9 1/2s, 12/1/13 Ba 10,975,000
2,250,000 Lee Cnty., Indl. Rev. Bonds (Great Southern
Box Co. Inc.), 9.55s, 5/1/97 B/P 2,268,675
4,000,000 MS Hosp. Equip. & Fac. Auth. Rev. Bonds
(MS Methodist Hosp & Rehab.), Ser. 1,
9 3/8s, 5/1/12 Ba 4,380,000
--------------
22,590,550
Montana (1.7%)
- ---------------------------------------------------------------------------------------------------------
3,000,000 Missoula Cnty., Rev. Bonds (Cmnty. Med. Ctr. Inc.),
Ser. B, 9s, 6/1/18 BBB 3,255,000
27,700,000 MT State Hlth. Fac. Auth. Hosp. Fac. Rev. Bonds,
AMBAC, 5.2s, 2/25/25 Aaa 25,795,625
5,825,000 MT State Hlth. Fac. Auth. Rev. Bonds
(Cmnty. Med. Ctr. Inc.), 6 3/8s, 6/1/18 BBB 5,766,750
--------------
34,817,375
Nebraska (1.3%)
- ---------------------------------------------------------------------------------------------------------
2,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.396s, 12/8/16 Aaa 2,292,500
12,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. D, GNMA Coll., 7.949s, 3/24/26 Aaa 11,797,500
12,000,000 Omaha, Pub. Pwr. Dist. Elec. Rev. Bonds,
5 1/2s, 2/1/14 Aa 12,060,000
--------------
26,150,000
New Hampshire (1.6%)
- ---------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,850,000 (Havenwood-Heritage Heights), 9 3/4s, 12/1/19 Aaa/P 3,334,500
2,395,000 (Franklin Regl. Hosp.), 8 3/4s, 9/1/19 Baa/P 2,604,563
9,000,000 (1st Mtge. Rivermead Peterborough),
8 1/2s, 7/1/24 B/P 9,663,750
5,900,000 (Heritage Heights), 7.35s, 1/1/18 Aaa/P 5,848,375
6,750,000 (Wentworth-Douglass Hosp.), MBIA,
5 3/8s, 1/1/15 Aaa 6,555,938
4,200,000 NH State Bus. Fin. Auth. Poll. Ctrl. & Solid Waste
Rev. Bonds (Crown Paper Co.), 7 3/4s, 1/1/22 BB 4,415,250
--------------
32,422,376
New Jersey (3.7%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 Camden Cnty., Impt. Auth. Rev. Bonds, 8.4s, 4/1/24
(acquired 4/12/94, cost $5,000,000) [DBL. DAGGER] B/P 5,187,500
7,000,000 NJ Econ. Dev. Auth. 1st Mtge. Rev. Bonds
(Winchester Gardens), Ser. A, 8 5/8s, 11/1/25 B/P 7,236,250
NJ Econ. Dev. Auth. Rev. Bonds
2,700,000 (Stolt Terminals), 10 1/2s, 1/15/18 Ba/P 2,898,315
4,700,000 (Holt Hauling Co.), Ser. D, 10 1/4s, 9/15/14 B/P 4,867,790
10,000,000 (Newark Arpt. Marriot Hotel), 7s, 10/1/14 B/P 10,387,500
5,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 5,668,750
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB, Ser. I, 8.376s,
11/1/07 (acquired from 2/11/93
to 8/24/95, cost $4,143,120) ++ A 4,280,000
5,450,000 NJ State Hwy. Auth. Rev. Bonds
(Garden State Pkwy.), 5.2s, 1/1/08 Aa 5,477,250
NJ State Trans. Trust Fund Auth. Rev. Bonds
10,000,000 (Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,337,500
6,250,000 (Trans. Syst.), Ser. A, MBIA, 5s, 6/15/15 Aaa 5,914,063
5,905,000 NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment), Ser. C, 6 7/8s, 6/15/08 Aa 6,849,800
4,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. IFB, MBIA,
8.954s, 10/1/29 (acquired 10/28/94,
cost $3,785680) [DBL. DAGGER] Aaa 4,645,000
--------------
74,749,718
New York (12.1%)
- ---------------------------------------------------------------------------------------------------------
13,640,000 Metro. Trans. Auth. Rev. Bonds, Ser. A, MBIA,
6 1/4s, 4/1/12 Aaa 14,969,900
Metro. Trans. Auth. Svcs. Contract Rev. Bonds
8,250,000 (Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 Baa 8,229,375
4,000,000 (Commuter Fac.), Ser. O, 5 3/4s, 7/1/13 Baa 3,990,000
2,600,000 Nassau Cnty., Indl. Dev. Agcy. VRDN (Cold Spring
Harbor Lab), 3.6s, 7/1/19 VMIG1 2,600,000
NY City, G.O. Bonds, Ser. B
5,000,000 5 7/8s, 8/15/16 Baa 4,843,750
5,000,000 5 7/8s, 8/15/13 Baa 4,881,250
3,100,000 NY City, Indl. Dev. Agcy. VRDN (Columbia
Grammar School), 3.4s, 6/30/14 VMIG1 3,100,000
9,000,000 NY City, Indl. Dev. Agcy. Rev. Bonds (Solid Waste
Disp-Visy Paper), 7.8s, 1/1/16 Ba/P 9,731,250
NY City, Muni. Assistance Corp. Rev. Bonds
10,000,000 Ser. G, 6s, 7/1/07 Aa 10,837,500
10,000,000 Ser. E, 6s, 7/1/06 Aa 10,850,000
5,000,000 NY City, Muni. Wtr. Fin. Auth. VRDN, Ser. G, FGIC,
3.65s, 6/15/24 VMIG1 5,000,000
1,000,000 NY City, VRDN, Ser. D, FGIC, 3.45s, 2/1/21 VMIG1 1,000,000
NY State Dorm. Auth. Rev. Bonds
21,500,000 (Cons. City U.), Ser. A, MBIA, 5 3/4s, 7/1/13 Aaa 22,252,500
7,000,000 (U. Syst.), Ser. A, AMBAC, 5 3/4s, 7/1/09 Aaa 7,350,000
10,100,000 (City U.), Ser. F, 5s, 7/1/20 Baa 8,749,125
2,300,000 NY State Energy Res. & Dev. Auth. Poll. Ctrl. VRDN
(Niagra Pwr. Corp.), Ser. B, 3.8s, 7/1/27 VMIG1 2,300,000
8,000,000 NY State Energy Res. & Dev. Auth. Poll. Ctrl. IFB,
FGIC, 10.33s, 7/1/29 (acquired 12/19/94,
cost $8,353,120) ++ Aaa 9,990,000
5,000,000 NY State Env. Fac. Corp. Solid Waste Disp.
Rev. Bonds (Occidental Pete Corp.), Ser. A,
5.7s, 9/1/28 Baa 4,668,750
2,000,000 NY State Hsg. Fin. Agcy. VRDN (Normadie Court I),
3.45s, 5/15/15 VMIG1 2,000,000
NY State Local Govt. Assistance Corp. VRDN
2,000,000 Ser. F, 3.4s, 4/1/25 VMIG1 2,000,000
2,300,000 Ser. B, 3.4s, 4/1/23 VMIG1 2,300,000
NY State Local Govt. Assistance Corp. Rev. Bonds
8,000,000 Ser. C, 5 1/2s, 4/1/17 A 7,900,000
2,225,000 Ser. E, 5 1/4s, 4/1/16 A 2,133,219
5,500,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/2s, 8/15/29 Aaa 5,912,500
3,300,000 NY State Med. Care Fac. Fin. Agcy. VRDN
(Lenox Hill Hosp.), Ser. A, 3.45s, 11/1/08 VMIG1 3,300,000
9,750,000 NY State Pwr. Auth. Rev. Bonds, Ser. Z,
6 1/2s, 1/1/19 Aa 10,554,375
NY State Urban Dev. Corp. Rev. Bonds
7,000,000 (State Fac.), 7 1/2s, 4/1/20 Aaa 7,918,750
15,200,000 (Correctional Fac.), Ser. A, 5 1/4s, 1/1/21 Baa 13,699,000
6,150,000 (Correctional Fac.), Ser. A, FSA, 5 1/4s, 1/1/14 Aaa 5,980,875
Port Auth. NY & NJ G.O. Bonds
6,890,000 Ser. 104, AMBAC, 5.2s, 7/15/13 Aaa 6,726,363
6,555,000 AMBAC, 5 1 Aaa 6,391,125
7,000,000 Port Auth. NY & NJ Rev. Bonds (Delta Airlines, Inc.),
Ser. 1R, 6.95s, 6/1/08 Baa 7,551,250
800,000 Suffolk Cnty., Indl. Dev. Agcy. VRDN (Cold Spring
Harbor Lab), 3s, 7/1/23 VMIG1 800,000
2,000,000 Suffolk Cnty., Wtr. Auth. RAN, 3.45s, 2/8/01 VMIG1 2,000,000
22,570,000 Triborough, Bridge & Tunnel Auth. Rev. Bonds,
Ser. B, 5.3s, 1/1/17 Aa 21,723,625
1,000,000 Warren & Washington Cntys., Indl. Dev. Agcy.
VRDN (Decora Inc.), 3.65s, 11/1/04 VMIG1 1,000,000
--------------
245,234,482
North Carolina (1.8%)
- ---------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds
4,000,000 Ser. B, MBIA, 7s, 1/1/08 Aaa 4,620,000
9,250,000 Ser. A, MBIA, 6 1/2s, 1/1/18 Aaa 10,360,000
14,940,000 Ser. B, MBIA, 6 1/8s, 1/1/09 Aaa 16,023,150
5,000,000 Ser. C, MBIA, 5 1/2s, 1/1/07 Aaa 5,156,250
--------------
36,159,400
Ohio (0.9%)
- ---------------------------------------------------------------------------------------------------------
7,200,000 Dayton, Special Fac. Rev. Bonds (Emery Air Freight
Corp.), Ser. A, 12 1/2s, 10/1/09 Ba 8,109,000
14,315,000 Lucas Plaza, Hsg. Dev. Corp. Mtge. Rev. Bonds, FHA
Insd., zero %, 6/1/24 Aaa 2,469,338
6,200,000 OH State Pub. Fac. Comm. Higher Ed. Cap.
Rev. Bonds, Ser. II-A, MBIA, 4 1/2s, 11/1/10 Aaa 5,704,000
1,800,000 Scioto Cnty., Hosp. VRDN (VHA Cent. Inc.
Cap. Asset), Ser. D, AMBAC, 3.4s, 12/1/25 VMIG1 1,800,000
--------------
18,082,338
Oklahoma (0.3%)
- ---------------------------------------------------------------------------------------------------------
6,475,000 Tulsa, Indl. Auth. Rev. Bonds (U. of Tulsa), Ser. A,
MBIA, 6s, 10/1/11 Aaa 6,944,438
Pennsylvania (4.8%)
- ---------------------------------------------------------------------------------------------------------
6,025,000 Allegheny Cnty., Hosp. Dev. Auth. VRDN, Ser. D,
MBIA, 3.25s, 3/1/20 VMIG1 6,025,000
Allegheny Cnty., Indl. Dev. Auth. Arpt.
Special Fac. Rev. Bonds
1,290,000 (U.S. Air, Inc.), Ser. A, 8 7/8s, 3/1/21 B 1,420,613
1,485,000 (Southwestern Arpt. Cargo Fac.), 8 3/4s, 2/15/09 Ba/P 1,562,963
5,035,000 (U.S. Air, Inc.), Ser. B, 8 1/2s, 3/1/21 B 5,418,919
Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
Rev. Bonds (United Hosp. Inc.)
3,745,000 8 1/2s, 11/1/17 AAA 3,951,649
5,300,000 Ser. A, 8 3/8s, 11/1/11 AAA 5,962,500
5,370,000 PA Convention Ctr. Auth. Rev. Bonds, Ser. A, FSA,
6 3/4s, 9/1/19 AAA 5,907,000
28,000,000 PA Economic Dev. Fin. Auth. Recycling Rev. Bonds
(Ponderosa Fibres), Ser. A, 9 1/4s, 1/1/22 B/P 25,410,000
6,000,000 PA Econ. Dev. Fin. Auth. Res. Recvy. Rev. Bonds
(Colver Project), Ser. E, 8.05s, 12/1/15 BBB 6,360,000
4,800,000 PA Hsg. Fin. Agcy. IFB, 8.413s, 4/1/25 Aa 4,812,000
2,500,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.824s, 9/3/26 Aaa 2,831,250
Philadelphia, Hosp. & Higher Ed. Fac. Auth. Rev. Bonds
2,000,000 Ser. A, 6 1/4s, 7/1/13 Baa 1,957,500
8,250,000 Ser. A&B, 7 1/4s, 7/1/18 Baa 8,641,875
5,300,000 Philadelphia, Muni. Auth. Rev. Bonds (Justice Lease),
Ser. C, 8 5/8s, 11/15/16 Aaa 6,300,375
Philadelphia, Wtr. & Wastewtr. Rev. Bonds
4,760,000 FGIC, 10s, 6/15/05 Aaa 6,336,750
5,000,000 MBIA, 5 5/8s, 6/15/08 Aaa 5,187,500
--------------
98,085,894
Puerto Rico (1.0%)
- ---------------------------------------------------------------------------------------------------------
8,000,000 Cmnwlth. of PR, Rev. Bonds, MBIA, 5.642s, 7/1/08 Aaa 8,320,000
3,305,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Z, MBIA, 6 1/4s, 7/1/12 Aaa 3,618,975
7,000,000 PR Pub. Bldgs. Auth. Hlth. Fac. Rev. Bonds, Ser. M,
AMBAC, 5 3/4s, 7/1/10 Aaa 7,385,000
--------------
19,323,975
South Carolina (1.9%)
- ---------------------------------------------------------------------------------------------------------
16,345,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 Ba/P 17,100,956
Piedmont, Muni. Elec. Pwr. Agcy. Rev. Bonds
1,750,000 Prerefunded, MBIA, 5 1/2s, 1/1/11 AAA 1,793,750
2,250,000 MBIA, 5 1/2s, 1/1/11 AAA 2,295,000
10,355,000 SC Jobs Econ. Dev. Auth. Econ. Dev. Rev. Bonds
(St. Francis Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa 10,963,356
5,000,000 Spartansburg Cnty., Hosp. Fac. IFB, FSA,
8.746s, 4/13/22 Aaa 5,462,500
--------------
37,615,562
Tennessee (0.3%)
- ---------------------------------------------------------------------------------------------------------
28,920,000 Metro. Nashville & Davidson Cnty., Hlth. & Ed. Fac.
Board Rev. Bonds (Volunteer Hlth. Care),
zero %, 6/1/21 Aaa 5,603,250
Texas (2.9%)
- ---------------------------------------------------------------------------------------------------------
5,040,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 5,392,800
5,000,000 Amarillo, Hlth. Fac. Corp. Rev. Bonds (Sears
Panhandle Retirement), Ser. B, 7 3/4s, 8/15/26 Ba/P 4,975,000
4,785,000 Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.), Ser. A-1, 10 1/4s, 3/1/19 + Caa/P 3,349,500
5,760,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 6,285,600
10,000,000 Dallas Cnty., G.O. Bonds (Flood Ctrl. Dist. #1),
zero %, 4/1/16 Ba/P 9,075,000
Harris Cnty., Single Fam. Hsg. Fin. Corp. Rev. Bonds
805,000 Ser. 1983A, 10 3/8s, 7/15/14 Baa 805,394
630,000 9 7/8s, 3/15/14 BB 630,536
Houston, Hsg. Fin. Corp. Single Fam. Mtge.
Rev. Bonds
3,217,000 Ser. A, Verex Mtg. Ins., 10 7/8s, 2/15/16 A 3,249,170
1,945,000 10s, 9/15/14 B 1,945,000
2,000,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
10 1/4s, 6/1/17 Baa 2,095,140
11,500,000 TX A&M U. Syst. Rev. Bonds, 5s, 5/15/12 Aa 10,939,375
8,000,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll., FNMA Coll., 9.724s, 7/2/24 AAA 9,330,000
--------------
58,072,515
Utah (0.5%)
- ---------------------------------------------------------------------------------------------------------
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
MBIA, 6 1/4s, 2/15/23 Aaa 5,256,250
5,000,000 Tooele Cnty., Hazardous Waste Disp. Rev. Bonds
(Laidlaw USPCI Incineration), Ser. A,
6 3/4s, 8/1/10 BBB 5,243,750
--------------
10,500,000
Virginia (0.7%)
- ---------------------------------------------------------------------------------------------------------
4,500,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
9.57s, 8/15/23 Aaa 5,388,750
2,000,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 7.944s, 8/23/27 Aaa 2,110,000
800,000 Henrico Cnty., Indl. Dev. Auth. VRDN, 3.4s, 5/1/24 VMIG1 800,000
5,750,000 Hopewell, Indl. Dev. Rev. Bonds
(Stone Container Corp.), 8 1/4s, 6/1/16 B/P 6,245,938
--------------
14,544,688
Washington (2.3%)
- ---------------------------------------------------------------------------------------------------------
29,000,000 Port Walla Walla, Pub. Corp. Solid Waste Recycling
Rev. Bonds (Ponderosa Fibres), 9 1/8s, 1/1/26 B/P 26,535,000
8,200,000 WA State Hsg. Fin. Comm. Single Fam. Mtge. IFB,
GNMA Coll., 10.061s, 12/1/17
(acquired 4/12/95, cost $9,225,000) ++ AAA 8,784,250
WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear Project No. 3)
4,000,000 Ser. C, MBIA, 7 1/2s, 7/1/08 Aaa 4,755,000
5,000,000 Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,812,500
--------------
45,886,750
West Virginia (0.7%)
- ---------------------------------------------------------------------------------------------------------
Marion Cnty., Cmnty. Solid Waste Disp. Fac. Rev. Bonds
(American Pwr. Paper Recycling)
12,000,000 9s, 12/1/11 (acquired from 12/17/93
to 3/8/95, cost $11,850,760) [DBL. DAGGER] + Caa/P 6,000,000
10,000,000 8 1/4s, 12/1/11 (acquired 12/17/93,
cost $10,000,000) [DBL. DAGGER] + Caa/P 5,000,000
2,935,000 Preston Cnty., Bldg. Cmnty. Hosp. Rev. Bonds
(Preston Mem. Hosp. Corp.), Ser. B, 10s, 4/1/14 Ba/P 3,103,763
--------------
14,103,763
Wyoming (0.5%)
- ---------------------------------------------------------------------------------------------------------
10,000,000 Sweetwater Cnty., Solid Waste Disp. Rev. Bonds
(FMC Corp.), Ser. A, 7s, 6/1/24 Baa 10,625,000
- ---------------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes
(cost $1,947,941,677)*** $1,992,831,342
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,027,343,341.
** The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at January 31, 1997 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, 1997. Securities rated by Putnam are indicated
by /P and are not publicly rated.
The table below shows the percentage of the fund's investment on January
31, 1997 in securities assigned to various rating categories by Moody's
and Standard & Poor's and in unrated securities determined by Putnam
Management to be of comparable quality.
Unrated securities Rated securities
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
------ ------------------ -------------------
AAA/Aaa 2.5% 32.1%
AA/Aa 0.2 5.2
A/A 0.1 2.2
BBB/Baa 4.4 14.7
BB/Ba 12.7 6.1
B/B 12.9 0.8
Caa/CCC 1.6 0.2
D 0.2 0.0
A-1/VMIG1 0.0 2.4
---- ----
34.6% 63.7%
*** The aggregate identified cost on a tax basis is $1,947,820,627,
resulting in gross unrealized appreciation and depreciation of
$97,342,846 and $52,332,131, respectively, or net unrealized
appreciation of $45,010,715.
+ Non-income-producing security.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at January 31,
1997 was $76,075,500 or 3.75% of net assets.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
January 31, 1997. The market value of this security is $6,193,750
or 0.3% of net assets.
The rate shown on Floating Rate Bonds and Floating Rate Notes are
the current interest rates shown at January 31, 1997, which are
subject to change based on the terms of the security.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market
interest rates, and VRDN's are the current interest rates at
January 31, 1997.
The fund had the following industry group concentration greater
than 10% at January 31, 1997 (as a percentage of net assets):
Health care 15.8%
Transportation 15.1
Utilities 13.6
The fund had the following insurance concentration greater than
10% at January 31, 1997 (as a percentage of net assets):
MBIA 17.1%
<CAPTION>
Futures Contracts Outstanding at January 31, 1997
Aggregate
Face Expiration Unrealized
Total Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Muni Index Future
(Short) $86,437,500 $86,326,094 Mar-97 $(111,406)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,947,941,677) (Note 1) $1,992,831,342
- ---------------------------------------------------------------------------------------------------
Cash 17,467,859
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 27,112,890
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 17,253,847
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 5,000,866
- ---------------------------------------------------------------------------------------------------
Total assets 2,059,666,804
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 656,250
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,595,488
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 17,653,392
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 6,894,599
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 917,231
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 142,455
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 28,081
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,593
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,133,717
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 294,657
- ---------------------------------------------------------------------------------------------------
Total liabilities 32,323,463
- ---------------------------------------------------------------------------------------------------
Net assets $2,027,343,341
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,037,813,517
- ---------------------------------------------------------------------------------------------------
Distributions in excess net investment income (Note 1) (1,194,738)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (54,053,697)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 44,778,259
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,027,343,341
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($583,466,658 divided by 41,017,136 shares) $14.22
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $14.22)* $14.93
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,428,591,204 divided by 100,397,301 shares)** $14.23
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,285,479 divided by 1,075,208 shares) $14.22
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $14.22)*** $14.70
- ---------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $69,765,892
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,430,190
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 721,206
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 50,541
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,296
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 561,104
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,131,168
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 32,001
- --------------------------------------------------------------------------------------------------
Reports to shareholders 79,125
- --------------------------------------------------------------------------------------------------
Registration fees 6,206
- --------------------------------------------------------------------------------------------------
Auditing 9,733
- --------------------------------------------------------------------------------------------------
Legal 23,675
- --------------------------------------------------------------------------------------------------
Postage 224,792
- --------------------------------------------------------------------------------------------------
Other 71,648
- --------------------------------------------------------------------------------------------------
Total expenses 13,352,685
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (272,934)
- --------------------------------------------------------------------------------------------------
Net expenses 13,079,751
- --------------------------------------------------------------------------------------------------
Net investment income 56,686,141
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,279,964)
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (138,766)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 34,276,543
- --------------------------------------------------------------------------------------------------
Net gain on investments 25,857,813
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $82,543,954
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 56,686,141 $ 113,667,354
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (8,418,730) 15,016,204
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 34,276,543 (28,204,166)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 82,543,954 100,479,392
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (17,327,960) (32,034,038)
- ----------------------------------------------------------------------------------------------------------------------
Class B (39,750,563) (80,787,224)
- ----------------------------------------------------------------------------------------------------------------------
Class M (373,706) (327,003)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 30,213,630 70,910,580
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 55,305,355 58,241,707
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,972,037,986 1,913,796,279
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $1,194,738 and $428,650,
respectively) $2,027,343,341 $1,972,037,986
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months December 29, 1994
ended (commencement
January 31 Year ended of operations) to
(Unaudited) July 31 July 31
-------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------
Class M
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.04 $14.13 $13.43
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .84 .58
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .18 (.08) .70
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .60 .76 1.28
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.42) (.85) (.58)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investment -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.85) (.58)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.22 $14.04 $14.13
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.31* 5.44 9.69*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $15,285 $9,984 $2,331
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .58* 1.13 .71*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.92* 5.87 3.98*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 28.73* 67.70 60.41
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
January 31
(Unaudited) Year ended July 31
--------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.05 $14.14 $14.24
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .90 .94
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .16 (.10) (.10)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .61 .80 .84
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.44) (.89) (.94)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investment -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.89) (.94)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.22 $14.05 $14.14
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.39* 5.76 6.24
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $583,467 $540,607 $474,984
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .43* .84 .87
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.07* 6.27 6.73
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 28.73* 67.70 60.41
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
September 20, 1993 Six months
(commencement ended
of operations) to January 31 Year ended
July 31 (Unaudited) July 31
----------------------------------------------------------------
1994 1997 1996
----------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.34 $14.05 $14.14
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .83 .41 .80
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.98) .16 (.09)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.15) .57 .71
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.83) (.39) (.80)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investment (.05) -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (.05) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.39) (.80)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.24 $14.23 $14.05
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (.99)* 4.12* 5.08
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $361,593 $1,428,591 $1,421,448
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .71* .76* 1.50
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.58* 2.74* 5.62
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.41 28.73* 67.70
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
--------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.24 $15.01 $14.64
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .85 .86 .95
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.10) (.65) .41
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .75 .21 1.36
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.85) (.85) (.95)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (.03) --
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investment -- (.05) (.04)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments -- (.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.85) (.98) (.99)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.14 $14.24 $15.01
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 5.54 1.36 9.68
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,436,481 $1,522,955 $1,501,535
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.51 1.45 1.38
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.10 5.76 6.39
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.41 44.41 52.29
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended
July 31
----------------------
1992
----------------------
Class B
- ---------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $13.79
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .99
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .94
- ---------------------------------------------------------------------------------
Total from investment operations 1.93
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.99)
- ---------------------------------------------------------------------------------
In excess of net investment income --
- ---------------------------------------------------------------------------------
From net realized gain on investment (.09)
- ---------------------------------------------------------------------------------
In excess of net realized gain on investments --
- ---------------------------------------------------------------------------------
Total distributions (1.08)
- ---------------------------------------------------------------------------------
Net asset value, end of period $14.64
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.60
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,015,866
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.45
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 7.03
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 82.31
- ---------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996
and thereafter, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
January 31, 1997 (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 Investment Management, Inc. ("Putnam
Management") the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc., believes does not involve undue risk to income or
principal.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are 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
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for excise tax
on income and capital gains.
E) Distributions to shareholders Income dividends are recorded daily by the
fund and are distributed monthly. 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. 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.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. 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. Discounts on zero coupon bonds and original
issue bonds are accreted according to the effective yield method.
G) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among 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 Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 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; 0.45% of the next $5 billion; 0.425% of the next $5 billion; 0.405%
of the next $5 billion; 0.39% of the next $5 billion and 0.38% of any excess
over $21.5 billion. Prior to November 20, 1996 any amount over $1.5 billion was
based on a rate of 0.45%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc..
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 1997, fund expenses were reduced by
$272,934 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,860 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 six months ended January 31, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $68,146 and $3,818 from the sale of
class A and class M shares, respectively and $1,222,030 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. For the six
months ended January 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $6,844 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$602,153,088 and $555,254,699, respectively. There were no purchases and sales
of U.S. government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Note 4
Capital shares
At January 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 9,695,954 $137,378,900
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 622,363 8,817,072
- ------------------------------------------------------------
10,318,317 146,195,972
Shares
repurchased (7,782,310) (110,330,730)
- ------------------------------------------------------------
Net increase 2,536,007 $35,865,242
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 13,029,114 $185,888,611
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,175,420 16,773,877
- ------------------------------------------------------------
14,204,534 202,662,488
Shares
repurchased (9,324,390) (132,743,846)
- ------------------------------------------------------------
Net increase 4,880,144 $69,918,642
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 11,354,229 $160,794,864
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,294,498 18,347,216
- ------------------------------------------------------------
12,648,727 179,142,080
Shares
repurchased (13,401,986) (189,944,801)
- ------------------------------------------------------------
Net (decrease) (753,259) $ (10,802,721)
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 26,982,574 $385,197,664
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,654,941 37,899,226
- ------------------------------------------------------------
29,637,515 423,096,890
Shares
repurchased (30,078,430) (429,880,151)
- ------------------------------------------------------------
Net (decrease) (440,915) $(6,783,261)
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 392,849 $5,557,641
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,107 256,426
- ------------------------------------------------------------
410,956 5,814,067
Shares repurchased (46,767) (662,958)
- ------------------------------------------------------------
Net increase 364,189 $5,151,109
- ------------------------------------------------------------
Year ended
July 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 603,316 $8,601,895
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,752 237,979
- ------------------------------------------------------------
620,068 8,839,874
Shares repurchased (74,012) (1,064,675)
- ------------------------------------------------------------
Net increase 546,056 $7,775,199
- ------------------------------------------------------------
Results of February 6, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on February 6,
1997. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 83,217,857 1,369,623
Hans H. Estin 83,169,010 1,418,470
John A. Hill 83,219,218 1,368,262
R.J. Jackson 83,220,817 1,366,663
Elizabeth T. Kennan 83,202,553 1,384,927
Lawrence J. Lasser 83,191,702 1,395,778
Robert E. Patterson 83,206,016 1,381,464
Donald S. Perkins 83,137,935 1,449,545
William F. Pounds 83,160,220 1,427,260
George Putnam 83,114,044 1,473,436
George Putnam, III 83,166,975 1,420,505
Eli Shapiro 83,034,874 1,552,606
A.J.C. Smith 83,187,812 1,399,668
W. Nicholas Thorndike 83,179,814 1,407,666
A proposal to ratify the selection of Price Waterhouse LLP as auditors for the
fund was approved as follows: 80,756,904 votes for, and 642,847 votes against,
with 3,187,729 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to diversification was approved as follows: 73,685,639 votes for, and
3,750,244 votes against, with 7,151,597 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in the securities of a single issuer was approved as follows:
71,156,546 votes for, and 5,363,000 votes against, with 8,067,934 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to making loans was approved as follows: 68,678,575 votes for, and 7,831,047
votes against, with 8,077,858 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows: 70,965,331
votes for, and 6,210,802 votes against, with 7,411,347 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to concentration of its assets was approved as follows: 72,241,289 votes for,
and 4,428,216 votes against, with 7,917,975 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in commodities was approved as follows: 68,875,641 votes for,
and 7,902,066 votes against, with 7,809,773 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities was approved as follows: 72,290,666 votes for,
and 4,221,873 votes against, with 8,074,941 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in securities of issuers in which management of the fund
or Putnam Investment Management, Inc. owns securities was approved as follows:
70,391,704 votes for, and 6,092,543 votes against, with 8,103,233 abstentions
and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to margin transactions was approved as follows: 67,452,541 votes for,
and 8,970,020 votes against, with 8,164,919 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to short sales was approved as follows: 68,331,534 votes for, and
7,992,223 votes against, with 8,263,723 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to pledging assets was approved as follows: 67,734,365 votes for, and
8,432,218 votes against, with 8,420,897 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in restricted securities was approved as follows:
68,756,606 votes for, and 7,526,140 votes against, with 8,304,734 abstentions
and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in certain oil, gas an mineral interests was approved
as follows: 71,085,926 votes for, and 5,991,762 votes against, with 7,509,792
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investing to gain control of a company's management was approved as
follows: 69,600,821 votes for, and 6,917,754 votes against, with 8,068,905
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
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
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
31260-500/036/679 3/97
