Putnam
Tax-Free
High Yield
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "For the past six months, long-term municipal bond yields have been
close to or equal to the yields on 30-year Treasury bonds -- the closest
relationship we have seen in more than a decade."
-- Blake E. Anderson, manager
Putnam Tax-Free High Yield Fund
* "We're at historical highs in terms of muni yields relative to
Treasuries. They represent an unprecedented bargain and opportunity."
-- Money, Year-End 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
27 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Investors seeking tax-free income from municipal bonds have not seen such
a favorable yield environment relative to taxable bonds in more than a
decade. The rush of foreign investors to the safety of U.S. Treasury bonds
in recent months has driven prices on these securities markedly higher.
Because of the inverse relationship of yields to prices, yields on 30-year
Treasuries have declined to virtually the same level as those on long-term
municipals. This near parity has made tax-exempt bonds unusually
attractive for U.S. investors.
As a consequence of this favorable environment, Putnam Tax-Free High Yield
Fund's manager, Blake Anderson, has focused on increasing the monthly
dividend as well as improving total return.
In the following report from Blake, you will find more discussion of these
developments and other aspects of the fund's performance during the
semiannual period that ended on January 31, 1999. He also offers his views
on prospects for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 17, 1999
Report from the Fund Manager
Blake E. Anderson
Attractive. Remarkable. Exceptional. These are the words that have been
used to describe tax-free bond yields in recent months. For the past six
months, long-term municipal bond yields have been close to or equal to the
yields on 30-year Treasury bonds -- the closest relationship we have seen
in more than a decade. Usually investors have to accept lower yields on
municipals as a tradeoff for their tax benefits, but this has not been the
case lately.
In these unusual times during which municipal yields are on near parity
with Treasury bond yields, we have continued our pursuit of a higher
income stream for Putnam Tax-Free High Yield Fund through the purchase of
lower-rated higher-yielding tax-free bonds. For the six months ended
January 31, 1999, the fund's class A shares returned 3.71% at net asset
value and -1.22% at public offering price. Please refer to pages 8 and 9
for complete performance data.
* SPREADS NARROWED AS EQUITY MARKETS PLUNGED
During the summer and fall, when the equity markets around the world
plunged, the quest for higher income was delayed as yield spreads
narrowed. The fund was not compensated with higher yields for taking on
the additional risk of lower-rated investments and we opted not to make
significant changes to the portfolio.
Our patience was eventually rewarded. As calendar 1999 began, yield
spreads widened. Now we are seeing increased opportunity for purchasing
higher-yielding, higher-risk bonds and we have resumed our strategy of
seeking higher income through such investments.
For most of 1998, the yield curve was relatively flat, meaning there was
little difference between long-term and short-term interest rates. But in
recent months, long-term rates have gone up faster than short-term rates,
which have barely moved. Consequently the yield curve has steepened at the
long end. In this type of environment, the middle of the yield curve is a
good place to be: intermediate-term bond prices do not move as much and
have been the best-performing sector of the market recently. The majority
of the municipal bonds in your fund fall in this middle range, with 5- to
10-year maturities.
* HEALTH-CARE BONDS UNDERPERFORM AMID FEDERAL BUDGET AND Y2K CONCERNS
Bonds from the hospital and health-care industry have underperformed other
sectors recently, reflecting concerns about several key issues. The first
involved the default of bonds issued by the Philadelphia Graduate Hospital
system last July. While less than 0.5% of your fund's portfolio was
affected, this widely publicized default dampened prices throughout the
health-care sector. The gap between yields of lower-rated and higher-rated
health-care securities should create some attractive income and
appreciation opportunities.
The Federal Balanced Budget Act of 1997 has added more uncertainty to the
health-care bond picture. This law throws into question the amount of
reimbursement hospitals can expect from government programs, such as
Medicaid and Medicare, in the future. These programs provide a large part
of hospital revenues. In anticipation of lower reimbursements, many
hospitals have undertaken another wave of cost cutting.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 24.9%
Utilities 10.8%
Transportation 10.5%
Housing 8.8%
Forest and paper
products 5.3%
Footnote reads:
*Based on net assets as of 1/31/99. Holdings will vary over time.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
Ba/BB and under -- 40.8%
Baa/BBB -- 12.4%
Aaa/AAA -- 37.0%
Aa/AA -- 6.5%
A -- 3.3%
Footnote reads:
*As a percentage of market value as of 1/31/99. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's descriptions
and Standard & Poor's descriptions, unless noted otherwise; percentages
may include unrated bonds considered by Putnam Management to be of
comparable quality. Ratings will vary over time.
Another factor contributing to underperformance in this sector is the
uncertainty created by the looming year 2000 (Y2K) problem. Investors are
concerned that major computer systems such as those administered by
Medicare and Medicaid may not be prepared to deal with the software
problems that will occur at the turn of 1999 and a slowdown in payments
could result. If this slowdown occurs, some hospitals may have difficulty
managing their cash flows.
Although we have trimmed our exposure to certain hospital issues,
uncertainty and underperformance often create opportunities for investors.
There are many well-managed hospitals that have anticipated the problems
confronting the health-care industry and they have already taken steps to
mitigate these challenges.
* SMALLER ISSUES OFFER OPPORTUNITY
It is important to know that the highest-yielding opportunities in the
municipal bond market do not usually come from the biggest deals. Most
often, it is the smaller, less publicized issues that have the most to
offer in terms of yield and appreciation potential. In fact, almost 70% of
the issues sold in 1998 were for $10 million and under, which is quite
remarkable. One such issue, Arkansas Northwest Regional Airport Authority
revenue bonds, has contributed strongly to the fund's performance.
* KEEPING FOCUS ON HIGHER INCOME
On a national level, it is reassuring to know that we have a Federal
Reserve Board that is prepared to step in to stabilize the markets when a
crisis occurs. In the recent past, their actions have sent positive
messages to Wall Street. However, we do believe that the markets are far
less vulnerable to potential international events than they were six
months ago.
The strong growth and low inflation that have characterized the economy
all year remained in place in the final quarter of 1998. This strength
surprised many economists and suggested that the economy retained
considerable momentum as this year began. Given this strength, the Fed is
unlikely to cut interest rates at any time soon and the full impact of the
three rate cuts that took place in 1998 has yet to be realized. Since the
direction of interest rates is impossible to predict, we will direct our
focus to the superb value of municipal bond yields while continuing to
raise income levels and total return of the fund.
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 1/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit rating
of high-yield bonds reflects a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Tax-Free High Yield Fund is designed for investors seeking high current
income free form federal income tax through investments primarily in high
yield tax-exempt securities.
TOTAL RETURN FOR PERIODS ENDED 1/31/99
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 3.71% -1.22% 3.38% -1.62% 3.48% 0.13%
- ------------------------------------------------------------------------------
1 year 5.63 0.59 4.89 -0.10 5.24 1.79
- ------------------------------------------------------------------------------
5 years 30.90 24.70 26.80 24.87 28.32 24.17
Annual average 5.53 4.51 4.86 4.54 5.11 4.42
- ------------------------------------------------------------------------------
10 years 106.14 96.39 99.17 99.17 101.56 94.99
Annual average 7.50 6.98 7.13 7.13 7.26 6.91
- ------------------------------------------------------------------------------
Life of fund 197.23 183.03 187.19 187.19 190.61 181.24
Annual average 8.48 8.08 8.20 8.20 8.29 8.03
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/99
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 4.67% 0.86%
- ------------------------------------------------------------------------------
1 year 6.65 1.86
- ------------------------------------------------------------------------------
5 years 35.37 12.59
Annual average 6.24 2.40
- ------------------------------------------------------------------------------
10 years 118.46 35.92
Annual average 8.13 3.12
- ------------------------------------------------------------------------------
Life of fund 218.31 52.41
Annual average 9.01 3.19
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and 10- periods
reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class A and class M shares for periods prior
to their inception are derived from the historical performance of class B
shares, adjusted in the case of public offering price to reflect the
initial sales charge currently applicable to each class, but have not been
adjusted to reflect differences in expenses, which are lower for class A
and M shares than for class B shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.404815 $0.368086 $0.382560
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0. 404815 $0.368086 $0. 382560
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/98 $14.61 $15.34 $14.62 $14.61 $15.10
- ------------------------------------------------------------------------------
1/31/99 14.74 15.48 14.74 14.73 15.22
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.50% 5.23% 5.00% 5.20% 5.03%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.11 8.66 8.28 8.61 8.33
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.53 4.31 4.03 4.23 4.09
- ------------------------------------------------------------------------------
Taxable equivalent3 7.50 7.14 6.67 7.00 6.77
- ------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(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 2.58% -2.28% 2.31% -2.68% 2.50% -0.82%
- ------------------------------------------------------------------------------
1 year 5.26 0.27 4.72 -0.26 5.02 1.63
- ------------------------------------------------------------------------------
5 years 30.88 24.63 26.92 24.99 28.41 24.23
Annual average 5.53 4.50 4.88 4.56 5.13 4.43
- ------------------------------------------------------------------------------
10 years 105.64 95.91 99.05 99.05 101.40 94.79
Annual average 7.48 6.96 7.13 7.13 7.25 6.89
- ------------------------------------------------------------------------------
Life of fund 193.63 179.60 184.22 184.22 187.55 178.28
Annual average 8.43 8.03 8.16 8.16 8.26 7.99
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for method of performance calculation.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. 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 [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor guaranteed by
the U.S. government. These funds are managed to maintain a price of $1.00
per share, although there is no assurance that this price will be
maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest
or send money.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Website.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1999 (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
TRAN -- Tax Revenue Anticipation Notes
U. S. Govt. Coll. -- U. S. Government Collateralized
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (99.0%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C> <C>
Alabama (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Anniston, Indl. Dev. Rev. Bonds (Hoover
Group Inc.), 8 1/2s, 9/1/10 B/P $ 5,600,000
3,500,000 Baldwin Cnty., Eastern Shore Hlth. Care Auth.
Rev. Bonds, 5 3/4s, 4/1/27 Baa3 3,570,000
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- 10,137,500
2,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 2,365,000
--------------
21,672,500
Alaska (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 AK Hsg. Fin. Auth. IFB, 8.348s, 12/1/19 (acquired
3/3/98, cost $11,113,800) (RES) AAA/P 11,425,000
AK State Hsg. Fin. Corp. Rev. Bonds
3,475,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $3,697,400) (RES) AA/P 3,753,000
11,935,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97,
cost $12,084,188) (RES) Aaa 12,352,725
--------------
27,530,725
Arizona (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Apache Cnty., Indl. Dev. Auth. Poll. Control Rev.
Bonds (Tucson Elec. Pwr. Co.), Ser. B,
5 7/8s, 3/1/33 B2 5,006,250
5,303,581 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(American West Airlines, Inc.), Ser. A 95-1,
8.3s, 1/1/06 B+/P 5,388,173
3,625,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.), Ser. B,
8 1/8s, 12/1/22 B/P 3,887,813
Scottsdale, Indl. Dev. Auth. 1st Mtge. Rev. Bonds
(Westminster Vlillage)
2,300,000 Ser. A, 8s, 6/1/11 BB-/P 2,570,250
3,150,000 Ser. B, 7.05s, 6/1/16 BB-/P 3,480,750
--------------
20,333,236
Arkansas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
Northwest Regl. Apt. Auth. Rev. Bonds
14,500,000 7 5/8s, 2/1/27 BB-/P 17,110,000
3,000,000 7s, 2/1/10 BB-/P 3,307,500
--------------
20,417,500
California (10.1%)
- --------------------------------------------------------------------------------------------------------------------------
ABAG Fin. Auth. COP (American Baptist
Homes), Ser. A
7,000,000 5.85s, 10/1/27 BBB 7,288,750
3,000,000 5 3/4s, 10/1/17 BBB 3,112,500
Anaheim, Pub. Fin. Auth. Lease Rev. Bonds,
Ser. C, FSA
3,025,000 6s, 9/1/14 Aaa 3,554,375
3,000,000 6s, 9/1/13 Aaa 3,536,250
4,000,000 6s, 9/1/11 (SEG) Aaa 4,705,000
5,000,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds (Laidlaw
Environmental), Ser. A, 6.7s, 7/1/07 B/P 5,356,250
13,700,000 CA State G.O. Bonds, 6 1/2s, 2/1/08 Aa3 16,285,875
2,800,000 Colton, Cmnty. Fac. Dist. Special Tax Bonds
(Mt. Vernon Corridor), 7 1/2s, 9/1/20 B/P 2,810,500
8,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B, 9 1/2s,
7/1/20 (acquired various dates from 10/23/92
to 5/29/97, cost $8,225,000) (RES) B-/P 9,600,000
Los Angeles, Regl. Arpt. Impt. Corp. Lease
Rev. Bonds
5,700,000 (Air Canada), 8 3/4s, 10/1/14 B1 6,597,750
5,070,000 (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 5,577,000
5,000,000 Los Angeles, Wastewater Syst. IFB, FGIC, 6.871s,
11/1/06 (acquired 11/8/93, cost $5,417,200) (RES) Aaa 5,837,500
2,000,000 Orange Cnty., Hsg. Auth. Apt. Dev. Rev. Bonds
VRDN (Village Niguel Issue), Ser. AA,
2.3s, 12/1/08 VMIG1 2,000,000
Redondo Beach, Redev. Agcy. Multi-Fam.
Hsg. Rev. Bonds (Heritage Point)
3,115,000 Ser. B, 8 1/2s, 8/1/23 BBB/P 3,313,581
5,100,000 Ser. A, 6 1/2s, 9/1/23 BBB/P 5,386,875
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.),
Ser. A, MBIA, 6 1/2s, 8/1/17 Aaa 6,100,000
21,000,000 San Bernardino Cnty., IF COP (PA-100-Med.
Ctr. Fin.), MBIA, 9.571s, 8/1/28
(acquired 6/27/95, cost $22,664,040) (RES) AAA/P 28,402,500
10,000,000 San Diego, Regl. Bldg. Auth. Lease COP,
MBIA, 6.9s, 5/1/23 Aaa 10,600,000
10,000,000 San Luis Obispo, COP (Vista Hosp. Sys. Inc.),
8 3/8s, 7/1/29 (acquired 7/28/97,
cost $10,000,000) (RES) B-/P 10,812,500
10,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 10,062,500
9,650,000 Southern CA Pub. Pwr. Auth. IFB (Transmission),
7.893s, 7/1/12 Aa3 11,254,313
19,100,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB+/P 21,129,375
10,500,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 11,340,000
Valley Hlth. Syst. Hosp. Rev. Bonds
1,500,000 6 1/2s, 5/15/25 BBB- 1,625,625
3,000,000 Ser. A, 6 1/2s, 5/15/15 BBB- 3,270,000
6,000,000 Ventura, Port. Dist. COP, 6 3/8s, 8/1/28 B/P 6,045,000
--------------
205,604,019
Colorado (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
13,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Aaa 15,697,500
CO Edl. Fac. Auth. Rev. Bonds
(Ocean Journey, Inc.)
10,000,000 8 3/8s, 12/1/26 B/P 11,900,000
5,000,000 8.3s, 12/1/17 B/P 5,943,750
CO Hsg. Fin. Auth. Rev. Bonds
8,500,000 (Single Fam.), Ser. A-2, 6.6s, 5/1/28 Aa2 9,435,000
9,500,000 Ser. C-3, FHA Insd., 5.7s, 10/1/21 Aa2 9,808,750
Denver, City & Cnty. Arpt. Rev. Bonds
17,925,000 Ser. A, 8 3/4s, 11/15/23 Baa1 20,255,250
6,475,000 Prerefunded, Ser. A, 8 3/4s, 11/15/23 Aaa 7,478,625
7,355,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 8,467,444
2,645,000 Prerefunded Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 3,054,975
11,650,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 12,844,125
1,100,000 Prerefunded, Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 1,216,875
8,000,000 Ser. D, MBIA, 7 3/4s, 11/15/13 Aaa 10,750,000
3,915,000 Ser. A, 7 1/4s, 11/15/25 AAA 4,482,675
6,350,000 Douglas Cnty., School Distr. G.O. Bonds
(North Regl. 1, Douglas & Elebert Cntys.),
MBIA, 7s, 12/15/12 Aaa 8,120,063
--------------
129,455,032
Connecticut (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,355,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 7,530,675
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba3 6,060,000
CT State Dev. Auth. Rev. Bonds (East Hills
Woods)
5,036,500 Ser. A, 7 3/4s, 11/1/17 CCC/P 5,035,845
457,428 Ser. B, zero %, 3/1/21 CCC/P 85,370
5,500,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
8.035s, 6/10/30 Aaa 6,311,250
6,500,000 CT. State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 6,979,375
--------------
32,002,515
District Of Columbia (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds
17,000,000 Ser. A, 6 3/8s, 6/1/26 AAA 19,805,000
10,000,000 Ser. A, 6s, 6/1/26 Ba1 10,562,500
7,220,000 Ser. B, MBIA, 6s, 6/1/12 Aaa 8,284,950
10,000,000 Ser. B, MBIA, 6s, 6/1/11 Aaa 11,487,500
DC Rev. Bonds (National Public Radio)
4,400,000 7.7s, 1/1/23 BB+/P 4,801,500
2,500,000 7 5/8s, 1/1/18 BB+/P 2,731,250
18,630,000 DC Rev. Bonds COP, 7.3s, 1/1/13 BB- 20,819,025
--------------
78,491,725
Florida (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
9,260,000 Brevard Cnty., Hlth. Auth. Rev. Bonds (Courtenay
Springs Village), 7 3/4s, 11/15/24 AAA/P 11,320,350
5,180,000 FL State Gen. Svcs. Rev. Bonds, 8 1/4s, 7/1/11
(acquired 9/2/98, cost $6,687,794) (RES) AAA/P 6,960,625
24,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 27,840,000
5,970,000 Hillsborough Cnty., Aviation Auth. Special
Purpose Fac. Rev. Bonds (U.S. Air Inc.),
8.6s, 1/15/22 B+ 6,678,938
1,050,000 Jacksonville, Hlth. Fac. Auth. Rev. Bonds
(Mental Hlth. Ctr.), 9 1/8s, 10/15/19 B/P 1,073,804
3,950,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 3,974,688
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals Inc.), Ser. A
3,125,000 7 3/4s, 5/1/21 BB/P 3,472,656
2,880,000 7 1/2s, 5/1/15 BB/P 3,175,200
--------------
64,496,261
Georgia (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,100,000 Cobb Cnty., Dev. Auth. Indl. Dev. Rev. Bonds
(Boise Cascade Corp.), 7s, 9/1/14 Baa3 5,673,750
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.)
8,000,000 Ser. B, 10s, 4/1/17 AAA 9,750,000
5,900,000 Ser. A, 7 1/2s, 4/1/17 AAA 6,689,125
9,500,000 Forsyth Cnty., Dev. Auth. Indl. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/05 Ba3 11,031,875
6,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds
(GA Baptist Hlth. Care Syst.), 6 3/8s, 10/1/28 B/P 5,977,500
9,200,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds, Ser. B,
FSA, 6 3/8s, 1/1/16 Aaa 10,902,000
Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.)
5,875,000 7 1/2s, 1/1/26 BB/P 6,278,906
14,035,000 7.4s, 1/1/16 BB/P 14,999,906
3,160,000 Savannah, Econ. Dev. Auth. Poll. Control Rev.
Bonds (Stone Container Corp.), 8 1/8s, 7/1/15 B/P 3,637,950
--------------
74,941,012
Hawaii (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
HI State G.O. Bonds
8,330,000 Ser. CM, FGIC, 6 1/2s, 12/1/16 Aaa 10,079,300
5,330,000 Ser. C, FGIC, 6 1/2s, 12/1/15 Aaa 6,455,963
5,000,000 Ser. C, FGIC, 6 1/2s, 12/1/14 Aaa 6,087,500
--------------
22,622,763
Illinois (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Gas Supply Rev. Bonds (Peoples Gas & Lt.),
Ser. A, 6 7/8s, 3/1/15 Aa3 5,468,750
2,080,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 2,290,600
3,000,000 East Chicago, Ind. Exempt Fac Rev. Bonds
(Ispat Inland, Inc.), 7s, 1/1/14 B1 3,037,500
4,053,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB-/P 4,083,398
IL Dev. Fin. Auth. Retirement Hsg. Rev. Bonds
5,000,000 (Regency Park-Lincolnwood), Ser. A, 10 1/4s,
4/15/19 (acquired 5/10/90,
cost $4,794,044) (In default) (NON) (RES) D/P 3,850,000
1,160,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 1,360,100
IL Dev. Fin. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.)
2,460,000 8 1/4s, 8/1/12 (acquired 8/4/92, cost
$2,460,000) (RES) BB/P 2,435,400
2,520,000 Ser. A 7 7/8s, 7/1/20 BB/P 2,866,500
4,760,000 Prerefunded Ser. A, 7 7/8s, 7/1/20 AAA/P 5,902,400
3,065,000 Ser. A, 7 1/2s, 3/1/14 BB/P 3,605,206
5,990,000 (Victor C. Neumann Associates), 7 1/4s, 7/1/18 B/P 6,057,388
835,000 Ser. A, 7 1/4s, 3/1/04 BB/P 920,588
IL Hlth. Fac. Auth. Rev. Bonds
3,000,000 (Hinsdale Hosp.), Ser. A, 7s, 11/15/19 Baa1 3,412,500
3,000,000 (Glen Oaks Med. Ctr.), Ser. B, 7s, 11/15/19 Baa1 3,412,500
5,170,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 AAA/P 6,333,250
5,000,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 Baa1 6,125,000
--------------
61,161,080
Indiana (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
East Chicago, Poll. Control Rev. Bonds
(Inland Steel Co.)
12,000,000 7 1/8s, 6/1/07 Ba3 12,705,000
14,295,000 6.8s, 6/1/13 Ba3 14,634,506
10,000,000 Fort Wayne, Hosp. Auth. Rev. Bonds
(Parkview Hlth. Syst., Inc.), MBIA,
4 3/4s, 11/15/28 Aaa 9,375,000
6,764,228 Hammond, Indl. Port Auth. COP, 9.65s, 6/1/14 BB+/P 7,215,267
8,200,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 8,282,000
4,500,000 Plainfield Indl. Econ. Dev. Rev. Bonds
(Jorgensen Steel), 8 1/2s, 9/1/04 B-/P 4,933,125
1,649,519 Westfield, Econ. Dev. Rev. Bonds (Westfield Village
Hlth. Care Ctr.), FHA Insd., 12s, 5/15/14 AAA/P 1,726,073
--------------
58,870,971
Iowa (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives)
22,000,000 9 1/4s, 7/1/25 BB/P 29,837,500
1,500,000 9.15s, 7/1/09 BB/P 1,953,750
210,000 Marion Cnty., 1st Mtge. Rev. Bonds
(AHF/Kentucky Iowa, Inc.), 10 1/4s, 1/1/20 B-/P 218,675
--------------
32,009,925
Kentucky (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
Jefferson Cnty., Hosp. IFB, MBIA
3,500,000 9.242s, 10/23/14 Aaa 4,357,500
1,500,000 6.436s, 10/23/14 AAA 1,818,750
1,235,000 Lexington-Fayette Cnty., Urban Govt. 1st Mtge.
Rev. Bonds (AHF/Kentucky Iowa, Inc.),
10 1/4s, 1/1/20 B-/P 1,286,018
--------------
7,462,268
Louisiana (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,900,000 Beauregard, Parish Rev. Bonds (Boise Cascade
Corp.), 7 3/4s, 6/1/21 Baa3 3,150,125
8,050,000 Hodge, Combined Util. Rev. Bonds
(Stone Container Corp.), 9s, 3/1/10 B/P 8,509,655
7,000,000 LA Hlth. Ed. Auth. Rev. Bonds (Lambert House),
Ser. A, 6.2s, 1/1/28 B/P 7,026,250
2,000,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,252,500
20,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 23,293,125
7,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 BB 7,490,000
6,500,000 St. Charles, Parish Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 6,874,530
St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum)
9,000,000 7 3/4s, 8/1/22 B-/P 9,877,500
19,000,000 7.7s, 12/1/14 Ba1 21,042,500
6,000,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), 8s, 12/1/24 Ba1 6,290,880
--------------
95,807,065
Maryland (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Denton, 1st Mtge. Rev. Bonds
(Shore Nursing Rehab. Ctr.), 9s, 4/1/20 B/P 2,884,375
Massachusetts (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,705,000 Agawam, Res. Recvy. Rev. Bonds
(Springfield Res. Recvy.), 8 1/2s, 12/1/08 BBB- 3,787,733
9,665,000 MA State G. O. Bonds, Ser. 25, 8.22s, 11/1/11
(acquired 8/13/98, cost $11,928,754) (RES) Aa3 13,023,588
MA State Dev. Fin. Agcy. Rev. Bonds
4,210,000 (Alden Place), 6 3/4s, 7/1/30 B/P 4,225,788
6,110,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 6,132,913
MA State Hlth. & Edl. Fac. Auth. IFB
5,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.87s, 8/12/21 Aaa 5,931,250
2,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
9.852s, 10/1/31 Aaa 2,382,500
5,600,000 (Boston U.), Ser. L, MBIA, 8.674s, 7/1/25 Aaa 6,468,000
3,325,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa3 3,690,750
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 4,485,000
30,635,000 Ser. A, 9s, 7/1/15 BB-/P 34,234,613
MA State Indl. Fin. Agcy. Rev. Bonds
1,700,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 1,800,861
5,700,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 6,038,181
8,800,000 (Orchard Cove Inc.), U. S. Govt. Coll.,
9s, 5/1/22 AAA/P 10,472,000
2,295,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,547,450
1,995,000 (Morton Hosp. & Med. Ctr.), Ser. A,
U.S. Govt. Coll., 8 3/4s, 7/1/11 Aaa 2,071,309
3,000,000 (Emerson College), 8 1/4s, 1/1/17 BBB-/P 3,270,000
5,000,000 (Evanswood Bethzatha Corp.), 8s, 1/15/27 B/P 5,356,250
3,500,000 (1st Mtge. Evanswood Bethzatha-A),
7 7/8s, 1/15/20 B/P 3,784,375
2,065,000 (Sr. Living Fac. Forge Hill), 7s, 4/1/17 B/P 2,085,650
5,000,000 MA State Special Oblig. Rev. Bonds, Ser. A,
5 3/8s, 6/1/11 Aa3 5,468,750
3,880,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB-/P 4,471,700
--------------
131,728,661
Michigan (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,495,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 (SEG) B+/P 2,561,292
Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A
20,170,000 9 1/2s, 5/1/21 BBB+/P 24,632,613
4,100,000 5 1/2s, 5/1/21 BB- 4,069,250
Garden Cty, Hosp. Fin. Auth. Rev. Bonds
3,000,000 (Garden City Hosp.), Ser. A, 5 3/4s, 9/1/17 BBB-/P 3,000,000
3,000,000 (Garden City Hosp. OB Group), Ser. A,
5 5/8s, 9/1/10 BBB-/P 2,996,250
3,435,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.), 8.3s, 9/1/02 Ba3 3,847,200
7,500,000 MI State Strategic Fund Ltd. Oblig. IFB, 9.210,
9/1/25 (acquired 3/9/98, cost $9,018,750) (RES) Aaa 9,412,500
5,700,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 6,170,250
7,500,000 MI State Strategic Fund Resource Recvy. Ltd.
Oblig. Rev. Bonds (Central Wayne Energy Rec.),
Ser. A, 7s, 7/1/27 B/P 7,631,250
26,955,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 29,077,706
5,600,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39
(acquired 12/31/98, cost $5,600,000) (RES) B-/P 5,208,000
--------------
98,606,311
Minnesota (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,850,000 Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 3,087,918
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp.), 7.2s, 10/1/24 Baa3 5,631,250
2,200,000 Minneapolis Rev. Bonds (Walker Methodist
Sr. Svcs.), Ser. A, 6s, 11/15/28 BB-/P 2,246,750
6,675,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 7,125,563
3,200,000 Shakopee Multi-Fam. Adj. Rate Rev. Bonds
(Riva Ridge Apts.), 8 1/2s, 12/1/08 B-/P 3,200,000
--------------
21,291,481
Mississippi (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,985,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. A, 9 1/2s, 12/1/13 Ba1 8,315,339
Montana (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
13,850,000 MT State Hlth. Fac. Auth. Hosp. Fac. IFB, AMBAC,
7.003s, 2/25/25 Aaa 14,473,250
Nebraska (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B/P 4,912,500
2,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.487s, 11/15/16 Aaa 2,390,000
12,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. D, GNMA Coll., 7.971s, 3/1/26 Aaa 13,809,125
--------------
21,111,625
New Hampshire (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,765,000 (Havenwood-Heritage Heights), U. S. Govt.
Coll., 9 3/4s, 12/1/19 AAA/P 2,995,960
2,325,000 (Franklin Regl. Hosp.), 8 3/4s, 9/1/19 BBB/P 2,502,281
9,000,000 (1st Mtge.- Rivermead Peterborough),
8 1/2s, 7/1/24 AAA/P 10,991,250
5,900,000 (Havenwood-Heritage Heights), 7.35s, 1/1/18 BB/P 6,585,875
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 3,007,500
4,100,000 (Lakes Region Hosp.), 5 3/4s, 1/1/08 A-/P 4,269,125
9,200,000 NH State Bus. Fin. Auth. Poll. Control & Solid
Waste Rev. Bonds (Crown Paper Co.),
7 3/4s, 1/1/22 BB- 9,303,500
12,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 Ba3 12,300,000
3,550,000 NH State Bus. Fin. Auth. Rev. Bonds
(Proctor Academy), Ser. A, 5.6s, 6/1/28 Baa2 3,563,313
--------------
55,518,804
New Jersey (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Camden Cnty., Impt. Auth. Rev. Bonds, 8.4s, 4/1/24
(acquired 4/12/94, cost $5,000,000) (RES) B/P 5,581,250
NJ Econ. Dev. Auth. Rev. Bonds
7,000,000 (Winchester Gardens), Ser. A, 8 5/8s, 11/1/25 B/P 8,085,000
12,000,000 (Newark Arpt. Marriot Hotel), 7s, 10/1/14 BBB/P 13,485,000
5,000,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 5,443,750
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB, Ser. I, 9.467s,
11/1/07 (acquired 2/11/93, cost $4,143,120) (RES) A+/P 4,510,000
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 12,137,500
5,905,000 NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment), Ser. C, 6 7/8s, 6/15/08 Aa2 7,211,481
4,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds,
8.841s, 10/1/29 (acquired 10/28/94,
cost $3,787,355) (RES) Aaa 5,120,000
--------------
61,573,981
New Mexico (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
9,000,000 Farmington, Poll. Control Rev. Bonds (Tucson Elec.
Pwr Co. San Juan), Ser. A, 6.95s, 10/1/20 B2 10,091,250
New York (10.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 Colonie, Indl. Dev. Agcy. Rev. Bonds (Cap.
Compost & Waste), Ser. A, 6 3/4s, 6/1/21 B/P 3,408,500
7,000,000 Erie Cnty., Indl. Dev. Life Care Cmnty. Rev. Bonds
(Episcopal Church Home), Ser. A, 6s, 2/1/28 B+/P 7,087,500
Metropolitan Trans. Auth. Fac. Rev. Bonds
13,640,000 Ser. A, MBIA, 6 1/4s, 4/1/12 Aaa 16,368,000
5,000,000 Ser. B-1, AMBAC, 5 1/2s, 7/1/08 Aaa 5,581,250
Metropolitan Trans. Auth. Svcs. Contract Fac.
Rev. Bonds
4,000,000 (Commuter Fac.), Ser. O, 5 3/4s, 7/1/13 Baa1 4,495,000
8,250,000 (Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 Baa1 9,270,938
1,100,000 Monroe Cnty., Indl. Dev. Auth. VRDN
(Canal Ponds), Ser. D, 2 1/2s, 6/15/16 VMIG1 1,100,000
5,000,000 Muni. Assistance Corp. IFB, Ser. 337B, 8.2s, 7/1/08
(acquired 3/19/98, cost $6,225,000) (RES) AA/P 6,525,000
95,000 Niagara Cnty., Indl. Dev. Agcy. Solid Waste Disp.
VRDN (American Fuel Co.), 2.55s, 11/15/24 A-1+ 95,000
7,000,000 NY & NJ Port Auth. Rev. Bonds
(Delta Airlines, Inc.), Ser. 1R, 6.95s, 6/1/08 Baa3 7,647,500
10,000,000 NY City, G.O. Bonds, Ser. L, 8s, 8/1/03 A3 11,700,000
2,200,000 NY City, Hsg. Dev. Corp. Mtge. VRDN (Multi-Fam.
James Twr. Dev.), Ser. A, 2.45s, 7/1/05 A-1+ 2,200,000
NY City, Indl. Dev. Agcy. Rev. Bonds
1,000,000 (Visy Paper Inc.), 7.95s, 1/1/28 B/P 1,125,000
9,000,000 (Paper Inc.), 7.8s, 1/1/16 B/P 10,102,500
4,000,000 (Field Hotel Assoc.), 6s, 11/1/28 B-/P 4,050,000
5,000,000 NY City, Muni. Assistance Corp. Rev. Bonds
(PA 337A), 8.2s, 7/1/07 (acquired 3/19/98,
cost $6,169,900) (RES) AA/P 6,425,000
6,280,000 NY City, Rev. Bonds, 6s, 8/1/06
(acquired 9/12/97, cost $7,384,526) (RES) AAA/P 7,944,200
10,750,000 NY State Dorm. Auth. IFB, MBIA, 7.2s, 7/1/13
(acquired 10/22/97, cost $12,274,974) (RES) AAA/P 13,719,688
NY State Dorm. Auth. Rev. Bonds
7,200,000 (State Ed. Fac.), Ser. A, FGIC, 5 7/8s, 5/15/11 Aaa 8,307,000
7,000,000 (Cons. City U.), Ser. A, AMBAC, 5 3/4s, 7/1/09 Aaa 7,953,750
8,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
IFB, FGIC, 8.671s, 7/1/29 (acquired 12/19/94,
cost $8,353,120) (RES) Aaa 10,650,000
NY State Env. Fac. Corp. Poll. Control Rev. Bonds
11,185,000 (PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $13,279,273) (RES) Aaa 14,973,919
5,000,000 Ser. E, MBIA, 6s, 6/15/11 Aaa 5,837,500
12,590,000 NY State, G.O. Bonds, 6s, 3/1/07 A2 14,352,600
NY State Local Govt. Assistance Corp. VRDN
1,900,000 Ser. E, 2 1/2s, 4/1/25 VMIG1 1,900,000
1,500,000 Ser. F, 2.35s, 4/1/25 VMIG1 1,500,000
5,500,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 6,400,625
9,750,000 NY State Pwr. Auth. Rev. Bonds, Ser. Z,
6 1/2s, 1/1/19 Aa2 10,725,000
7,000,000 NY State Urban Dev. Corp. Rev. Bonds,
7 1/2s, 4/1/20 Aaa 7,735,000
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 5,106,250
3,000,000 Port Auth. NY & NJ Rev. Bonds Cons., Ser. 78,
MBIA, 4 3/4s, 1/1/24 Aaa 2,902,500
--------------
217,189,220
North Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B
4,000,000 MBIA, 7s, 1/1/08 Aaa 4,840,000
14,940,000 MBIA, 6 1/8s, 1/1/09 Aaa 17,218,350
7,500,000 NC Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.), MBIA, 6s, 1/1/11 Aaa 8,681,250
--------------
30,739,600
Ohio (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,150,000 OH State Solid Waste Rev. Bonds, (CSC Ltd.)
8 1/2s, 8/1/22 B-/P 6,503,625
Oklahoma (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Ottawa Cnty., Fin. Auth. Indl. Rev. Bonds
(Doane Prods Co.), 7 1/4s, 6/1/17 A+/P 6,360,000
6,475,000 Tulsa, Indl. Auth. Rev. Bonds (U. of Tulsa), Ser. A,
MBIA, 6s, 10/1/11 Aaa 7,608,125
--------------
13,968,125
Pennsylvania (5.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,700,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(UPMC Hlth. Syst.), Ser. B, 6s, 7/1/25 Aaa 10,113,750
Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
Rev. Bonds
1,330,000 (U.S. Air, Inc.), Ser. A, 8 7/8s, 3/1/21 B+ 1,484,613
1,345,000 (Southwestern Arpt. Cargo Fac.), 8 3/4s, 2/15/09 BB+/P 1,373,487
5,035,000 (U.S. Air, Inc.), Ser. B, 8 1/2s, 3/1/21 B+ 5,551,088
12,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 12,703,125
5,300,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (United Hosp. Inc.),
Ser. A, 8 3/8s, 11/1/11 AAA 5,613,495
2,300,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
VRDN (Philadephia Presbytery), 2.85s, 7/1/25 VMIG1 2,300,000
5,370,000 PA Convention Ctr. Auth. Rev. Bonds, Ser. A,
FSA, 6 3/4s, 9/1/19 Aaa 6,128,513
PA Econ. Dev. Fin. Auth. Qualified Res.
Properties Rev. Bonds
4,400,000 (RSI Properties/Buttler LLC), Ser. A, 8s, 9/1/27 B-/P 4,532,000
3,500,000 (RSI Properties/Greensburg LLC,) Ser. B,
8s, 9/1/27 B-/P 3,605,000
7,250,000 PA Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Northampton Generating),
Ser. A, 6.6s, 1/1/19 BBB- 7,712,188
4,800,000 PA Hsg. Fin. Agcy. IFB, 8.577s, 4/1/25 AA+ 5,310,000
PA State Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds
13,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 15,031,250
6,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 6,828,125
PA State Higher Ed. Assistance Agcy. Student Loan
2,500,000 IFB, AMBAC, 10.128s, 9/1/26 Aaa 2,859,375
8,900,000 Rev. Bonds, Ser. A&B, 7 1/4s, 7/1/18
(acquired various dates from 4/22/96
to 3/18/98, cost $9,083,961) (In default) (NON) (RES) CCC 2,937,000
5,300,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. C,
8 5/8s, 11/15/16 Aaa 6,128,125
4,760,000 Philadelphia, Wtr. & Wastewtr. Rev. Bonds, FGIC,
10s, 6/15/05 Aaa 6,271,300
Pottsville Hosp. Auth. Rev. Bonds
(Pottsville Hosp.& Warne Clinic)
2,000,000 7 1/4s, 7/1/24 BBB 2,367,500
4,000,000 7s, 7/1/14 BBB 4,685,000
--------------
113,534,934
Puerto Rico (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,305,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Z, MBIA, 6 1/4s, 7/1/12 Aaa 3,986,656
4,000,000 Cmnwlth. of PR, IFB, MBIA, 7.884s, 7/1/08 Aaa 4,625,000
7,000,000 Cmnwlth. of PR, Pub. Bldg. Auth. Gtd. Ed. & Hlth.
Fac. Rev. Bonds, Ser. M, AMBAC, 5 3/4s, 7/1/10 Aaa 8,041,250
PR Elec. Pwr. Auth. Rev. Bonds
2,000,000 Ser. BB, MBIA, 6 1/4s, 7/1/10 Aaa 2,387,500
7,000,000 Ser. AA, MBIA, 6s, 7/1/12 Aaa 8,268,750
--------------
27,309,156
South Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,610,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds
(Stone Container Corp.), 7 3/8s, 2/1/07 B+/P 13,524,225
10,355,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 11,286,950
5,000,000 Spartanburg Cnty., Hosp. Fac. IFB, FSA,
8.695s, 4/13/22 Aaa 6,062,500
--------------
30,873,675
Tennessee (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 McMinn Cnty., Indl. Dev. Brd. Poll. Control Rev.
Bonds (Newsprint Co.), 7 5/8s, 3/1/16 Baa1 8,090,625
Texas (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Abilene, Health Fac. Dev. Corp. Rev. Bonds
(Sears Methodist Retirement), Ser. A, 5.9s,
11/15/25 BB+/P 3,495,625
5,040,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa1 5,411,700
5,000,000 Amarillo, Hlth. Fac. Corp. Rev. Bonds
(Sears Panhandle Retirement), Ser. B, 7 3/4s,
8/15/26 AAA 6,243,750
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
635,000 Ser. B, 10s, 3/1/19 CCC2/P 160,338
3,765,000 Ser. A, 9 1/2s, 3/1/19 CCC2/P 3,854,419
5,455,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 6,573,275
10,000,000 Dallas Cnty., G.O. Bonds, (Flood Control
Dist. #1), stepped coupon, zero %,
(8.5s, 10/1/99), 4/1/16 (STP) BB-/P 11,437,500
Harris Cnty., Hsg. Fin. Corp. Dev. Bonds
605,000 Ser. 1983A, 10 3/8s, 7/15/14 BBB 606,652
435,000 9 7/8s, 3/15/14 BB 437,014
9,280,000 Harris Cnty., Hlth. Fac. Rev. Bonds
(Hermann Mem. Hosp. Syst.), 5 1/2s, 6/1/13 Aaa 10,254,400
15,000,000 Houston, City G.O. Bonds, Ser. C, 7s, 3/1/08 Aa3 18,337,500
10,000,000 Houston, Indpt. School Dist., Ltd. G. O. Bonds,
Ser. A, PSF, 4 3/4s, 2/15/26 Aaa 9,600,000
3,000,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds
(Mem. Hlth. Syst. of East TX), 5.7s, 2/15/28 BBB 3,041,250
5,135,000 San Antonio Indept. School Dist. G.O. Bonds,
PSFG, 6s, 8/15/09 Aaa 5,847,481
8,000,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 10.119s, 7/2/24 AAA 10,420,000
--------------
95,720,904
Utah (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
MBIA, 6 1/4s, 2/15/23 Aaa 5,406,250
5,500,000 Tooele Cnty., Poll. Control Rev. Bonds (Laidlaw
Environmental), Ser. A, 7.55s, 7/1/27 B/P 6,153,125
--------------
11,559,375
Virginia (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 9.773s, 8/15/23 Aaa 5,371,875
2,000,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 8.025s, 8/23/27 Aaa 2,650,000
10,435,000 Hopewell, Indl. Dev. Rev. Bonds
(Stone Container Corp.), 8 1/4s, 6/1/16 B/P 11,608,938
9,010,000 Suffolk, Redev. & Hsg. Auth. Rev. Bonds
(Beach-Oxford Apts.), 6 1/4s, 10/1/33 B+/P 9,223,988
--------------
28,854,801
Washington (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Spokane Cnty., Indl. Dev. Corp. Solid Waste Disp.
Rev Bonds (Kiaser Alummin. & Chemical
Corp.), 7.6s, 3/1/27 B-/P 3,885,000
8,200,000 WA State Hsg. Fin. Comm. Single Fam. Mtge. IFB,
GNMA Coll., 10.555s, 12/1/17 (acquired
4/12/95, cost $9,225,000) (RES) AAA/P 8,503,236
2,600,000 WA State Hsg. Fin. Comm. Multi-Fam. Rev. Bonds
(Clare House Apts.), Ser. A, 5 3/4s, 7/1/30 Aa3 2,661,750
WA State Pub. Pwr. Supply Syst. Rev Bonds
5,000,000 (Nuclear No. 3) Ser. C, MBIA, 7 1/2s, 7/1/08 Aaa 6,350,000
5,000,000 (Nuclear No. 3) Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 6,375,000
9,690,000 (Nuclear No. 2) Ser. A, FSA, 6s, 7/1/09 Aaa 11,216,175
5,500,000 Washington Cnty., Hsg. & Redev. Auth. Rev. Bonds
(Healtheast), 5 1/2s, 11/15/27 BBB 4,984,364
--------------
43,975,525
West Virginia (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Weirton, Poll. Control Rev. Bonds
(Weirton Steel Corp.), 8 5/8s, 11/1/14 B2 4,875,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,851,717,411) (b) $2,011,668,239
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,032,363,523.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
January 31, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at January 31, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,851,717,411, resulting in gross unrealized appreciation and
depreciation of $172,394,876 and $12,444,048, respectively, or net unrealized appreciation of $159,950,828.
(NON) Non-income-producing security.
(STP) The interest and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at January 31, 1999 was $209,962,631 or 10.3% of net assets.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at January 31, 1999.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes
in the market interest rates, and VRDN's are the current interest rates at January 31, 1999.
The fund had the following industry group concentrations greater than 10% at January 31, 1999 (as a percentage
of net assets):
Health care 24.9%
Utilities 10.8
Transportation 10.5
The fund had the following insurance concentration greater than 10% at January 31, 1999 (as a percentage of
net assets):
MBIA 12.3%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Muni Bond Index (short) $8,112,000 $7,922,768 Mar-99 $(189,232)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,851,717,411) (Note 1) $2,011,668,239
- -----------------------------------------------------------------------------------------------
Interest and other receivables 30,295,350
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,702,975
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 10,163,532
- -----------------------------------------------------------------------------------------------
Total assets 2,053,830,096
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 16,000
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,859,584
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,819,627
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 9,502,611
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,158,430
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 922,800
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 172,354
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 31,049
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,521
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 874,947
- -----------------------------------------------------------------------------------------------
Other accrued expenses 107,650
- -----------------------------------------------------------------------------------------------
Total liabilities 21,466,573
- -----------------------------------------------------------------------------------------------
Net assets $2,032,363,523
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,970,857,661
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 515,470
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (98,771,204)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 159,761,596
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,032,363,523
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,072,793,134 divided by 72,800,206 shares) $14.74
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $14.74)* $15.48
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($937,192,915 divided by 63,572,209 shares)** $14.74
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($22,377,474 divided by 1,518,919 shares) $14.73
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $14.73)*** $15.22
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $64,359,945
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,448,323
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 899,801
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,383
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,314
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,008,594
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,603,816
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 50,016
- -----------------------------------------------------------------------------------------------
Reports to shareholders 73,676
- -----------------------------------------------------------------------------------------------
Registration fees 2,839
- -----------------------------------------------------------------------------------------------
Auditing 27,979
- -----------------------------------------------------------------------------------------------
Legal 5,216
- -----------------------------------------------------------------------------------------------
Postage 51,970
- -----------------------------------------------------------------------------------------------
Other 469,992
- -----------------------------------------------------------------------------------------------
Total expenses 11,668,919
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (72,648)
- -----------------------------------------------------------------------------------------------
Net expenses 11,596,271
- -----------------------------------------------------------------------------------------------
Net investment income 52,763,674
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,630,155
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,898,517)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 17,394,674
- -----------------------------------------------------------------------------------------------
Net gain on investments 17,126,312
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $69,889,986
- -----------------------------------------------------------------------------------------------
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
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 52,763,674 $ 104,808,064
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (268,362) (49,096,836)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 17,394,674 56,405,435
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 69,889,986 112,116,663
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (27,561,009) (36,129,110)
- ---------------------------------------------------------------------------------------------------------------
Class B (24,626,676) (67,180,332)
- ---------------------------------------------------------------------------------------------------------------
Class M (512,287) (949,710)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 9,517,060 (71,360,253)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 26,707,074 (63,502,742)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 2,005,656,449 2,069,159,191
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $515,470 and $451,768, respectively) $2,032,363,523 $2,005,656,449
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Sept. 20, 1993+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.61 $14.56 $14.05 $14.14 $14.24 $15.34
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40(c) .80(c) .84 .90 .94 .83
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 .06 .52 (.10) (.10) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .53 .86 1.36 .80 .84 (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.81) (.85) (.89) (.94) (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
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 (.40) (.81) (.85) (.89) (.94) (.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.74 $14.61 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.71* 6.08 9.97 5.76 6.24 (.99)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,072,793 $934,747 $625,602 $540,607 $474,984 $361,593
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .45* .88 .85 .84 .87 .71*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.75* 5.60 5.94 6.27 6.73 5.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.12* 39.62 56.22 67.70 60.41 44.41
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2)
(c) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.62 $14.56 $14.05 $14.14 $14.24 $15.01
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36(c) .73(c) .75 .80 .85 .86
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 .05 .51 (.09) (.10) (.65)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49 .78 1.26 .71 .75 .21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.72) (.75) (.80) (.85) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investment -- -- -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37) (.72) (.75) (.80) (.85) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.74 $14.62 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.38* 5.47 9.26 5.08 5.54 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $937,193 $1,052,827 $1,427,365 $1,421,448 $1,436,481 $1,522,955
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .70* 1.53 1.50 1.50 1.51 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.48* 4.95 5.30 5.62 6.10 5.76
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.12* 39.62 56.22 67.70 60.41 44.41
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2)
(c) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 29, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.61 $14.55 $14.04 $14.13 $13.43
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .38(c) .78(c) .80 .84 .58
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .12 .05 .51 (.08) .70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .50 .83 1.31 .76 1.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investment -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.73 $14.61 $14.55 $14.04 $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.48* 5.84 9.64 5.44 9.69*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,377 $18,082 $16,192 $9,984 $2,331
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.18 1.15 1.13 .71*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.60* 5.30 5.63 5.87 3.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.12* 39.62 56.22 67.70 60.41
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2)
(c) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
</TABLE>
Notes to financial statements
January 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Tax-Free High Yield Fund (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. Effective February 1,
1999, the fund began offering Class C 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. Short-term
investments are stated at amortized cost, which approximates market value,
and restricted securities are stated at fair value following procedures
approved by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by dealers.
D) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended January 31, 1999, the fund had no borrowings against the line of
credit.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
It is also the intention of the fund to distribute an amount sufficient to
avoid imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has been made
for federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At July 31, 1998, the fund had a capital loss carryover of approximately
$58,227,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- -------------
$24,429,000 July 31, 2003
$12,477,000 July 31, 2004
$21,321,000 July 31, 2006
F) 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 at least annually. The
amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
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.
H) 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,
original issue discount bonds and stepped-coupon bonds are accreted
according to the yield-to-maturity basis.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the 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% thereafter.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of
the fund to the extent permitted by the fund's investment restrictions to
cover any advances made by the subcustodian bank for the settlement of
securities purchased by the fund. At January 31, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 1999, fund expenses were reduced by
$72,648 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,330
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
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 to an annual
rate of 0.20%, 0.70% 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, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $53,518 and $3,804 from
the sale of class A and class M shares, respectively and $656,933 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, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $21,734 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$128,666,039 and $121,812,034, 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, 1999 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 12,678,731 $185,793,496
- -----------------------------------------------------------------------------
Shares issued in
with reinvestment
of distributions 971,934 14,245,184
- -----------------------------------------------------------------------------
13,650,665 200,038,680
Shares
repurchased (4,836,996) (70,878,076)
- -----------------------------------------------------------------------------
Net increase 8,813,669 $129,160,604
- -----------------------------------------------------------------------------
Year ended
July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 28,069,998 $409,772,052
- -----------------------------------------------------------------------------
Shares issued in
with reinvestment
of distributions 1,246,975 18,208,766
- -----------------------------------------------------------------------------
29,316,973 427,980,818
Shares
repurchased (8,309,305) (120,936,185)
- -----------------------------------------------------------------------------
Net increase 21,007,668 $307,044,633
- -----------------------------------------------------------------------------
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,544,890 $ 66,745,970
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 780,624 11,451,407
- -----------------------------------------------------------------------------
5,325,514 78,197,377
Shares
repurchased (13,762,142) (201,961,548)
- -----------------------------------------------------------------------------
Net decrease (8,436,628) $(123,764,171)
- -----------------------------------------------------------------------------
Year ended
July 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,108,105 $ 147,435,626
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,129,373 31,112,941
- -----------------------------------------------------------------------------
12,237,478 178,548,567
Shares
repurchased (38,248,975) (558,756,204)
- -----------------------------------------------------------------------------
Net decrease (26,011,497) $(380,207,637)
- -----------------------------------------------------------------------------
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 388,137 $5,686,033
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 20,128 295,032
- -----------------------------------------------------------------------------
408,265 5,981,065
Shares
repurchased (126,987) (1,860,438)
- -----------------------------------------------------------------------------
Net increase 281,278 $4,120,627
- -----------------------------------------------------------------------------
Year ended
July 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 414,110 $ 6,023,344
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 42,097 614,641
- -----------------------------------------------------------------------------
456,207 6,637,985
Shares
repurchased (331,509) (4,835,234)
- -----------------------------------------------------------------------------
Net increase 124,698 $ 1,802,751
- -----------------------------------------------------------------------------
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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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
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